Fitch Ratings Affirms Wal-Mart at 'AA'; Rating Outlook Stable.Business Editors CHICAGO--(BUSINESS WIRE)--May 7, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the 'AA' rating on Wal-Mart Stores, Inc.'s (Wal-Mart) senior notes, and the 'F1+' rating of the company's commercial paper. Wal-Mart had approximately $23 billion of debt outstanding as of Jan. 31, 2004. The Rating Outlook is Stable. The ratings reflect Wal-Mart's dominant competitive position and solid record of profitable growth. Wal-Mart's tight cost structure enables it to price aggressively and capture market share. These factors are balanced against accelerated share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. activity, and the potential for acquisitions. While leverage could move higher following a large acquisition, it would likely be reduced relatively quickly given the strength of Wal-Mart's cash flow and its willingness to curtail cur·tail tr.v. cur·tailed, cur·tail·ing, cur·tails To cut short or reduce. See Synonyms at shorten. [Middle English curtailen, to restrict share repurchases. Wal-Mart has posted steady operating results during a challenging retail environment. Comparable store sales increased 5.6% in the first quarter of 2004, following a 4.1% increase in 2003. Comparable store sales growth slowed in the Wal-Mart segment in 2003 reflecting general economic pressures on low and middle income consumers. This was offset in part by faster growth at Sam's Clubs Sam's Club is a membership-only warehouse club owned and operated by Wal-Mart Stores, Inc. History The first Sam's Club opened in April 1983 in Midwest City, Oklahoma in the United States.[1] Sam's Club is named after Sam Walton. , due to a more aggressive pricing posture and strength in the warehouse club segment. Wal-Mart's operating (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) margin improved to 5.8% in 2003 from 5.5% in 2002, primarily reflecting the sale of the lower-margin McLane distribution business in May 2003. Margins in Wal-Mart's continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the were down slightly in the year due in part to clearance markdowns of apparel in the Wal-Mart segment. Overall, profitability is expected to remain steady going forward. Wal-Mart continues to expand rapidly, with the bulk of this growth in its supercenter concept. Wal-Mart plans to build 220-230 new supercenters in 2004, furthering its expansion within the grocery segment. Resistance to new supercenters, such as in certain communities in California, is not expected to meaningfully impede Wal-Mart's ability to achieve its growth objectives. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses has historically covered capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. , dividends, and some level of share repurchases. Wal-Mart repurchased $5 billion worth of its shares during 2003, and these repurchases were partially debt-financed as the company manages its debt/capital ratio to a 40% target. As of Jan. 31, 2004, leverage stood at 37.8%. Fitch is comfortable with some use of debt for share repurchases assuming leverage does not exceed the company's target. |
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