International Business take-home exam

Equity Research United States

Wal-Mart Stores, Inc. WMT

International: The World's 6th Largest Retailer

• Wal-Mart International could be one of the largest yet most overlooked $78 billion global businesses. While value creation is largely driven by Wal-Mart’s domestic business, international’s importance is growing as market penetration begins to peak in the U.S.

• Providing context to Wal-Mart’s international business. As International becomes more important we believe it will garner increased investor attention and results will have a more meaningful impact on WMT’s stock price. We believe the two key questions facing Wal-Mart are how to define and achieve “success” internationally and can Wal-Mart consistently manage its business outside the U.S.?

• ROI improvement is needed. Wal-Mart International has some great success stories (Canada, Brazil, Mexico) but also failure (Germany). While international will need to shoulder more of Wal-Mart’s growth, it will also need to significantly improve its ROI. U.S. supercenters and Canada have the highest ROI’s followed by U.S. discount stores, Mexico, SAM’s and then the various international country operations. Thus, in order for the market to reward Wal-Mart for its international growth, the company will need to show it is capable of generating higher and more consistent returns.

• A closer look at ASDA. ASDA remains the most important piece to the Wal- Mart International puzzle, accounting for ~40% of total international sales. To a certain extent, so goes ASDA, so-goes Wal-Mart International. Results at ASDA remain under significant pressure given an exodus of senior management, recent poor execution, lack of diversified formats, and the competitive positioning of Tesco. We believe investors and Wal-Mart itself will need to remain patient with ASDA.

• Investment Thesis. We view WMT as a long-term value investment given its opportunities for growth and improving ROI in the U.S. and longer-term opportunities abroad. Our Outperform rating and $55 target price assumes WMT can achieve incremental improvement in its U.S. merchandising strategy and further position the organization for growth and margin expansion abroad.

• Within this report we analyze each of Wal-Mart’s key international markets, leveraging Credit Suisse’s global equity research franchise.

25 March 2006

IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ARE IN THE DISCLOSURE APPENDIX. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Credit Suisse in the United States can receive independent, third party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.credit-suisse.com/ir or call 1 877 291 2683 or email [email protected] to request a copy of this research.

research team

Michael Exstein Research Analyst 212 325 4147 michael.exstein@credit- suisse.com

Marisa Ho Research Analyst 852 2101 7466 [email protected]

Andrew Kasoulis Research Analyst 44 20 7888 0324 andrew.kasoulis@credit- suisse.com

Yasuyuki Sasaki Research Analyst 81 3 4550 9912 yasuyuki.sasaki@credit- suisse.com

Rating OUTPERFORM* Price (23 Mar 06) 48.54 (US$) Target price (12 months) 55.00 (US$) 52 week high - low 50.99 - 42.49 Market cap. (US$m) 200,528.90 Enterprise value (US$m) 240,814.90 Region / Country Americas / United States Sector General Merchandise Stores Analyst's Coverage Universe Mass Merchants Weighting (vs. broad market) MARKET WEIGHT Date 25 March 2006 * Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.

Price / Indexed S&P 500

42

47

52

57

Mar-05 Jun-05 Sep-05 Dec-05

Daily Mar 24, 2005 - Mar 22, 2006, 3/24/05 = US$50.66

Price Indexed S&P 500

On 03/22/06 the S&P 500 index closed at 1,301.67

Year 1/06A 1/07E 1/08E

EPS (CS adj., US$) 2.65 2.91 Prev. EPS (US$)

P/E (x) 18.2 16.6 P/E rel. (%) 110.1 100.2 — Q1 EPS 0.55 0.59 Q2 0.67 0.74 Q3 0.57 0.62 Q4 0.86 0.96

Number of shares (m) IC (Current, US$m) 4,169.00 —

BV/Share (Current, US$m) EV/IC (x)

22.41 Net Debt (Current, US$m) Dividend (Current, US$m)

29,319.0 0.15 Net debt/Total cap. (Current) Dividend yield

29.2% 0.3%

Year 1/06A 1/07E 1/08E

Revenues (US$m) 315,580.0 353,600.0 — EBITDA (US$m) 23,142.0 25,638.8 — OCFPS (US$) 4.07 4.08 — P/OCF (x) 11.3 11.8 — EV/EBITDA (x) 10.4 9.4 — Net debt (1/06A, US$m) 40286.0 40286.0 40286.0 ROIC — — —

Source: Company data, Credit Suisse estimates

Wal-Mart Stores, Inc. 25 March 2006

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Key Issues Wal-Mart’s international strategy is a work in progress as the company attempts to leverage its U.S. domestic success and powerful brand to establish a large market share position overseas. Since Wal-Mart’s initial international investment fourteen years ago we have seen several phases of expansion take form. Wal-Mart International began with investments in North America (Canada and Mexico) in the early 1990’s followed by a period of “flag planting” whereby the company established a presence in multiple areas throughout the world without making a significant commitment to any one country. Flag planting abruptly ended with the $10.8 billion acquisition of U.K. retailer ASDA in 1999, Wal-Mart’s largest acquisition ever. The ASDA acquisition signaled that Wal-Mart intended to take more meaningful stakes in the countries it operated in. Wal- Mart complemented its entry into the U.K. with an initial minority investment in Seiyu, a Japanese retailer, in 2002. With these moves into the U.K. and Japan, Wal-Mart now had an established presence in two of the largest consumer economies outside the U.S.

Wal-Mart’s current strategy appears to be an amalgamation of prior phases with Wal- Mart entering a new market and expanding its physical and financial presence in existing markets. In September 2005, Wal-Mart made its first investment in Central America, acquiring a 1/3rd stake in the Central American Retail Holding Company (CARCHO) which it subsequently took majority control of in March 2006. Wal-Mart also added to its presence in Brazil through the acquisition of 140 Sonae stores and increased its ownership in Seiyu to over 50%.

Exhibit 1: Wal-Mart International Timeline

Dominate North America Flag Planting Big Markets/Big Share Hybrid

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mexico Puerto Canada Brazil China Germany U.K. Japan Central Rico Argentina South Korea America

Source: Company data, Credit Suisse estimates

In the most recent phase of Wal-Mart’s expansion the company adopted a regional management structure allowing for more local decision-making power. While core strategy is still driven by Bentonville, local management now has more autonomy to run the business allowing for a more tailored offering to local needs and providing flexibility around the peculiarities of individual markets. This is an important development for Wal-Mart but one that was needed as evidenced by weak initial operating performance in several new markets.

While it is difficult to tag the current phase of Wal-Mart’s international development, it is clear that investment in the business is increasing. International investment spending has ramped up significantly in the past three years as Wal-Mart has begun to recommit to several key international markets. Wal-Mart’s decision to accelerate international coincides with a rationalization in the global retailing arena, proving an advantage to financially and operationally strong competitors. However, this phenomenon has also put pressure on Wal-Mart in countries where its market share is modest and competitive positioning poses challenges, including South Korea, Argentina and Germany.

Wal-Mart Stores, Inc. 25 March 2006

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Exhibit 2: Wal-Mart’s Investment in International ($’s in millions)

-$250

$250

$750

$1,250

$1,750

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

(not to scale) ASDA acquisition

$10.4 billion

Investment in international ramping up again

Investments in Mexico, Germany and Brazil

Source: Company data, Credit Suisse estimates

While the expansion of the world’s largest retailer into Latin America and Asia is important, investors need to keep in mind that ASDA (~45% of 2005 International sales), Mexico (~25% of sales), and Canada (~15% of sales) still make up a large majority of the division’s overall sales and profits. We expect this to remain the case for at least the next 5-10 years excluding any potential large-scale acquisitions.

Still Learning Wal-Mart’s international track record is checkered with some success stories but plenty of disappointments as well. Profit margins have been stagnant in recent years due in large part to ASDA’s weak performance while market share trends have varied depending on the country. Having said that, Wal-Mart International is still in its very early stages of development as the company only moved outside North America eleven years ago. While this may seem like quite a long time from an investor’s perspective, it is important to note that Wal-Mart opened its first store in the U.S. back in 1962. As a result, Wal-Mart remains in the learning process. Management’s ability to learn from its mistakes and create a flexible organization that can cater to local tastes and practices will ultimately determine the success of the business.

Investment in International is increasing again

The U.K., Mexico, and Canada are the “big 3” of

Wal-Mart International

International expansion isn’t easy and Wal-Mart has a checkered history

thus far

Wal-Mart Stores, Inc. 25 March 2006

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Exhibit 3: Wal-Mart International Sales and Margins Exhibit 4: Wal-Mart International Unit and Profit Growth

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E (2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Sales EBIT Margin

0%

10%

20%

30%

40%

50%

60%

70%

80%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E

E B

IT G

ro w

th

0

500

1000

1500

2000

2500

U n

it G

ro w

th

Units EBIT Growth

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

The one common theme across Wal-Mart’s different countries of operation is that profits and returns need to improve significantly if the market is to ever begin to reward the company for global expansion. Canada and Mexico are the only division that come close to the return on capital of the core U.S. business. And the ROI of the non-North American businesses significantly lag the U.S. In Exhibit 5, we have reproduced a chart provided by Wal-Mart at its 2005 Shareholder/Analyst meeting. While we do not know the actual numerical values, the chart provides context to the challenges the international business is faced with. While there are new pieces to be added to the matrix below (Japan and Central America), the theme remains the same. There is opportunity for results to improve but it may take longer for an adequate return to be achieved in smaller markets where consolidation is still under way.

Exhibit 5: Sales Growth and ROI of Wal-Mart Divisions (2005)

Sales Growth

R O

I

Supercenters USA

Discount Stores USA

Canada

SAM's

Mexico

ASDAPuerto Rico

Brazil Argentina

China

Germany

Korea

Source: Company data- Wal-Mart 2005 Shareholder Meeting presentation, Credit Suisse estimates

ROI in international markets much lower than core U.S.

business for WMT.

Wal-Mart Stores, Inc. 25 March 2006

5

Global Retail More Competitive Than Ever We believe one of the major reasons behind the step-up in Wal-Mart’s international investment is the increasingly competitive environment for foreign retail acquisitions throughout the world and particularly in Latin America, Asia and Eastern Europe. While global competition both for sales and acquisition candidates has been an issue for several years, we believe the dynamics are growing more challenging as the global retail landscape becomes more heavily consolidated. In this new competitive dynamic, global retailers such as Wal-Mart, Tesco, and Carrefour now compete against one another for international market share, having already won market share from smaller and weaker local players (i.e. the “low-hanging fruit”). Despite significant investments and acquisitions in foreign markets by the large global players, an indigenous retailer holds the #1 market share position in every global market other than Eastern Europe and Argentina.

Global retailers are also finding some middle ground and are now negotiating with one another as each fine-tunes their presence in certain markets. South Korea is a good example, as Carrefour is likely to sell some or all of its stores in the market with Wal- Mart, Tesco, and Lotte Mart (a local retailer) all likely bidding for the stores. This follows Carrefour’s decision to exit the Japanese market in 2005. Some of the major global retailers are entering into store swap agreements with each other. In 2005, Tesco sold six of its stores in Taiwan to Carrefour in exchange for eleven of Carrefour’s Czech Republic stores and four of its Slovakia stores.

These examples of “cooperation” amongst global retailers highlight the fact that company’s are keenly focused on positioning themselves in markets where they believe they have a comparative advantage. This dynamic will force Wal-Mart to be more “locally” focused than in the past in order to ensure proper execution within the market.

Defining and Achieving International Success One of the key issues concerning Wal-Mart’s international strategy is how the company defines success. From an investor standpoint, we don’t believe there is a hard target that needs to be hit in order for the market to deem the business a success. However, we believe the market is more likely to focus on the company’s failures in the near-term. To that extent, Wal-Mart’s stock price is likely more sensitive to disappointment abroad, such as the recent troubles at ASDA, relative to potential successes.

As for how Wal-Mart management defines success, we have heard very little. In some markets, the goal appears to be market share while in others “taking it slow” is the mantra. As international becomes more important, management will need to better focus investors on its long-term strategy and how it intends to position the business (i.e. the stores) in its key markets. For example, will ASDA adopt different store formats in order to increase its flexibility given more challenging real estate zoning requirements? And will the company continue to push the Wal-Mart supercenter concept in foreign markets or move to locally branded nameplates?

Can Bentonville Consistently Manage Overseas? The relative success or failure of Wal-Mart’s international business will largely be driven by central management’s ability to manage a large diversified business outside of its core domestic market. While decision-making continues to shift out of Bentonville and

Large, global retailers are the competition in

emerging markets, not just local players

Delicate balance between market share and ROI

Wal-Mart Stores, Inc. 25 March 2006

6

to the individual regions, strategic direction and the organization’s overall mantra still come from the home office. This is one of the reasons why experience will be critical as Wal-Mart learns from its miscues. History has shown that a delicate balance needs to be established in managing the need for local management to tailor to the target audience while at the same time putting in place systems and an organizational structure that leverages the broader global enterprise.

Brazil is a good example where the company had a very challenging market entry in 1995 because it forced U.S. practices on the business rather than “localizing” the operations. The limited resources and deteriorating financial position of its JV partner also played a role. However, as we discuss later, Wal-Mart has successfully turned around its Brazil operation after ceding more control of the business to the country-level management. And as a result of recent successes in Brazil, Wal-Mart expanded its position in the market through its 2005 acquisition of 144 stores from Sonae.

Wal-Mart is already showing signs of management flexibility as Brazil and the rest of the Americas report to Craig Herkert, CEO of The Americas division of Wal-Mart International, who is based out of Miami, FL. Likewise Wal-Mart’s efforts in China have been locally directed from early on, allowing it to achieve competitive status against larger in-country rivals.

Wal-Mart’s key advantages are its sourcing, procurement infrastructure, and substantial cash flow, which provide the company with perspective that few others have. But the key to success has to be a locally facing retailer that leverages these advantages rather than an American retail company trying to do things “its own way”. Wal-Mart has attempted to do business “its own way” in international markets before with little success.

Where Next? Speculation on where Wal-Mart will appear next in the global marketplace seems to be a sport for some observers. We believe that the prospects for additional expansion will largely be driven by the degree of success the company has with what its current portfolio. The “big three” markets of the UK, Mexico and Canada, which account for over 70% of international sales and close to 80% of the profit, will continue to shape the international division’s immediate prospects. Over the intermediate-term, there is need for a significant improvement in the prospects at Seiyu and execution of the turnaround plan at ASDA. We also expect Wal-Mart to solidify its market share in Japan through acquisitions in order to position itself in this key consumer market.

Wal-Mart has invested heavily the last three years in its global sourcing and procurement infrastructure. The company’s IT platform remains the envy of the industry due in large part to the company’s ability to leverage its platform throughout the organization, doing away with the need for duplicate systems. The combination of these elements needs to be the core of Wal-Mart’s competitive advantage. While Wal-Mart usually sets high standards and is used to beating the competition handily in the U.S., the reality of the international business is that the challenges are more dynamic and unfamiliar. As a case in point, recall Wal-Mart’s promise to open forty new locations in Germany within two years of entering that market. Since then it has been forced to retrench.

WMT needs to leverage its global strengths but

manage locally

Emerging markets are important but contribution

not enough to move the needle for several years

Wal-Mart Stores, Inc. 25 March 2006

7

With a formidable investment already in place around the globe, Wal-Mart needs to show signs of greater productivity, which need to translate into higher returns on capital. There will always be opportunities for entry into new countries but the days of simply being first into a market as a precursor of success appears over. The “first mover” advantage may not be as advantageous as it once was. It may now make more sense to let other retailers do the heavy political and social lifting in new markets, allowing Wal-Mart to move in after lessons have been learned.

Wal-Mart Stores, Inc. 25 March 2006

8

ASDA There is perhaps no better example of the dichotomy in Wal-Mart’s international efforts than the UK. It was the acquisition of ASDA that broke the company’s previous mold of limited initial investments in new international territories. In 1999, Wal-Mart purchased ASDA for $10.8 billion, a 25% premium to the market value of the company before it entered into discussions with U.K. retailer Kingfisher regarding a potential merger.

While ASDA performed well after being acquired by Wal-Mart, challenges began to arise in 2002 as company-specific issues and a more challenging macro and industry environment began to emerge. Profit trends for ASDA deteriorated in 2004 and 2005, highlighting Wal-Mart’s continued challenges in expanding outside the U.S. and generating consistent execution within the business.

Exhibit 6: Sales and Profit Growth Prior to Wal-Mart’s

Acquisition

Exhibit 7: Sales and Profit Growth Following Wal-Mart’s

Acquisition

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1992 1993 1994 1995 1996 1997 1998 1999

Sales Growth Operating Profit Growth

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2001 2002 2003 2004

Sales Growth Operating Profit Growth

Source: Company data Source: Company data

We expect the performance of Wal-Mart International will be largely driven in the near- term by results at ASDA given its large sales and profit contribution. In 2004, the most recent year that we have public data for, ASDA operating income declined 6.8% as margins declined 30bp to 2.3% despite a 6.7% increase in sales. In 2005, profits deteriorated again as same store sales declined and the overall profit for the business did not meet management’s original plan. (ASDA traditionally files its financial statement to U.K. regulators in October)

ASDA is representative of Wal-Mart’s international

challenges

Wal-Mart Stores, Inc. 25 March 2006

9

Exhibit 8: ASDA Operating Margin Trends

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Wal-Mart acquires ASDA and begins implementing new systems and

operations which depressed the margins

NOTE: Prior to 2000, ASDA margin is calculated for 52 week period ending April 30th. For 2000, margin is for 52 weeks ended January 6, 2001. 2001-2004 data is for 52 weeks ended December 31.

Source: Company data, Credit Suisse estimates

Given the consistent erosion in profitability, considerable management attention has been placed on ASDA. In 2005, the company reduced headcount by approximately 1,000 employees, including 200 in-store management positions in order to streamline the organization and reduce the cost structure. Another 400 employees were redeployed into different positions at the company including back onto the store floor to help improve the customer shopping experience.

In addition, ASDA experienced a change in leadership in 2005 when CEO Tony Denunzio left to join a private equity group, which came as a surprise to many. Andy Bond, ASDA’s COO at the time was promoted to replace Mr. Denunzio. David Cheesewright returned to ASDA as COO to replace Mr. Bond after serving in a similar role for Wal-Mart’s Canadian business. Andy Clarke also returned to the company to serve as Retail Director. Mr. Clarke has been with a competitor for the prior 3 years.

The Issues We have incorporated comments from our Credit Suisse European Food Retail team led by Andrew Kasoulis.

“Brain Drain” Although current management plays down its significance, ASDA has seen a significant exodus of senior management since it was acquired by Wal-Mart. Alan Leighton and Archie Norman, who are attributed with ASDA's recovery in the 1990's, departed soon after Wal-Mart’s takeover, as did CFO Phil Cox.

Maybe more important than these departures was the loss of some of the next generation of management talent including Justin King (went to Sainsbury), Andy

ASDA margins have declined since Wal-Mart

took over

Management attrition has been a major issue

Wal-Mart Stores, Inc. 25 March 2006

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Hornby (went to HBOS) and Richard Baker (went to Boots). And more recently, Paul Mason was appointed CEO of Somerfield (the 5th largest food retailer in the UK). Interestingly, all of these executives, excluding Paul Mason, have become CEO’s at FTSE 100 companies. Other notable departures include Mike Coupe and Gwyn Burr (both now on the Sainsbury Operations Board) and Phil Dutton, who went to Matalan. These departures were significant in that they represented the departure of the next generation of management and a flow of talent to the competition.

Execution Drift Lack of execution is clearly one of the drivers behind the deterioration in fundamentals. Among these issues is ASDA’s greater focus on general merchandise versus food. While it hasn’t necessarily replaced food floor space with general merchandise, it was evident that the company’s marketing and in-store presentations were focused on the general merchandise assortment. ASDA also failed to innovate and differentiate its food offering. ASDA lost its edge in price, service, and assortment, which it had spent several years developing. In Exhibit 9, we show ASDA’s floor space allocation relative to the competition, which shows the company’s larger penetration in the non-food category and clothing and footwear in particular.

Exhibit 9: Floor Space Allocation for U.K. Grocery Retailers

Tesco Sainsbury Morrison ASDA Food 23.9% 31.2% 30.3% 19.6% Fresh Food 30.8% 33.3% 34.9% 27.2% Alcohol 5.3% 6.6% 7.0% 4.5% Non-Food 40.0% 28.9% 27.8% 48.7%

Clothing/Footwear* 10.6% 4.5% 1.9% 18.6%

* Clothing/Footwear included in Non-Food category

Source: Company data, Verdict

We also believe that ASDA may have suffered from “complacency creep” as Wal-Mart senior management became more focused on the negative publicity and slowing results relative to Target in its U.S. business. In addition, Wal-Mart continued to expand into new international markets, possibly diverting management attention away from its core U.K. international business.

Tesco Its hard to argue that ASDA’s problems have been solely internally generated as the decline in ASDA profits coincided with a period of unprecedented growth for Tesco, the #1 market share player in U.K. food retail. Much of Tesco’s new store growth has directly over-lapped with ASDA's traditional big-box footprint. Since the late 1990’s, Tesco has opened or expanded approximately 120 “Extra” branded hypermarkets in the U.K. while ASDA added very few new stores. Extra is a destination hypermarket format and competes directly with the ASDA supercenter. Given the divergence in profit trends at ASDA and Tesco, it appears that Tesco has the upper hand. Given Wal-Mart’s intense focus on success, the question becomes what will Wal-Mart do in order to become more competitive in this market.

Increased emphasis on general merchandise

relative to food

Tesco expansion and strong performance remain

an issue for ASDA

Wal-Mart Stores, Inc. 25 March 2006

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Exhibit 10: UK Food Retail Market Share

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2000 2001 2002 2003 2004 2005E

Tesco Sainsbury ASDA Morrison Group Safeway

Source: Verdict

One of the major problems ASDA faces is that Tesco's growth looks unrelenting, just as Wal-Mart’s growth looks unrelenting in the U.S. Our UK retail team expects at least 20 new or remodeled Extra stores to open per year over the next five years. As Tesco's non-food sourcing and ranging capability improves, we expect those new Extra's to get bigger - Tesco's newest UK Extra's are 100-120,000 sq ft, compared to a current average size of less than 70,000 sq ft.

Exhibit 11: Tesco Extras vs ASDA Supercenters

2000 2001 2002 2003 2004 2005 Tesco Extras - Number of stores 23 41 62 83 100 119e Tesco Extras - Selling area '000 sq ft 1,600 2,700 4,000 5,500 6,584 8166e Tesco Extras - Average Sq Ft per Store 70 66 65 66 66 69

Asda Supercenters - number of stores 0 3 6 10 12 21 Asda Supercenters - Selling area '000sqf 0 271e 543e 905e 1086e 1,900 Asda Extras - Average Sq Ft per Store 90 90 90 90 90 Source: Tesco, Wal-Mart annual reports, Verdict, Credit-Suisse estimates

Source: Company data, Verdict, Credit Suisse estimates

Thus, Tesco will likely continue to remodel and enlarge approximately 20 Extra’s per year, in addition to its aggressive new store-opening plan. In the face of a difficult real estate regulatory environment, Tesco has been flexible by adopting a multiple format approach to growth using both smaller convenience formats and the larger hypermarket format.

Tesco rapidly gaining market share

Wal-Mart Stores, Inc. 25 March 2006

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Exhibit 12: Tesco Extra Number of Stores Exhibit 13: Extras Are Getting Bigger (Avg store size, 1,000

sq ft)

0

20

40

60

80

100

120

140

160

180

200

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06E 2006/07E 2007/08E 2008/09E 2009/10E

65.9

64.5

66.3

65.8

68.6

62

63

64

65

66

67

68

69

2001/02 2002/03 2003/04 2004/05 2005/06E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Extra has been an effective way of building scale in many of ASDA's traditional non- food markets such as home entertainment, consumer electronics, clothing, footwear, toys, books/news/magazines, and housewares. We expect more of the same as the Extra rollout continues, with Tesco gaining ever-greater market shares.

Tesco also plans to aggressively pursue other channels of non-food distribution including the trial/roll-out of stand-alone non-food format(s) such as its Homeplus concept and greater use of home delivery. This could result in increased competition for ASDA and is likely to enable Tesco to enter categories in which it has previously been under-penetrated in, such as jewelry, furniture, and gardening.

Management is Forthright The ASDA division has been extremely candid in discussing its miscues in the U.K. and what needs to be done to improve results. In December 2005, ASDA hosted a meeting for U.K. retail analysts to make clear its intention over the next few years and provide insight into what has happened in recent years. It was also an opportunity for new CEO Andy Bond to provide his evaluation of the business and his plans for a turnaround.

ASDA admitted that it is “operationally failing”. Customers have changed in recent years, becoming less loyal and wanting “more for less”. This means that ASDA’s legacy price-driven approach is now too one-dimensional. There has also been a convergence in the market, with all food retailers now looking very similar and ASDA not doing enough to be differentiate its offering. Management indicated that ASDA has become process-driven rather than customer-driven and has lost some of its old passion for selling and its pace, flair, innovation and desire to be different (the previous mantras of the business).

Although the language was perhaps stark, it was refreshingly honest and should not come as much of a surprise to many ASDA-watchers. CEO Andy Bond provided some of his thoughts on what needs to be done to fix the business. First, the basics need to be fixed as in-stocks, service levels, “shopability” (convenience levels) and the size of the price gap are still not acceptable.

“Operationally failing”

Wal-Mart Stores, Inc. 25 March 2006

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Management’s plan included five key initiatives: 1) lowering prices more aggressively; 2) re-establishing its fresh food offering; 3) establishing and emphasizing points-of- differentiation; 4) Re-invigorating George; 5) Delivering a hassle-free shopping experience with personality.

Best Value The recent step-down in Sainsbury’s pricing and the one-off pricing initiatives resulting from the Safeway-Morrison combination resulted in a reduction in the price gap between ASDA and the competition. This is clearly a major issue given that providing the lowest price is the lifeblood of the Wal-Mart organization. Management has made clear its intention to re-establish the gap, although it hasn’t disclosed by how much it would cut prices other than to confirm it would be investing a higher percentage of sales than during 2005.

While a return to price leadership is needed, this obviously creates concern about the margins. However, we believe there are several ways of lowering prices without actually impacting the operating margin. First, ASDA’s buying power is approximately 3% weaker than Tesco, which we believe suggests there is significant opportunity for improvement. Second, in-store productivity can improve. Third, a mix shift toward more non-food/fresh food can help improve margins. ASDA has acknowledged that it needs to improve product quality especially in fresh food if it is to improve customer perception of overall value. Innovation has been lacking until recently, but is now improving in areas such as premium chilled ready-to-eat meals. However, fresh fruits, vegetables and to a lesser extent meat, are still problem areas. Fourth, global sourcing using the Wal-Mart organization is still in its early stages creating gross margin opportunity. Recent sourcing and distribution problems are being resolved due to network changes in 2005. Fourth, we believe SG&A should come under more control given recent initiatives.

Points of Differentiation ASDA considers its private label general merchandise and George line of apparel as key points-of-differentiation. One of the company’s largest initiatives is to re-emphasize these lines in order to win back customer loyalty. It also wants to re-claim the reputation for warm, open, friendly customer service that it used to be well know for. These are all encouraging initiatives but it remains to be seen how effectively and how quickly management can drive this process.

New store formats ASDA is now adopting a more flexible approach toward multi-formats and regeneration schemes and is showing a much greater determination to roll-out new space, especially since less than 50% of the UK population live within a 10 minute drive time of one of its stores.

Multi-formats are an area where ASDA has been a long way behind its competitors. It is establishing a new-store pipeline across several different formats, although planning constraints are restricting the numbers of new hypermarkets/superstores. Also, the level of existing-store-expansion remains inexplicably low to us. There will be further trials of ASDA Living and stand-alone George in 2006, plus the first ASDA brand store (~8,000

The pricing gap between ASDA and the competition

has narrowed

Re-emphasizing private label and George

Wal-Mart Stores, Inc. 25 March 2006

14

square feet, neighborhood discount store, stocking 2,500 SKU’s, 95% of which will be private label).

Acquisitions? While there are other priorities in fixing the business, Wal-Mart has a significant amount of excess capital that it could deploy to increase its position in the market. While management has not given its preference, we believe the company is likely to focus on increasing its market share and improving the profitability of the business (note these can be divergent goals) before making large-scale acquisitions. However, just as we have seen in Brazil, we would expect ASDA to continue to use selective acquisitions as the operating environment improves or as opportunities may present themselves such as the 2005 entry into Northern Ireland.

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Brazil as a Case Study in Success Brazil is a good example of the new Wal-Mart strategy as the company’s first step into the country through a 60% joint-venture agreement with Brazilian discount/variety department store retailer, Lojas Americanas, which took several years to make successful.

In 1995, the partnership opened its first stores and ended the year with five total units- two SAM’s Clubs and three supercenters. In 1995, Lojas was positioned as the country’s fourth-largest retailer. Wal-Mart’s partnership with Lojas Americanas initially appeared logical, with the Brazilian retailer’s extensive experience in real estate, its own brand of “everyday low prices,” and its position as one of Brazil’s largest retailers. However, with Wal-Mart’s quick start in Brazil (entering the market with five new units and three more in 1997) coinciding with Lojas’ own restructuring and significant losses in its credit operations, the retailer did not have the capital to grow at Wal-Mart’s pace. In December 1997, Wal-Mart purchased Lojas’ stake for $110 million. Wal-Mart then embarked on a multi-year effort to turn around its business in Brazil following a disappointing market entry. The company purchased Bompreco, a Brazilian supermarket chain, from Ahold in 2004 and the turnaround culminated this year when Wal-Mart reached an agreement to acquire Sonae, a Brazil retail chain operating 140 hypermarkets, supermarkets, and wholesale units throughout the state of Sao Paulo and the southern states of Rio Grande do Sul, Santa Catarina, and Parana.

While Wal-Mart’s Sonae acquisition significantly improves its position in the market, Carrefour and CBD still maintain much larger market shares- 9.9% for Casino and 7.6% for Carrefour versus 3% for Wal-Mart. Thus, Wal-Mart still has a ways to go before becoming a more meaningful player market share player. However, this also suggests that Wal-Mart has significant opportunities to grow in Brazil.

Today, Wal-Mart occupies the third largest market share position in Brazil but accounts for only 3% of the overall market due to the high proportion of sales concentrated in the informal marketplace. The bar for Brazil’s retail sector has risen significantly. Almost all major retailers have invested substantially in infrastructure, particularly technology. As an example, handheld scanners are used in almost all of major retailer’s stores. Store standards for selection and presentation have also improved markedly and in many cases could be stacked up against most world-class competitors. In prior visits, this was certainly not the case as standards were sub-par versus operations in other parts of the world. The quality and variety of fresh produce are world class, with more and more retailers staking out positions in organic and imported produce.

The quality and selection of general merchandise have also improved. Examples include the introduction of flat screen televisions (despite the fact that they are subject to a substantial luxury duty) and positioning toward current trends such as surfing. Furthermore, as is the case at Wal-Mart U.S., retailers are introducing general merchandise that has not been previously been available including food service, metal shelving, dog-houses, and U.S. based home and beauty aides such as Crest whitening toothpaste. Despite a change in the competitive landscape, the Brazilian consumer enjoys a better range of products and higher retail standards than at anytime in recent memory.

Weak results in Brazil after initial investment

Turnaround driven by focus on running the

business locally

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16

At Wal-Mart, changes in the operating model since its original entry through a joint venture with Lojas Americanas are remarkable. The strategy has shifted from a one size fits all model, based on the rollout of U.S. supercenters and SAM’s Club formats, to the development of market-specific formats such as Todo Dia or Bompreço’s primary food format. At the same time, stores appear to have some operating flexibility and the company does not apply a doctrinaire approach to promotion, store format or logistics functions.

While the recent focus of Wal-Mart’s international efforts have been on its activities in China and slowing results at ASDA, the company’s efforts in South America hardly get a mention in the investment community. However, Wal-Mart Brazil is almost double the size of Wal-Mart’s operations in China and is likely to grow new organic units over the next five years at rates at least comparable to China’s unit growth rate. While the Brazilian retail market lacks the long-term size potential of China, real private consumption ranks just below China and Brazil exceeds China by 30% in terms of GDP per capita.

Why is Brazil important in the context of Wal-Mart’s large size? It shows that Wal-Mart can adjust all facets of its operation to compensate for past missteps and position itself for future market potential. The company appears to have a longer time horizon than most investors or competitors realize. After all, Wal-Mart was willing to invest in a 5-year rebuilding effort in Brazil before undertaking a major expansion effort. While the Street remains focused on issues in the core U.S. operations and even the slowdown in the U.K., we think that Brazil holds valuable lessons for retail observers as Wal-Mart continues to balance potential future growth both domestically and internationally.

Wal-Mart’s Entry into Brazil Wal-Mart’s initial entry into Brazil utilized both the supercenter and SAM’s Club format, modeled very closely to their U.S. counterparts. This strategy turned out to be less than optimal for the more intense competitive environment of Brazil and a marketplace characterized by a very bifurcated consumer population.

Wal-Mart’s operation in place today has morphed to take into account what the Brazilian consumer demands and what Wal-Mart can deliver as a competitive advantage. From a customer facing perspective, the company has adopted essentially four formats to better fit its customer and real estate needs/availability- supercenters (some that are multiple levels), SAM’s, Todo Dia (a smaller sized primarily food store aimed at lower income urban consumers), and supermarkets acquired via the Bompreço acquisition.

Supporting the retail stores are five distribution centers, of which one was built by Wal- Mart (the balance were acquired with Bompreço) and specified to the company’s engineering standards. Today, 60-70% of general merchandise is shipped through this faculty. In time the company is likely to build a facility that can distribute perishables and significantly increase self-distribution. In the meantime, distribution practices have been modified. Trucks do not have any Wal-Mart identification on them, value per load is limited, and much of the sortation processes are performed manually, as human capital is less expensive than economic capital. We note that Brazil has the distinction of having some of the highest real interest rates in the world at approximately 15%.

Use of local formats among the reasons for

success

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17

Food remains the cornerstone of Wal-Mart’s efforts in Brazil, as it is in most developing markets. Wal-Mart prefers the defensive nature of the food business in cyclical markets like Brazil. The food business also serves as a driver of foot traffic and provides an opportunity to drive cross-divisional sales of general merchandise. Keep in mind that Wal-Mart will showcase general merchandise during both good and bad economic times, but it is when disposable income is increasing and more discretionary spending takes place at general merchandise does disproportionately well. We believe that the current split between food and general merchandise is approximately 50/50.

Supporting Wal-Mart’s efforts in Brazil is a higher degree of promotion than in the U.S. While the “every day low price” (EDLP) strategy has always been the backbone of the company’s marketing message and is hammered home in print, television and in-store promotions, the strategy is an even bigger part of the story in Brazil. We estimate that almost 30% of sale items are offered either on price rollbacks or special buys. The inflationary history of the country and the large degree of market share held by the informal sector are the main reasons for the high degree of promotional activity.

As part of its standard promotional posture, Wal-Mart distributes a food flyer every week and periodically distributes a separate flyer for general merchandise. While other retailers traditionally adhere to a high/low weekly promotional structure, Wal-Mart simply posts these ads at the front of each store and at registers and matches any of the weekly price reductions of its competitors, no questions asked.

While these practices have all helped Wal-Mart turnaround its business in Brazil, it is the merchandising effort that has advanced and been refined the most. Any westerner that sees a Brazilian store needs to remember first and foremost that labor is inexpensive and as such, many services and merchandising techniques that would be too costly in a developed market are not in a developing market. For example, multiple service areas in fish, meat and deli are in all Wal-Mart formats in Brazil and standards for presentation, including labels facing out on shelves, are the norm.

Furthermore, the range of merchandise offered is impressive. For example, in a large supercenter serving a more affluent customer we saw over 50 varieties of fresh fish, which is well communicated through signage. This is in contrast to the smaller sized Todo Dia, geared to the lower income consumer, which has only 20 fresh varieties of fish.

Merchandising efforts are also far more tailored to the environment than simply depth and breadth of assortment. Whereas a price message is important in the Todo Dia format, a special of 3 real or less has been established in the front of the store to both reinforce the overall price message and spur incremental sales through a treasure hunt approach. In more upscale locations cyber cafes have been added to encourage consumers to spend more time shopping. Wal-Mart also offers “how to” classrooms, in- store babysitting, and baby changing rooms in almost all of its general merchandise stores.

We believe Wal-Mart could easily take some of the improvements in merchandising in Brazil and apply the lessons to the U.S. particularly with regard to the presentation and assortment practices. Clear progressions and assortment were evident in the marketplace and the actual display of the merchandise was far more user friendly than in the U.S. For example, all of the plates in the housewares section were displayed

Merchandise, advertising and marketing all tailored

to local tastes

Wal-Mart Stores, Inc. 25 March 2006

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face-out to the customer versus in the U.S. where display and presentation tends to differ and is often times disorganized. Even the pet area has display and graphics that clearly communicate both the depth and breadth of assortment, as a specialist would. In the fall Brazil will begin to rollout the George line of apparel and while exact plans were not revealed it is clear that fixturing, placement, and promotion will be coordinated for maximum impact. If this effort proves successful, there could be some significant lessons learned for Wal-Mart Stores in the U.S. We believe the company could take the example in Brazil and the successful launch that occurred in Canada and relaunch the George effort in the U.S.

Brazil provides some significant lessons as to how Wal-Mart responds to its miscues. In Brazil, it has adopted a hybrid approach by leveraging the infrastructure capability of the organization as a whole (IT, logistics, common purchasing, direct imports) but also applying these with a local face. There is little doubt that one of the advantages that Wal-Mart has is its ability to invest to correct problems. The nearly five-year period between the change in management in Brazil and the decision to invest in Bompreço is a clear example of this.

Germany as a Case Study in International Challenges Wal-Mart’s entry into the German marketplace, and its subsequent, well documented, execution issues have served as a lightning rod for investor concern about the soundness of the company’s overall international strategy. The German retail marketplace is one of the most difficult in the developed world. A combination of government regulation, cultural inertia, restrictive labor practices and unusual competitive dynamics all contribute in making it challenging for new markets entrants. Wal-Mart clearly underestimated these challenges when it entered the market, which resulted in consistently weak results and an eventual retrenchment from the market.

Over time, Wal-Mart has put in place structural reforms to improve the profitability of the business. Administrative functions were moved under one roof and logistics were centralized with “work arounds” established for some of the most troublesome aspects of the business. Even with these significant improvements in both subjective and objective measures, Wal-Mart will need to gain both further size and acceptance in the marketplace before its German operations can reach acceptable returns on investment.

Wal-Mart’s initial entry into Germany through the acquisition of the 21-store Wertkauf chain and the subsequent acquisition of 74 locations from Spar were Wal-Mart’s vehicle for entering the large German market. These moves are a “Poster Child” of what can happen when a company, even with the resources of Wal-Mart, does not fully understand what it is buying and where it will be operating. Germany has been a challenge for any number of western retailers and Wal-Mart has been no exception.

One of the most challenging areas for Wal-

Mart International

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International Overview Wal-Mart’s International segment is comprised of operations through wholly owned subsidiaries in Argentina, Canada, Germany, Puerto Rico, South Korea, and the United Kingdom, operations through majority-owned subsidiaries in Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Mexico, Japan, and operations through joint ventures in China. International generated 20% of total company sales in 2005 and between 17% of total company operating income (on an unallocated basis).

Exhibit 14: Overview of Wal-Mart International Countries (data as of March 2006)

Country Format Number

of Stores Number of Employees Country Format

Number of Stores

Number of Employees

Argentina Wal-Mart Supercenters 11 4,573 Honduras Dispensa Familiar 25 1,460 Supertiendas Paiz 5

Brazil Wal-Mart Supercenters 23 50,000 Maxi Bodegas 2 SAM's Club 15 Todo Dia 2 Japan Seiyu Supermarkets 301 35,426 Bompreco Hypermart 28 Seiyu GMS 82 Bompreco Supermarket 70 LIVIN Department Stores 12 Bompreco Mini-Market 8 Seiyu Supercenters 2 Balaio (Bompreco) 7 Seiyu GMS (food & apparel) 82 Magazine (Bompreco) 3 Seiyu GM 2 BIG Hypermarkets 37 Nacional Supermarkets 67 Korea Wal-Mart Supercenters 16 3,600 Mercadorama Supermarkets 24 Maxxi Atacado Wholesale Clubs 11 Mexico Wal-Mart Supercenters 105 112,000 Maxxi Distribuicao 1 SAM's Club 70

Bodega 189 Canada Wal-Mart Discount Store 256 70,000 Mi Bodega 18

SAM's Club 6 Superama 55 Suburbia 54

China Wal-Mart Supercenters 51 27,000 VIPS Restaurants 287 SAM's Club 3 Mercamas 1 Neighborhood Markets 2 Mi Bodega Express 1

Costa Rica Pali 93 6,990 Nicaragua Pali 27 1,050 Max X Menos 23 La Union 5 Maxi Bodegas 5 Hiper Mas 4 Puerto Rico Wal-Mart Stores 9 14,000

Wal-Mart Supercenters 4 El Salvador Dispensa Familiar 25 3,150 SAM's Club 9

Despensa de Don Juan 31 Supermercados/Amigo 32 Hiper Paiz 2

United Kingdom ASDA/Wal-Mart Supercenters 21 140,000 Germany Wal-Mart Supercenters 88 12,000 ASDA Supercenters 237

George 10 Guatemala Dispensa Familiar 77 7,390 ASDA Living 5

Supertiendas Paiz 29 ASDA Small Town 43 Hiper Paiz 6 Maxi Bodegas 6 Club Co. 1 Super Gas 2 Other 7

Source: Company data, Credit Suisse estimates

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Exhibit 15: Wal-Mart Segment Sales Contribution (2000) Exhibit 16: Wal-Mart Segment Sales Contribution (2005)

Wal-Mart U.S. 67%

SAM's 15%

International 18%

Wal-Mart U.S. 67%

SAM's 13%

International 20%

Exhibit 17: % of Wal-Mart International Sales (2000) Exhibit 18: % of Wal-Mart International Sales (2006E)

Brazil 2%

Canada 19%

China 1%

Germany 7%

Korea 1%

Mexico 24%Puerto Rico

2%

U.K. 43%

Argentina 1%

Brazil 4%

Canada 14%

China 3%

Costa Rica 1%

El Salvador 1%

Germany 2%

Guatemala 1%

Honduras 1%

Japan 10%

Mexico 20%

Nicaragua 1%

Puerto Rico 2%

South Korea 1%

United Kingdom 38%

Argentina 1%

Exhibit 19: Wal-Mart Segment EBIT Contribution (2000) Exhibit 20: Wal-Mart Segment EBIT Contribution (2005)

Wal-Mart U.S. 83%

Sam's 8%

Intl 9%

Wal-Mart U.S. 76%

Sam's 7%

Intl 17%

Source: Company data, Planet Retail, Credit Suisse estimates Source: Company data, Planet Retail, Credit Suisse estimates

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What Markets Matter (U.K., Canada, Mexico and Japan) A Look at Mexico Tufic Salem has coverage responsibilities for Walmex.

We believe that the virtuous cycle of same store sales growth + margin expansion + reinvestment = shareholder value creation is far from over at Walmex. Therefore, Walmex should enjoy sustainable operating profit growth in excess of 16% in dollar terms.

Walmex is reinvesting in a very profitable operation as evidenced by: (1) an acceleration in square footage growth, (2) share repurchase, and (3) ROIC which reached ~20% in 2005.

2006 Expansion: Walmex intends to open 120 new units in 2006, which would represent 14% growth in selling square footage. The 120 new units include 55 Bodegas, 13 supercenters, 5 Superamas, 8 SAM’s Club, 9 Suburbia, and 30 Restaurants. The new store-opening plan for 2006 is similar to 2005 and reflects an increase in the growth rate after 10% average annual square footage growth over the past five years.

The opening plan was higher than the market’s expectation, which we believe were in the 10-12% range (we also had estimates in that range). Expansion CAPEX for 2006 is set at $850 million. Expansion should be underpinned by a strategy involving: (1) Multi- format growth. Walmex is again focusing expansion on its higher margin Superama and Suburbia formats. (2) Expansion into new cities. The Company will search to grow into ~37 new cities (to reach a presence of 140 stores by year-end 2006 up from 36 cities in 1997); and (3) with flexible formats. The company has developed up to three different prototypes (Large, Medium and Small) in its Supercenter, SAM’s, and Bodega formats. Furthermore, starting this year the company will also launch smaller versions of Suburbia and Vip’s.

Furthermore, Walmex announced a remodeling program for a “new and improved” layout as well as store conversions (7-10 Bodegas could be converted into SAM’s Clubs). Additional remodeling CAPEX for 2006 is $270 million for 150 stores, which is approximately 50% higher than in 2005.

We have a positive outlook on the consumption environment from a macro standpoint. Furthermore, we believe Walmex is the retailer best suited to benefit from: (1) expanding consumer credit – recall that Walmex has higher exposure to non-food products (~50%, versus 20-30% in the industry); (2) very strong momentum in its Suburbia stores, which are growing same store sales above the group’s average; (3) a rapidly expanding Bodega format, which is taking up market share from the informal market and has experienced improved customer perception for higher-ticket items such as white goods and electronics.

Profitability improvement: Walmex has been able to post a winning combination of gross margin expansion and operating leverage despite ongoing price reductions. We believe Walmex’s portfolio of formats allows it to segment appropriately. Bodega and SAM’s (despite having lower gross margins) brings the market share gains and scale necessary for operational leverage, while Vip’s, Suburbia, and Superama bring the gross margin points. It is clear to us that there is still plenty of space for Walmex to grow its stellar Bodega format at an increasing ROIC.

Mexico is Wal-Mart International’s 2nd largest

market

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Furthermore, it should not go unnoticed that Walmex has retaken expansion in these higher margin formats. Superama broke out of the Mexico City region, expecting to expand nationwide. Suburbia has opened and closed stores without a clear path for store base growth reaching a high of 53 stores in 2000. Furthermore, over the past several years Suburbia went from a High/Low pricing strategy to EDLP, adjusted its assortment, changed its private label provider from Banamex to the more aggressive Bancomer and moved to a more dynamic advertising campaign. We now see Suburbia, which is generating same store sales growth above the company average, returning to its expansion program. Thus, we believe that this should help keep gross margins from falling more rapidly over the next 3-5 years.

Finally, we believe that we have only seen the first phase of results for the cold-channel distribution center, which is the high quality provider of produce. Nonetheless, we expect a second phase that has yet to be exploited, which implies skipping the middleman, and retaining that margin to offer more competitively priced produce to its customers. Investors should remember that the company is looking to source produce directly, which would change the way business is done for perishables in Mexico.

A Look at Canada Canada is one of the bright spots for Wal-Mart International as the ROI matches that of U.S. supercenters, a significant achievement in its own right. While we do not have public filings to rely on, we estimate that Canada generates approximately 14% of Wal- Mart International sales and probably close to 20% of the profit. Wal-Mart’s entry in Canada was through its acquisition of the country’s number six retailer, Woolco—a lagging Woolworth Canada division. Wal-Mart paid $352 million for 123 Woolco stores.

The Canadian retail market is not without its challenges—Home Depot as well as other home improvement chains are major factors. Category killers Linen’s N’ Things and Best Buy are also major participants. Thus, Wal-Mart Canada has had to both defend and capture market share. It has also had to deal in a very public way with an attempt to unionize at least one discount store location. In the end, Wal-Mart chose to close the location due to “profitability issues”.

Wal-Mart Canada began to modify its strategy in 2004 opening its first SAM’s location and now intends to begin opening supercenters after relying on expanded food assortments in its existing discount stores over the past five years.

A Look at Japan Seiyu is Japan’s fourth largest supermarket chain operator and was established on April 19, 1963. In May 2002, Wal-Mart acquired a 6.1 % stake in Seiyu. In December 2005, Wal-Mart acquired a majority interest in Seiyu (53.34%), making Seiyu a Wal-Mart subsidiary. Wal-Mart is working closely with Seiyu to renew its focus on the customer and its core retail operations, as well as facilitate the gradual transition to a low-cost, low-price retail structure.

Japan Important Due to Size of Consumer/Retail Market Wal-Mart has signaled the importance of Japan with consistent increases in its ownership stake in Seiyu, culminating in its majority 50%+ ownership stake. While Japan will likely represent only 10% of 2006 Wal-Mart International sales, we see

Canada ROI in-line with U.S. supercenters

Japan will be an increasingly important market due to size of

consumer economy

Wal-Mart Stores, Inc. 25 March 2006

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tremendous long-term opportunity given the size of the Japanese consumer economy. In addition, the Japanese retail sector continues to consolidate, creating opportunity for strong, financially sound companies.

Operating results at Seiyu are showing some signs of life after several consecutive quarters of downward revisions to earnings guidance and disappointing results. Same store sales trends improved throughout 2005 from –7.1% in 1Q, to –2.0% in 2Q, to – 1.4% in 3Q to +1.8% in 4Q. However, operating income declined 87.1% in 2005 and management is guiding to breakeven results in 2006.

Exhibit 21: Seiyu Same Store Sales History Exhibit 22: Seiyu EBIT Margin

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05

Same Store Sales

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E

EBIT Margin

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

For 2006, management assumes 1.0% same-store sales growth including a positive impact from the remodeling of 65 stores. However, the prospect of only breakeven recurring income despite an overall improvement in the macro environment indicates delays in implementing structural reforms. The plan also includes $380 million (¥45 billion) in asset impairment costs, resulting in a substantial net loss.

Given the increasing importance of Seiyu and Japan to Wal-Mart’s overall business, we thought it useful to review some comments on the outlook for retail in Japan from our Japan Broadline Retail analyst Yasuyuki Sasaki. We provide his comments below. Yasuyuki Sasaki has primary coverage responsibility for Seiyu.

Four Themes for Retail in Japan We believe there are four overall themes for Japanese retail in 2006- 1) increasing tax burden, 2) regulation of store openings, 3) income disparity and 4) M&A.

The environment for the Broadline retail industry in 2005 was significantly different than in 2004. The sales growth rate at department stores turned positive and strong sales of seasonal fall and winter merchandise in 2H led to sharp growth in earnings. General merchandise and convenience stores also saw increases in earnings, albeit at a lower rate than the department stores, as a result of a slower pace of sales declines, an improvement in gross margins and a reduction in expenses. Given the improvement in fundamentals and the general bullishness in the equity market, retail stocks (particularly in the department store sub-sector) outperformed strongly and valuations rose across the board.

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For 2006 there are several complicated factors at work and we believe the scenario where a recovery in the economy leads to a recovery in consumption and translates directly to improvement in retailer earnings is too simplistic.

The four main themes on which we are concentrating are as follows:

(1) Increased burden on taxpayers leads to slower growth in consumption: Against the background of a continuing need for fiscal reform and the overwhelming victory of the incumbent LDP administration in the Lower House election in summer 2005, we believe an increase in the tax burden on individuals now looks inevitable. For example, it is already a given that the two-stage reduction in personal income tax planned over FY3/06-07 will be scrapped, pension contributions will continue to rise steadily, and there will be a reduction in the percentage of health-care costs for the elderly reimbursed under the nursing care insurance scheme. Salaries and bonuses and other compensation are growing, leading to an increase in cash remuneration for employees, but for the reasons cited above, disposable incomes are not necessarily growing so rapidly. In addition, there are also some potential problems connected with the rise in the consumption tax. Our chief Japan strategist, Shinichi Ichikawa, expects the consumption tax to be raised between April 2008 and April 2009, but to effect a change as early as April 2008 would require a bill to be presented to the normal session of the Diet in 2007, meaning that debate about the necessity of raising the tax would be carried out in 2006-07. Also, we believe if there is a rise in the consumption tax, it is likely to come as a sudden jump from the current 5% to 10-15%. If this occurs, we expect the tax rate on everyday items and food to be left relatively low at around 5-7%, while a differential, higher tax rate is levied on luxury goods. If so, then this could put a damper on the equity market, which currently expects a strong rise in sales of high priced goods (i.e. department store sales) in 2007. As a result of this, we believe there is a strong possibility that consumer-spending intentions will not necessarily rise consistently through 2006.

(2) Revision to urban planning law will restrict suburban large-store openings. We now believe it highly likely that a bill to revise the basic body of urban planning law will be presented to the ordinary session of the Diet in summer 2006. The three major urban planning laws are the City Planning Law, the City Revitalization Law and the Large-Scale Retail Stores Location Law. The aim of the reforms currently being proposed is the promotion of the creation of “compact cities” in response to Japan’s reduced birthrate and aging population, along with the cessation of the current indiscriminate expansion of urban areas and stronger urban planning. To promote these aims, the new laws are expected to call for a much stricter adherence to zoning regulations. Recently there have been a number of cases where large suburban shopping centers or large-scale retail stores have been built on ex-factory sites sited in semi- industrial areas, on ex-farmland or on land within urbanization coordination areas. Strictly speaking, construction of retail developments should not be permitted on these types of sites, but local governments have frequently rezoned the sites as commercial sites in order to allow development. However, to prevent damage to commerce in neighboring communities when local

Wal-Mart Stores, Inc. 25 March 2006

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government chiefs re-zone land for commercial use, it is now proposed that zoning decisions should be taken at the prefectural government level. In real terms, we expect this to have the impact of limiting new store openings. To put it in plain terms, this could represent a return to the situation before the passage of the Large-Scale Retail Store Law in 2000.

(3) Difference in incomes is leading to the emergence of discounters. The equity market is currently focusing on consumption of high-priced items as a result of the sharp increase in sales at the department stores, but the biggest growth is in low priced stores, otherwise known as “discounters”. The Gini coefficient, which measures income inequality, was 0.35 before redistribution of income in 1971 but had risen to 0.50 in 2002. In qualitative terms, putting aside urban areas, the rate of unemployment is particularly high in regional areas, which tend to be dependent on public investment, and in these area economic recovery has been delayed. Levels of cash income and expenditure are also low. In this environment, there has been a notable surge in sales at stores with low wage levels that have opened on sites where outlets of large chains have closed down, creating a category of low-priced discounters, which buy their stocks from cash wholesalers and sell at a discount.

(4) Progress in corporate restructuring through M&A activity. In 2005, Livedoor acquired Cecile. However, this was a friendly, rather than a hostile takeover, and in real terms, it represented a business disposal on Cecile’s part, as management determined that this was the best way to enhance enterprise value. We believe this kind of friendly takeover will occur more frequently. We expect an increased demand for corporate restructuring through takeover at companies which have seen a downturn in profitability through obsolescent business models or which are suffering from succession problems as their founders approach retirement.

What Markets Don’t Matter As Much….Yet

Argentina Wal-Mart entered the Argentina market in August 1995 with a SAM's Club in Avellaneda in the greater Buenos Aires area. The first supercenter opened later in 1995. In 2000, Wal-Mart Argentina sold all three of its SAM’s Club locations to Home Depot due to consumer’s preference for the supercenter format over warehouse clubs. In 2002, with the economy strengthening, Wal-Mart Argentina remodeled 10 of its 11 current stores and expanded its distribution center in Buenos Aires Province to include fresh food in addition to general merchandise.

China Wal-Mart entered China through two joint ventures in 1996 when it opened its first supercenter and SAM’s Clubs. Wal-Mart’s supercenter partnership was with Shenzhen International Trust and its SAM’s club was opened through a joint venture with The Shenzhen Economic Zone Development Company. The company’s entry to China marked Wal-Mart’s first steps into the Asian markets. Recognizing the obvious

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differences not only in the market, but the culture and government as well, Wal-Mart’s Asian operations tiptoed through expansion in its early years. The company opened only one supercenter in 1997, two in 1998 and decided against expanding its SAM’s club format. It was not until 2000, when Wal-Mart opened five supercenters that the company began to better establish its market presence. Today, Wal-Mart has 51 supercenters in China along with 3 SAM’s Clubs and 2 Neighborhood Markets. We estimate that Wal-Mart generates approximately $2 billion in sales in China.

China is an important market for Wal-Mart both in terms of long-term sales potential but also as a source of product for sale in its stores worldwide. In fact, the sourcing side of Wal-Mart operations in China are likely to remain a much more important piece to the overall organization relative to the near-term sales opportunity.

Over the last decade the company has had to modify its traditional distribution practices and educate many vendors to its more highly efficient practices. The company has also had to create a retail format that reflects the needs of the customer ranging from selling fresh fish and market-specific items (e.g. live snake!) to being the avenue of distribution for Avon cosmetics.

The retail landscape for foreign entities in China changed dramatically in 2004 when the country began to allow foreign companies to wholly own their operations in-country (part of China’s entrance into the WTO) versus restrictions that allowed only minority stakes in JV’s in the past. Since that time, global retailers including Wal-Mart have further positioned their business to take advantage of a developing and more structured retail industry. For example, large retailers are beginning to act as “anchors” to large retail developments. Interestingly, this trend has pushed up the cost of locations and occupancy. However this is a small price to pay relative to the size of the opportunity that the overall market provides.

Most established foreign retailers in China appear to be accelerating their investment through a ramp-up in new store openings. Wal-Mart is planning to open at least 20 supercenters in 2006 from its current base of 51. There are also signs that local competitors are looking to take advantage of the renewed interest in China as an opportunity to sell out to larger players. For example, Wal-Mart’s name has been attached to any number of potential acquisitions.

We admire what Wal-Matt has been able to do in China, as it has built the business from the ground up in a very short period of time. While the long-term opportunities in China are significant for Wal-Mart, it will likely take much more than ten years for the business to have a more meaningful impact on the company’s bottom line. We note that even if Wal-Mart grew its current $2 billion business in China, it would take almost twelve years to become the size that ASDA is today. While a 25% growth rate may seem conservative for the near-term, it will obviously become much more difficult to maintain that level of growth as the business grows.

CARHCO CARHCO is Central America's largest retailer, with 363 supermarkets in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica and was formed as a joint venture in 2001 with three equal partners- Royal Ahold NV and two Central American groups: the Paiz family, the major shareholders of La Fragua , with headquarters in Guatemala, and

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Corporación de Supermercados Unidos (CSU), with headquarters in Costa Rica. CARCHO generated 2004 sales of approximately $2.0 billion.

In September 2005, Wal-Mart acquired a 33 1/3 percent interest in CARHCO from the Dutch retailer Royal Ahold NV and in March 2006 it announced that it increased its ownership stake to 51%.

CARHCO has three operative companies: La Fragua, founded in Guatemala in 1928 by Carlos Paiz Ayala; CSU, founded in Costa Rica in 1960 by Enrique Uribe Pages; and Corporación de Compañías Agroindustriales (CCA), a supplier to CARHCO of meat and seafood, fruit, grain, vegetables and bakery products.

Costa Rica Corporación de Supermercados Unidos (CSU) was founded in Costa Rica in 1960 by Enrique Uribe Pages. CSU operates 124 stores Costa Rica and 30 in Nicaragua. CSU operates several retail formats including Mas X Menos and Pali discount stores, La Unión supermarkets, Hiper Más hypermarkets and warehouse stores Maxi Bodega warehouse stores.

Guatemala La Fragua was founded in Guatemala in 1928 by Carlos Paiz Ayala. La Fragua operates 120 stores in Guatemala, 32 in Honduras and 57 in El Salvador. Its formats include Dispensa Familiar and La Despensa de Don Juan discount stores, Supertienda Paiz supermarkets, Hiper Paiz hypermarkets, Maxi Bodega warehouse stores and Club Co., a membership wholesale club.

Nicaragua Corporación de Supermercados Unidos (CSU) was founded in Costa Rica in 1960 by Enrique Uribe Pages. CSU operates 124 stores Costa Rica and 30 in Nicaragua. CSU operates several retail formats including Mas X Menos and Pali discount stores, La Unión supermarkets, Hiper Más hypermarkets and warehouse stores Maxi Bodega warehouse stores.

Korea Wal-Mart entered Korea in 1998, by acquiring equity shares and associates of 4 Makro stores in Inchon, Daejeon, Ilsan and Gusung.

In July 1998, Wal-Mart expanded its Asian presence with the acquisition of a majority investment in four existing stores and six undeveloped sites in Korea. Korea Makro previously operated the stores. In 1999, the first supercenter opened in Gangnam, Seoul's most affluent area. Wal-Mart has slowly grown its Korean operations and now has a total of 16 stores, all supercenters, in operation. Wal-Mart’s modest investment in Korea is a contrast to other global retailers who have aggressively invested in the market.

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Companies Mentioned (Price as of 23 Mar 06) Ahold (AHLN.AS, Eu 7.23, OUTPERFORM, TP Eu 8.00, MARKET WEIGHT) Avon Products, Inc. (AVP, $30.97) BJ's Wholesale Club Inc. (BJ, $31.12, UNDERPERFORM, TP $26.00, MARKET WEIGHT) Carrefour (CARR.PA, Eu 43.03, UNDERPERFORM, TP Eu 38.00, MARKET WEIGHT) Casino Guichard (CASP.PA, Eu 58.05, UNDERPERFORM, TP Eu 46.00, MARKET WEIGHT) Costco Wholesale Corporation (COST, $55.16, NEUTRAL, TP $55.00, MARKET WEIGHT) Home Depot (HD, $43.37, OUTPERFORM, TP $50.00, MARKET WEIGHT) Kingfisher (KGF.L, 244.75p, NEUTRAL, TP 210.00p, MARKET WEIGHT) Matalan plc (MTN.L, 196.00p, UNDERPERFORM, TP 140.00p, MARKET WEIGHT) Metro (MEOG.F, Eu 43.60, NEUTRAL, TP Eu 38.00, MARKET WEIGHT) Morrison (William) (MRW.L, 197.50p, OUTPERFORM, TP 220.00p, MARKET WEIGHT) Safeway Inc. (SWY, $25.33, UNDERPERFORM, TP $19.00, MARKET WEIGHT) Sainsbury (J) (SBRY.L, 329.25p, UNDERPERFORM, TP 280.00p, MARKET WEIGHT) Sears Holding Corp. (SHLD, $132.27, OUTPERFORM [V], TP $180.00, MARKET WEIGHT) Seiyu (8268, ¥286, UNDERPERFORM, TP ¥150, MARKET WEIGHT) Target Corporation (TGT, $53.56, OUTPERFORM, TP $62.00, MARKET WEIGHT) Tesco (TSCO.L, 334.75p, OUTPERFORM, TP 380.00p, MARKET WEIGHT) Wal-Mart Stores, Inc. (WMT, $48.10, OUTPERFORM, TP $55.00, MARKET WEIGHT) Walmex (WALMEXV, $2.80, OUTPERFORM, TP $3.50, OVERWEIGHT) Woolworths (WLW.L, 36.75p, NEUTRAL, TP 35.00p, MARKET WEIGHT)

Disclosure Appendix Important Global Disclosures I, Michael Exstein, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

See the Companies Mentioned section for full company names.

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3-Year Price, Target Price and Rating Change History Chart for BJ

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3-Year Price, Target Price and Rating Change History Chart for TGT

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WMT Closing Price Target Price Initiation/ Date Price (US$) Price (US$) Rating Assumption 8/1/03 55.27 RESTRICTED 9/29/03 57.23 OUTPERFORM 5/24/05 47.65 55 9/20/05 43.21 RESTRICTED 9/21/05 42.49 OUTPERFORM

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities.

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Analysts’ stock ratings are defined as follows***: Outperform: The stock’s total return is expected to exceed the industry average* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral: The stock’s total return is expected to be in line with the industry average* (range of ±10%) over the next 12 months. Underperform**: The stock’s total return is expected to underperform the industry average* by 10-15% or more over the next 12 months.

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Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. All Credit Suisse Small and Mid-Cap Advisor stocks are automatically rated volatile. All IPO stocks are automatically rated volatile within the first 12 months of trading.

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See the Companies Mentioned section for full company names.

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Price Target: (12 months) for (BJ) Method: BJ's Wholesale target price of $26 is calculated by applying a 5.0x Entrerpise Value-to-EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) multiple on our 2006 EBITDA estimate of $316 million and 14x Price-to-Earnings multiple on our 2006 earnings per share estimate of $1.85. Risks: Risks for BJ's include the longer-term outlook for this model given the highly competitive nature of the food market, a high density of locations, investor expectations for a leveraged buyout, and an increasingly competitive environment in the warehouse club industry, and risks associated with accelerating square footage growth. Price Target: (12 months) for (COST) Method: Our Costco target price of $55 is based on 20x Price-to-Earnings (P/E) multiple on our Fiscal 2007 earnings per share estimate of $2.73. We apply a 25% premium to the broader market P/E multiple of two-year forward earnings estimates. Risks: Competition from WMT's Sam's Club, need to control SG&A, more difficult environment to increase margins, increased need for promotion to drive sales, potential for a more challenging economic environment for the consumer Price Target: (12 months) for (TGT) Method: Our $62 target price for TGT is based on 20x Price-to-Earnings multiple on our 2006 earnings per share estimate of $3.07 and a 20% premium to our mass merchant index average earnings multiple of 16.7x. Risks: Risks for TGT include WMT, a company about 6x its size, balancing its fashion message with its price message, management, a food business that is not yet fully proven. Price Target: (12 months) for (WMT) Method: Our Wal-Mart target price of $55 is based on 19x price-to-earnings ratio on our fiscal 2006 estimate of $2.91 and 10.2x our enterprise value-to-earnings before interest, tax, and depreciation and amortization ratio on our $26.0 billion fiscal 2006 estimate Risks: Risks for WMT include potential diseconomies of scale from the company's size, negative public and press sentiment, potential weakness of the consumer, government and regulatory issues and higher energy costs

See the Companies Mentioned section for full company names. The subject company (WMT) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (WMT) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject company (WMT) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (WMT) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (WMT) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BJ, COST, TGT, WMT) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (WMT) within the past 12 months. As of the date of this report, Credit Suisse Securities (USA) LLC makes a market in the securities of the subject company (COST, TGT, WMT). Important Regional Disclosures An analyst involved in the preparation of this report has visited certain material operations of the subject company (BJ, TGT, WMT) within the past 12 months. The analyst may not have visited all material operations of the subject company. The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local travel expenses. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (COST) within the past 12 months.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

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Credit Suisse Securities (Europe) Limited acts as broker to KGF.L.

The following disclosed European company/ies have estimates that comply with IFRS: AHLN.AS, CARR.PA, CASP.PA, KGF.L, MTN.L, MEOG.F, MRW.L, SBRY.L, TSCO.L, WLW.L.

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WMT International Report_Final.doc

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