Walmart Readies for 'Next Generation' via Cap Ex

Wal-Mart Stores Inc. may have lowered the high end of its range for the current fiscal year 2011 capital spending forecast by $1 billion, to $14 billion, but make no mistake – the megaretailer is still growing. The company this week outlined how it would expand during its annual conference for the investment community.

Last fiscal year, Walmart spent $12.2 billion on capital projects, and total capital spending for next fiscal year, ending Jan. 31, 2012, is forecasted to range from $13.5 to $14.5 billion, an increase of around 3.7 percent.

"Our financial priorities of growth, leverage and returns drive our decisions on capital investment," noted Charles Holley, Walmart EVP, finance and treasurer. “We are positioning our company for the next-generation Walmart, which means that we will grow internationally and in the United States. We believe our capital strategy strikes the right balance between growth and return on investment.”

According to Holley: “We expect to grow total company square footage between 3 percent and 4 percent next fiscal year, which means that square footage and capital spending will grow at approximately the same rate. Overall sales growth is forecasted between 4 percent and 6 percent. In the United States, we will shift more capital toward new stores, including supercenters and smaller formats. We are lowering remodeling costs through greater efficiencies, so the total capital commitment for Walmart U.S. next year will be flat with the current fiscal year.”

He added that due to Walmart International’s focus on growth in emerging markets, cap ex for the division would increase by a little more than 13 percent next year vs. the current fiscal year, while capital for the other operating segments, as well as corporate overhead, are projected to be flat next year compared with this one.

In the fiscal year ending Jan. 31, 2011, the company expects to add about 32.5 million square feet worldwide, vs. about 34 million square feet the prior year. Walmart expects to boost global square footage between 34.5 and 35.5 million square feet in fiscal year 2012.

Projected Walmart U.S. and Sam's Club construction includes expansions, relocations and conversions of traditional discount stores to supercenters:

Although Walmart U.S. cap ex and square footage will be flat next year compared with the current year, stores and sales are projected to grow, noted Bill Simon, Walmart U.S. president and CEO.

“Over the next few years, we will introduce new formats to help us enter new markets,” he explained. “Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill in gaps in existing markets. The large format is our supercenter, which sells a broad assortment of groceries and general merchandise. We have integrated efficiencies into our supercenter design that have allowed us to decrease the average square footage for our supercenter format. The medium format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market. The small format, which is less than 30,000 square feet, will be targeted to urban markets and small towns.”

The conversion of discount stores to supercenters adds no square footage but is expected to raise sales, added Simon, who said that of the 155 to 165 supercenters planned for next year, just 45 to 50 would be new units, with the rest conversions. Neighborhood Markets will make up most of of the medium-format stores, and some pilots of the small-store format will feature in next year's plan.

By the end of the current fiscal year, Simon said that more than 550 U.S. stores will have been revamped, with upwards 500 stores slated to undergo remodels next fiscal year.

Walmart International has plans for multiple formats ranging from supercenters to small grocery stores and cash-and-carry units, all of which are expected to add 21 million square feet of space this fiscal year, and between 23 and 24 million square feet the following year.

“Our capital investment for next year will drive new store growth with particular emphasis in the emerging markets of China, Brazil and Mexico,” noted Doug McMillon, Walmart International president and CEO. "Through a combination of comparable-store sales, new-store square footage and continued earnings performance, we will continue to shape our international portfolio to drive both growth and improving returns. We will also continue to evaluate acquisitions to enter priority markets and to build scale in existing markets.”

Meanwhile. Sam's Club’s cap ex plan for next fiscal year will stay essentially the same as this year’s. The warehouse club division will continue to spend about $1 billion annually in capital, with the majority earmarked for remodels. Sam’s intends to add between seven and 12 new, expanded, or relocated clubs next year in the United States, as well as 60 to 70 remodels.

With more than 8,600 retail units under 59 banners in 15 countries, Walmart employs more than 2 million associates worldwide.