By Sarah Nassauer and Austen Hufford
Wal-Mart Stores Inc. plans to open fewer U.S. stores than it has
in at least 25 years and deepen its cost-cutting efforts,
attempting to free up cash for e-commerce and store improvements in
an increasingly competitive retail environment.
The strategy is central to Wal-Mart's plan to fend off
Amazon.com Inc. and a sign that executives believe the profitable,
cavernous stores Wal-Mart built rapidly for decades won't grow
through expansion.
At an investor meeting on Tuesday at the retailer's Bentonville,
Ark., headquarters, executives said they would open about two-dozen
U.S. stores in the 2019 fiscal year. Instead, Wal-Mart will remodel
existing buildings and spend on its e-commerce infrastructure and
services like home grocery delivery.
Though Wal-Mart's "supercenters" have long been the most
profitable part of its business, Amazon is grabbing a larger
percentage of sales of many of the easily shippable products that
line the aisle of Wal-Mart's large-format stores.
Now Wal-Mart must find more ways to pay for the retail
battle.
On Tuesday it outlined plans to lower expenses as a percentage
of sales from 21%, where it stands this fiscal year. Wal-Mart has
started using zero-based budgeting in some corporate units and has
made cost cuts as mundane as printing receipts on smaller strips of
paper -- a change that has saved $7 million so far this year.
"We are not where we want to be from an expenses standpoint,"
Brett Biggs, chief financial officer, told analysts.
Wal-Mart shares climbed 4.5% to $84.13 on Tuesday, their highest
close in more than two years. The stock price is up 22% so far this
year.
Early last year Wal-Mart closed more than 150 U.S. stores, and
said it would slow down on opening new stores. In the 2017 fiscal
year that ended in January, it opened 111 U.S. stores, down from
216 the previous year.
The company said it would open 255 new stores outside the U.S.,
with a focus on Mexico and China, during the 2019 fiscal year.
Wal-Mart has already dug in on expenses, eliminating thousands
of corporate and store jobs, increasing the fees it charges
suppliers to deliver goods to stores and demanding lower prices on
goods.
Wal-Mart expects to save $20 million this year by using slightly
smaller plastic shopping bags, Mr. Biggs said.
It will now institute zero-based budgeting -- a technique in
which each business expense must be justified -- in many parts of
the business "above store level," he said.
Zero-based budgeting is used more widely in the
consumer-products and packaged-foods sectors, though some other
companies, including Verizon Communications Inc. and Sprint Corp.,
have deployed the technique.
Wal-Mart has kept sales growing with improved stores and online
investments, in contrast with retailers that have struggled to fend
off discount and online rivals.
Wal-Mart's e-commerce plans have become more urgent in the wake
of Amazon's purchase of Whole Foods Market. The acquisition gave
the e-commerce giant a foothold in the brick-and-mortar supermarket
business, and became a larger direct threat to Wal-Mart, the
country's largest seller of groceries.
Wal-Mart Chief Executive Doug McMillon said the company plans
several ways of delivering groceries to shoppers' homes, including
using employees, contract delivery workers and third-party services
such as Deliv that have their own teams. Mr. McMillon added,
however, "I believe the vast majority of grocery shopping will
happen in stores for a long time."
The retailer has invested heavily in online grocery pickup at
its stores, when shoppers order online and pick up in a store
parking lot. Executives said Tuesday that by the end of this year
it will offer the service at 2,000 U.S. stores, roughly double the
number of stores where it is currently available.
Last year, Wal-Mart purchased online retailer Jet.com for $3.3
billion, placing founder Marc Lore at the head of its U.S.
e-commerce operations. Mr. Lore has pushed the behemoth to buy a
number of smaller e-commerce players, offer two-day shipping on
more online sales and craft a more upscale online image that will
attract premium product manufacturers.
Since the Jet acquisition U.S. online sales have accelerated.
Next year, the company says it expects to see U.S. revenue from
online purchases rising by roughly 40%.
Wal-Mart said it expects adjusted earnings per share growth of
5% in its 2019 fiscal year to outpace sales growth of about 3%,
confirming its profit goals laid out last year.
The company maintained its adjusted earnings per share guidance
in the current fiscal year of $4.30 to $4.40.
The company also announced a new $20 billion share-buyback
program, which it intends to use over the next two years.
The new buyback authorization replaces a $20 billion program
announced in October 2015.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 10, 2017 18:43 ET (22:43 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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