Wal-Mart Plans Further Cost Cuts as Competition With Amazon Intensifies -- Update

By Sarah Nassauer and Austen Hufford 

Wal-Mart Stores Inc. said it would deepen its cost-cutting and introduce zero-based budgeting in some units, efforts to free up funds for new e-commerce and store improvements in an increasingly competitive retail environment.

At an investor meeting on Tuesday at the retailer's Bentonville, Ark., headquarters, executives said they planned to keep U.S. store openings to a minimum and lower the company's expenses as a percentage of sales from 21%, where it stands this fiscal year.

"We are not where we want to be from an expenses standpoint," Brett Biggs, chief financial officer, told analysts.

Wal-Mart will open fewer than 25 new U.S. stores in the 2019 fiscal year, which ends in January 2019. Instead, it will remodel existing ones and work on e-commerce infrastructure and services like expanded home grocery delivery, areas that should keep sales moving upward online and off, executives said. Next year, the company says it expects to see U.S. revenue from online purchases rising about 40%.

The number of U.S. store openings is down from the 216 it opened during the 2016 fiscal year and 111 in 2017. Meanwhile, the company said it would open 255 new stores in other countries with a focus on Mexico and China.

Wal-Mart has kept sales growing with improved stores and online investments, in contrast with retailers that have struggled to fend off discount rivals and Amazon.com Inc. But Wal-Mart's e-commerce plans have become more urgent in the wake of Amazon's purchase of Whole Foods Market. The acquisition gave Amazon a foothold in the brick-and-mortar supermarket business, a direct threat to Wal-Mart, the country's largest seller of groceries.

Wal-Mart Chief Executive Doug McMillon said the company plans several ways of delivering groceries to shoppers' homes, including using employees, contract delivery workers and third-party services such as Deliv that have their own teams. Mr. McMillon added, however, "I believe the vast majority of grocery shopping will happen in stores for a long time."

The retailer has invested heavily in online grocery pickup at its stores, when shoppers order online and pick up in a store parking lot. Executives said Tuesday that by the end of this year it will offer the service at 2,000 U.S. stores, roughly double the number of stores where it is currently available.

Last year, Wal-Mart purchased online retailer Jet.com for $3.3 billion, placing founder Marc Lore at the head of its U.S. e-commerce operations. Mr. Lore has pushed the behemoth to buy a number of smaller e-commerce players, offer two-day shipping on more online sales and craft a more upscale online image that will attract premium product manufactures.

Those expenses, as well as store improvements, will mean further cost cuts across the business, Mr. Biggs said. Wal-Mart will institute zero-based budgeting -- a technique in which each business expense must be justified every quarter -- in many parts of the business "above store level," Mr. Biggs said. For example, Wal-Mart shortened the length of its store receipts saving more than $7 million so far this year, he said. Over the past two years, Wal-Mart has already cut costs by eliminating thousands of corporate and store jobs, increasing the fees charged to its suppliers to deliver goods to stores and demanding lower prices on goods.

Zero-based budgeting is used more widely in the consumer-products and packaged-foods sectors, though some other companies, including Verizon Communications Inc. and Sprint Corp., have deployed the technique.

Wal-Mart said it expects adjusted earnings per share growth of 5% in its 2019 fiscal year to outpace sales growth of about 3%, confirming its profit goals laid out last year.

The company maintained its adjusted earnings per share guidance in the current fiscal year of $4.30 to $4.40.

Wal-Mart shares rose 4.5% to $84.15 in morning trading.

The company also announced a new $20 billion share buyback program, which it intends to use over the next two years. The new buyback authorization replaces another $20 billion one, announced in October 2015.

Write to Sarah Nassauer at [e-mail] and Austen Hufford at [e-mail]

(END) Dow Jones Newswires

October 10, 2017 12:07 ET (16:07 GMT)

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