Thursday, September 13, 2007

Wal-Mart's Cutback Curious

Lost in the chatter about the recent Wal-Mart (WMT) announcement that August sales results exceeded its forecast as well as those of most analysts was that they now aim to spend less than the $15.5 billion it put aside for this year's capital spending on building and expanding stores.

In June, Wal-Mart cut the capex forecast to $15.5 billion from $17 billion as it slashed by about 1/3 the number of stores it expects to add this year. Investors had pressured Wal-Mart to cut back on its relentless expansion in favor of bolstering the performance of its existing stores, buying back stock and increasing the dividend.

There is the albeit very brief backround. Why is this interesting? Recent rumors have had Wal-Mart possibly shopping for acquisitions in the US. By further cutting the current capex plans, this may be a move to retain cash for an upcoming purchase of another retailer either in the food or clothing arena. Last month I posted a few thoughts on the subject.

Also, Wal-Mart has committed to a $15 billion share repurchase program and the last quarter completed roughly $1 billion of that neither thrilling or disappointing investors. With the stock at near decade lows, the company may be cutting spending in order to purchase shares by the truckload at these prices to "thrill" the same investors at the next earnings release.

Now, what would we rather have? For me the best scenario here would be further cutting of the capex plans and a bunch more of the repurchase plans. There are few targets out there that Wal-Mart could not easily swallow should they desire, the question is will they? I am inclined to think not. If I had to bet (and being a recent shareholder I guess I am), I would wager that Wal-Mart is buying every share it can get it's hands on at these prices and to be honest, I am fine with that. After the last earnings release I lamented that Wal-Mart had the cash to buy more shares and did not, turning what could have been a great release into a bit of a disappointment.

My guess is they will not make the same mistake twice...

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