Fitch Ratings has affirmed the ratings of Wal-Mart Stores, Inc. WMT as follows:
--Long-term Issuer Default Rating (IDR) at 'AA';
--Bank credit facility at 'AA';
--Senior notes at 'AA';
--Short-term IDR at at 'F1+';
--Commercial paper at 'F1+'.
The Rating Outlook is Stable. Walmart had approximately $47 billion of debt outstanding as of April 30, 2010.
The affirmation reflects Walmart's dominant market position in North America, a strong position in the U.K., and a growing presence in other markets such as China and Brazil. 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, reflected in weaker top line sales growth over the past year.
Walmart's success flows from its low operating costs, which allow it to be the price leader in most product categories. Despite its competitive strength, comparable stores sales in Walmart's U.S. segment (which excludes Sam's Clubs and accounted for 75% of consolidated operating earnings in fiscal 2010) declined by 0.7% in fiscal 2010 and 0.8% in the first quarter of fiscal 2011. This is due to the soft economy, as reflected in lower store traffic and food price deflation, as well as tough competition and a change in merchandising strategy in which the company is reducing the number of SKUs (items) sold in its stores.
The SKU reduction is part of the Project Impact initiative which involves improving the store environment with cleaner aisles and displays as well as shorter check-out lines in order to provide a better customer shopping experience. The company is partially reversing the SKU reduction strategy and giving more emphasis to price rollbacks in order to boost store traffic and sales.
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