WAL-MART Retailer to expand slower, work on sales, earnings
Wal-Mart still plans to add more than 300 stores a year in the U.S.
Wal-Mart Stores Inc. will slow the pace of new store openings next year in what analysts called a nod to Wall Street calls for greater focus on rekindling faltering sales and earnings growth at its 6,700 stores worldwide.
Wal-Mart also told analysts Monday, the first day of its two-day investor meeting, that it would sharply reduce the rise in capital spending next year, helped by a flattening in inflation of construction and land costs and by opening fewer new stores.
Wal-Mart said it remains committed to expansion. But analysts said the change was a step toward meeting Wall Street expectations that Wal-Mart, after years of rapid growth, now focus on improving sales and profitability at current stores to revive a dormant share price.
Its shares rose nearly 4 percent in trading Monday to close at 51.27. The share price has hovered mostly below 50 since early 2001. And for five years, it has failed to match 2001 highs over 60.
"It's somewhat of a shift. Is it a major earthquake shift? No. But it's the start of a shift where they could indeed move to capitalize on what has already been built," said retail analyst Don Gher from Coldstream Capital Management in Bellevue, Wash., which manages about 1 billion in assets including Wal-Mart shares.
Fund manager Patricia Edwards said even a small move was a welcome step in the right direction.
"They need to focus on building the business they have instead of starting new ones," said Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & amp; Violich in Seattle, which manages 8.2 billion in assets and holds 51,000 Wal-Mart shares.
Bentonville, Ark.-based Wal-Mart has been expanding its retail space at 8 percent per year, but that number will be 7.5 percent next fiscal year, the company said. Its fiscal year runs through Jan. 31.
Wal-Mart expects to open 305 to 330 U.S. stores in fiscal 2008, which starts next Feb. 1, compared to 332 to 340 this year and about 340 the year before. Wal-Mart International, operating in 13 countries in Latin America, Asia and Europe, will open between 320 and 330 new stores next year after 270 to 275 this year.
Wal-Mart remains committed to growth, but real estate projects "are now being subjected to a more rigorous prioritization process," Wal-Mart Vice Chairman John Menzer told analysts.
In February, Menzer said Wal-Mart planned to open more than 1,500 U.S. stores in the coming years, without providing a more specific timeline.
Wal-Mart Chief Financial Officer Tom Schoewe told analysts that the company will increase capital spending between 2 percent and 4 percent in fiscal 2008. That is down from 15 percent-20 percent growth this year.
"Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than sales growth," Schoewe said.