Moody's Offers Comment on Walmart Following 2012 Results

"Moody's Investors Service stated that Wal-Mart Stores, Inc.'s ("Walmart",Aa2/Prime-1, stable) operating results for the fourth quarter of fiscal2012 as well as results for the full year met its expectations. "Despitethe negative impact felt by the consumer from the increased payroll taxwithholding, as well as consumer concerns surrounding the fiscal cliff,Walmart's operating performance for the quarter largely met ourexpectations," stated Moody's Senior Analyst Charlie O'Shea. "We continueto believe that Walmart's historical trend of benefitting fromfinancially-strapped consumers trading down to conserve cash willcontinue for the balance of 2013 as consumers battle spending headwindson multiple fronts, including reduced take-home pay resulting from thewithholding increase, high unemployment, and gas prices that are northof $4.00 per gallon in most areas. As a point of reference, Walmart hasin the past called out the fact that spending patterns on behalf of itscustomers 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 pricingstrategy surrounding the Holiday bore fruit as U.S. sales and marginswere both up measurably over 2011," continued O'Shea. "As we cited in our August 22, 2012 Issuer Comment (Wal-Mart's expanded and enhanced layawayprogram a credit positive; available on moodys.com and at the followinglink:http://www.moodys.com/research/Wal-Marts-expanded-and-enhanced-layaway-program-credit-positive-for-Issuer-Comment--CMT_0000646580), we felt thatWalmart's early launch and expansion of layaway and its aggressive earlytoy strategy would prove beneficial, and combined with its later"head-on" pricing approach in its media campaign, these solid Q4operating results indicate that this was in fact the case. Per thecompany's release, operating income for the U.S. Division on an asreported basis of almost 8.6% for Q4 was up almost 20bps over 2011 on a2.6% increase in revenue." "Our expectation for the balance of 2013 is unchanged. We believe Walmartwill continue to benefit from the tradedown impact that is occurring forthe reasons cited above, which should more than outweigh any leakage ofcustomers to the dollar and convenience stores that will also occur assome of Walmart's customers invariably trade down. The challenge goingforward will continue to be the level of retention of these new customersas the economy improves though, as in the past, we do not consider these"retention levels" to be key credit drivers," concluded O'Shea."