Wal-Mart 10-K Details
Wal-Mart filed its form 10-K with the SEC on March 30th. Though we saw new no notable financial disclosures or changes, the company updated some exhibits that we haven’t seen in awhile. Specifically, Wal-Mart tightened up its “Covenant not to Compete” which was last filed along with its 2004 10-K. Mostly standard stuff, but key changes include:
- The agreement maintains a 2-year restriction before working for a direct competitor, but added a clause to not “participate in any other activity that risks the use or disclosure of Confidential Information”
- An agreement to assist and cooperate in any future agency investigation or litigation
- If there is a dispute regarding the agreement, the Officer agrees hold harmless Wal-Mart’s individual directors, officers, employees and representatives.
Updated Infographic on Wal-Mart Growth: The popular map has been updated to include Sam’s Club and dynamically maps store growth from 1962 thru 2010. Here is another potentially useful chart on Wal-Mart that cleanly displays some key financials that are often overlooked by the mainstream financial media. Source: FlowingData, SeekingAlpha
Layaway, Float, and Fees
eLayaway.com is riding the crest of the great consumer belt-tightening of 2009. The company offers an online installment plan for consumers shopping online. The pitch: don’t run-up your credit card balances and plan and save smarter. Already, some 75,000 consumers and 1,000 merchants use the company’s “patent-pending” layaway system, hatched 5 years ago. It’s too early to call whether the concept fades like cheap fabric when the economy rebounds, but the company has a great formula for making money.
Here’s how it works: A shopper buys an Apple MacBook Pro for $1,599.00 online. Shipping, taxes and fees bring the total to $1,785.21. Next, eLayway.com begins transferring 10 monthly payments of $178.52 from the shopper’s bank account into its own account. Once the product is paid for in full, eLayaway.com transfers the funds to the retailer (Apple’s) bank account, and the retailer ships the MacBook to the customer. eLayaway.com makes a sweet 1.9% fee on each purchase and earns interest on the “float” while taking no inventory or credit risk. Hmm…is this a glimpse into Wal-Mart’s banking business when and if it materializes? Source: Newsweek; eLayaway.com
Double-Dipping
Hamilton Beach (HB), the manufacturer of kitchen appliances like blenders & toasters is a big supplier to Wal-Mart with almost 38% of its $1.3 billion in sales sold thru Wal-Mart’s stores. The compensation of its recently retired President, Michael Morecraft, recently caught the attention of a national financial sleuthing service. Morecraft took home $1.1 million running Hamilton Beach (which had a good year), but was paid another $1.5 million in “consulting fees” by HB’s corporate parent, NACCO Industries (NC), for advice related to the operation of the company’s kitchenware retailer, The Kitchen Collection. The company suspended incentive compensation for all employees in 2009. Source: footnoted.org
The Consumer and Economy
Though the stock market has rallied, it may be a bit premature to pop the corks. Bank of America (BAC), which is currently foreclosing on about 7,500 homes a month, will increase that rate to about 45,000 homes per month by the end of this year as noted at an obscure homebuilding conference in California. BAC thinks that foreclosure activity will peak late this year and trend down in 2011. Read more here. Source: Calculated Risk, Irvine Housing Blog
Mobile Commerce
It’s probably worth paying attention to what legendary venture capitalist John Doerr has to say and where he’s investing his money – he’s made a fortune picking the right technology companies to back, including Amazon and Google (see his portfolio here). One company to watch is shopkick.com. Early Internet applications changed a lot of things. They added access to great troves of information and changed how companies operate and communicate and how people communicate. Now, applications are changing the way consumers buy and do stuff. Mobile Commerce applications are aflame in Silicon Valley. The article is a bit of an ad for Apple, but worth the read. Source: techcrunch.com
Synchronized Flushing
Road Trip to Omaha
As part of regular due diligence that we do on investments (company site visits) as well as to absorb some investing wisdom from Warren Buffett and Charlie Munger, we are going to the Berkshire Hathaway shareholder meeting on May 1st. If you like 80’s 8-track music, Cheetos, and don’t mind being trapped in a car for six hours discussing sophisticated financial modeling, join us on our road trip to Omaha. In addition to McLane, the grocery supply chain services company acquired from Wal-Mart for $1.5 billion in 2003, Warren Buffett is a big owner of consumer product companies like Kraft, Coca-Cola, Procter & Gamble, Johnson & Johnson, Nestle and Wal-Mart. Here’s an excellent analysis of the investment merits of Berkshire Hathaway by Jeff Bronchik at Los Angeles investment manager Reed, Conner & Birdwell. Speaking of Buffett, a recent Bloomberg story noted that Berkshire Hathaway can borrow money at a cheaper rate than the U.S. Government pays!
But We’ll Make it Up On Volume
According to the U.S. Budget for 2011 (see page 99), the folks at the U.S. Mint plan to address a cost issue. Because of high metals prices, it costs the U.S. 1.8 cents to produce a penny and 9 cents to produce nickel. Though having managed to lose money on every one of these coin produced over the past few years, the chaps in Washington propose using cheaper materials to produce the coinage and hope to save $150 million a year. Source: Paul Kedrosky’s Infectious Greed.
Since politicians are such easy targets, a few quotes are in order…
“One who expresses a minimum of thought in a maximum amount of words.”
- Abba Eban
“The first act of the professional politician is to accuse the other side of being professional politicians.”
- William Vaughan
Have a thought or comment? Give us a call or email.
Scott Alaniz, CFA
Joe Chumbler, CFA
