US retail giant Wal-Mart has announced its intention to compensate for a slow-down in the rate of sales growth by slashing its budget for the opening of new stores and distribution centres.
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The world’s largest retailer said yesterday (23 October) that it had “considerably” cut its capital expenditure plans for the next fiscal year, reflecting a drop in expected sales growth.
So far this month, like-for-like sales have increased by just 1% – below the company’s forecast growth of 2-4%.
The company said that next year it will open 600 new stores, half in the US and half overseas, adding around 60m square feet of new selling space, two-thirds of which will be in the US.
“We are still very committed to growth, but our real estate projects are now being subjected to a more rigorous prioritisation process,” said Wal-Mart vice chairman John Menzer. “This store selection process will enable the company to drive higher returns by focusing on locations that make the most efficient use of capital.”
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By GlobalDataWal-Mart said it intended to increase its capital spending by 2-4% in fiscal 2008. This compares to the 15-20% increase it has forecast for the current financial year.
Tom Schoewe, Wal-Mart CFO, said the group’s capital expenditure growth had outstripped its square footage and sales growth for the past three years, partly because of escalating construction costs.
“Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than our sales growth. Additionally, over time, we expect our new capital efficiency model to reduce the impact of cannibalisation,” he added.
Wal-Mart shares closed slightly higher yesterday at US$51.28, up from an opening value of $49.37, as the news eased analysts fears of an imbalance between investment levels and returns.
