Net Profit Margin (Net Income/Total Revenues or Net Sales)

Company Sears Wal-Mart

Fiscal Year 1997 1998
Net Income $1,188 $3,526
Total Revenues or Net Sales $41,296 $117,958
Net Profit Margin 2.88% 2.99%

Total Asset Turnover (Total Revenues or Net Sales/Average Total Assets)

Company Sears Wal-Mart
Fiscal Year 1997 1998
Total Revenues or Net Sales $41,296 $117,958
Year Beginning Total Assets $36,167 $39,604
Year End Total Assets $38,700 $45,384
Average Total Assets $37,434 $42,494
Total Asset Turnover 1.10 2.78

Return On Assets (Net Income/Average Total Assets)

Company Sears Wal-Mart
Fiscal Year 1997 1998
Net Income $1,188 $3,526
Year Beginning Total Assets $36,167 $39,604
Year End Total Assets $38,700 $45,384
Average Total Assets $37,434 $42,494
Return on Assets 3.17% 8.30%

Average Total Assets/Average Total Shareholder's Equity

Company Sears Wal-Mart
Fiscal Year 1997 1998
Year Beginning Total Assets $36,167 $39,604
Year End Total Assets $38,700 $45,384
Average Total Assets $37,434 $42,494
Year Beginning Total Shareholder's Equity $4,945 $17,143
Year End Total Shareholder's Equity $5,862 $18,503
Average Total Shareholder's Equity $5,404 $17,823
Avg. Total Assets/Avg. Total Equity 6.93 2.38

Gross Profit Margin ((Net Sales - Cost of Goods Sold)/Net Sales)

Company Sears Wal-Mart
Fiscal Year 1997 1998
Total Revenues or Net Sales $41,296 $117,958
Cost Of Goods Sold $26,769 $93,438
Gross Profit $14,527 $24,520
Gross Profit Margin 35.18% 20.79%

Operating Income Margin (Operating Income/Net Sales)

Company Sears Wal-Mart
Fiscal Year 1997 1998
Total Revenues or Net Sales $41,296 $117,958
Cost Of Goods Sold $26,769 $93,438
Selling and administrative $8,331 $19,358
Provision for uncollectible accounts $1,532 $0
Depreciation and amortization $786 $0
Reaffirmation Charge $475 $0
Operating Income $3,403 $5,162
Operating Income Margin 8.24% 4.38%
Sears Roebuck vs. Walmart
Havard Business School Case #101-011
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Exhibit 1 Selected Excerpts Sears, Roebuck and Co., 1997 Description of Business

Full-line Auto Stores Home Stores

Stores Tires Parts HomeLife Hardware Dealer Other Total
Stores at January 3, 1998: 460 598 129 31 13 2 18 1,251
Leased
Operating Leases 325 491 486 58 228 -- 26 1,614
Capital Leases 48 17 -- 12 14 -- -- 91
Independently owned and operated -- -- -- -- -- 574 -- 574
Dealer stores
Total stores at fiscal year-end 1994 800 1,007 384 72 80 285 70 2,698
Stores opened during fiscal 1995 16 37 215 26 45 98 7 444
Stores closed during fiscal 1995 (10) (13) (17) (1) (17) (8) (6) (72)
1995 806 1,031 582 97 108 375 71 3,070
Stores opened during fiscal 1996 27 40 67 12 136 120 9 411
Stores closed during fiscal 1996 (12) (13) (22) (2) (15) (26) (20) (110)
1996 821 1,058 627 107 229 469 60 3,371
Stores opened during fiscal 1997 21 68 90 3 33 124 -- 339
Stores closed during fiscal 1997 (9) (20) (102) (9) (7) (17) (16) (180)
1997 833 1,106 615 101 255 576 44 3,530
Gross retail area at fiscal year end (square feet in
millions)

1997 110.3 15.9 6.6 3.6 8.2 4.7 1.7 151.0

1996 108.4 15.2 6.9 3.8 6.1 3.8 2.0 146.2
1995 105.6 15.0 6.4 3.4 2.0 2.9 2.0 137.3
Retail selling area at fiscal year end (square feet in
millions)

1997 71.9 2.2 4.7 3.0 6.5 3.1 1.3 92.7

1996 69.9 2.1 4.7 3.2 5.6 2.6 1.5 89.8
1995 66.8 2.1 4.5 2.9 1.7 1.9 1.5 81.4

Retail Store Revenues per Selling Square Foot

1997 1996 1995
$318 $321 $323
Exhibit 2 Sears, Roebuck and Co., 1997 Non-Comparable Items

1997 Net income before noncomparable items $1,303 $3.27

Reaffirmation charge (320) (0.80)
SFAS No. 125 accounting change 136 0.35
Sale of Advantis 91 0.23
Other (22) (0.06)
1997 Net income as reported $1,188 $2.99
Exhibit 3 Sears, Roebuck and Co., 1997 Financial Statements Statements of Income (millions fiscal years ended December

1997 1996 1995

Revenues
Merchandise sales and services $36,371 $33,751 $31,133
Credit revenues 4,925 4,313 3,702
Total revenues 41,296 38,064 34,835
Costs and expenses
Cost of sales, buying and occupancy 26,769 24,889 23,160
Selling and administrative 8,331 8,059 7,428
Provision for uncollectible accounts 1,532 971 589
Depreciation and amortization 786 697 580
Interest 1,409 1,365 1,373
Reaffirmation charge 475 -- --
Total costs and expenses 39,302 35,981 33,130
Operating income 1,994 2,083 1,705
Other income 106 22 23
Income before income taxes 2,100 2,105 1,728
Income taxes 912 834 703
Income from continuing operations 1,188 1,271 1,025
Discontinued operations -- -- 776
Net income $1,188 $1,271 $1,801
rs ended December 31)
Exhibit 3 Sears, Roebuck and Co., 1997 Financial Statements Balance Sheets (millions fiscal years ended December 3

1997 1996

Assets
Current assets
Cash and cash equivalents $358 $660
Retained interest in transferred credit card receivables 3,316 2,260
Credit card receivables 20,956 20,104
Less: Allowance for uncollectible accounts 1,113 801
19,843 19,303
Other receivables 335 335
Merchandise inventories 5,044 4,646
Prepaid expenses and deferred charges 956 348
Deferred income taxes 830 895
Total current assets 30,682 28,447
Property and equipment
Land 487 445
Buildings and improvements 5,420 5,080
Furniture, fixtures and equipment 4,919 4,279
Capitalized leases 498 433
11,324 10,237
Less accumulated depreciation 4,910 4,359
Total property and equipment, net 6,414 5,878
Deferred income taxes 666 905
Other assets 938 937
Total assets $38,700 $36,167
Liabilities
Current liabilities
Short-term borrowings $5,208 $3,533
Current portion of LT debt and capitalized lease obligations 2,561 2,737
Accounts payable and other liabilities 6,637 7,225
Unearned revenues 830 840
Other taxes 554 615
Total current liabilities 15,790 14,950
Long-term debt and capitalized lease obligations 13,071 12,170
Postretirement benefits 2,564 2,748
Minority interest and other liabilities 1,413 1,354
Total liabilities 32,838 31,222
Shareholders’ equity
Common shares ($.75 par value, 1,000 shares authorized
390.9 and 391.4 shares outstanding) 323 323
Capital in excess of par value 3,598 3,618
Retained income 4,158 3,330
Treasury stock-at cost (1,702) (1,655)
Minimum pension liability (217) (277)
Deferred ESOP expense (204) (230)
Cumulative translation adjustments (94) (164)
Total shareholders’ equity 5,862 4,945
Total liabilities and shareholders’ equity $38,700 $36,167
cal years ended December 31)
Exhibit 3 Sears, Roebuck and Co., 1997 Financial Statements Statements of Cash Flows (millions fiscal years ended De

1997 1996 1995

Cash flows from operating activities

Net income $1,188 $1,271 $1,801
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation, amortization and other non-cash items 807 774 631
Provision for uncollectible accounts 1,532 971 589
Gain on sales of property and investments (122) (36) (35)
Change in (net of acquisitions):
Deferred income taxes 273 (31) 50
Retained interest in transferred credit card receivables (1,056) 3,318 (2,036)
Credit card receivables (2,285) (5,739) (534)
Merchandise inventories (475) (475) 30
Other operating assets (160) 111 (106)
Other operating liabilities (258) 1,025 801
Discontinued operations -- -- (776)
Net cash (used in) provided by operating activities (556) 1,189 415
Cash flows from investing activities
Acquisition of businesses, net of cash acquired (138) (296) (53)
Proceeds from sales of property and investments 394 42 41
Purchases of property and equipment (1,328) (1,189) (1,183)
Discontinued operations -- -- 483
Net cash used in investing activities (1,072) (1,443) (712)
Cash flows from financing activities
Proceeds from long-term debt 3,920 4,683 2,588
Repayments of long-term debt (3,299) (1,832) (1,124)
Increase (decrease) in short-term borrowings, primarily 90 days or less 1,834 (1,814) (637)
Termination of interest rate swap agreements (633) -- --
Repayments of ESOP loan 16 21 44
Preferred stock redemption -- (325) --
Common shares purchased for employee stock plans (170) (164) --
Common shares issued for employee stock plans 103 134 97
Dividends paid to shareholders (441) (394) (607)
Net cash provided by financing activities 1,330 309 361
Effect of exchange rate changes on cash and cash equivalents (4) (1) (6)
Net (decrease) increase in cash and cash equivalents (302) 54 58

Source: Sears, Roebuck and Co. 1997 Annual Report.

ns fiscal years ended December 31)
Exhibit 4 Selected Excerpts Sears, Roebuck and Co., 1997 Summary of Significant Accounting Policies

Millions 1997 1996 1995

Investor certificates held by the Company $545 $522 $295

Contractually required seller's interest 697 684 495
Excess seller's interest 2,074 1,054 4,789
Retained interest in transferred credit card receivables $3,316 $2,260 $5,579
Exhibit 5 Sears, Roebuck and Co., Leased Stores Footnote

Capital Leases (millions) Operating Leases (millions)

1998 $59 $340

1999 58 311
2000 58 268
2001 57 235
2002 53 210
After 2002 765 1,102
Total minimum payments $1,050 $2,466
Less imputed interest 626
Present value of minimum lease payments 424
Less current maturities 14
Long-term obligation $410

Source: Sears, Roebuck and Co. 1997 10-K filing.

Exhibit 6 Sears, Roebuck and Co., 1995-97 Operating Income by Business Format (millions) Fiscal years ended December

1997 1996 1995

Retail $946 $867 $703

Services 345 279 221
Credit 1,005 1,164 1,001
Corporate (214) (216) (197)
Total operating income $2,082 $2,094 $1,728

Source: Sears, Roebuck and Co. 1997 Annual Report.

ons) Fiscal years ended December 31,
Exhibit 7 Sears, Roebuck and Co., 1995-97 Credit Segment Information, Fiscal years ended December 31,

1997 1996 1995

Sears Card as % of sales 55.1% 56.6% 56.6%

Credit card receivables ($ millions) 20,956 20,104 19,193
Provision for uncollectible accountsa ($ millions) 1,532 971 589
Allowance for uncollectible accountsb ($ millions) 1,113 801 826
Delinquency as % of end-of year credit card receivables c 7.00% 5.40% 4.16%

Source: Sears, Roebuck and Co. 1997 Annual Report.

a
Provision for uncollectible accounts is also commonly referred to as bad debt expense. This expense is a separate line item on
the income statement and represents the amount of current-period sales that a company feels will not be collected as well as
adjustments in uncollectibility from prior periods (if any).

b
Allowance for uncollectible accounts appears on the balance sheet as a contra asset account to credit card receivables and
measures the amount of credit card receivables that a company feels will not be collected. This account increases as bad debt
expenses are recorded and decreases when uncollectible credit card receivables are written off.

c
An account is generally considered delinquent when the past due balance is three times the scheduled minimum monthly
payment.
nded December 31,
Exhibit 8 Wal-Mart Stores, Inc., 1997 Description of Business

Store Count

Fiscal Year Ended Wal-Mart Discount Stores Wal-Mart Supercenters

Jan 31 Opened Closed Conversions a
Total Opened
Balance Forward 1,714
1993 159 1 24 1,848 24
1994 141 2 37 1,950 38
1995 109 5 69 1,985 75
1996 92 2 80 1,995 92
1997 59 2 92 1,960 105
1998 37 1 75 1,921 97

Net Square Footage

Fiscal Year Ended Wal-Mart Discount Stores Wal-Mart Supercenters Sam's Clubs
Jan 31, Net Additions Total Net Additions Total Net Additions
Balance Forward 128,115,368 1,914,246
1993 19,251,060 147,366,428 4,037,493 5,951,739 7,444,530
1994 16,185,442 163,551,870 6,762,080 12,713,819 19,670,804
1995 10,109,978 173,661,848 14,087,725 26,801,544 1,335,742
1996 8,188,223 181,850,071 16,791,559 43,593,103 825,020
1997 (103,486) 181,746,585 19,661,948 63,255,051 298,692
1998 (2,411,149) 179,335,436 17,076,582 80,331,633 716,150

a
Wal-Mart discount store locations relocated or expanded as Wal-Mart Supercenters.
b
Total opened net of conversions of Wal-Mart discount stores to Wal-Mart Supercenters.
c
Includes only stores and clubs that were open at least twelve months as of January 31 of the previous year.
Wal-Mart Supercenters Sam’s Clubs Total Ending
Total Opened Closed Total Openedb Closed Balance
10 208 1,932
34 48 0 256 207 1 2,138
72 162 1 417 304 3 2,439
147 21 12 426 136 17 2,558
239 9 2 433 113 4 2,667
344 9 6 436 81 8 2,740
441 8 1 443 67 2 2,805

Sam's Clubs Total Net Sales Per

Total Additions Sq.Ftc Sq.Ft.
23,259,348 153,288,962
30,703,878 30,733,083 184,022,045 325.86
50,374,682 42,618,326 226,640,371 324.42
51,710,424 25,533,445 252,173,816 336.10
52,535,444 25,804,802 277,978,618 335.13
52,834,136 19,857,154 297,835,772 337.35
53,550,286 15,381,583 313,217,355 348.49
Exhibit 9 Wal-Mart Stores, Inc., 1997 Financial Statements Statements of Income (amounts in millions)

Fiscal years ended January 31, 1998 1997 1996

Revenues:
Net sales $117,958 $104,859 $93,627
Other income-net 1,341 1,319 1,146
119,299 106,178 94,773
Costs and expenses:
Cost of sales 93,438 83,510 74,505
Operating, selling and general administrative
expenses 19,358 16,946 15,021
Interest costs:
Debt 555 629 692
Capital leases 229 216 196
113,580 101,301 90,414
Income before incomes taxes, minority interest and
equity in unconsolidated subsidiaries 5,719 4,877 4,359
Provision for income taxes:
Current 2,095 1,974 1,530
Deferred 20 (180) 76
2,115 1,794 1,606
Income before minority interest and equity in 3,604 3,083 2,753
unconsolidated subsidiaries
Minority interest and equity in unconsolidated
subsidiaries (78) (27) (13)
Net income $3,526 $3,056 $2,740

Note: Wal-Mart follows a common retail convention of ending its fiscal year on January 31 of the following
calendar year. This allows the year end to capture all holiday sales and related returns to the stores. Thus, fiscal
1997 ends on January 31, 1998. Sears does not follow this convention.
nts in millions)
Exhibit 9 Wal-Mart Stores, Inc., 1997 Financial Statements Balance Sheets (amounts in millions)

Fiscal years ended January 31, 1998 1997

Assets
Current assets:
Cash and cash equivalents $1,447 $883
Receivables 976 845
Inventories
At replacement cost 16,845 16,193
Less LIFO reserve 348 296
Inventories at LIFO cost 16,497 15,897
Prepaid expenses and other 432 368
Total current assets 19,352 17,993
Property, plant and equipment, at cost:
Land 4,691 3,689
Building and improvements 14,646 12,724
Fixtures and equipment 7,636 6,390
Transportation equipment 403 379
27,376 23,182
Less accumulated depreciation 5,907 4,849
Net property, plant and equipment 21,469 18,333
Property under capital lease:
Property under capital lease 3,040 2,782
Less accumulated amortization 903 791
Net property under capital leases 2,137 1,991
Other assets and deferred charges 2,426 1,287
Total assets $45,384 $39,604

Liabilities and shareholders’ equity

Current liabilities:
Accounts payable $9,126 $7,628
Accrued liabilities 3,628 2,413
Accrued income taxes 565 298
Long-term debt due within one year 1,039 523
Obligations under capital leases due within one year 102 95
Total current liabilities 14,460 10,957
Long-term debt 7,191 7,709
Long-term obligations under capital leases 2,483 2,307
Deferred income taxes and other 809 463
Minority interest 1,938 1,025
Shareholders’ equity
Preferred stock ($.10 par value; 100 shares authorized, none
issued)
Common stock ($.10 par value; 5,500 shares authorized, 2,241 224 228
and 2,285 issued and outstanding in 1998 and 1997, respectively)
Capital in excess of par value 585 547
Retained earnings 18,167 16,768
 Foreign currency translation adjustment (473) (400)
Total shareholders’ equity 18,503 17,143
Total liabilities and shareholders’ equity $45,384 $39,604
Exhibit 9 Wal-Mart Stores, Inc., 1997 Financial Statements Statements of Cash Flows (amounts in millions)

Fiscal years ended January 31, 1998 1997 1996

Cash flows from operating activities

Net income $3,526 $3,056 $2,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,634 1,463 1,304
Increase in accounts receivable (78) (58) (61)
(Increase)/decrease in inventories (365) 99 (1,850)
Increase in accounts payable 1,048 1,208 448
Increase in accrued liabilities 1,329 430 29
Deferred income taxes 20 (180) 76
Other 9 (88) (303)
Net cash provided by operating activities 7,123 5,930 2,383
Cash flows from investing activities
Payments for property, plant and equipment (2,636) (2,643) (3,566)
Proceeds from sale of photo finishing plants -- 464 --
Acquisitions (1,865) -- --
Other investing activities 80 111 234
Net cash used in investing activities (4,421) (2,068) (3,332)
Cash flows from financing activities
(Decrease)/increase in commercial paper -- (2,458) 660
Proceeds from issuance of long-term debt 547 -- 1,004
Net proceeds from formation of Real Estate
Investment Trust (REIT) -- 632 --
Purchase of Company stock (1,569) (208) (105)
Dividends paid (611) (481) (458)
Payment of long-term debt (554) (541) (126)
Payment of capital lease obligations (94) (74) (81)
Other financing activities 143 68 93
Net cash (used in)/provided by financing activities (2,138) (3,062) 987
Net increase in cash and cash equivalents 564 800 38

Source: Wal-Mart Stores, Inc. 1997 Annual Report.

mounts in millions)
Exhibit 11 Lease Note to Financial Statements

Fiscal Year Operating Leases Capital Leases

1999 $404 $347
2000 384 345
2001 347 344
2002 332 343
2002 315 340
Thereafter 2,642 3,404
Total minimum rentals $4,424 5,123
Less estimated executory costs 73
Net minimum lease payments 5,050
Less imputed interest at rates ranging from 6.1% to 14.0% 2,465
Present value of minimum lease payments $2,585

Source: Wal-Mart Stores 1997 10-K filing.