KEY RATING DRIVERS
The rating reflects Walmart's dominant market position in
These factors are balanced by a challenging economic environment pressuring the company's core customers, growing competition from dollar stores and hard discounters, and currently weak results in the key growth markets of
Walmart's success flows from its broad grocery and general merchandise selection at sharp prices, made possible by its low operating costs and significant buying power. Despite these strengths, Walmart's sales grew only 1.5% in 2013, down from 5% growth in 2012. Comparable store (comp) sales in Walmart's U.S. segment (which excludes
This reversal reflects several factors, including the difficult environment facing low income consumers, competition from hard discounters and dollar stores, and low food inflation impacting the grocery business which accounts for 56% of sales at both
The company is focused on improving top line growth by enhancing merchandise assortments, sharpening prices by reinvesting expense savings, and investing in e-commerce. Walmart's global online sales grew in 2013 by 30% to more than
Walmart has maintained a steady EBIT margin over time at or near 6%, though it narrowed by 30 basis points (bps) to 5.6% in 2013 from 5.9% in 2012 reflecting weaker results from the international segment. This was due to slower sales growth, price investments in
FCF after dividends was
Steady operating results have enabled Walmart to generate stable credit metrics over time. Adjusted debt/EBITDAR and EBITDAR/interest plus rents were 2.0x and 7.3x, respectively, at
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 that result in market share losses and/or more pronounced gross margin pressure that cannot be offset by expense leverage.
Fitch affirms Walmart as follows:
Wal-Mart Stores, Inc.
--Long-term Issuer Default Rating (IDR) at 'AA';
--Senior unsecured debt at 'AA';
--Bank credit facility at 'AA';
--Short-term IDR at 'F1+';
--Commercial paper at 'F1+'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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