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Small Cuts Sting Wal-Mart

Investors were hoping for a bigger scaleback in capital expenditures.

Updated from 4:26 p.m. EDT



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, under pressure from Wall Street to curb its expansion, said it will continue to rein in spending for new stores.

At its annual meeting with analysts and investors on Tuesday, the world's largest retailer said its capital expenditures for this year will total about $15 billion, less than its $15.5 billion forecast in June.

The June forecast was already lowered from Wal-Mart's original target of $17 billion. But ahead of Wal-Mart's investor day Tuesday, many shareholders expected a further scaleback of spending to help the retailer instead focus on boosting its share price and improving sales.

The latest cutbacks didn't appease investors. Shares of Wal-Mart dropped $1.32, or 2.9%, to $43.93 Tuesday.

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Wal-Mart said it will cut its annual square footage growth this year to about 6%, down from a previous rate of about 8%.

For fiscal 2009 and 2010, the company expects square footage growth of 5% to 6%. Capital expenditures for those years will range between $13.5 billion to $15.2 billion, with Wal-Mart emphasizing relocating and converting current stores into so-called supercenters.

Supercenters combine full-scale supermarkets with the regular discount stores. Eduardo Castro-Wright, president of Wal-Mart U.S. stores, noted that the supercenters have a higher rate of return than any other format.

He added, however, that the company plans to moderate supercenter growth, reducing the number of openings to 195 this year from 281 last year, marking a 30% decline. The stores will also be smaller, and built in condensed areas with established markets.

At the same time, Wal-Mart plans to accelerate its international growth, which will outpace growth in the U.S.

Christine Augustine, an analyst for Bear Stearns, believes the cutbacks could improve shareholder value.

"By slowing square footage growth further, Wal-Mart could save $2 to $3 billion in new store costs, which could be reinvested in additional share repurchase and/or store remodels, for example," Augustine wrote in her most recent research note on the company.

She noted that by mid-year, Wal-Mart had seen moderating construction costs and had also been working on reducing new store prototype costs. She added that Wal-Mart would be wise to focus on improving productivity at its existing store base by re-investing in store remodels.