Walmart to Ramp Up Capital Expenditures

At its annual meeting for the investment community, Wal-Mart Stores Inc. projected total capital spending for fiscal 2016 to range between $11.6 billion and $12.9 billion, including about $1.2 billion to $1.5 billion for e-commerce and digital initiatives.

"We'll change the mix of our capital spend next year to provide greater access, while continuing to focus on price leadership, service, and a broad assortment," noted President and CEO Doug McMillon, who outlined the mega-retailer's growth strategy at the same event.

'Endless Aisle'

"Our business and customers continue to evolve and so will the way we deploy capital," added Charles Holley, Walmart's EVP and CFO. "We will invest more heavily in e-commerce initiatives, while temporarily moderating our global physical growth, particularly larger stores. We are focused on creating an endless aisle and appealing to our customers’ changing needs."

Continued Holley: "Globally, we expect to finish this year with approximately $12.5 billion in e-commerce sales. Looking forward, we expect an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and we anticipate growth over the three-year period from fiscal years 2016 through 2018 to average 30 percent to 40 percent."

Further, according to the finance executive, "The greatest investment of capital and in operating loss for our e-commerce operations will come over the next 18 to 24 months, and then we would expect to see that investment start to moderate in fiscal 2018."

Overall, Walmart expects to spend capital of approximately $1 billion for e-commerce and digital initiatives this fiscal year, and between $1.2 billion and $1.5 billion next year, "and these investments will include technology, infrastructure and other areas," noted Holley

More Square Footage, Fewer Stores

In fiscal 2016, the company plans to add between 26 million and 30 million net retail square feet, reflecting moderation of new store openings across its segments. Net retail square footage growth also includes conversion of Walmart discount stores to supercenters.

As a result of the timing of certain planned small-format openings, Walmart U.S. now expects to open around 240 small-format units in fiscal 2015, and carry more than about 20 units into fiscal 2016. The company additionally noted that during the testing of its Walmart Express format, it found that customers depended on these stores for various reasons, including grocery fill-in trips, last-minute dinner plans and picking up prescriptions, closely aligning with how customers shop the Neighborhood Market format. Therefore, the company has decided to rebrand Walmart Express as Neighborhood Market and employ this banner for all small-format stores, regardless of square footage.

"We know that our supercenters are an important format for the stock-up trip, but we want to be thoughtful about our investment, ensuring that we align the space to evolving customer needs," observed Walmart U.S. President and CEO Greg Foran. "To do this, we will moderate supercenter growth in fiscal 2016. Our investment in Neighborhood Markets will go forward because they continue to show strong results across the box and they provide our customers with convenient access to grocery, pharmacy services and other quick-trip needs."

Walmart U.S.'s fiscal 2016 capital investments are projected to range between $6.1 billion and $6.6 billion, including new stores, remodels, conversions, relocations, logistics, e-commerce and technology infrastructure, and reflecting the additions of new units that will expand the division's retail space by about 15 million to 16 million net retail square feet. The company plans to open between 60 and 70 supercenters and 200 to 220 Neighborhood Markets.

Sam's Club will spend about $0.9 billion to debut around 20 clubs this year, including relocations and expansions; the division will also remodel in the range of 55 to 60 clubs.

"Our new clubs continue to perform well,” noted Sam's Club President and CEO Rosalind Brewer. "Starting in the third quarter of this year, our new clubs incorporate several layout improvements, including an expanded fresh area and a combined health-and-wellness solutions center. These updates enhance the member shopping experience, and drive stronger sales and leverage labor efficiencies."

For fiscal 2016, Sam's Club aims to open nine to 12 clubs, including relocations and expansions, with remodeling slated for between 60 and 65 clubs. The division projected a reduction in capital expenditures to about $0.8 billion, while planning continued investment in membership and merchandising.

"We are reducing the number of new club openings for next year and accelerating technology initiatives that integrate our physical locations with our digital capabilities," observed Brewer.

Because of fewer new store openings in several key markets around the world, Walmart International now expects fiscal 2015 capital expenditures and net square footage additions to range between $3.8 million and $4.1 billion and 9 million to 10 million square feet, respectively. The division's capital ex is expected to range between $3.7 billion and $4.2 billion, with fiscal 2016 new store openings anticipated to add between 10 million and 13 million square feet.

According to Walmart International President and CEO David Cheesewright, "We are managing our portfolio to be a best-in-class operator through innovation, making compliance a competitive advantage and winning with an e-commerce strategy that offers a unique shopping experience for our customers across all channels."

Building on Core Components

As for Walmart's global e-commerce activities, the divisions' president and CEO, Neil Ashe noted: "We have delivered the core components of our new global technology platform. We are expanding our next-generation fulfillment network to reach our customers fast and efficiently, and we're building new data capabilities to enhance our customer experience."

Ashe revealed that next year, Walmart would build new online fulfillment centers in Georgia and Pennsylvania, each measuring more than 1 million square feet, as part of the company's fulfillment network encompassing dedicated online fulfillment centers, shared distribution centers and ship-from-store locations. Walmart also plans to construct new fulfillment centers in Brazil and China.

Additionally, Walmart said that due to a tougher-than-expected sales environment, it anticipated net sales growth for the current fiscal year of between 2 percent and 3 percent on last year's $473.1 billion.

For next year, the company expects net sales to increase by 2 percent to 4 percent, which "translates into approximately $10 billion to $20 billion of net sales growth," explained Holley. "Operating expenses will grow at a rate somewhat faster than sales growth, and operating income will be flat to slightly down, given our investments in technology, e-commerce and digital."

Walmart operates 11,100 stores under 71 banners in 27 countries, and e-commerce websites in 11 countries.

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