MOODY’S EYES WAL-MART DEBT; CUT IS POSSIBLE
NEW YORK — Citing a weak retail market and slowed growth at Wal-Mart Stores Inc., Moody’s Investor Service placed $8.6 billion of the discounter’s long term debt under review for a possible downgrade.
Moody’s said, “The rating review was prompted by the changing character of the retail marketplace, the anticipated impact of the company’s slower growth rate and the outlook for Wal-Mart’s financial performance.” The company’s Prime-1 rating for commercial paper was not placed on review and was confirmed.
Moody’s noted that while it believes Wal-Mart will remain “a dominant and leading retailer,” growth is expected to come from supercenters and investments in non-domestic markets, which take longer to mature and achieve satisfactory returns.
At the same time, the competitive environment and weak consumer demand is hampering sales growth and margins for all retailers, according to Moody’s.
“In this environment the rating agency is concerned that it may be more difficult for Wal-Mart to improve performance,” the agency said.
The review will focus on the “likelihood of sustained financial improvement an the extent to which the company’s expansion program further enhances its strong operating leverage,” Moody’s said.
The ratings under review are senior unsecured obligations at Aa1, secured bonds at Aa1, and participating mortgage certificates at Aaa.
In the third quarter, profits at the nation’s largest retailer were up 4 percent to $612 million as sales increased 12 percent to $22.9 billion.
Including Sam’s Club, Wal-Mart’s same-store sales were up 4.2 percent in September, 1.7 percent in October and 3 percent in November. This compared with gains of 6.5 percent, 3.6 percent and 5.2 percent in the respective year-ago periods.
Wal-Mart, based in Bentonville, Ark., is expected to achieve annual sales of almost $100 billion this year. — Fairchild News Service