Wal-Mart (NYSE: WMT) is reducing the amount of capital expenditures for 2007 in light of reduced expansion of the company's Supercenters in the domestic market as it attempts to eke out more sales from existing stores.Well, as I've stated for over a year here at BloggingStocks, this is a strategy that the retailer was forced to take. It's already saturated many U.S. markets, and opening stores for the sake of opening them just won't cut it for growth any longer. The problem is that I still don't see the changes that will make sales growth happen in existing stores. Doug McIntyre even wrote about the retailer closing some stores about a year ago. What's in store for the retailer is anyone's guess at this point.
As a result, the world's largest retailer will cut its capex amount down in the range of $14.7 billion to $15.4 billion, down from a figure of $17 billion earlier in the year. Wal-Mart's chief administrative officer, John Menzer, stated that the retailer still has a goal to "beat" the $15.5 billion figure, however. With Wal-Mart's recent unwavering plan to continue opening stores in the face of declining same-store sales at existing locations, this admission was a bit overdue, to put it mildly.
The retailer also reiterated capex plans for fiscal years 2009 and 2010, saying it would spend $13.5 billion to $15.2 billion each year. Along with that, the retailer expects square footage growth (new stores, in other words) to come in at 6% for the current fiscal year, with a 5% to 6% figure for the 2009 and 2010 fiscal years as well.
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Reader Comments (Page 1 of 1)
10-25-2007 @ 3:51PM
Mike said...
I will, once again, disagree with Brian White (it's really getting to be a given) and state that I believe there are still significant opportunities for expansion within the US, specifically large urban centers and the western US.
Maybe it's my aviation background, but I view each Wal-Mart store like an airliner. The airline will sell as many seats as possible on a given city-pair. At approximately 85% load factor, the airline will begin to look at the market to determine if a larger aircraft is required, or if the marketplace would rather more frequency -- maybe 3 Regional Jet departures over 180 minutes vs. 1 737 or MD88 over the same time period.
If a Wal-Mart has reached that "85% load factor" (in terms of sales), then why not consider additional frequency? Perhaps adding another store within 10 miles or so will cause a reduction in sales at store #1, but the total of stores #1 and #2 will still be higher than store #1 is in total.
Now how does that impact same-store-sales? Clearly it will reflect negatively... but what just happened? Wal-Mart succeeded in gaining more market-share and increasing revenue regardless! Does Wall Street see it that way? Nope, those aren't the metrics they look at.
Just my opinion. But these folks are too smart to open stores if they aren't going to drive sales. I just think that Brian, along with most of the real analysts, is looking at faulty data that is not an accurate representation of the health of the company.
As for the urban areas -- i'm just spitballing here, but if I were Lee Scott, i'd be talking to the folks in the Neighborhood Market side of the house. If you could create a Neighborhood Market format that is clean, well stocked, with good selection and Wal-Mart prices, you could put it in storefronts on street level in Manhattan or anywhere else and it would be successful. There would never have to be any variances in zoning requiring city-council meetings, they could just buy up real estate and pepper the landscape with Neighborhood Markets just like Starbucks does... and by leveraging Wal-Mart's distribution and purchasing power the company could finally bring low prices and good service to the city-dwellers.
So maybe i'm a glass half full kind of guy. I honestly believe that in this case what Wall Street wants, and what Wal-Mart does should not be in concert. The company knows where it can continue to grow domestically, and I believe they won't rest until they are successful.
Think i'll buy while the stock is low...
Go Wal-Mart!
11-05-2007 @ 1:50PM
Paul said...
Mike,
Yhe only problem with you "just add another store wjthin 10 miles" theory, is that the cost of operation of all the square footage in that second store would eat at profits.
The idea is to locate the retail outlet so that only one store can accomplish what is needed for market penetration.