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02/20/2014

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Did you read the source you're citing?

Here's an excerpt from page 3 of Wal-Mart's most recent annual report:

"Last year, Walmart delivered a really good financial performance.
Our earnings per share increased 10.6 percent to $5.02. With the addition of $22 billion in net sales, we are now a $466 billion company. Our operating income was up
4.7 percent to $27.8 billion. We also grew free cash flow 18.1 percent to $12.7 billion. All of this enabled our company to return $13 billion to shareholders in dividends and share repurchases. In fact, Walmart shareholders enjoyed the best overall return in stock performance and dividends
for our company this year than in more than a decade."

Moreover, on page 2 in a large graphic Wal-Mart states more than $60 billion were returned to shareholders through dividends and share repurchases during the past five years (2009-2013).

The economy is recovering and expected to grow at a higher rate during the next five years. I'm not defending the minimum wage vs. EITC as the better policy, but just pointing out the mistakes in your analysis. I think if you're going to cite a source, you should at least read it.

If you used the correct figures, your analysis would show that shareholders can easily afford to cover the $2.85 proposed increase in the federal minimum wage.

Another mistake I found:

In 2013 Wal-Mart made four quarterly dividend payments of $0.47/share, for a total of $1.88. You used $1.59, which was the total from 2012.

Thanks for the comment, Alex, but I stand by my post. I said you could wipe out executive compensation and dividends and not have enough to cover even half the cost of raising wages $2.85, and there's nothing in your comment to contradict that statement.

Now, it is true that Walmart's profits exceed the amount returned to shareholders as dividends. Walmart, like many corporations, returns some money to shareholders by buying back shares (the lion's share of the $13 billion/60 billion over 5 years statistics you cite). While both dividends and repurchases put money in shareholders' hands, a repurchase requires the shareholder to give up something in return - their stock. Remaining shareholders may benefit to the extent that the reduced number of shares outstanding gives them a larger stake in future earnings, but that's conditional on there being future earnings in the first place.

Even if we count repurchases the same as dividends, given WMT's current market cap stockholders have been treated to a return between 5 and 6% over the past year. That's not bad, but it's nothing like the deals venture capitalists get when a million dollar stake turns into a billion dollar payout within a couple of years.

It is also true that Walmart's profits are not distributed 100% to shareholders. Some of those profits are used to do things like build more stores (hence creating more employment). Walmart hoards some cash, but less than one-tenth the amount a company like Microsoft has on hand. Further, Walmart holds nearly $8 in debt for every $1 in cash on hand.

So, depending on how you wave your hands about the accounting, you could potentially pay for a $2.85 wage increase if you went beyond wiping out the dividends and took away the money the company had been intending to use to expand their business and/or pay down their debt. Were Walmart to do that they'd have a hard time raising more cash in either the equity or debt markets. This leaves them one place to raise cash -- by raising their prices.

And Alex, regarding the second "mistake," my apologies but I used the FISCAL 2013 annual report, which is the most recent available.

Kudos for courteously handling a hostile criticism... and I think I agree with all of your points, upon reflection.

As for your discussion of the EICT versus minimum wage... I note that your argument that the EITC won't incentivize cutting wages /relies/ upon an existing minimum wage.

Thanks for the points to ponder.

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