I was looking around for something on Walmart. And found this piece at Fortune.
So without further ado, here’s my methodology: Start with Wal-Mart’s sales, and then subtract what it has to pay the suppliers that make all the stuff on its shelves. Last quarter that number was $28.7 billion.
What remains is Wal-Mart’s gross profit. Wal-Mart, like all companies, has to split that between three groups — bondholders, stockholders, and employees. How much should go to each? Bondholders are easy. They’ve agreed in advance to an interest rate. Last quarter, Wal-Mart’s interest payments were $553 million. That leaves us with $28.2 billion, based on last quarter, or $112.8 billion a year.
Confident enough in this analysis that he repeated it 8 months later:
As for my math, I ran through my calculations again to see if I had made an error. I didn’t find one.
Last year, Wal-Mart brought in a little over $118 billion in profits after it paid its suppliers but before it paid wages. Like all companies, it has to split that money three ways, between its stock owners, its lenders, and its employees. Wal-Mart paid about $2 billion in interest on its loans last year, leaving $116 billion.
From this he concludes that, even after paying the requisite dividend (which he is correct and generous about) that Walmart could therefore raise wages by 50% and not feel the pain.
Err, yes. But. If the dividend would only be marginally impacted by that pay raise, as he says, and bondholders won’t get it, and it’s not going in extra cost of goods, then, well, the money to pay that extra wages, where’s it going? Where in the accounts is that 50% potential pay raise piling up?
Because it ain’t. So we do know there’s an error here. What is it?
Actually, it’s Ritchie level of stupidity. Here’s the accounts for that period:
Net sales $466,114 $443,854 $418,952
Membership and other income 3,048 3,096 2,897
Total revenues 469,162 446,950 421,849
Costs and expenses:
Cost of sales 352,488 335,127 314,946
Operating, selling, general and administrative expenses 88,873 85,265 81,361
Operating income 27,801 26,558 25,542
What he’s done is think that the only three groups that get that gross margin, that amount after deduction of cost of goods from revenues, are the shareholders, bondholders and workers. And that’s not the way retail accounts work, is it?
Cost of sales:
Cost of Sales
Cost of sales includes actual product cost, the cost of transportation to
the Company’s warehouses, stores and clubs from suppliers, the cost of
transportation from the Company’s warehouses to the stores, clubs
and customers and the cost of warehousing for the Sam’s Club segment
and import distribution centers. Cost of sales is reduced by advertising
reimbursements received from vendors that are not directly related to
specifi c advertising activities.
Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include all
operating costs of the Company, except cost of sales, as described above.
As a result, the majority of the cost of warehousing and occupancy for
the Walmart U.S. and Walmart International segments’ distribution
facilities is included in operating, selling, general and administrative
expenses. Because the Company does not include most of the cost of its
Walmart U.S. and Walmart International segments’ distribution facilities
in cost of sales, its gross profi t and gross profi t as a percentage of net
sales (“gross profi t margin”) may not be comparable to those of other
retailers that may include all costs related to their distribution facilities
in cost of sales and in the calculation of gross profi t.
Sigh. Even just the ‘leccie bill for their refrigerators will make a dent in that operating expenses thing, won’t it?