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Wal-Mart Lauds Winning Model as May Sales Rise 9.8%

The Wal-Mart cheer may have been a little bit louder and a little bit stronger this year at the discounter's annual shareholders meeting.

FAYETTEVILLE, Ark. — The Wal-Mart cheer may have been a little bit louder and a little bit stronger this year at the discounter’s annual shareholders meeting. When the eight associates chosen to lead the cheer called out the letters of the company’s name at the University of Arkansas’ Bud Walton Arena here, there was a little more shimmy in their “squiggle,” the dash between “Wal” and “Mart” where they wiggle their hips.

“All the success feels good, doesn’t it?” Wal-Mart Stores Inc.’s president and chief executive officer H. Lee Scott Jr. asked the crowd. “You bet it does.”

Scott was referring to the numbers the company released on Thursday. Sales for the four-week period ended May 30 were $31 billion, up 9.8 percent over the same period last year, while sales for the 17-week period ended May 30 were $126.4 billion, a 9.1 percent rise. The international division led both periods with the biggest increases, 16.6 percent for the four weeks and 18.3 percent for the 17 weeks. Comp-store sales for all U.S. stores advanced 3.9 percent for the four weeks, excluding fuel.

“Two years ago, I talked about a transformation under way,” Scott said. “We’re doing a much better job of buying what our customers want. Our capital efficiency model is working and we’re continuing to focus on strong and free cash flow.”

Chief financial officer Tom Schoewe said Wal-Mart has a cap-ex of $13.5 billion with free cash flow of $5.4 billion. For the fiscal year ended January 2008, the company paid out $3.6 billion in dividends. Compared with its share price of $43.28 on Aug. 15, 2007 (its low for the year), Wal-Mart stock closed at $59.80 on Thursday, after the results were released. “This is one great story,” Schoewe said.

But not everyone in the arena was happy. Seven shareholder propositions were defeated during the meeting, including one that would have established a committee for human rights.

On Thursday, as part of a two-day media day, journalists were given a tour of a Wal-Mart Supercenter in Rogers, Ark. Eduardo Castro-Wright, president and ceo of Wal-Mart U.S., said the retailer has decided not to compete in categories that don’t have a big payoff. “Our chief merchandising officer John Fleming came up with the merchandising strategy of defining the categories we’re going to win in. What we can’t win, we’ll place and the others we’ll show,” said Castro-Wright, using horse racing terminology. “Merchants are on trend, there is great inventory management, clarity of merchandise and crisp presentation.”

During the tour, merchants from Wal-Mart’s power categories were on hand to show off new initiatives. Castro-Wright said apparel is taking a page from the electronics playbook. “We’re using brands as part of large integrated programs,” he said. Express for Less, Wal-Mart’s handle for juniors, “is a way for us to deepen our media partnership with the Disney Co.,” he said, noting Hannah Montana apparel is a key initiative. “We’ll continue to do that selectively to bring credibility to our apparel offering.”

Dottie Mattison, senior vice president and general merchandise manager of apparel, said she’s “very happy with the performance” of the recently launched Op brand. Asked whether new product categories are being considered for Op, she said, “We know the brand has equity.” In addition, Wal-Mart will “continue to incubate new brands,” she said.

Mattison believes activewear, from casual leisure to performance, is poised to take off as a major trend. She declined to say whether the floor space for any of the older brands has decreased to make way for the newer products. “Any time any new thing comes in, you have to make a choice,” she said. “George and Metro 7 are robustly performing. We have an ongoing relationship with Mark Eisen.”

Michael Duke, vice chairman of Wal-Mart International, said at the shareholders’ meeting that the division is projecting sales of more than $100 billion this year. After jettisoning some poorly performing businesses, including those in Germany and South Korea, the company is left with a core of strong countries, including the U.K., Brazil and China. “We’re on a roll in India,” Duke said, noting Wal-Mart’s local partner in the country has opened three small supermarkets. Wal-Mart unveiled an 85,000-square-foot distribution center in Punjab and plans to open a cash-and-carry store this year.

Vicente Trius, ceo of Wal-Mart Asia, earlier explained what the retailer is doing to turn around its poor-performing operations in Japan. “We’re improving our assortments of general merchandise [in Japan]. We’re expanding and selecting a better offer of apparel. The Japanese customer wants value and is very price-conscious. Tokyo is the fourth most expensive [city] in the world. Japan is a very fragmented market. There’s an opportunity for growth outside the three countries we operate in. The region is experiencing double-digit comps.”

The annual meeting began at 7 a.m. on the dot with a rousing performance by the Wal-Mart “house band,” which warmed up the already pumped crowd with its Blues Brothers sound. Wal-Mart’s clout in the entertainment world — the retailer sells more CDs than any other — was evident in the lineup of musicians hired for the event. At Razorback Stadium on Thursday night, Carrie Underwood and Keith Urban performed. Joss Stone, Jennifer Hudson, David Cook and Tim McGraw all sang during the shareholders’ meeting, which was hosted by Queen Latifah. She was well-suited for the job, cajoling the crowd to “give it up for” everyone from Hudson to Sam’s Club president and ceo Doug McMillon, as if he were another celebrity.

McMillon got rousing applause when he said the membership club had sales of $44 billion for fiscal year 2008 and a 4 percent comp increase. “Sam’s Club improved inventory turns and we’re trying to hold down costs in an inflationary environment,” he said.

Sustainability was high on the company’s list of topics and is a favorite of Scott’s, who pointed out that Wal-Mart has sold 190 million compact lightbulbs to date.

“Our leadership in sustainability will give customers and suppliers everywhere the ability to be more energy-efficient and, therefore, more energy-independent,” he said.

Scott, who has entered the national debate on several hot-button issues, indicated he will continue to be vocal. “We’re in the middle of one of the most exciting presidential campaigns in history,” he said. “Regardless of who wins the election in November — and what party they are from — we stand ready to work with the new president and the next Congress. We believe we can be an effective partner…and leaders who want to get things done will seek Wal-Mart as a partner.”

At a post-annual meeting Q&A, Scott related the elements that created a perfect storm for Wal-Mart’s difficulties in 2007. “We as a company were not as prepared as we should have been when the price of gas rose,” the ceo said. “Our stores didn’t look as good as they needed to look and our customer was under a lot of pressure. It wasn’t pretty. Our inventories came down and got cleaner. What was done in apparel, even though it didn’t increase sales, it got us focused and provided greater clarity to customers. When the economy turns around, and it will, the customer will have experienced several months of a very different service level with faster checkouts, cleaner stores.”