Fitch Rates Wal-Mart Stores' EUR1.5 Billion Bond Issue 'AA'

CHICAGO--()--Fitch Ratings has assigned a 'AA' rating to Wal-Mart Stores, Inc.'s (Walmart) EUR1.5 billion note issuance, consisting of EUR850 million of 1.9% notes due 2022 and EUR650 million of 2.55% notes due 2026. The Rating Outlook is Stable. The proceeds from the issues will be used for general corporate purposes. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The rating reflects Walmart's dominant market position in North America, strong position in the UK, and meaningful presence in other markets such as: China, Brazil, Central America and South Africa. Also considered is Walmart's low cyclicality, consistent free cash flow (FCF), and steady financial leverage despite ongoing debt-financed share repurchases.

These factors are balanced by a more challenging economic environment pressuring the company's core customer base, and growing competition from dollar stores and hard discounters, among others.

Walmart's success flows from its broad selection and sharp prices, made possible by its low operating costs and significant buying power. Despite these strengths, comparable store (comp) sales in Walmart's U.S. segment (which excludes Sam's Clubs and accounted for 75% of consolidated operating earnings in 2013) declined by 0.6% in 2013 (ending Jan. 31, 2014), following increases of 1.8% in 2012 and 0.3% in 2011.

This decline reflects the difficult environment facing low-income consumers, including the payroll tax increase that was implemented as of Jan. 1, 2013, and low food inflation. For 2014, Fitch expects comp sales will remain sluggish, reflecting ongoing economic pressures facing low-income consumers.

Despite soft top-line results, Walmart has been able to maintain a steady operating margin at or near 6% (5.6% in 2013). Going forward, Fitch expects operating margins will remain consistent with historical levels.

Steady operating results have enabled Walmart to generate stable credit metrics over time, with adjusted debt/EBITDAR of 1.7x -2.0x and EBITDAR/interest plus rents of 7.8x - 8.3x over the past five years.

FCF after dividends was $4.0 billion in 2013, down from $7.3 billion in 2012, due to lower earnings and higher capital expenditures. Share repurchases are expected to continue to exceed FCF, and to be partly debt-financed, as Fitch expects the company will manage its adjusted debt/EBITDAR ratio 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.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013)

Applicable Criteria and Related Research:

Corporate Rating Methodology - Effective 12 August 2011 to 8 August 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825797

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Contacts

Fitch Ratings
Primary Analyst:
Philip M. Zahn, CFA, +1-312-606-2336
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Monica Aggarwal, CFA, +1-212-908-0282
Senior Director
or
Committee Chairperson:
Michael Simonton, +1-312-368-3138
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Philip M. Zahn, CFA, +1-312-606-2336
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Monica Aggarwal, CFA, +1-212-908-0282
Senior Director
or
Committee Chairperson:
Michael Simonton, +1-312-368-3138
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com