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Walmart Is Expanding Its Retail Footprint With Flat Capex

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Mar. 2 2015, Updated 3:05 p.m. ET

Capital spending plans

Walmart (WMT) incurred $13.1 billion as capital expenditure, or capex, in fiscal year 2014. It’s important to note that ~57% of the capex was incurred by Walmart’s US and Sam’s Club segments. At the same time, 34% was spent overseas by the International segment. However, ~67% of the total net new retail space was added in the US—compared to ~33% internationally.

Walmart estimates $11.5–$12 billion in capex in fiscal year 2015. It estimates $10.4–$11.4 billion in capex spending in fiscal year 2016. Net square footage will likely be flat in fiscal year 2015—primarily due to store closures in its international segment.

Walmart exited its joint venture in India. Also, it announced store closures in certain locations in China—refer to Parts 14 and 15 in this series. An increase of ~2%–3%, or 26–30 million square feet, is projected in fiscal year 2016.

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Declining capex

In the US, Walmart reduced its capex at a compound annual growth rate, or CAGR, of 8% from fiscal year 2007 to fiscal year 2014.

In contrast, Dollar General (DG), Kroger (KR), and Costco (COST) increased their spending at a CAGR of 10.9%, 4.8%, and 5.3%, respectively, over the period. Walmart, Kroger, and Costco together account for ~12.9% of the portfolio holdings of the SPDR Consumer Staples Select Sector ETF (XLP).

Flat capital

Walmart is implementing a decreasing to “flat capital” strategy going forward. The company is trying to lower new store capex per square foot of retail space by deploying efficiencies of scale for procurements. It’s also increasing the speed to market for new stores—refer to Parts 5–7 in this series.

Its capex, as a percentage of sales, has been declining. It declined from ~4.5% in fiscal year 2007 to ~2.8% in fiscal year 2014. It’s projected to come in at 2.6% of sales in fiscal year 2015. It’s expected to be 2.3%–2.6% in fiscal year 2016. As a result, capex spending won’t increase lockstep with revenue going forward.

In the next part of this series, we’ll explain how Walmart is planning to implement this.

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