"Moody's Investors Service stated that Wal-Mart Stores, Inc.'s ("Walmart",
Aa2/Prime-1, stable) operating results for the fourth quarter of fiscal
2012 as well as results for the full year met its expectations. "Despite
the negative impact felt by the consumer from the increased payroll tax
withholding, as well as consumer concerns surrounding the fiscal cliff,
Walmart's operating performance for the quarter largely met our
expectations," stated Moody's Senior Analyst Charlie O'Shea. "We continue
to believe that Walmart's historical trend of benefitting from
financially-strapped consumers trading down to conserve cash will
continue for the balance of 2013 as consumers battle spending headwinds
on multiple fronts, including reduced take-home pay resulting from the
withholding increase, high unemployment, and gas prices that are north
of $4.00 per gallon in most areas. As a point of reference, Walmart has
in the past called out the fact that spending patterns on behalf of its
customers shift further in the company's favor when gas prices exceed
$3.50 per gallon, which could be a potential inflection point that spurs
'one-stop shopping'."
"For the fourth quarter, we believe Walmart's marketing and pricing
strategy surrounding the Holiday bore fruit as U.S. sales and margins
were both up measurably over 2011," continued O'Shea. "As we cited in our August 22, 2012 Issuer Comment (Wal-Mart's expanded and enhanced layaway
program a credit positive; available on moodys.com and at the following
link:
http://www.moodys.com/research/Wal-Marts-expanded-and-enhanced-layaway-prog
ram-credit-positive-for-Issuer-Comment--CMT_0000646580), we felt that
Walmart's early launch and expansion of layaway and its aggressive early
toy strategy would prove beneficial, and combined with its later
"head-on" pricing approach in its media campaign, these solid Q4
operating results indicate that this was in fact the case. Per the
company's release, operating income for the U.S. Division on an as
reported basis of almost 8.6% for Q4 was up almost 20bps over 2011 on a
2.6% increase in revenue."
"Our expectation for the balance of 2013 is unchanged. We believe Walmart
will continue to benefit from the tradedown impact that is occurring for
the reasons cited above, which should more than outweigh any leakage of
customers to the dollar and convenience stores that will also occur as
some of Walmart's customers invariably trade down. The challenge going
forward will continue to be the level of retention of these new customers
as the economy improves though, as in the past, we do not consider these
"retention levels" to be key credit drivers," concluded O'Shea."
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