Credit Analysis On Wmt

1516 words - 7 pages

PEDRO Z ANO T E L LI

F I X E D I N C O M E R ESE A R C H

W M T 4.25% 4/15/2021

RATIONALE

Wal-Mart is a recommended BUY due to its competitive advantage against peers in the industry, good capital structure (good management), and relatively good ratios for profitability, solvency and liquidity. The company is the biggest company in North America and expanding more year by year. It carries a wide product assortment and in lower costs against any other company in the industry; keeping favorable pricing from and
systematic integration with most of its suppliers.
COMPANY DESCRIPTION

Wal-Mart divided into three divisions: Wal-Mart U.S. (FY 12 (Jan.) sales $264.2 billion), Sam's ...view middle of the document...

8 billion in FY 12. About 60% of Sam's Club sales were generated from food, beverage, health and wellness categories.

Strengths 1. Market Leader and wide product assortment 2. Low cost leadership enables Wal-Mart to offer products at low price points internationalization strategy a strong foundation for growth as the US market matures

W eaknesses 1. Big box retailing format led to low penetration in the urban areas 2. Litigations adversely affect labor relations

3. Two million plus employees increase exposure to rising wages and health care costs

1

PEDRO Z ANO T E L LI

F I X E D I N C O M E R ESE A R C H

W M T 4.25% 4/15/2021

STRENGTHS 1. Market Leader and Wide Product Assortment the end of FY2011, the company had more than $400 billion in revenue, over $25 billion in operating income, 8,970 stores and over 984,949 square feet of space. The scale of its operations is unprecedented and there is no competitor of comparable size. The company has been expanding mostly in international operations. International operations accounts for ¼ of the WalMart stores offer a large variety of nationally recognized as well as private label merchandise across most of categories the company operates. 2. Low Cost Leadership Wal-Mart is a price leader and its low cost operations enabled the company to maintain this position over years. The company offers grocery products at much lower prices compared with other players in the industry. The company has a strategy of making Wal-Mart synonymous of inexpensive. This strategy also makes constant pressure on competitors. Also, the company receives favorable pricing from and systematic integration with most of its suppliers. In addition, as a low-cost general retailer, Wal-Mart has built a reputation with consumers as a one-stop shop for good deals. In March 2011, announced to implement price rollback on most of the merchandise offered at its stores. These roll backs are expected to save consumers more than $55 million per year. This strategy will make Wal-Mart -price leadership even more difficult to surpass. WEAKNESSES 1. Big box retailing format led to low penetration in the urban areas Wal-Mart operates in big box retailers, and this is limiting expansion of the Wal-Mart stores in urban areas where there is limited space available. Building huge stores made sense when suburban landscapes were wide open and baby boomers were moving away from cities. However, the recent trends show that the baby boomers are scaling back, moving into smaller homes closer to urban areas. 2. Litigations affect labor relations adversely Wal-Mart has been facing several charges and lawsuits with respect to labor relation. In FY2009, the company settled 63 wage-and-hour class action lawsuits, totaling $382 million during the fourth quarter of FY2009. In May 2011, the company settled a wage-and-hour class action lawsuit which can result in penalty of $43 or $86 million. The company also may find itself short of skilled...

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