Wal-Mart unveils new store strategy, updates expansion plans

Wal-Mart Stores Inc. officers made several announcements Wednesday (Oct. 13) geared toward explaining to the investment community how the global retail giant plans to boost tepid U.S. sales and build upon international sales growth.

Although the company’s international markets continue to impress, U.S. sales — especially comp store sales — have fallen below expectations.

For the second-quarter period ended July 31, 2010, the Bentonville-based retail giant reported net income of $3.59 billion, or 97 cents per share, versus $3.47 billion, or 89 cents per share, in the same period a year ago. Net sales for the quarter grew to $103 billion, an increase of 2.8% from $100 billion in the second quarter last year.

For the third quarter, the company said it expects U.S. comparable store sales to range between -2% and 1%, as compared to a 0.5% decline for the comparable period last year.

Key aspects of the plans unveiled Wednesday focus on the company reducing capital expenditures for fiscal year 2011 and refocusing on smaller markets with smaller stores. Several retail analysts noted Wednesday that Wal-Mart is going after the dollar stores.

“Our financial priorities of growth, leverage and returns drive our decisions on capital investment,” Charles Holley, executive vice president, finance and treasurer for Wal-Mart, said in a statement. “We are positioning our company for the next generation Walmart, which means that we will grow internationally and in the United States. We believe our capital strategy strikes the right balance between growth and return on investment.

Capital expenditures are likely to be $1 billion less in the high range than previously announced, with fiscal year 2011 capex projected to range from $13 billion to $14 billion. During fiscal year 2010, the company spent $12.2 billion on capital projects. Capex for fiscal year 2012 is estimated to range from $13.5 billion to $14.5 billion, an increase of approximately 3.7% based on the midpoint of the two ranges.

“In the United States, we will shift more capital toward new stores, including supercenters and smaller formats. We are lowering remodeling costs through greater efficiencies, so the total capital commitment for Walmart U.S. next year will be flat with the current fiscal year,” Holley explained.

Some retail industry analysts are skeptical, noting that the company seeks store expansions in the U.S. when comp-store sales are weak and the U.S. remains mired in a jobless recovery. Also, some analysts say Walmart U.S. will require more time to recover from its now abandoned plan to reduce the number of products in its stores — especially in the grocery business. The move drove customers to other stores, but Walmart says it is returning many products back to its shelves.

OTHER PLAN HIGHLIGHTS
• In the fiscal year ending Jan. 31, 2011, the company expects to add approximately 32.5 million square feet globally, compared to approximately 34 million square feet added in the prior year. The company expects to increase global square footage between 34.5 and 35.5 million square feet in fiscal year 2012.

• Walmart U.S. will move toward a three-format portfolio in order to expand in urban markets, small towns and “fill in gaps in existing markets,” the company noted. The medium format will be between 30,000- and 60,000-square feet, and the smaller format targeted to small towns will be 30,000 square feet.

• “We also are allocating capital to continue converting discount stores to supercenters, which add no square footage, but are expected to increase sales,” Bill Simon, Walmart U.S. president and CEO, said in a statement. “Of the 155 to 165 supercenters we will add next year, 45 to 50 will be new units, with the remainder conversions. Neighborhood Markets will make up the bulk of the medium format stores, and there will be some pilots of the small store format included in next year’s plan.”

• By the end of the current fiscal year, more than 550 U.S. stores will have been remodeled. Walmart U.S. plans to remodel more than 500 stores next fiscal year.

• Walmart International continues to aggressively invest in organic growth with multiple formats from supercenters to small grocery stores and cash and carry units. New stores are expected to add 21 million square feet of space this fiscal year and between 23 and 24 million square feet next year.

• Sam’s Club’s plan for capital spending next fiscal year is similar to the current year. Sam’s will continue to spend approximately $1 billion per year in capital, with the majority committed to remodeling. Sam’s plans to add between 7 and 12 new, expanded, or relocated clubs next year in the United States. Remodels are expected to be completed on 60 to 70 clubs next year.

• Wal-Mart officials continue to push electronics, with the Apple iPad, for example, to soon find a bigger presence in more Walmart stores.

Overall, Wall Street was not overly impressed with the news. Wal-Mart shares (NYSE: WMT) closed Wednesday at $53.82, down 10 cents on trading volume that was almost 19% higher than the average volume. During the past 52 weeks, the share price has ranged from a $56.27 high to a $47.77 low.