DBRS Confirms Walmart Inc. at AA, Stable Trends

DBRS Limited (DBRS) confirmed Walmart Inc.’s (Walmart or the Company) Issuer Rating and the rating of the Company’s Senior Unsecured Debt at AA. All trends remain Stable. The confirmation is based on Walmart’s stable operating performance in F2019 and DBRS’s expectation that earnings and financial profile will remain relatively steady over the near to medium term. The ratings continue to be supported by the Company’s position as the world’s largest retailer. The ratings also continue to consider the intense competition.

Walmart’s earnings profile, including Flipkart, remained relatively stable and supportive of the overall credit rating. Revenues are expected to grow in the low to mid-single digits during F2020, driven by low-single-digit comparable sales growth from the Company’s brick-and-mortar stores, double-digit growth from Walmart’s existing e-commerce channels and the first full-year inclusion of Flipkart, partially offset by the sale of Walmart Brazil. EBITDA margins are likely to decrease slightly but remain in the 6.1% to 6.4% range over the near to medium term as the Company continues to face intense competition in the United States and certain international markets and continues to invest in e-commerce and related infrastructure. Additionally, DBRS expects Walmart’s EBITDA margins to be negatively affected by consolidation of Flipkart, which is currently operating at a loss. Nevertheless, DBRS believes Walmart’s earnings profile should benefit from these expenses and investments over the longer term, as they should increase the Company’s competitiveness and support future growth. As such, DBRS expects EBITDA to remain relatively stable at approximately $32 billion through F2021.

In terms of financial profile, Walmart’s cash flow from operations is expected to continue to track operating income. DBRS’s capex forecast of approximately $11 billion in F2020 includes store re-modelling, investments in e-commerce and opening approximately 300 new stores, primarily in Mexico, Central America and China. DBRS expects Walmart’s dividend outlay to be relatively stable at $6 billion, as dividend per share increase are likely to be offset by share repurchases. As such, DBRS expects the Company to generate free cash flow after dividends and before changes in working capital of approximately $8 billion to $9 billion in F2020 and F2021. DBRS expects that Walmart will use the bulk of its free cash flow for share repurchases but notes that the Company may also apply a portion towards debt repayment to reduce leverage towards 2.0 times. Over the longer term, DBRS expects an improvement in leverage to be primarily driven by EBITDA growth. However, should lease-adjusted debt-to-EBITDA increase for a sustained period of time as a result of either weaker-than-expected operating income and/or more aggressive financial management, the ratings could be pressured.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Merchandising Industry, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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