Company ideally positioned in current economic climate

BENTONVILLE, ARK. —Wal-Mart’s annual shareholders meetings tend to be festive affairs where the company treats the thousands of employees who descend upon Fayetteville, Ark., from around the world to entertaining performances from celebrities so famous they only need one name.

If Wal-Mart holds true to form, that will be the case again early next month when an estimated 15,000 people gather at Bud Walton Arena on the campus of the University of Arkansas. The big difference this year is that shareholders will be able to join in on the celebration, because their investment in Wal-Mart is finally making money.

Since the Oct. 24, 2007, conclusion of a two-day meeting with analysts last fall, Wal-Mart’s share price has increased 31% based on a May 14 closing price of $57.45. Shares have increased 21% since beginning the new year at $47.41. Factor in Wal-Mart’s board’s March 6 decision to increase the dividend by 8% and raise the annual payout to 95 cents, and shareholders now have a reason to cheer alongside the company’s employees.

It’s been a long time coming as Wal-Mart shares have treaded water since 2000, but the company now appears to have the wind at its back and, as executives have asserted recently, it is ideally positioned in the current economic climate. That explains why customer traffic at Wal-Mart stores increased during the first quarter for the first time in a long time and a 2.9% same-store sales increase, excluding the favorable impact of gasoline prices, was the highest reported by the company during the past two years and exceeded company guidance and analysts’ estimates.

During the first quarter, total sales increased 10.2% to $94.1 billion and net income increased 6.9% to slightly more than $3 billion. While those are not large percentage gains, it was the performance of the U.S. Stores division that garnered the most attention. Sales increased 6.6% to $59 billion, but operating profits increased 9.6% to more than $4.3 billion.

“I’m not only pleased with the result we have delivered for the first quarter, but I am cautiously optimistic about the rest of the year,” said U.S. Stores division president and ceo Eduardo Castro-Wright during a recorded message released on May 13 in conjunction with first-quarter results. “The macro-economic environment will continue to be challenging, but our business is very well positioned to compete in this environment.”

Fuel costs and related expense pressure eroded margins somewhat, but one source of expense pressure was a problem Castro-Wright said he was glad to have. Wal-Mart said it contributed $724.4 million to 838,955 associates through profit sharing and 401(k) contributions and kicked in another $50.1 million to 764,098 hourly associates who participate in the company’s stock purchase plan.

“Bonuses are paid on a quarterly basis and I’m happy to see that expense line grow,” said Castro-Wright.

Despite an across-the-board solid first quarter, the market’s enthusiasm for Wal-Mart’s stock was tempered by the company’s conservative guidance for the second quarter and lack of insight into how Wal-Mart will be impacted by tax rebate checks that began arriving in May. “As we have discussed, it is currently difficult to quantify the impact on U.S. sales from the stimulus payments,” said cfo Tom Schoewe.