Wal-Mart Stores Inc., the world's largest retailer, will buy back as much as $15 billion of shares and reduce the number of new stores as Chief Executive Officer H. Lee Scott responds to investor demands to boost returns.
The plan to repurchase as much as 7.4 percent of its stock sent shares to their biggest gain in 19 months. Wal-Mart also said yesterday that it will open no more than 200 supercenters this year, a reduction from the 270 it previously planned to create.
"Wal-Mart has taken a major step in attempting to improve returns on investment," Neil Currie, an analyst with UBS Securities LLC, wrote in a research note after the company's annual shareholders' meeting. He rates the shares neutral.
Scott responded to shareholder criticism after the company's stock lost 24 percent of its value since he took over in January 2000. Wal-Mart pulled out of Germany and South Korea and sales at the company's older U.S. stores rose at the slowest pace in at least 27 years in 2006.
"Outside shareholders won't give Scott an indefinite period of time," said Walter Todd, who helps manage $800 million at Greenwood Capital Associates LLC in South Carolina. "However, there's only so much outside shareholders can do if the Waltons continue to support Scott." Greenwood sold its Wal-Mart shares last year.
Scott continues to have the board's support, Chairman Rob Walton said yesterday at the meeting in Fayetteville, Ark.
"The board and the Walton family have absolute confidence in your leadership, Lee," Walton said.
Relatives of founder Sam Walton own 41 percent of the retailer, Wal-Mart said in an April 19 regulatory filing with the Securities and Exchange Commission.
Shares of Wal-Mart, based in Bentonville, Ark., rose $1.87, or 3.9 percent, to close at $49.47 on the New York Stock Exchange, the biggest gain since October 2005.
The $15 billion buyback replaces an older program under which the company could repurchase another $3.3 billion in stock.
The company's lagging share price is "most definitely" the primary concern for stockholders, said Don Gher, chief investment officer at Coldstream Capital in Bellevue, Wash., in an e-mail yesterday. He helps oversee $1.1 billion in assets including Wal-Mart shares.
"We need to make changes" in U.S. Wal-Mart stores, Scott told investors. "We just have to work our way through these difficulties."
The company has said it misstepped by adding fashionable and upscale clothing such as its Metro 7 women's line to too many of its stores.
Capital spending will decline to $15.5 billion this year from a previous projection of $17 billion, Chief Financial Officer Thomas Schoewe said.