Wal-Mart Updates Growth Plans

24/10/07 Wal-Mart Stores, Inc. has updated its plans for growth for the current fiscal year, and provided details about its worldwide expansion plans. The strategic plan centers on the Company’s capital efficiency model to improve free cash flow and to provide stronger returns for Wal-Mart Stores U.S. and the Company. The plan allows Wal-Mart to better serve its customers and continue to increase sales. Wal-Mart defines free cash flow as net cash provided by operating activities, less capital expenditures. 

“We continue to focus on increasing operating cash flow, in addition to moderating capital expenditures,” said Tom Schoewe, Wal-Mart Stores, Inc. executive vice president and chief financial officer.  “This strategy will increase free cash flow, allowing Wal-Mart to fund strategic acquisitions and provide returns for our shareholders through dividends and share repurchase.”

Total capital spending for the current fiscal year 2008 is projected to be approximately $15 billion, down from $15.7 billion last year.  Looking forward, total capital spending will flatten.  Wal-Mart will continue to accelerate its investment in its International operating segment during the next two fiscal years.  New store growth remains part of the Wal-Mart Stores U.S. strategy and more emphasis will be placed on relocating and expanding existing discount stores to supercenters during the same time periods.  Declines in capital spending at Wal-Mart Stores U.S. will be offset by increases at Wal-Mart International, resulting in worldwide spending of $14 to $15 billion in each of the next two years.

The Company expects to add 48 to 49 million square feet globally, which is an increase of 6 percent in fiscal year 2008 over fiscal year 2007.  During each of the following two fiscal years, Wal-Mart expects to increase square footage between 48 million and 52 million square feet, an increase of 5 to 6 percent.

Wal-Mart is executing the plan announced June 1, 2007 to moderate its U.S. supercenter growth.  The Company expects to open 195 supercenters in the United States this year, down 30 percent from the 281 opened during last fiscal year.  Projections for next fiscal year and the following year call for 170 and 140 supercenters respectively, including expansions and relocations. 

Eduardo Castro-Wright, Wal-Mart Stores U.S. president and chief executive officer, pointed out that supercenters have a higher rate of return than any other format in the United States and the Company will continue to focus on building the supercenter brand. 

“As part of this effort, the Company will focus on expansions and relocations of existing discount stores to supercenters, which will result in building fewer new stores.  We also are building smaller supercenters, particularly in more condensed trade areas in established markets,” Castro-Wright said.  “And, we will concentrate on markets with the greatest growth potential.”

Sam’s Club will continue its expansion at a rate similar to fiscal year 2008, with approximately 25 new, expanded or relocated U.S. facilities per year in fiscal year 2009 and fiscal year 2010.

“Our Sam’s Club growth will focus on markets with the highest potential to serve both small businesses and Advantage or individual members,” said Doug McMillon, Sam’s Club president and chief executive officer.  “Our goal is to optimize the number, size and location of our clubs to maximize capital efficiency for the Company in the club format.”

Both the Wal-Mart U.S. supercenter and Sam’s Club’s units include expansions and relocations.  In the United States, the Company plans to add two cross-dock facilities to its Sam’s Club logistics network in fiscal year 2009.  These distribution centers are expected to add approximately 100,000 square feet of distribution space to support its U.S. locations.  There are no plans to build distribution centers for Wal-Mart Stores U.S. during the next two years.

Wal-Mart International will continue to have a faster growth rate than the Company’s U.S.  operations.

“The International growth will be concentrated in emerging markets with strong growth potential, as well as established markets which can deliver consistently strong returns,” said Mike Duke, vice chairman responsible for International. “Investments are providing improved returns in Wal-Mart International and unit growth will continue to cover a wide range of formats.”  

“Since late last year, every real estate project around the world has been evaluated based on a tighter capital efficiency model,” Schoewe explained.  “This model prioritizes locations that make the most efficient use of capital, reduce impact on existing units and drive higher returns.  We continue to be very focused on this process.”

Schoewe explained that the strategy to improve free cash flow has allowed the Company to accelerate its share repurchase.

Wal-Mart announced on June 1, 2007 that its Board of Directors had approved a share repurchase program that increased the Company’s authorization to $15 billion.  As of October 19, 2007, the Company had purchased approximately 106.7 million shares, worth approximately $5 billion, since the beginning of the fiscal year, a significant increase over the prior year.