Wal-Mart Stumbles on Weak Sales: Are Neighborhood Markets the Fix?

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Source: http://www.flickr.com/photos/fruitnet/

Source: http://www.flickr.com/photos/fruitnet/

When you’re the world’s largest retailer and the second-largest public corporation on the planet, Wall Street sets high expectations. Unfortunately (or fortunately, depending on which side of the fence you’re standing on), Wal-Mart Stores Inc. (NYSE:WMT) fell a little short on Thursday morning. The retailer reported net sales of $128.8 billion in the fourth quarter, up 1.4 percent on the year but falling short of analyst expectations for a 1.8 percent increase to $130.23 billion. Earnings fell 19.8 percent on the year to $1.34 per share, below the mean analyst of $1.59 per share.

The miss was a drag for investors, but Wal-Mart padded its earnings with some good news. First, the company’s board of directors approved an increase in the annual dividend to $1.92 per share from $1.88 per share, marking the 41st consecutive annual increase. Second — and much more importantly — Wal-Mart announced that it is dramatically accelerating its rollout of small-store, or “neighborhood,” shopping centers in the United States. Wal-Mart is targeting between 270 and 300 new small-store store openings during the coming fiscal year, as well as 115 new supercenters. These new additions will build on Wal-Mart’s existing fleet of 4,177 locations in the United States.

“Neighborhood Market is performing comparable or favorable to leading grocers,” said Walmart U.S. President and CEO Bill Simon. “Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail. This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash.”

The expansion will come at a price, as most do. Wal-Mart revised its U.S. segment capital expenditures forecast to a range between $6.4 billion and $6.9 billion from a range between $5.8 billion and $6.3 billion, an increase primarily due to the accelerated small-store rollout.

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