[Investment Management Report on WalMart]

1、investment management report on wal-martakshay ajmaniid- 11182861contentsinvestment summary and recommendation2systematic risks (the retail industry)5business risks:5operational risks:5technological risks:5company description and background6headquarters6background7major competitors9management struct

2、ure9primary and secondary markets / products11business model14swot analysis14revenue drivers16expense drivers and margin discussion16analysis of the companys recent financial performance17most recent quarter17most recent year18previous five years:20peer group analysis21comparative data (product diff

3、erentiation, market share etc)21ratio analysis24liquidity ratios24asset utilization ratios24profitability ratios25market ratios25debt ratios26analysis of the companys future performance27projected income statement, balance sheet and cash flow statement27forecast for next ten years27analysis of the c

4、ompanys weighted average cost of capital28valuation of the companys common shares29discounted cash flow (including the forecast for terminal or horizon value)29dividend discount model29relative p/e and peg ratio29conclusion and recommendation30bibliography311.tables & spreadsheets, including pro

5、jected financial statements31 investment summary and recommendation in spite of the economy slowdown, i expect wal-mart to still gain market share as consumers will avoid higher cost competitors and take advantage of wal-marts pricing policy, though lower consumer confidence and rising unemployment

6、may hinder wal-marts growth and affect companys results. because of not so good performance in the international segment especially germany and south korea, i feel wal-mart will try to increase its comparable sales by focusing more on the local market rather than expanding to totally new stores worl

7、dwide. hoping to improve its performance internationally, wal-mart may participate in various acquisitions and joint ventures for example it has already started in china under the name trust-mart and in india with bharti enterprises. with cut down on opening new stores resulting in decrease in capit

8、al expenditure, i feel wal-mart will use this excess cash to repurchase more shares, increase dividends. since all these factors augur well for the share holders, i would recommend holding on to wal-mart shares in the long run and buy their shares for the short term. this is well supported by the fa

9、ct that based on my projections made for future wal-marts growth, the share value(npv) should be around $65with wal-mart share currently trading at $52 systematic risks (the retail industry)the systematic risks for wal-mart are the risks associated with the retail industry. the following risks are t

10、he most common and important:business risks:1. economic factors such as interest rates, energy costs, decline in the housing market, inflation, higher unemployment rate, saturation of consumer credit, higher consumer debt levels, higher tax rates result in economic slowdown which in turn affect the

11、consumer demand thus affecting the performance of the retail industry.2. economic conditions specific to international markets such as political instability, rules and regulations specific to that country, foreign currency exchange rates and fluctuations, intellectual property rights impact a great

12、deal on the cash flows from the international operations. operational risks: 1. various legal proceedings involving consumers, employers if decided adversely will be incurred as a liability and will affect financial conditions and liquidity.2. the retail industry sells products that are made availab

13、le from variety of domestic and international suppliers. the major risk or challenge is involved in finding reliable suppliers from whom raw materials are readily available; provide transport availability and security at a reliable rate.3. the retail industry needs to deal with other operational fac

14、tors which are not in their control such as the limitation on the importation goods from other countries. 4. quality of the goods purchased from the suppliers is of utmost importance concerns regarding the quality of products from customers will result in a decline in future purchases and thus affec

15、t the financial performance. technological risks:1. any compromise in security systems resulting in unauthorized access of customers personal information will affect the reputation.2. most of the retailers these days indulge in online operations which allow the customers to purchase goods available

16、through the internet. this requires secure transmission of confidential data such as customer credit card number etc. any security lapses will affect the reputation.company description and background headquarterswal-mart stores is a retail force that is not only bigger than europe's carrefour, t

17、esco, and metro ag combined but is also bigger than exxonmobil, general motors, and general electric. it is the world's number 1 retailer, with more than 7,250 stores, including about 975 discount stores, 2,800 combination discount and grocery stores and 590 warehouse stores (sam's club). ab

18、out 55% of its stores are in the us, but wal-mart is expanding internationally with operations in argentina, brazil, canada, china, india, costa rica, el salvador, guatemala, honduras, japan, mexico, nicaragua, puerto rico, and the u.k. it is the number 1 retailer in canada and mexico. it also owns

19、a 95% stake in japanese retailer seiyu. wal-mart is headquartered at:702 s.w. eighth streetbentonville, ar 72716 united statesphone: 479 273-4000fax: 479 273-1986 background it started in 1945 when sam walton decided to start a variety store. with a loan of $20, 000, he purchased a ben franklin vari

20、ety store in newport, arkansas. during the period of 1960s and 1970s based on the success of various other discount department store chains, walton realized that he could obtain higher sales volume by passing on the savings to his customers. he with his assistant bob bogle started a discount chain i

21、n rogers, arkansas and thus evolved the name “wal-mart”.by 1967, the company grew to 24 stores across the state of arkansas, and reached $12.6 million in sales. as time passed by and based on the current revenue generation, wal-mart opened its first stores outside of arkansas in sikeston, missouri a

22、nd claremore, oklahoma.in 1972, wal-mart got listed on the new york stock exchange and started operating in various states across the us such as arkansas, kansas, louisiana, missouri and oklahoma. by 1977, wal-mart made its first corporate acquisition in mohr-value stores in michigan and illinois. t

23、his was followed by the acquisition of the hutcheson shoe company in 1978.in 1978, in order to increase its versatility and to improve its profit margin, wal-mart ventured into several new markets such as pharmacy, auto service center, and jewelry divisions.by 1979, wal-mart reached $1.248 billion i

24、n sales with 276 stores and 21,000 associates.during the period of 1980s and 1990s, the company opened its first membership based discount store named after sam walton called as the “sams club”. in 1984, to make the environment at all stores customer friendly and to attract more customers, wal-mart

25、implemented “people greeters". these are the people who greet people, identify items that need to be returned, give directions, help the disabled find electric carts, checks items purchased by shoppers exiting the stores and puts stickers on returned items.by the companys 25th century, wal-mart

26、 had completed their satellite network, a $24 million investment, linking all operating units of the company with their bentonville office via two-way voice, data, and one-way video communication. this helped to track inventory, sales, and send instant communication to their stores.during the year 1

27、988, wal-mart opened a supercenter that contained everything contained in a standard wal-mart discount store, along with additions such as tire and oil change shop, optical center, one-hour photo processing lab, portrait studio, and numerous alcove shops such as banks, cellular telephone stores, hai

28、r and nail salons, video rental stores, and other fast food outlets.by the end of 1990s, there were 1,198 stores with sales of $15.9 billion and 200,000 associates.during the period of 1990s, wal-mart made various acquisitions such as the mclane company , western merchandisers, inc , pace membership

29、 warehouse and also to moved to various states such as connecticut, delaware, maine, maryland, massachusetts, new hampshire, new jersey and new york markets. it was during this period that wal-mart entered the international markets with the opening of stores in mexico city, canada, hongkong.by 1995,

30、 wal-mart had 1,995 discount stores, 239 supercenters, 433 sams clubs and 276 international stores with sales at $93.6 billion (including us sales of $78 billion) and 675,000 associates. with good response from customers towards their pricing policy and sales touching sky high, wal-mart was able to

31、replace woolworth (one time largest retail company) on the dow jones industrial average.in the year 1997, with the sales touching a record $100 billion, wal-mart introduced a concept of neighborhood markets that are primarily grocery stores and attract customers with easier parking and quicker check

32、outs.during the 21st century wal-mart was ranked as the most admired company in america. by the end of 2005, wal-mart had $312.4 billion in sales, more than 6,200 facilities around the world, including 3,800 stores in the united states and 3,800 international units, and employing more than 1.6 milli

33、on associates worldwide. wal-mart introduced new advertising with the slogan, "save money live better," instead of "always low prices, always" and launched wal-mart television network, a advertising network showing commercials for products sold in the stores, concert clips and mu

34、sic videos for a recording artist's media, trailers for upcoming movie releases, and news. major competitorsalthough wal-mart is the biggest retail force in the world, its competitors are not just limited to the retail industries. with extremely diversified product range, wal-mart faces competit

35、ion from the international, national markets and from industries such as drugstores, gas stations, grocery stores and super markets, internet & catalog retailers, warehouse clubs & superstores etc.wal-mart competes on the basis of price, convenience (location- for the customers in reaching t

36、o the nearest grocery stores), variability & quality in goods available, ambience and service.due to a weak housing market, and increased job concerns the people have cut down on eating and out and are prepared to have food at home. to take advantage of this, wal-mart is trying to increase the o

37、ffering of prepared foods to gain market share from food service business and is thus facing competition from named brand products.wal-mart is increasingly targeting its pharmacy department by offering low-priced generic drugs. wal-mart hopes these customers will shop the rest of the store when they

38、 come in to pick up their prescriptions. this policy has been fruitful for wal-mart as the sales from pharmacy was $13.7 billion in 2007 with only walgreen co, cvs, rite aid corp being ahead of it.indirectly wal-mart is giving stiff competition to mc donalds. subway has quickly overtaken mcdonald

39、9;s corp. as wal-mart's primary fast-food concessionaire across the united states. subway is in 1,419 wal-marts compared with 1,021 mcdonald'sin the super market chains, major competitors of wal-mart are target, costco.management structurelee scott jr. will retire as president and ceo of wal

40、-mart stores, inc on the 1st february 2009. he will continue to serve as chairman of the executive committee of the board. scott joined wal-mart in 1979 as an assistant director in the logistics division and became president and ceo in 2000. during his tenure, the company emerged as the worlds large

41、st retailer with more than 2 million associates, 180 million customers and 7,300 retail operations in 14 markets across the globe.his replacement is mike duke who has successfully led wal-marts logistics division, u.s. operations, and international operations. this has also led to eduardo castro-wri

42、ght being promoted to the position of vice chairman of the group. the other key executives of the company are:· leslie a. dach, executive vice president.· thomas m.schoewe, chief financial officer· rollin l ford, chief information officersome of the other directors are:· aidam.al

43、varez· jamesw.breyer· m.micheleburns· james i. cash· john walton· jim waltonfrom the graph above, the directors hold a high percentage in the company stock which augurs well for the shareholders as the directors have ample incentives to increase shareholder value.most of the

44、 directors are compensated heavily in the form of restricted stock options. from the managements perspective it is a good option to motivate directors as they get the right to vote in the annual meetings once vested. primary and secondary markets / productsmarkets and locationswal-mart serves custom

45、ers through the following segments:1) the wal-mart stores segment includes supercenters, discount stores and neighborhood markets.2) the sams club segment includes the warehouse membership clubs in the united states as well as .3) the international segment consists of operations in argentina, brazil

46、, canada, china, costa rica, el salvador, guatemala, honduras, japan, mexico, nicaragua, puerto rico and the united kingdom. wal-mart store segmentssize (square feet )super-centers 187000discount-centers 108000neighborhood markets 42000sams club 132000from the table above, it is clear that super cen

47、ters are largest area wise as they offer wide variety of general merchandise and a full line super market. wal-mart store segments (number. of stores) 2008 2007 2006super-centers 2447 2256 1980discount-centers 971 1075 1209neighborhood markets 132 112 110sams club 591 579 567international segments 3

48、121 2757 2181from the above table, it is evident that wal-mart is trying to capture and build up on the international market by increasing its operations worldwide. there is a decrease in discount centers as higher % of discount centers are being converted to super centers. this indicates that wal-m

49、art is concentrating on increasing its comparable sales across already existing stores.as of november 2008, wal-mart has 3242 units internationally with mexico topping the list with maximum number of stores.marketunitsyear of entrymexico11181991puerto rico551992canada3101994brazil3281995argentina241

50、995china2151996united kingdom3511999japan3932002costa rica1602005el salvador762005guatemala1542005honduras482005products wal-mart has a varied list of product categories ranging from clothes, books, apparels, toys, electronics, grocery, healthcare, pharmacy etc. in addition to this, since wal-mart i

51、s geographically diversified with operations all across the globes, it also boasts of products that are confined to that region and various communities.this is illustrated by the fact that wal-mart opened its first supercenter that targets hispanic shoppers in may 2008 in texas. the new store offers

52、 products that appeal specifically to this group (fresh tortillas and corn chips, hispanic-oriented fresh fruits and vegetables, and ice cream and juices popular among latinos).to promote sales at such centers, wal-mart is targeting customers by hiring bilingual cashiers and stockers, and featuring

53、whole aisles devoted to regional foods.wal-mart also offers various low priced alternatives (to named brand products) such as equate, sams choice, great value, beverage products such as gravette and orangette which give good completion to other soft drink beverages companies like coca-cola, product

54、in other sections like apparels, homelines etc.these private brands resulted in sales of 64% versus 30% for major label competitors as was found in by a survey conducted this year. this survey has prompted disney to join hands with kroger chain to launch more than 100 disney-branded products to be s

55、old as kroger's kid-focused private label.waddoups, senior director says that wal-mart is promoting products that benefit waste reduction and recycling, natural resources and energy. according to him the company highlighted more than 50 products, including t-shirts made from recycled plastic bot

56、tles, fair trade coffee, recycled-tire mulch, cfls and clorox's green works cleaners.wal-mart is also specializing in pet food products by investing $43 billion as it guarantees continued consumer spending regardless of how tight the household budget gets.outstanding litigationwal-mart is involv

57、ed in a number of legal issues. 1) dukes vs. wal-mart stores: the suit was filed by the former and current female employees across its us retail store operations. these employees totaling to 1.6 million alleged that the company shows gender discrimination at the time of promotions, pay, and training and job assignments.2) in another suit, the company was accused of violating california labor law with respect to provision of lunch and meal breaks to employees working over six hours in a shift. the c