Wal-Mart and It's Stock Soar to New Heights in 1997

Dillard's Acquires 20 Stores, National Home Centers Closes Four

In retailing, this year may be remembered best for the booming return of Wal-Mart Stores Inc.'s stock price.

Wal-Mart stock opened 1997 at $22.75 a share and rocketed to a high of $41.94 a share in December. It closed at $39.47 on Dec. 18, up 73.5 percent for the year.

The reason for the surge is Wal-Mart's dominance of its mass merchandising competitors and the entire retail sector. Month in, month out, quarter after quarter, Wal-Mart continues to report sales increases of 10-15 percent. Even same-store sales increases are 6-8 percent each quarter. No one even a fourth of Wal-Mart's size comes close to matching those numbers.

Just a week before Christmas, Wal-Mart reported that its holiday season may not be as good as it expected. Same-store sales probably would be up only 5-7 percent for the month, one company spokesman said. Almost any other retailer in the country would be ecstatic with such projections.

Another move that helped boost Wal-Mart's stock was its stock repurchase program. In March, Wal-Mart announced it would buy $2 billion of its stock in the next year, about 4 percent of the outstanding shares at the time of the announcement.

"There are so many places that the company can put its money, but when it reaches into its pocket and puts $2 billion into its own stock, it's a clear indication that we expect to grow," says Dale Ingram, a Wal-Mart spokesman.

German Invasion

Wal-Mart's growth extended into Europe for the first time when it announced in mid-December that it would acquire German retailer Wertkauf GmbH. The chain of 21 hypermart outlets is the eighth largest in Germany. Wertkauf has annual sales of $1.4 billion.

Wertkauf's stores are similar to Supercenters, Wal-Mart's combination of grocery stores and general merchandise stores.

Wal-Mart made a similar purchase in Canada in 1994 when it acquired 120 Woolworth Corp. stores. There are now 144 Wal-Marts in Canada and, from all indications, the stores are successful.

But the German acquisition will be more difficult than the transition in Canada. For five straight years, retail sales have declined in Germany. Margins in food sales are less than 1 cent on the dollar in Germany, even worse than in the U.S. And Wertkauf has less than 1 percent of the food market in Germany, which exceeds $150 billion a year.

"Wertkauf fulfilled the criteria that we found necessary for a successful introduction of the Wal-Mart concept in the German market," says Bob Martin, president and chief executive officer of Wal-Mart's international division.

Wertkauf's stores are run by 4,900 unionized employees.

The timing of the acquisition may be perfect, though, if Wal-Mart can transfer its technology and retailing expertise into Europe. The day Wal-Mart announced the acquisition, Germany's largest retail group, Metro AG, reported that its 1997 profits would drop 25 percent because of weak Christmas sales.

Wal-Mart hopes it can use the acquisition as a base camp from which to begin spreading throughout Europe.

In 1997, Wal-Mart also acquired controlling interest in Cifra, the Mexican retailer with which it has been in partnership for several years.

Wal-Mart has recorded its first profits internationally this year, with earnings of $85 million through three quarters compared with a loss of $41 million through three quarters last year.

Through three quarters, Wal-Mart had total sales of $83.5 billion and earnings of $2.2 billion. If it continues that pace, Wal-Mart will have sales of $118 billion this year and net income of $3.5 billion. That could make Wal-Mart the third-largest corporation in the country, behind General Motors Corp. and Ford Motor Co.

Wal-Mart has 1,904 Wal-Marts, 436 Supercenters and 444 Sam's Clubs in the U.S. It also has 396 stores in Mexico, 144 in Canada, 12 in Puerto Rico, eight in Argentina, eight in Brazil, three in China and two in Indonesia.

It plans to open 120-125 Supercenters this year, as well as two food distribution centers. In addition, 50 Wal-Mart discount stores and 10 Sam's Club stores will open.

Besides the new stores in Germany, Wal-Mart also expects to add 50-60 retail stores internationally in 1998.

Dillard's Growth

Dillard's Inc., which changed its name from Dillard Department Stores Inc. in May, has progressed much slower than Wal-Mart this year but should post its best year in sales and net income.

Sales were up 6 percent to $4.7 billion and net income was up almost 17 percent to $147 million through nine months this year. At that pace, Dillard's will have sales of $6.8 billion and earnings of $195 million this year.

Dillard's completed the acquisition of seven former Proffitt's stores in Virginia, 10 former Mervyn's stores in Florida and three former Macy's stores in Houston.

One analyst said the purchase of the Proffitt's stores is "a good strategic move for Dillard's."

"Dillard's is very good at buying the right locations, renovating them and developing a stronger business," says Thomas Tashjian of Montgomery Securities in San Francisco.

One pesky problem Dillard's faces is a lawsuit by a small Tampa, Fla., swimwear vendor, who accused Dillard's of failing to make good on almost $70,000 in unpaid bills.

Steve Williams, owner of The SunSport Co., also asked Dillard's to disclose details about its margin-assistance arrangements since 1993, when SunSport started doing business with Dillard's.

If that is required by the judge in the case, Dillard's would have to supply more than 40 reports about its billing agreements with swimwear vendors. Although most retailers have such arrangements with many of their vendors, almost nothing is widely known about the details of such deals.

If you were a betting person, it would be a good wager that Dillard's will never let that kind of information out. Dillard's could probably solve the predicament by agreeing to settle the case out of court with Williams. As sincere as Williams seems about his complaints, he couldn't afford to pass up a settlement that would cover his expenses and the allegedly unpaid bills.

Damage at National

Unfortunately, rising stock prices and new store acquisitions won't be National Home Centers Inc.'s recollection about 1997. In fact, 1997 could be the beginning of the end for the 27-year-old company.

National Home Centers closed its Conway retail store in October and announced in December that it would close its Fayetteville superstore and its smaller Little Rock location early next year. In November, it consolidated its Rogers contractor store with one in Bentonville.

It's now down to eight stores from a high of 12 earlier in the year. It has lost more than $8 million in the past three years. Sales most likely will be down 16 percent to about $150 million this year. And Dwain Newman, National Home's founder and chairman, says he expects 1998 sales to be off another 16 percent to $125 million.

The culprits for National Home Centers have been home improvement chains that have moved into Arkansas and divided the market. The Home Depot and Home Quarters, with two stores each in the Little Rock area, and Lowe's Cos., with seven stores throughout the state, have eaten away at National Home Centers' business.

Newman says he's vague about when the company can return to profitably. National Home's stock has fallen from $2 a share to a low of 94 cents a share on Dec. 8, the day the company announced it would close the Fayetteville and Little Rock stores.

LaFrance Expansion

Other major retailing stories in 1997 include:

• Stephen LaFrance Pharmacy Inc. of Pine Bluff, which owns 15 USA Drug stores and franchises 23 more, purchased Memphis-based Super D Drugs Inc., a chain of 87 stores in seven states.

The purchase would make Stephen LaFrance the 10th-largest private company in Arkansas. Its revenue was estimated at $180 million last year, and Super D Drugs had estimated sales of $185 million.

Neither company disclosed the purchase price, but it was estimated to be in the $90 million-$100 million range.

• United Auto Group Inc., the parent company of Landers Auto Sales Inc. in Benton, acquired Little Rock's Central Ford, the second-largest Ford dealership in Pulaski County.

• Several large retailers opened new stores in the state. Wal-Mart opened Supercenters in Fayetteville, Jonesboro and Cabot. Wal-Mart will open a 128,000-SF Sam's Club in west Little Rock next to an existing Wal-Mart store. Target will open a 122,000-SF store in west Little Rock in March. The Sports Authority Inc. opened a 45,000-SF location in west Little Rock.

• W. Barger Tygart was promoted from president to vice chairman of Dallas-based J.C. Penney Co. The 61-year-old Tygart is a Danville native who began his retailing career at a Penney's store in downtown Little Rock.