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pww.comWal-Mart Stores Inc., Q4 2007 Earnings Call, Feb-20-2007 - NYSE:WMT

NYSE:WMT

** Summary of Executives' Speeches**

Carol Schumacher (Investor Relations)

  • Agenda Overview: Provided an overview of the call, introducing the speakers and the topics they would cover.
  • Key Points:
    • Lee Scott will provide an overall assessment of the company's performance and direction for the new fiscal year.
    • Tom Schoewe will detail the consolidated numbers for Q4 and FY 2007 and provide the outlook for Q1 FY 2008.
    • Charles Holley will cover the details on Wal-Mart U.S. and SAM'S CLUB.
    • Mike Duke will discuss international operations.

Lee Scott (President and CEO)

  • Performance Highlights:
    • Wal-Mart closed FY 2007 with record sales and earnings.
    • Net sales for FY 2007 were just shy of $345 billion, a 11.7% increase over FY 2006.
    • Income from continuing operations increased by 6.7%.
    • Q4 net sales increased by 10.9%, and income from continuing operations increased by 8.8%.
    • Earnings per share (EPS) for Q4 were $0.95, bringing the annual EPS to $2.92, up 7.4%.
  • Global Performance:
    • Strong performances worldwide, especially in Mexico, Canada, and the UK.
    • SAM'S CLUB grew operating income faster than sales for the sixth consecutive quarter.
    • Wal-Mart U.S. increased operating profits by 11.3% in Q4, well above the 6.7% sales increase.
    • Improved labor productivity and inventory management in the U.S.
  • Strategic Focus:
    • Emphasis on margin and inventory management.
    • Expansion in international markets, particularly in emerging markets like India and China.
    • Continued commitment to sustainability and diversity initiatives.
  • Future Outlook:
    • Excited about the future, especially for Wal-Mart U.S.
    • Strategic plan guiding U.S. stores, focusing on top-line sales growth and customer initiatives.

Tom Schoewe (Executive Vice President and CFO)

  • Financial Highlights:
    • Q4 net sales increased by 10.9%, with a U.S. comp store sales increase of 1.6%.
    • Income from continuing operations increased by 8.8%, with EPS of $0.95, a 9% increase from the previous year.
    • FY 2007 net sales were $345 billion, up 11.7%.
    • Net income from continuing operations was $12.2 billion, up 6.7%.
    • EPS for the full fiscal year was $2.92, up 7.4%.
    • Total U.S. comp store sales for the fiscal year were up 2.1%.
  • Detailed Financials:
    • Consolidated gross margin up 30 basis points, driven by the international segment.
    • Operating expenses as a percentage of sales up 47 basis points.
    • Inventories up 5.6% against a 11.7% sales increase.
    • Membership and other income up 18%.
    • Net interest expense up 7%.
    • Tax rate for the quarter was 32.5%, with a $98 million benefit from tax matters.
    • Payables as a percentage of inventories increased to 83.4%.
    • Stock repurchase of $1.7 billion, with $4 billion remaining under the current program.
  • Capital Spending:
    • Capital spending of $15.7 billion, an 8% increase from the previous year.
    • Reduction in capital spending due to timing changes in international projects and savings in logistics and systems.
    • Expect CapEx to be lower than sales growth in FY 2008.
  • Guidance:
    • Expected U.S. comp store sales to increase 1% to 3% in Q1 FY 2008.
    • EPS from continuing operations for Q1 FY 2008 expected to be between $0.68 and $0.71.
    • Full-year EPS from continuing operations expected to be between $3.15 and $3.23.

Charles Holley (Executive Vice President of Finance and Treasurer)

  • Wal-Mart U.S. Performance:
    • Operating profit increased by 11.3%, well above the 6.7% sales increase for Q4.
    • Apparel and home sales were softer than desired.
    • Labor productivity continued to strengthen, driven by scheduling systems, store accounting office changes, and the elimination of layaway.
    • FY 2007 operating profit increased by 11.1% on a 7.8% sales increase.
    • Inventory increased slightly less than 2% on a 7.8% sales increase.
    • Return on investment (ROI) increased, reversing the downward trend.
  • Q4 Details:
    • Comp store sales up 1.3%, driven by an increase in average ticket, with slight customer traffic decline.
    • Strong sales in entertainment, food, and pharmacy areas.
    • Gross margin increased by 8 basis points.
    • Expenses as a percentage of sales down 25 basis points.
    • Strong performance in financial services.
  • Remodeling and Projects:
    • Completed almost 1,300 special projects and 322 full remodels in FY 2007.
    • Projected to complete 325 remodels in FY 2008.
  • SAM'S CLUB Results:
    • Total sales grew by 4.4% for Q4 and 4.5% for the year.
    • Comp sales increased 3.1% during Q4 and 2.9% for the year, excluding fuel.
    • Operating income increased 15.4% for Q4 and 9.2% for the year.
    • Inventory levels grew faster than sales, primarily due to electronics and spring seasonal merchandise.
    • Added six new clubs and relocated or expanded five clubs.
    • Focused on growing operating income faster than sales and aligning inventory levels with targeted growth rates.

Mike Duke (Vice Chairman Responsible for International)

  • International Performance:
    • Q4 sales from continuing operations were $22.7 billion, up 29.6%.
    • FY 2007 sales were $77.1 billion, up 30.2%.
    • Operating income for Q4 was $1.5 billion, up 32%.
    • FY 2007 operating income was $4.2 billion, up 21.5%.
  • Regional Highlights:
    • Mexico: Strongest performance, with real comp store sales up 7.1% in Q4 and 5.9% for the year.
    • Canada: Positive results in food, consumables, electronics, and infants.
    • U.K. (ASDA): Turnaround year, with positive comp sales growth and increased market share.
    • Brazil: Comps in the upper single-digits for Q4.
    • Argentina: Strong double-digit sales increase in Q4.
    • China: Comps grew in the high single-digits for Q4.
    • Japan: First positive comp sales in 15 years, with supply chain efficiencies.
  • Acquisitions:
    • Positive results from acquisitions in southern Brazil and Central America.
    • Integration efforts ongoing, with strong regional focus and synergy realization.
  • Future Focus:

    • Accelerating presence in high-growth markets.

    • Focusing on comp sales and operating income growth in existing stores.

    • Investing in customer and market research.

    • Leveraging Wal-Mart's strengths in procurement, technology, and infrastructure.

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