Walmart slows physical expansion in U.S.

A much anticipated acceleration of small format Walmart stores failed to materialize on Wednesday when the retailer announced plans to curtail domestic new store growth in 2016.



Walmart said it would open between 200 and 220 Neighborhood Market stores and 60 to 70 supercenters next year. Both figures are below the company’s projections for current year openings. Walmart said it will end its current fiscal year with 240 new Neighborhood Market stores, below the range of 270 to 300 opening that had been forecast earlier in the year. The number of supercenters that will open this year is expected to be 120 units, slightly higher than the projection shared at the beginning of the year.

As a result, Walmart said its capital expenditures in the U.S. would range between $6.1 billion and $6.6 billion compared to $6.6 to $6.9 billion during the current year. Total capital expenditures, including international operations, Sam’s Club and e-commerce, in 2015 are expected to range from $11.6 billion to $12.9 billion, below the $12.5 billion to $13 billion the company expects to spend this year which is below the $13.1 billion spent in 2013.

“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,” said 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.”



The reduced pace of supercenter expansion isn’t surprising as Walmart current operates 3,375 of the large stores, but Neighborhood Market is a different story. Walmart currently operates 428 Neighborhood Market stores and in prior meetings with analysts and during quarterly earnings calls the company has raved about the strong mid-single digit same store sales performance of the small format food and drug stores. In recent weeks, the company also implemented a new organizational structure which appeared to foretell of greater things to come for a concept said to be gaining share.





Offsetting the reduce pace of physical expansion, Walmart said it was increasing investment in e-commerce to a range of $1.2 billion to $1.5 billion, ahead of current year spending of roughly $1 billion and well ahead of the $400 million spent in 2013. Those investments will enable the company to build one million square foot online fulfillment centers in Georgia and Pennsylvania and new facilities in Brazil and China.



The increased e-commerce spending comes as Walmart failed to realize current year online sales targets. The company said current year e-commerce sales will total roughly $12.5 billion, roughly $500 million less than guidance for e-commerce sales of $13 billion shared last year at this time.



Overall, Walmart presented a fairly bleak outlook at its 21st annual fall investor conference which explained why the company’s shares tumbled $2.78 on Wednesday. In addition to the reduced physical expansion and less than expected online sales, the company said it is operating in a tougher sales environment than it anticipated a year ago. Consequently, sales for the current fiscal year are expected to increase between 2% to 3% on top of last year’s sales of $473.1 billion.



The rate of sales growth in 2015 has the potential to improve slightly, based on guidance the company provided at its meeting. Sales are forecast to increase between 2% and 4% next year resulting in the addition of between $10 billion and $20 billion in sales volume. However, at that rate of growth profits will come under pressure as Walmart said its operating expenses are expected to grow at a somewhat faster rate which in turn will cause operating income to be flat to slightly down in 2015.



Despite a number of worrisome disclosures at the meeting, Wal-Mart Stores, Inc., president and CEO Doug McMillon sought to reassure members of the financial community that the company’s prospects are bright.



“This is an exciting time for Walmart, as there are so many new ways to serve customers. Exceeding customer expectations has always been our goal, and we have short-and long-term opportunities to do that even better,” McMillon said. “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. We’ll give customers the choices they want and need in ways that only Walmart can.”