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Wal-Mart

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					US Retailers

       Present by
Karen Lin & Haoying Guo
Industry Analysis
                Retail Sector
• Establishments engaged in retailing merchandise

• Generally without transformation

• Final step in the distribution of merchandise
                 Retail Sector
• Highly Competitive Industry
• Common Factors influence the industry:
  –   Cost of goods
  –   Consumer debt level
  –   Economic condition
  –   Customer preference
  –   Inflation
  –   Employment
  –   Weather Pattern
  Retailers In the U.S. Economy
• Retailer trade takes up:
   – 11.7% of national employment
   – 12.9% of all establishments
• In 2003, the average retail trade employment is
  14,911,500
• In 2003,nonsupervisory workers' average hourly
  earnings were $11.90
              Monthly Sales For Retail


In Millions    2005 Jan         2004 Dec          2004 Nov   2004 Oct



               313,730           315,078           311,555   292,856




               Estimated Annual Sales: 3.6 Trillions
                Value Retailing
• Definition:
   – The business of retailing famous-name, quality
     merchandise at prices at least 25% below the regular
     retail price.
• Most large retailers are belong to this catalog.
  (Such as Wal-Mart and Home Dept)
• The value retailing sector’s share of total retail
  sales is 7.5%
Wal-Mart
        Wal-Mart at a Glance
 Wal-Mart Stores, Inc. is the world's largest
 retailer

 The company employs more than 1.5 million
 associates worldwide

 More than 138 million customers per week
 visit Wal-Mart stores worldwide
             Senior Officers
 H. Lee Scott --- President and CEO
  Named in January 2000
  25-year veteran


 Other Senior Officers
  Promoted internally
                    Operations
 Wal-Mart Stores
   Includes: Discount Stores, Supercenters and
    Neighborhood Markets


 SAM’S CLUB


 International
    comprised of wholly owned operations in Argentina,
     Canada, Germany, South Korea, Puerto Rico and the
     U,K, the operations of joint ventures in China and
     operations of majority-owned subsidiaries in Brazil and
     Mexico.
U.S. Domestic Competitors
           Key Success Factors
   Do the same things as other retailers but Better

 "Every Day Low Prices"


 Technology
    Sales data sharing with major suppliers


 Lasting Relationships with Suppliers
    One-to-one relationship with medium and small
     suppliers.
         How Wal-Mart Grows

   Building new stores and Clubs in the
    attractive sites.

   Recent Strategy: move towards grocery
    side
     Adding more “Neighborhood Markets”
          Expansion of 2004
 Domestic
  139 new Wal-Mart Stores
  130 conversions and/or relocations from
   Discount Stores to Supercenters
  13 SAM’S CLUBs opened
 International
  Square footage increased approximately 46
    million square feet (or 8%)
 Negative Impact of New Stores
 Additional stores take sales away from
 existing units.

 The comparative store sales will be reduced
 by approximately 1%.
         Performance of 2004
 Total Company net sales increased 11.6%
  from fiscal 2003 to $256.3 billion.
 Total Assets increased 10.7% to $104.9
  billion
 International segment had an operating
  profit increase of 18.6% and a sales
  increase of 16.6%
 4 billion tax paid takes up 1/446 of the total
  U.S. Federal taxes
Income Statement (millions)
                     Ratios
                      2004    2003    2002

Gross Margin         22.5%    22.3%   22.0%

(SG&A)/(Net Sales)   17.5%    17.4%   17.2%

(Interest            0.32%    0.42%   0.58%
costs)/(Net Sales)
(Net Income)/(Net    3.53%    3.46%   3.23%
Sales)
Segments Ratios
Balance Sheet
Cash Flow Statement
                  Stocks
 Initial Public Offering in 1970
  200,000 shares for $16.5 per share
 Up to March 14, 2005
  4,234,866,944 shares outstanding (11 Stock
   splits)
  $51.60 per share
 Annual rate of return from 1970 to 2005
  29.56% per year
                Dividend
 Began paying dividends in 1974
 Increased the annual dividend payment
  every year
 Paid out more than $11 billion to
  shareholders
 2004, the annual dividend payment
  increased by 44%
          Share Repurchase
 Wal-Mart also has a share-repurchase
  program
 Since beginning the program, Wal-Mart has
  repurchased more than $13 billion in shares.
 In 2004, Board of Directors authorized the
  repurchase of another $7 billion
Options
1-year Stock Chart
1-years Comparison
           Some Measures
 Total Cash Per Share (mrq):1.3
 Return on Assets (ttm):9.36%
 Return on Equity (ttm):22.99%
 Book Value Per Share (mrq):11.621
 Dividend Yield:1.16%
5-years Stock Chart
5-year Comparison
Stock Chart Since Beginning
     Can Wal-Mart Still Grow?
 There is definitely room for growth:
  In U.S., Wal-Mart sales are less than 10 percent
   of the retail market.
  Even smaller market share outside US.


 Problems:
  The same business model works everywhere?
  Intensive competitions in international market.
           Recommendation
 No one can beat Wal-Mart
 Owns lots resource and quite experienced in
  Retailing
 Takes time to expand internationally
 In one year time zone, the Stock price is
  lowest.
   Buy For Long Term Investment
           Retail Industry in
          Home Improvement
 Home centers, lumberyard, and hardware
 stores were primary retail outlets.
   US Retail Sales of Home
    Improvement Products,
    by Type of Store, 1998:
            Industry Overview
 Traditional retailers: lumberyards & hardware stores.
 Home centre
    A combination of the two
    Size, concentration on the homeowner, one-stop
     shopping, self-service, customer convenience
 Warehouse-type Home Centre
    Created markets by making DIY materials affordable and
     accessible
 Competition leads to acquisition & consolidation
    (1) Home Depot (1/3 market share, 12.9%)
    Competitors: Lowe’s Companies, Menard, Hechinger,
     Payless Cashways
               Consumer
 Professional builder
 Contractor
 DIYer

 Boomers are key in home improvement
 market

 New market: Female homeowner
       About The Home Depot
 Second largest retailer in the U.S.
 Funded in 1978 in Atlanta, Georgia.
    Co-founder: Arthur Blank & Bernard Marcus
 The world’s largest home improvement retailer.
    Operates more than 1,800 stores across North America.
    Also in Mexico, the District of Columbia, and Puerto Rico.
 Brisk pace in store expansion from less than 100
  stores in 1989 to almost 800 in 1999.
 Owns 82% of real estate.
      Leadership
Robert (Bob) L. Nardelli
  Chairman, President and CEO
  Joined HD in December 2000.
  Former president and CEO of GE
   Power Systems.
   Strategy: Enhancing the core retail network
    through distinctive and innovative
    merchandise, store modernization and
    technology investment; extending its
    business through new store formats, online
    sales and installation services; and by
    expanding to new geographies and
    professional customer segments.
    Leadership – Exec. VP
   Francis Blake
     Business Development and Corporate Operations. (2002)
   John Costello
     Merchandising & Marketing. (November 2002)
   Robert DeRodes
     Executive Vice President & Chief Information Officer. (2002)
   Dennis Donovan
     Human Resources (April 2001)
   Frank Fernandez
     Secretary and General Counsel (April 2001)
   Tom Taylor
     Home Depot Stores (1984)
   Carol B. Tomé
     Executive Vice President & Chief Financial Officer (1995)
           3 Business Segments
 Home Depot Flagship Stores
    First three stores opened in Atlanta in 1979.
    U.S. and Canadian stores range in size from 45,000 square feet to 165,000
       square feet (avg. 106,000 sq. feet of enclosed space + 22,000 sq. feet in
       the outside garden area.)
      Sells 40,000 to 50,000 different kinds of home improvement supplies,
       building materials, and lawn and garden products.
      How-To Clinics, At-Home ServicesSM, Tool Rental Centers, Truck Rental.
      National brands account 88%+ of the merchandise in the stores.
      Exclusive brands
 EXPO Design Center
    Over 50 stores in major markets in 16 states and growing
    Cater to design professionals with home decorating products & services.
    Full design and installation services with project superintendents to oversee
       complete job
 Other Home Depot Stores
    Supply stores for commercial & industrial customers.
    Landscape Supply stores for landscape & garden pros.
            Merchandise Selection
                  & Sales
   Stores’ merchandise selection is based on particular
    customer and climate need, and on local building
    code requirements. Different stores don’t carry the
    same products, due to different merchandise
    demands in different geographical areas.

   34% building materials, lumber, floor & wall coverings
   27% plumbing, heating, lighting, electrical supplies
   15% seasonal & specialty items
   14% hardware & tools
   10% paint and other products
         Key Success Factors
   Economies of scale
   Low price
   Level of customer service
   Wide array of products
    “We are credited with having revolutionized
    the home improvement industry by offering
    an unparalleled selection of products and
    services under one roof.”
 3 Sources of Future Growth
 Open new stores.
  24-hour Home Depot outlets
  Smaller villager’s hardware stores
  Urban format stores

 Cater to professional customers.

 Female Homeowners
                     News - Summary
       Over past 4 years, The Home Depot has increased sales
        by 60% and earnings per share by 105%.

       Increase in cash dividends & share repurchase program.
                         2002           2003          2004          2005
Annual increase in
                         20%            24%           25%           23%
Cash Dividend
Share Repurchase                                     Reach
Program               + $2 billion   + $1 billion                + $2 billion
                                                    $7 billion

       Acquisition of home centres, supply companies, and
        distributors.
       Oct 10, 2002 - The Home Depot announce to open
        two sourcing offices in Shanghai and Shenzhen
Recent Awards & Recognition
   10 Best Boards in the United States, BusinessWeek
    (2002)
   No. 13 Ranking, Fortune 500 (2003)
   No. 22 Ranking in Profit, Forbes listing of America’s 500
    Top Companies (2003)
   Top 20 Companies for Leaders, CEO Magazine (2002)
   Excellence in Employee Development, Retail Council of
    Canada (2002)
   Best Friend Award for work with local communities &
    youth, LA’s Best (2002)
   Flex Your Power Energy Conservation Award, Governor
    of California (2002)
          Operational Highlights

                             2003     %     2002      %       2001
                                     chg             chg
Store count                 1,707    11.4   1,532    14.9     1,333
                                      2               3
Average ticket                $     3.48     $     1.62     $
                            51.15          49.43          48.64
Weighted avg. weekly       $763,00 (1.17) $772,00 (4.93) $812,00
sales per store               0              0              0
Weighted avg. sales           $               $                 $
per                         370.87   0.18   370.21   (4.57)   387.93
sq. foot

•By Oct. 31, 2004: 1754 stores.
Financial Statements
                         Financial Highlights
                         – Income Statement
            USD$ (in million)        2003      % of           2002      % of           2001
                                               Sales                    Sales
Net Sales                        $ 64,816                 $ 58,247                 $ 53,553
Gross Profit                     $ 20,580     31.75%      $ 18,108     31.11%      $ 16,147
Total Operating Expenses         $ 13,734     21.19%      $ 12,278     21.08%      $ 11,215
Interest Expense                 $     (62)   0.096%      $     (37)   0.064%      $ 4,957
Net Income                       $ 4,304       6.64%      $ 3,664       6.29%      $ 3,044


                                     2003     2003 vs.        2002     2002 vs.        2001
                                               2002                     2001
Basic Earning per Share          $     1.88    19.7%      $    1.57    20.77%      $     1.30
Diluted Earning per Share        $     1.88    20.5%      $    1.56    20.93%      $     1.29
# of Outstanding Shares         2,275,220 K   (2.51%)    2,333,740 K   (0.52%)    2,345,888 K



   # of Outstanding Shares (Jan 31, 2005): 2,195,960 K
Financial Highlights – Balance Sheet
                                  2003         2002          2001
Cash                            $ 2,826 M    $ 2,188 M    $ 2,477 M
Cash / #of Shares                 $ 1.24       $ 0.94       $ 1.06
Merchandise Inventories/Total    26.36%       27.78%       25.48%
Asset
Net Property & Equip. / Total    58.26%       57.21%       58.25%
Asset
Total Assets                    $ 34,437 M   $ 30,011 M   $ 26,394 M
Stockholders’ Equity            $ 22,407 M   $ 19,802 M   $ 18,082 M


ROA                              12.50%       12.21%       11.53%
ROE                              19.21%       18.50%       16.83%
Book Value per Share             $ 11.041
              Financial Highlights
          – Statement of Cash Flows
                 USD$ (in million)    2003       2002        2001
Net Cash from Operations             $ 6,545    $ 4,802    $ 5,963
Capital Expenditures                  (3,508)    (2,749)     (3,393)
Net Cash Used in Financing            (1,931)    (2,165)      (173)
Activities
   Repurchase of Common Stocks        (1,554)    (2,000)      –
   Cash Dividends Paid to               (595)      (492)      (396)
Stockholders

Free Cash Flow
= CFO – Cap Exp – Preferred Div – Debt Repayment + New Debt Issues
= $ 3,028 M
Option – Exec. Compensation
Option - continue
                     Option - continue




The Percent of Class column indicates beneficial ownership of less than 1%, based on
2,241,907,929 shares of common stock outstanding as of April 1, 2004
                 Derivatives
 Objective: to decrease the volatility of earnings
  and cash flow associated with fluctuations in
  interest rates.
 Several interest rate swaps with a total notional
  amount of $475M that swap fixed rate interest
  on our $500M 53/8% Senior Notes for variable
  interest rates equal to LIBOR plus 30 to 245
  basis points and expire on April 1, 2006.
 At February 1, 2004, the fair market value of
  these agreements was $19 million.
Direct Competitor Comparison
Company                    HD             LOW              Retail
                         Home Depot   Lowe’s Companies    Industry
                                                         (Home Improve)

Market Cap               83.42B         43.78B           133.97M
Employees                299,000        116,000          5,190 K
Revenue Growth (ttm)     11.30%         16.40%           13.10%
Revenue (ttm)            73.09B         36.46B             1.20B
Gross Margin (ttm)       33.42%         33.73%           25.23%
EBITDA (ttm)              7.93B          4.61B            1.56M
Operating Margin (ttm)   10.84%          9.70%            2.48%
Net Income (ttm)          5.00B          2.18B            31.00M
EPS (ttm)                 2.258           2.70              1.58
P/E Ratio (ttm)           16.82          20.95             16.49
     Stock Quote – Summary
 Traded on the NYSE
     Included in the Dow Jones Industrial Average and Standard
      & Poor's 500 Index.
 Symbol:                   HD
 Current Price:            $37.99
 52-week Range:            $32.34 - 44.30
 EPS (ttm):                $2.26
 P/E Ratio (ttm):          16.82
 Dividend & Yield:         $0.40 (1.03%)
 Price/Sales (ttm):        1.17
 Price/Book (mrq):         3.52
 Beta: 1.279
Stock Price – 1 Year Chart
      1 Year Chart:
Home Depot vs. Dow and S&P
Stock Price – 5 Year Chart
      5 Year Chart:
Home Depot vs. Dow and S&P
Stock Price – Since 1984
         Recommendation
 Expansion opportunity in foreign market
  Canada & Mexico
 Pay out cash dividends
  Good return
  HD’s 1.03% vs. Lowe’s 0.28%


                 BUY
  for long term investment

				
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