Wal-Mart will slow the pace of new store openings next year in an effort to reverse faltering sales and earnings growth at its 6,700 existing stores, the company told analysts yesterday at an investor meeting in Teaneck, N.J.
Wal-Mart also said it would sharply reduce the rise in capital spending next year, which should be helped by a flattening in inflation of construction and land costs and by the opening of fewer stores. The company said it remains committed to expansion, but analysts said the change was a step toward meeting Wall Street expectations that after years of rapid growth, Wal-Mart will now focus on improving sales and profitability.
Wal-Mart said it expects to open between 305 and 330 U.S. stores in fiscal 2008, which starts next Feb. 1, compared with 332 to 340 this year and about 340 the year before.
October sales at Wal-Mart stores open at least a year -- a key measure in the retail industry known as “comps” -- were tracking below the company's expectations. Wal-Mart attributed the downturn to remodeling efforts as well as a weak demand for trendy skinny-leg pants and the company's recently launched Metro 7 fashion line.
Several brokerages raised their price targets on Wal-Mart's stock after the company's announcement yesterday that it would slow U.S. expansion and slash spending. Banc of America Securities raised its price target to $56 from $53, citing improved cash flow and return on investment. “The completion of the remodel program coupled with less strain from energy prices should both bode well for the remainder of the year,” the firm wrote in a note to clients.
HSBC also raised its price target -- to $55 per share from $52 -- saying that comparable store sales growth should improve as Wal-Mart reduces the number of stores it builds close to existing units.
Wal-Mart's shares rose nearly 4 percent in trading yesterday, closing up $1.91 at $51.28. The share price has lingered mostly below $50 since early 2001.
At the presentation, Wal-Mart vice chairman John Menzer compared his company's position to that of McDonald's in the mid-1990s, when the fast food chain decided to reduce spending after years of stagnant returns. This led to increased profits and shares for McDonald's for the next several years. “They were our benchmark as we went through that same process,” he said.
Wal-Mart concludes its two-day investor meeting today.
