Thursday, October 25, 2007

Wal-Mart Commits To International Expantion, Not Buybacks

Some more notes from day one of Wal-Mart's (WMT) analyst meeting on Tuesday. Not exactly what I was looking for.

Wal-Mart stated it will keep capex at its current level of approximately $15 billion a year but that there would be a shift in that spending to its international division. By January 2010, over 40% of its spending on new stores will be internationally, up from less than 30% currently. Wal-Mart’s international sales currently account for almost 25% of its revenues, with about 40% of that coming from the UK’s Asda supermarkets.

The expenditures should add almost 30 million additional square feet to the international store base during its fiscal year ending in January 2010, some 50% more than the additional 20 million sq ft forecast for the current year.

Regarding the announced Japanese investment Wal-Mart addmitted, “it is going to be a while” before Wal-Mart can turn Seiyu around, but that they expected “significant progress” in the coming three to five years. Another area that was stressed was the potential of India, where Wal-Mart is expected to open its first wholesale market with Bharti next year.

They also acknowledged investors were concerned “about trading-off high returns at Wal-Mart US, for lower returns at Wal-Mart international”, but argued for the a balance between long and short term thinking. “We have to be making these investments for the long-term health of the business,”.

Sales and profits are surging internationally for Wal-Mart and the redirection of funds is long overdue. Wal-Mart is a cash cow and smart use of those funds could make shareholders very happy. Buying back shares by the truck load would have been a big step in the right direction. Pushing internationally is the right thing to do but if we are going to do it, then lets go. The "Best of Both Worlds" scenario would have been a cut to $12 billion in capex with 60% of that going overseas and the $3 billion savings going to additional share repurchases.

This is kind of a taking the band-aid off slowly approach... that does not make anyone happy..

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