Wal-Mart to cut spending on new stores
Wal-Mart Stores Inc. said Monday that it would slash proposed spending on new stores to boost its financial picture and appease Wall Street.
Investors have been pressing the world’s largest retailer to slow its expansion to improve earnings and boost a stock price that has been mostly stagnant over the last several years.
“We are still very committed to growth, but our real estate projects are now being subjected to a more rigorous prioritization process,” Wal-Mart Vice Chairman John Menzer said in a statement. “This store selection process will enable the company to drive higher returns by focusing on locations that make the most efficient use of capital.”
The announcement, which the company said would not affect current plans for California, came along with word that sales were almost flat during the first three weeks of October.
Wal-Mart said sales had been hampered by tepid response to women’s apparel and disruption from hundreds of store remodels across the country. With a week left to go this month, sales in stores open at least a year are up 1% from the same period a year ago, the company said.
Its stock closed up nearly 4%, or $1.91, to $51.28. Shares are 27% lower than a high of $70.25 on Dec. 31, 1999.
Wal-Mart, which has more than 3,900 stores in the U.S. and more than 6,600 worldwide, said it would increase square footage worldwide by 7.5% in the next fiscal year, beginning Feb. 1.
That means 305 to 330 new stores in the United States and 320 to 330 new international stores, Wal-Mart said.
This year, Wal-Mart expects to boost square footage by 8%, an increase of 332 to 340 stores in the United States and 270 to 275 internationally.
The company said capital spending would be up 2% to 4% next year. Partly as a result of the remodeling of 1,800 U.S. stores, capital expenditures are expected to be up 15% to 20% this year.
Wal-Mart executives made the announcements in New York, where the company is holding its first conference with analysts outside of its hometown of Bentonville, Ark.
The company said Monday’s announcement would not derail plans for California, where Wal-Mart has built 21 of its giant Supercenters.
Those locations, which can be double the size of a Home Depot store, or nearly 200,000 square feet, combine general merchandise and a full grocery store.
Wal-Mart said that eight more Supercenters were being built across the state and that a dozen others were in the planning and regulatory approval stages.
“The customer response to our Supercenters in California has been phenomenal,” Wal-Mart spokesman John Simley said. “In fact, some of the top-producing Supercenters that we have are located in California.”
Bob Buchanan, an analyst at A.G. Edwards & Sons Inc. in St. Louis, said the company had been hinting at its intentions of slower growth, in part to keep from cannibalizing sales at existing stores.
More important, he said, the company is reining in earnings guidance to a range of 10% to 13% from 13%. That’s closer to his estimate of 9% growth in earnings this year on sales of $352 billion, Buchanan said.
“It’s like a middle-age guy admitting he’s getting older. He’s always the last person to admit it,” said Buchanan, who rates the stock “hold.” “In the case of Wal-Mart, their management team is the last to admit that they can’t grow like they used to.”