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TOP HOME RETAILERS TO BOOST 2005 CAPITAL SPENDING.

Byline: Michael Rudnick

NEW YORK-Let the home retail spending sprees begin.

As annual reports have trickled in over the past few months, the majority of the top home goods retailers said they expect to apportion more capital expenditures this year than in 2004.

An increase in capital expenditures -- funds used to acquire or upgrade physical assets, including property, industrial buildings, technology and equipment -- in some instances reflects a company's plans to expand business and its expectations of revenue growth.

Three of the top five home furnishings retailers named in HFN's Top 150 Home Retailers report expect to increase their capital spending budgets this year. (Sears did not provide 2005 expenditure projections.) All the projected increases are in the double digits, with Wal-Mart topping the list at 55 percent.

Wal-Mart's 2004 capital expenditures were estimated at roughly $9 billion, which it hopes to grow to $14 billion this year, Jay Fitzsimmons, the retailer's treasurer and senior vice president of finance, said late last month at the Merrill Lynch Retailing Leaders and Household Products & Cosmetics Conference. Wal-Mart's priority is to build stores, and its capital spending will exceed the $14 billion if the company has "the people to do it," he said.

Of the $14 billion, 27 percent is expected to be allocated to Wal-Mart International, 47 percent to Wal-Mart Stores and 7 percent to Sam's Club. The world's largest retailer's capital expenditures for 2004 accounted for 3.2 percent of its $285.2 billion in total revenues.

Best Buy, the number-two retailer in terms of home-goods revenue, is not far behind in its plans to increase capital spending. The big-box consumer-electronics retailer, which was at the bottom of the totem pole last year with capital expenditures of roughly 1.8 percent of sales, or about $500 million, plans to step up spending to between $650 million and $700 million this year. This will cover the opening of 70 to 75 stores, the completion of 15 or 16 remodels and relocations, and the investment of nearly $200 million in information systems, Brian Dunn, Best Buy's president of retail-North America, said during the company's conference call following the release of its fourth-quarter earnings.

Best Buy's capital expenditures came in about $150 million below plan last year because the company chose to delay remodels so that they would be timed with the introduction of customer-centric stores, Dunn said.

Target, which led in 2004 in terms of capital expenditures as a percentage of total sales at 6.6 percent, or $3.1 billion, has slightly more modest 2005 goals than its mass-merchant competitor Wal-Mart. Target plans a 10 percent boost to $3.4 billion for 2005. Target's expenditures will increase in line with revenues, Doug Scovanner, executive vice president and chief financial officer, said during the company's conference call after the release of its fourth-quarter results.

Home Depot, which secured the number-two spot in 2004, with capital expenditures at 5.3 percent of sales, or about $3.9 billion, is the only one of the top five home retailers to predict a spending decrease -- with $3.7 billion planned for this year.

"Now, we had a disciplined and balanced approach to capital allocation," Carol B. Tome, Home Depot's executive vice president and chief financial officer, said at the Merrill Lynch retail conference. She said that 64 percent of capital expenditures will be allocated to new stores. The remainder will be allocated for "store modernization, technology, maintenance and other strategic initiatives."

HEY BIG SPENDERS:

TOP 5 HOME RETAILERS' ESTIMATED CAPITAL EXPENDITURES*

Company: 2004 Capital Expenditures; 2004 2004 Net Revenues; Expenditures as % of Sales; 2005 Projected Capital Expenditures; 2005/2004 Projected Increase

1. Target: $3.1 billion; $46.8 billion; 6.60%; $3.4 billion; 10%

2. Home Depot: $3.9 billion; $73.1 billion; 5.30%; $3.7 billion; -5%

3. Wal-Mart**: $9 billion; $285.2 billion; 3.20%; $14 billion; 55%

4. Sears: $882 million; $35.6 billion; 2.50%; N/A; N/A

5. Best Buy: $500 million; $27.4 billion; 1.80%; $650 million-$700 million; 40%

*Approximate values shown **Wal-Mart did not provide capital expenditure figures. The figure was determined by the dollar increase in property, plant and equipment net from 2003 to 2004.

Ranked by capital expenditure as percentage of sales

Source: Company reports and HFN research

Caption(s): Home Depot is taking a more "disciplined and balanced approach" to capital expenditures in 2005.
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Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Apr 11, 2005
Words:733
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