Wal-Mart says sales growth will slow

Source: Stock Market Digital

Date :10/24/2007 5:03:10 AM

Wal-Mart Stores Inc. will cut back on spending to build new stores and tighten cost controls as sales growth slows over the next three years.

The Chief Financial Officer Tom Schoewe told the news to investors and analysts at a conference yesterday.

Spending trim

Schoewe trimmed plans for capital expenditures for the second time this year, to about $15 billion from a June forecast of $15.5 billion. The original projection was $17 billion.

Analysts welcomed the move to focus on keeping more of the cash Wal-Mart generates rather than spending furiously on new stores.

Increased free cash flow or the money left over after a company pays its expenses including capital expenditures, could make Wal-Mart shares more attractive by funding higher dividends, new technologies or acquisitions, analysts said.

"Strong free cash flow is the key to corporate flexibility and potential growth. The highest quality companies, in my opinion, are able to self-finance their future growth from their free cash flow," said Patricia Edwards, managing director and retail analyst at Wentworth, Hauser and Violich in Seattle, which manages about twelve billion in assets and holds about 35,700 Wal-Mart shares.

Increased competition

Wal-Mart, which is finding fewer places to build new stores and faces tougher competition from other retailers, said sales will continue to slow after years of strong double-digit growth.

Schoewe said sales growth will fall to nine percent this fiscal year from nearly twelve percent the year before and then be between five and eight percent the next two years. Wal-Mart's fiscal year runs through January. Wal-Mart is also faced with tougher economic challenges as its shoppers struggle with higher food and gas prices and a widening credit crunch.

As part of its strategy to turn around its home business, Wal-Mart announced on Tuesday a multi-year licensing agreement with Meredith Corp. to develop a wide range of home products based on the Better Homes and Gardens brand. The line is expected to be available exclusively at Wal-Mart stores by next fall.

October 24, 2007

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