Analyst: Wal-Mart to Roll Out New Format
Wal-Mart recently announced it would reign in its capital expenditures over the next fiscal year with most of the dollars it intends to spend going to remodels and, where new stores are concerned, supercenters.
That may all be true, but at least one analyst believes Wal-Mart may surprise retail industry watchers with the introduction of a new store format in the U.S.
Following Wal-Mart’s recent analyst meeting, Deborah Weinswig of Citigroup wrote, “We believe Wal-Mart will roll out another format in the U.S. in 2007, which could be similar to the Bodega format in Mexico based on the company’s success there with this format.”
Bodega Aurrera in Mexico are small discount stores that offer a limited assortment of goods primarily in the food and housewares categories.
While Ms. Weinswig is looking for Wal-Mart to inject some life into its business with a new format, Virginia Genereux, an analyst with Merrill Lynch, told Women’s Wear Daily, “We don’t yet see it. Smaller doors will pressure comps and cost more to build, and new stores in existing markets tend to be higher margin and higher return.”
Ms. Genereux believes Wal-Mart’s shareholders would be better served if the company was to spin off properties such as Asda and Sam’s Club.
“The best path we can think of toward increasing the value of Wal-Mart’s publicly traded equity is a breakup of the company,” Ms. Genereux said. “While a simple breakup analysis does not indicate a big valuation inefficiency here, we believe a breakup could be a path toward boosting the stand-alone Wal-Mart multiple and increase the value of all the company’s assets.”
Discussion Question: What is your reaction to the prediction of Wal-Mart rolling out a new store format in the U.S. as well as the suggestion the company
would be better off if it were broken up?