Leading S&P in 2008, Wal-Mart Continues Capital

What do Wall Street investors and Wal-Mart shoppers have in common?

Both are bargain hunting nowadays.

The 11 percent surge in share price for Wal-Mart Stores Inc. — to $55.10 — on Oct. 28 was its best in 20 years. It occurred in concert with the overall market’s surprise 889-point leap that same day.

The market move came in spite of news that consumer confidence was at a 41-year low, a report that a week or two earlier might have sent the equity markets into yet another downward plunge.

But with the market at a five-year low and historically out-of-whack valuations for blue-chip companies across the board, investors appeared to say — at least for a day — “Enough!”

It was a rare day in the past year when Wal-Mart and the market moved in a parallel line. It has been noted in this space and elsewhere that Wal-Mart has far outperformed both its retail peers and the overall market during the last year as economic strife continues.

Wal-Mart’s shares reached a 52-week high of $63.85 on Sept. 19 — a 51.6 percent improvement from $42.09 on Sept. 9, 2007 — but the October sell-off exacted a toll.

Wal-Mart shares tumbled along with the rest of the indices by more than $12 during the turmoil, making it a prime buying opportunity once again.

Wall Street analysts, who have noted Wal-Mart’s improving same-store sales versus 2007 and its inventory controls, should have also been buoyed by the Bentonville retailer’s continued cuts in capital expenditures.

For years, analysts complained Wal-Mart was cannibalizing itself by expanding too greatly in the U.S., overlapping existing stores and cutting into the all-important “same-store sales” measure.

The biggest news out of its annual shareholder meeting this summer was Wal-Mart’s announcement to trim its expansion of new U.S. stores by around a third over the next two years.

Also at the meeting, chief financial officer Tom Schoewe’s presentation showcased the improvements in Wal-Mart’s free cash flow (the difference in net cash from operations versus capital expenditures). Wal-Mart’s free cash flow in the first quarter of fiscal 2008 was a negative $1.3 billion.

Wal-Mart’s free cash flow in the first quarter of fiscal 2009 was a positive $1.3 billion.

Schoewe also advised investors that Wal-Mart’s projected capital expenditures in fiscal 2009 would be on “the low end” of its original estimate of $13.5 billion to $15.2 billion given in January.

On Oct. 28, Wal-Mart said its capital expenditures for fiscal 2009 would actually be closer to $13 billion, around $500 million less than projected just four months ago.

“We are operating from a position of strength, with the strategy of moderating store growth and increasing operating cash flow,” Schoewe told analysts. “This provided significant free cash flow to invest in our business, while delivering returns to our shareholders through dividends and share repurchases.”

Between dividends and stock repurchases, Wal-Mart has returned around $11 billion to shareholders over the last year.