Wal-Mart Stores Inc. will sharply reduce the growth in its capital spending next year and expand its retail space at a slightly lower pace than in previous years as the world’s largest retailer works to bring costs into line with a slowdown in its sales and earnings growth.
Wal-Mart Chief Financial Officer Tom Schoewe told analysts Monday, the first day of a two-day investor meeting, that the company will see its capital spending grow between 2 percent and 4 percent in fiscal 2008. That is down from the 15 and 20 percent growth in spending on capital improvements this year.
Some analysts and investors have been urging Wal-Mart to slow down after years of rapid expansion and focus instead on increasing profitability in Wal-Mart’s 3,944 U.S. and 2,745 international stores to revive its dormant share price.
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 a step in the right direction,” fund manager Patricia Edwards said of the slowdown in capital spending and expansion.
“It’s still a lot of new stores. 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 & 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.
“We plan to decrease the rate of growth in capital expenditures considerably, as compared to our expected sales growth for Wal-Mart’s next fiscal year,” Schoewe said. The company expects to build fewer new U.S. stores in the coming year and use cost controls to keep domestic capital spending flat.
Still, Wal-Mart expects to add more than 600 new stores in the U.S. and abroad next fiscal year, not counting any acquisitions, the company said.
“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. “This store selection process will enable the company to drive higher returns by focusing on locations that make the most efficient use of capital.”
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.
Schoewe said Monday that over the past three years, the company’s capital expenditure growth has been higher than growth in square footage and sales. He said international growth, as measured by square footage, will be about 10 percent and, in the U.S., about 7 percent.
“Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than sales growth,” he added. “Additionally, over time, we expect our new capital efficiency model to reduce the impact of cannibalization.”
Wal-Mart has seen its sales at stores open at least a year, known as same-store sales, hurt by opening so many new stores that the new stores took customers away from existing stores.
The company said it plans to open between 265 and 270 new Supercenters, 5 to 10 discount stores, 15 to 20 Neighborhood Market grocery stores and 20 to 30 Sam’s Club warehouse stores. Total new U.S. stores will be 305 to 330 and another 320 to 330 will be added in the company’s international division.
Total new stores will number 625 to 660.
Wal-Mart plans to expand or relocate 145 Wal-Mart stores and 15 Sam’s Clubs. Another 30 international division properties will be expanded or relocated.
Wal-Mart is also planning to open four domestic distribution centers, two of which will be for groceries. The centers will add a total of 4 million square feet.
“Increased productivity in the company’s distribution centers means fewer centers will need to be built,” Schoewe said.