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Annual



   OOsKon
  L o’’s o n
   ho
   w h DOW!!
   w DOW
    tthe
      he


MAKING THE

• Strategy pays off
• Asset m...
Table of contents 1 9 9 8
                                                                              Annual            ...
1     9       9     8

                                                                                                   ...
LETTER FROM THE PRESIDENT



                                                                                             ...
We will aggressively expand
                                            Our first international goal was
merchandise categ...
UP FRONT


                                                        Our customers don’t just shop at Wal-Mart, they also le...
Baby Grace, all ready to go home with her
                                                                                ...
UP FRONT




    PEOPLE POWER
    “Our People Make the Difference” - shareholder value and customer service built
    on r...
record level of payout was award-
        ong before “empowerment”

L                                                   ed...
UP FRONT




        The
                                                Nobody Knows




     Only a major real estate an...
nity centers, all of which help cre-
ate jobs in the local community.
   “Wal-Mart will accelerate its
aggressive strategy...
C O V E R R E P O R T: M A K I N G T H E G R A D E




                                               (shareholder)
      ...
arrived at the level we are always
                                        disciplined financial management,
Officer of Wa...
C O V E R R E P O R T: M A K I N G T H E G R A D E



                                                                    ...
tion technology. These initiatives
                                                     FISCAL 1998 END OF
show their valu...
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
wal mart store 1998Annual Report
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wal mart store 1998Annual Report

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Transcript of "wal mart store 1998Annual Report"

  1. 1. Annual OOsKon L o’’s o n ho w h DOW!! w DOW tthe he MAKING THE • Strategy pays off • Asset management • Shareholder value • Tech leadership • Inventory control PLUS PLUS • PEOPLE POWER • SUPERCENTERS • GLOBAL GROWTH
  2. 2. Table of contents 1 9 9 8 Annual 4 The attributes that made Wal-Mart a success in the United States are also lead- LETTER FROM THE PRESIDENT ing to success in the global arena. ¢ 4 Growth by design With a strategy for improving returns on our investment base, Wal-Mart focuses on customer and shareholder value. UP FRONT 6 Letters to Wal-Mart Our customers don’t just shop at Wal-Mart, they also let us know how they liked it! Here is a sampling from our mailbox in 1997. 16 Continuous learning drives the refinements in merchandising that keep Wal-Mart growing. 7 Giving back to our communities ¢ The Children’s Miracle Network is just one of the causes that Wal-Mart associates support. 8 People power! “Our People Make the Difference” — shareholder value and customer service built on respect for the individual. 10 The Wal-Mart nobody knows Only a major real estate and transportation company could move $118 billion in product and house 825,000 people. And that company is Wal-Mart! C O V E R R E P O RT: M A K I N G T H E G R A D E 12 People + Product + Price = (Shareholder) VALUE! 1997 was another record-setting year for Wal-Mart, as we lead the industry in sales and earnings. 14 Managing for results Improvements in merchandising, asset manage- ment, inventory control and technology keep Wal-Mart earnings growing steadily. 16 Engine for earnings Wal-Mart, Supercenters and SAM’S Club drive U.S. growth — and refinements in merchandising are revving the engine. 17 Driving force Meet the 14 men and women who offer their diverse business talents and experience to Wal-Mart as members of our Board of Directors. 18 A world of opportunity The Wal-Mart Way wins customers worldwide — and we learn more with each country we serve. 20 Financials 39 Corporate information 2
  3. 3. 1 9 9 8 DIRECTORS Jeronimo Arango Paul R. Carter John A. Cooper, Jr. Stephen Friedman Stanley C. Gault David D. Glass Frederick S. Humphries E. Stanley Kroenke Elizabeth A. Sanders Jack C. Shewmaker Donald G. Soderquist Dr. Paula Stern John T. Walton S. Robson Walton S. Robson Walton CHAIRMAN OF THE BOARD ¢ Wal-Mart value translates into any culture. CEO, PRESIDENT David D. Glass Just ask John Evanson of Store 3064 in Oakville, 18 Ontario, Canada. VICE CHAIRMAN, COO Donald G. Soderquist Paul R. Carter E X E C U T I V E V P, P R E S I D E N T- W A L - M A R T R E A LT Y EXECUTIVE VP- Bob Connolly 6 Who’s Number One? The customer! MERCHANDISING Read what they think about Wal-Mart. ¢ E X E C U T I V E V P, C O O - Thomas M. Coughlin O P E R AT I O N S WAL-MART STORES DIVISION EXECUTIVE VP- David Dible S P E C I A LT Y D I V I S I O N Mark Hansen E X E C U T I V E V P, - PRESIDENT SAM’S CLUB DIVISION Bob L. Martin E X E C U T I V E V P, - PRESIDENT I N T E R N AT I O N A L D I V I S I O N John B. Menzer E X E C U T I V E V P, C F O H. Lee Scott E X E C U T I V E V P, - PRESIDENT WAL-MART STORES DIVISION EXECUTIVE VP- Nick White SUPERCENTER S E N I O R V P, S E C R E T A R Y - Robert K. Rhoads GENERAL COUNSEL S E N I O R V P, F I N A N C E - J.J. Fitzsimmons TREASURER Meet the Board of Directors that guides Wal-Mart. 17 Pictured here, Dr. Paula Stern and John Walton. ¢ 3
  4. 4. LETTER FROM THE PRESIDENT almost 20%. Seldom can you count on every- thing coming together as well as it did this year. We believe we could always do better, but we improved more this year than I can ever remember in the past. Our results exceeded our own aggressive internal goals and the stock market rewarded us for our accomplish- ments. As much as I would like to tell you that the stock price will increase this year by another 73%, I can’t. If I did, I am sure some of you would remind me that there were years in recent history when the share price didn’t increase at all. However, over time our stock will reflect the results of our efforts. This year’s increase was a well-deserved reward for our asso- ciates and shareholders. Not many years ago, it was widely believed in the investment commu- nity that Wal-Mart was a maturing company in a maturing industry. No matter how well we did, according to many on Wall Street, our prospects for growth were lim- ited because we had simply gotten too big. The “law of large numbers” David D. Glass, President and Chief Executive Officer would hold us back. I am happy to say that was not the case. The Wal-Mart division had an GROWTH excellent year. Sales increased by 10%, while inventory actually by design declined. This inventory reduction was accomplished without reduc- With a strategy for improving returns on our ing assortment or affecting in-stock investment base,Wal-Mart focuses on customer and shareholder value. levels. Gross margin improved through better merchandising, A without raising prices. Operating came at some personal cost s I reflect on the year just expenses declined as a percentage though. I promised our team that I ended, I cannot help but of sales, without sacrificing service. would work as a People Greeter in feel proud of what our Supercenters, our vehicle for one of our stores if we exceeded Wal-Mart associates have accom- domestic growth, continued its 15% earnings growth. This is a plished. Fiscal 1998 was another rapid unit growth while improving promise I am happy to keep. record year. Every one of our oper- profitability. Since we began that Our focus on asset management ating divisions increased their business in 1987, Wal-Mart continued to produce results, as sales, earnings and return on Supercenters have grown to be the our return on assets improved assets. largest hypermarket chain in the 0.6% to 8.5%. We achieved this Sales increased by $13 billion, world and one of the largest gro- improvement while continuing to or 12%, in fiscal 1998. More cery retailers in the United States. invest in the growth of the business importantly, earnings per share The Supercenter was not really a through an aggressive capital grew by more than 17%, which new idea but a logical extension of expenditure program and interna- combined with our dividend yield, the discount store. Throughout tional acquisitions. Further, our exceeded our 15% total sharehold- Wal-Mart’s history, we have added return on equity improved to er return target. This last result 4
  5. 5. We will aggressively expand Our first international goal was merchandise categories to provide with budgeted capital expenditures to be the dominant retailer in each a broader assortment and a one- of approximately $4 billion in the country in North America. We stop shopping experience. The coming year and, at the same time, accomplished that goal this year. Supercenter is the next step in we will look for further opportuni- Canada had an outstanding year. those efforts, offering the customer ties to increase our international This year’s double-digit sales gains a full range of general merchandise presence. Additionally, our cash allowed us to almost triple sales and food in one location. The result flow and earnings growth will since we acquired 122 Woolco is a new retail format that competes allow us to continue our share buy- stores four years ago. Profits effectively worldwide with dis- back with the expectation that we exceeded even our own estimates, count stores and grocery stores will repurchase $2 billion more in and market share continues to alike. Acceptance of these stores stock over the next 12 to 18 grow. With the tender offer has exceeded our expecta- months. Despite the law of large for Cifra shares and tions, and we plan to add numbers, we believe that our stat- merger of the joint an additional 120 to ed target of total annual sharehold- ventures in Mexico, 125 units domestical- er return of 15% remains quite we now have a con- ly in the coming achievable. trolling interest in year. My congratulations and grati- Mexico’s largest The SAM’S Club tude to our associates for their retailer. Cifra now division had a good sacrifices, dedication and enthusi- operates stores with a year, with improve- asm that translated into one of the variety of concepts in ments in both sales and best years this company ever expe- every region of Mexico, earnings. Mark Hansen rienced. Thanks also to our ranging from the nation’s largest joined the talented team at SAM’S shareholders and customers for chain of sit-down restaurants to a Club as president, and together your support. I truly believe that softlines department store. they will reposition the concept for with the momentum we have, fiscal Our second goal was to pene- the 21st century, offering members 1999 will be even better. trate South America, and our start- even greater value and service. up operations in Argentina and Our enhanced membership bene- Brazil are progressing as planned. fits and efforts to define the Our emerging market focus in Asia “Millennium Club” will establish began in China, where we have SAM’S Club as the best ware- vs. the combined good customer acceptance but house club in the business. I DJIA** 30 insufficient critical mass, as yet, to believe Mark and his team will take DJIA 30 sustain profitability. Finally, on the concept to a new level in the Dec. 30, 1997, we completed the coming year and re-ignite growth % growth in stock price 1997 acquisition of 21 hypermarkets in in the SAM’S Club business. 73% Germany, marking our first entry If Wal-Mart had been content to into Europe, one of the largest con- be just an Arkansas retailer in the sumer markets in the world. early days, we probably would not The year was marked by other be where we are today. State bor- notable accomplishments. Return ders were not barriers, and people on assets and equity continued to and ideas moved freely from one improve as we eliminated $1.4 bil- area to another. The retailer who lion from inventories. While the incorporated the best practices, 23% financial community assumed the gathered from various regions of impact of our asset management the country, and who offered the would be on the interest expense best prices, assortment and service, line in the financial statements, the earned the customer. We believe DJIA WAL-MART effect was even more far-reaching. the successful retailers of the future *Dow Jones Industrial Average Sales increased as we offered cus- will be those that bring the best of Allied Signal, Inc., Aluminum Co. of America, tomers fresher inventory, margins each nation to today’s consumer. American Express Co., AT&T, Boeing, Caterpillar, Chevron, Coca-Cola, E.I. DuPont, etc., improved as markdowns and We call it “global learning.” We are Eastman Kodak, Exxon, General Electric, shrink declined, and expenses committed to being a successful General Motors, Goodyear Tire & Rubber, Hewlett-Packard, IBM, International Paper Co., decreased as merchandise handling global retailer and we believe the J.P. Morgan, Phillip Morris Cos., Johnson & Johnson, McDonald's, Merck, 3M, Procter & Gamble, was reduced in the stores. All this attributes that made us successful Sears Roebuck,Travelers Property/Casualty, allowed us to end the year with in the United States will also lead Union Carbide, United Technologies, Wal-Mart, Walt Disney Co. almost $1.5 billion in cash. to success internationally. 5
  6. 6. UP FRONT Our customers don’t just shop at Wal-Mart, they also let us know Letters to Wal-Mart how they liked it! Here is a sampling from our mailbox. ery was made. courtesy desk, where my We were so excited wondering purse was returned by Regina what was happening 500 miles Murphy and Terri Stehley, away! We called Karen back in two who found it after looking hours and learned the associates through many carts. All my had just left the store. She had papers and credit cards were wrapped the box in plain brown inside, but all the cash was paper, put a bow on it with the card, missing. and had even sent along a camera The following Sunday, to capture the event for us. I received a call to come to About 20 minutes later, our Wal-Mart. To my surprise, parents called. They said two guys Regina and Terri gave me an with Santa hats had just delivered envelope filled with cash in Fit for a halo a TV to their home! They were the amount I lost! They had baked We want you to know what so excited and surprised. They chocolate chip cookies and held a a great lady Claudene Nichols is! weren’t expecting Christmas to come bake sale for employees so they (Store 90, Grove, OK). Our son early, and especially delivered by could return my money! was in a serious car accident and Wal-Mart. Terri (domestic department) and broke his neck, requiring him to Your employees went way Regina (housewares department) wear a “halo.” He really needed beyond the call of duty. It would deserve the highest award Wal-Mart some shirts that he could easily put have been very easy for Karen to say can give. I also want to recognize on and take off. Claudene offered she couldn’t help us. I don’t know Manager Sam Gortney and all the to sew them for us. She did a won- the names of the young men who employees of the Altoona Wal- derful job and wouldn’t take a played Santa, but they are to be Mart. I am deeply grateful to all at penny for all the work! commended for their extra efforts. that store. You couldn’t have a better With people always grumbling Thank you, employee. We would like to see her about poor customer service, I think HELEN L. MAURO nominated for employee of the it’s time to recognize Wal-Mart HOLLIDAYSBURG, PA month. employees who put the “Merry” in Thank you, our Christmas! Santas with Smileys Sincerely, MRS. JIM ROUTH Two weeks ago, I called Wal-Mart GROVE, OK JEFF, JENNY AND (Store 1162, Washington, IN) with LILY ROSE HUNTER a special request. I was given BLUE SPRINGS, MO Assistant Manager Karen Burr. We were trying to arrange a Christmas surprise for my husband’s parents in Washington. Jeffrey’s parents needed a new television, and we knew Wal-Mart had a RCA 26” set on sale. Since we live in Missouri, we didn’t know how to get it to them. I asked Karen if they made deliveries. Not usually, she replied, but asked what we Chocolate chips to the rescue! needed. I explained, and without I was shopping at Wal-Mart (Store hesitation she said she had a few 2049, Altoona, PA.) on Tuesday, associates who could help. I then Sept. 16. After arriving home, requested another favor: Would I discovered I had left my purse Karen mind putting a big bow on in a cart outside Wal-Mart. the box and signing our names to a My daughter and I immediately card? She said no problem and she went back to Wal-Mart, but the would let us know when the deliv- cart was not there. We went to the 6
  7. 7. Baby Grace, all ready to go home with her mother, Libby, and grandmother. five major community outreach programs. The bulk was $34 million in Community Matching Grants, in which the Wal-Mart Foundation matches funds raised by local stores. Wal-Mart associates proved that “Voluntarism Pays,” as the founda- tion contributed $400,000 to local charities. $100 was given for each 15 hours of volunteer work per Giving BACK quarter contributed by associates. The giving included $47,220 in Associate Matching Grants as Wal-Mart matched associates’ donations of $25 to $250 to colleges of their choice. As part of America’s Hometown Leader Program, local stores select- Wal-Mart associates generate $102 million in gifts in 1997. ed outstanding teachers - 1,800 across the country - and the foun- F Their generosity was repaid when rom the beginning, Sam dation donated $500 to each Walton believed that each Grace Young was born at just 23 honoree’s school. Wal-Mart store should reflect weeks, weighing 15 ounces. Wal-Mart invests heavily in the the values of its customers and Baby Grace, as she’s known in latest technology, and our faith in community. That’s why local asso- the Wal-Mart family, was the small- the future extends to tomorrow’s ciates are at the heart of Wal-Mart est baby ever to survive in McLeod leaders, with sponsorship of five community outreach programs. Children’s Hospital in Florence, college scholarship programs for Guided by associates, Wal-Mart S.C. State-of-the-art care helped deserving young people. has helped countless individuals At the local level, each Wal-Mart her reach five pounds after four and organizations, from tiny Baby store provides a $1,000 Sam months in the Neonatal Intensive Grace, a Children’s Miracle Network Walton Community Scholarship to Care Unit. Only then was she able child, to the Cullman, AL schools, one student for his or her freshman to come home with her mother, where Distribution Center 6006 year of college. This program, funded Libby Young, a 12-year Wal-Mart raised $15,000 to help replace a by the foundation, has awarded associate at Store 643. building destroyed by fire. nearly $20 million in scholarships Companywide, associates and This emphasis on giving back since 1981. customers initiated giving of more has benefited Wal-Mart, as well. than $63.1 million last year through It’s no coincidence that the top stores in sales generally are the most involved in the community. $50 million in scholarship contributions Associates’ involvement is key to Wal-Mart’s role as the official mass merchandise sponsor for Children’s Competitive Edge Scholarship Miracle Network, a group of 170 $5 children’s hospitals. Local stores have Community Scholarship $1.5 $20 sponsored a variety of activities over the past decade to raise $104 Foundation Scholarship million for CMN — $20 million in $23 1997 alone. In Myrtle Beach, S.C. Associates Scholarship (Store 643), associates have done their part, holding bake sales, fund- raising meals and shopping sprees. 7
  8. 8. UP FRONT PEOPLE POWER “Our People Make the Difference” - shareholder value and customer service built on respect for the individual. 8
  9. 9. record level of payout was award- ong before “empowerment” L ed to associates. We believe there is became a corporate buzz- a direct correlation between record word, Wal-Mart associates incentive award levels and the were empowered, not just company’s record-setting perfor- allowed, but encouraged to make mance last year. decisions, take risks and, yes, even Even traditional associate bene- make mistakes in the cause of cus- fits also show the Wal-Mart touch. tomer service. They provide the best available ser- Who makes the customer vice at the lowest possible price. Number One? “Our People Make “We have health plans to fit any- the Difference!” one’s budget,” said Tom Emerick, At Wal-Mart, our people make Vice President of Benefits. “I’m the difference for each other, too. proud to say that we have a health “Our division’s mission for our plan, with no lifetime caps. Very few associates is to ‘Get’ them, ‘Keep’ benefit plans will cover a major them and ‘Grow’ them,” said health problem as well as ours. Coleman Peterson, Senior Vice “And yet, thanks to diligent nego- President of the People Division. tiations with providers and the great “Everything we do comes out of work our associates do in control- our basic Wal-Mart principle of ling costs, our total cost of benefits is ‘Respect for the individual.’ below industry averages.” “And when we put all that Perhaps the biggest benefit together, it translates into great ser- news in fiscal 1998 came when we vice to the customer.” rolled out our 401(k) savings plan, In addition to an industry-lead- which has been so well received ing array of health and other that we expect it to become the benefits, Wal-Mart offers associ- largest such plan, in number of ates a variety of incentive pro- participants, in the United States. grams. Most of these incentives are The 401(k) plan, which provides based directly on the performance a tax-deferred opportunity to save of an associate’s store or division - for retirement, came about after improvement in profits, reduction associates suggested it in Wal-Mart’s in shrink, etc. Virtually all Wal- “Grass Roots” communications pro- Mart associates are eligible for gram. This year, Wal-Mart divided some type of performance-based the company’s annual contribution incentive plan. equally between the Profit Sharing From an associate’s point of and 401(k) plans. view, the equation is obvious: Nowhere is the link between Better service to the customer associates’ interests and the suc- means better profits, which means cess of the shareholders more visi- higher incentives and increased ble than in the Profit Sharing pro- shareholder value. And yes, Wal- gram, which has 70 percent of its Mart associates care deeply about assets invested in Wal-Mart stock. shareholder value, because so “Thanks to the 73 percent increase many are shareholders themselves. in the stock price, the Profit Our associates are kept informed Sharing plan’s assets increased 57 about the stock price, so everyone percent in the last year,” said Chief understands the connection Financial Officer John Menzer. between Wal-Mart’s performance That’s what can happen when and their own financial success. Wal-Mart people, the best in the Last year, the total company and retail industry, focus on creating every division but one met or value for customers, shareholders exceeded its maximum profit and the company as a whole. improvement goals. As a result, a Coleman Peterson (foreground), Senior Vice President, People Division, with the people he serves. 9
  10. 10. UP FRONT The Nobody Knows Only a major real estate and transportation company could move $118 billion in product and house 825,000 people. And that company is Wal-Mart! Wal-Mart expects to add, relocate centers and SAM’S Club units A roof over our heads or expand about 200 stores a year. across the United States. Decisions W alk in any Wal-Mart Supercenters will lead Wal-Mart’s on new stores take into account sev- store and you’re imme- domestic growth in the future, which eral factors: potential market satura- diately drawn to the means an even larger role for Wal- tion, competition, expansion or relo- friendly associates, the attractive dis- Mart Realty. As the division rolls out cation alternatives, total capital plays and cheery Mr. Smiley ( ) new Supercenter prototypes (rang- expenditure, cash-on-cash incre- signs. Wal-Mart strives to make ing from 110,000 to 220,000 square mental rate of return and a market- shopping enjoyable and convenient, feet), it also must find uses for exist- ing plan for the existing real estate if even as it offers the lowest prices on ing relocated stores after they are the project involves relocation. items for every member of the family. closed. With about 310 million square Part of Wal-Mart’s formula for In the past four years, Wal-Mart feet of property, Wal-Mart Realty success is the convenient location Realty has implemented an aggres- is the largest owner and manager of of its more than 2,800 U.S. operat- sive marketing plan for once-occu- retail space in the country; far larg- ing units, with easy access to major pied stores. Its goal: sell or lease er than the nation’s next-largest highways and ample parking. In the unused space. shopping center manager. addition, each store has roomy In the latest fiscal year, Wal-Mart And Wal-Mart’s real estate hold- aisles and abundant space for dis- Realty leased or sold more than 10 ings will only continue to grow. The plays of items as varied as cook- million square feet of once-occu- company added, relocated or ware, tents and sneakers. pied space. Some non-retail uses expanded 147 stores in the fiscal A little-known division of our include call centers, light manufac- year ended January 1998 and company, Wal-Mart Realty Co., turing, storage, physicians’ offices, plans 180 to 200 more in the year selects and manages the sites for family entertainment and commu- ending January 1999. In the future, Wal-Mart discount stores, Super- 10
  11. 11. nity centers, all of which help cre- ate jobs in the local community. “Wal-Mart will accelerate its aggressive strategy to identify uses for once-occupied properties as it plans a significant number of store relocations in the future,” said Jim Vawter, Director of Finan- cial Management for Wal-Mart Realty. Regardless of whether it is building or relocating, the realty company’s most important goal, like that of all other Wal-Mart divi- sions and each Wal-Mart associate, is to provide a solid return on investment. The project must gen- erate acceptable returns for our company, or it won’t get off the ground. Pictured at left, 18-wheelers stand ready at the Wal-Mart Distribution Center in Ottawa, KS. Above, Wal-Mart Realty’s marketing led to the reuse of a closed SAM’S Club building (inset) as this Florida Mercedes dealership. Carrying the load Anywhere you travel along the drivers often help strangers along- million miles last year as 3,800 highways and byways of America, side the road by changing tires, drivers made more than 900,000 it’s no surprise to see a tractor-trail- driving stranded motorists to service deliveries. er rig painted with the familiar blue stations or offering the use of cellular Just as impressive as these Wal-Mart logo. With 3,300 trucks, telephones to call for help. In the statistics is the division’s safety Wal-Mart’s company-owned truck Wal-Mart tradition of voluntarism record. Last year, Wal-Mart drivers fleet is among the nation’s largest – and community service, our drivers averaged 1.2 million miles without with dispatch locations from Oregon help out because they want to, not an accident, an enviable achieve- to New Hampshire to Florida to “all because they have to. ment for any transportation com- over,” said Larry Duff, Vice We recognize drivers’ good pany. That means Wal-Mart dri- President of Transportation. deeds with the “Good Sam” award. vers’ safety record is far superior “We’re a pretty good-sized trans- The award, a ballcap with a halo when compared with the national portation company in our own around it, has a double meaning: average. right,” Duff said. “But we’re obvi- It honors our founder, Mr. Sam, Wal-Mart drivers are the epitome ously in the retail business, a point and our “Good Samaritans” of the of our company’s belief in giving we continue to make clear.” roadways as well. back to our communities. Our The Wal-Mart fleet logged 455 Wal-Mart hires only experienced drivers, with at least 300,000 Wal-Mart to the moon and back accident-free miles and no major traffic violations. In trucking industry terms, Wal-Mart offers a premium driving job, which allows drivers to be home frequently and does not require them to load and unload trucks. The truck fleet is the visible link between stores and a critical distri- bution network. Combined, these are the associates who ensure that every item in our stores arrives in Wal-Mart trucks traveled 455 million miles (in the U.S.) in 1997. good shape and on time, which At a distance of 238,857 miles from the earth to the moon, provides Wal-Mart with a compet- Wal-Mart drivers could have gone from the earth to the moon -- itive advantage in delivering mer- and back! -- 952 and a half times. chandise to our customers. 11
  12. 12. C O V E R R E P O R T: M A K I N G T H E G R A D E (shareholder) VALUE! Fiscal 1998 was another record-setting year for Wal-Mart as we led the industry in sales and earnings. 1997, Wal-Mart followed up by magine a company with rev- I making 1998 the biggest year in its enues of nearly $120 billion. SHORTHAND history, setting another sales record This hypothetical company is with revenues of $118 billion. the largest in its industry - When Wal-Mart first went Not only did Wal-Mart extend not just in the United States, but in public, a foresighted investor its standing as the largest retailer in the world. could have bought 100 shares the world, but our fiscal 1998 How likely is it that this company of the stock for $1,650. increase in sales ($13.1 billion), by could continue to be a growth stock? Today, that investor’s 100 itself, would make Wal-Mart the Not very, the conventional wisdom shares would have grown ninth-largest retailer in the nation. would respond - but then, Wal-Mart to 102,400 shares, worth more than $5.1 million, for an “Pound for pound in fiscal 1998, has never paid much attention to con- average gain of more than we had the best year in the history ventional wisdom. $180,000 per year. of the company,” said David Glass, After passing the milestone of President and Chief Executive $100 billion in revenues in fiscal 12
  13. 13. arrived at the level we are always disciplined financial management, Officer of Wal-Mart Stores, Inc. striving to achieve.” have combined to produce The investment community sat Wal-Mart’s dedication to value - improved results.” up and took notice. Analyst after for our customers, our associates By concentrating on the basics analyst has given Wal-Mart ratings and our shareholders - has pro- of its business, Wal-Mart continues of “buy” (Credit Suisse First duced what Don Soderquist, Vice to build shareholder value. Boston Corp. and Genesis Chairman and Chief Operating Wal-Mart’s growth, in the future Merchant Group) or “strong buy” Officer, calls “the most incredible as well as the past, is based ona tight (Salomon Brothers). story ever told in American focus on the Wal-Mart equation: No doubt the largest single business.” “People + Product + Price = Wal-Mart investor in fiscal When Wal-Mart first went pub- VALUE!” 1998 was Wal-Mart lic, in October 1970, a foresighted H. Lee Scott Jr., itself. In a move to investor could have bought 100 President and CEO of improve shareholder shares of the stock for $1,650. the Wal-Mart Stores value, the Board of Today, that investor’s 100 shares Division, identified Directors autho- would have grown to 102,400 four key legacies of rized a $2 billion shares, worth more than $5.1 mil- Wal-Mart Founder share repurchase lion at Wal-Mart’s recent closing Sam Walton that contin- program. In March price of 50, for an average gain of ue to guide the company’s 1998, management more than $180,000 per year. In quest for ever-greater value: expanded the share repur- addition, that holding would have 1) Every Day Low Prices (EDLP) chase program to the level of $2 paid $27,000 in dividends in 1997. 2) Customer Service billion over the next 12 to 18 “This is a long-term game,” Glass 3) Leadership months. said. “We don’t have any short- 4) Change “Our share repurchase program term plans at Wal-Mart. “We have never been afraid of really sends a message of confi- Everything we do is designed to change,” Scott said, noting that dence in the company to Wall build shareholder value over the Mr. Sam was always willing to take Street,” said Executive Vice long haul. Our opportunities are risks for the sake of change. President and Chief Financial unparalleled in the history of retail- “At Wal-Mart, we are always Officer John Menzer, “and it was a ing because of where we are now, challenging ourselves to continue great investment for us, too. We and the capability and determina- to improve, because we can’t allow started buying in the low 20s, and tion we have to keep getting ourselves to become complacent,” the stock ended up rising 73 percent better.” Scott said. “We have not yet in the last calendar year. Wal-Mart had the second-highest return to shareholders among the 30 blue- chip stocks that make up the Dow Sales (in billions) Jones Industrial Average.” Wal-Mart shareholders also saw $160 an immediate increase in their returns in fiscal 1998 when the div- 140 idend was increased by 29 percent. $118 Combine those actions with 120 $105 Wal-Mart’s ongoing drive to do $94 business better, increasing profits 100 $83 while managing our capital, and management believes the company $67 80 is on track to achieve its goal of 15 $56 percent total annual shareholder 60 $44 returns. Analysts agree. “Wal-Mart’s improved execu- 40 tion is more than simply a focus on improving the return on invest- 20 ment,” Analyst Michael Exstein of Credit Suisse First Boston wrote in 0 92 93 94 95 96 97 98 late 1997. “Instead, a number of ini- Fiscal year tiatives, including merchandising and operational changes and more 13
  14. 14. C O V E R R E P O R T: M A K I N G T H E G R A D E Now, associates who spent their days filling out forms can spend that time serving customers. This kind of improved efficiency at the individual level can be seen every day among 825,000 Wal-Mart associates worldwide. In the stores, where the rubber meets the retail road, Wal-Mart customers benefit directly from the company’s tight focus on continuing to improve its operating strategy. “Focus is the key,” said Thomas M. Coughlin, Wal-Mart’s Executive Vice President of Operations. “As a company, we have to stay very intense about the things that are most important in our business - Managing our customers, our associates and our shareholders, who often are one and the same person.” In the stores, where strategy rolls up its sleeves and goes to for Results work, some of our most visible strategic initiatives include the improved management of assets Improvements in asset management, inventory control and and inventory, stronger-than-ever merchandising initiatives and con- technology will keep Wal-Mart earnings growing steadily. tinuous development of informa- T here was a time when Wal-Mart associates, like their counterparts at other retailers, spent much of their time simply trying to keep track of inventory. They manually counted items and filled out endless order forms in the hope that, eventually, the paper trail would lead the right products back to their shelves. But today, thanks to Wal-Mart’s industry-leading information tech- nology, computers handle most of those chores, far faster and more efficiently than a paper-based sys- tem. Wal-Mart leads the retail industry with its SHORTHAND version of a “just in time” supply sys- Despite a 12 percent increase tem in which in sales in 1998, the company computers track saw only a 4 percent increase every product and in inventories, saving about automatically $1.4 billion. This makes more alert warehouses capital available for when it’s time productive uses. Top photo: Bobby Martin, President of the International Division, and Mark Hansen, President of to restock the SAM’S Club. Lower photo: H. Lee Scott Jr., President of the Wal-Mart Stores Division, shelves. and Thomas M. Coughlin, Executive Vice President of Operations. 14
  15. 15. tion technology. These initiatives FISCAL 1998 END OF show their value not only in the YEAR STORE COUNTS financial results of fiscal 1998, but are designed to continue to deliver Supercenters Discount Stores SAM'S Club improved results, now and in the future. Alabama 50 27 8 16 0 Alberta 0 In turn, greater efficiency in the Alaska 0 3 3 12 0 British Columbia 0 stores will have a direct impact on Arizona 34 0 7 9 0 Manitoba 0 Wal-Mart’s value to shareholders. Arkansas 50 27 4 4 0 New Brunswick 0 An example of how Wal-Mart’s California 100 0 24 7 0 Newfoundland 0 operational improvements build Colorado 31 5 10 7 0 Nova Scotia 0 returns to investors: Despite a 12 Connecticut 14 0 3 1 0 NW Territories 0 percent increase in sales in 1998, the Delaware 1 1 2 52 0 Ontario 0 company saw only a 4 percent Florida 102 33 31 28 0 Quebec 0 increase in inventories, saving Georgia 62 25 16 8 0 Saskatchewan 0 about $1.4 billion. This makes Hawaii 0 1 5 144 0 0 CANADA TOTAL more capital available for other Idaho 0 1 9 productive uses. 6 0 3 Argentina Illinois 95 11 24 According to Bob Connolly, 5 0 3 Brazil Indiana 60 15 14 Executive Vice President of 27 28 Mexico 347* Iowa 43 2 7 Merchandising, there are four keys 0 9 5 Puerto Rico Kansas 40 8 5 to this dramatic improvement in 2 0 1 China Kentucky 45 23 5 inventory management: 21 0 0 Germany Louisiana 56 19 9 1) Systematic reduction of un- Maine 19 0 3 500 61 40 INT'L. TOTAL productive inventory Maryland 22 1 10 2) Reduction of orders by 15 *Includes 36 Superamas, Massachusetts 27 0 3 62 Bodegas, 33 Aurreras, percent, enabling stores to 178 Vips and 30 Suburbias Michigan 45 0 21 manage their own inventory Minnesota 34 0 9 Discount Stores 3) Reduced pack sizes across Mississippi 42 14 4 many categories Missouri 79 30 12 4) Timely markdowns Montana 0 1 9 Rather than blindly slashing Nebraska 13 5 3 U.S. INT'L. inventory, Wal-Mart has used the Nevada 13 0 2 data gathered by technology to New Hampshire 17 0 4 make more inventory available in New Jersey 16 0 6 the key items that customers want New Mexico 16 3 3 most, while reducing inventories New York 51 5 18 overall. Supercenters North Carolina 78 8 14 This is where today’s information North Dakota 0 2 8 technology meets merchandising. Ohio 77 4 23 Continuous learning has been a Oklahoma 57 21 6 constant thread in Wal-Mart’s his- U.S. INT'L. Oregon 23 0 0 tory, and with modern technology Pennsylvania 49 12 18 for understanding what customers Rhode Island 0 1 6 do in the store, we have been able South Carolina 41 12 9 to focus more precisely on serving South Dakota 0 2 8 their needs. Tennessee 57 30 11 SAM'S Club Wal-Mart’s record-breaking per- Texas 169 72 52 formance in fiscal 1998 was, as Utah 14 0 5 Coughlin puts it, a matter of focus. Vermont 0 0 3 By focusing simultaneously on rais- Virginia 31 21 10 U.S. INT'L. ing profits and restraining expenses, Washington 20 0 2 our results show what can happen West Virginia 12 6 3 when we combine inventory man- Wisconsin 55 1 11 agement, leading-edge technology Wyoming 0 2 9 and increased financial discipline. U.S. TOTAL 1,921 441 443 2,421 502 483 GRAND TOTAL GRAND TOTAL 15

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