Wal-Mart Stores, Inc. Shareholders Meeting June 7, Tom Schoewe Wal-Mart Stores, Inc. EVP, CFO Mike Duke Wal-Mart Stores, Inc.

Transcription

1 Wal-Mart Stores, Inc. Shareholders Meeting June 7, 2010 Corporate Speakers Tom Schoewe Wal-Mart Stores, Inc. EVP, CFO Mike Duke Wal-Mart Stores, Inc. Vice-Chairman PRESENTATION Tom Schoewe: Good morning. Just another day in the office. I'm hoping this presentation goes a little bit better than that audition. Well -- you know what? A lot can happen in a year. If you think about it, it would have been last time last year that we looked at these spectacular results for fiscal '09 -- not this year, but last year. What's happened since then? We get up every single day, and we look at the newspaper. And what do we see? One set of bad news after another. And for the first time since I've been here we've had a very unusual phenomenon here in the United States and basically around the world. And that is the fact that retail in general -- we're used to that growing. The whole industry has grown, but in 2009 that wasn't the case. And, in fact, what did we see? We saw retail actually shrink by $64 billion. That's incredible -- pretty tough landscape. So, again, let's think about the results. Let's think about the results we posted last year. We had to provide guidance to Wall Street. We had to say, based on those results, how do you think we're going to do? Pretty tough job. What we said was, we think we can $3.45 to $3.60 a share on top of the [$3.35] that we reported in the prior year. Pretty aggressive goals, wouldn't you say? Yes. The big question though, is how did we do? Well, you shouldn't be surprised -- we not only fell inside that range, we exceeded that range. I don't know about you, but I'm really proud, not only the Company that we work for, but the results that we get to share with our shareholders. So, with that in mind, I'm going to take a little bit different approach today and give you a little bit of a report card and a follow-up to an analyst meeting that we had last October. We met with our analysts and investors, and at that meeting we had three commitments that we provided to them. We told them we were going to focus on growth, we're going to focus on leverage, and we're going to focus on returns. So, what I'd like to do today is provide a little bit of a report card on those three commitments. So, let's start with growth. Now, again, let's pretend that it's not today, but let's go back ten years ago -- a great Company at that time. Sales at that time would have been $153 billion, a reasonably large enterprise. Now, many of those investors and analysts are here

2 today meeting with us. And one of the things that they value a lot is consistency -- better results each and every year. Now, I'm going to need your help. Can you help me? Every single time you see one of these little ten-year slides, and you think that they're impressive and, most important, consistent results, I'd like you to give me a woo -- a little practice. Okay. Now, if our sales were $153 billion -- Doug has already shared a really cute little slide that showed us how did we end last fiscal year you've got it. Thank you. Very impressive. Now, something else I need -- remember the number in that little bubble up on the slide there, it says 10.2% CAGR -- a little techno-babble for you there. That's compound annual growth rate. What that says is, during that ten-year time period, on average each and every year during that time period we grew by more than 10%. Remember than 10.2% number. Okay. We care about our relative performance. We talked about this a lot last year. So, I thought what I'd do is give you a little bit of a report card over the last two years focusing on our US competition -- they'd be that little blue line that you see in the bottom. What we're doing here is looking at a trailing two-year average of how the comp store sales for that group performed. Obviously, what we need to do is see how we performed at Wal-Mart and Sam's US compared to those very strong competitors. We said it was a tough environment. How did your company do? Thank you. You're way ahead of me here. I'm loving this. Next is leverage. Before we get into the details, let me define leverage real quickly. Leverage can be many things. When we're talking about it today, the main definition I'd like to look at has to do with how fast our expenses are growing relative to sales. Many times we'll talk about selling, general and administrative expenses -- more techno-babble. It's just expenses. We would love to see our expenses growing at a slower rate than sales. So, remember the sales growth rate over the ten-year time period? Remember that 10.2%? We've got a pop quiz now. What we need to know is, during that very same time period, how rapidly did the expenses grow while sales were growing at a double-digit rate? That's the question. Okay. Now, it's a multiple choice kind of an answer routine here and this is one of those times when less is more. We would love for our expenses to grow at a slower rate than our sales. So answer A or B would be really good -- C and D not so much. How do you think we did? I've got bad news for you. Well, you want to know what? Managing our expenses is so important; it's so important to our business model, it's why Mike Duke made a commitment to Wall Street at that October meeting. He said, we can reverse that trend. We can do a better job. As Rob said we're always looking at ways to improve. We can do a better job of managing expenses.

3 So, then that leads us to, I guess, another question. What's this? The productivity loop. It's the basis for the business model. What it says is, if we can take excess cost out of the system, we can pass that along in the form of low prices to our customers or to our members, help them save money and live better. And, at the same time, that grows sales to help us drive expenses down, and it's a wonderful loop. Mike shared his commitment to the analysts at that meeting in October, saying we can do a better job of adhering to the productivity loop. So, that brings us to the next question. We've reported two sets of quarterly results since that meeting in October. The question is, were we able to grow expenses at a slower rate than sales in those two quarters? The fourth quarter of last year -- what do you think we did? Absolutely marvelous job. In the first quarter, the one that we just reported, once again you knocked the ball out of the park. It was wonderful, wonderful performance -- really proud of that. So, now the critical question is which one of our segments -- we reported three business segments to the outside world; there's Wal-Mart, there's Sam's and there's International. Which one of the three segments do you think grew their expenses at a slower rate than sales? Was it Wal-Mart? Well, maybe it was Sam's. Doug McMillon, is there some chance it was International? Do we have International markets here? Well -- you want to know what? -- the best news in the world is that the answer to this question is not one, but all of the businesses did it. Okay. We spent a little bit of time talking about growth, leverage, now onto returns. If you're an investor, you care a lot about the free cash flow in the business. You're saying, well, Tom, what is free cash flow? Well, it's really very simple. If you take all the cash that's generated around the world, and you subtract from that the capital spending that we have each and every year on new stores, new clubs, new distribution centers, information technology -- when you subtract that capital spending away from the cash flow, you get what we call free cash flow. Obviously, the higher this number is the better. And this is really what helps generate the growth for your company going forward. So, again, if it was last year, you would have seen this slide -- pretty darn impressive. We had a good trend going into last year, but last year was just incredible performance. In fact, when I was standing here, my big concern was how are we going to beat those results? I've got to tell you, it's only because of the hard work, the dedication and the commitment to our operations and customers that you see results like this. $14 billion in free cash flow -- just amazing. This is an announcement. Get ready here. You're going to have an opportunity to participate. Let's just say that it was ten years ago again. Our earnings per share were very healthy at that time, $1.25 a share. Again, what we'd like to see would be earnings per share growing at a more rapid rate than sales. How do you think your company did? Rock on. Last time I looked, 11.5% is growing faster than 10.2%. Give yourself a hand.

4 Now you know what? At most companies, they would love for their dividends to grow at basically the same rate as earnings per share. So, I've got another pop quiz here for you. And let's just say hypothetically, what would our dividend be today if, over that very time period, our dividend had kept pace with earnings per share? It would be pretty respectable. You'd see a number like $0.71 a share. Do you like that? Pretty good. Rob said we're always looking at ways to perform better. We've done that. Look at how rapidly that dividend has grown, almost an 18% compounded annual growth rate in your dividend. That is just remarkable, remarkable performance. And, as we think about it, there are many different ways to provide returns to shareholders. Some of the obvious ways are increases in the share price. But, in addition to that, what we look at each and every year is a combination of the dividend we just talked about and then, also, share repurchase. And you're saying, well, Tom, how is share repurchase a return to a shareholder? Well, just think about it. If you own ten shares of stock, and then the Company went out and bought tens of millions of shares, the overall share base would have shrunk, but you'd still own your ten shares. So, you'd actually own a larger portion of the Company. Indirectly, that's a return to shareholders. So, the question is -- last year we would sat here. We would have talked about a little over $7 billion when you combine the dividend and the money that we invested in share repurchase. Once again, the progress we made this year was remarkable -- over $11 billion returned to shareholders. Now, spend a little bit of time talking about share repurchase. It would have been at that - - this meeting last year that I announced to you that our Board had just approved a $15 billion share repurchase program; an indication that it was alive and well. Since that time and, in fact, through the close of business yesterday, we had used up -- we had purchased a little over $10 billion worth of our own stock -- pretty aggressive. That only leaves us with $5 billion worth of capacity. So, yesterday at our Board meeting, there was something that happened. They approved a -- did you guys see that? Was that the coolest slide you've ever seen ever? Danny, let's do that one again. Not only is that a cool side, what it demonstrates is that the $15 billion that we had last year -- the program, that's been retired and has now been replaced with a brand-new $15 billion program. Okay. Fiscal 2010 is ancient history. We've just recently released our results for the first quarter of the current fiscal year. How did we do? Well, once again, a difficult environment -- we needed to provide guidance to the outside world. How did we do compared to the $0.77 a share that we reported in the prior year? Well, our guidance to the outside world was between $0.81 and $0.85 a share.

5 How did we do? Rock solid performance. We turned a very respectable 6% sales growth into better than 14% increase in earnings per share. Give yourselves a hand. Now, we've talked about returns. Returns come in many different forms. We've spent a good deal of time talking about returns to our shareholders. But, in addition to that, the corporation has done a marvelous job of providing returns to its associates as well. You see a $2 billion number here. That represents bonuses, profit-sharing, 401k, the discount card. And it's a little over $2 billion, but that's just for the associates in the United States. Imagine if we were to present the global number -- tremendous returns to our shareholders. Over and above that, we're dedicated to being a good partner with the communities that we live in. Eduardo shared with you some of the magnificent things that we're doing. And, in the year that just ended, around the world -- a global number -- returns to the communities that we live in of $624 million. So, I need your help again. It's report card time. In addition to the coolest slides you've ever seen ever, do you think that we met our commitments on growth, leverage and returns? I am proud to be here today to represent you all. Thank you for what you do and thank you for letting me be here. Mike Duke: If we work together, we'll lower the cost of living for everyone. We'll give the world an opportunity to see what it's like to save and to have a better life. Sam Walton said those words almost 20 years ago. Isn't it amazing that he could see that far ahead? And, at that time, we weren't even in all 50 states in the US. But Sam understood the power of our model. He understood the strength of our mission, and he understood people and their common aspirations everywhere. Whether it's a family sitting around a kitchen table in Guangdong or in Guatemala or in my home state of Georgia, they all want a better life, don't they? The question for each of us, almost a generation later -- can we live up to Sam Walton's global vision? Can we give people around the world the opportunity to save money and to live better? The progress we've made around the world is incredible. I think even Sam would be surprised by how far and how fast that we've come. Look over the last 20 years. We've gone from 1,500 stores and 275,000 associates in the US to now more than 8,000 stores and clubs and over 2 million associates in 15 countries around the world. And, when it comes to sales growth, I have to admit I am amazed. I joined the Company in Our International business today is larger than our whole company was when I came in It's amazing, isn't it? Clearly, we do recognize that there is business opportunity in the world. But we also recognize that the world is changing fast in big, disruptive, complex ways. So, now let's look ahead. Let's look to 20 years from now. We will live in a vastly different world, won't we? There will be well over 1 billion more people on this planet. And hundreds of millions of people will rise into the middle class. Energy will definitely cost more. The

6 demand for food will double. Our global economy will be even more connected. Technology will drive all sorts of changes, especially in our industry. And our competitors, they will be even more nimble and they will be more innovative. These are big changes and big challenges, but they are also big opportunities for those of us that get out in front of change. So, just imagine -- imagine the role that you and your company can play in the world over the next 20 years. Think about sourcing hundreds of millions of dollars of new product and what that will do to help create vibrant economies and communities. Think about giving everyone with a mobile device the platform and the information to buy the exact product they want at the absolute best price anywhere in the world. Think about helping not 200 million people or customers a week, like we do today. But what about helping 1 billion customers a week to save money and to live better? That's exciting. And these are not just aspirational goals, these are achievable goals. And we are poised to live up to Sam Walton's global vision and to build the next generation Wal- Mart. But we do need to focus on certain areas to deliver on that vision for our customers, our shareholders, our associates and for our world. So, I see four priorities that I'd like to talk about. First, we must become a truly global company. Second, we must understand the business challenges that retailers will face, and we must solve them. Third, we need to play an even bigger leadership role on the social issues that matter to our customers. And, most important, we must do all this while keeping our culture strong everywhere. When people ask me sometimes what do I focus on every day -- what's a typical day? My answer is I focus on people and sales. That's my day. But all you have to do is really walk into my office -- you'll see a folder, all the details of our business there that I look at. I do admit I love the details of retailing. And, if Eduardo or Doug or Brian come into my office, I reach for the folder. They know that we're going to talk about the details of their business. And I also love MBWA. If you don't know what that means -- Management by Walking Around; I do a lot of that, whether it's in the home office or in the stores. So, just the other day, a couple of weeks ago, I was in the home office. I was doing MBWA. And I stopped in and barged into a meeting that was taking place between one of our merchants and a supplier. So, I just sat down and said, could I join the meeting? I said, I'd like to listen and learn about this supplier's business. I started asking questions. You know what? Supplier relationships have been essential to our success in the past, and that is not going to change in the future. Now, my next answer to the question of what I focus on every day goes beyond execution and sales. It is about looking out to the next generation, like Sam Walton did, and thinking about our global opportunity. So, let's talk about how we can become a

7 global company. I am so proud of Wal-Mart's performance. Last year, with $405 billion in sales worldwide you made us number one on the Fortune 500. And, for the first time in our history, the sales that you delivered outside the United States topped $100 billion. Our International business is strong and only becoming an even bigger and more important part of our company. More than 60% of our new square footage built last quarter was in Wal-Mart International. I'm also really pleased with the progress at leveraging expenses and reenergizing the productivity loop. Every division in our business and the home office leveraged expenses in the last quarter. Of course, there are areas that we do need to improve though as a business -- we need to really improve. First, I might mention in Wal-Mart US we need to improve our comp store sales. In Sam's Clubs, we do need to continue to drive product quality and really to generate even greater membership penetration. And, in the International business, we do need to continue to set an aggressive pace of growth, and we need to pay a lot of emphasis and focus on improving returns. Our results demonstrate the underlying strength of our business and our strategies -- once again, growth, leverage and returns. The bottom line is I am so optimistic about our business, and you should be too. As proud as we are of our recent performance though, future success is never guaranteed. Leadership is not an entitlement, especially in our business. So, as we look at being a global company, the first thing is we have to serve customers as a local store. In the future, we're still going to be building large stores, but we'll also build a lot of smaller stores and we will have many more points of distribution of product. We will also need to hire and train a lot of new associates to serve and understand our customers. Just over the next five years, we will create approximately 500,000 new jobs around the world. We do need to learn to recruit the very best talent and identify the best talent in our ranks. And then, we do need to develop leaders even more and to help them become global citizens. And that does include making a very special effort to help develop women everywhere in our company and at all levels of our company. Being a truly global company, we'll also mean learning how to share best practices around the world and learning how to leverage our global supply chain. We have a tremendous opportunity in sourcing product to save our customers billions of dollars. Now, we must also meet new business challenges. Retail will soon enter into an era of price transparency. And, what kind of retailer will win a time of price transparency? You've got it. The price leader will win then. So we really need to churn the productivity loop. We need to deliver on our everyday low-price business model everywhere. Wal- Mart must widen the price gap. We will win on price leadership, and we will win big.

8 Being a technology leader will also be absolutely essential. We have made significant investments in technology over the years to operate more efficiently and to deliver even greater value for our customers. But there is another aspect of technology that goes to the heart of the customer experience, and that is e-commerce. We need an even deeper understanding of the role of mobile technology throughout the world, including developing countries. We have to develop the right channels for customers to shop when they want, how they want and where they want. And, quite frankly, some of our competitors are ahead of us here. So, let me be perfectly clear. Building the very best websites will be just as important as getting our store formats right in the future. Building the next generation Wal-Mart does mean being a truly global company and solving the business challenges of the future. But we can never forget there is another part of our mission, and that is to help people live better. One of my favorite quotes from Luke -- to whom much is given much more is expected. I think that applies to Wal-Mart, doesn't it? Much more is expected of us. And, if we want the freedom to pursue our business goals around the world, we must play an even bigger leadership role into helping to solve the social challenges around the world. Over the last few years, we built a model for making a big difference on big issues. Let's look just over the last 18 months. We committed to eliminating 20 million metric tons of greenhouse gas emissions from our global supply chain by the end of We announced the sustainable product index to give manufacturers, merchants, customers and other retailers the tools to make more sustainable decisions. We've launched the local agricultural programs in Mexico and India and a direct farm program that will involve as many 1 million farmers in China. And, as you've heard, we've recently pledged $2 billion in cash and in-kind contributions to help end hunger in America. Now, these aren't the actions of a company new to making a difference in the world, are they? We are well into the journey now. And we know that being a good company is good for our business. At the height of this recession, we promised that we would broaden and we would accelerate our commitment to sustainability. Today, sustainability is sustainable at Wal-Mart. The outside world does recognize our leadership and our ability to get things done. No one can doubt our sincerity. No one can question our credibility. But, as Mr. Sam knew, leadership leads to higher expectations. And, you know what? That's fine by me. I like that position we're in. I appreciate that the world now has higher expectations of our company. So, we must raise the bar. We must continue to meet the social obligations and the expectations ahead. Wal-Mart will never look back. We are poised to be a global company and to meet the world's business and social challenges, but that's still not enough. To achieve our desired results, we must keep our culture, our great Company culture -- we must keep it strong everywhere.

9 With that, you have to care about your work, and you have to care about people. You have to trust, trust each other, and you have to be trusted by those that you serve, by those that you work with. You have to constantly look for ways to change and to improve as was discussed as Mr. Sam did every day. And I know I am not alone in this room with these beliefs. I know I'm not alone in any of the more 8,000 stores and clubs that I might visit any day of the week. Everywhere I go in the world I see and I meet associates like you with that same passion, the passion that I have for our culture and for serving customers. As Rob said, our culture is who we are. It isn't just words written on a wall at the home office or stapled to a bulletin board, maybe in a backroom of a store. No, our culture is special, and it makes us special. It sets us apart from the competition, and it appeals to people everywhere. The culture of our company can work among the cultures of every country. So, wherever we go and whatever changes that we may make we must keep our culture strong. I believe -- I truly believe the retailer that respects the individual, that puts customers first and that strives for excellence and that is trusted, that is the retailer that will win in the future. 20 years from now -- let's look ahead again, out 20 years. Some of you will be back in this same arena probably at the annual shareholders' meeting for that year. That would be 2030, I guess, that -- you could go ahead and mark your calendar. Many of you will have bigger jobs, bigger roles, increased responsibilities. One of you might even be standing right where I am looking out from this stage with immense pride. And I want all of you to be able to say that at this day, this very moment, Wal-Mart committed to being a truly global company, and we began building the next generation Wal-Mart, and that we committed that this day we are committing to overcome the global challenges that face our business. We committed to an even bigger leadership role into helping to solve the global challenges that face society. And we committed to keeping our culture strong always and everywhere. This is our company's opportunity. And, as Wal-Mart associates -- for you, Wal-Mart associates, this is your opportunity. And, as Sam Walton said, it's the world's opportunity to see what it's like to save and to have a better life. Thank you for the honor to serve you, and thank you by being by my side. Thank you.