Fitch Rates Walmart's $5 Billion Notes Issuance 'AA'
CHICAGO -- April 5, 2013
Fitch Ratings has assigned a rating of 'AA' to Wal-Mart Stores, Inc.'s
(Walmart) $5 billion issue of 3-, 5-, 10- and 30-year senior notes. Proceeds
from the issuance will be used to repay short-term borrowings and other
general corporate purposes. The Rating Outlook is Stable. A full ratings list
is provided at the end of this release.
Key Rating Drivers:
The rating reflects Walmart's dominant market position in North America, a
strong position in the UK, and a growing presence in other markets such as
China, Brazil, Central America and South Africa. Also considered is Walmart's
steady financial profile despite ongoing debt-financed share repurchases.
These factors are balanced by a more challenging economic environment
pressuring its core customer base, and growing competition from dollar stores
and hard discounters, among others.
Walmart's success flows from its low operating costs, which allow it to be the
price leader across the store. Comparable store (comp) sales in Walmart's U.S.
segment, which excludes Sam's Clubs and accounted for 71% of consolidated
operating earnings in 2012, increased by 2.0% in 2012 following an 0.3%
increase in 2011.
This reflects, in part, Walmart's effort to reemphasize everyday low prices.
While comp sales in Walmart's U.S. business slowed over the course of 2012,
Fitch expects a continuation of modestly positive comps in 2013.
Walmart has been able to maintain a steady operating margin of at or near 6%
(5.9% in 2012), as modest gross margin pressure has been offset by expense
leverage. Going forward, Fitch expects operating margins will remain
consistent with historical levels.
Walmart's credit metrics have been fairly stable with adjusted debt/EBITDAR)
of 1.7x-2.0x and EBITDAR/interest plus rents of 7.8x-8.3x over the past five
years. Fitch expects free cash flow (FCF) after dividends will track at around
$6 billion to $7 billion annually. FCF has been used primarily for share
repurchases, but also acquisitions. Share repurchases are expected to exceed
FCF, and to be partly debt-financed, as Fitch expects the company will manage
its capital structure and cash flow allocation to target an adjusted
debt/EBITDAR at or under 2.0x, in the context of maintaining its 'AA' rating.
An upgrade is unlikely, given that the rating is currently at the high end of
the rating spectrum and fully captures the company's financial and qualitative
Future developments that may, individually or collectively, lead to negative
rating action include:
--A debt-financed acquisition or accelerated share repurchases that pushed
adjusted leverage to over 2x for an extended period;
--Persistently weak comp store sales and/or more pronounced gross margin
pressure that cannot be offset by expense leverage.
Fitch currently rates Walmart as follows:
Wal-Mart Stores, Inc.
--Long-term Issuer Default Rating (IDR) 'AA';
--Senior unsecured debt 'AA';
--Bank credit facility 'AA';
--Short-term IDR 'F1+';
--Commercial paper 'F1+'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' dated Aug. 8, 2012;
--'Short-Term Ratings Criteria for Corporate Finance' dated Aug. 8, 2012.
Applicable Criteria and Related Research
Corporate Rating Methodology
Short-Term Ratings Criteria for Non-Financial Corporates
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Philip M. Zahn, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Monica Aggarwal, CFA
David E. Peterson
Brian Bertsch, +1-212-908-0549 (New York)
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