Wal-Mart to cut back on building

The moves could make Wal-Mart stock more
attractive, analysts say.

ASSOCIATED PRESS

Wal-Mart Stores Inc. will cut back on spending to build new stores and tighten cost controls as sales growth slows over the next three years, Chief Financial Officer Tom Schoewe told investors and analysts at a conference Tuesday.

Schoewe trimmed plans for capital expenditures for the second time this year, to about $15 billion from a June forecast of $15.5 billion. The original projection was $17 billion.

Analysts welcomed the move to focus on keeping more of the cash Wal-Mart generates rather than spending furiously on new stores.

Increased free cash flow, or the money left over after a company pays its expenses including capital expenditures, could make Wal-Mart shares more attractive by funding higher dividends, new technologies or acquisitions, analysts said.

“Strong free cash flow is the key to corporate flexibility and potential growth. The highest quality companies, in my opinion, are able to self-finance their future growth from their free cash flow,” said Patricia Edwards, managing director and retail analyst at Wentworth, Hauser and Violich in Seattle, which manages about $12 billion in assets and holds about 35,700 Wal-Mart shares.

Wal-Mart, which is finding fewer places to build new stores and faces tougher competition from other retailers, said sales will continue to slow after years of strong double-digit growth.

Schoewe said sales growth will fall to 9 percent this fiscal year from nearly 12 percent the year before and then be between 5 percent and 8 percent the next two years. Wal-Mart’s fiscal year runs through January.

Schoewe said Wal-Mart is focused on using the tremendous cash flow generated by its U.S. and international stores more efficiently, including building fewer giant Supercenter stores and managing corporate costs better.

Wal-Mart’s annual square-footage growth will decline from 8.8 percent last year to around 6 percent this year and between 5 percent and 6 percent in the next two years, Schoewe said.

In terms of Supercenters, the flagship of Wal-Mart’s U.S. business, Schoewe said the retailer will build around 190 to 200 this year and about 170 a year in the future, compared with a historical standard of around 280 a year.

Capital expenditure will be between $13.5 billion and $15.2 billion in the next two fiscal years after about $15 billion this year.