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Wal-Mart sees slowing its growth as positive

/ Source: The Associated Press

Wal-Mart Stores Inc.'s CEO and President Mike Duke promised investors Thursday that the retailer's aggressive price-cutting will not hurt its stock price, even as the company issued a modest forecast for U.S. expansion this year and next.

"We absolutely will have price leadership while at the same time greater shareholder value," said Mike Duke, who took the helm in February. "This is not about trading one for another. The two go hand and hand."

He continued, "We will win in the area of retailing around the world."

Duke was addressing investors on the second of two days of analyst meetings in Roger, Ark., near the company's headquarters in Bentonville, Ark. The meetings were broadcast online.

The theme resonating from the meeting was how the world's largest retailer was cutting costs and reinvesting those savings to lower prices for shoppers, which in turn drives sales. The executives said that increased revenue will in turn increase efficiencies and lower costs further.

Intent on keeping its reputation as a low-price leader, even as other chains cut prices to compete for steadfastly conservative shoppers, the retailer announced Wednesday that it will cut prices weekly on top-selling items from bananas to board games and hold those cuts through the holiday season.

Company officials expect sales in the current fiscal year, which ends Jan. 31, to be 1 percent to 2 percent higher than last fiscal year. That's down from their original estimate of 5 percent to 7 percent.

The following year, they expect sales to accelerate 4 percent to 6 percent as the company benefits from opening new stores and from easing deflation and more favorable currency exchanges.

They declined to offer any guidance for sales at stores open at least a year, a figure that is considered a key barometer of a retailer's health. In August, Wal-Mart forecast the figure would show growth anywhere from 2 percent to flat for the current quarter. The company stopped reporting the figure monthly after releasing its April numbers.

Wal-Mart, which generated more than $400 billion in sales last year, also narrowed its guidance for square-footage growth this year, to 4 percent, or 38 million square feet, from the original estimate of 4 percent to 5 percent.

It expects its sales space to grow another 4 percent, or 37 million square feet, in fiscal 2011. Last year, the chain added 44 million square feet.

Wal-Mart says it will spend $12.5 billion to $13.1 billion on capital projects this fiscal year, compared with $11.5 billion last year and $13 billion and $15 billion budgeted for next fiscal year.

However, shares of Wal-Mart slipped 15 cents Thursday to close at $50.48, near the midpoint of their 52-week range from $46.25 to $59.23.

Wal-Mart officials reiterated earlier statements about building smaller and fewer but more efficient stores in the U.S. In an interview with reporters Thursday evening following the meeting, Chief Financial Officer Tom Schoewe said new Wal-Mart's super centers, which carry food as well as general merchandise, were shrinking to 150,000 square feet, from a typical 195,000 square feet, and will get even smaller.

The company plans to use the smaller format to further penetrate urban markets. But Wal-Mart's focus has been remodeling its U.S. namesake stores, a move that is accelerating because the effort is helping retain existing customers and attract new ones.

Wal-Mart's Sam's Club chain is testing a new prototype that offers more everyday items like produce and health and beauty supplies while cutting back on most general merchandise like furniture, large appliances and DVDS. The categories Sam's Club is expanding have higher sales and gross profit returns per square foot than the overall average for Sam's Club, company officials said.

Sam's Club CEO and president Brian Cornell said these changes will make stores less expensive to run.

Internationally, however, Wal-Mart is stepping up its growth, particularly in emerging markets like China and Brazil.

"We will allocate capital by country and by format, to improve returns from these investment," said Doug McMillon, president and CEO of Wal-Mart International.

Wal-Mart plans to add 23 million square feet abroad this fiscal year and 25 million square feet the following, compared with 19 million square feet in fiscal 2009.