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Consumer Defensive - Discount Stores - NYSE - US
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EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2015 - Q2
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Executives

Carol Schumacher – VP, IR Doug McMillon – President and CEO Claire Babineaux-Fontenot – EVP and Treasurer Greg Foran – President and CEO, Wal-Mart U.S. David Cheesewright – President and CEO, Wal-Mart International Rosalind Brewer – President and CEO, Sam’s Club Neil Ashe – President and CEO, Global eCommerce Charles Holley – CFO.

Carol Schumacher

Hi, this is Carol Schumacher, Vice President of Investor Relations for Wal-Mart Stores, Inc. Thanks for joining us today for our earnings call to review the second quarter of fiscal year 2015. The date of this call is August 14, 2014. This call is the property of Wal-Mart Stores, Inc.

and is intended for the use of Wal-Mart shareholders and the investment community. It should not be reproduced in any way.

(Playback Navigation Instructions) This call contains statements that Wal-Mart believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the Safe Harbor for forward-looking statements provided by that Act.

Please note that a cautionary statement regarding the forward-looking statements will be made following Charles Holley’s remarks in this call. Our press release and a transcript are available on our corporate website – stock.walmart.com. Additionally, a supplemental slide deck that summarizes our key financial results should be used with this call.

That presentation appears at the end of this transcript. We believe that this deck provides a more streamlined approach to reviewing our financial performance and prior year comparisons. Unit count data, which is updated monthly, is posted separately on the investors’ portion of the website, under financial reporting.

As a reminder, in Wal-Mart International, we provide results and commentary on primarily our five largest markets, all of which had revenue in excess of $10 billion in fiscal 2014. For fiscal 2015, we utilize a 52-week comp reporting calendar, with our Q2 reporting period from May 3rd, 2014 through August 1st, 2014.

A week-by-week comp reporting calendar is available under the comp sales link on the investor portion of our website. For information regarding terms used in today’s release, including EPS, constant currency, gross profit and gross profit rate also refer to our website.

Throughout the discussion of our e-commerce performance, we are referring to our results on a constant currency basis. As I mentioned last quarter, the net gain from the sale of our Vips restaurant business in Mexico has been recorded in this second quarter’s discontinued operations. Note that certain reclassifications have been made to Q2’s results.

Due to the results from discontinued operations, EPS for Q2 last year is now $1.23, not the $1.24 presented in last year’s release. These reclassifications did not impact consolidated net income. There will be no EPS impact for Q3 and Q4.

Please mark your calendar for our annual meeting for the investment community, and we look forward to seeing many of you at the meeting. We will kick off with dinner with management the evening of Tuesday, October 14 in Northwest Arkansas. The meeting will run through approximately 3 p.m. Central Time on Wednesday, October 15.

So, now let’s get down to our agenda for today’s call. Doug McMillon, President and CEO of Wal-Mart Stores, Inc., will cover our key results and provide an overall assessment of our business. Claire Babineaux-Fontenot, EVP and Treasurer, will cover the financial details for the quarter. Then, we’ll cover our results.

Greg Foran, who took over this week as President and CEO of Wal-Mart U.S., will kick things off. He’ll be followed by Dave Cheesewright, President and CEO of Wal-Mart International, who’s traveling and calling in for today’s call. And, Roz Brewer, President and CEO of Sam’s Club.

Neil Ashe, President and CEO of Global eCommerce, will update you on the progress we’ve made on our e-commerce businesses around the world. And, Charles Holley, Wal-Mart’s CFO, will wrap up with a focus on our guidance for the full year and the third quarter. Now, I’m pleased to introduce our CEO, Doug McMillon, to kick off our call.

Doug?.

Doug McMillon President, Chief Executive Officer & Director

the U.S., U.K., China and Brazil. We continue to add exceptional talent to our teams through organic hiring and small acquisitions. To improve our customers’ online experience, we recently started the rollout of a global technology platform. U.S.

customers will appreciate the site’s streamlined search and navigation functionality that personalize the user’s experience. A better checkout process is coming in the near future. From a supply chain perspective, we’ve started construction on another new e-commerce fulfillment center, this one in Indiana.

Investments like these will allow timely and cost-effective delivery of merchandise to millions of additional customers. All of these initiatives are about changing with our customer. Our enterprise strategy dictates that we move with speed and agility to serve our customers more effectively.

We’re pushing to save them time and money, both in store and online. Because the lines between digital and physical retail have blurred, we must be nimble to adjust so that we can exceed customer expectations. Customers are rational. They respond to low prices, innovative products and the service they expect.

So, we must run stronger stores everywhere we operate, with better merchandising, in-stock levels and quality service. I’m confident that we can improve comp sales as we deliver on these priorities, and I’m bullish on our core business. Supercenters are still relevant around the world and will play an important role for us for years to come.

At the same time, we’re broadening our smaller store base globally, and expanding our digital capabilities everywhere we operate. I’m excited about the opportunity to serve so many more customers and drive growth across the enterprise. I believe we’re making good progress, but we’ll keep pushing to evolve faster.

Our customers expect this and we won’t let them down. Now, I’ll turn it over to Claire for more financial details.

Claire?.

Claire Babineaux-Fontenot

that’s over $3.9 billion on a constant currency basis. Next, earnings per share from continuing operations of $1.21 were well within our guidance. Consolidated membership and other income increased 8.2% to $789 million, primarily driven by strong growth in membership income at Sam’s Club. Let’s move on to expenses.

Corporate and support expenses, which includes core corporate, global e-commerce support and global leverage services decreased 1.6%. Core corporate expenses decreased 6.9% during the quarter.

FCPA and compliance-related costs were approximately $43 million, which represented approximately $31 million for the ongoing inquires and investigations and roughly $12 million related to our global compliance program and organizational enhancements.

The growth in e-commerce support expenses was driven by our continued investment in talent, technology and fulfillment. You’ll hear more from Neil about the exciting work under way in the e-commerce space.

Our leverage services area includes the investments we are making in technology, such as finance and HR back office capabilities and risk and compliance management, including productivity initiatives. Net interest expense decreased 2.5% over last year.

A reduction in interest related to the reversal of certain tax contingencies more than offset an increase to interest expense related to higher debt balances. We continue to anticipate that our net interest expense will be higher for the full year than last fiscal year. Moving on to the balance sheet, consolidated inventory increased 6.2%.

You’ll hear more about inventory from each of our operating segments. Payables as a percentage of inventory was 81%, which compares to 85.8% last year, due primarily to higher inventory balances and the timing of payments. Improving inventory leverage is important, and each of our operating segments is focused on this priority.

I’ll close today by providing a bit of color around returns. The decrease in ROI was primarily due to a decrease in operating income, as well as our continued capital investment in store growth and e-commerce. Free cash flow increased primarily as a result of the timing of income tax payments and capital expenditures.

Although the second quarter presented a few challenges, we had a number of bright spots about which we are encouraged. You heard Doug mention a few of these, and you’ll hear more about them on the remainder of today’s call. I’ll now turn the call over to Greg.

Greg?.

Greg Foran

being in stock, clean stores, the right price, the right items, improved service, better productivity. I will be out in stores hearing directly from our customers and our associates and tracking our performance. I’m a competitive person, so I will be visiting the market place as well. We will look to build momentum.

Concurrently, we must return to growth. In the early years, a good portion of the growth will come from the current core. However, the market place is changing and we will change with it. We have substantial capabilities and assets that position us for future opportunities in the e-commerce market and in new formats.

We have been experimenting for years in both the U.S. and in International. I am confident that with a disciplined approach, we will capture more than our fair share of this opportunity. While it’s early in the quarter, I’m encouraged by a strong start to Q3.

However, we know we’re in a challenging retail environment, and it will take some work to continue moving in the right direction. Given that, we expect comp sales to be relatively flat for the 13-week period from August 2 through October 31, 2014. Now, I’ll turn over to Dave for the International update.

Dave?.

David Cheesewright

save them time and save them money. They’re looking for faster and, more importantly, convenient ways to shop. I’m encouraged by our progress in driving innovation and accelerating growth in e-commerce to improve our offering and add convenience for our customers. The global economy remains challenged, which means the customer is also stretched.

Price remains a critical factor in our customer’s buying decisions. As an example, during a recent visit to Chile, I saw first-hand how important price is to our customers. Just a year ago, Wal-Mart Chile rolled out a mobile app, which allows customers to compare prices between Wal-Mart and competitors.

We had almost 200,000 item scans in this quarter alone. We believe innovations like this and price position will continue to set us apart in the market place. We remain focused on price investment across all our markets and expect to continue driving improved comp performance.

I’m pleased with the trends in many of our markets, driven by a continued focus on being the lowest cost operator. In all countries except Brazil and China, our discussion of results is inclusive of e-commerce. Slides 7 and 8 of the presentation summarize financial details.

For the second quarter, we grew operating income at a rate faster than sales on both a constant currency and reported basis. We are pleased that we’ve grown operating income faster than sales for the full first half of the fiscal year.

These results include the charge for certain non-income tax matters of $52 million disclosed in the second quarter of last year. Even excluding this charge, operating income grew faster than sales. Net sales grew 5.3% on a constant currency basis, or 3.1% on a reported basis.

Sales benefited from the Easter shift, strategic price investments, improved assortment and e-commerce growth. On a constant currency basis, operating income grew 9.3% and 8% on a reported basis, as most markets leveraged expenses. On a relative basis, we were encouraged by our market share performance.

Of our five largest countries, only China didn’t deliver positive comp sales. We also saw strong sales growth in Argentina, Chile, Japan and Africa. Inventory grew faster than sales this quarter and remains a key focus area.

While a portion of the increase is related to World Cup promotional items or initiatives to drive sales in the back half of the year, I am disappointed with our position. Each market has a specific plan in place to address inventory. Now, let’s discuss some market specifics.

As you can see in the slide, net sales, operating income and comps are presented on a constant currency basis only. I will begin with a recap of our EMEA region, where we recently promoted Shelley Broader as the first female Regional President and CEO.

Shelley brings a wealth of merchandising and operations experience and has already hit the ground running in this important region. The U.K. had a solid quarter, growing both net sales and comp sales despite a challenging market backdrop. Comp sales were up 2%, excluding fuel, and 0.5% including fuel.

Despite aggressive price investments from competitors, we accelerated our performance and grew share ahead of the total market in the 12 weeks to June the 22nd, according to Kantar. In addition, The Grocer magazine designated Asda as “Britain’s Lowest Priced Supermarket” for the seventeenth year in a row.

During the quarter, operating profit declined slightly due to the lower margin mix, which was offset by strong cost control and productivity improvements. To satisfy the evolving shopping habits of customers, we introduced a more flexible management structure across all stores in June.

The change places a greater emphasis on areas such as e-commerce and puts more associates on the shop floor, whilst removing historic back-office administration tasks. Strong e-commerce growth continued during the quarter, with sales up double digits.

The rollout of Click & Collect to additional Asda superstores and collection sites, and the extension of store hours offer greater convenience for our customers. Next to Canada.

With Shelley Broader’s promotion, we are pleased to announce that Dirk Van den Berghe joined us August 1st as President and CEO of Wal-Mart Canada, bringing with him more than 30 years of international business experience and expertise in food retail. In the second quarter, Canada produced solid results in a very competitive environment.

We were encouraged by our performance in food and consumables, driven by supercenter expansions. Canada net sales grew 2.9%. Comp sales were positive and improved over the first quarter, as Wal-Mart Canada’s 20th Anniversary event in June favorably impacted results. Health and wellness sales also improved this quarter, with strong comps in OTC.

Additionally, fresh offerings drove strong sales in food. We gained 50 basis points of market share in food, consumables and health and wellness combined, as reported by Nielsen for the 12 week period ended July 19. During the quarter, Wal-Mart Canada restructured its store associate management team to improve customer service and drive savings.

Even with the impact of the restructuring charge, Canada leveraged expenses, continuing its strong focus on driving the productivity loop. However, operating income declined year over year due to headwinds in margin, from mix and price investments. Moving next to Latin America, we’ll begin with Walmex.

The Walmex summary includes the consolidated results of Mexico and Central America on a U.S. GAAP basis. Walmex separately reported second quarter results on July the 23rd, under IFRS, so some numbers will differ from the Walmex reported numbers.

The Walmex results discussed here exclude the impact of the sale of Vips, for which we recorded a $267 million gain in discontinued operations. Consolidated Walmex sales grew 5.0% and operating income grew 5.7%. Mexico alone grew sales 5.4%, with a comp sales increase of 1.2%.

Sales were driven by a favorable Easter calendar flip and strong growth in self-service formats. The net result of the World Cup was relatively neutral overall, with solid sales in electronics prior to the event, but softer sales during the 4 weeks of the World Cup. Mexico leveraged expenses for the quarter.

However, operating income continues to be impacted by challenges at Sam’s Club and grew at a slower rate than sales. Mexico’s self-service business plus Sam’s Club, grew market share by 20 basis points, according to ANTAD for the quarter ending June the 30th. This performance was driven by our self-service formats, gaining 240 basis points.

It’s important to note that our small formats, such as Bodega Aurrera Express, and our stand-alone pharmacies continued to deliver strong double-digit comps and outperformed their market peers on food and consumables by 12.3%. We have a solid price position, and we will continue to invest thoughtfully in price throughout the second half of the year.

To address challenges in Sam’s Club, on May the 30th we announced organizational changes to simplify the structure and strengthen the business. Todd Harbaugh, who has more than 20 years of experience with Wal-Mart, including 11 years in the Sam’s Club U.S. business, leads the club business, reporting directly to Scot Rank.

The merchandising division for Sam’s Club in Mexico was restructured into two areas, grocery and general merchandise, both led by seasoned executives. Our team is laying the groundwork for a more aggressive strategy to win back members and acquire new ones. We expect continued near-term challenges, but improvement in the longer term.

Turning to our Mexico e-commerce business, we celebrated the first anniversary of the Wal-Mart.com.mx site launch. We are investing to double distribution capacity in time for the holiday season, and we’ve completed online technology investments with the new mobile apps for both iOS and Android.

We continue to integrate our e-commerce platform with stores to create a unique shopping experience. We added 116 kiosks for customers who feel more comfortable ordering and paying at the store.

We’re also accelerating the growth of our grocery home delivery business, leveraging the Superama experience to expand the offering to supercenters during the third quarter.

Our efforts to rejuvenate performance in Mexico delivered positive results in the self-service formats during the quarter, and we have the right plans in place to continue to improve the overall business. Next, let’s talk about Brazil, where we remain focused on turning around the business.

Second quarter net sales rose 9.1%, with comp sales growing 9.7%, driven by a positive impact from the Easter flip and strong World Cup sales. We were encouraged by the sales performance of the food and consumables businesses and saw an improvement in general merchandise sales, largely driven by the World Cup.

According to Nielsen, our market share declined for the quarter ending June 30 driven in part by store closures within the last 12 months. However, we grew comp sales faster than our largest competitor. We continued to invest in store integration in Brazil and converted an additional 80 stores this quarter to the new systems.

Integration efforts simplify and standardize operational processes, giving better visibility to business results and reducing compliance risk. We are on track to have all stores fully integrated by the end of next year.

Despite these integration costs, we leveraged expenses for the quarter, as the team is doing a great job focusing on operational productivity. Operating income was positive. Moving to Asia. Wal-Mart China’s net sales grew 1.1%, although comp sales declined 1.6%.

We continue to face significant headwinds from government austerity programs, as well as price deflation in some key categories. Despite the top line challenges, market share increased in the hypermarket category for the quarter ended June 30, and we maintained market share compared to all modern trade in China, according to Nielsen.

China’s business transformation program continues to deliver substantial operational benefits, allowing us to invest in price and improve our competitive position. We grew operating income significantly over this quarter last year. Wal-Mart China introduced a home delivery service in 383 stores, and customer feedback has been very positive.

Average ticket for home delivery was significantly higher than the average store visit for the quarter. We are building a platform for sustainable growth in China, and we’ve been working on innovative ways to deliver the best experience for our customers. Now, let’s talk more specifically about our e-commerce sales.

We are very excited about the innovation and growth in our e-commerce businesses around the world. As I mentioned earlier, Mexico celebrated the first anniversary of Wal-Mart.com.mx in June.

Traffic grew to nearly triple last year’s volume, positioning Wal-Mart.com as one of the fastest growing e-commerce retail businesses in Mexico and the third most visited, according to comScore. In the U.K., same day grocery Click & Collect is now available in most Asda superstores and 188 Click & Collect sites, and total U.K.

e-commerce sales were up over 20% from a year ago. Admittedly, off a low base, Canada grew e-commerce sales by triple digits, with an expanded merchandise offer and improved customer experience. Additionally, in July we launched e-commerce sales in India to supply wholesale goods to small local businesses.

The initial read in India was good, and we launched ahead of our competitors. Yihaodian, our e-commerce platform in China, grew traffic again this quarter by triple digits, and ticket growth remains strong. Net sales grew double digits. Strong sales growth in wireless and appliances drove favorable results in the quarter.

In Brazil, we again saw double digit e-commerce sales growth, with very strong growth in wireless and games. Overall, we’re pleased with the first half results. Despite continued economic challenges and a stretched consumer, we remain well positioned in our markets for the back half of the year.

We continue to be optimistic about the future and our teams around the world remain focused on our key initiatives. So, I’ll turn it over to Roz for the update on Sam’s.

Roz?.

Rosalind Brewer

continued elevation of our merchandise assortment, growing our member base, and strengthening e-commerce, which includes mobile. We’re building momentum at Sam’s Club and remain confident in our ability to deliver positive comp sales during the second half of the year. I’ll now pass it over to Neil.

Neil?.

Neil Ashe

Thanks, Roz. Our e-commerce businesses made significant progress on our strategies and delivered a number of customer-focused enhancements in our core markets. Globally, e-commerce sales grew approximately 24% in the second quarter.

I’m excited about the capabilities we’ve delivered and how we are integrating the digital and physical worlds to offer customers easier and more convenient ways to shop. We’re working closely with the operating segments around the world to make all of this happen.

Looking at Wal-Mart U.S., we saw double-digit sales growth, and we continued to outpace the e-commerce market overall. The major highlight was that we started to roll out a new Wal-Mart.com site experience. To the consumer, it’s simpler, it’s faster and it’s easier shopping experience.

But, it also represents a major technical feat that involves a top-to-bottom rebuild of our entire global technology platform. I’m also really excited about the rollout of Savings Catcher.

It’s a perfect demonstration of how we are integrating digital and physical experiences to do the work for our customers, and it reinforces their trust in Wal-Mart’s low prices. The Sam’s team is moving aggressively on enhancing the digital and physical experience for members.

The new iPad app is getting rave reviews from the members, going from 3.7 stars to 4.5 stars in the app store. We’re also seeing great momentum in the office category and with the Click ‘n’ Pull program that allows members to order online and pick up in a club.

We had double-digit sales growth in Brazil, in Mexico and Chile, and triple-digit growth in Canada and Argentina. Of course, we saw a lot of TV sales leading up to the World Cup, but the pleasant surprise was the sales lift in games as a result of good demand for consoles.

In China, Yihaodian delivered high double-digit growth rates in sales for the quarter, and its focus continues to be on the quality of the customer experience. To support these efforts, we completed 40 projects in the quarter, including Customized Message Services for customer support. And, our customer satisfaction reached a new high of 97.7%.

Yihaodian’s marketplace business 1Mall also more than doubled. In addition to the successes in each market, we’re seeing great progress on building out a world-class e-commerce organization and delivering on our strategic initiatives. On the talent side, we continued to strengthen our Global eCommerce leadership team.

Fernando Madeira, who was our President of Latin America eCommerce, became President and Chief Executive Officer of Wal-Mart.com, with responsibility for the U.S., Latin America and further growth of Wal-Mart.com.

We also created a new Chief Operating Officer role for Global eCommerce and are thrilled that Michael Bender, formerly president of the West for Wal-Mart U.S., is now in this role. He will drive operational excellence as we scale our e-commerce businesses and will oversee the expansion of our next-generation fulfillment networks.

With these additions and others, I feel great about the depth and breadth of experience at the leadership level, as well as throughout our organization. We’ve continued to have great success in hiring some of the best technologists in Silicon Valley and around the world.

And, we supplemented our hiring with small, targeted acquisitions, including Adchemy, Stylr and Luvocracy this past quarter. Our talent density is helping us deliver best-in-class technology.

We’ve talked about our global technology platform and how it is a top-to-bottom rebuild of everything that powers our e-commerce sites and businesses around the world. We’ve been delivering a lot of elements of the tech platform this year, but most of those have been technology that customers don’t see, sitting under the hood.

What they will now start to see is a new site experience for Wal-Mart.com in the U.S. We previewed the site at a mom blogger day at our Sunnyvale office, and they loved it. One of them, Leticia, was saying how visually appealing the site looked and how much easier it was to find products.

Input from customers helped us design the site and will help us continue to make it even better. The tech platform gives us much greater speed and flexibility. Changes to the site can be made in minutes versus days, so we can innovate, test, iterate and deploy new capabilities in real time.

The site has much more personalization, and each customer’s experience is always changing with fresh content that helps them discover new items. We’ve built our own personalization engine to customize the experience. Customers now receive relevant options and recommendations, while they are on the site, and via email and text messages.

And, given that more 30 than half of traffic to Wal-Mart.com is coming from mobile devices, we designed the site to adapt to any size device, particularly tablets. In addition to the new global technology platform, we’ve been focused on building our next-generation fulfillment networks around the world to deliver orders faster and more efficiently.

We have a new large-scale fulfillment center under construction in Indiana, which will complement those we’ve opened in Texas and Pennsylvania in the past 12 months. We also enabled 20 more stores to fulfill online orders during the quarter, and 20% of units ordered on Wal-Mart.com are now shipped from stores.

Our algorithms are helping to determine the optimal shipping point, whether from an online fulfillment center, a store DC or a store. And, in Brazil, we opened a new fulfillment center in Cajamar that is now fully operational. We will announce additional fulfillment centers around the world over the coming months.

We’re excited about the progress we’re making on our strategic goals, and our investments are delivering for Wal-Mart’s customers. We are pleased that we are growing faster than the market.

And, this growth is coming during a time that we are rebuilding almost every aspect of our e-commerce businesses – building out our team, new global tech platform and next generation fulfillment networks. We expect to see fluctuations as we go through this work, and we’re keeping our eye on the long-term.

We started the year with a goal of 30% full-year sales growth. We’re expecting that growth to be in the mid-20s. And, we expect higher growth in our third-party marketplace businesses. The opportunity for e-commerce is clear and we are stepping up our investment in our e-commerce businesses for the rest of the year.

I will now turn it over to Charles for guidance.

Charles?.

Charles Holley

general economic conditions; business trends in our markets; economic conditions affecting specific markets in which we operate; competitive initiatives of other retailers and other competitive pressures; the amount of inflation or deflation that occurs, both generally and in certain product categories; consumer confidence, disposable income, credit availability, spending levels, spending patterns and debt levels; changes in the level of public assistance payments; customer acceptance of new initiatives and programs of the company and its operating segments; customer traffic in Wal-Mart’s stores and clubs and on the company’s e-commerce websites and average ticket size; consumer acceptance of Wal-Mart’s product and service offerings in its stores and clubs and on the company’s e-commerce websites; consumer acceptance of the company’s stores and merchandise in the markets in which new units are opened; consumer shopping patterns in the markets in which the small store expansion of the Wal-Mart U.S.

operating segment occurs; disruption in the seasonal buying patterns in the United States and other markets; consumer demand for certain merchandise; geo-political conditions and events; the availability of attractive acquisition candidates among e-commerce and other retail-related companies; the availability of talented people with e-commerce-related expertise and experience; weather conditions and events and their effects; catastrophic events and natural disasters and their effects; public health emergencies; civil unrest and disturbances and terrorist attacks; commodity prices; the cost of goods Wal-Mart sells; transportation costs; the cost of diesel fuel, gasoline, natural gas and electricity; the selling prices of gasoline; disruption of Wal-Mart’s supply chain, including transport of goods from foreign suppliers; Wal-Mart’s ability to identify and implement additional productivity gains and expense reductions; information security and information security costs; trade restrictions; changes in tariff and freight rates; labor costs; the availability of qualified labor pools in Wal-Mart’s markets; changes in employment laws and regulations; the cost of healthcare and other benefits; the number of associates enrolling in Wal-Mart’s healthcare plans; casualty and other insurance costs; accident-related costs; the availability and cost of appropriate locations for new and relocated stores, clubs and other facilities; local real estate, zoning, land use and other laws, ordinances, legal restrictions and initiatives that impose limitations on the company’s ability to build, relocate or expand stores in certain locations; delays in construction of new, expanded or relocated units planned to be opened by certain dates; availability of persons with the necessary skills and abilities necessary to meet the company’s needs for managing and staffing new units and conducting their operations; availability of necessary utilities for new units; availability of skilled labor in areas in which new units are proposed to be constructed or in which existing units are to be relocated, expanded or remodeled; adoption of or changes in tax and other laws and regulations that affect Wal-Mart’s business, including changes in individual or corporate tax rates; developments in and the outcome of legal and regulatory proceedings to which Wal-Mart is a party or is subject and the costs associated therewith; requirements for expenditures in connection with FCPA-related matters and compliance programs; currency exchange rate fluctuations; changes in market interest rates; conditions and events affecting domestic and global financial and capital markets; the unanticipated need to change Wal-Mart’s objectives and plans; factors that may affect Wal-Mart’s effective tax rate, including Wal-Mart’s performance, changes in Wal-Mart’s assessment of certain tax contingencies, valuation allowances, changes in law, including the outcome of pending U.S.

Congressional actions regarding the extension of certain tax legislation, outcomes of administrative audits, the impact of discrete items, and the mix of earnings among Wal-Mart’s U.S. and international operations; changes in generally accepted accounting principles; unanticipated changes in accounting estimates or judgments; and other risks.

Wal-Mart discusses certain of these matters more fully in its filings with the SEC, including its most recent Annual Report on Form 10-K (in which Wal-Mart also discusses certain risk factors that may affect its operations, its results of operations and comparable store and club sales), and the information on this call should be considered in conjunction with that Annual Report on Form 10-K, and together with all of Wal-Mart’s other filings made with the SEC through the date of this call, including its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

We urge you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements made in this call.

Because of these factors, changes in facts, assumptions not being realized or other circumstances, Wal-Mart’s actual results may differ materially from anticipated results expressed or implied in these forward-looking statements.

The forward-looking statements made in this call are made on and as of the date of this call, and Wal-Mart undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances. The comparable store sales for our total U.S.

operations and comparable club sales for our Sam’s Club operating segment and certain other financial measures discussed on this call exclude the effect of the fuel sales of our Sam’s Club operating segment.

Those measures, as well as our return on investment, free cash flow, amounts stated on a constant currency basis and certain other financial measures discussed in this call 40 may be considered non-GAAP financial measures.

Information regarding certain of these non-GAAP financial measures and reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP measures are available for review on the Investors section of our corporate website at stock.Wal-Mart.com and in the information included in our earnings release, which is an exhibit to our Current Report on Form 8-K that we furnished to the SEC on August 14, 2014..

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