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GLOBAL EQUITY RESEARCH
It’s All About the Lil’ Smokies!
On October 1–2, 2002, we attended Wal-Mart’s 9th Annual Analyst Meetings in Springdale, Arkansas. Enclosed is a detailed review of the meetings.
n During the meetings we heard from several top executives, including Lee Scott, president and CEO; Tom Coughlin, EVP and president of Domestic Operations; John Menzer, EVP and president and CEO of International Operations; Kevin Turner, president of SAM’s Club; and Jay Fitzsimmons, SVP and treasurer. n The breakout sessions discussed a variety of topics, including Wal-Mart Store merchandising, real estate, Canada, Brazil, marketing and communication, logistics, the Information Systems division, Neighborhood Market, Walmart.com, Samsclub.com, SAM’s Club merchandising and global procurement.
Stock Rating: Sector View:
WMT $51.75 $67 NYSE 818.95 Robert S. Drbul
Ticker: Price (10/4/02): Price Target: Exchange: S&P 500:
n Despite the challenging retail environment, Wal-Mart remains well-positioned to expand its retailing dominance as it continues expanding into new retail categories and markets. In our opinion, Wal-Mart’s business remains on track as it continues to pursue growth in the food category. We would note an acceleration in the number of Supercenter openings in 2003 to 200–210 from this year’s 180–185, coupled with 20–25 new Neighborhood Market stores. Separately, we note that, of the nine distribution centers slated to open next year, six will be food distribution centers.
EPS (FY JAN)
64–4 230.60 Bil. 4456 2,700.0 0.6 Yes
1Q 2Q 3Q 4Q Year P/E
0.31 0.37 0.33 0.49 1.49
0.37 A 0.46 A 0.41 E 0.56 E 1.79 E 28.9
— — — — 2.07 E 25.0
As of 8/31/02, Wal-Mart had 1,603 discount stores, 1,179 Supercenters, 517 SAM’s Clubs, and 36 Neighborhood Markets in the United States. The company operates over 1,200 international units.
Market Cap. Shares Outstanding (Mil.) Float Dividend Yield Convertible
Revenue FY02 5-Year EPS CAGR (%) ROE (%) Current BVPS Debt-to-Capital (%) EV/Revenue FY02 EV/EBITDA FY02
248.4 Bil. 15.0 21.5 8.29 39.0 1.0 17.1
October 9, 2002
PLEASE REFER TO THE END OF THIS DOCUMENT FOR IMPORTANT DISCLOSURES.
Summary and Investment Opinion
Wal-Mart is a truly global retailer and, in our opinion, one of the best-managed companies in the world. In 2002, Wal-Mart stood atop the Fortune 500 for the first time. Wal-Mart’s top ranking reflects the rise of retailing as one of the most important global industries, as well as the company’s individual excellence and consistent performance. Considering the retail industry alone, Wal-Mart’s dominance is even more impressive: in 2001, the company had higher sales than the next four largest global retailers combined. The sales differential against U.S.-based retailers is even more pronounced, as Wal-Mart’s top line in 2001 was more than four times that of the second-largest retailer, Home Depot. Within retail, one notable subcategory in which Wal-Mart also leads is food/grocery retailing. We believe this success will continue for the company. The following points support our 1-Overweight rating. WalWe believe that Wal-Mart has the highest sales and earnings visibility in retailing, due to its continued aggressive rollout of the Supercenter format. In 2002, the company will be adding approximately 46 million square feet, for 9% growth over 2001. This square footage growth, combined with an estimated 4%–6% comparable-store sales gains for 2002, we think provides an attractive top-line growth story. We expect this square footage growth to consist of approximately 50 new discount stores, 180–185 Supercenters, 50–55 SAM’s Clubs, and 15–20 Neighborhood Markets. Relocations or expansions of existing discount stores will account for about 110–115 of the Supercenters, while the remainder will be new stores. Approximately half of the SAM’s Club openings will be relocations and expansions. In 2003, we expect Wal-Mart to grow square footage by 8%, or 48 million square feet.
The company plans to open approximately 45–55 new discount stores, 200–210 Supercenters, 20–25 Neighborhood Markets, 40–45 domestic SAM’s Clubs, and 120–130 international units.
WalWal-Mart Stores continues to generate impressive square footage productivity. Our analysis of the sales productivity over the past four years of Wal-Mart’s square footage brings us to some valuable conclusions: 1. Rolling-four-quarter sales per square foot across all domestic stores increased to $408.4 from $354.7, a 4.4% CAGR. 2. For stores open longer than one year, sales per square foot increased to $413.3 from $361.2, a 4.2% CAGR. 3. For stores open less than one year, sales per square foot increased to $355.1 from $251.8, an 11.2% CAGR. Walcomparablegrowth. Wal-Mart consistently delivers solid comparable -store sales growth. Year to date, Wal-Mart’s comparable-store sales have increased 7.3%, with a 7.8% increase for the Wal-Mart Stores segment and 4.7% for SAM’s Club. We believe the company is very well-positioned to meet its 3Q02 targeted 4% comp-store sales increase due to its improved merchandising, ability to execute in a changed competitive environment in the discount store channel, and continued share gains in the food/grocery retailing segment.
October 9, 2002
While the SAM’s Club division, which was just 13% of 2001 total company sales and just 9% of 2001 total company operating income, enjoyed better sales in the second quarter than the first, management is intensely focused on improving its performance.
Figure 1: Store and Square Footage Growth Plan
Units 1/31/02 Discount Stores Supercenters Sam's Clubs Neighborhood Markets U.S. Total International Global Total Global Square Footage
Expansion 2002 50 180-185 50-55 15-20 295-310 120-130 415-440 46 mm 2003 45-55 200-210 40-45 20-25 300-335 120-130 420-465 48 mm
1,647 1,066 500 31 3,244 1,170 4,414 516 mm
WalwellWal-Mart is well-positioned to effectively compete in a challenging consumer spending environment. Wal-Mart has three keys to managing through the slowdown in the economy:
n maintain a high level of in-stock merchandise; n maintain a high level of customer service; and n maintain top-quality merchandise and services at “everyday low prices.”
During the first half of 2002, the company had price rollback sales of $4.3 billion and is well positioned to accomplish its goal of $10 billion in rollbacks for the full year. These initiatives have positioned the company well, as the environment has been more challenging over the past few months, and will also keep pressure on Kmart (which generated $36 billion in sales in 2001) as it continues to work through its bankruptcy.
Figure 2: Total U.S. Retail Sales 1996–2001, Ex-Auto ($ in millions)
Total Retail Sales Year 2001 2000 1999 1998 1997 1996 Ex-Auto, Parts 2,313,353 2,250,426 2,099,411 1,944,359 1,855,689 1,771,610 Sales 167,796 148,013 132,896 117,735 104,008 94,182 Wal-Mart % of Total 7.25% 6.58% 6.33% 6.06% 5.60% 5.32% Sales 39,455 36,441 33,253 30,228 27,487 25,135 Target % of Total Sales 1.71% 1.62% 1.58% 1.55% 1.48% 1.42% 36,151 37,028 35,925 33,674 31,884 30,378 Kmart "Big Three" % of Total 10.52% 9.84% 9.63% 9.34% 8.80% 8.45%
% of Total Sales 1.56% 1.65% 1.71% 1.73% 1.72% 1.71% 243,402 221,482 202,074 181,637 163,379 149,695
Source: Company reports and U.S. Bureau of the Census
October 9, 2002
In the key markets of Canada. a Supercenter carries about Neighborhood Market prototype format. and we expect this momentum to continue. 100. The operating margin for the international segment increased to 4. the company has increased its percentage of the retail industry by more than 200 basis points.S. we expect one -third of company sales growth and operating income to come from the international segment.5% in 2000. grocery store industry totals $682 billion. Wal-Mart has improved its quality of goods.S. which contributed more than 16% of 2001 company revenue and 12% of 2001 company operating income. in our opinion.000 SKUs. However. As Neighborhood Markets target metro areas. Through its global sourcing initiatives.5% of the grocery market. the U. will complement the larger non-metro-market-oriented Supercenter format as part of Wal-Mart’s overall strategy to significantly increase its share of the retail food industry. Wal-Mart’s domestic operations continue to grow faster than the overall retail market and faster than its major Since 1996.Wal-Mart Stores WalU.S. n According to Supermarket News. holds tremendous potential for additional market share gains. WalWal-Mart’s international segment. driven in part by the rapid ascent of Wal-Mart in the food business. the top five grocery retailers accounted for only 26. According to Progressive Grocer. Wal-Mart had its biggest gain in market share in the past five years. oneFor 2002. food and general merchandise. n While a full-scale rollout is still several years away. that figure rose to 40. We expect the company to continue leading the way in the consolidation of the consolidation U. According to Supermarket News.000 SKUs.1% in 2001 versus 3.000 square feet and offers a combination of drug. and the United Kingdom. we believe that the newest On average. We estimate that 120 of its Supercenters generated in excess of $100 million in revenue in 2001. In 2001. competitors. this new format. grocery store industry. in 2001 Wal-Mart became the largest retailer in the U. we estimate the Supercenter format accounted for $65 billion–$70 billion in sales in 2001. It is also poised to begin taking market share in important markets such as Japan and China. Mexico. WalWal-Mart has become adept at leveraging the buying power behind its $218 billion in sales.S. retail industry and continues to gain share in both the discount and food/grocery channels. has made significant progress in improving its profitability. The typical Neighborhood Market carries about 24. the company continues to take market share. 2002 .3% at the end of 2001. and we expect this division to continue increasing in importance.S. Wal-Mart holds 7% market share of the U. or approximately 30% of total company sales. supply logistics and retail prices. In aggregate. Since the company began its global 4 October 9. grocery store industry via its fast-growing Supercenter concept and fastNeighborhood Market stores. and we expect the number of stores at this level of productivity to double in 2002. which averages 39. in 1980. We expect Wal-Mart to continue its assault on this industry primarily through its dominant Supercenter format.
EVP John Menzer (president and CEO of International Operations) and CFO Tom Schoewe. Wal-Mart’s management team is extremely talented and continues to work very hard to develop a deep and well-managed organization.9% (versus an 11.9x our 2002 EPS This valuation is estimate of $1. and stable management teams in retailing as well as in corporate America. significant cash flow and boasts a strong balance sheet that will help it aggressively pursue its long-term growth strategies. From January 1990 to December 1991. while also experiencing a 20-basis-point improvement in return on equity. Scott’s predecessor for 12 years as CEO. who now serves as chairman of the executive committee of the board.2% (versus 4. The company’s strong cash flow and balance sheet should facilitate the delivery of company’s Wal-Mart continues to generate our projected 15% total shareholder return. October 9.S. Wal-Mart has traded at an average of 32x forward earnings. President and CEO Lee Scott.07.79 and 25. its general merchandise margin has risen 9% in total. essentially in line with the average of other “best-in-class” retailers and. Inc.Wal-Mart Stores procurement program eight months ago. The shares of Wal-Mart are currently trading at 28.8% increase for the S&P 500). On an absolute basis. The board of directors of Wal-Mart Stores. Mr. Management continues to focus on key metrics such as return on assets. and from March 1991 to December 1991. 2002 5 . cohesive. WalWe believe that Wal. the shares increased 24. There has been significant continuity within the senior management ranks. on both an absolute and a relative basis. Our 12-month price target of $67 assumes a return to that multiple. the stock delivered a 176% increase (versus a 26. given the continued solid execution and high visibility of the sales and earnings. replacing the previous $3 billion program. Wal-Mart can maximize its strong competitive position with suppliers to combine the best prices with a very high-quality product offering. the shares increased 51. Valuation. we believe that Wal-Mart should trade at a premium to that group. The company ended the second quarter with a debt-to-capitalization ratio of 39%.7% increase for the S&P 500). Wal-Mart stock fared well even during the recession of the early 1990s. shares in Wal-Mart have produced an annualized return of 24% versus a 1% decline for the S&P 500. the shares have produced an annualized return of 15% versus a 10% return for the S&P 500.2% increase for the S&P 500).0x or 2003 EPS estimate of $2.Mart has one of the most experienced. from June 1990 to March 1991.7 billion in common shares in the first six months of the current fiscal year. EVP Tom Coughlin (president and CEO of U. Led by Chairman Rob Walton. WalWal-Mart has been a solid performer in many different economic environments. as demonstrated by the continued advice and leadership of David Glass. over the past five years. the company repurchased $1. Due to the global success of these programs. Over the past five years. the company delivered a 50-basispoint improvement in return on assets to 8. recently authorized a new $5 billion share repurchase program.9%. On a rolling 12-month average. Operations). Under prior authorizations. Over the past 10 years.
asset utilization and people development) and how it performed against those goals. as consumers were drawn to Wal-Mart’s strong price/value proposition. Lee Scott. The company plans to open about 60 stores in October 2002 alone (including relocated supercenters). Mr. Comp-Store Sales vs. The company planned 300–310 new stores in the United States and has opened 309 in the past 12 months.Wal-Mart Stores Company Overview – Lee Scott. President and CEO Report Card Mr. 2002 . Wal-Mart has met its year-ago plan. From the perspective of store growth driving sales. fuel prices were falling. Overall. Wal-Mart believes it is important to monitor fuel prices. In 1H02. He began by laying out the four areas the company said it wanted to focus on at last year’s meeting (sales. earnings have grown faster than sales. Wal-Mart believes it is critical that earnings growth exceeds revenue growth. if its inventory is well controlled. Last year at this time. the company has been very aggressive in opening new stores over the past 12 months. fuel prices are currently on the rise. Scott noted that Wal-Mart performed well after September 11. profitability. kicked off the two-day conference with a company overview. Figure 3: Trailing-12-Mo. it is taking the right steps toward improving profitability. as it believes its customer base is very sensitive to price increases in this area. Profitability in 1H02 picked up steam versus 1H01. maintaining an excellent gap that peaked in December 2001/Januarty 2002. Wal-Mart reasons that. Mr. Wal-Mart) Wal-Mart Retail Composite 10% 5% 0% Sep -5% Source: Wal-Mart Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Wal-Mart has performed well against the retail composite in terms of same-store sales. Scott stated that while it is never satisfied. Going forward. which contributed to strong fourth quarter results. particularly as the economy enters into a more difficult sales period. Asset utilization is a big focus for the company. president and CEO of Wal-Mart. However. Retail Composite (excl. its 6 October 9.
Business unit October 9. Scott discussed Wal-Mart’s strategic direction. it resonates with the consumer.066 500 31 3.Wal-Mart Stores markdown exposure is well managed—which in turn makes a big difference in its ability to provide the consistency of earnings that people have come to expect. strategies are centered on this philosophy. Figure 4: Store Count and Expansion FY02 FY02 Expansion Actual Thru Plan 30-Sep 50 44 180 .130 116 420 .185 192 50 . Wal-Mart is focused on developing its associate managers.55 54 20 19 300 .440 425 Figure 5: Wal-Mart’s Self Report Card Grades Discount Stores Supercenters Sam's Clubs Neighborhood Markets U. 2002 7 .414 Grade Sales Profitability Asset Utilization People Development Check Check + Check Check Source: Wal-Mart Current Environment Mr. Total International World Total Source: Wal-Mart 1/31/02 1. Wal-Mart noted that the recent recession was the most shallow since WWII.310 309 120 . Strategic Direction Mr. it will take longer to come out of it.170 4.S. as evidenced by the promotion of two internal employees to replace the retiring CEO of SAM’s Club.244 1. and the goods turn very quickly—indicating that the consumer is ready to spend on the right products.647 1. However. he did say that. and that because the recession was rather shallow. Scott commented that he sees mixed signals coming from the economy. Wal-Mart has been focused on improving its product assortment and believes that it has a merchandise mix that can entice customers to buy. Through its Business Leadership Series and computer-based learning programs. The company continues to emphasize the importance of minimizing costs to its employees. when Wal-Mart gets the right merchandise. highlighting that its strategy is to be in businesses it can grow. Wal-Mart maintains that it is performing well in the area of people development. improve productivity and reinvest the gains.
0% 27. 2002 . and diversity.6 0.9% 6.3 1. Integrity.8 1.0 0.3% 23. and Diversity Source: Wal-Mart Financial Update – Jay Fitzsimmons.40 100.3 6. SVP Finance and Treasurer Financial Results Figure 7: 2001 Financial Results 2000 Revenues Net Income EPS Source: Wal-Mart Figure 8: 2H02 Financial Results 2001 217.7 1.0 0. integrity.67 Figure 9: 2Q01 Financial Results 2Q01 Revenues Net Income EPS 52. We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at every day low prices while fostering a culture that rewards and embraces mutual respect.46 % Change 13.9% 191.83 % Change 13.8 3.8% Source: Wal-Mart 8 October 9.Wal-Mart Stores Figure 6: Who Is Wal-Mart? Improving the Standard of Living Global Growth company Trust We are a global retailer committed to growing our company by improving the standard of living for our customers and serving communities around the world.7 0.7 2.8% 23. Community Broad focused assortment Mutual Every Day Low Prices Respect.1% 25.8 6.36 2Q02 59.7 3.3% 6.4% 2000 Revenues Net Income EPS Source: Wal-Mart 2001 114.49 % Change 13.
meaning that even the small-ticket items can drive significant growth for the company. an indicator of WalMart’s strong inventory controls. improved asset utilization.066 500 31 3. And lastly. Total International Global Total Global Square Footage Source: Wal-Mart Expansion 2002 50 180-185 50-55 15-20 295-310 120-130 415-440 46 mm 2003 45-55 200-210 40-45 20-25 300-335 120-130 420-465 48 mm 1.170 4.S. For every quarter since 1Q01.9% in 2Q02. Fitzsimmons spoke about the importance of return on assets as a key driver of WalMart’s share price returns. Wal-Mart has lowered its effective tax rate from about 37. 2002 9 . sales have grown faster than net property. With the introduction of the food component in the Supercenters. October 9.647 1. The best example of this was that Mr. Wal-Mart is emphasizing a “one buck at a time” mentality. Wal-Mart’s has grown from about 4. Wal-Mart’s debt capitalization ratio has been falling steadily from about 50% in 2Q00 to under 40% in 2Q02. In terms of the operating margin.414 516 mm Return on Assets Mr.Wal-Mart Stores Growth Figure 10: Store and Square Footage Growth Plan Units 1/31/02 Discount Stores Supercenters Sam's Clubs Neighborhood Markets U. EVP and President of Domestic Operations Business Update Wal-Mart’s comparative store sales have been improving over the past four months. reduced financial leverage. These factors include inventory management.3% in 1Q01 to about 4. year-over-year sales have been growing somewhere between 12% and 16% while inventories have been at about an average of 5%–6%. Wal-Mart Stores Division – Tom Coughlin. outlining the critical factors Wal-Mart is focusing on to drive a higher ROA. and a lower tax rate. Wal-Mart has been carefully monitoring customer count and its relationship with average ticket. translating into solid asset utilization.244 1. Coughlin recently met with the president of Lil’ Smokies to discuss the company’s efforts to maximize sales during the holiday season. Since 1Q01. an improved operating margin. as consumers buy more when they come in to the store.8% in 2002. Wal-Mart is seeing an increase in the average ticket. We believe this example demonstrates Wal-Mart’s focus on driving its sales in every single product category. Also.4% in 1998 to an estimated 35.
Wal-Mart opened 27 discount stores.34 98% $ 1.97 30% $ 0. Wal-Mart expects the number of stores with expanded food offerings to reach 346 by the end of FY02. From February 2002 to September 2002. The company plans to open 17 more discount stores. The average Wal-Mart Supercenter generates $65 million in sales. Wal-Mart’s commitment to growing its food business is evidenced by the fact that it plans to open 200–210 Supercenters and 20–25 Neighborhood Markets in fiscal 2003. 2002 . Wal-Mart plans to open 45–55 discount stores. 133 Supercenters and five Neighborhood Markets. the company announced that six of the nine new distribution centers scheduled to open in 2003 will be food distribution centers.94 17% $ 0.Wal-Mart Stores Figure 11: One Buck at a Time! Mesh solange Foam sea sponge 3-Pack Kleenex SOLO neon straws Mini lint roller Press n' Light 2-Pack scour pads Chip chip Source: Wal-Mart Unit 2002 Sales Price Increase $ 0.97 24% Growth The company continues to generate strong growth in its food business and remains committed to increasing its share in this category. up from four in 1999. 59 more Supercenters and 14 new Neighborhood Markets from October 2002 to January 2003. Mr. up from 23 such stores in FY00.97 78% $ 1. approximately one-third of which comes from food.97 58% $ 1. The Neighborhood Market format is the company’s prototype that is most similar to traditional grocery stores and generates approximately 65% of total sales from food. In addition. 10 October 9. In FY03. 200–210 Supercenters and 20–25 Neighborhood Markets. It expects the number of its Neighborhood Market stores to increase to 50 by the end of FY02.97 56% $ 0.50 24% $ 0. Scott noted that the company is quite pleased with the returns it is generating from the Neighborhood Market format.
The company has no plans to increase its membership fees ($30 for business members. and $100 for elite/executive members). rising stars.000 Figure 13: Store Count Growth through 2008E 4. and teach them. SAM’s Club expects to reach a total of 43 new stores for the full FY02. show the value. Operations/Merchandising Operations focus: stock it.000 1. and 5th Thursday. general merchandise turns are up 0.5 times. 2002 11 .000 2. President and CEO of SAM’s Club The SAM’s Club division will continue to focus on the business customer versus the retail consumer.000 1.8 times.6 times and imported merchandise turns are up 0.61%.000 0 1994 Source: Wal-Mart 0 1995 1996 1997 1998 1999 2000 2001 2002E 1994 1996 1998 2000 2002E 2004E 2006E 2008E Source: Wal-Mart Inventory Management Total inventory turns are up 1. SAM’s Club – Kevin Turner. rollbacks. seasonal. Merchandise focus: everyday low prices. The company also noted that returns from clubs located in markets where it is not dominant continue to be high and it will continue entering new markets rather than backfilling existing markets.Wal-Mart Stores Figure 12: Store Count Growth through 2002E 3.2 times for discount stores and Supercenters while in-stock items are also up 0. brands—national and private label. which are the lowest in the warehouse club industry. food turns are up 2. $35 for individual members. new items.000 Discount Stores Supercenters Discount Stores Supercenters 3. At the distribution centers. This equates to 4% square footage growth for the division. Leadership Development In the field: first in line. At the home office: Leadership Development Center. opening price point. The company believes its low fee structure is a compelling value to consumers and a distinct competitive advantage. leadership express. price it. October 9. take their money. Business Leadership Series.000 2.
new business start-ups in 2002 have seen the biggest jump in six years. According to Wal-Mart. began the presentation by reviewing the segment’s sales and operating history. Wal-Mart International has grown from a $3. president and CEO of Wal-Mart International. 1 and No. Mexico.8% from $16. 3. One out of nine laid-off managers and executives started their own business during the first six months of unemployment in 2002. its revenues increased by 16. Our advantage members for a membership fee benefit from No. The segment has also grown from a $16 million operating loss in 1996 to $1. 2002 . 2. 2002.7 billion in 2H02.Wal-Mart Stores Figure 14: SAM’s Club Management Years with Company 24 17 13 12 5 Name Tom Coughlin Kevin Turner Celia Sawnson Doug McMillon Greg Spragg Source: Wal-Mart Title President/CEO. Sam's Club EVP Membership/Marketing/Administration EVP Merchandising EVP Operations SAM’s Club focuses on small business customers through its business membership program. The National Association for the Self-Employed has grown 70% this year. Germany and the United States. 12 October 9. Wal-Mart International – John Menzer.212 units in 10 countries. In business to serve small businesses – Personal Needs/Treasure Hunt. 2.0 billion in 2H01 to $18. Its operating profit increased by 41.7 billion dollar sales business in 1996 to $35. South Korea. EVP and President and CEO of International Operations John Menzer. A major focus for the international segment will be the apparel business and expanding on the success of the private label. Mr. Wal-Mart is also focused on accelerated product development and plans to partner with apparel designers and manufacturers to reduce lead times to six to eight weeks. Wal-Mart Stores and Sam's Club USA President/CEO. Wal-Mart International operates 1. In business to serve small business – Business Needs. The company has experienced tremendous success with this line in the United Kingdom and is looking to roll it out in other markets such as Canada. For the six months ended July 31. George. The franchise industry grew 10% last year.46 billion in estimated 2002 operating profit.0% from $632 million in 2H01 to $891 million in 2H02. Turner outlined SAM’s Club’s three business philosophies as follows: 1.5 billion in projected 2002 sales.
7 $5.5 $1. 50 Suburbias. Germany has 96 Supercenters. South America Wal-Mart runs 11 Supercenters in Argentina.200 $1. Supermarket/Supercenters in Japan. Mexico’s population of 100 million people is very young: 78% of the population is under 40 years old. Canada Canada has 199 traditional Wal-Mart Stores.5 $3. 45 El Porton.1 CAGR = 45.1% $817 $551 $262 -$16 1996 $24 1997 1998 1999 2000 2001 2002E $1. including 72 Supercenters. eight SAM’s Clubs and one Supercenter.600 $1.7 $1. 48 SAM’s Clubs. eight SAM’s Clubs and two Tojo Dias in Brazil. Wal-Mart International operates 578 units. Asia In Korea. Wal-Mart has 16 Supercenters. Wal-Mart operates 409 October 9.Wal-Mart Stores Figure 15: Wal-Mart International Sales Growth (in $ billions) $40 $35 $30 $25 $20 $15 $10 $5 $0 1996 Source: Wal-Mart Figure 16: Wal-Mart International Operating Income Growth (in $ millions) $35.112 CAGR = 112. Wal-Mart operates 12 Supercenters. Europe Wal-Mart International operates seven Supercenters and 249 Superstores in the United Kingdom. and 209 VIPS.0 $600 $400 $200 $0 1997 1998 1999 2000 2001 2002E -$200 Source: Wal-Mart Mexico In Mexico.000 $800 $12. 2002 13 . and 17% are between the age of 39 and 65. three SAM’s Clubs and one Neighborhood Market in China.400 $1.458 $32. Puerto Rico Puerto Rico has nine traditional Wal-Mart discount stores. 45 Superamas. 109 Bodegas.2 $7.8% $22. Wal-Mart operates 12 Supercenters.
Merchandising Focus Everyday Low Prices The primary aspect of Wal-Mart’s merchandising strategy is its product pricing. the emphasis is on everyday low prices (EDLP). Dave Dible. 14 October 9. Operations Focus The first three parts of the operations focus—stocking goods. which emphasizes fast. The presentation began with an explanation of the company’s operations and merchandising focuses. 2002 . food certification and an assistant manager training program. Product Development The next presentation was a discussion of operations. From a merchandising perspective. SVP General Merchandise. and then teach them. EVP and COO. In terms of operations.Wal-Mart Stores Day 2: Operations. and showing the value—are reflected in Wal-Mart’s in-store displays which contain good instock merchandise positions with large. including food school. rollbacks. the presenters described Wal-Mart’s checkout commitment. new items. Lois Mikita. The fourth point—“taking their money”—refers to customer service and customers’ interaction with Wal-Mart employees. Wal-Mart believes that customer service and the quality of its personnel are extremely important and. Merchandising. merchandising and product development for the Wal-Mart Stores division led by Don Harris. customers are able to see for themselves the value WalMart offers. and apparel. opening price points. Jim Haworth. teaching. including general merchandise. seasonal goods and brands (both national and private label). or EDLP. cosmetics. EDLP is a huge focus and differentiator for Wal-Mart. price them. EVP General Merchandise. developing. clearly-labeled signage. the company’s priorities are to stock the goods. The presentation included a number of slides of store signs that displayed WalMart’s low prices in all product categories. and Claire Watts. EVP Food & Consumables. and retaining the best talent in every business discipline and of utilizing corporate culture to achieve goals and objectives. SVP General Merchandise Product Development. take their money. Celia Clancy. friendly. show customers the value. being customerservice-oriented. management has identified several key training focus areas. to this end. The fifth commitment to teach refers to Wal-Mart’s vision statement of being the world-class standard for attracting. SVP General Merchandise. By making the price the dominant feature of the label. The first strategy mentioned was everyday low prices. pricing them correctly. Doug Degn. Specifically. and is represented very prominently throughout all of its stores. EVP Specialty. and efficient service.
One of the ways Wal-Mart ensures that it offers the best value is by providing opening price points in all product categories. The Great Value label was established in 1993 and positioned as a lower-cost equivalent to national October 9. 2002 15 . Keepsake jewelry. Dutchboy paint. fresh flowers. and apparel. Equate is Wal-Mart’s private label for healthy and beauty care It was established in 1987 and positioned as a lower-cost equivalent to national brands. which are clearly labeled as such in the stores. which are when the company permanently lowers the price of a product. Clorox cleaning supplies. the emerging business is establishing more of a fashion presence in the mix. or signage that clearly labels which prices in a display are assigned to which item. and DVDs. New Items New items are especially critical to categories such as apparel. Built for the Masses Being that Wal-Mart’s product assortment is designed to appeal to the masses. which is influenced by seasonal and fashion trends. Wal-Mart also has an extensive private label offering under such names as Equate. The company also mentioned that an important consideration for its product assortment is the inclusion of seasonal items such as holiday decorations. but help invigorate all product categories. Emerging Businesses Another important feature of Wal-Mart’s product assortment is the presence of items in emerging businesses. Kid Connection. food. and apparel. sporting goods. products. home and garden supplies. For example. and the importance of providing the best value possible to its customers. Wal-Mart offers a wide array of nationally recognized brands across all product categories. Opening Price Points The subject of the presentation then shifted from product pricing to product assortment. In electronics. These national brands offer top-quality. one of the emerging trends in grocery is more ready-to-eat foods such as prepackaged salad greens and instant soups. flat-screen televisions. and Parents’ Choice. due to the timing of new music and movie releases.Wal-Mart Stores Rollbacks The second pricing initiative discussed was rollbacks. Great Value. and Oreo cookies. the company highlighted digital cameras. and entertainment. Wal-Mart has established a goal of $10 billion in rollbacks in 2002. a strong presence of both national and private label brands is critical. innovative items at a significant value. The company provided specific examples of emerging businesses in a number of merchandise categories. Ol’ Roy dog food. And in apparel. Related to both the EDLP and rollback strategies is the importance of item and price features. such as Schwinn Bicycles. SAM’s Choice. Black & Decker tools. as opposed to relying on basic pieces. It is currently the top healthcare brand at Wal-Mart. This strategy applies to all product categories including electronics. Another very important feature of Wal-Mart’s product assortment is new items.
color. The preselection meeting is when the final color cards are presented. product tracking. value-priced maker of infant products. For example. The big picture meeting is to discuss trend and color services and the competitive shopping environment. From the time of the initial big picture meeting when a product is introduced. and uneven hemlines. etc. cuffed pants. Parent’s Choice was established in 1997 as a quality. technical specifications for the products such as buttons. is when the quality. of the product is approved. 2002 . and zipper pulls must be decided and approved. chrome and matte finishes. Wal-Mart sells more than 90 different items in the United States under the Ol’ Roy label and it is the No. SVP of Product Development then discussed the most up-to-date trends that are impacting Wal-Mart’s merchandise strategy. The selection meeting is when the store signage and packaging are chosen and cross department coordination is finalized. national brand-quality maker of products for children at primary price points. There are currently over 1. women’s apparel offerings incorporate some fashion trends such as tailored white shirts. revisions are made. 1 brand in Wal-Mart food. it only takes approximately nine months to get the finished product into the store. Housewares now incorporate more high-tech and fashion elements such as stainless steel. and the complete line is reviewed. faux suede. The Kid Connection brand was established in 1999 and positioned as a valuepriced.Wal-Mart Stores brands. 1 brand in terms of units and tonnage in the United States. Apparel offerings have also been influenced by street trends such as athletic-inspired clothing and graphics and the popularity of vintage looks. Ms. The SAM’s Choice label was established in 1990 as a premium label that uses only the highest-quality ingredients. the company develops trend guides and preliminary designs and color schemes.300 items sold under this name and it is the No. Trends for Now Claire Watts. pin stripes. The Parent’s Choice line currently has 13 different items including an opening price point formula. zippers. The Ol’ Roy pet brand was established in 1981 and positioned as a equivalent to national brands at a value price. The final step. Watts then described Wal-Mart’s seven step product development timeline. Afterwards. sheer fabrics. primarily in food. From there. 16 October 9. There are currently more than 230 products sold under the SAM’s Choice name.
Wal-Mart Stores Figure 17: Seven Step Timeline 12 Months 9 Months 7 Months 5 Months PRODUCT IN STORE! 1) Big Picture Meeting 3) Pre-Selection Meeting 6) Selection Meeting 2) Color. Microsoft. Wal-Mart ranked as the No. The company stated that protecting its reputation has never been more important. According to a company survey. 1 most respected and admired company ahead of Sears. Wal-Mart initiated reputation work in early 2001 which was the first-ever reputation study by a specific audience. GM. and Jay Allen. CAD Development 4) Product Spec 5) Technical Spec 7) Product Tracking Source: Wal-Mart Marketing and Communication – Bob Connolly. and GE. EVP Marketing and Consumer Communication. a “battleground issue” and one that is good but not great. 2002 17 . Wal-Mart characterizes its reputation as an extremely local experience. SVP Corporate Affairs The discussion points for this section of the presentation focused on reputation study findings from marketing initiatives. The study was used to identify key “reputation drivers” and glean insights that will guide communications and actions and enable the company to protect its reputation as a key asset. Figure 18: Consumer Survey of Most Admired Companies Wal-Mart Sears Microsoft General Electric General Motors IBM AT&T Ford JC Penney Target Home Depot 123 65 56 49 49 48 40 33 31 25 25 0 50 100 150 Source: Wal-Mart October 9.
57% of respondents said that their opinion of the company had changed. cross functional effort with action teams addressing each opportunity. Louis. Denver. To address these “reputational gaps. and good service and management as a good value while detractors perceive the company’s low prices as stemming from a combination of cheap goods. Sacramento and Seattle— and 200 quantitative interviews nationwide. The second driver has three layers: whether Wal-Mart is perceived as a good neighbor inside the store. The company is committed to ongoing measurement so that it can take appropriate corrective action. it must address the reputation drivers. Las Vegas.” management has devised a sustained. in fact. poor service and heavy-handed business practices. outside the store and within the community. The first driver deals with the fact that consumers believe Wal-Mart provides limited career opportunities. St. more than 50% of respondents see Wal-Mart as providing convenient products and services to community residents. and 2) good neighbor that respects the community. in order to change this perception. Wal-Mart’s reputation is built on a retail foundation. However. Through this initiative.000 Americans in more than 40 states. Wal-Mart found that it leads in convenience. Overall. products and services. Wal-Mart management conducted 20 interviews in nine metropolitan areas—Baltimore. 2002 . the United Way. and Fresno. Orlando. Supporters view the combination of high quality. Wal-Mart conducted a consumer study using two focus groups each in six cities— Baltimore. there is a major change of opinion when presented with the facts. generating economic activity benefiting other businesses (compared with Home Depot only) and designing buildings that complement the community.Wal-Mart Stores The presentation then described the initial findings of the reputation study. the survey found that perceptions of large retailers are positive and local officials with a Wal-Mart in their community tend to be more supportive. Management believes that. Wal-Mart employees are involved in numerous community service activities and charities such as the Children’s Miracle Network. the company determined two key reputation drivers: 1) good jobs and employment practices. From these studies. The company benchmarked itself against Target and Home Depot. full-time jobs for high school graduates. Wal-Mart’s reputation is not driven by its retail origins. and Adopt-A-Highway. and it now owns the low-price marketplace position. Orlando. and there is a discrepancy in the way the company’s retail strategy is perceived by supporters and opponents. Las Vegas. Houston. tax revenues. Phoenix. the company conducted a random national survey of 1. low prices. entry-level jobs and trails in clean attractive stores. Compared with Target and Home Depot. However. as ethical and trustworthy and creating entrylevel. contributing to community tax revenues. In general. In addition. and full-time. 18 October 9. To gain insights into how the company is perceived by community leaders. in communities both with and without a Wal-Mart. San Diego. Phoenix. The second discussion point dealt with Wal-Mart’s marketing initiatives and focused on the Good Works campaign.
in the right condition and in the right place. Members come first – Management believes that membership and outstanding customer service is a shared responsibility. in the right quantity. Business needs relate to wholesale items while personal needs relate to the availability of department and specialty storequality goods at a 40%–50% savings. 5. and 4) being seasonally and SIC correct (complying with OSHA’s standards). and 3) striving for excellence. sourcing and distribution capabilities of its parent company to maintain an in-stock merchandise position. SAM’s Club intends to leverage the buying. develop associates at all levels and set an example. Every employee has a stake in getting and retaining members and growing SAM’s Club membership base. and efficient environment. drives out costs and generates consistent profit improvement. Celia Swanson. business and personal needs. The company believes it can provide the best customer service by satisfying the needs of its business members. 2) providing service to customers. Teamwork – All employees are to uphold Wal-Mart’s three basic principles: 1) respect for the individual. To this end. 3. fulfill both sets of needs. Drive Sales – The company described four ways to drive sales: 1) maintaining an in-stock position on a business member list of items. 2) executing the six rights of merchandising. safe. 1. recognize the contributions of others. 3) being aggressive item merchants. EVP SAM’s Club Operations Management is clearly focused on improving the operating performance of the SAM’s Club division and outlined five commitments for this segment. Management believes that its low membership fee is a distinct competitive advantage that enables members to October 9. Lowest Cost Operator – Management identified specific ways with which SAM’s Club can maintain its status as the lowest-cost operator. 2002 19 . EVP SAM’s Club Merchandising. By obeying the law and maintaining a clean. EVP SAM’s Club Membership and Marketing. SAM’s Club is in business to serve small businesses which includes both businesses. All employees are expected to work together. neat. and Greg Spragg. 4.Wal-Mart Stores Commitments for SAM’s Club – Doug McMillon. The six rights of merchandising are offering the right merchandise at the right price. SAM’s Club should be able to simplify its business which. at the right time. 2. The customer service policies employed by the Wal-Mart Stores division such as thanking members by name and greeting every customer that comes within ten feet are also policies at SAM’s Club. in turn.
Going forward. eight regional managers and three divisional managers. In FY99. the 42.000 square feet. Neighborhood Market’s are strategically positioned to support existing Supercenters while still offering an assortment that allows the Neighborhood Market to also be a primary store of choice.Wal-Mart Stores Neighborhood Market – Ed Kolodzieski. Wal-Mart operates three prototype Neighborhood Market store formats including the 39. Arkansas 6. as Wal-Mart has earned a 27. one regional manager Today. food and general merchandise retailing. The major design objectives of the 39.2% share of the overall grocery market in 20 October 9. convenience-oriented food and drug stores that deliver the same price-value equation is a powerful draw for current customers. Mr. Mr. Kolodzieski believes that the success of the Neighborhood Market format will be due to its convenient locations and not its vast assortment of products. Oklahoma City in 2002 compared with just 13. SVP Mr. Florida 1.000 square feet. 3) to add greater convenience. there are 14 district managers. Kolodzieski then discussed the Oklahoma City market as representative of WalMart’s future plans for the Neighborhood Market format. 2) to lower operating costs. Alabama 2. 20 will be 39. and six will be 52. Wal-Mart expects to operate 50 Neighborhood Markets geographically distributed as follows: Texas 25. This strategy has been successful. 2002 .000 square foot format. Wal-Mart is focused on rolling out the 39.1% in 2000. By the end of 2002. 24 will be 42. Neighborhood Markets serve to complement the strong presence of Supercenters. and 6) to leverage its most valuable resource—its people. Kolodzieski began by discussing Wal-Mart’s strategy around the Neighborhood Market format. While Wal-Mart is conservatively rolling out Neighborhood Markets. In markets where Wal-Mart has established a loyal customer base with its Supercenters. Mississippi 1. it has dedicated increased management resources toward this relatively new format. they serve as a destination for frequent grocery trips by existing Wal-Mart shoppers as well as new customers. The Neighborhood Market format is designed to serve as a compliment to the dominant Supercenter format. In line with Wal-Mart’s corporate strategy. 5) to leverage Wal-Mart’s infrastructure to turn inventory over 25 times. 4) to use industrial durable materials.000 square foot format include: 1) to lower capital costs.000 square foot prototype.000 square foot format and the 52.000 square foot format.000 square feet. Oklahoma 12. the Neighborhood Market format was run by one district manager. Because Neighborhood Markets can be placed where larger Supercenters can’t. In this market. and one divisional manager. the addition of smaller. Of the 50 stores that Wal-Mart will operate by year-end. Tennessee 2. Utah 1. The Neighborhood Market format is a combination of drug. Neighborhood Markets feature the same low prices as the company’s other formats. The merchandise mix is similar to a grocery store and contains significantly fewer general merchandise items than a traditional discount store.
in the near term we would expect continued Supercenter expansion with a full scale Neighborhood Market rollout still a few years away. 2002 21 . Wal-Mart is also leveraging its newly implemented database analysis tools to better understand its customers.5 14. Walmart.com defends its competitive position against both traditional and on-line competitors by leveraging its brand reputation and customer traffic.com protects and enhances its relationship with the customer.69 2000 % of Market 13. Therefore. as it is able to deliver highly personalized and relevant content to customers using email marketing. broad assortments and additional. By meeting these needs.com delivers on the Wal-Mart brand promise of trust and reliability and EDLP.com also enables Wal-Mart to develop more personal relationships with its customers. Kolodzieski then compared Wal-Mart’s Neighborhood Market rollout over the last five years with the company’s Supercenter rollout of 1988–1992.18 10. Fleming stressed that Walmart. and displaying a new set of needs. In the near term.24 Mr. With regards to leveraging store traffic. Wal-Mart is responding to these needs by providing in-depth product information.08 9. He also pointed out that Wal-Mart achieves the best returns on this format when it serves to complement an existing Supercenter.5 9.com value proposition to Wal-Mart customers by integrating into store signage and advertising. Fleming began his presentation by stating that Wal-Mart customers are increasingly on-line. John Fleming – SVP and COO Mr.com. However. increasing trust and average spend. Wal-Mart is planning to open 20 to 25 new Neighborhood Market stores in 2003. Wal-Mart will continue to fill in opportunities for Neighborhood Markets in the six states in which it currently operates with a continued eye on expanding to new markets. Kolodzieski stated that Wal-Mart is already rolling out the format at a faster rate than it did with Supercenters. Mr.08 14. Wal-Mart is focused on utilizing its customer traffic and strong brand to enhance its relationship with the on-line customer. Walmart.Wal-Mart Stores Figure 19: 2000 Oklahoma City Market Share Figure 20: 2002 Oklahoma City Market Share Retailer Wal-Mart/NM Albertson's Homeland Crest Discount Source: The Shelby Report Retailer Homeland Albertson's Wal-Mart/NM Crest Discount Source: The Shelby Report # of Stores 24 13 10 3 % of Market 17.62 11.69 2002 % of Market 27. Wal-Mart is launching a campaign in stores to collect customer emails and is focused on clearly communicating the Walmart. Mr. Many people have urged Wal-Mart to rollout the Neighborhood Market format more aggressively. Fleming noted that Walmart. October 9. Walmart.19 12.65 17. Mr.65 13. more convenient services.
Wal-Mart Stores Global Procurement – Ken Eaton. 4) product quality. Wal-Mart then gave specific examples of the cost reduction benefits that it was enjoying. its general merchandise margin has risen 9% in total. This provides numerous benefits for Wal-Mart including: 1) purchase order and sample coordination. and 5) transportation coordination to ports of entry. Figure 21: Margin Benefit of Global Procurement Total Wal-Mart USA Sam USA Canada ASDA Germany Improvement 9% 8% 3% 13% 15% 15% General Merchandise (Excludes Food) Source: Wal-Mart Through this new initiative. The effect on the company’s general merchandise margin has been significant. Wal-Mart’s global procurement division now has a global presence with 21 field offices and 910 field associates. Wal-Mart is simplifying the direct importing process through the use of technology such as Retail Link and Product Specification.5% retail reduction of an infant stroller. Currently. 3) factory compliance and quality inspections. Wal-Mart has daily interaction with suppliers. a 32% cost reduction and a 35% retail reduction of a digital camera accessory kit. 2) buy trip coordination. a 32% cost reduction and a 12. Wal-Mart is working on various initiatives to support the global procurement strategies. SVP and Managing Director of Global Procurement Wal-Mart’s global procurement program has only been in place eight months but is already paying dividends. The company’s strategic plan for global procurement is to leverage Wal-Mart purchases and global businesses to become the world’s best global procurement organization. 2) increased worldwide import volume. Since Wal-Mart began its global procurement program. 4) regulatory expertise. and a 40% cost reduction and 40% retail reduction of a patio furniture seat cushion. 3) increased visibility and control over the global supply chain.7% of the direct import volume. First. It is also 22 October 9. and 5) improved factory compliance with Wal-Mart’s social and ethical standards. Wal-Mart directly sources from the majority of its markets. Wal-Mart experienced a 28% cost reduction and a 29% retail reduction of its 20” high velocity fans. This strategy will be measured by: 1) reduced cost of goods in retail markets. The top 15 countries that Wal-Mart directly sources from produce 94. Due to the global procurement initiative. In the near term. 2002 .
Wal-Mart operates a vast network of 97 distribution centers segmented as follows: 33 regional. Wal-Mart is working diligently to ensure that its suppliers meet the necessary compliance standards. This also relates to inventory reduction through improved lead times and replenishment expertise. Some of its longer-term initiatives include: n Increase in directly sourced merchandise obtaining 10%–20% in additional savings n Improvements in product quality n Increase in direct food imports n Import volume via replenishment n Fully integrating supply chain from supplier to retail store Logistics and Supply Chain – Rollin Ford. environmental standards.4%. Through August 2002. This includes an ethical evaluation of factory operations based on: compliance with local laws. two tires. Wal-Mart continues to focus on ramping up in this area demonstrated by the six new food The average distance from a food distribution center to the store has been reduced to 178 miles. 2.com. The average distance from distribution center to store has been reduced to 153 miles. Lastly. right of inspection and confidentiality. In terms of general merchandise. eight fashion. The company is being proactive in ensuring the quality of its products through its new three-tiered audit system and independent testing. Through its Supplier Training Institute. Looking ahead. Wal-Mart is driving costs out of the supply chain by employing an EDLC strategy. Wal-Mart believes that its global procurement efforts will be a key driver of earnings growth. Wal-Mart is working to remove labor from store receiving. three import. six perishable. Next. Second. distribution centers scheduled to open in 2003. thus eliminating a layer of bureaucracy. Wal-Mart wants to do business with suppliers that can distribute goods Wal-Mart on a global basis. 2002 23 . October 9. Wal-Mart believes it must improve the consistency of its compliance programs. workplace standards.5 billion cartons have been shipped and productivity has increased 5. five returns. SVP Logistics With nine new distribution centers scheduled to open in 2003. 1. employment standards. Wal-Mart is working to align and develop the best suppliers. and one dot. Wal-Mart is partnering with its suppliers by giving them access to useful information that enables them to serve Wal-Mart more efficiently.9%.Wal-Mart Stores empowering its associates to more effectively merchandise and coordinate. This involves improving both production timing and the transportation cost from factory to store.3 billion cartons have been shipped and productivity has increased 6. 20 Sam’s. 19 full grocery. Wal-Mart’s grocery distribution network has rapidly gained critical mass. Wal-Mart operates 33 regional distribution centers and eight fashion distribution centers. Through August 2002. stocking and order selection.
Figure 22: 2003 Distribution Center Openings Food Food Food GM GM GM Food Food Food Source: Wal-Mart and Lehman Brothers Estimates One of Wal-Mart’s competitive advantages is its private transportation fleet. Wal-Mart is planning to open nine new distribution centers. 24 October 9. with 84% of the miles traveled on Wal-Mart equipment. This demonstrates Wal-Mart’s intense focus on taking market share in the food category through its Supercenter. These centers flow 120 million cases per year to the clubs Wal-Mart’s focus here is to continue blending loads and order processes across the network to drive efficiency.2 billion in inbound transportation expenses each year. Wal-Mart’s private fleet handles 100% of outbound general merchandise. SAM’s distribution of perishable products is through a shared network between Wal-Mart’s Supercenters and clubs. 13 perishable operations support SAM’s Clubs. SAM’s logistics flows 50% of the network volume through 19 cross dock centers. Wal-Mart’s Corporate Traffic department manages over $3. discount store and Neighborhood Market formats. six of which are dedicated to food and three are dedicated to general merchandise. 2002 . Currently. Wal-Mart’s private transportation fleet encompasses 6. Import merchandise flow is split 50/50 between the east coast and west coast ports.Wal-Mart Stores Wal-Mart operates 20 SAM’s Club distribution centers. These centers combined handle 12 million pallets a year. In 2003.880 drivers and travels approximately 830 million miles in a single year. Wal-Mart’s focus for these operations is speed and flexibility including the ability to dynamically reallocate merchandise en-route. Backhaul revenue is projected at more than $800 million for 2002.
As a result of its supply chain improvements. and auto identification using RFID. These plans include new Superbatch expansions of older batch buildings. and driving in-stock and lower costs. and process improvement to drive down costs and increase customer service. Wal-Mart has numerous plans to maximize its ROI over the next five years. estimated to increase throughput by 20%. Wal-Mart is efficiently flowing goods in a way that will drive costs out of the supply chain. They are also driven by the latest Door per Store prototype. and 3) quick-to-shelf. Wal-Mart is developing and implementing two-tier replenishment. mechanization.000 to 260. and improving future prototypes. depalletization. and print-and-apply machines.000. global supply chain visibility. Wal-Mart is also making great strides in improving its supply chain. reduce overall inventory. ergonomic Figure 23: Supply Chain Applications Supplier Efficient Production Planning Faster Demand Response "High-Resolution" Recall Club/Store Automatic Checkout Reduced stock-out Theft Prevention Product Tracking Consumer Smart Appliances Personalized Marketing Point-of-use Ordering Distribution Center Automated Inventory Count Faster Receiving & Shipping Better Quality Inspection Better Overall Accuracy Source: Wal-Mart In summary. Wal-Mart’s main initiatives are centered around people development. Wal-Mart’s future logistics network and merchandise flow processes can be better designed to support growth while improving its cost advantage in the marketplace. voice order filling of general merchandise. There are three basic underlying store/club service principles easily executed by the stores: 1) fast-moving consumable trailers. The company is focused on maximizing its asset utilization through the development and use of technology. These principles are resulting in improved performances across metrics: 1) in-stock levels. 2) efficiency and 3) inventory productivity. 2002 25 . 2) prime delivery windows. Given the density of its network. Wal-Mart is moving from a category-based network to a velocity-based network. The future network and processes will: October 9. which has increased throughput from 220. dynamic replenishment. maximizing asset ROI. Other engineering projects aimed at maximizing ROI include Auto-FID.Wal-Mart Stores In terms of logistics. Key components of the strategy include increasing facility throughput. and improve customer in-stock. implementing new process designs.
Wal-Mart estimates that. Retail sales in Canada grew 1. Wal-Mart has found that stores with Pantry departments enjoy increased shopper frequency.3% in 2Q02. 26 October 9. which grew 4. 23. Pilozzi noted that there is room for Wal-Mart to add 19 stores to the greater Toronto area. Montreal.000 new jobs were created in July. Wal-Mart currently has a total of 199 stores in Canada. and there were Figure 24: Wal-Mart Canada Store Count 250 213 200 CAGR = 7.8% in June. Mr. Adding pantry departments to its stores represents one initiative the company is rolling out aggressively in Canada.Wal-Mart Stores n Maximize the assets n Support the growth of high volume Supercenters and their increasing operational complexity n Improve network flexibility to support divergent retail formats n Drive increased in-stock performance and lower costs to the store shelf Wal-Mart International Canada – Mario Pilozzi. In fact. President of Wal-Mart Canada Mr. given its three existing distribution centers in Canada.000 housing starts in July. Wal-Mart has a mandate to put a Pantry department in every Canadian store it remodels.1% 196 153 166 174 1 50 123 131 136 144 1 00 50 0 1 994 Source: Wal-Mart 1 995 1 996 1 997 1 998 1 999 2000 2001 2002E Wal-Mart judges that there is still potential for significant growth in Canada. President of Wal-Mart Canada opened the discussion with an overview of the Canadian economy. it has the infrastructure to support a total of 348 Wal-Mart stores across the entire country. 2002 . which already has 23 Wal-Mart stores can hold up to 12 more Wal-Mart stores. Mario Pilozzi. over 200.
000 housing starts in July 2002. Wal-Mart will be focusing its efforts on this area of the country.712 2. With 68% of Brazil’s GDP distributed in the Southeast region. The company is currently the No.Retail sales increased 1. Brazil has 175 million consumers.200.23.677 . 2002 27 .Wal-Mart Stores The Wal-Mart brand has enjoyed significant success in Canada. making it the ninth-largest economy in the world.3% in 2Q.Economy grew 4. President and CEO of Wal-Mart Brazil Wal-Mart management also highlighted Brazil as a strong growth opportunity for the company. . Overall. Wal-Mart also maintains a onethird share of the DVD/VHS movie market in Canada. it is also a top 20 retail market.8% in June 2002. . Source: Wal-Mart Source: Wal-Mart Brazil – Vincent Trius. . With nearly $35 billion in retail sales. Figure 25: Canadian Retail Competitive Environment Figure 26: Canadian Economy Company The Bay Sears Zellers Canadian Tire Loblaws Total # Stores 100 123 289 453 1. Wal-Mart is gaining tremendous momentum in Canada and the company looks for this country to continue to be a growth engine with in its International segment. 1 footwear retailer in the country and the No.000 new jobs were created in July 2002. 2 apparel retailer. Its footwear business is growing at 6x the industry rate. particularly in Sao Paolo and Rio de Janeiro. Figure 27: Wal-Mart Brazil Store Count 16 Supercenters Sam's Clubs 12 12 Todo Dias 12 12 9 8 5 4 9 8 6 8 8 2 2 0 1998 Source: Wal-Mart 1999 2000 2001 2002 October 9.
517 SAM’s Clubs and 97 distribution centers. 2002. VP of the New Store Program. Wal-Mart is implementing “store of learning” and “colleague circles” programs to facilitate a transfer of culture and shared vision and value systems. In its Brazilian store operations. As of August 31.4% Neighborhood Markets 0.603 1. new market development 28 October 9.4 79. VP of the New Store Program.6 64.7% Sam's Clubs 12. Supercenters currently represent 42. Real Estate – Eric Zorn. SVP of Domestic Real Estate. Neighborhood Markets will be used as a fill-in between Supercenters and small markets will provide new opportunities for SAM’s Club in addition to existing metro markets.603 discount stores. 1. Wayne Cox. Figure 28: Store Count and Square Footage (in millions of square feet) Figure 29: Allocation of Square Footage Discount Stores Supercenters Neighborhood Markets Sam's Clubs Distribution Centers Total Stores 1.4 million square feet.179 Supercenters. testing metro markets for saturation of Supercenters and a couple of markets with Neighborhood Markets.Wal-Mart Stores The introduction of two Todo Dia stores has been a successful integration thus far.3% of Wal-Mart’s total operating real estate (including distribution centers) and 50% of Wal-Mart’s total retail space. 36 Neighborhood Markets.3% Source: Wal-Mart Source: Wal-Mart Mr.0 518.179 36 517 97 3. Eric Zorn.432 Square Feet 153. Rob Bray. Rob Bray. SVP of Store Planning Mr. The company expects these ratios to continue growing as it focuses on expanding the Supercenter format to new regions of the U.2% Discount Stores 29. as Wal-Mart has seen rapid adoption of its best practices.3% Supercenters 42. discussed Wal-Mart’s current real estate program to maximize market share. Zorn went on to note that the broad new store program for future years entails the following: Supercenters will be the predominant growth vehicle.5 1. Wal-Mart operated 1.4 Distribution Centers 15. led off the presentation on Wal-Mart’s Realty and Store Planning strategies.9 219.S. as well as converting existing discount store formats. This program is focused on achieving a higher store density in metro markets. 2002 . totaling 518. Then Mr. SVP of Domestic Real Estate. Del Sloneker. VP of Design and Construction.
41 Supercenters. He stated that the company’s goal is to have four discount stores. set the best store. and relocations. Bray described one particularly interesting example of a metro market in which Wal-Mart currently has 10 discount stores and nine Supercenters and six SAM’s Clubs. The overarching objective of his group is to keep Wal-Mart stores fresh and appealing. Wal-Mart has also made modifications to the prototype during the last eighteen months based on insights from the initial tests. He said the key to keeping initial building and site costs under control is to use building design refinements and competitive contractor bidding.55 200 . VP of Design and Construction. Wal-Mart tries to remodel/redesign each Supercenter every five to seven years and each discount store every seven to nine years. Mr. expansions.1% 10. 2002 29 . Wal-Mart plans to add between 305 and 335 new stores in 2003 (including expansions and relocations). Source: Wal-Mart Source: Wal-Mart Mr. To illustrate Wal-Mart’s market share expansion strategy. Del Sloneker. He stated that his group’s primary goals are to: open the most competitive store.210 20 .335 Discount stores Supercenters Neighborhood Markets Sam's Club Sales Volume Market Share Today In 5 Years 10 4 9 41 0 9 6 10 $1. translating into a tripling of sales and a doubling of market share over that period (see Figure ___ below). Figure 30: Fiscal 2004 New Store Program Plan Figure 31: Market Development Strategy – Metro Market Example Discount Stores Supercenters Neighborhood Markets Sam's Clubs Total 45 .25 40 . Then Wayne Cox.6% Note: Includes new stores. Salt Lake City).867mm 5.Wal-Mart Stores resources to tap markets with highest potential. discussed Wal-Mart’s evolving store designs. SVP of Store Planning spoke next. ensure complete in-stock of merchandise. He said that the company is continuing to test this format and is growing the test program in conjunction with metro market density penetration strategies (e. and analyzing non-metro markets for maximum density. nine Neighborhood Markets and 10 SAM’s Clubs in five years in this same metro market.45 305 . hire and train quality associates and implement all company programs.662mm $4.g. October 9.. Bray went on to discuss the status of Wal-Mart’s new Neighborhood Market concept.
” n Club/Store This technology will facilitate automatic checkout. The technology also allows Wal-Mart to perform personalized marketing for each customer.. It is a microchip technology that will eventually be integrated into every product or product package that Wal-Mart sells. and implement point-of-use ordering (e.g. n Distribution Center: RFID technology will allow Wal-Mart to make automated Center inventory counts.g. Its applications are fivefold: n Consumer RFID can be integrated into “smart appliances” systems (e. n Recycling RFID can be used to automate the sorting process for recycling.Wal-Mart Stores Figure 32: Store Remodeling History and Plan 300 Supercenters 250 200 150 100 50 0 1998 Source: Wal-Mart Discount stores 1999 2000 2001 2002E 2003E 2004E RFID RFID is one of the keys to Wal-Mart’s technology strategy. theft Club/Store tore: prevention and product tracking. enjoy faster shipping and receiving. n Suppliers RFID provides timely information such that suppliers can execute more Suppliers: efficient production planning. smart Consumer: refrigerator ordering). 2002 .. and realize better over all inventory inspection and accuracy. reduced stockout. order more brand X soda from home). provide faster demand responses and provide “highresolution recall. Recycling: 30 October 9.
25 26.0% 4.725 $28.897 36.438 $24.728 85.180 8.881 10.485 10.772 13.0% 1.013 19.0% 24.326 $10.5% 129 $6.6% 1.2% $191.2% $106.9% 3.5% 1. prior year Sales Growth vs.8% 129.99 27. prior year Interest Expense Pre-tax Income Pre-tax Margin Income Taxes Tax Rate Minority Interest Net Income Net Margin Growth vs.4% 5.056 2.111 4.8% 108.354 36.5% $16.9% 1.131 14.2% $0.2% $6.040 16.7% 1.2% 7.263 -2.3% 5.4% 153 $4.833 $59.1% 4.812 13.489 10.749 13. prior year McLane Growth vs.564 $19.820 12.897 10. 2002 Source: Company reports and Lehman Brothers estimates Wal-Mart Stores 31 .162 4.4% $32.6% $13.5% 41.8% 2.295 15.3% 32.612 5.9% 2.4% 27.323 5.953 13.6% 45.7% 13.3% 3.063 20.712 145.993 12.6% $165.0% 4.4% 1.740 37.966 9.798 8.8% 4.3% 201 9.100 41.221 12.698 5.813 12.3% $117.002 34.3% 93.0% $1.4% 19.5% 4.5% $245.686 4.769 5.255 $41.Figure 33: Annual Income Statement.550 16.1% $94.628 14.5% 31.1% $166.729 12.2% $4.271 14.3% 4.78 19.4% $219.208 16.8% 2.247 62.592 1997 Year $83.168 $12.06 15.9% 1.671 3.7% 7.150 16.946 16.2% $119.4% 17.5% $217.7% 171.510 $21.8% 7.1% 6.909 21.1% 29.796 14.0% 15.0% $1.5% — $3.1% $45. prior year Other Income Growth vs.517 50.405 16.3% $247.7% 170 $5.430 3.083 5.242 $14.6% $0.8% 5.0% 20.0% 4.8% $104.1% 845 $4.923 8.976 $52.534 1998 Year $95.763 23.122 22. prior year Average Shares Oustanding October 9.562 $46.4% 16.5% 1.013 2.481 2002E Year $157.115 37.545 35.952 16.395 9.173 16.0% $275.468 Wal-Mart Stores Division Growth vs.49 6.4% $5.295 3. 1995–2003E (in millions of $) 1995 Year $66.0% 83.0% — $3.524 5.022 $9.111 19.068 0.5% 3.1% $1.3% 12.2% 784 $5.785 3.292 15.6% 1.850 11.840 12.7% $11.0% $272.740 2.641 4.346 4. prior year Diluted EPS Growth vs.788 30.809 19.634 16.801 8.6% 4.9% 1.403 4.799 13.151 12.4% $0.484 1999 Year $108.575 3.576 10.6% 1.338 36.606 37.7% 1.4% 14.349 21.8% 26.520 20. prior year Cost of Goods Sold Gross Profit Gross Margin SG&A Expenses SG&A Ratio Operating Income Operating Margin Growth vs.668 4.7% $93.67 11.349 20.1% 10.116 5.0% $35.5% $9.374 $10.474 2000 Year $121.0% 213.329 15.9% 2.859 12.8% 35.8% 797 $7. prior year International Growth vs. prior year Sam's Clubs Growth vs.358 16.5% $0.8% 4.0% 2.398 10.395 13.017 21.464 2003E Year $175.6% 74.0% 14.8% 22.836 21.692 36.6% $139.064 4.8% 192.0% 22.2% 4.9% 1.4% $8.947 3.2% $40.9% 19.7% 4.751 4.9% 1.0% — $2.60 2.850 4.9% $2.5% $14.721 14.889 12.232 14.9% $1.097 11.0% $4.127 11.4% 5.237 21.5% 5.9% 11.4% 15.3% 2.074 21.5% $193.2% 22.9% 150.78 16.484 2001 Year $139.592 1996 Year $74.2% 36.6% 5. prior year Total Revenues Growth vs.249 11.1% 3.574 24.9% $137.542 20.214 3.0% 26.546 4.363 16.1% 26.2% 183 $6.794 37.664 $35.526 3.8% 19.627 13.5% 12.958 12.4% 8.6% $10.8% 206 7.2% 19.9% 4.2% 25.5% 887 $4.40 12.309 5.8% 2.
597 12. prior year Diluted EPS Growth vs.052 11.893 16.671 3.180 8.596 $12.038 3.8% 37.1% 280 $2.5% 1.2% 19.0% $0.1% 262 $3.395 9.0% $48.562 $46.4% $14.487 Q2A $33.6% 810 36.0% 352 $2.974 12.788 30.601 15. prior year Sales Growth vs.7% $53.1% 7.671 5.7% $55.3% 85 $2.764 13.1% 6. prior year Cost of Goods Sold Gross Profit Gross Margin SG&A Expenses SG&A Ratio Operating Income Operating Margin Growth vs.535 7.0% 7.5% 30 $1.468 Q2A $38.7% 1.3% 8.613 4.9% 4.297 $52.5% 476 -5.7% $0.7% $0.0% $1.641 14.908 4.586 13.0% $0.173 16.9% $52.365 4.0% $59.470 Q3A $33.452 2002E Year $158.097 11.0% 45 $2.622 3.059 4.024 5.480 3.799 13.2% 4.3% $53.36 1.3% 7.454 17.9% 954 36.334 4.31 0.9% -10.0% 8.1% $623 12.305 14.49 14.0% 4.2% 7.164 29.131 14.7% 10.7% $52.4% $64.481 2.5% 470 -1.8% 35.295 11.387 21.751 4.990 21.0% $40.960 14.2% 4.3% $248.9% $64.8% -8.2% 183 $6.8% 513 11.79 20.256 4.5% 41.0% 270 $4.452 Q3E $38.1% 57.3% $2.023 15.4% 11.49 6.188 3.3% -8.2% 36.5% 6.1% $32.9% 4.2% $2.8% 221 7. prior year International Growth vs.0% $538 13.0% $4.6% 8.4% 1.5% 872 36.485 10.423 3.939 4.1% 46.7% $3.795 5.1% 0.902 21.209 16.41 23.6% 3.214 13.2% 4.4% $60.300 15.5% $71.897 36.37 20.2% 41.636 6.417 15.9% 4.33 4.308 17.326 $10.5% 3.432 13.8% 351 $2.1% 3.459 36.0% $9.7% 13.992 17.0% $12.143 16.481 Q1A $35.0% 2. prior year McLane Growth vs.7% 10.7% 6.5% 4.8% 932 35.1% 43.0% 46.912 $13.452 Q4E $46.4% 0.9% 10.9% 1.004 $14.3% $0.269 14.4% 4.56 13.565 11.8% $54.824 3.7% 171.8% 9.639 $13.5% $246. prior year Total Revenues Growth vs.917 21.1% -4.270 9.1% 29.7% 79 $2.8% $1.058 $11.9% 281 $2.394 13.809 7.694 13.4% $219.1% 9.124 13.812 13.362 12. prior year Interest Expense Pre-tax Income Pre-tax Margin Income Taxes Tax Rate Minority Interest Net Income Net Margin Growth vs.456 October 9.9% $2.628 14.909 15.448 4.0% 3. 2001–02E (in millions of $) Q1A $30.064 4.8% 2.494 4.678 16.5% 3.1% -11.052 11.738 15.114 17.1% 561 19.380 2.388 $11.2% 8.2% $0.2% 3.0% 193.297 37.055 21.5% 50.350 21.0% $8.214 15.412 $11.5% 37 $1. 2002 Wal-Mart Stores Division Growth vs.9% 3.8% 11.3% 50 $1.2% 7.295 11.7% 8.6% 5.6% $10.207 5.210 13.7% 9.994 3.147 17.971 20.5% 554 5.6% $3.625 4.7% -10.8% $2.093 $12.2% 4.296 10.681 4.5% 41 $1.236 4.5% $72.580 35.418 14. prior year Average Shares Oustanding Source: Company reports and Lehman Brothers estimates . prior year Sam's Clubs Growth vs.298 20.3% $2.Wal-Mart Stores 32 Figure 34: Quarterly Income Statement.5% $217.4% 458 -10.0% $3.275 5.3% 301 $3.4% 1.0% 4.3% 41.893 14.0% $2.1% 4.939 9.870 14.202 21.795 14.457 10.1% $0.5% $9.1% $0.481 Q4A $40.1% $48.5% 9.799 14.850 $10.9% 3.2% -6.130 44.9% $59.197 18.652 3.691 15.9% 1.0% $60.708 4.6% 8.473 2001 Year $139.255 13.261 35.2% 4.237 21.6% 1.8% 10.065 36.124 35.5% 37 $1.013 2.751 11.2% 322 $2.220 4.7% $11.46 26.126 10. prior year Other Income Growth vs.390 4.8% 2.528 5.291 4.
245 8.998 1.280 $743 19.616 $19.296 $100.866 3.356 $35.674 2.891 $49.112 $49.343 $78.316 $37.637 $31.000 0 22.161 2.268 2.747 26.617 7.257 4.639 0 $32.639 0 $27.426 $43.461 17.607 716 1.661 2.555 $37.291 $26.273 35.355 4.604 $9.024 $70.785 14.207 $55.043 1.989 406 $17.323 13.628 1.617 13.279 $44.655 1.141 565 $14.Figure 35: Annual Balance Sheet 1995–2003E (in millions of $) 1995 Assets: Cash and Equivalents Receivables.016 1.793 1.076 1.102 $83.006 501 $16.130 $2.041 618 298 $10.824 $100.856 1.541 1996 $883 845 0 15. Sale/Leaseback Inventories Prepaid Expenses Total Current Assets Property & Equipment.170 $42.054 1.541 $10.799 $28.983 44.969 10. Net Recov.366 $24.884 21.105 6.132 $25.949 $15.207 $51.639 0 $29.712 $91.937 1998 $1.364 1.118 0 17.349 $3.497 432 $17.732 1.600 731 22.674 759 1.395 $28.174 3.331 18.488 22.291 $91.358 $21.556 12.375 $743 15.442 1.588 1.736 1.640 39.161 1.604 1997 $0 976 0 16.234 982 $28.126 3.762 $9.111 12.341 0 19. 2002 Wal-Mart Stores 33 .894 1.803 $16.649 $83.973 2.460 9.324 1.352 $743 17.503 $45.129 $25.212 0 23.349 2000 $2.456 0 24.475 $29.691 $49.768 0 21.345 $56.092 6.798 123 $11.957 10.130 2001 $2.897 368 $17.375 2002E $2.054 1.591 1.207 $48.140 $46.515 25.834 $70.996 1999 $1.731 3.879 1.059 $21.881 18.368 7.614 1.606 2.371 12.286 15.996 Source: Company reports and Lehman Brothers estimates October 9.905 $23.533 2.229 1.756 $37.958 $78.384 10.454 10.280 $8.085 1.287 $39.161 2.787 31.993 20.143 $39.352 2003E $2.173 $18. net Other Assets Total Assets Liabilities and Equity: Short-term Debt Acct Pay Accrued Liabilities Current Portion LT Debt Income Taxes and Other Current Total Current Liabilities Long-Term Debt Deferred Taxes Minority Interest Total Liabilities Shareholders' Equity Liabilities and Equity $83 853 0 15.
290 0 — — (1.337) (2.519) (1.865) 80 (4.088) 1.316 — 6.533) — 4.426) (611) (2.714) (2.375 0 198 (255) (2.868 0 — — (1.947 3.634 0 — (78) (365) 1.661 October 9.856 2000 $6.458) 632 — (615) (140) (481) (3.108 697 7.636) (1.591 (3.200) — — 856 — (2.249) (2.161 2002E $7.158 (10.730 (8.123 (2.000) (1.042) (672) — — (8.481) — 106 2.418) — — 536 (1.235) 368 1.671 3.295 2.734) (855) n/a 171 (4.377 2.629 — (23) 1.630) (3.430 1.872 0 n/a (148) (379) 1.519) 15 (1.879 1. 2002 $2.385 68 — (212) (1.146) (1.600) — — — (10.787 (10.161 2.419) n/a (244) (16.194 (6.751 970 12.075) (1.183) (10.056 1.498) (693) (2.054 2001 $6.466 — (3.846) 4.730) — 432 1.166 10.643) — 464 111 (2.978) (29) 107 2.004 (207) (12) (458) 987 — 38 45 83 .268 2003E $9.268) (1.877 170 14.383 (3.600) — — 1.447 1998 $4.856 2.070) (818) — 198 1.061 301 9.268 2.879 1999 $5.022) — 3.122) 1.214 3.795) 2.237 — (7.208 162 5.463 0 — (58) 99 1.054 2.Wal-Mart Stores 34 Figure 36: Annual Cash Flow Statement.138) — 564 883 1.304 0 — (61) (1.383) — 1.930 (2.000) (1.860 135 — (243) (855) 1.260 (8.068) (2.580 (3.740 1.062) — 800 83 883 1997 $3.332) 660 1.200) — — — (10.566) — 234 (3.849 738 8.358 7.421) — 547 (648) (1.526 1.850) 448 (198 2.048 1.778 (1.000 (863) 66 (890) 8.164) — 394 2.447 1. Cash Flow Cash From Investing Capital Expenditures Acquisitions Sale of Plants Other Net Cash From Investing Cash From Financing Change in ST Debt Net Proceeds from REIT Issuance of LT Debt Repayment of LT Debt Purchase of Stock/Other Dividends Net Cash From Financing Effect of Exchange Rate Changes Change In Cash Beginning Cash Ending Cash Source: Company reports and Lehman Brothers estimates 1996 $3. 1995–2003E (in millions of $) 1995 Cash From Operations Net Income Depreciation & Amortization Deferred Taxes Nonrecurring Items/Other Changes in Working Capital: Receivables Inventories Payables Net Accrued Liabilities and Other Assets Total Oper.
(3) the ability to acquire and successfully integrate assets abroad. Risk Disclosure(s): WMT: We believe the long-term risks for Wal-Mart are (1) the challenges associated with managing increasingly vast and complex operations. 2002 35 . and/or an affiliate managed or co-managed within the past 12 months a public offering of securities for Wal-Mart Stores.23 Rating 1-Overwght/3-Negative Price Target $67. interest rate fluctuations. Our earnings forecast and investment thesis for Wal-Mart are subject to such factors as cost of goods.Wal-Mart Stores Rating and Price Target Chart: WMT Date 16-Sep-02 13-Sep-02 07-Feb-02 28-Sep-01 11-Sep-01 Closing Price $54. October 9. consumer spending and debt levels. currency fluctuations.75 $54.50 $67. and/or an affiliate has received compensation for investment banking purposes from Wal-Mart Stores within the past 12 months.00 Date 19-Jun-00 08-Feb-00 14-Dec-99 13-Dec-99 Closing Price $54.39 $49.00 $75.00 $70. Lehman Brothers Inc. (2) the growing contribution of the lower-margin food business to the overall merchandise mix.40 $58.00 $80.50 $46.31 $59. and variability in comparable-store sales.00 Dropped $80.00 $100.00 Disclosures: The analysts responsible for preparing this report have received compensation based upon various factors including the Firm’s total revenues.25 Rating Price Target $100. store expansion plans.06 $68. a portion of which is generated by investment banking activities. and (4) the proficiency with which the company adapts its store formats to the various economic and cultural environments in international markets. Lehman Brothers Inc.
Distribution of Ratings Lehman Brothers Equity Research has 1480 companies under coverage.expected to underperform the market by 5-15 percentage points. V -Venture . 27% have been assigned a 3-Underweight rating which. 4-Market Underperform . 39% of companies with this rating are investment banking clients of the Firm. he should consult his Lehman Brothers representative.0011 Tokyo 12-32 Akasaka 1-chome Minato-ku Tokyo 107 Japan 813. 2-Outperform .GLOBAL EQUITY RESEARCH New York 745 Seventh Avenue New York. for purposes of mandatory regulatory disclosures. Additional information is available on request. plus or minus 5 percentage points. and in Singapore by Lehman Brothers Inc. Singapore Branch.7354 Hong Kong One Pacific Place 88 Queensway. RSRS -Rating Suspended .3000 This material has been prepared and/or issued by Lehman Brothers Inc. 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This material is distributed in Japan by Lehman Brothers Japan Inc.the stock is expected to perform in line with the unweighted expected total return of the industry sector over a 12-month investment horizon.expected to perform in line with the market. London One Broadgate London EC2M 7HA England 44. from time to time.sector fundamentals/valuations are improving.. Sector View: 1-Positive . 28% of companies with this rating are investment banking clients of the Firm. This material is distributed in Australia by Lehman Brothers Australia Pty Limited. If an investor has any doubts about product suitability. and they may not be suitable for all types of investors. is accurate or complete and it should not be relied upon as such. 32% have been assigned a 1-Overweight rating which. 4-Underperform . 2002 (sector view did not exist): This is a guide to expected total return (price performance plus dividend) relative to the total return of the stock’s local market over the next 12 months. NY 10019 USA 1. or other factors. 3-Neutral . This material is distributed in Korea by Lehman Brothers International (Europe) Seoul Branch. neither improving nor deteriorating. 2-Buy .2869.return over multiyear timeframe consistent with venture capital. Stock Ratings Prior to February 2001 (sector view did not exist): 1-Buy .5571. 3-Negative . or solicit investment banking or other business from any company mentioned in this document.212. is classified as a Sell rating. 1-Strong Buy .. © 2002 Lehman Brothers. and in Hong Kong by Lehman Brothers Asia Limited.expected to outperform the market by 5-15 percentage points. plus or minus 5 percentage points. Please contact a Lehman Brothers entity in your home jurisdiction.expected to outperform the market by 15 or more percentage points. 2-Neutral .sector fundamentals/valuations are steady. Stock Ratings From February 2001 to August 5.com/disclosures. is classified as a Buy rating. regulated by the Financial Services Authority. 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