Wal-Mart slashes planned increases in investment in attempt to boost profits

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The Independent Online

Wal-Mart, the world's biggest retailer, is compensating for slowing sales growth by slashing its budget for new stores and distribution centres.

The group, which owns Asda, said yesterday it had "considerably" cut its capital expenditure plans for its next financial year to bring them down in line with its expected sales growth.

Its like-for-like sales growth is faltering as its new stores cannibalise sales from its existing stores. So far this month, its comparable store sales have increased by just 1 per cent, which is below its forecast for growth of between 2 and 4 per cent.

John Menzer, the group's vice-chairman, said it is opening fewer stores around the world after subjecting its "real estate projects to a more rigorous prioritisation process". It will still open up to 660 new stores in the year to January 2008, half in the US and half overseas, but this is about 24 fewer superstores for which it had originally budgeted.

The company said it planned to increase its capital spending by 2 to 4 per cent in the 12 months to January 2008, compared with the 15 to 20 per cent increase it has forecast for its current financial year. It will add around 60 million sq ft of new selling space, two-thirds of which will be in the US.

Tom Schoewe, the chief finance officer for Wal-Mart Stores, said the group's capital expenditure growth had been higher than its square footage and sales growth for the past three years, partly because of escalating construction costs.

"Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than our sales growth.

"Additionally, over time, we expect our new capital efficiency model to reduce the impact of cannibalisation," he added.

Analysts have urged the company to slow down its US expansion as its returns have slowed, which has hit its stock. Yesterday its shares bounced on the news of its lower capital expenditure plans, but later slipped on concern at its slow sales growth in October, which followed a weak September.