Wal-Mart (WMT) Will Begin To Close Stores

August 15, 2007 by Douglas A. McIntyre

Wal-Mart’s (WMT) quarterly numbers were awful and they sent the company’s shares to a new 52-week low of $43.52. The 52-week high is $52.15. The weakest part of the retail chain is still its core Wal-Mart brand. Sales in most areas overseas and at the company’s Sam’s Club operation are at least up modestly.

A look at the Wal-Mat 10-Q shows that the company has about 3,500 Wal-Mart stores in the US, and that number is growing very modestly. While the firm continues to add "supercenters", it has already begun to cut the number of smaller "discount stores" in its home market. Total US locations are over 4,100 when the Sam’s Club outlets are included.

For the three month period ending July 31, revenue at Wal-Mart stores rose only 6.5% compared to the company’s overall growth rate of 8.8%. Operating income for the Wal-Mart store segment rose only 3.8%.

The numbers leave CEO Lee Scott and his lieutenants in a bad position.

The answer may be humiliating but simple. Close Wal-Mart stores in the US. There are clearly too many to sustain same-store sales growth.

No outside analyst has enough information to determine how many stores could be shut in a attempt to revive the increase of revenue-per-store, but it would certainly have to be several hundred. If done correctly, overall US revenue might drop very little.

Look for WMT to begin cutting its number of outlets sometime this fall as back-to-school sales drive home the point that 4,100 stores are too many.

Douglas A. McIntyre