May 19, 2008 - Wal-Mart Stores (WMT-NYSE) is an irresistible (or at least unavoidable) retail force that has yet to meet any immovable objects. Bigger than Europe's Carrefour, Tesco, and Metro AG combined, it is the world's #1 retailer, with more than 7,250 stores, including about 975 discount stores, 2,800 combination discount and grocery stores (Wal-Mart Supercenters in the US and ASDA in the UK), and 590 warehouse stores (SAM'S CLUB). About 55% of its stores are in the US, but Wal-Mart is expanding internationally; it is the #1 retailer in Canada and Mexico. It also owns a 95% stake in Japanese retailer SEIYU. Wal-Mart also has operations in Asia, Europe, and South America. Founder Sam Walton's heirs own about 40% of Wal-Mart.

Chances are good, it's more than a short term event. The company is improving its return on capital and increasing free cash flow. Much of the progress comes from less development of new stores, fewer openings of supercenters and lower capital spending. In 2007, Wal-Mart opened 191 supercenters, down from 279 in 2006, each with an average size of 187,000 square feet. Analysts estimate about 140 new stores for 2009.

The major push is on the international front. Selling space increased by 18% in 2007, due mostly to acquisitions and store openings in China. Analysts expect domestic growth of 4% this year and 10% internationally. To improve profitability, in the U.S., the company is creating less competition between its smaller and larger stores by increasing distances between them. Internationally, it's working on operating efficiencies through economies of scale.

Look for earnings to rise about 10% a year, on average, over the next 5 years. Part of that will come from operations, but some of it will be from a $15 billion stock repurchase program recently authorized. The company has 3.973 billion shares outstanding. The buybacks would take about 250 million shares off the market. Earnings per share have gone from $2.63 in 2005 to $2.92 to $3.16. Fiscal year 2008 (ends in January) should show $3.50 and next year, expect $3.85.

Sales will go up even faster, most likely 10.5% a year, on average, fueled by international growth. Recently management gave encouraging reports on higher revenues in the U.K., Canada, Brazil, and China. There's also a joint venture in India that will certainly help.

Some more numbers: Return on equity was 19.9% in 2007. Total sales were $374.526 billion in 2007. There is a 23.75 cent quarterly dividend, giving a yield of 1.6%. Officers and directors own 43.4% of the stock. Debt is 34% of capital. Market cap is $233 billion.

Wal-Mart is moving into China and India, two of the fastest growing economies globally. Most likely those consumers are looking for low prices. With new efficiencies, domestically and internationally, the company looks to be entering a new phase of business, one that should make the bottom line grow handsomely for years.

- Company Web site: www.walmartstores.com

- Ted Allrich