Wednesday, October 24, 2007

Wal-Mart Lowers CapEx Outlook: Good, If Used for Repurchases

Wal-Mart (WMT) shares are selling off today because they announced they are reducing CapEx plans to $14.4 to$15.4 billion. Good..

Originally Wal-Mart had forecast capex of $17 billion for 2007 and then in July lowered that number to $15.5 billion when they also announced a $15 billion share repurchase plan. Chief Administrative Officer John Menzer said recently the retailer's goal was to beat that $15.5 billion figure. They will. For the first 8 months of this fiscal year, comparable sales at U.S. stores were up 1.5%, compared with a year-earlier gain of 2.6%. For its fiscal years 2009 and 2010, Wal-Mart forecast capital expenditures of $13.5 billion to $15.2 billion.

Investor apparently wanted more of a reduction but if the past is any predictor of the future, these new numbers are the upper limit of what we can expect. The good news is that they are steadily going down.

What really needs to be watched are the share repurchases. The last quarter $1 billion was bought and while a large number, it is a "base" level of what one would expect from a $178 billion company. Wal-Mart shares have not been this low in over 1/2 a decade now. One would expect them to be tripping over themselves to repurchase shares at these depressed prices like Sears Holdings (SHLD) Eddie Lampert is. I am looking for at least $1.5 to $2 billion in the current quarter, anything less is unacceptable. If current management is serious about shareholders, the almost $3 billion reduction in capex spending ought to go directly to repurchasing stock.

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