Walmart Inc.
Q4 2007 Earnings Call Transcript

Published: 20 Feb 2007

[Recording:]

This call is the property of Wal-Mart Stores Inc. and intended solely for the use of Wal-Mart shareholders. It should not be reproduced in any way. This call will contain statements that Wal-Mart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and intended to enjoy the protection of the Safe Harbor for forward-looking statements provided by that act. These forward-looking statements generally are identified by the use of words or phrases are projecting, expect, expected, forecast, plan, will continue, will hear, will rise, and will see or a variation of one of those words or phrases in those statements or by the use of words or phrases of similar import. Similarly, descriptions of our objectives, plans, goals, targets, or expectations are forward-looking statements. These statements discuss, among other things

[Carol Schumacher:]

Good morning. This is Carol Schumacher in the investor relations department at Wal-Mart Stores. We appreciate you calling us today for more information on both our fourth quarter and fiscal year 2007 results. The replays of this call and related materials as to the quarter and year end results for the fiscal year ended January 31, 2007 are available on our website. Here is the agenda for today's call

[Lee Scott:]

Thank you, Carol, and welcome to our call. We are very pleased at Wal-Mart to close yet another fiscal year with both record sales and earnings. The Wal-Mart Associates around the world stepped up and delivered a wonderful fourth quarter and I am encouraged by their achievements, especially as we head into this current fiscal year. They clearly helped make these results possible. We finished fiscal year 2007 with net sales just shy of $345 billion. This is an increase of 11.7% over fiscal 2006. Income from continuing operations for the fiscal year 2007 increased 6.7%. Our company's strong performance for the year was certainly helped by strong sales in the fourth quarter. Net sales for the fourth quarter of fiscal 2007 rose 10.9% over the same quarter of fiscal 2006. Income from continuing operations for the quarter was up 8.8%. Earnings per share from continuing operations for the fourth quarter were $0.95, which brings our earnings per share for the fiscal year just ended to $2.92, up 7.4% from the prior fiscal year. Our customers benefited from low prices around the world. It is a reaffirmation of the proposition that is synonymous with Wal-Mart

[Tom Schoewe:]

Lee, thank you very much. And I would like to thank each one of you for joining us here this morning. Let's start at the highest level and then I will drill down into the numbers in just a moment. Let's start with the fourth quarter. Net sales for the company were up 10.9% for the quarter. Embedded in that increase is a U.S. comp store sales increase of 1.6%. Income from continuing operations increased 8.8%. Earnings per share from continuing operations were $0.95. This reflects more than a 9% increase from last year's fourth quarter, $0.02 of the year-on-year improvement related to the resolution of certain tax matters, and the renewal of the Work Opportunity Tax Credit. I will spend more time chatting about this later on in the call. For fiscal 2007, net sales were almost $345 billion, an 11.7% increase over last fiscal year. Net income from continuing operations was $12.2 billion; that is up 6.7%. Earnings per share from continuing operations for the full fiscal year were $2.92 a share; that is a 7.4% increase. Total U.S. comp store sales for the fiscal year were up 2.1%. Wal-Mart U.S. reported a 1.9% increase and SAM'S CLUB a 2.9% increase. Before we dive into the details, let me reiterate something Lee mentioned earlier. Despite a loss of nearly $900 million from discontinued operations and yes, that includes the charge we took in conjunction with the sale of our German operations, the company reported an increase – that’s right, an increase -- in net income for the year. Now, let's look at the details. First, consolidated gross margin was up 30 basis points for the fourth quarter, primarily driven by the international segment. This increase occurred despite various pressures, which include transportation costs and the increased markdown activity in Wal-Mart U.S. during the fourth quarter. Second, consolidated operating expenses as a percentage of sales for the quarter were up 47 basis points over the same period last year. As expected, we did see increases in maintenance and repair expense due to a remodeling and our special projects. In addition, advertising expenses were up for the quarter. Next, consolidated inventories were up 5.6% against a year-to-date sales increase of 11.7% for fiscal 2007. This improved working capital management obviously benefits our return on investment. We were proud to have exceeded our goal of growing inventory at half of the rate of sales growth. Membership and other income were up more than 18% for the fourth quarter. We saw increases in our SAM'S CLUB membership revenue and in rent income from leased space in our stores. We also continue to see increases in our financial services area. Their products include check cashing, money orders and money wires, and product warranties. Let me shift gears and talk about interest expense. Net interest expense was up more than 7% for the quarter, as interest rates continue to be higher than the prior year. Improved working capital management helped offset higher interest rates. The early repayment of selected Seiyu debt during the quarter contributed to the lower growth in interest costs. Having said all of this, we expect interest costs to continue to be a headwind in fiscal 2008. Our tax rate for the quarter was 32.5%. This rate is lower than we had forecast. During the quarter, we had a $98 million benefit from a couple of items

[Charles Holley:]

Thanks, Tom. We are pleased with the operating performance in the Wal-Mart U.S. segment during the fourth quarter. Our operating profit increase of 11.3% was well above the 6.7% sales increase for the quarter. Our apparel and home sales continue to be softer than we would like. During the fourth quarter, our labor productivity continued to strengthen on the improvements made earlier in the year. We believe we are seeing benefits coming from these three areas

[Mike Duke:]

Thank you, Charles. I am very excited to talk about the international business and the great results, or rather like Lee Scott said, the phenomenal results that our associates achieved in the fourth quarter and for the fiscal year that just concluded. Today, I would first like to summarize recent developments in our business and then we will move to a discussion of financial results. Finally, I will conclude with a discussion of our recent acquisitions. Many times in the past year, I have used the phrase “major in the majors”. And by this, I just mean putting our resources, our financial and people resources, to work on what is most important. This led to a strategic planning process, resulting in several actions in recent months, such as

[Tom Schoewe:]

Thanks, Mike. It is obvious we have got a lot of exciting things going on in international. What I would like to now is a shift gears and chat a little bit about our guidance for fiscal 2008. For the first quarter, we expect U.S. comp store sales to increase in the range of 1% to 3%. This is based on the current trends we are seeing in our business today. We expect earnings per share from continuing operations for the first quarter to be between $0.68 and $0.71 per share. For fiscal year 2008, we forecast EPS from continuing operations to be between $3.15 and $3.23 per share. With that, I would like to thank you for listening in this morning. As usual, Carol and Pauline will be available to answer any of your questions. Thanks, and have just a great day.