Wal-Mart keeps conservative U.S. store growth plan

The world's biggest retailer said its international square footage growth will outpace U.S. growth this fiscal year and the next. It will open smaller stores in the United States to penetrate new markets.

Wal-Mart also made it clear it will defend its turf if rivals try to undercut its low prices.

We watch the competition, CEO Mike Duke said on the second day of its analyst meeting. We will be the price leader.

On Wednesday, Wal-Mart outlined plans to slash prices every week until Christmas to fend off rivals and keep newly won market share gains. Online competitor Amazon.com Inc on Thursday forecast what could be a blow-out holiday quarter for its business, sending its shares up 13 percent.

Wal-Mart's price strategy pressured its shares as investors worried the discounts would hurt margins. Wal-Mart's treasurer, Charles Holley, said on Thursday that the retailer is being thoughtful and strategic about price cuts to protect margins.

But in response to analysts' questions about how Wal-Mart would respond if rivals slash prices, Duke responded multiple times that the retailer intends to be the price leader.

Wal-Mart expects sales to grow 1 percent to 2 percent in the current fiscal year, below projections it provided at its analyst meeting last year that sales would rise 5 percent to 7 percent.

Chief Financial Officer Tom Schoewe attributed the shortfall to currency exchange rates and deflationary pressures. Last year, rising food and gas prices helped boost sales figures, but those prices have eased this year.

SALES GROWTH THROUGH PROJECT IMPACT, SMALLER STORES

Wal-Mart forecast 4 percent to 6 percent sales growth next year, with square footage up 4 percent in both years.

To boost sales in the United States, it is remodeling stores under its Project Impact initiative. As of November, it said it will have completed remodels at more than 30 percent of its 3,538 U.S. Walmart stores.

In those stores, it is widening aisles, reducing clutter, changing layouts and updating signs.

Eduardo Castro-Wright, who oversees Wal-Mart's U.S. operations, said urban markets represent a big opportunity. While Wal-Mart intends to enter those markets, it needs to develop smaller stores that can generate acceptable returns.

We have been testing ... several initiatives ... to try to overcome what traditionally has been the difficulty in the economic model that we have ... of very high real estate costs with high labor costs and very low prices, he said.

The retail industry is eager to see if Wal-Mart, which has specialized in running stores three times the size of a U.S. football field, can replicate that success on a small scale.

Wal-Mart also expects capital expenditures of $12.5 billion to $13.1 billion in the current fiscal year, which ends in January 2010 and $13 billion to $15 billion for the next fiscal year.

Wal-Mart shares fell 15 cents to $50.48 on the New York Stock Exchange.

(Reporting by Nicole Maestri in San Francisco and Martinne Geller in New York; Editing by Andre Grenon and Richard Chang)