Wal-Mart (WMT-NYSE) finally remembered that they are a public company today because they have held their annual shareholder meeting.  This proves that the company is truly owned by the investors for at least one-day of any year.  If you thought you would only hear negative comments from us on the company, that is not true.  Today’s news in the company isn’t quite as good as the company could have done.  But the reality is that it only has to do ‘less bad’ to end up being good.

Despite all of my slamming Lee Scott and calls for him to go and despite criticisms of how the company has been under-performing, I actually said on CNBC in an interview that Wal-Mart may actually begin to recapture some of its lost mojo that Target (TGT-NYSE) and that the company will likely be a better long-term investment than Target.  Does Lee Scott absolutely and positively have to go?  The simple answer is NO.  But he’s got serious issues ahead of him and frankly there are probably very few men or women who would want to step into his shoes.  The good news is that so far everything being telegraphed looks  ‘less bad’ today and this will ultimately be good  for shareholders.

There is a ton of data out of the company and you can literally spend your whole day on this if you choose.

Here are the guts of the actual plan.

The company is taking its $3.3 Billion share buyback plan up to a new amount of $15 Billion.  The company has already boosted its dividend, although that was snubbed initially earlier this year.  They are slowing down their supercenter growth, albeit not by enough of a slowdown by my account; but it is still a start.  As I have noted before: the company doesn’t actually have to get it exactly right to reward shareholders, they just have to get it ‘less wrong.’  The result will be between 190 and 200 new U.S. supercenters during this fiscal year and approximately 170 supercenters each year for the next three fiscal years.  The company has also said it will review its growth strategy annually, although that is a promise that doesn’t mean much.

For fiscal year 2008, the 190 to 200 range includes approximately 70 relocations and 40 expansions of discount stores into supercenters. In October 2006, the Company had announced that its fiscal year 2008 growth plans included between 265 and 270 supercenters in the United States. Approximately 80 of the supercenters originally scheduled to open in January 2008 now will open in early fiscal year 2009.  I have been under the belief that the growth and expansion plans needed to be cut in half or even by two-thirds for it to focus on its core operations and fix what it already has, but as already noted this is still good because it is ‘less wrong.  It also notes that its consolidated square footage growth rate will be approximately 6% for fiscal years 2008 and 2009; Wal-Mart U.S. square footage growth rate is expected to range from 4% to 5% during these same fiscal years. This figure is key and one that analysts will probably applaud.

It is also in the second year of a three-year plan under Eduardo Castro-Wright to improve customer relevancy in operations and merchandise.  That plan should perhaps be scrubbed and rekindled with a newer plan, but once again, it is still ‘less bad.’ 

Capital expenditure (Cap-ex) cuts have finally come into play.  Wal-Mart is recognizing that they are no longer a growth company inside the U.S. and this is a start. This Cap-ex cut is now going from a planned $17 Billion down to $15.5 Billion, and the extra $1.5 Billion will go to fund the buyback.  The company could cut this by much more and they should consider it, although once again it is ‘less bad’ and that is good for shareholders.  The new strategy does not affect the capital investment plans for the Company’s Sam’s Club or International operations.  This is actually good (not even ‘less bad’) because the company has major opportunities there outside of the U.S.  I previously noted that their recent purchase in China was a home run and looked like a great purchase.

continued….

The nomination of Allen Questron, former chairman and CEO of J.C.Penney (JCP-NYSE), is a great addition.  Some may think he could be areplacement for Lee Scott, but at age 67 that might not be the realcase.  He turned around that company quite well and he should be ableto help the company fix its lost apparel merchandise mojo, and that isreally all that should be expected.  He’s also on the board ofSotheby’s (BID-NYSE), Jones Apparel (JNY-NYSE), Burt’s Bees, and LeeEquity Partners; he’s also been the head of Neiman Marcus and Federated(now Macy’s-M).  But that is another good event for shareholders.  Thiswas still an outstanding issue at an earlier look but this is expectedto occur.

Chairman Rob Walton, son of founder Sam Walton, has essentially given a’vote of confidence’ for Lee Scott.  That means that he isn’t goinganywhere soon but this is actually an acknowledgement that there is aproblem.  In baseball the team owners or the GM usually give a formalvote of confidence for an underperforming manager, and then they firethem in a month after a replacement has been found.  The real truth isthat Lee Scott may not be going anywhere immediately.  But thisindication is still ‘less bad’ than just a few months ago andultimately good for shareholders.

Wakeupwalmart.org is still going out against the company, and as I havenoted there are many activist groups that will actually never stopattacking the company regardless of what it does.  As the largestretailer in America the company will always be a target.  I do notagree with that mentality, but that is life.

We previously ran what we called a 10 STEP REFORM PROGRAM for Wal-Mart with many of these suggections.  The company is trying to deliver on at least some of this.  Maybe the company will begin to fix its shopper image problem as well.

So, after a long dissertation you can see that ‘less bad’ is acceptable and ultimately a good for shareholders.  As long as thecompany keeps doing this then the company may be able to get itshsareholder mojo back.  Shares are up 3% now at $49.00 after thecompany issues their press release (at the 11:11 ‘make a wish’ time).There are many analysts that have neutral and cautious ratings on thestock, but it is probable that based on today’s reactions that you willsee some upgrades from some Wall Street analysts next week.

Jon C. Ogg
June 1, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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