Wal-Mart Stock Climbs, No Split

The crowd of 18,000 moaned in unison as David Glass, CEO of Wal-Mart Stores Inc., announced that directors wouldn’t split the mammoth retailer’s stock that day.

But just as quickly, the crowd cheered its approval when executives announced that Wal-Mart’s stock had topped $58 per share — an all-time high — while the annual meeting of shareholders was under way June 5 in Fayetteville’s Bud Walton Arena. Five days later, it was trading at more than $59 per share.

In a question-and-answer session after the meeting, CFO John Menzer explained that Wal-Mart directors want the stock price to be comparable to that of other major corporations on a global scale, such as Procter & Gamble.

Last year, Dow Jones began including Wal-Mart as one of the 30 companies in its industrial average. Many of those companies have stock that trades for about $80 per share, Menzer said.

“We want to stay in that league,” he said. “We will split the stock when indeed appropriate.”

“The management wants Wal-Mart to be perceived as more of a name-brand company,” says Asma Usmani, a retail analyst for Edward D. Jones & Co. in St. Louis. “So they want Wal-Mart to be traded on the same tier as these name-brand companies. … I actually got the impression they would announce a stock split around the $80 level.”

The Dow Jones classification and management decision will likely mean Wal-Mart shareholders, who have become accustomed to splits when the stock nears $60 per share, may have to get used to hanging on to their higher priced shares. Wal-Mart had previously made a point to keep stock prices low so “associates,” i.e. employees, could afford to buy shares.

Mini-experiment

During the annual meeting, Glass glossed over an issue that has received widespread media attention — Wal-Mart’s construction of three 40,000-SF grocery/drug stores in Arkansas.

“We’ve created the store, and we’re going to build a few of them, all in Arkansas,” Glass told the crowd. “Mostly, they’re laboratories for us, no different than the other experiments we’ve tried over the years.”

The stores currently in the works are in Bentonville, Springdale and Sherwood. Discount Store News reported June 8 that six to eight stores are planned, but Wal-Mart representatives said they couldn’t confirm that number.

The prototype stores are being built primarily in cities where Supercenters already exist. The stores are intended to fill gaps in the retail market left by the massive Supercenters.

The stores will sell food and include a drive-through pharmacy. Supercenters, on the other hand, are about 200,000-SF in size and sell a wide variety of goods. The Wal-Mart Food and Drug Express stores will be more convenient and sell primarily groceries.

“As you put in more Supercenters, each one creates a larger trade territory, meaning you can’t put them as close together (as traditional Wal-Mart stores),” said Glass. “That creates the opportunity for neighborhood stores designed to complement and support Supercenters.”

Wal-Mart tested Supercenter stores for years before launching a major building campaign. The company opened its first Supercenter in 1988 and had built 10 by 1991. Now, there are 469 Supercenters in the United States.

“We don’t know if it is going to work,” Glass told shareholders. “We are going to build a few — all in Arkansas. We will find out how they fit into our scheme.”

The first store, in Bentonville, is under construction and expected to be open by October.

A floor plan filed with the Bentonville Planning Commission shows the drive-through pharmacy, a deli counter, a produce section, and areas for health and beauty aides.

Glass told the Wall Street Journal that Wal-Mart expects to become the nation’s largest food retailer. Currently, the grocery industry records $436 billion in sales, dwarfing the $178 billion discount-store industry.

Staying ahead

In a meeting with analysts after the shareholders’ meeting, Lee Scott, president of Wal-Mart’s store division, said this is the best of times for the company but it is also a dangerous time because Wal-Mart can’t afford to become complacent.

“Wal-Mart needs to insure that they stay ahead of the competition by not losing focus,” says Usmani, who was paraphrasing Scott.

During the meeting, Glass told stockholders and associates that Wal-Mart had just completed the best first quarter “in the history of our company.” This comes after a year in which Wal-Mart had record sales of $118 billion.

Net income for the first quarter of fiscal 1999 was $828 million, up 27 percent from $652 million for the first quarter of fiscal 1998. Total sales were $29.8 billion, up 17 percent over the same quarter in 1998. Earnings per share were 37 cents, up 28 percent from 29 cents per share from the same period last year. May sales for Wal-Mart were $10.3 billion, up 20 percent from last May’s numbers.

Last year, Wal-Mart passed General Motors as America’s largest employer, excluding the federal government, says Menzer, “and we don’t want to pass the U.S. government. We don’t want to have to deal with that bureaucracy.”

“Wal-Mart is the world’s only $100 billion growth company,” Menzer told the crowd.

For fiscal 1999 (which ends Jan. 30, 1999), expansion plans include 50 new discount stores, 120 to 125 Supercenters, 10 Sam’s Clubs and 50 to 60 international stores.

China expansion

At the annual meeting, Wal-Mart announced that it will triple the number of stores it has in China by the end of calendar year 1999.

Wal-Mart opened its first store in China in 1996. The company now has two Supercenters and one Sam’s Club in the Shenzhen province. Over the next two years, the company plans to open six more stores in China.

“Over the last two years, Wal-Mart has learned a tremendous amount about serving our Chinese customers, and our excitement about expanding in the market and in Asia has never been stronger,” says Bob L. Martin, president and CEO of Wal-Mart’s international division, which has about 600 stores worldwide.

Wal-Mart’s international division had sales of $7.5 billion in the last fiscal year, an increase of 50 percent over the previous year. Profits for the division were $262 million in fiscal 1998, a tenfold increase over the previous year.