A Crazy Fact About Wal-Mart

Here is something I recently learned while reading Wal-Mart’s financial statements that I thought I would share with you: Over ¾ of Wal-Mart’s inventory gets sold before The Wal-Mart Corporation even has to pay for it. Three-quarters. 75%. Wal-Mart’s profit conversion cycle is one of the most crazily impressive business statistics I have ever seen in my life.

Is it any surprise that the company has grown cash flow per share every year for the past seventeen years, from $0.99 per share in 1996 to $7.50 in 2012?

Is it any surprise that the company has increased earnings per share in each of the past seventeen years, from $0.67 per share in 1996 to $4.93 in 2012?

Is it any surprise that the company raised its annual dividend from $0.11 per share in 1996 to $1.59 today?

(Note: I only reviewed data going to back to 1996—i.e. the starting point of 1996 in these examples isn’t meant to imply that Wal-Mart had a bad year in 1995).

Normally, I never write about retail stores as potential long-term investments because the 20th century is littered with “once invincible” retail companies like A&P, Woolworth, Sears, etc. But it is hard not to be impressed by the infrastructure that Wal-Mart has put in place.

But everything goes up each year like clockwork at the Wal-Mart Corporation. Cash flow. Sales. Earnings. Net profits. Dividends. Up. Up. Up. And the fact that the company has already generated a profit on 75% of its goods before paying vendors the bill for buying the goods is one of the main reasons why Wal-Mart has been taking fantastic care of shareholders for decades. Peter Lynch often said he liked to own low cost producers in his portfolio at The Magellan Fund during the 1980s, and Wal-Mart’s low cost goods combined with the velocity of inventory turnover is proving to be an economic moat in its own right that has prevented competitors from seizing some of the market share of the Bentonville giant.

Loading Facebook Comments ...

2 thoughts on “A Crazy Fact About Wal-Mart

  1. Allan Brockman says:

    Hi, Tim – Big question – The statistic you quote sounds amazing. However, the question you don't ask is how does that figure compare tio Costco, Target, etc. That is the key.

  2. Dividend David says:

    What about the long-term threat from Amazon? I know you've acknowledged it before. But do you have thoughts about why the growth of Amazon might not end this beautiful Walmart growth story? I own Walmart — it's a stock I will always be watching to make sure it doesn't become a Sears or an Eastman Kodak. What would make you sell Walmart or any stock on your master list? You've said before that investors had a lot of time to understand that Eastman Kodak was dying and to get out. But how do you know that a great company w a great brand hasn't just hit a rough patch? – as Johnson & Johnson did in the last few years — or that alternatively–it's future ability to do what it's always done and be what is always been compromised. Think about Kodak. It had a moat and an incredible brand. Paul Simon sang a joyful American anthem to one product. The digital era killed Kodak. That, of course is main threat to Walmart.

Leave a Reply