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Moody's Offers Comment on Walmart Following 2012 Results

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"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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