DBRS Morningstar Confirms Walmart Inc. at AA, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Walmart Inc.’s (Walmart or the Company) Issuer Rating and Senior Unsecured Debt rating at AA. All trends remain Stable. The confirmations and Stable trends reflect DBRS Morningstar’s view that Walmart is well positioned to navigate the current macroeconomic environment within the context of the current rating category, as DBRS Morningstar expects that Walmart will be able to pass on the majority of inflationary cost increases through continued pricing efforts and that volumes will remain well above pre-pandemic levels. Walmart's ratings continue to be supported by its size, dominant market position, and relative resilience to economic cycles. The ratings also continue to consider the competitive landscape and mature nature of some of the Company's core markets.

Over the medium term, DBRS Morningstar expects that Walmart’s earnings profile will remain relatively stable and continue to underpin the overall rating category based on solid comparable sales growth and relatively stable EBITDA margins. Despite the current inflationary pressures, DBRS Morningstar expects that Walmart will be able to pass on the majority of cost increases through continued pricing efforts and that volumes will remain well above pre-pandemic levels given the Company’s strong purchasing power and primarily nondiscretionary product offering. Consequently, DBRS Morningstar forecasts the Company’s revenues to increase toward $590 billion during F2023 from approximately $573 billion in F2022, largely driven by mid-single-digit comparable sales growth from the Company’s brick-and-mortar stores and low-double-digit growth from Walmart’s e-commerce channels. DBRS Morningstar expects the Company's EBITDA margins to remain relatively stable in F2023 as the improvement in operating leverage and continued efficiency-improving initiatives are expected to be largely offset by inflationary pressures, increased wage investments, and higher supply chain costs. As such, DBRS Morningstar expects Walmart's EBITDA to increase modestly toward $38 billion in F2023.

DBRS Morningstar expects Walmart's financial profile to remain relatively stable over the medium term based on the strength of its free cash flow-generating capacity and the expectation that the Company's capital allocation will remain balanced such that financial leverage will remain supportive of the current ratings. DBRS Morningstar anticipates that cash flow from operations will continue to track operating income and increase to more than $32 billion in F2023 from just below $31 billion in F2022. Capital spending is expected to increase meaningfully toward $18 billion in F2023 from approximately $13 billion in F2022 and primarily focusing on e-commerce, supply chain, automation, and store remodelling. DBRS Morningstar expects Walmart's annual dividend outlay to be relatively flat at approximately $6 billion, as dividend-per-share increases are likely to be offset by share repurchases. As such, DBRS Morningstar expects the Company to generate free cash flow after dividends and before changes in working capital of approximately $8 billion in F2023 and anticipates that Walmart will use the bulk of its free cash flow for share repurchases in F2023. DBRS Morningstar expects the Company's financial profile to remain relatively stable and supportive of the AA rating category, with modest improvement in credit metrics expected to be primarily driven by operating income growth. That said, although unlikely, 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.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Companies in the Merchandising Industry (July 26, 2021; https://www.dbrsmorningstar.com/research/382073), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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@dbrsmorningstar.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 Morningstar 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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

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