Walmart spends less to grow more

BENTONVILLE, Ark. — The pace at which Walmart adds new selling space globally will remain unchanged next year, but improved productivity, more U.S. stores and expanding multichannel capabilities are expected to produce sales and profit growth.

Walmart on Wednesday held its 19th annual meeting for financial analysts and touted a dedication to capital efficiency that will see it spend between $12 billion and $13 billion in the fiscal year beginning Feb. 1, 2103 to add between 36 million and 39 million sq. ft. of selling space. That range is slightly below the projected $12.6 billion to $13.5 billion the company expects to spend during the current fiscal year and the $13.5 billion that was spent during 2010.

"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 Wal-Mart Stores Inc., president and CEO Mike Duke.

Reduced spending on U.S. stores accounts for nearly all of the projected reduction in total company capital expenditures, but even so the U.S. will account for a larger share of the company’s overall square footage growth. Walmart expects to add between 15 million and 17 million sq. ft. of U.S. selling space next year, compared with a projected 14 million to 15 million this year and an actual 9.6 million in 2010.

Virtually all of the new square footage growth relates to a modest acceleration of smaller format stores such as the approximately 45,000-sq.-ft. Neighborhood Market and the approximately 15,000-sq.-ft. Walmart Express. Walmart plans to open 125 supercenters, roughly the same as last year, but said it would add between 95 and 115 smaller format stores, primarily Neighborhood Market, compared with about 80 that will be opened during the current year. While that is a relatively modest acceleration of a concept that first opened in 1998, Walmart indicated it expects to have 500 of the food and drug combination stores by 2016, up from the current 240 units.

"Supercenters remain our primary driver of growth and returns," said Walmart U.S. president and CEO Bill Simon, echoing a message he shared with analysts the prior year. "Because we see increased momentum in comp and total sales and traffic performance, we will continue to accelerate the rollout of Neighborhood Markets. 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."

According to Simon, Walmart is doing more with less and is able to expand selling space while reducing cost because real estate and construction costs have come down.

A similar phenomenon exists at the Sam’s Club division where spending of $1 billion is roughly equivalent to the prior year but between 14 and 20 units are expected to open compared to a projected 14 this year.

Spending internationally will remain roughly the same as the prior year between $4.5 billion and $5 billion, but those dollars will buy slightly less space. New international square footage next year is expected to range from 20 million to 22 million compared to a projected 21 million to 23 million this year.

Both figures reflected a reduced pace of expansion from Walmart’s original current year goal of 30 million to 33 million that was revised downward in August amid an ongoing Foreign Corrupt Practices Act investigation and a global economic slowdown.

"We remain committed to capital discipline in our new store growth. Next year, we are allocating 60% of our funding to developing our higher growth markets and 40% to developed markets," said Doug McMillon, Walmart international president and CEO. "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. In some cases, we have already done this, and it will be reflected in future performance."

Overall, Walmart expects to grow total company sales in the range of 5% to 7%, which means the company will be adding between $23 billion and $33 billion in sales volume to this year’s total.

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