Wal-Mart to Rein in Spending

Just like many of the shoppers passing through its doors, Wal-Mart Stores Inc. is planning to cut down on spending this year.

Just like many of the shoppers passing through its doors, Wal-Mart Stores Inc. is planning to cut down on spending this year.

This story first appeared in the June 18, 2008 issue of WWD.  Subscribe Today.

The company on Tuesday trimmed its forecast for capital expenditures and now expects to spend between $13 billion and $14 billion on its operations this year.

Previously, the discount giant penciled in capital expenditures of $13.5 billion to $15.2 billion. The downward revision did not come as a big surprise, as the company said its spending would finish in the lower end of that range at its annual meeting a few weeks ago.

“We continue to emphasize the balance between growth and returns,” said Tom Schoewe, executive vice president and chief financial officer, who spoke at the William Blair Growth Stock Conference in Chicago Tuesday.

The cutback in spending comes as the firm continues to turn down the volume on its Supercenter expansion. Wal-Mart had been on a growth tear, increasing its global footprint by about 8 percent for several years — opening as many as 300 of its Supercenter concepts annually.

Last year, that growth began to slow. Currently, the firm’s expansion plan calls for about 170 new Supercenters this year and 140 next year.

Schoewe said the timing of the slowdown turned out to be on the mark.

“That strategic declaration took place well before there was any kind of a crisis in the credit markets, well before we had a meltdown in the mortgage markets,” he said. “We got out ahead of that.”

Even with slower store growth, Wal-Mart has proven to be a fierce competitor.

Schoewe said the company accounted for about 19 percent of all retail sales growth, excluding automotive, in the U.S. for the four months from February to May.

“The formula is working, and I think it’s obvious that we’re taking some share,” he said.

Many attribute Wal-Mart’s recent success to its renewed focus on value and price leadership, expressed in its “Save Money, Live Better” ad campaign.

Schoewe said the firm is living up to its tag line.

“When there is a new product that [merchants] want to be introduced, it needs to answer the question, ‘Can you save our customer money? Can you help them live better?’ If that’s not the case, it’s probably not going to make the cut,” he said.

In apparel, Wal-Mart has set aside ambitions to become a more fashionable player.

“It’s all about basics and it’s all about value,” said Schoewe.

Goldman, Sachs & Co. analyst Adrianne Shapira said the reduction in expected expenditures was another bit of good news that helped differentiate Wal-Mart from other retailers.

Wal-Mart found much to boast about at its annual meeting this month, including a 4.4 percent rise in comparable-store sales in May.

“Wal-Mart is better executing the right price message at a time customers need it most,” she said. “This, coupled with intensified return focus by redirecting capital investment toward higher returning international markets, should drive continued stock outperformance.”

Shares of the firm closed down 1.1 percent Tuesday

to $58.69.

The slowdown in Supercenter growth has been accompanied by an effort from the retailer to renovate more existing stores and improve their assortments.

At the annual meeting on June 6, Eduardo Castro-Wright, president and chief executive officer of Wal-Mart U.S., boasted about the company’s monthly survey of 500,000 to 1 million customers who said the experience in stores improved.

“We have faster checkout, friendlier service and cleaner, uncluttered stores,” he said. “The merchants are on-trend. There’s great inventory management, clarity of merchandise and crisp presentation.”