Happy days are here again, or may be soon
Although Walmart won’t provide official fourth-quarter sales guidance until Nov. 15 when it releases third-quarter sales, company executives sounded very bullish about Walmart’s prospects for holiday success and longer-term growth during an all-day meeting with financial analysts on Wednesday.
A certain degree of bluster is expected at such events as all companies emphasize their growth strategies, but you get the sense that Walmart may have finally turned its big ship in the right direction, and within a year or two headlines about how the company is firing on all cylinders might begin showing up on analysts reports they way they did in the late 90s.
For example, Walmart U.S. is poised to end a run of nine consecutive quarters of negative comps, key merchandising initiatives are gaining traction, ambitious holiday marketing plans are in place and a recent pullback in gas prices is leaving shoppers with more money to spend on basics and some discretionary items. Sam’s is riding about as high as it has been in recent memory, with membership renewals at their best level in 10 years, broad-based sales strength and clearly defined strategies. The international division’s profit performance isn’t as strong as the company would like, but sales are solid and organic expansion potential in existing markets is such that it is only a matter of time before the international division surpasses those of the United States, with the timing of that eventuality determined by the pace as which global shoppers embrace the concept of every day low prices.
“We are the very, very best positioned retailer on the plant and this company is stronger today that it was one year ago at this meeting,” said Wal-Mart Stores president and CEO Mike Duke.
And judging from presentations by the several dozen executives Walmart put in front of analysts during the Webcast portion of the meeting, many of whom are new to the company or in their current positions only a short while, there are some really smart folks with diverse backgrounds running the business.
“The talent of leadership around the world is the strongest we have ever had and we are able to recruit the best leadership in retail,” Duke said.
That’s a good thing as far as investors are concerned because Walmart offered no indication that it plans to ease up on growth, despite having ample opportunities to improve the performance of its existing operations. During the coming year, the company expects to spend between $13 billion and $14 billion in 2012 to add as much as 49 million sq. ft. of selling space worldwide which, in addition to same store sales growth, is forecast to add somewhere between $22 billion and $31 billion in sales volume.
Much of that growth will come from the United States where Walmart will perform the neat trick of spending between $6 billion to $6.5 billion next year, or about $500 million less than this year, to add between 14 million and 15 million sq. ft. compared with the current year total of between 10 million and 11 million.
“We also will bring down the cost of building in all of our operations and we will continue to reduce the cost of remodels,” said Walmart U.S. president and CEO Bill Simon. “For next year, Walmart U.S. will build more square footage with fewer dollars. We plan to decrease U.S. construction costs by 10% and will further gain leverage on our remodeling costs.”
In terms of what form that square footage will take, Walmart will add between 130 and 135 supercenters compared with 117 to 120 this year and between 80 and 100 small-format stores compared to the 20 to 30 it is adding this year.
Sam’s Club is also seeing a bump up in growth next year with 10 to 15 new clubs planned compared to 8 to 10 this year even though its capital allocation will remain flat at $1 billion.
Internationally, the capital budget will increase by about $500 million to a range of $4.5 to $5 billion and square footage will also increase to a range of 26 million to 28 million sq. ft. from this year’s projected range of 24 million to 25 million.
Walmart didn’t disclose the number of stores it plans to open internationally or the markets in which they will be located.
“We continue to prioritize our investment in the emerging markets of China, Brazil and Mexico,” said Doug McMillon, Walmart International president and CEO. “We remain focused on driving growth and improving our overall returns. We will build scale in existing markets and continue to evaluate acquisitions to enter additional large, higher growth markets.”