Walmart Cutting Cap Ex

On the heels of its annual conference for the investment community, where it re-emphasized its commitment to growth, leverage and returns, Wal-Mart Stores Inc. revealed plans to reduce capital expenditures to spur comparable and new store growth, operating leverage and productivity initiatives, and an expansion in global e-commerce, including acquisitions.

“We will continue to expand our physical presence through a variety of formats across our markets, while also investing in initiatives to enhance our operational excellence and further new e-commerce opportunities,” said Walmart president and CEO Mike Duke.

Walmart reaffirmed its most recent cap ex forecast of $12.6 billion to $13.5 billion for the current fiscal year, while the fiscal 2014 capital plan will range from $12 billion to $13 billion. The budget covers growth for comp and new stores, logistics and supply chain growth, investments to boost productivity and lower costs, and global e-commerce expansion.

Walmart also said that it’s still on track to meet its goal of reducing operating expenses as a percentage of sales by 100 basis points over five years, beginning with the current fiscal year. These savings are achieved through lower expenses and productivity initiatives, and then reinvested in lower prices and improved international profitability.

“We manage our capital expenditures with the same discipline we manage operating expenses,” explained EVP and CFO Charles Holley. “We identify ways to further reduce our construction costs for new stores, as well as remodels. We are improving our real estate process and adding relatively the same square footage with fewer dollars. Investments in new initiatives drive further operating leverage through business processes, shared services and technology. Additionally, we are investing in our expanding global e-commerce business.”

Planned Walmart U.S. and Sam’s Club U.S. units include new stores, expansions, relocations and conversions. Given the conversion of traditional Walmart discount stores to supercenters without any change in square footage, the number of supercenters will continue to rise, as the number of discount stores declines.

“Our disciplined capital approach will allow us to do more with less,” noted Walmart U.S. president and CEO Bill Simon. “We intend to achieve lower costs in real estate and construction, while delivering slightly greater square footage growth next year compared to this year. Our goal is to reduce the average cost of supercenters by approximately 10 percent by fiscal year 2016.”

Walmart U.S. will continue to ramp up the rollout of Neighborhood Markets, estimating that it will build between 95 and 115 small-format stores in fiscal 2014. Walmart anticipates that it will have more than 500 Neighborhood Markets by fiscal 2016.

Although supercenters are still the company's main source of growth and returns, "[b]ecause we see increased momentum in comp and total sales and traffic performance, we will continue to accelerate the rollout of Neighborhood Markets,” said Simon. “Our small format provides a competitive advantage that allows us to rapidly fill in new markets and compete more effectively with grocery, dollar and drug store competitors.”

Sam’s Club expects to add 10 to 15 new clubs next year with about $1 billion in capital spend. In addition, the division expects to remodel slightly more locations, but at 10 percent lower cost. Further, Sam’s will introduce a pilot program at 76 Texas clubs that tests the feasibility of more member benefits and higher membership fees.

“This membership pilot is designed to enhance the value of a Sam’s Club membership and generate a stronger membership fee income stream,” observed the division’s president and CEO, Rosalind Brewer, at the investors’ meeting. “We’re confident that the combination of our new club growth with enhanced merchandise quality and value benefits will contribute to ongoing momentum in our business.”

Walmart International’s cap ex will range from $4.5 billion to $5 billion in fiscal 2014. New stores are expected to add between 20 million and 22 million square feet next year, in accordance with the current fiscal-year projection of 21 million to 23 million square feet, a downward revision from the original projection of 30 million to 33 million square feet and capital funding of $5 billion to $5.5 billion in August. Most of the changes were related to adjustments in Brazil, China and Mexico.

“We will point our investments toward the better-performing formats, such as supercenters and discount compact hypermarkets, and we will stop or slow growth in lesser-performing formats,” said Doug McMillon, Walmart International president and CEO. “In some cases, we have already done this, and it will be reflected in future performance.”

Walmart also plans heavier investment in the four markets that it believes offer the greatest growth potential for e-commerce retail sales: the United States, United Kingdom, Brazil and China. The company’s capital commitment includes investments in building and developing a global technology platform and customer apps for mobile and social media.

“Our goal is to provide seamless access to customers worldwide,” noted Neil Ashe, president and CEO of Walmart Global eCommerce. “We will continue to innovate in ways that will allow us to expand our global platform and strengthen our infrastructure and local fulfillment networks, while taking advantage of transformational mobile capabilities.”

Walmart operates 10,300 stores under 69 banners in 27 countries and e-commerce websites in 10 countries, employing more than 2 million associates worldwide.