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BENTONVILLE, Ark. -- Wal-Mart Stores here last week slightly reduced its projections for new Neighborhood Market stores this year because it is devoting more resources to its supercenters.The company said it would open 15 to 20 of the traditional food-and-drug combo stores this year, down from previous projections of 20 to 25 outlets, but it will open 210 supercenters, the high end of its previous

Donna Boss

May 19, 2003

2 Min Read
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Mark Hamstra

BENTONVILLE, Ark. -- Wal-Mart Stores here last week slightly reduced its projections for new Neighborhood Market stores this year because it is devoting more resources to its supercenters.

The company said it would open 15 to 20 of the traditional food-and-drug combo stores this year, down from previous projections of 20 to 25 outlets, but it will open 210 supercenters, the high end of its previous development range for that format. It currently has 51 Neighborhood Markets and 1,309 Supercenters in the United States.

Wal-Mart made the revised projections during a pre-recorded conference call discussing its results for the first quarter ended April 30.

Mark Miller, analyst, William Blair & Co., Chicago, said the slowdown in development of the Neighborhood Markets does not indicate that the stores are not successful -- in fact, he said the stores are meeting Wal-Mart's profit goals.

"Neighborhood Markets should be thought of as a five- to 10-year or a 10-year-plus rollout," he said.

He said supercenters continue to give Wal-Mart a higher return on investment than Neighborhood Markets, noting that there's also "less complexity" in adding one supercenter than there is in adding four Neighborhood Markets, which would generate an approximate level of sales (about $80 million).

A Wal-Mart spokesman declined to disclose what regions of the country might see fewer Neighborhood Market stores this year.

Sales in the first quarter were "disappointing," the company said in the conference call.

Comparable-store food sales in the company's Wal-Mart division, which includes supercenters and Neighborhood Markets, were up "in the mid-single digits" in the first quarter, said Tom Coughlin, vice chairman, Wal-Mart. Food sales at supercenters grew by more than 22% for the quarter.

Overall, comparable-store sales in the United States were up 2.2% in the first quarter, including 2.1% at Wal-Mart and 2.2% at the company's Sam's Club division.

The company posted net income of $1.86 billion, a 14.1% increase over year-ago results, while sales increased 9.7%, to $56.72 billion. The company took an after-tax charge of $101 million related to adopting a new rule for accounting for vendor allowances and subtracted $43 million to reflect its new policy of expensing stock options.

The results for both this year and last year did not include Wal-Mart's McLane distribution subsidiary, which it has agreed to sell to Berkshire Hathaway, Omaha, Neb., and which it now considers to be a discontinued operation.

Wal-Mart said it expected similar sales trends for the rest of the year, although it will have easier comparisons in the second half.

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