Frittelle Di Mele

Company valuation: There are broadly two important issues being reflected in the company's

valuation, including soft domestic comp store sales and capital allocation to international growth.

While we expect the company to have a longer term view than most investors on international

growth, we believe the shares can still work if comp store sales turn positive this year in the

domestic operations

SG&A: Wal-Mart has managed through a challenging situation with improvements in SG&A as

labor productivity improves and profit margins and returns remain remarkably consistent.

Inventory: Consolidated inventory was up 11.0%. The increase was driven in part by some catchup

after aggressively managing inventories down the last couple of years, and in part by planned

increases in action alley and an expanded assortment through the store.

Investment Summary

We are issuing a Buy rating and $61/share price target on Wal-Mart's shares following the company's 4Q11

earnings release.

Soft Sales Overall...

There is still more work to do across general merchandise categories with a lot of heavy lifting in Q2, but

management believes it can have the rest of the store appropriately merchandised by the start of the back to

school season. While large scale changes that Wal-Mart is implementing may be challenging, we are still in

...but Labour Productivity to Continue to Improve

Labor productivity is improving in areas like the backroom and we suspect we could see a broader rollout of

EPC (currently just in jeans) in the not-too-distant future, which could have a substantial impact on labor

productivity and potentially allow the company to redirect labor hours to customer service. In the near term,

it sounds like the company should be able to continue leveraging at low levels of comp store sales (possibly

even at negative comps as we have seen recently). Management is cutting back on capex.

Business Description

Wal-Mart is the world's largest retailer with revenues for the fiscal year ended January 31, 2010 of $405

billion.

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