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WAL MART STORES INCFiled on Sep 10 2003Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Wal-Mart Stores, Inc. (Wal-Mart or the Company) is in the business of serving customers. In the United States, our operations are centered on retail stores and membership warehouse clubs. Internationally, our operations are centered on retail stores, warehouse clubs and restaurants. We have built our business by offering our customers quality merchandise at low prices. Through our negotiations with suppliers and by efficiently managing our distribution network we are able to obtain lower merchandise costs and pass them on to our customers. The key to our success is our ability to grow our base business. In the United States we grow our base business by aggressively building new stores and by increasing sales in our existing stores, including offering new kinds of goods and services to our customers. Internationally, we grow our business by building new stores, increasing sales in our existing stores and through acquisitions. We intend to continue to expand both domestically and internationally. On May 2, 2003, we announced that we had entered into an agreement to sell McLane Company, Inc. (McLane), one of our wholly-owned subsidiaries, for $1.5 billion. McLane was sold on May 23, 2003. We anticipate that, excluding any gain on the sale, the transaction will have a dilutive effect on our earnings of approximately $0.01 per share in fiscal 2004 and $0.02 per share in fiscal 2005. As a result of this sale, we have classified McLane as a discontinued operation in the discussions and comparisons of both the current fiscal year and prior fiscal year quarters ended July 31, as well as the fiscal year ended January 31, 2003. This discussion relates to Wal-Mart Stores, Inc. and its consolidated subsidiaries and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2003, and with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Results of Operations Our net sales increased by 11.3% and 10.5% for the quarter and six months ended July 31, 2003, respectively, when compared to the same periods in fiscal 2003. These net sales increases resulted from our domestic and international expansion programs and domestic comparative store sales increases of 3.2% and 2.7% for the quarter and six months ended July 31, 2003, respectively. We consider comparative stores sales to be sales at stores that were open as of February 1st of the prior fiscal year and have not been expanded or relocated since February 1st of the prior fiscal year. Stores that have been expanded or relocated during that period are not included in the calculation of comparative store sales. Comparative store sales are also referred to as same-store sales within the retail industry. At July 31, 2003, we had 1,508 Wal-Mart stores, 1,356 Supercenters, 528 Sam’s Clubs and 53 Neighborhood Markets in the United States. Internationally, we operated units in Argentina (11), Brazil (24), Canada (213), Germany (92), Mexico (610), Puerto Rico (52), South Korea (15), the United Kingdom (260) and under joint venture agreements in China (28). At July 31, 2002, we had 1,611 Wal-Mart stores, 1,156 Supercenters, 512 Sam’s Clubs and 34 Neighborhood Markets in the United States. Internationally, we operated units in Argentina (11), Brazil (22), Canada (196), Germany (96), Mexico (575), Puerto Rico (18), South Korea (12), the United Kingdom (255) and under joint venture agreements in China (20). Page 10 of 23 (Form 10-Q)Our total gross profit as a percentage of sales (our gross margin) increased from 22.7% in the second quarter of fiscal 2003 to 22.9% during the second quarter of fiscal 2004. For the six-month period ended July 31, 2003, gross margin was 22.7%, up from 22.5% in the same period in fiscal 2003. The improvement in gross margin occurred despite pressures from increased markdowns taken. Additionally, the percentage of total sales generated by the International segment increased relative to the Sam’s Club segment sales for both the three-month and six-month periods ended July 31, 2003, when compared to the same periods in the prior fiscal year. Because the International segment sales yield higher gross margins than does the Sam’s Club segment, this change in sales mix favorably impacted the Company’s total gross margin. Operating, selling, general and administrative expenses, as a percentage of sales, were 17.8% and 17.9% for the second quarter and first six months of fiscal 2004, up from 17.6% and 17.7% in the corresponding periods in fiscal 2003, respectively. These increases were primarily due to expenses increasing at a rate greater than that at which sales increased as a result of increases in operating expenses, principally in wages and insurance.
Approximate Word count = 3102
Approximate Pages = 12.4
(250 words per page double spaced)
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