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BREAKFAST WITH THE FOOL

Monday, September 20, 1999

"Eagles don't flock -- you have to find them one at a time."
-- Ross Perot

Wal-Mart Wants to Fix Your Computer

By Richard McCaffery (TMF Gibson)

Retail powerhouse Wal-Mart (NYSE: WMT) is again looking to add to its rich mix of offerings, this time testing the computer services business by opening 10 Computer Doctor Franchise centers inside stores, The Wall Street Journal reported.

The centers will offer customers an array of fix-it services as well as used computers, laptops, and accessories. The move could blossom into a direct assault on electronics retailers Radioshack, owned by Tandy (NYSE: TAN), and CompUSA (NYSE: CPU), which offer computer repair and services work. CompUSA is the leading computer retailer in the United States with more than 200 stores in 40 states. There are over 7,000 Radioshack outlets in malls and shopping centers across the U.S.

Retail investors can't ignore a new play by Wal-Mart. The world's largest retailer (sales for fiscal 1999 totaled $138 billion) operates more than 3,600 stores in the United States, Canada, Mexico, parts of Europe, the Far East, and South America. Founded in 1962 by the folksy Sam Walton, Wal-Mart has also been one of great stocks of the last 25 years.

The company has preserved growth and rewarded shareholders by constantly expanding its discount-store business model with concepts such as pharmacies, basic automotive services, groceries, and now -- if the test goes well -- computer services.

Wal-Mart already sells computers and accessories in about half of its stores, but it doesn't offer repair, installation, or other services for the computer novice. Computer Doctor Franchise Systems is a privately held company in Aberdeen, South Dakota with 38 stores and about $10 million in annual sales, the Journal reported. The first test center opened last week in a suburb of Des Moines, Iowa, and the others will be rolled out next year.

Retail computer sales and services is a notoriously tough business because of abundant competition, tiny margins, and rapidly changing technology that turns today's gadget into yesterday's paperweight.

Leave it to Wal-Mart, however, to make a go of it. With its vast distribution network, inventory controls, and pricing power, the company should be able to surmount barriers to entry that would sink a start-up. In addition, Wal-Mart has a loyal customer base (serving more than 100 million weekly), many of whom are eager to see the company stretch its retail wings. And why not? It's one less trip they have to make.

News to Go

Auto and light truck parts dealer AutoZone (NYSE: AZO) announced a plan to repurchase up to $200 million in common stock, boosting earlier authorization to buy up to $400 million worth of shares. So far, $370 million in stock has been repurchased. Since March, shares of AutoZone have fallen 45% to $20.50.

All-purpose computer company Sun Microsystems' (Nasdaq: SUNW) board of directors has approved a two-for-one stock split in the form of a stock dividend effective November 11. If shareholders approve the split the number of outstanding shares would jump to 3.6 billion. Adjusted for an earlier stock split in the spring, Sun stock has more than quadrupled in the last year.

Children's apparel designer Happy Kid (Nasdaq: HKID) has entered into an agreement to be acquired by an affiliate of H.I.G. Capital that will pay public stockholders $12 per share, a 13% premium over the closing price Friday. Happy Kids' president, vice president, and vice chairman will be paid $7.16 a share for 66% of their controlling stake in the company. The move will allow Happy Kids to grow as a private company.

Local and long distance phone company MCI WorldCom (Nasdaq: WCOM) will continue to expand into new countries to offer Internet and phone services, Barron's reported yesterday. The company expects to buy or build a wireless telephone company in three years.

Trucking company J.B. Hunt Transport (Nasdaq: JNHT) expects to miss Q3 estimates because of high fuel and maintenance costs. The company announced a plan to separate its van truckload business into two units in an effort to boost profitability through efficiency.

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