Walmart to accelerate small store growth

A Walmart sign is seen on September 28, 2012, on the opening day of the new Walmart Neighborhood Market in Panorama City, Calif. Robyn Beck/AFP/Getty Images

NEW YORK Walmart (WMT) is accelerating the expansion of small stores, particularly its Neighborhood Market stores, as it looks to compete with a variety of rivals from dollar stores to drug chains.

"This gives us the opportunity to build more stores for less money," Bill Simon, president of Walmart's U.S. division told Wall Street analysts at a meeting near its headquarters in Bentonville, Ark.

Simon said it plans to have 500 Neighborhood Market stores and 12 Express stores by fiscal 2016.

As of the end of July, Walmart had 10 Express stores and had ramped up its Neighborhood Market concept to 217 locations.

Investors cheered the news, sending Walmart's stock up $1.28 to $75.42 Wednesday.

The focus on small stores is part of Walmart's overall strategy to continue increasing sales while becoming more efficient with its capital expenditures across the globe. Its U.S. namesake business is roaring back, thanks to re-emphasizing rock-bottom low prices, and officials says they want to apply that same discipline to how it approaches its store expansion.

In its international business, which accounts for about a quarter of its business, Walmart reiterated that it will be slowing expansion growth in China and Brazil as it works hard to make those stores more productive. And while it won't miss an important opportunity to make an acquisition overseas, it's primarily focusing on existing markets.

"We have a lot of invested capital, and we need to generate returns there," said Walmart International President and CEO Doug McMillon.

Walmart expects total company sales to increase anywhere from 5 to 7 percent for fiscal 2014.

Overall, Walmart plans to add from 36 million to 39 million square feet globally this fiscal year and from 36 million to 40 million next year. It will cut capital spending by 4.2 percent next year to a range of $12 billion to $13 billion. That's down from an estimated $12.6 billion to $13.5 billion for the current fiscal year.

In the U.S., the company plans to add 125 supercenters next year, unchanged from the current year. But Walmart aims to add from 95 to 115 small format stores, up from a projected 80 for fiscal 2013.

Simon noted that Walmart's small stores, which range from 10,000 square feet to about 55,000 square feet, compete well with a broad variety of merchants.

Neighborhood Market store have generated a 5 percent increase in revenue at stores open at least a year for the first half of this year. That's more than double the growth rate of the Walmart's average store.

Express stores are less than one-tenth the size of Walmart supercenters and offer groceries, general merchandise like tools, and pharmacies. Neighborhood Markets are more than twice the size of Express stores and offer perishable food, household supplies and beauty aids as well as a pharmacy.

Walmart's shares are up more than 24 percent since early this year. That's been fueled by a sustained turnaround of its namesake business in the U.S.

Walmart last year began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, starting late last year, it's been able to turn around a more than two-year slump in revenue at stores open at least a year. The metric is considered a key indicator of a retailer's health.

Company officials told investors Wednesday that it is preparing to win this holiday season after a strong back-to-school period. The company is focusing on initiatives to help its low-income shoppers finance their holiday purchases.

Walmart officials said that launching layaway 30 days earlier than last year has helped boost the business. It already has $400 million worth of layaway merchandise, half of last year's total, and the season has barely started.

Walmart said that it has increased its investment in radio advertising by 50 percent for the holiday season compared with last year. It's also buying more products. For example, Walmart doubled the number of tablet computers it's bringing in for the winter holiday season from a year ago.

"We had a very strong (back-to-school) season," said Simon. "We think the momentum will continue into the holiday season."

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