Wal-Mart to accelerate small store growth
Thursday, October 11, 2012
NEW YORK (AP) — Wal-Mart Stores Inc. gave investors what they were looking for: a promise that it will keep delivering strong results even as it becomes more disciplined in its spending on new stores.
Its stock hit an all-time high Wednesday, extending a rally that started at the beginning of the year. The investor enthusiasm has been fueled by a turnaround in Wal-Mart's U.S. business that began late last year.
"We think our business has a lot of momentum," Wal-Mart's Chief Financial Officer Charles Holley told reporters Wednesday following the company's annual meeting with analysts near its headquarters in Bentonville, Ark. "We are going to do more with less."
Such confidence comes after the world's largest retailer finished what it described as a very strong back-to-school season and says it's gaining market share in in nearly every country it operates. And it's confident it will have strong sales during the crucial holiday shopping season, citing healthy orders in key items like tablets.
Wal-Mart predicted that total company sales will increase by 5 to 7 percent in fiscal 2014.
Meanwhile, Wal-Mart, which has built its reputation for being a low-cost operator, plans to add about the same square footage next year as it did in the current fiscal year but with fewer dollars spent. In the U.S., it will be focusing in rolling out more Neighborhood Markets, its small format stores that offer perishable food, household supplies and beauty aids as well as a pharmacy.
The goal is to add about 36 million to 40 million square feet of space overall for fiscal 2014, about the same as the current year. But its capital spending will be down 4.2 percent, in the range of $12 billion to $13 billion.
For the first time, Wal-Mart also offered its goal for its ecommerce unit. It plans to generate $9 billion in online sales by fiscal 2014
A year ago, Wal-Mart was just starting to see its efforts to turn around its U.S. namesakes business pay off. Wal-Mart's domestic business accounts for 60 percent of the company's total sales, which in its fiscal year that ended in January amounted to almost $444 billion.
Wal-Mart last year began restocking 10,000 products and refocused on keeping prices low throughout its stores. It has done that by cutting expenses and passing some of the savings on to customers. As a result, starting late last year, it's been able to turn around a more than two-year slump in revenue at stores open at least a year. The metric is considered a key indicator of a retailer's health.
Still, Wal-Mart's low-income shoppers remain stretched in the U.S. amid a slow economic recovery. Executives said they see that financial duress deepening among customers abroad.
Amid a tough economic climate, Wal-Mart officials said the company's move to launch holiday layaway at its namesake U.S. stores 30 days earlier than last year has helped boost the business. It already has $400 million worth of layaway merchandise, half of last year's total, and the season has barely started.
Wal-Mart said that it has increased its investment in radio advertising by 50 percent for the holiday season compared with last year. It also says orders for what it thinks will be the hot holiday products are robust. For example, Wal-Mart doubled the number of tablet computers it's bringing in for the winter holidays.
It also said it will continue to trim expenses so it can lower prices in its stores. It plans to extract about $6 billion from price tags over the next several years in its U.S. business.
Wal-Mart, which gets more than a quarter of its business from overseas, reiterated that it will be slowing its expansion in China and Brazil. That's because it's trying to make those stores more productive. And while it won't miss an opportunity to make a key acquisition overseas, it's primarily focusing on existing markets.
"We have a lot of invested capital, and we need to generate returns there," said Wal-Mart International President and CEO Doug McMillon.
The company said it plans to add more Sam's Clubs but with relatively flat capital funding. Sam's Clubs expects to add 10 to 15 new outlets next year, spending about $1 billion.
In the U.S., the company plans to add 125 supercenters next year, unchanged from the current year. But Wal-Mart aims to add from 95 to 115 small format stores, up from a projected 80 for fiscal 2013
"This gives us the opportunity to build more stores for less money," Bill Simon, president of Wal-Mart's U.S. division.
Simon said it plans to have 500 Neighborhood Market stores by fiscal 2016. At the end of July, it operated 217 Neighborhood Market stores. The company currently operates 12 Express stores, but it has no plans now to add any more.
Neighborhood Market stores, which are about a quarter of the size of supercenters, generated a 5 percent increase in revenue at stores open at least a year in the latest quarter. That's more than double the growth rate of the Wal-Mart's average store. Holley said the return on investment at the Neighborhood Market stores has approached that of supercenters.
Wal-Mart's stock rose $1.28 to close at $75.42 on Wednesday after hitting an all-time high of $76.81 earlier in the day. The stock has risen 25 percent since the beginning of the year.
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