Originally created 10/24/06

Wal-Mart reins in growth



Wal-Mart Stores Inc. will slow the pace of store openings next year in what analysts called a nod to Wall Street urgings for greater focus on rekindling faltering sales and earnings growth at its 6,700 stores worldwide.

Wal-Mart told analysts Monday, the first day of its two-day investor meeting, that it also would sharply reduce the rise in capital spending next year, helped by a flattening in inflation of construction and land costs and by opening fewer stores.

Wal-Mart said it remains committed to expansion, but analysts said the change was a step toward meeting Wall Street expectations that Wal-Mart, after years of rapid growth, now will focus on improving sales and profitability at existing stores to revive a dormant share price.

Its shares rose more than 3 percent in midday trading Monday. The share price has hovered mostly below $50 since early 2001. For five years, it has failed to match 2001 highs over $60.

"It's somewhat of a shift. Is it a major earthquake shift? No. But it's the start of a shift where they could indeed move to capitalize on what has already been built," said retail analyst Don Gher, of Coldstream Capital Management in Bellevue, Wash., which manages about $1 billion in assets, including Wal-Mart shares.

Fund manager Patricia Edwards said even a small move was a welcome step in the right direction.

"They need to focus on building the business they have instead of starting new ones," said Ms. Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares.

Bentonville, Ark.-based Wal-Mart has been expanding its retail space at 8 percent per year, but that figure will be 7.5 percent next fiscal year, the company said. Its fiscal year runs through January.

Wal-Mart expects to open 305 to 330 U.S. stores in fiscal 2008, which starts Feb. 1, compared with 332 to 340 this year and about 340 the year before. Wal-Mart International, operating in 13 countries in Latin America, Asia and Europe, will open between 320 and 330 stores next year after 270 to 275 this year.

Wal-Mart remains committed to growth, but real estate projects "are now being subjected to a more rigorous prioritization process," Wal-Mart Vice Chairman John Menzer told analysts.

In February, Mr. Menzer said Wal-Mart planned to open more than 1,500 U.S. stores in the coming years, without providing a more specific timeline.

Wal-Mart Chief Financial Officer Tom Schoewe told analysts that the company will increase capital spending between 2 percent and 4 percent in fiscal 2008. That is down from 15-20 percent growth this year.

"Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than sales growth," Mr. Schoewe said.

Wal-Mart sales at stores that have been open at least a year, known as same-store sales, have been trailing those at smaller rivals such as Target Corp.

Last month, same-store U.S. sales were up 1.3 percent at Wal-Mart and 6.7 percent at Target.

In response, Wal-Mart is remodeling about 1,800 of its roughly 2,000 Supercenters, which combine a discount store with a full grocery section, to make them more appealing by adding amenities such as wider aisles, faux wood floors, cleaner restrooms and trendier merchandise in electronics, apparel and home furnishings.