Since Sam Walton acquired his first five and dime store in Arkansas in 1950, Wal-Mart (WMT) has grown into one of the largest companies in the world. With more than 1 million employees and nearly $500 billion in revenue, the company tops the Fortune 500. Its cash flow has made several Walton family members into billionaires many times over.
But the last several months have been challenging for the company. Wal-Mart expects a meaningful sales decline this year, and many analysts see a shortage of growth opportunities going forward.
Below are five charts that illustrate the impressive growth of Wal-Mart as well as its current challenges.
Stock and Revenue Growth
The following chart shows the growth Wal-Mart’s revenue and stock price between 1996 and October 2015. Even after the recent slide, the stock is up about 670 percent over this period while revenue has grown 450 percent:
Reflects stock price on January 31 of each year, plus October 16, 2015.
New Store Each Day
Wal-Mart’s growth in revenue over the last several years has been fueled by overseas expansions. The company had fewer than 300 locations outside the U.S. in 1996, but now operates more than 6,000 international stores:
The expansion above equates to roughly 10 new U.S. Wal-Mart stores, 26 new international Wal-Mart locations, and one new Sam’s Club each month.
Since the beginning of 1996, Wal-Mart has averaged about 1.25 new stores per day.
Weak International Growth
Though the number of stores has steadily climbed, Wal-Mart has struggled to consistently generate attractive returns on its international investments. Between 2005 and 2015, Wal-Mart’s operating income from its international segment grew by about 160 percent:
As illustrated above, the profit earned from international stores has failed to keep up with the growth in the number of locations. If the operating income per store had held steady during this period, Wal-Mart would have an additional $5 billion or so in pre-tax earnings.
The company’s international segment represents about 60 percent of the locations but only 28 percent of revenue and just 21 percent of operating income. Each U.S. store generates about 2.5x the operating income of international locations.
Low Margins Overseas
A comparison of the company’s profit margins further illustrates Wal-Mart’s international struggles. Operating income overseas comes in at about 5 percent of revenue, compared to a margin of nearly 8 percent for U.S. stores:
If Wal-Mart were to achieve the same operating margin overseas that it realizes in the U.S., it would generate an additional $4 billion in annual operating income.
Comparable Store Sales Growth
While Wal-Mart has aggressively grown its international footprint over the past decade, existing stores have not seen huge increases in revenue. Same store sales growth in the U.S. has exceeded 2 percent only twice since 2007, including a 3.5 percent jump in fiscal 2009 (the year ended January 31, 2009) thanks to the economic downturn.
The international segment reported negative same store sales growth in fiscal 2010, 2011, and 2014.
Amazon.com
A major driver of the weak same store growth comes from online competition. Specifically, Amazon.com has emerged as a serious threat to Wal-Mart’s core group of customers. Amazon recently reported that product sales grew 15 percent over the previous third quarter, and the company expects to claim a larger portion of the holiday shopping market this year:
The Good News
There is a bit of good news for Wal-Mart. Though the company has been struggling overseas for years, its cash flows have held up relatively well. The company generated nearly $29 billion in operating cash flow in its most recent year, and has grown its dividend by 170 percent over the last decade:
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This article, The Problem with Wal-Mart, in 7 Charts, first appeared on Dividend Reference.