Wal-Mart Financials

Introduction

Wal-Mart may be one of the most recognizable establishments in America. Indeed, one has to come across an American who is not familiar with the chain of retail stores. It is consist of thousands of retail stores, selling items at a discount to consumers. Since its inception in 1962, the company has grown exponentially, in terms of sales and brick and mortar branches put up across 50 states of the USA and even in Puerto Rico. The company also has branches (under other names) in the UK, Mexico, Japan and India.

As of January 31, 2010, according to the company’s annual report, the company is a $171 billion enterprise with $450 billion annual gross revenues. With such staggering numbers come larger responsibilities to one’s shareholders. Wal-Mart, being a publicly traded corporation has a duty to increase shareholder’s wealth on an annual basis. This paper shall discuss how Wal-Mart has pleased or displeased its shareholders over the p of three years.

At first glance, it appears that such numbers are overwhelmingly good. Over the years, the company has been doing well. The increase in a corporation’s net income can be attributable to three factors: increase in revenue and/or decrease in expenses or both. For Wal-Mart, Net sales increased by 1% from 2009-2010, and by 7.3% from 2008-2009 (2010 Annual Report, p.15). This increase, though small still remains an addition to income, however, management should delve deeper as this may be a cause of concern.

According to My Hot Topics (2010), this increase is the lowest net sales increase for Wal-Mart in company history. It is noteworthy to point out that Wal-Mart (USA) sales’ have actually fluctuated by 0.7% in 2010 as compared 2009, while it has posted an increase of 3.5% from 2008 to 2009 (2010 Annual Report, p.15). Sam’s Club is not faring any better, with net sales declining by 0.7% from 2009 going to 2010 as compared to the posted 3.2% increase from 2008 to 2009 (2010 Annual Report, p.15). The posted 1% increase in consolidated Net Sales came from Wal-Mart operations out of the USA.

In 2010, Wal-Mart opened 52 new stores as opposed to 106 new stores opened in 2009 and 154 stores established in 2007 (My Hot Topics 2010). The company admits that by expanding by opening new stores, the company, in effect, is in competition with itself as it is “cannibalizing” sales of nearby Wal-Mart establishments. As such, it is opening less and less stores over the years and focusing instead on making the current stores better. Another growing concern of management is the demand of the consumer. Perhaps, given the recession the USA is in, consumers are willing to spend less and less every time they visit as opposed to previous years.

One segment that can alleviate the investors’ concern regarding this Net Sales issue is the increase of the company’s gross profit margin to 24.8% from 2009 to 2010 as opposed to 24.2% from 2008 to 2009 (2010 Annual Report, p.15). This only means that despite the incredibly minimal increase in net sales, the company has found a way to decrease its cost of sales that it still allows for a noticeable increase in gross profit.

In 2010, the company’s advertising expenses grew by 14%, with total operating expenses growing by 2.7% compared to 2009 (2010 Annual Report, p.18). The company attributes the growth to higher costs of health care, restructuring charges and the aforementioned advertising expense (2010 Annual Report, p.18). Given today’s recession, it may not have been wise to spend so much money on advertising, as no matter how glossy the adverts are, if the consumers have no money to spend in retail stores, there is no point to incessant nags on TV.

Products, though deeply discounted, are considered luxury, if not really essential to one’s living. The good news about increased operating expenses is that, it provides a tax shield as it is deductible from taxable income and this offset may just have caused Wal-Mart’s increase in net income from 2010.

Given the company’s growth rate, its lease commitments for 300+ future locations can be found questionable by its stockholders as such contracts is equivalent to 17 years’ worth of growth (My Hot Topics, 2010)

Conclusion
At the outset, numbers can be misleading. Despite Wal-Mart’s promising figures are numerous “issues” that can mar shareholders’ confidence on the stability of the company. Wal-Mart is almost a two hundred billion dollar corporation; hopefully they can fix the qualitative aspects of their financials and not just the quantitative part.

References:
Wal-Mart. 2010 Annual Report. Retrieved 2 August 2010 from
http://walmartstores.com/sites/annualreport/2010/financials.aspx
My Hot Topics. 2010. Revealing Numbers in Wal-Mart’s 2010 Annual Report. Retrieved 2
August 2010 from http://www.x10dur.net/wordpress/2010/05/04/revealing-numbers-in-wal-mart%E2%80%99s-annual-report/