April 5, 2013 / 5:21 PM / in 5 years

Fitch Rates Walmart's $5 Billion Notes Issuance 'AA'

(The following statement was released by the rating agency) CHICAGO, April 05 (Fitch) 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. Rating Sensitivities: 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 strengths. 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. Contact: Primary Analyst Philip M. Zahn, CFA Senior Director +1-312-606-2336 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Monica Aggarwal, CFA Senior Director +1-212-908-0282 Committee Chairperson David E. Peterson Senior Director +1-312-368-3177 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. 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 here Short-Term Ratings Criteria for Non-Financial Corporates here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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