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7,900
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WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Days pressured international expense leverage in Q3, we'll see the benefit come through in Q4. Third quarter adjusted operating income grew 3%, including 270 basis points of currency tailwind, while adjusted EPS of $1.53 increased 2% and compared favorably to guidance of $1.45 to $1.50. Relative to our guidance, Q3 EPS benefited by $0.01 from releasing the LIFO reserve we had earmarked for Sam's Club. Moving to returns. Over the last 12 months, sales have grown more than 6% and operating income increased about 22% and when combined with a disciplined capital approach, return on investment improved 130 basis points to 14.1%. The primary driver was lapping last year's Q3 charge related to the opioid legal settlement framework. ROI also reflects some benefits from productivity initiatives that we initially expected to realize in FY '25. We continue to expect our ROI to increase over the coming years. In addition to our strategy, our financial position is an advantage and enables us to compete in an increasingly dynamic retail environment. Turning to guidance. We're confident in our agility and our ability to execute and we're focusing our investment in areas where we can widen our omni advantage, deepen engagement and drive sustained growth in new revenue streams. We like our position relative to competitors as we've maintained strong price gaps and increased share while preserving flexibility to respond to competitive dynamics. But we're not immune from the vagaries of the economy. We see our customers showing ongoing discretion in making trade-offs to be able to afford the things they want given the sustained high cost of the things they need. Recently, we've experienced a higher degree of variability and weekly performance in between holiday events in the U.S., including seeing a softening in the back half of October, it was off-trend to the rest of the quarter. Sales during November have turned higher as unseasonal weather abated and we kicked-off holiday events. So sales have been somewhat uneven and this
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7,901
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
have turned higher as unseasonal weather abated and we kicked-off holiday events. So sales have been somewhat uneven and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago. We still expect sales growth to moderate in Q4 versus prior quarters as grocery inflation further normalizes towards historic levels. So we're encouraged by the increased traffic and share gains we've seen and expect them to continue. As such, we are modestly raising our full year sales guidance to 5% to 5.5% from 4% to 4.5% previously primarily to reflect Q3's outperformance. For operating income, we're maintaining the guidance range of 7% to 7.5% growth. In addition to the 40 basis points of unexpected legal expenses in Q3, we also expect to record charges in Q4, totaling approximately 20 basis points to 30 basis points related to unplanned store closures and recovery costs associated with the recent hurricane near Acapulco, Mexico. This impacted 28 of our stores and less than half of them have been reopened at this time. Partially offsetting these costs is the approximate 40 basis point benefit from lower than expected LIFO charges compared to our prior guide. The net effect is a 20 basis point to 30 basis point headwind to our prior guide and as such, we currently expect to be in the lower end of the operating income growth range for the year. We expect merchandise mix pressure to continue in Q4 with grocery and health and wellness sales rates outpacing general merchandise and potentially be a bit more pronounced given the uncertain consumer environment. Based on Q3 results and less of an increase in interest cost for the year than we previously expected, we're raising our full year EPS guidance range to $6.40 to $6.48. In closing, let me reiterate what I said previously, aligned with our financial framework, we expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year operating income to grow faster than sales. We like our competitive position. Our
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7,902
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
profitability in Q4 and for the full year operating income to grow faster than sales. We like our competitive position. Our financial results clearly demonstrate that our omnichannel strategy is winning. We're growing our share across categories, deepening customer engagement across channels, while investing in areas to widen our competitive advantage. The holidays are here and our value proposition resonates with customers looking to save money as they celebrate. Operator, we'd now like to open the line for questions.
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7,903
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question today comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Hi. Good morning, everyone. I have one question, I'll make it maybe two-parts. The first part, the legal expense it -- so that we can judge whether or not we should keep it in. It sounds like you're keeping it in. I'm not sure you're able to share what the nature of it is, but it seems like it was unexpected. So if there's any more color on it. And then the second real question is, alternative revenue and profit. Was it hidden in any way this quarter? Do we get an inflection, into next year, that seems to be the big investment question. And are we going to see it ramp up, and does it happen in a certain period or it just continues to build? Thank you.
|
7,904
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Simeon, I'll start and others may want to jump in. On the legal expenses, those were related to -- largely related to prior periods, and that was not anticipated within the quarter. It's around $70 million to $75 million. So we would not expect that to recur into the fourth quarter. On the alternative revenue perhaps, I'll start and let others jump in. Our plan is that we shared at Investor Day is somewhat dependent upon the level of investments that we're having and seeing improving unit economics, but it's also growing these parts of our business that are much higher margin. We talked about the growth in advertising across all segments quite frankly and international while it was slower in this quarter, we'll see strong growth for the year. All of these as they becoming a larger part of our overall business mix, you're going to have an outsized contribution to our margin performance. So if you go back and you think about what we shared at Investor Day saying that we expect over the next several years to grow sales 4% and operating income greater than 4%, we would expect with each passing year, we're going to see a greater contribution from these higher margin profit streams, which help us to improve our margin each year.
Doug McMillon: Simeon this is Doug. I would just add that I think you should have it in the continue to build category rather than in inflection.
Simeon Gutman: Thank you.
Operator: Our next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.
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7,905
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Our next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.
Kelly Bania: Good morning. Thanks for taking my questions. Just another follow-up, I guess on the legal expense. Assuming that impacted the U.S. EBIT number, but maybe you can clarify that. And just anything in particular that impacted the U.S. EBIT beyond maybe some unexpected expenses, did that come in relatively in line with your expectations? And I guess that's sort of my first question. And then longer-term, as you think about this plan to grow EBIT faster than sales in coming years, anything you're seeing with the consumer? And it sounds like it's still choppy that maybe leaves you to reconsider how much you might flow through to the bottom-line?
|
7,906
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Sure. I'll start and then, John, is probably going to want to jump in. Yes, the legal expenses hit the U.S. segment. There were some other items in there, like, I'll point out that we spent a little bit more on remodels. We did an all-time high level of remodels in the quarter. But this is investing in our business, which we definitely want to lean into. We're excited about the returns we're seeing around that. We're excited about the returns you're seeing on e-commerce. And so there were some investments related to that, but the vast majority of the delta between our guidance and actual performance was related to the legal accrual. In terms of our long-term plan, and as it pertains to like possible changes in the consumer, I think our value proposition resonates more than ever when the consumer is pressured. And we've seen this year that they not only are coming to us for the value that we provide, but also for the convenience and these are areas that we're investing in. So we have a ton of conviction in the strategy that we have in our -- in place and our ability to execute on that. We should separate that from calling out some maybe potential weakness or wobbling among the consumer that we saw in the back half of October. But we're very excited about the plan we have in place.
|
7,907
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Hi, Kelly. It's John. Good morning. First, I'm also excited about the topline results at 49% (ph) and then e-commerce at 24%, the team has made a lot of improvements, they should get the credit for that. You heard a couple of things there, one about remodels. As John David mentioned, we had a 117 remodels complete all on November 3. We think that's the largest number of remodels, we've ever had complete in a single day. And then if you add together late October and November, it was 197 remodels and those remodels have improved, apparel improved, home, they have wider aisles. We're really happy with the way the signing layout and they also have more investment for our online pickup and delivery business, which is a key catalyst for e-commerce growth and help us with being flexible for customers and any type of situation, they want to shop in, so there is some costs associated with that in the quarter but we feel great about those being investments for the long-term.
|
7,908
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Doug McMillon: Kelly, this is Doug. And related to the last part of what you asked about, I don't think there's anything that causes us to think operating income won't grow faster than sales. We've had really strong sales performance now for a few years. Obviously, we were impacted by what happens in our environment, but we expect to grow share. We expect to have a healthy topline and as it relates to operating income, we've got a really good multiyear plan with two primary dimensions, one is the automation investments that will -- that drives productivity improvements and the other dimension is related to how the digital business has changed the shape of the income statement. Both of those things will be true, and it's a multi-year plan that shows progress along the way. So you guys from quarter-to-quarter, year-to-year will see us make progress, and not every quarter, maybe up into the right in every category, but if you look at what happens from a trend point-of-view, those are the things we expect to deliver and because operating income is growing faster than sales, we -- our plan requires that we grow return on investment at a higher rate over time. That's the plan.
Kelly Bania: Thank you.
Operator: Our next question is from the line of Paul Lejuez with Citi. Please proceed with your question.
Paul Lejuez: Hey. Thanks, guys. You have a really big e-com business that continues to grow at a rapid pace. I'm curious if you could talk about what's driving that growth from a traffic versus ticket perspective and how the growth in the marketplace sellers that you've seen are contributing to that growth. Also, curious if you could talk a little bit about general merchandise performance online. I think you threw out some numbers last quarter about certain categories on the general merchandise side, would love to hear how they performed online this quarter. Thanks.
|
7,909
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Hi. Good morning, Paul. It's John, I'll start with Walmart U.S. and then pass it over to Kath and Chris to talk about the other segments. I think if -- as you step back and look at the growth, one, we're pleased with our online pickup delivery business from stores, we have strength in food. The team has continued over the last few years to expand our capacity, and more importantly, they made improvements on key metrics like the one we call Perfect Order which is getting customers what they want, when they want, and I think that's a reflection of better in-stock in food, overall that's helped us with our share gains and the food category. With marketplace really pleased with the progress the team has made with Tom Ward and Manish having their First Summit as we mentioned earlier. In the quarter, we're seeing more sellers come online, our assortment has grown significantly. And just this week, I was in one of the new fulfillment centers that John David mentioned, the Lancaster, Texas which is a great facility managed by a very qualified team and it's of course reassuring to see the amount of marketplace inventory that's come again and seeing the number of marketplace sellers which we're grateful for those sellers who trust us to do their fulfillment and that's been -- that's been promising. Now, in the month of November, we had our first event last week and getting into our holiday season, we have a long way to go from here until the end of holidays. But, really pleased with the results in marketplace, which is of course reflective of results in art and apparel, and gifting and other categories that are in line with the question you asked about general merchandise. So these are important businesses because they help customers shop the way they shop with -- the way they want to shop, when they want to shop. And marketplace over time, of course, will be a key driver to some of the other businesses like advertising as more sellers find customers on the Walmart Marketplace, they'll want to use services
|
7,910
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
the other businesses like advertising as more sellers find customers on the Walmart Marketplace, they'll want to use services like our fulfillment services and our advertising business. So, turn it over to Kath to talk about international.
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7,911
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Kathryn McLay: Yeah. Thank you for that question. I think if you look at our e-commerce outlook, it's minus 3 and that's I don't think is a really -- it's distorted by Baby Day. If you actually look at the underlying growth across the businesses, Walmex grew by 16% from an e-com perspective, Canada grew by e-com -- in e-com by 16%, a part of that was rolling out Delivery Pass to the number -- toward a significant number of stores. If you look at China, their business grew -- their e-com business grew by 38%, so I think all of the teams are really focused on really getting the disciplines right of a perfect order and making sure that the experience to the customer is delightful. I think we continue to learn from each of the different businesses. The Flipkart team were here with us yesterday and it's fascinating to see what they're learning through using gen AI in the -- in three big -- three Big Billion Days. There's just some really clever capability that make it very seamless and easy to be able to shop online. And then, if you look at it from a marketplace perspective, we launched in Mexico, Canada, Chile and South Africa marketplace during the last 12 months. Obviously, Flipkart is our largest and most and more mature marketplace business. But we are seeing accelerated marketplace growth also through our cross-border trade. We opened that through Mexico and Canada to U.S. cross-border sellers. And lastly, we launched Walmart Fulfillment Services in Mexico, Canada and South Africa in the past 12 months. So we're seeing good results, but we're really positive about the growth potential of both Marketplace and Walmart Fulfillment Services.
|
7,912
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Chris Nicholas: So, it's exciting time. Paul, thanks for the question. I think what's really interesting for all of us, but definitely for Sam's is that members want this, and so we're giving them what they want and we are at 13% of sales, 16% growth in the quarter. But we think it's a really huge opportunity, and as I think about e-commerce for and omnichannel sales for Sam's, I think about a digitally connected member. So Scan and Go teaches our members that we are a digitally relevant business and they look to shop online and on the -- whether on the web or on the apps and we feel really good about that. We've got all-time highs in that space. The other thing is really interesting is, as we look at the new members. We got an all-time high number of membership in Sam's and a lot of those people that are coming in now with digitally engaged members that coming in and they're buying new memberships digitally. So we're feeling good. In terms of mix, GM and a Club Pick (ph), so grocery, pantry they're all strong, which we're feeling good about. We don't have a marketplace in Sam's yet, we're very focused on items and on curation of great items and I think that's going to be really important for the Sam's business as we go forward. And the thing that I finished with, there is the great items, drive the organic traffic. So we'll continue to focus on those great items and I think we'll get a lot -- we'll continue to get a lot of organic traffic there.
Doug McMillon: On U.S., so also asked about general merchandise. Would you repeat that part of the question?
Paul Lejuez: I was just curious how general merchandise performed online within the U.S. business. I think, last time, you said there were several categories that were up double-digits, curious how some of those general merch categories performed.
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7,913
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
Doug McMillon: Yeah, Paul. Really positive strength in categories like hardlines, our auto care center is running really well and the events that we talked about. I had mentioned earlier. It's great to see momentum with strong toy items and customers are responding to great gifts, like the Barbie Malibu House which is selling for $69, was $89 before it wanted to rollbacks, so those types of items are working really well. Customers also great to see -- after the redesign of the -- how the team is merchandising, general merchandise reflective of the seasons' RIN (ph). The site was really on point for Halloween before that for Labor Day. And you'll see the site flip quite frequently. So the team is doing a nice job reacting in categories to the plans that they have, but there's some categories there were strengthened. And as I said, there's still a long way between here and the holidays. We have a good plan. Our people are ready, your inventory is in position. So, we're ready for our customers.
Paul Lejuez: Thank you. Good luck.
Operator: Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Kate McShane: Hi. Thank you. Good morning. We are wondering if you could go into any more detail as to what would explain a softening in late October. Do you think it could partially be due to student loans or is it more of a function of being a shoulder period or a low before the holiday? And just the variability you're seeing week-to-week that you noted increase the risk in being more promotional than maybe was originally planned and expected in Q4.
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7,914
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WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Kate, this is John David, I'll take this. You're right to call out some of the economic factors that may be driving this. We're seeing credit tightening. We're in a period of time 12 months after the Fed has begun raising rates. We've seen consumer balance sheets that are getting back close to pre-pandemic levels. You've got the repayment of student loans, which affects about 27 million Americans. So all of these things could be contributing. I do want to point out, John talked about the impact of weather can have on our business. I'm learning that that can have profound effects in consumer shopping patterns. And we saw anomalous weather in the back half of October. So there is a number of different reasons, we can't put our finger on is exactly. And so that's why we take a little bit more of a cautious stance as we go into the fourth quarter, calling out perhaps more variability because there are some trends that have been different than what we saw the first 11 weeks of the quarter. Not to be alarmist, so I think our business is still performing really well. That's why we called out what we've seen thus far in November. In particular, the events that we've had. Walmart U.S., some of the more festive events internationally, we've seen strong response from our customers. But that this is -- this was -- the trend we saw in the back half of October was different than anything else we've seen this year. And so we simply want to call that out. In regards to promotion, maybe the segment CEOs want to comment on this, but I feel like we're in a good place from overall an inventory level. I don't necessarily see a more promotional holiday season than what we were currently planning.
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7,915
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: This is John. Kate, good morning. I think what's encouraging is that our traffic, our transaction counts, remained strong and consistent throughout the quarter. The end of October, we did grow our Halloween business a little less than we expected. I'm sure there's something to do with weather and it being on a Tuesday, which is different than prior years. And then as we got in November with the cold weather, we saw cold weather categories respond right away. Our event was strong, so John David said it right. We're just cautious of the shift that we did see. But overall seeing the number of customers who shop continue to grow. We've seen new customers all year across a wide variety of income groups. We'll be ready for all those customers and we'll be ready for anything that they need at the time. I really like the flexibility the team has built-in. We delivered Halloween up until 06:00 PM on the date of the holiday, which is something we haven't been able to do before. So our Express and same day delivery service continues to grow, which is helping us right up until the point customers need product.
Kate McShane: Thank you.
Operator: Thank you. Our next question is from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thank you so much for taking my question. Looking towards next year, how linear will the relationship be between Walmart's overall comp and the operating income growth? So if you only comp 2%, let's say, could you still grow operating income at the higher end of your range, call it 7% to 8%? And how does the prospect of broad-based deflation impact that, especially, as some of the naysayers say, that Walmart's comp in recent quarters has just been driven by the impact of inflation? Thank you.
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7,916
|
WMT
| 3
| 2,024
|
2023-11-16 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Well, Michael, it's good to speak with you. One of the things that we're looking at closely in our business is units, and we've seen good growth in units, so it has not been entirely driven by just higher prices. We think we're positioned well as we go into the end of this year and into next year. To answer your question, it would depend upon what's driving the 2% comp. And so it's hard to extrapolate trends from this year into that. The team here, though, is very focused on what could happen in a more deflationary environment and making sure that we're --we have a cost structure that supports the revenue environment that we operate in. So when you think about the relationship between operating income and sales on a multi-year basis, we actually feel like we're in a really strong position given what's happening in the business from one quarter to the next that may not always be the case as we manage through certain headwinds, but we feel like we're positioned well for virtually any economic environment. And I'll remind you, like I know there's maybe trepidation or concern among consumer health. This is when we shine. This is when Walmart is at its best when we can deliver value for our members and customers. And so we look forward to being able to put up financial results in any economic environment.
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7,917
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WMT
| 3
| 2,024
|
2023-11-16 08:00:00
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Walmart Inc.
| 313,055
|
John Furner: Michael, we want to make sure we're doing everything we can to keep prices as low as possible for our customers. I'm really pleased in the U.S. business that our rollback count is up significantly over last year. It was a lot of fun to be able to tell all of our customers that Thanksgiving at Walmart this year will be a lower price than what it was a year ago. We worked really hard the last two years to keep it flat, and it's coming down, and that's great for customers. You had really stubborn inflation in categories like dry grocery. So I'm excited when I'm in stores. And I was in Uvalde, Texas the other day, the number of rollbacks that we have out on feature in front of customers right up front in categories like dry grocery. A lot of our fresh categories have come in line. Eggs and dairy have come back in line from a year ago. That's great for customers. And as John David said, that's the time that we win. We deliver value and our team's ready to do that in any condition.
Michael Lasser: Thank you.
Operator: Our next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Rupesh Parikh: Good morning, and thanks for taking my question. And I had a question just on the SG&A line. So at least in the Walmart U.S. business, it appears both wage inflation and remodels appear to be a significant headwind on that line. So just curious if you expect those headwinds to continue into next year?
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7,918
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WMT
| 3
| 2,024
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2023-11-16 08:00:00
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Walmart Inc.
| 313,055
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John Furner: Yeah, Rupesh. Good morning. It's John. The remodels really that was a big number of remodels ahead. I mentioned earlier 197 remodels completed between late October and November 3. Of course, we'll continue our remodel program throughout next year. We have a good plan on the number of sites and we're excited about the results that we're seeing. From those, we definitely hear and know that our results change for categories like apparel, home. So I think we're -- we have a good plan there. It was a higher number at the end of the quarter and the end of the month than what we had originally planned for. Some had slipped in the later period. So I think we'll have a good balance as we move forward. On wages. We're staffed, ready for the holiday. For the most part, stores and distribution centers are completely staffed. There are some locations that will continue to hire, and we didn't go out this year with a large number of people that we intended to hire for the holiday. We're happy with our full-time part-time ratio and where we need hours the next few weeks, which is really next week for food leading into the event Wednesday going into the Thanksgiving holidays and Black Friday, we'll be ready to manage the business with our existing associates.
Rupesh Parikh: Thank you.
Operator: Our next question is from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.
Krisztina Katai: Hi. Good morning and thanks for taking my question. On general merchandise, the low to mid=single digit deflation that you're seeing relative to the comp that you put up would imply maybe that the units have improved sequentially. So one, can you talk about what you are seeing in units, your current price gap this holiday, and how might you be thinking about price versus units dynamic into next year. And then two, I just wanted to see if Kath and Chris would like to share their initial reflections on the new roles?
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7,919
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WMT
| 3
| 2,024
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2023-11-16 08:00:00
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Walmart Inc.
| 313,055
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John Furner: So the first question is about units and general merchandise, and as prices have come down, are we seeing [indiscernible] units go up?
Chris Nicholas: Thanks for that, Krisztina (ph). So let's talk about general merchandise first. Customers are responding to rollbacks. I mentioned one earlier in the Barbie category, which is the Malibu Dream House. So we see that consistently across other items in toys and toys is top of mind because it's the Christmas, whether it's the Melissa and Doug home set that's rolled by $10 to $25. We have the old classic Furby. That's $49 down for $59. Really good unit movements. We -- we're also happy to see, as I said earlier, the number of rollbacks that are across the entire store and the assortment of over 50% over last year. So customers are responding. But most importantly, our team is proud to offer great values and lower prices to customers. We've been in a pretty steep inflationary environment the last couple of years, so it's good to see some of these prices come back in line. And as far as how we think about that going forward, we mentioned this earlier that the results in e-commerce are quite encouraging at plus 24% for the quarter, and the breadth of the offer in e-commerce as it develops, I think is quite encouraging with growth of the marketplace, continued acceleration of the online pickup delivery business, and our first party business. And as we get into this holiday season, the team has worked really hard on inventory positioning, the condition in stores. Our MPS levels are at a really good spot and have continued to improve. And I think the result of that is we've had consistent traffic growth throughout the quarter and we continue to see that, which is a good sign for what may be to come.
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7,920
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WMT
| 3
| 2,024
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2023-11-16 08:00:00
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Walmart Inc.
| 313,055
|
Doug McMillon: I think it's going to be interesting to watch how the dynamic plays out between general merchandise and food. So if you've got food prices, if you click -- double click on that dry grocery versus fresh and think about where prices are compared to a year ago. In general, they're still up and the two-year stack is high. But in some fresh categories, as we mentioned earlier, we are seeing prices come down. On the GM side as things have come down, it's come down kind of steep in the last few weeks, maybe relative to what we had seen before. And so I think it's to be seen if the food prices come down in dry grocery and consumables and we start seeing deflation in those categories, that'll free up dollars to be spent in general merchandise. And with the rollback positioning and some of the prices we're hitting, it makes sense that people would be able to shift back to GM as they shop the box or the app. The great thing about our position is we don't really care. Like, they can buy whatever they want to buy. We're positioned for food, we're positioned with fresh, we're positioned with apparel and with hardlines and with holiday season, with categories like toys. So we've got a good value, regardless of which category and department you look at. And we'll play the shift as it happens. And if we end up where both sides, food and GM are deflated, then we just need to focus on driving even more units to your point. But if they've got dollars to spend, they'll spend them, and we're there for that and we can do it in store club, we can do it with pickup, we can do it with delivery. So we feel good about our position. We'll just manage it as the weeks and months play out and are as fascinated to watch it as you are. Kath, how's the job going?
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7,921
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WMT
| 3
| 2,024
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2023-11-16 08:00:00
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Kathryn McLay: Yeah, Krisztina. Thanks for the question. I would say, first of all, it's incredible that it's only been a quarter since I stepped into the role. It's -- Judith and the team have honed a really exciting portfolio of businesses, and it's been great to be able to get out into the markets. I've, over the last quarter, been in Mexico, China and India, and just looking at the pace of transformation and the way the teams rise to the challenge to be relevant in those local communities is extraordinary. And the ability to cross-learn between markets is such a great gift that we have in the international business. So I've been impressed by the strength of the teams that we have out there and also just really impressed by how they're translating our purpose and mission to save people money so they can live better into being really relevant. So whether it's in Canada, where they were able to actually have a Thanksgiving meal at a price lower than last year, whether it was in Walmex -- sorry in Mexico, where they've held down prices on basket -- a basket of essential items, no matter where it is, where you are in the international portfolio, the teams are working really hard to be relevant and help those communities celebrate the holiday and festivals that are rolling out over this -- over Q3 and into Q4. So excited to join the team.
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Chris Nicholas: Okay. Thanks, Kathryn. And Krisztina, thanks for the question. I think probably I'd just like to start with the prerogative that I have of now running this business to thank the Sam's Club associates for such a brilliant quarter and for the hard work that they have done to deliver that set of results. They're a team I'm really proud of and I'm grateful to be part of that club, and honestly, it's kind of a lot of fun to be here, and Kath knows that and told me that would be the case. I'm really grateful for the strong foundation that the Sam's Club team has built. It's a brilliant talent, a deep bench of merchant talent and it's -- I mean, it really is a merchant-led business. We've got an amazing member-led culture, fantastic clubs and associates, great items, strong brand in member's mark, and the beginnings of a world-class e-commerce business. And all of that drives really strong member value. So I see a really unique opportunity for Sam's to use this momentum as a jumping off point to accelerate, to driving growth through digital engagement, offering unique value through great items that consumers can't get anywhere else, and a deep understanding of members in a way that will make us more relevant to them both in club and digitally, so we can appeal to an even broader set of consumers. So, yeah, a lot to go for. Really exciting. So thanks for asking.
Operator: Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
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Operator: Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Robert Ohmes: Thanks for taking my question. Actually, it's a follow-up question on deflation. I was hoping Doug or anyone else could just talk about. Just to clarify what's driving the LIFO tailwinds? Is it all general merchandise right now or is there grocery in there and Doug, you mentioned lowering grocery prices, but you also mentioned, I think, stubborn inflation still out there in your opening comments and so is there -- just maybe even a little more color, like is dry grocery getting set to deflate? Is that what you guys are seeing? And then also, where do wage pressures come in? Do you think wage pressures are also sort of disinflating now?
John David Rainey: Robbie, good to speak with you. This is John David. I'll start and address the LIFO part of the question and maybe hand it over to Doug and others. On the improvements that we've made there. That is, as you know, dependent upon the cost of goods that we're buying. And we've seen the pricing level come down overall broadly. But I don't want to miss the point to mention that our teams have actually done a really good job of working with suppliers to help affect that outcome. So this is not something that just happens to us. The team has worked to actually have this outcome, so it's far better than what we expected when we went into the beginning of the year, and we're actually pleased to see this outcome.
Robert Ohmes: And John David, is that -- is just to clarify, is that general merchandise vendors or is that all vendors, including grocery vendors?
John David Rainey: It's across all categories. It probably skews a little bit more to consumables and GM,
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Doug McMillon: Robbie, this is Doug. Generally across markets, we have an inflationary environment. The U.S., and what we went through here the last few years is more dramatic than what I'd seen in the U.S. But of course had experienced that in Brazil and Argentina and other places. China is not really inflated. That's an outlier as it relates to this conversation. But in the U.S. specifically, as I mentioned a few minutes ago, in the fresh categories, you see beef up, but dairy, eggs, chicken, seafood down. So commodities will do what commodities will do. General merchandise had been coming down and came down a little more aggressively in the last few weeks or months than the trend before that, which we think is a really good thing. But it does start to have an impact on dollars when units -- when the units don't go up enough to offset the deflationary impact as it relates to GM. The dry grocery and consumables question feels like the key question Will it come down? Will those categories come down? We hope they will. On a two-year stack in Walmart US, John, I think we're still mid-double digits, slightly up versus a year ago. But we think we may see dry grocery and consumables start to deflate in the coming weeks and months. And so as we look ahead to next year, we could find ourselves in Walmart U.S. with a deflationary environment. And John David mentioned earlier, that causes us to think about what are we doing with expenses. Are we ready for that? It's too early to call how dramatic it'll be. And as we mentioned earlier, we are happy about it. We want our customers and members to have lower prices, and we'll manage mix, and we'll manage through it better than anyone. And it doesn't change anything about our plan. All the things that we've been doing to change, to be able to serve people in new ways, like with pickup and delivery, the expansion of the marketplace, all the things that flow from that, that help us with operating income, all those things are still true regardless of what the top line dollar
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that flow from that, that help us with operating income, all those things are still true regardless of what the top line dollar growth rate looks like as a total enterprise. And for a while now, we've been talking about four and greater than four. If you look back at the last three years, I'm hard-pressed to remember 2019 seems like a long time ago, but 2019 grew faster than 2018 on a calendar year basis. So we had a trending growth rate moving the right direction, and then the pandemic hits, and then inflation hits. So if you look back at the last three or four years, We've been growing faster than four. If we find ourselves in a deflationary environment next year and we grow at four or a little less than four, or around four, as long as we're growing share and improving what we're doing for customers and members on the top line, that'll be what it'll be. We'll get as much as we earn, but the operating income percentage will still go up because we've got this automation plan and we've got the digital businesses reshaping the income statement, which will help returns. So the plan is the plan we are executing. We're just trying to communicate with you today as we release our results, what we saw the last part of October in Walmart U.S. in particular, communicate what happened with expenses. But fundamentally, what's happening here is exactly what was happening here three months ago, six months ago, we are executing our plan.
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Robert Ohmes: And just anything on wage pressures, Doug?
Doug McMillon: Wage inflation is not as bad as it was before. We – as John mentioned earlier what happened in Walmart U.S. I'm not worried about wages. We've got an appropriate wage improvement for our associates planned for next year. I think we're in good shape. We're staffed, we've got a good plan. Not concerned about that aspect of it.
Robert Ohmes: Great. Thank you.
Doug McMillon: Sure.
Operator: The next question is from the line of Scot Ciccarelli with Truist Securities. Please proceed with your question.
Scot Ciccarelli: Good morning, guys. So another question, actually, on remodels, I know you had a lot over the last couple of months, as you referred to, but given the strong returns on the remodels, does it make sense to continue to accelerate that process even if it holds back earnings flow through a bit in the near term? And then related to that, if you do accelerate the process, where do you have to go on the timeline to where you start to see more benefit than incremental expense on a net basis? Thanks.
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John Furner: I think the short answer is -- it does make it does make sense to accelerate, and we have accelerated. So we will complete this year a couple of hundred more than we did the last few years. So the number of remodels has gone up. The team has got much more, I'd say got their arms around the process, the new fixtures, the changes. So the remodels are happening a bit quicker and more smoothly than they were years past. And also the supply chain is helping. We were doing remodels in '21 and '22, where we had a hard time getting fixtures and getting parts and getting the equipment in on time. So we're feeling better about the way these are all coming together. The performance of the remodels we are -- I mean, we continue to be pleased with on the top line, we continue to be pleased with the MPS numbers. We see the customer reaction of the new assortment, particularly, as I mentioned earlier, apparel, pets, beauty, home, a number of categories is really great. And I mentioned I was in one that completed just a couple of weeks ago in Uvalde, Texas. And you know it's just such great -- such a great investment in the community. It makes the store feel new, refreshed. People are -- there's a different look in their eye and a smile. The associates are thrilled with the results and they were really proud of it. And as we go on the holidays, I think that customers will really love to see in these communities all across the U.S. more access to different products than they had before. And one of the things that's important in all these remodel processes is that the customer notices the difference and they notice the difference not only in the facility but in the product. And I think we're delivering both of those in the remodel. So we'll continue an aggressive plan for the remodel locations into next year
Scot Ciccarelli: And so is there a headwind to profit flow through as that process continues at that pace?
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Scot Ciccarelli: And so is there a headwind to profit flow through as that process continues at that pace?
John Furner: No, it's in the plan. What happened in Q3 is a few that had been in process, slipped into late October, and then 117 on one day was quite a big number. So what you'll see going forward is a more balanced of remodels completing by quarter. Ideally, we would have liked to complete -- we wouldn't want to have those so close to the holiday. I think the teams have done a nice job of finishing the remodels and then getting back right into merchandising for the holiday. So to be more even across quarters, but that's all built into our plan.
Scot Ciccarelli: Got it. Very helpful. Thank you.
John Furner: Thank you.
Operator: Our next question is from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Edward Kelly: Hi. Good morning, everyone. Thank you for taking my question. I have a question on the gross margin in the US, the margin was not touched year over year. I think the expectation was that it maybe could have been better than that. I was hoping that you could provide some of the puts and takes around that. I'm not sure if GLP-1 is maybe having a bigger impact there. So just thoughts on the gross margin this quarter and then maybe how we should think about that in Q4 and then a clarification around the legal charge. I think you said $75 million, but then 40 basis points. So I'm not really sure. I'm a little bit confused about that. Thank you.
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John David Rainey: Yeah. The legal charge is 40 basis points, go with that number. And as it relates to our guidance for the year, I'll point out that 7% to 7.5% operating income on our business is $125 million. That is really more -- it's kind of a precise number for the size business that we are. And so that the magnitude of some of these things, like the hurricane, like the legal charges, push us to the lower end of that range for the year. On general merchandise, we did see some of the impact from business mix in the quarter. We benefited from that. The U.S. was up, I think, 5 bps, if I remember correctly. But as Doug noted, too, like we're certainly trying to be -- to lower prices for our customers and make sure that we're providing the value that they need. So there's a balance of all of that that's impacting those numbers.
Edward Kelly: Thank you.
Operator: Our next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Peter Benedict: Hi, guys. Good morning. Thanks for taking the question. Just GLP-1 just came up here in that last question, just curious. We hear it's a thing, maybe expand on maybe what you're seeing there, how it's impacting your business currently and what you see for that going forward. Thank you.
Doug McMillon: Hey, Peter. Good morning. Thanks for the question. No, it's still early to -- and time will tell how this affects the customer and affects the business. As we said before, we're seeing some shifts in categories, but right now, we really don't have anything else to add above and beyond what we've said in the past.
Peter Benedict: Okay. Fair enough. Thank you.
Operator: Thank you. Our final question is from the line of Seth Sigman with Barclays. Please proceed with your question.
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Operator: Thank you. Our final question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Hey. Good morning, everyone. I wanted to follow up on the consumer. I know it was discussed quite a few times today, but you guys, throughout the year have discussed a number of different signals of sensitivity, buying more around paycheck cycles, seeking more value, coming up with a promotional event. So just curious if you could provide a little bit more perspective on that and maybe more specifically what you are seeing in terms of market share across income cohorts. Thank you.
Doug McMillon: Yeah for Walmart U.S. specifically, John, as it relates to share.
John Furner: Yeah. Good. Thanks for asking, Seth. We've been pleased to see share growth all year, and we've talked about that across income groups. And what's been encouraging as of late is a bit higher share growth in general merchandise categories. We saw that month by month throughout the third quarter.
Doug McMillon: I don't know that we have a lot more to add on the consumer than what we've already said. I think we covered it. We're well positioned and I think our value proposition across categories and the way we're serving people, which helps them save time as well as save money, causes us to feel good about our position for the quarter. We get a lot of questions about what's happening in the U.S. economy and other economies and what's happening with the consumer, and we feel compelled sometimes to try and help explain what we're seeing. But to be clear from our point of view, we are front-footed, offensive, and feeling good about our opportunities. Stores and clubs look good. So that's the way we're thinking about the quarter.
Seth Sigman: Okay. Thank you.
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Doug McMillon: Yeah. I'll just wrap up here. We've gone a little over time. I'm as excited as I have been. We're executing our plan. We've got a good plan. Customers and members are choosing us, and I think they have been choosing us not only because of price leadership, which they can count on and we will continue but also because we're making it easier to shop with us. Our MPS scores in stores and clubs are encouraging. Our MPS scores as they're improving across pickup and delivery, are encouraging. We just want to save people money and time and make this easy and help them have a great holiday season. And I think as it relates to the top line, we can continue to expect that we will outperform and do well. And as it relates to operating income growth, we'll grow it faster than sales over time because we've got this really good automation plan. The metrics that John David outlined when we started the call are really encouraging. We continue to feel very good about what that's going to mean for our business. And then as it relates to the business mix, having e-commerce grow so much across our segments is awesome and encouraging. And as a reminder, that's a combination of first and third party. And as we grow with our suppliers and also with our marketplace sellers, we get those opportunities to serve them with ads, to serve them through fulfillment services, to monetize our data in different ways. So the business model change will continue, which will enable that operating income growth to help us improve returns over time. So we're antsy about Christmas every year. This is my 33 year and I feel like it's a bit of a rerun in that it seems like we're always talking about customers being price-conscious, and we always will be. And they're always looking for the hot toy and the right gift for Christmas. And they'll come buy food for us for Thanksgiving and for the Christmas meal. And then New Year's will come, and we'll have clearance prices after Christmas, and we'll have a strong January because customers will
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New Year's will come, and we'll have clearance prices after Christmas, and we'll have a strong January because customers will react to clearance at least the first couple of weeks when that's happening. And we'll update you on the fourth quarter and tell you how it went. But we feel really good about our position and excited about executing this plan and appreciate your ongoing support and interest in our company.
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Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.
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Operator: Greetings. Welcome to Walmart's Fiscal Year 2024 Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. At this time, I will now turn the conference over to Steph Wissink, Senior Vice President, Investor Relations. Steph, you may now begin.
Steph Wissink: Thank you, and welcome, everyone. We're excited to discuss with you the results of a strong second quarter and our upwardly revised outlook for the year. Joining me are Walmart's CEO, Doug McMillon, and CFO, John David Rainey. Following prepared remarks from Doug and John David, we'll take your questions. At that time, we will be joined by our segment CEOs: John Furner from Walmart U.S., Judith McKenna from Walmart International, and Kath McLay from Sam's Club. [Operator Instructions] Today's call is being recorded, and management may make forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Please review our press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements, as well as our entire Safe Harbor statement and non-GAAP reconciliations on our website at stock.walmart.com. Thank you for your interest in Walmart. Doug, we are now ready to begin.
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Doug McMillon: Good morning, everyone and thanks for joining us. We had another strong quarter. We're gaining share across markets and formats, growing units sold, transaction counts are positive across markets and growth in operating income is outpacing sales. We're really pleased with our first half performance. For the quarter, comp sales for Walmart U.S. were ahead of where we thought they'd be at 6.4%. Sam's Club U.S. was 5.5% and sales for international were up 11%, led by double-digit growth at Walmex and China. Flipkart's GMV was also strong. The team is driving results in the short-term and building for the future. We're a people-led, tech-powered, omnichannel retailer dedicated to helping people save money and live better. We like who we are and we like who we are becoming. We're positioned for growth. We can serve people how they want to be served whether that's in a store club, picking up an order curbside or having it delivered. We continue to grow some of our newer businesses which shape the overall model in a positive way, helping to enable us to grow profit faster than sales. We're setting the right capital priorities, and you can expect us to continue investing in the areas we've talked about, like technology, including automation, store and club remodels, and with new stores and clubs in select markets. As it relates to technology, our approach to new tools like generative AI is to focus on making shopping easier and more convenient for our customers and members and helping our associates enjoy more satisfying and productive work. Ultimately, the power of generative AI or any technology is only as good as the data that powers it. Our data assets are unique, and we're excited about the potential to leverage them in new and impactful ways. We're taking large language models developed by our partners and by the broader tech community and adding retail context to create models that are uniquely suited to the needs of our customers, our associates and our supply chain. We'll unlock value for
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models that are uniquely suited to the needs of our customers, our associates and our supply chain. We'll unlock value for shareholders through the combination of our physical automation work with our data and increasingly intelligent software. We have a sharp focus on ROI as we drive results and set our capital priorities. The financial framework we laid out at our Investment Community Meeting in April is evident in our results from the last two quarters. The remodel program I mentioned includes items to support our goal of becoming a regenerative company, as we put things like new refrigeration equipment and EV charging stations in place. I was in Chile last week where I got to participate in the grand opening of a new hydrogen plant in Santiago that supports our strong business in that country. While I'm on the subject of regeneration, we recently announced a new collaboration focused on supporting U.S. and Canadian farmers to help improve soil health and water quality. Our collective goal is to enable and accelerate the adoption of regenerative agricultural practices on more than 2 million acres of farmland and deliver 4 million metric tons of greenhouse gas emission reductions and removals by 2030. Some days I still get amazed by all the good work happening across our company. As a global retailer, we see how our customers and members are affected by what's happening at a macro level, and how that influences their behaviors. Jobs, wages and pockets of disinflation are helping our customers, but rising energy prices, resuming student loan payments, higher borrowing costs, and tightening lending standards and a drawdown in excess savings mean that household budgets are still under pressure. I was in Calgary visiting stores a couple of weeks ago, and our Canadian customers are feeling the pinch of higher interest rates faster than in the U.S. given their shorter-term mortgages. When you put all this together, we see families that are discerning about what they're spending on. They're setting priorities and
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you put all this together, we see families that are discerning about what they're spending on. They're setting priorities and spending on the things they care most about. We saw that during the first half of the year with Chinese New Year and Easter, and more recently with July 4th and the start of Back to School, where sales are ahead of plan so far. We see them buying more private brand items, and they're buying more grocery staples and in-home meal options consistent with eating at home. Our customers and members are resilient. They're looking for value, and they trust us to be there for them. We see people across income cohorts come to us more frequently looking to save money on everyday needs. That gives us an opportunity to drive conversion in more discretionary categories. We're encouraged by how general merchandise performed during the second quarter versus our expectations. We still expect food, consumables and health and wellness, primarily due to the popularity of some GLP-1 drugs to grow as a percent to total in the back half. But the trends we see in general merchandise sales make us feel more optimistic about those categories in the back half of the year. Our stores and clubs give us a competitive advantage and power our omnichannel model. Our curbside pickup business continues to grow as people look for ways to save time, and store-fulfilled delivery is now growing faster than pickup across all three segments. Delivery speed and accuracy are obviously important, and we lack how we're leveraging our physical assets. In the U.S., we have more than 4,000 stores and nearly 600 Sam's Clubs making same-day deliveries, and in nearly 2,000 stores and clubs internationally. We're increasingly measuring those deliveries in hours rather than days. In China, where we deliver from all our stores, nearly 80% of digital orders are delivered in under one hour. I like how we're constantly improving delivery speed. It's important to our customers and to our strategy, and I like how we're building mutually
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improving delivery speed. It's important to our customers and to our strategy, and I like how we're building mutually reinforcing businesses. Running great stores and scaling e-commerce are and will be our top priorities. The way we design them along with our marketplace, fulfillment services and advertising business is key. We'll keep prioritizing omni-retail, but we have good opportunities in healthcare and financial services in multiple markets. The growth of PhonePe has been fantastic, and we're building other financial products like Cashi in Mexico and through ONE here in the U.S. We continue to build our healthcare services capabilities with clinic expansion. As I look at the remainder of the year, our immediate focus is on getting product costs and retails down to fight inflation, which will help with mix, improving execution of pickup and delivery orders, expense management and inventory management by item and category. I'll wrap up by saying a big thank you to our associates. As always, they're making a difference every day for our customers and members. As we close out Back-to-school and get ready for the holidays, their execution day-to-day and commitment to our customers and members is as critical as ever. Thank you for your interest in our company. Over to you, John David.
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John David Rainey: Thanks, Doug. I'd like to start by thanking our customers, associates and partners for helping us deliver another strong quarter with better-than-expected results in sales, operating income and adjusted EPS. Sales were strong across all segments, and we gained U.S. market share in grocery in both units and dollars, while delivering gross margin rate expansion. Our focus on saving customers' time and money continues to resonate, especially in high volume seasonal periods. We have good momentum in the business. Year-to-date, we grew sales by over 6.5%, adjusted operating income by about 12%, and adjusted EPS by roughly 8%. With our Q2 results coming in better than expected, we're increasing our full-year guidance, and we're well positioned as we enter the back half. I'll discuss guidance shortly, but first I'd like to review highlights of our Q2 results using our financial framework of growth, margins and returns. Starting with growth. For the second quarter, constant currency sales increased 5.5%, or more than $8 billion. Walmart U.S. comp sales excluding fuel increased 6.4%, with growth in both store and digital transactions. Grocery, and health and wellness sales continued to outperform, and we are encouraged by the modest sequential improvement in general merchandise. E-commerce sales were up 24%, driven by store fulfilled pickup and delivery and advertising. We like the trends we're seeing in e-commerce. Customers are increasingly counting on us for convenience, and they're visiting our app and sites more often. In Q2, weekly active digital users grew more than 20%. Similar to Q1, consumer spending remains resilient at the headline level. Customers are stretching their dollars further and seeking better value across more categories more often. We see grocery staples and in-home meal options being purchased more often. Sales of general merchandise kitchen tools like hand blenders and stand mixers have inflected higher as customers are preparing more food at home. They're also buying more
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hand blenders and stand mixers have inflected higher as customers are preparing more food at home. They're also buying more necessities and focusing on lower-priced items and brands, and customers still want to celebrate key moments. Over the last year here in the U.S., we've partnered with suppliers to utilize rollbacks and offer select seasonal baskets of goods at the same prices as last year, essentially removing the impact of inflation. Customer response has been strong, and sales have exceeded plan for events like Memorial Day, 4 July and our Walmart Plus Week Savings event. We're taking a similar inflation-fighting approach to Back-to-school, with a basket of 14 of the most popular classroom essentials for under $13. In our international segment, sales were strong, up 11% on a constant currency basis, led by double-digit growth in Walmex, China and Flipkart. E-commerce grew 26%, and we experienced positive store traffic across markets. Similar to the U.S., customers are still pressured by elevated inflation with spend over indexing towards food and consumables. We're seeing higher private brand penetration across markets as customers globally look for a combination of value and quality. And Sam's Club U.S. comp sales excluding fuel increased more than 5% with member fee income up 7%. On margins, consolidated gross margins increased 50 basis points as we lapped last year's elevated levels of inventory markdowns and supply chain costs. These tailwinds were partially offset by ongoing category mix pressure, as grocery and health and wellness sales outperformed general merchandise. One of our strategic priorities is improving digital margins with an eye towards e-commerce profitability. I'm pleased with the progress we are making, particularly in Walmart U.S. contribution profit, which has been driven by fulfillment efficiencies and better product margins. We're leveraging our stores to fulfill more than 50% of digital orders, and activating our local delivery networks to get product to customers faster at
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to fulfill more than 50% of digital orders, and activating our local delivery networks to get product to customers faster at lower cost. At our Investment Community Meeting in April, I said that we expected 200 basis points of improvement in contribution profit this year, and we're on track to achieve that goal. We're also pleased with performance of our higher margin growth initiatives that reinforce our core omni retail model. I'll provide highlights on each of these. First, marketplace. We're continuing to scale our marketplace in the U.S. with new items and sellers. The number of customers buying items on our marketplace increased 14% in Q2. Sales were strong in both consumables and general merchandise categories, with double-digit growth across home, apparel and hardlines, and the number of sellers utilizing our fulfillment services increased more than 50%. In Mexico, we also expanded the number of sellers and items available on the marketplace, resulting in 40% GMV growth for the quarter. In Canada, we opened our first automated e-commerce fulfillment center in Alberta, which includes Walmart Fulfillment Services and expands two-day shipping to 97% of households. And in India, Flipkart's Myntra is the country's largest e-commerce marketplace for fashion and lifestyle products, offering top brands to customers across India. Myntra now provides access to more than 6,000 brands on its marketplace. Moving to advertising. Our global advertising business delivered strong growth of approximately 35%. In the U.S., Walmart Connect sales increased 36% in Q2, and the business has nearly doubled in size over the past two years. We're seeing strong growth in sponsored ads and increased demand for in-store activation. Advertiser count grew 60%, with strong momentum in new advertisers. Sam's advertising business grew 33%. The in-club sales attribution feature for search and sponsored ads has generated strong interest from advertisers. On average, advertisers are seeing a nearly 30% improvement on the returns of digital
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strong interest from advertisers. On average, advertisers are seeing a nearly 30% improvement on the returns of digital ad spend as they gain full visibility to the member journey from intent to purchase, both online and in-clubs. And in international, the advertising business grew nearly 40%. And lastly, membership, Sam's Club U.S. member counts increased mid-single digits with strong plus membership growth in renewals as plus penetration is up 1.3 percentage points versus last year. During the quarter, we achieved record member acquisition tied to Walmart Plus Week and continued to enhance the value of the Walmart Plus membership. We introduced Walmart Plus Assist, which provides a 50% discount off the regular membership fee for customers receiving government assistance. We also partnered with Expedia Group to launch new travel benefits for members. Turning back to the middle of the P&L. As expected, SG&A expenses were higher versus last year and deleveraged 33 basis points. This reflects higher variable pay expenses relative to last year when we were below our planned performance, tech investments and increased store remodel cost in the U.S. Partially offsetting this, international expenses leveraged significantly on strong sales growth. As we increasingly utilize technology in our business, we're pleased with the performance metrics from our newly automated distribution and fulfillment notes. Our automated e-commerce fulfillment centers are achieving efficiencies of 30% higher units per hour than non-automated buildings. We're also seeing increased productivity from the more than 15% of stores now being served by automated regional distribution centers. It's early in the rollout process, but we are encouraged that some of these facilities are driving operating leverage well beyond our initial expectations. Second quarter adjusted operating income grew more than 8%, and our adjusted EPS of $1.84 was up 4%. Our plan is to grow operating income faster than sales, and our second quarter performance achieved this
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of $1.84 was up 4%. Our plan is to grow operating income faster than sales, and our second quarter performance achieved this despite lapping the $173 million insurance settlement that benefited international's other income last year. Similar to Q1, below-the-line items were pressured by higher net interest expense, reflecting the increase in rates and noncontrolling interest due in part to stronger results from Walmex. The team continued to do a good job managing inventory, and we ended the quarter down 5%, including an 8% decline in Walmart U.S. We feel good about the progress we've made on in-stock levels as supply chain is normalized and the composition of our inventory mix is improved. We're maintaining discipline in how we're buying general merchandise during this uncertain macro environment to mitigate future risk if demand softens. ROI or return on investment, declined 100 basis points. As a reminder, we calculate ROI on a trailing 12-month basis, and the decline in Q2 is a result of nearly $4.2 billion in charges we incurred in Q3 and Q4 last year, related primarily to the opioid legal settlement framework and the separation of Flipkart and PhonePe. Together, these negatively impacted second quarter ROI by 140 basis points. As we lap these discrete charges in the coming quarters, we expect a stronger ROI inflection in the back half of the year. We're also starting to realize some benefits from productivity initiatives that were initially planned for fiscal year '25, and we continue to expect our ROI to increase over the coming years. I'll now briefly discuss some additional Q2 highlights for each segment. For Walmart U.S., our 6.4% sales comp included a high single-digit increase in grocery and a high-teens increase in health and wellness. Although general merchandise sales declined low single digits versus last year, these results were 300 basis points better than Q1, aided by outperformance from early Back to School shopping in our Walmart Plus savings event. We saw a 240-basis point shift in sales mix
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from early Back to School shopping in our Walmart Plus savings event. We saw a 240-basis point shift in sales mix from general merchandise to grocery and health and wellness in Q2. Grocery inflation moderated more than 400 basis points from Q1 levels and more than 700 basis points year-over-year to a high single digit increase as we lapped higher levels from last year. On a two-year stack, grocery inflation remained over 20%. We're encouraged by the growth in units sold, particularly in food categories where disinflation is more pronounced, such as fresh meats, seafood and eggs. In addition, private brand sales in grocery were up more than 9%, with penetration up nearly 40 basis points in Q2 and up more than 170 basis points on two-year stack. Lower markdowns and supply chain cost resulted in a gross margin rate increase of 40 basis points, despite ongoing pressure from category mix shifts. The negative impact to margin mix from outsized growth in branded drugs accelerated in Q2. Other income grew nearly 4%, led by continued growth in Walmart+memberships. And overall, Walmart U.S. operating income increased 7.6%. Our international segment delivered another impressive quarter with double-digit sales growth and strong underlying profit growth. Operating income increased 2.2%, but was negatively impacted by 20 percentage points from lapping last year's insurance recovery that I mentioned earlier. Walmex had another strong quarter with sales up 10%, reflecting strength in our Bodega stores, Sam's Club and E-commerce. E-commerce sales grew in the low 20s, with traffic up more than 5%. Walmex is an excellent example of our omnichannel retail strength across formats and channels. Bodega Aurrera is celebrating its 65th anniversary and has become the most valuable retail brand in Mexico. These Bodega stores have consistently delivered strong performance and continue to accelerate e-commerce to better serve customers, now offering more than 60,000 SKUs from 586 stores in 299 cities. In China, sales increased 22%, led by
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better serve customers, now offering more than 60,000 SKUs from 586 stores in 299 cities. In China, sales increased 22%, led by strength from Sam's Club and e-commerce. We're executing well with increased online and offline traffic across both the Sam's and hypermarket formats. In India, Flipkart delivered strong GMV and net sales growth as the core business continues to perform well. The team continues to focus on expanding the ecosystem of products and services like advertising, travel and healthcare, and on delivering continued contribution profit improvement. Flipkart's consistent progress and performance reinforces our confidence in the long-term value of this business. India is leading the largest digital transformation in the world, and Flipkart is the leading marketplace in India, and we continue to be super impressed with PhonePe's strong and consistent performance. Annualized TPV or total payment volume has surpassed $1.15 trillion, and for the first time, we processed more than 5 billion transactions in a single month. Sam's Club delivered another strong quarter with solid unit growth and e-commerce up 18%. It's encouraging to see members embrace omnichannel with strong in-club traffic gains and increasing engagement with our digital tools in and outside the Club. In Q2, utilization of Scan and Go increased 570 basis points, and curbside pickup saw double-digit growth. Similar to Walmart, sales strength at Sam's was led by grocery and healthcare categories as the members focused on value and essentials. While discretionary categories were pressured overall, items with compelling price and quality and strong value to market are driving sales. Sam's Club operating income was up 22%, due in part to lower LIFO charges. Turning to guidance. There continues to be a reasonable level of uncertainty in the economic backdrop for the balance of this year. While inflation has moderated and employment levels have been steady, credit markets have tightened, energy prices are higher, and some customers face
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and employment levels have been steady, credit markets have tightened, energy prices are higher, and some customers face additional expense from the resumption of student loan payments in October. As such, we continue to be appropriately measured in our outlook. We're raising our full year guidance to reflect Q2 performance and our expectations for Q3. I'll highlight the key changes, but please refer to the press release for a full list of updated metrics. For the full year, we now expect net sales in constant currency to grow approximately 4% to 4.5%. We now anticipate LIFO will be a $200 million charge to operating income versus the $500 million charge that was in our prior guide. We expect operating income in constant currency to increase approximately 7% to 7.5%. This now assumes a 30 basis point year-over-year tailwind from LIFO compared to our prior guidance, which assumed a 100 basis point headwind. And we estimate adjusted EPS to be in a range of $6.36 to $6.46, including an expected $0.05 impact from LIFO. To bridge to our prior guide, we flowed through the Q2 beat, removed the Walmart U.S. LIFO charges that were previously expected in Q3 and Q4 and modestly raised our sales expectations. Looking at Q3, we're now offering the following view. We expect net sales growth in constant currency of approximately 3%. Operating income growth in constant currency is expected to be approximately 1%. This year-over-year growth is impacted by several comparison factors. We expect ongoing mix pressure impacts to gross margin to continue in Q3. We also expect a negative impact from fuel margins at Sam's Club versus last year's elevated levels. And similar to Q2, variable pay expense is expected to be higher in Q3 versus last year when we were below our planned performance. We don't typically guide currency, but it's worth noting that if rates stayed where they are currently, we'd see a $1.6 billion benefit to Q3 reported sales and reported operating income growth would be closer to 3.5%. And lastly, we expect Q3
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billion benefit to Q3 reported sales and reported operating income growth would be closer to 3.5%. And lastly, we expect Q3 adjusted EPS of $1.45 to $1.50. In closing, we're pleased with the strong first half of the year, and we positioned the business favorably for the back half. Our financial performance is validating our omnichannel strategy, driving organic sales growth while improving margins and returns. We're optimistic about our ability to improve our performance even more in the future. We like our position. And now I'll hand it back to [Doug] for a few comments before the operator opens the line for questions.
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Doug McMillon: Thank you, John, David. Before we take your questions, I want to say a few words about the leadership changes we shared yesterday. Let's start by celebrating Judith. She has done a fantastic job in many roles over the 27 years she's been part of our company. She leaves her most recent role having delivered strong results and having transformed the business. It's a different portfolio, better positioned for the future, it's better positioned for growth on the top and bottom line. She strengthened our culture and sets us up for a digital future at the same time. We're grateful. We talked about Kath moving into the international leadership role. The results Kath and our team have delivered at Sam's speak for themselves. Her experience and passion to serve customers and members will take us to the next level. It will be fun to watch her impact around the world. Some of you met Chris Nicholas and know how capable he is. He joined us five years ago in a finance role but with previous experience in merchandising and operations in several markets around the world. He'll keep our member obsession going in Sam's Club U.S. and pick right off where Kath left off. We also shared yesterday that Kieran Shanahan will join John's team and become our Walmart U.S. Chief Operating Officer. Kieran has 25 years with our company working in a wide variety of roles in all three segments. He is well prepared to lead this big team and the change that's coming through our automation investments in the supply chain. As they build these new roles, John, Kath, Chris and Kieran will have all four worked in all three operating segments of our business. There's not only a lot of store and club expertise in this group, but there's also a great deal of digital and e-commerce experience. These are omnichannel merchants that are purpose-driven proven leadership skills. The depth of leadership in our company is such an advantage, but times get passed and we keep running, keep changing and keep pushing things forward. I want to say
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is such an advantage, but times get passed and we keep running, keep changing and keep pushing things forward. I want to say congratulations to all of them. And now I'll turn it back over to the operator. We're happy to take your questions.
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Operator: [Operator Instructions] Thank you. And our first question is from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Robbie Ohmes: Hi. Thanks for taking my question. Doug, you mentioned that you're seeing things in general merchandise, I think that make you more optimistic about the back half. Can you maybe talk about what you're seeing? I think John David said something about disciplined buying in general merchandise, what are you seeing that's making you optimistic? And how should we think about general merchandise? And maybe if you could also weave in there. I know that you guys have continued to mention the high income customer shopping. I think it's been more grocery focused. Have you seen high-income customers broadening out into the rest of the store?
Doug McMillon: Robbie, this is Doug. I'll go first and then John or others can add if they want to. What's making a little bit better as the run rate compared to the previous quarter and how back-to-school started? And typically, when back-to-school is strong, it bodes well for what happens with Halloween and Christmas and GM in the back half. I do think our food and consumables percent to total in Walmart U.S. will still go up. Part of it is what's happened with inflation and disinflation in the GM categories. But relative to what I would have thought 90 days ago or when we started the year, GM is holding up better than I would have guessed. And I just - I feel like that with our store managers and the merchants, we want to have an optimistic posture on GM as we go into the back half. Anybody want to add anything?
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John Furner: Doug, I'd like to - I give credit to the team for improvements we made. If you think about where we were last year with inventory headwinds for this year. I was in stores this week, and it's really clear that stores have the ability, and our merchandising their store with discretion appropriately. They're on top of their markdowns. Back rooms are in much better shape. The second thing, I think that's helping is the e-commerce team, has done a nice job launching new products, things like registry for teachers in classrooms and parents and lists. Those are all working and helping back-to-school. And then the last thing that I'd say is the team is doing a really nice job with seasonal events and holidays. One of the things that we hear consistently from customers right now as they're looking forward to celebrating again, like they used to. That's a bit of a theme that's coming through, and we certainly saw that from Memorial Day, July 4, back-to-school started strong. So, we look forward to the holiday. It's going to be a big holiday season. There are a lot of dynamics, as John David and Doug said in the market. But we want - to remain very flexible and prepared to help people get together, and celebrate each of these holidays that in front of us.
John David Rainey: There are also categories of general merchandise that on our marketplace saw double-digit increases, things like home, apparel, hardlines, which really gives you an indication of how our business, is changing as we're selling more third-party assortment.
John Furner: It is. And John David, I think our event, our plus event you mentioned in your remarks as well was a good example. We had a high level of participation from marketplace sellers. We've talked about the number of items available in the sites, up almost four extra a year ago. Our seller count has grown. The number of customers are growing. And Tom and the team have done a nice job building capabilities that will really help us in the future.
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John David Rainey: On the second part of your question, Robbie, with respect to high-income consumers, we continue to see share gains across all income demographics. I think encouragingly for us in the quarter, the number of categories that we saw share gain and actually expand it. But this has been pretty consistent for five or six quarters now. And it really points to the fact that our value proposition is resonating with customers. It's not just about everyday low prices. It's also about convenience and convenience matters to every household income demographic.
Operator: Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Katharine McShane: Hi. Good morning. Thanks for taking our questions. With gross margin expanding about 50 basis points in the quarter, is there a way to quantify the buckets of contribution between the higher-margin businesses like marketplace, and advertising, and the impact mix that's coming from the stronger grocery? And just given the more optimistic general merchandise commentary, is there any update to your mix assumptions in guidance for the second half when it comes to gross margins? Thank you.
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John David Rainey: The biggest contributors to the gross margin expansion were really just the lapping of some of the markdowns that we had last year. I would point you to that as the single biggest contributor. But that's not to take away from some of the progress, that we're seeing in terms of diversifying or expanding these other higher-margin initiatives, and advertising is one I mentioned in my prepared remarks, up 35% for the quarter. But equally as impressive or perhaps more impressive is the advertiser count was actually up 60% year-over-year in the quarter. And it stands to reason, if we're gaining share and customers are shopping with us then advertisers are going to want to spend their money where the eyeballs are. So, we're encouraged about this, and it really illustrates the sort of this flywheel element of our business is we get stronger in marketplace, and some of these other initiatives that enables us to go out, and be better in advertising, and other things that tend to have a higher margin.
Operator: Our next question is from the line of Oliver Chen with TD Cowen. Please proceed with your question.
Oliver Chen: Hi everybody and Judith, congrats as well. The guidance could be conservative based on the great quarter you just had. How are you thinking about what's incorporated in ticket and traffic for next quarter? And also as we look forward to holiday, what are some highlights of how you're planning inventory price point assortment, in practical, can often correlate to holiday. So that's very encouraging that you're seeing good performance there. And just a follow-up. You've done a great job with computer vision and your own networks, especially with inventory management. You called out generative AI and LLM. What are your thoughts about how that may intersect the Walmart+ and all the data you have on being a tech-enabled in terms of context and customer interaction? Thank you.
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Doug McMillon: I'll take the last one first. This is Doug, Oliver. Thanks for the question. I'm really excited about what's possible. And we've been working for a few years now to try, and get our data in better shape so that we can really put it to work. We still got room to improve there, but we have made progress. And when you start imagining what we can do to personalize for customers, and members more effectively while still living in an EDLP world and driving the business model that way, because that's the winning strategy for us. There's a great opportunity for us to be more anticipatory, and to be more relevant to them, and communicate in a way that shows that we know who they are in a healthy way, while protecting privacy. So having that data, go to work with our own large language models, and using large language models from others, presents a tremendous opportunity. And I think it will unlock a lot of use cases on the customer member side. As I mentioned in the prerecorded remarks, the opportunity with associates is also terrific. The supply chain is the third area that comes to mind. So, I think, this will be an opportunity for us for a really long time to try, and grow top line and be more efficient as a company by putting that technology to work.
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John David Rainey: I'll take the first part of your question on guidance and maybe start on holiday, before I turn to the segment CEOs. But on our assumptions on ticket and traffic, well, we saw a pretty equal balance between those in the second quarter, both were up, call it, roughly 3%. It would stand the reason that as we get into the back half of the year, and we lap some of these - some of the higher inflation from last year, that ticket in terms of balance between those two. We may see a little less in ticket. But we're really encouraged by, as we noted, the strength in units that we had in the quarter. So pleased about that. And again, we're gaining share here. So, I think our value proposition is resonating. With respect to the holiday, I'll just say one comment, maybe turn it to John. Consumers are not compromising on some of the holiday seasons. They're being choiceful in their spending, discerning. But around July 4 and some of the other holidays that we've seen, they're showing a willingness to spend. And we're - our team is leaning into that, providing merchandise that they want to buy.
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John Furner: They are - John David. And we've talked about this for a while that the flexibility in terms of what we offer is meaningful for customers. And the transaction growth. We're proud of the team. We saw that in eCommerce. We mentioned marketplace. Pickup and delivery have been strong. In-store traffic and transaction count has also been strong. So having an offering that's there for the customer. However, they want to shop, whenever they want to shop is helping us. And having as many locations as we do certainly is an important part of the equation when it comes to delivering. The last thing I would say is, is in general merchandise, and other categories where we have seen a number of rollbacks this year that are quite intentional. The results are really strong, whether it's the Justice 17-ish backpack or the Frito-Lay multi-pack from general merchandise to food, we are seeing rollbacks work across the business and customers are responding. They're choiceful. They're being thoughtful about what they buy, and our merchants have done a nice job of leaning in seasonally to ensure that our rollbacks are in the right places for the customer.
Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Rupesh Parikh: Good morning, and thanks for taking my question. So, I wanted to go to the international business in China specifically. I was hoping to get more color in terms of what you're seeing in the market. Now for the second consecutive quarter in a row, your results seem to stand out versus some of the weaker macro data points that we're seeing out there in China.
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Judith McKenna: Hi. Yes. Thank you. I mean, the quarter was strong for international overall. And as you heard both John David and Doug mentioned, China was one of the stronger markets that we had along with Walmex, which had a 10% growth. And both of our businesses in India, Flipkart and PhonePe, both had strong quarters as well. A lot of that is driven from just really being close to the customer in those markets and the combination of value and convenience that we're now able to offer. Turning to China specifically, I actually got back to China this quarter for the first time in 3.5 years. What really struck me when I was there was the speed with which the consumer has moved. So, the move to online and digital penetration has been extraordinary in our business. It ranges in the mid-40% that we're seeing. And we have two formats there. We have the Sam's Club format and we have the hypermarket format. And what's interesting is both formats have got positive traffic and both are gaining market share. And I think the reason for that is that back to this combination of value and quality and trust that we're able to provide. Sam's Club, in particular, had a really strong quarter again, and we opened a couple of new clubs. We now have 45 clubs across China, and they're really combining great items at great value. And they're seeing an interesting trend in higher penetration of very high-ticket items in China too. In the hypers, I got a chance to visit some of our re-modeled new version hypermarkets. You've heard me talk a couple of times about the transformation in hypers that's ongoing, and I was really impressed with the thoughtful way in which the teams there have reduced assortment, brightened and freshened stores, increased signage, helps customers navigate not only through great fresh departments, but also made the general merchandise shopping much simpler. So, I think you have two formats there, both of which are leading in the segments in which they operate and that's helping us win customers. And our
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two formats there, both of which are leading in the segments in which they operate and that's helping us win customers. And our associates, I will just say there are doing a fantastic job, and it was just great to see them after such a long time.
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Operator: Our next question is from the line of Paul Lejuez with Citi. Please proceed with your question.
Paul Lejuez: Hi, thanks, guys. Curious within food and grocery, how you would characterize the current landscape from a promotional perspective relative to last year in history? And how are you thinking about price investment as a tool to gain further market share, just given the changes in inflation expectations? Thanks.
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John Furner: Compared to a year ago, Paul, certainly, inflation is at a lower rate than what it was. It's been relatively stubborn in dry grocery more than other places over the course of the year. Price gaps are something that we spend a lot of time on each and every week. We start Monday talking about trading and what's happening in the market, price is always one of the major topics. We would assure that our value are right, and we are pleased with where the value is today. The grocery business is gaining share. Certainly, we're going to watch the market. As I said a moment ago, we do have a number of rollbacks that are effective in food. Our rollback count in food is higher than last year. It is lower in general merchandise than a year ago, but a reminder that last year we were clearing a lot of inventory that had been backlog, so the general merchandise rollbacks which are very effective are more choiceful, and I think reflective of the seasons that people are in. So, our job from here is to ensure that we're ready for people that are getting back to school all across the country in the next couple of weeks, colleges, we have tailgating season coming up Labor Day, and we're right into the holiday food season. I'd say, too, I felt promotions is the easy solution to inflation versus doing the hard work of working with your suppliers to walk back all the commodity and cost increases that kind of have been absorbed over the last 2 years. So there's a lot of work in just tracking the cost of transportation. And then as that's come down, working back with each supplier to have a look at what proportion of the cost is impacted by that and how do you roll that back. So I know in Sam's, the team have a great big board. They ring a cowbell every time we get a cost decrease. And you flow it on to the member. And I think that's how we want to think about it versus thinking about how do we go out and do promotions.
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Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Good morning, everyone. Judith, congratulations, and to every promotion, congratulations. My question is more medium term. I wanted to ask about the inflection on EBIT dollar growth. At Shareholders', we talked about how in fiscal '25, it should or could get better than where we are today, realizing we're lapping some easy compares from last year right now. Can we hone in on what needs to take place for this EBIT dollar growth inflection? Assuming healthy sales, leverage over fixed cost, Marketplace ramping, is it advertising? Can you talk about sort of what's in your control and what's more sales-driven as we think about EBIT growth going forward?
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John David Rainey: Sure, Simeon. I'll start with maybe a bit of a victory lap here. Because the first half of the year has actually been pretty good in terms of the relationship of operating income and sales. We've grown the top line at, call it, 6% and operating income at almost twice that. And that's much better than what we've done historically. So we're very encouraged internally that we're executing so well right out of the gate after sharing our goals at our Investor Community Meeting in April. As we get into next year, really what you're going to see is more of a continuation of the strategy that we laid out is we further diversified our earnings streams. A lot of these areas, like advertising and data ventures, these higher-margin businesses are growing at a rate much, much faster than the rest of our business. And so as you look at the math around that, our margins just want to go up. The other thing is, as you're well aware of, Simeon, are the efficiencies that come from our supply chain. And so today, we have roughly 15% of our stores that are served by automated regional distribution centers. And when you think about something like an e-commerce FC, that gives us efficiencies of upwards of 30% on things like units per hour. And so as we continue to roll out this automation to the rest of our network, we're going to see the benefits of that in our P&L. You're seeing it right now. And it gives us conviction and optimism as we look out over the next several years to be able to grow operating income at a rate that is faster than sales and perhaps appreciably faster than sales.
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Doug McMillon: Simeon, this is Doug. I'll just add on. I think John David said it well, the two threads, the two questions are how is the automation work going? And how is that playing through as it relates to productivity? And that's a multiyear implementation of these various forms of automated storage and retrieval systems that we've talked to you about. And then the second one is how is the business model changing? And the engine for that is what's the digital percent of total, how is e-commerce growing and what's the pull-through to advertising and the other components that shape that business model. And the reason I'm repeating it is because I wanted to make the point that it's not just the Walmart U.S. business that's going through that transformation. As I've been traveling in International in the last few weeks, the commonality from Canada to Chile, and Judith had that team from Mexico in town this week, what Gui and the team are doing there, it's very consistent as it relates to how omnichannel retail is coming to life across our company. So I think those are the two threads to keep your eye on.
John David Rainey: You didn't frame the question, Simeon, in terms of return on investment. But I want to take an opportunity to talk about that. When we get to the end of this year and you look at our ROI on a trailing 12-month basis, we're going to see fairly material uptick if you look at our guidance, what's implied there. And that's more than what we expected at the beginning of the year. We actually anticipated that some of the improvements in ROI would be - would come next year and some of the years thereafter. We are actually pulling forward some of those benefits that we expected next year. And so we're going to see some of that this year.
Operator: Our next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.
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Operator: Our next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.
Kelly Bania: Good morning, thanks for taking our questions and congrats on your retirement as well, Judith. Wanted to just ask about e-commerce growth, 24%, I think, implies some pretty big market share gains but led by pickup and delivery. And I was curious if you could also just give us a sense of how Marketplace and 3P is ramping relative to your expectations and how, if at all, that's impacting the general merchandise comp. And related to that, I guess, as you think of long term about the profitability of advertising, is there a similar opportunity on the food and consumables side? Or is it better to have discretionary and 3P a greater mix of e-commerce as it relates to growing advertising profitability?
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Doug McMillon: Hi, Kelly, thanks for the question. One, really happy with the performance. And the team deserves credit for a lot of improvements that enabled the 24% growth. When we talk about pickup and delivery specifically, I think I would take a step back and just remind everyone what we talked about at our investor conference and what we're ultimately trying to do with supply chain in the entire e-commerce business, is densify our inventory at the first mile, make the middle mile as efficient as possible and then shorten the last mile. And our store locations, over 4,700 locations in addition to the fulfillment centers, enable us to do that. So what's happened over the last year or so is more of our e-commerce business and deliveries have come from stores because that's where the inventory is closest to the customer and helps us with efficiency. So it's important to frame that, that is a part of the total. The way we measure this internally as we look at the number of transactions and customers and what they bought in the store, what they picked up and what was delivered. The second part of your question, really pleased with the progress in Marketplace. Our Plus event was a good marker for us in terms of what's possible. With the Marketplace, a majority of our revenue from that event was driven by Marketplace sellers. And I'm thankful to the sellers who participated and helped us find customers or helped our customers find value at a time when they're looking for value. And that was across all categories, including general merchandise. In fact, much of the event was general merchandise. So I think the team has positioned the Marketplace well. And in terms of the second part of your question with advertising, there are opportunities for sellers. There are opportunities for suppliers. We'll continue to learn, grow and experiment in stores and on the site. We want to ensure that Walmart Connect, the name Walmart Connect, connects our buyers, suppliers and sellers all to our customers in a way that's accretive
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Connect, the name Walmart Connect, connects our buyers, suppliers and sellers all to our customers in a way that's accretive to the customer experience. We want to make sure that customers are finding what they want when they want it. And if this business can help people connect together, that's great. And we saw that happen in the quarter. And the growth was higher than our e-commerce growth.
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Judith McKenna: If we're talking about e-commerce and Marketplace, it would be particularly be remiss of me not to talk about Flipkart and the growth that we've seen there. We were there as well recently. And that business is just continuing to go from strength-to-strength. It's consistently performed in line with our expectations over the last few years. I'm really pleased to see the positive contribution margins continue and then their business mix is really quite healthy. So seeing strength in hardlines, particularly across mobile and electronics as well. The scaling of their ecosystem is also helping contribute not only to the overall business, but also to their advertising revenues well. So interesting, coming back to this theme of quality and convenience to people, they recently launched in their Cleartrip business, luxury packages of holidays in India, which are going incredibly well as well. Myntra, which is the largest fashion online retailer in India as John David mentioned as well, they've just launched a MyFashionGPT capability as well, which is quite incredible. And I used it this morning. I put in, what to wear to go to the airport? And they gave me, to England, to the airport. And they gave me, Black T-shirt, black leggings, a jacket and sunglasses, which I think was rather optimistic using the sunglasses for England. But it shows you the power of what I think gen AIs can do in the future. And it's really coming to life in India. It's just a great business, and be proud to be able to be associated with it for the last five years.
Operator: Our next question is from the line of Edward Yruma with Piper Sandler. Please proceed with your question
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Operator: Our next question is from the line of Edward Yruma with Piper Sandler. Please proceed with your question
Edward Yruma: Hi, good morning. Thanks for taking the question. You guys have done a lot to enhance the accessibility at Walmart+. You've added a ton of new features. I guess, as you sit back and assess the success of the program, kind of what's turned the dial the most? And then in terms of the data you're able to now collect, where have you been able to kind of pivot and change the flow of business based on some of the stuff that you're collecting from these Walmart+ customers? Thanks.
Doug McMillon: Hi, Edward. Certainly, we want to have a digital relationship with as many customers as possible, pleased with the growth overall. And as we've talked about before, Plus is an important part of the offer we have. I would pull the reason back that Plus has had more success to the very core of the offer. The offer was established to limit the number of deliveries people get without having a charge on those deliveries from both the fulfillment centers and the stores. We launched this in 2020, certainly had issues at that point with availability. And we've had inventory imbalances. But in the last year or so, the focus continues to be and improvements have been in the core, where we measure every week something we call perfect order. The stores are very focused on what we call the first-time pick rate, which is picking the order the first time they look for it. And then another thing that we do very intentionally is measure what percent of the order was delivered before there were any substitution. So what customers are looking for is exactly what they ordered at the time that they expected it to be delivered. And that's the way we hold ourselves accountable. Certainly, the other benefits are helpful. There are different features that people are using. And it is important to have a variety of benefits. But the core of the offer is the most important thing that we have to execute going forward.
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Operator: Our next question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Hi, good morning, everyone. I wanted to follow up on the value proposition that Walmart offers today. So private label seems to have a lot of momentum and is likely one of the factors that's helping drive market share here. How are you managing private label differently than in the past? And how do you think that plays into the competitive gap here more from a basket-level perspective? And then ultimately, do you think that this advantage is sustainable even in an environment where maybe inflation moderates or prices decline? Love some perspective on that. Thank you.
Doug McMillon: It's important for us to have a wide range of assortment for a broad section of customers, where all over the country, situations are different for different customers. And whatever the situation is for any particular customer, then that's what we want to be there for. We've talked about this before. We don't set targets or percentages of the business that we expect private label to grow to or be a part of. It's important that we have values on brands, on branded items. It's important that we have values and quality across the portfolio in e-commerce and stores. And in the last few quarters, customers have chosen the private brands at Walmart at an accelerated pace. I think there are a lot of reasons for that. But if our quality and price were in the position that it needs to be, then they wouldn't repeat. So we'll continue to stay focused on quality and value there.
Kathryn McLay: Yes. And I think from a Member's Mark perspective, we have seen our metrics around value for money and NPS and quality, our Member's Mark has continued to improve. And we're seeing members choose it because of the quality of the item, because of innovation into those products and also because the great value that they get out of the Member's Mark, price/quality combination.
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Doug McMillon: We're seeing leverage across markets with private brands, too, whether it's Great Value or Member's Mark.
Judith McKenna: Yes, Member's Market, of course, is available in our Sam's Clubs globally, around the world but also many other items as well. And I know you were in Chile recently, Doug, and they have a phenomenal international foods aisle, which is showing incredible growth, many of which are private brands, which are imported from around the world, from the rest of the Walmart world.
Doug McMillon: When I was in Canada, they made me Great Value tomato ketchup potato chips. I'm out on that. But that's not - I'm sure Canadians love it, but that's one private brand item that I'm not a fan of.
John David Rainey: You made some of us eat that.
Doug McMillon: John David liked him better than I did.
Operator: The next question is from the line of Corey Tarlowe with Jefferies. Please proceed your question.
Corey Tarlowe: Hi, good morning and thank you for taking my question. I was wondering if we could just take a step back and assess the health of the overall customer maybe in the U.S. and also perhaps internationally versus the first quarter and into the second quarter? And how you're thinking about the general health of the customer throughout the remainder of this year? And then just secondarily, on shrink, what are you seeing as it relates to shrink? And what are you expecting ahead as we think about that particular dynamic?
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Doug McMillon: From an enterprise point of view, just on the customer and member first, and others can chime in on that, I feel like that our position is one where if things do get tougher, they're going to increasingly look for value and we're going to be able to grow the top line. Hopefully, things do get better. And there are a lot of conflicting data points, but you guys see the same data that we do. There are reasons to be optimistic in areas like employment and the wage inflation that's happened. And there are other reasons to be concerned - as consumer balance sheets potentially weaken over time. But again, we like our position. We like it in terms of the breadth of product categories we can sell whatever people want to buy. We like it in terms of the way we can serve people, whether its curbside or its delivery or it's in a store club. So our job is to grow our share to win through the customer value prop, which is price, assortment, experience and trust. And whether that's in Mexico or the United States, that's the position that we put ourselves in, and we just need to execute against that. On shrink, John, you can comment too, but I'd just remind everybody, from a total enterprise point of view, we're more than a domestic retailer. And we've got 19 countries. We've got Sam's Club. We've got a variety of businesses. And so, it's not necessarily the same answer as maybe some of the others that are in the news of our shrink.
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John David Rainey: And Doug, I'd add that, of course, shrink is an important part of margin, but there are many parts of margin that are important to be able to deliver for customers. And the first is, we want to make sure that we're pricing as low as possible. So customers find the greatest value that they can possibly find. Shrink has increased a bit this year. It increased last year. It's uneven across the country. It's not in every market. Some markets are higher than others. But we do have the tailwinds that we mentioned earlier, which are cost of supply chain and markdowns from last year. So lot components go into this. We'll keep watching it. We don't want it to go up, obviously, because it could cause prices to rise, and we've heard that across the market, but it is a part of what we're managing and the team is doing a nice job with value, and the team is doing a nice job managing the margin in total.
Doug McMillon: Shrink is comprised of more than one thing. That's part of it. And we do think that in some jurisdictions here in the U.S., there needs to be action taken to help protect people from crime, including theft. The other part of Shrink is more controllable, and we stay focused on that as a priority.
Operator: Our next question is from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.
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Operator: Our next question is from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.
Krisztina Katai: Hi. Good morning. Thanks for taking our question. And I'll add my congratulations to Judith as well. I have a question on Sam's Club. I think I heard you say in the single-digit member growth within the quarter. So can you talk about your membership gains and the momentum that you have been seeing in the business as well as the renewal rate? And how you think about membership value for the consumer in the face of moderating food inflation? And then secondly, if I could just ask on the private label penetration that is still increasing. Just how are you generally anticipating volumes to play out in the back half of the year between your private brands versus your national brands as rollbacks are increasing? Thank you.
Kathryn McLay: If I start - is just talking about the member health. We've seen historic growth in our membership base over the last few years, and we continue to see growth in absolute member numbers. Our tenured renewal rate held, so it did an increase or decrease it held from quarter-to-quarter. And we are continuing to look at different ways to introduce people to the value of our Sam's Club membership. And so, you've seen us over the years, try a couple of different things. On our 40th year birthday, we had a great price for new members. Really, that's just an opportunity to invite people in, to experience for themselves the value of membership looks like, and then we want to turn them into a tenured renewal member going forward. So, we feel strong about the health of our membership and the growth that we've seen.
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John Furner: And Walmart - on our membership, consistent growth last few quarters, but we really did have a successful plus event, really good results all across the business. As I said earlier, the core of the offer is the most important thing that we deliver, and that includes perfect order or fill rates and availability. Customers trust us to be able to deliver their food, consumables and general merchandise items consistently and on time. On the question on private brand volume, I would also just repeat consistency over the last couple of quarters, and we've talked about growth of private brands really since the beginning of 2022. Again, we don't have targets on that. We want to be there for customers regardless of what they choose, whether it's a branded item or a private brand item on private brands. We stay focused on quality and value. And in some cases, like if you're in a store today, you would see a rollback on great value mustard, and it's working really well. It's a staple that has seen really great growth, because of values that we offer. So getting prices back down, and dry grocery is important for the consumer, and we want to be able to help them, and lead that in any way that we can.
John David Rainey: If I can just say one other thing on private brand. We discussed that because I think it gives a good indication on how the consumer is being pressured right now, but that is not a driver of our margin performance. While the overall margin on private brand may be a little bit higher, the dollar profit is about the same. And if you look at the shift in composition year-over-year, we're only talking 40 basis points. So this is not a driver of our financial results. So, if we see a reversion there, it's not going to have any outsized impact on our business.
Operator: Thank you. Our final question comes from the line of Michael Lasser with UBS. Please proceed with your question.
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Operator: Thank you. Our final question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thanks so much for taking our question. Doug, is it fair to think that Walmart has more visibility into its gross margin rate heading into next year than it has in recent memory, given the inflection in the profitability of the eCommerce business, the contribution from alternative profits, presumably less of a drag from GLP-1 drugs and the prospect that general merchandise is better. And if that is fair, do you take this as an opportunity to double down and accelerate some of the investments that clearly have been working and translating to share gain? Thank you.
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Doug McMillon: Hi, Michael. Thanks for the question. We didn't see COVID coming, and we didn't anticipate inflation to be as high as it - has been in the United States. So, if you could tell me what we're not anticipating right now, I might be able to answer your question about next year, I think your underlying premise that we kind of know what the shape is, and we're not in this position that we were 12 months ago with inventory has got some truth to it. As it relates to doubling down, I think we are being aggressive. We are currently going through our long-range planning cycle. And as we look at our opportunities to invest next year and over the next five years, we look at that board, and we get excited about it. John David made the point in a meeting earlier this week. It isn't it cool to be a part of a company that started in 1962 that sees opportunities to drive strong returns. With today's investments to help you contemporize the business for the future, and I agree with that. Like it's a really cool spot to be in. To have cash flow to have this strong business and to have opportunities in front of us that transform the business, and create another level of operational excellence through productivity, for example. So I think we've got an aggressive plan. We talked at the investor conference about our capital plan. And we continue to see opportunities to invest to grow top, and bottom line. We expect ROI to go up over time. It may not happen that every quarter, operating income grows faster than sales. But over time, as we said at the investor conference, we expect that to be the case, because of productivity in the business model shape. So, I'll just repeat what we said there. I think we're being appropriately aggressive given the environment. And I'm excited about that.
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John David Rainey: Yes. I would just add, Michael, just like you view a portfolio of stocks, you diversify, because it reduces the risk. I think in some ways, we're doing the same thing with our business. We're not solely dependent upon just what's happening with brick-and-mortar retail. Like we've got other income streams that, by definition, sort of the diversification of that, reduces our dependency on any one thing, and also reduces the risk around that, too. So, we feel pretty good about our outlook.
Doug McMillon: Just maybe one more comment on strategy. As we go through this year's cycle, and I think this was true to a large degree last year, I mean it's pretty common, but we know what the components are. And it's a challenge to execute across multiple fronts. And it's full-time work to run great stores and clubs. It's also a full-time work to grow an excellent eCommerce business, and there are lots of components to that, and it's got to happen around the world. But we've got the resources. And importantly, we've got the talent to do it. And so, I think the shape of that board kind of the where-to-play aspect of our strategy looks pretty consistent, and that builds confidence. We just - we're in execution mode, and we like the plan that's right in front of us.
Operator: Thank you. We've reached the end of the question-and-answer session. And I'll now turn the call over to Doug McMillon for closing remarks.
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Doug McMillon: Before I wrap things up, I just want to acknowledge the tragedy that happened in Hawaii in Maui. The company has stepped forward with financial support for the United Way and Red Cross, as you would expect, we're providing essentials providing supplies. We're flying merchandise there. We're bulking up on what people need. And our team on the ground has done a fantastic job. Our store manager there is Chris Pierce. And Chris and his team have supported the community there, as you would expect them to, and we're really proud of them. That was a terrible tragedy. I mean as we wrap up, I'll thank you for your focus on our business. As I mentioned just a second ago, we are really excited about what's in front of us. I think you know what the plan is. We're positioned to grow the top line. Over time, we can grow profit faster than sales through productivity, and shaping the business model differently, which will result in higher levels of return on investment, and we're excited about delivering that. And I'm grateful to what everyone did for this quarter. And I want to thank Judith for what she's contributed to this company. It's been really significant, and we're going to miss her. Thankful, she's sticking around for a little while to help with some things, and I'm excited for Kath and Chris and Karen. Walmart's got a deep bench, and we'll keep going. Thank you all for your time.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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Operator: Greetings. Welcome to Walmart's Fiscal Year 2024 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I'll now turn the conference over to Steph Wissink, Senior Vice President of Investor Relations. Steph, you may now begin.
Steph Wissink: Thank you and welcome everyone. We are excited to discuss the results of a strong first quarter and our upwardly revised outlook for the year. Joining me on the call are Walmart's CEO, Doug McMillon; and CFO, John David Rainey. Following prepared remarks from Doug and John David, we will take your questions. At that time, we will be joined by our segment CEOs John Furner from Walmart U.S., Judith McKenna from Walmart International, and Kath McLay from Sam's Club. In order to address as many of your questions as we can in the time allotted for this call, please limit yourself to one question. The operator will mute your line after your question has been post. After management has responded we will move to the next person in line. Today's call is being recorded, and management may make forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Please review our press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements as well as our entire Safe Harbor Statement and non-GAAP reconciliations on our website at stock.walmart.com. Thank you for your interest in Walmart. Doug, we are now ready to begin.
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Doug McMillon: Good morning and thanks for joining us to discuss our Q1 results. We had a strong first quarter. Sales growth was strong globally, including growth of 26% in e-commerce. Profit grew much faster than sales and we made further progress on inventory levels. The omnichannel model we're building continues to resonate with customers and members. As expected, a higher mix of sales in the food and consumables categories negatively affected gross profit, but strong expense management and progress with our newer mutually reinforcing businesses helped us grow profit ahead of sales at 17.3%. The business model we outlined at our recent investor conference is taking shape. International had a great quarter, continuing our momentum from last year. Sales grew 12.9% in constant currency and profit grew even faster at 41%. China, Walmex and Flipkart all saw double-digit top line growth. In China, the reopening of the economy coincided with the Chinese New Year season and that drove traffic to our clubs and stores. Sam's Club China continues its strong performance. For India, a group of us were there last week and we left even more excited about our opportunities. Flipkart and PhonePe are doing well. Our Walmart tech team there is strong and we have a big opportunity to increase our exports from India across quite a few merchandise categories. In the U.S. both Walmart and Sam's Club performed well with good transaction growth, positive units in food, and strong e-commerce growth. We continue to gain market share in the grocery category, including with higher income and younger shoppers and we saw good growth in membership income in both businesses. At Sam's Club, U.S. member count and plus member penetration hit all-time highs in the quarter. Our growth is now being driven by convenience in addition to price. We see it across formats and income and age cohorts. In terms of inventory, we're in good shape and stock is improving and excess inventory keeps coming down. We see it in the numbers and I'm seeing it on
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in good shape and stock is improving and excess inventory keeps coming down. We see it in the numbers and I'm seeing it on store and club visits. Globally customers continue to seek value given the impact of inflation. We see it in the U.S. and in other markets like Mexico, Canada, and Chile. Private brand penetration is up about 110 basis points versus last year for Walmart U.S. and 50 basis points for Walmex. We continue to manage our price gaps and deliver value for our customers. In Walmart U.S. general merchandise costs are now lower than a year ago, which is great, but they're still higher than two years ago on like items. In the dry grocery and consumables categories like paper goods, we continue to see high single-digit to low double-digit cost inflation. We all need those prices to come down. The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families we serve. This stubborn inflation in dry grocery and consumables is one of the key factors creating uncertainty for us in the back half of the year because of the cumulative impact on discretionary spending and other categories, specifically, general merchandise. We think we've got guidance where it should be reflecting the appropriate amount of conservatism given the external environment. We feel very good about our performance, our multiyear momentum, and our ability to serve people however they want to shop and do it at a value. We're executing well and performing well in all three segments. John David will say more about how we're thinking about guidance in a minute. As we look ahead to Q2 and the rest of the year, we're focused on getting our merchandise costs and retails down to fight inflation for our customers and members, which will help us with mix, pick-up and delivery execution, whether that comes from a store or an FC, expense management, and inventory management by item and category. There are places to play offense and there are places to be more conservative. We
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inventory management by item and category. There are places to play offense and there are places to be more conservative. We shouldn't be treating every category the same way and we aren't. We're playing offense where we should and controlling what we can control. Last month, we hosted our investor meeting in Florida where we visited a DC store and a Sam's Club. For those of you that made that trip, thank you. We really enjoyed it and hope you did too. We had three takeaways. First, we're positioned to grow because we can serve customers and members however they want to be served. Second, over time, we expect to grow profit faster than sales and improve operating margin due to productivity improvements and the mix of businesses. And third, we will be disciplined with capital to improve ROI as we grow operating income. I hope you can see how the investments we've made in recent years are driving results. We added nearly $11 billion in sales in Q1, delivered 58 basis points of expense leverage, and expanded operating margin by 34 basis points. As for returns, we want operating profit growing faster than sales and we expect to see an inflection in ROI in the coming quarters as we begin to lap large one-time items from past quarters. The investor meeting also gave us an opportunity to show off a piece of the automation we're working on in an ambient DC and while it's an important piece of what we're building, our overall set of capabilities go far beyond that. We're building a more connected, intelligent, and automated network. We're adding market fulfillment centers or MFC's, which utilize automated storage and retrieval systems and we expect to add thousands of electric vehicles to support our last mile delivery capabilities. It's about creating a supply chain that's better, not just bigger. We're excited about how our new capabilities will help our associates by making some of our more physically demanding jobs into more rewarding, higher skilled career paths. We're hosting our annual shareholder’s week events
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physically demanding jobs into more rewarding, higher skilled career paths. We're hosting our annual shareholder’s week events in a couple of weeks here in Northwest Arkansas. Part of the experience will include a tour of an MFC we've just opened. It'll be a good chance to see another piece of what we're building. I'll close by saying thank you. Thank you to our associates for helping us deliver another strong quarter. We're proud of them and pleased that both Walmart and Sam's Club in the U.S. were recently certified as a great place to work by the industry leader in workplace excellence. Thank you for your interest in our company. Now over to John David.
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John David Rainey: Thanks, Doug. I'd like to start by thanking our customers, associates and partners for helping us deliver a strong quarter to start the year. Despite a challenging macro environment, the team executed and we've made progress advancing our various strategic initiatives. I'll begin by reviewing highlights for the quarter using the framework of growth, margins, and returns. Then I'll spend a couple of minutes reviewing key themes for our recent Investor Day before detailing our updated guidance. Starting with growth, for the first quarter constant currency sales increased nearly 8% or about $11 billion with strength across all segments. Walmart U.S. comp sales, excluding fuel, increased 7.4%, including 27% growth in e-commerce. After a strong start, sales growth moderated as the quarter progressed. The 90 basis point deceleration and comp sales growth from Q4 was driven by pricing and the effect of lapping higher inflation rates in the prior year period. We continue to gain share and grow unit volume and grocery. This was consistent with our expectations on how we built our plan. At the headline level, consumer spending has proven resilient, but below the surface, we continue to see signs that customers remain choiceful, particularly in discretionary categories. In Q1 we saw a nearly 360 basis point shift in U.S. sales mix from general merchandise to grocery and health and wellness. To benchmark the magnitude of this shift exceeds the 330 basis points of category mix shift we experienced in all of last year. In addition to the persistence of inflation and food and consumables, customers were also impacted by a reduction of SNAP benefits and lower tax refunds. These impacts were partially offset by higher spending tied to an increase and the cost of living adjustment for Social Security Benefits. In our international segment, sales were strong, up nearly 13% on a constant currency basis led by double-digit growth in China, Walmex and Flipkart. Many of the same impacts on consumer spending in the
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currency basis led by double-digit growth in China, Walmex and Flipkart. Many of the same impacts on consumer spending in the U.S. affected our international markets too. And Sam's Club U.S. comp sales increased 7% with member fee income up 6.3%. Average spend per member increased mid-single-digits. Now on margins, consolidated gross margins decreased 18 basis points with ongoing pressure from category sales mix globally. This headwind was partially offset by a reduction in supply chain and freight costs relative to last year's heightened levels. Category mix was a notable headwind across geographies and formats. Walmart U.S. general merchandise sales declined mid-single-digits while food and consumable sales increased low double-digits. Headline inflation and food and consumables came down over 400 basis points from the start of Q1 to the end of the quarter. But prices remain high and customers are being cautious with their spend in discretionary categories. And while we make attractive margins in food and consumables, they have a lower margin than general merchandise. We expect category mix to remain a gross margin headwind for the balance of FY 2024. The higher margin initiatives that are connected to our core Omni retail business, including marketplace, advertising, and membership continue to meaningfully outgrow the base. I'll discuss each of these. First, marketplace and fulfillment services. We're growing our marketplace with new items and sellers and an improved experience. We've increased seller counts in the U.S. by more than 40% year-over-year and the number using Walmart fulfillment services has more than doubled. We're adding higher profile in demand brands that our customers are searching for but not typically distributed at Walmart elevating our profile as a digital shopping destination. And in India, Flipkart's e-commerce platform continues to scale, growing first time e-commerce customers and expanding its reach in tier 2 and tier 3 cities. Flipkart's e-cart business now includes more than
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e-commerce customers and expanding its reach in tier 2 and tier 3 cities. Flipkart's e-cart business now includes more than 35,000 Kirana partners as well as providing fulfillment services for Flipkart sellers and other third parties. Moving to advertising, our global advertising business delivered strong growth of over 30% in Q1. In the U.S., Walmart Connect advertising sales increased nearly 40% as we experience strong momentum and new advertisers, particularly from marketplace sellers. And the number of three piece sellers utilizing our ad capabilities has doubled over the past 12 months. Sam's Club ad business called Member Access Platform grew double-digits with the number of active advertisers up more than 50% versus last year. Advertisers are responding to our recently launched in club sales attribution feature which provides advertisers with clear insights on the returns of digital ads been both online and in clubs while enhancing member experience. And in international, the advertising business continued to show strength, led by Flipkart ads, which was up over 50%. And lastly, membership. Sam's Club member counts have had a multiyear run of robust growth with another record high achieved in Q1. Member counts have grown nearly 30% over the past three years and we're increasingly attracting greater numbers of millennials and Gen Z. We also like the trends we're seeing from Walmart Plus members. Nearly 50% of our Walmart Plus members are coming from the online pickup and delivery channel. Members spend more than non-members. They shop with us more frequently and the membership deepens engagement, helps enable personalization, and allows us to offer more services and to provide more offers on things that are important to our customers. Turning back to the middle of the P&L, SG&A expenses leveraged 58 basis points aided by strong sales growth across the enterprise, a continued focus on managing cost into moderating sales growth as inflation lessens, and lapping some COVID related wage cost in the U.S.
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focus on managing cost into moderating sales growth as inflation lessens, and lapping some COVID related wage cost in the U.S. last year. Taking all this together, our operating income grew more than 17%. This is relative to sales growth of nearly 8%, which resulted in operating margin expansion of 34 basis points, reinforcing the financial framework that we laid out at our Investor Day. As signaled when we issued FY 2024 guidance in February, several below the line items impacted our Q1 earnings results including higher net interest expense. Q1 net interest expense was more than $550 million and we issued 5 billion of debt at favorable rates. Non-controlling interest was also higher in the quarter due in part to stronger results from Walmex. Adjusted EPS of $1.47 was better than we expected as sales outpaced our plan and cost leverage exceeded plan. GAAP EPS was $0.62, the difference between adjusted and GAAP EPS reflects an $0.85 impact from unrealized gains and losses on equity investments. The team continued to do a good job managing inventory and we ended the quarter down 7%, including a more than 9% decline in Walmart U.S. Managing cost and inventory are two of the key controllables as we navigate an uncertain macro environment. We're improving inventory efficiency and merchandise flow and addressing placement in order to better serve customers, improve store in stock levels, while also mitigating future risks if demand softens. Let me take a moment to discuss our returns or specifically return on investment or ROI which declined by 120 basis points this quarter. We calculate ROI on a trailing 12-month basis. As such, the decline in Q1 is a result of nearly 4.2 billion in charges we incurred in Q3 and Q4 last year related primarily to the opioid legal settlement framework and the separation of Flipkart and PhonePe. Together these negatively impacted the first quarter ROI by about 140 basis points. These will again be a headwind in Q2 and to a lesser extent in Q3. As we lap these charges, we expect
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about 140 basis points. These will again be a headwind in Q2 and to a lesser extent in Q3. As we lap these charges, we expect meaningful improvement in ROI in the back half of this year. When you look beyond these unique items, our underlying operational ROI is steadily moving higher. At our Investor Day in April, I said that we want our ROI to go up every year and I still believe that will be the case this year. Let me briefly reference key segment highlights for Q1. For Walmart U.S. comp sales were strong, up 7.4% reflecting higher store traffic trends as well as strong growth and store fulfilled pickup and delivery. From a category perspective, comp sales were driven by strong growth in food and health and wellness, partially offset by a decline in general merchandise sales. Unseasonably cooler spring weather negatively impacted sales in certain seasonal hardline categories including lawn and garden. Gross margins decreased 41 basis points primarily due to ongoing pressure from category mix shifts. As mentioned previously, supply chain costs and transportation were lower as we lapped last year's elevated levels. Inflation remained high, up low double-digits in food categories. It's important to remember that while year-over-year inflation started to moderate as the quarter progressed, this is largely due to lapping higher levels from last year. On a two-year stack basis, food inflation remains over 20% and continues to pressure discretionary wallets. Share gains and grocery continued, including from higher income households as our strong price gaps resonate with customers who are increasingly prioritizing value and convenience. We're also seeing market share gains in the areas of general merchandise where we've invested to improve the customer experience such as entertainment and automotive. In this environment as customers manage household budgets more tightly and are biasing spending toward everyday essentials, we're reinforcing our value proposition across the merchandise offering, including seasonal
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toward everyday essentials, we're reinforcing our value proposition across the merchandise offering, including seasonal event savings, featuring high quality owned brands, and leaning into opening price points. For the Easter holiday, we offered customers a curated Easter meal along with a traditional Easter basket for the same price as last year. Private brand penetration and grocery categories increased nearly 110 basis points in Q1 following a 160 basis points increase in Q4 and 130 basis point increase in Q3. E-commerce sales were led by continued double-digit growth and store fulfilled pickup and delivery. Customers increasingly value convenience and speed of delivery. We have an advantage here as we leverage the proximity of our stores to fulfill and deliver digital orders to customer homes. In many cases, we can get orders delivered faster to customers while building a sustainable Omni economic model. Strong flow through on higher sales contributed to SG&A expense leverage which offset gross profit pressure, resulting in strong operating income growth of 11.7% relative to comp sales growth of 7.4%. Our international segment delivered an outstanding quarter with strong growth in both sales and profit, continuing the momentum built in the back half of last year. International grew both the top and the bottom line faster than the enterprise. Sales grew nearly 13% on a constant currency basis, led by double digit growth in China, Walmex, and Flipkart. Impressively, operating income grew more than three times faster than sales, up 41% with each market delivering year-over-year improvement. The strong profit flow through is particularly encouraging as the team has been delivering operating efficiencies on top of strong sales growth. In China sales increased 28% as the team executed well during the Chinese New Year season and also saw increased traffic as the Chinese economy reopens. Results were strong across formats and channels with continued member growth and higher member retention at Sam's Club,
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Results were strong across formats and channels with continued member growth and higher member retention at Sam's Club, improved trends in hypermarkets, and more than 50% sales growth in e-commerce. Walmex had another good quarter with sales strength in Bodega stores, Sam's Clubs, and e-commerce. We continue to take advantage of opportunities to expand our physical footprint, opening more than 120 stores over the past 12 months while also scaling our omnichannel capabilities. As customers desire for convenience increases, the team has rolled out a 60-minute delivery option to 80% of Walmart Supercenter and Express stores in Mexico. In India, Flipkart had strong top line results and improved its contribution profit. The team continues to expand their products and services. As an example, Flipkart Travel added to its portfolio of offerings by launching bus reservation services during the quarter through its Cleartrip platform and already is capable of offering 1 million bus connections to customers. And we continue to be pleased with PhonePe's great performance. During the quarter, we reached an important milestone with annualized total payment volume, or TPV, eclipsing the 1 trillion level for the first time. For Sam's Club, U.S. comp sales were strong, up 7% in Q1. In addition to solid increases in both transaction and ticket, Sam's e-commerce sales were up 19%, led by strong growth in curbside. Sam's delivered another quarter of record member counts and membership income growth was 6.3%. Plus member penetration also hit an all-time high during the quarter. And it was terrific to celebrate the 40th birthday of Sam's Club during the quarter with member promotions and events. We saw incredible response from our existing and new members including the largest quarterly membership sign-up on record. Operating income declined slightly as a result of an inflation-related LIFO charge of $48 million. Without that charge, operating income would have increased 10%. At our investment community meeting in April, I
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$48 million. Without that charge, operating income would have increased 10%. At our investment community meeting in April, I outlined our plan to grow operating income faster than sales centered on three strategic building blocks of our financial objectives. First, we're focused on driving organic sales growth from our omnichannel business model. It's clear, our omni model is resonating with customers across income demographics who are seeking out Walmart digitally and in stores, curbside and via delivery, and we're growing mine share for our convenience, which nearly matches our mine share for price. As we continue to scale digital capabilities in our markets around the world, we have an opportunity to drive significant growth in the top line over the coming years. The second component of our financial model is to diversify our earnings streams through improved product and business mix. To improve product mix, we're focused on increasing sales penetration in higher-margin categories like apparel and home through the expansion of our e-commerce marketplace assortment and an upgraded presentation and experience in our remodeled stores. Our e-commerce assortment has grown to include over 200 million SKUs in apparel and nearly 60 million in home categories. In our newest remodeled supercenters, take a differentiated approach to showcasing general merchandise with more brand shops, digital displays, mannequins, wider aisles and updated fixtures. We're very encouraged by the early reads on customer response to these initiatives, and we plan to update 300 stores with these features this year. In addition, as I mentioned earlier, we're making progress in improving our business mix as we scale a portfolio of highly attractive growth initiatives that reinforce our core retail model and will directly reshape our e-commerce and enterprise profit trajectory. This set of initiatives drive stronger returns and includes advertising, data, and membership in many markets. Collectively, these initiatives generate operating
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returns and includes advertising, data, and membership in many markets. Collectively, these initiatives generate operating margins that are appreciably higher than our core business, and we expect we'll begin to positively influence operating profit growth relative to sales growth this year. The third building block of the model includes improving returns by scaling proven high-return investments in our supply chain that drive operating leverage and improve incremental margins. We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years. Our capital structure and cash flow generation are an advantage, and we're allocating capital responsibly with a bias towards increasing returns. I'll reiterate what I said at our Investor Day, we like our strategic position. Over time, we expect revenue growth across a diversified set of drivers, improved category mix, and increasingly accretive business mix, coupled with improved unit economics. This is all fueled by supply chain investments with attractive payback cycles. We expect the outcome will be operating income growing faster than sales. Turning to guidance. There continues to be a great deal of uncertainty looking out over the balance of this year as macro pressures on the consumer have gradually intensified. As such, we continue to maintain a prudent approach to our outlook while, at the same time, having a high level of confidence in what we can control. It's also not our historic practice to always update guidance exiting Q1, and we don't necessarily want to establish precedent. But we think in this unique environment, it's important to provide an ongoing framework as our views evolve. We're raising our full year guidance to reflect Q1 performance and our expectations for Q2. We now expect net sales in constant currency to grow approximately 3.5%. Our expectations are for Walmart U.S. and International to grow slightly faster than our prior
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to grow approximately 3.5%. Our expectations are for Walmart U.S. and International to grow slightly faster than our prior view, and for Sam's Club growth to be consistent with our February guidance. We expect operating income and constant currency to increase approximately 4% to 4.5%, including an expected 100 basis point impact from LIFO charges. And we estimate adjusted EPS to be in a range of $6.10 to $6.20, including an expected $0.14 impact from LIFO. There are also a few changes below the line. Our recent debt issuance yielded a more favorable interest rate than estimated, and as such, our net interest expense is expected to grow $600 million versus last year. NCI or non-controlling interest is expected to be closer to a $0.20 drag to EPS year-over-year, including strength in Walmex. And our tax expectations have moved toward the upper end of our prior range at approximately 26.5%. Looking at Q2, we're offering the following view: net sales growth in constant currency of approximately 4%. Operating income in constant currency is expected to decline approximately 2% versus last year. Excluding the $173 million benefit from Walmart Chile insurance proceeds last year, operating income growth in constant currency is expected to be flat to up slightly. As you compare EPS versus the prior year, we're lapping the $0.05 benefit from Chile insurance proceeds and other income and $0.05 from JD's dividend and other gains and losses, resulting in a total of $0.10 of comparable EPS headwinds. We expect adjusted EPS of $1.63 to $1.68 in Q2 this year. In closing, the year is off to a good start. We're positioning our business to succeed with an expanding omni ecosystem that allows us to grow our top and bottom line throughout any economic environment. If the consumer environment tightens further, we have a compelling value proposition with everyday low prices and a suite of conveniences to continue to gain wallet share. If the macro environment improves, we have the opportunity to sell more general merchandise and
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continue to gain wallet share. If the macro environment improves, we have the opportunity to sell more general merchandise and improve our margin mix through both our first-party stores and e-commerce and third-party marketplace businesses. And the transformation of our business mix towards higher-margin streams of value is underway, helping to protect our profits today and to drive better profit growth in the future. I look forward to seeing many of you at our shareholders' meeting activities next month here in Northwest Arkansas. And with that, let me turn it over to the operator for questions.
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Operator: [Operator Instructions]. And our first question comes from the line of Michael Lasser with UBS.
Michael Lasser: Good morning, thanks a lot for taking my questions. Given the prospect of this inflation and the increasingly difficult traffic comparison and consumer environment that you're facing over the rest of the year, how much do you expect you will need to invest in price and other actions in order to maintain an overall stable comp in the U.S. in the coming quarters? And has -- how have you factored these investments into your updated guidance and is it fair to think that given your commentary around doing better than the 2% to 2.5% prior expectation for the Walmart U.S. comp that it could be as high as 4% to 5%, just given the momentum of that business? Thank you so much.
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John Furner: Hey, good morning Michael, it's John Furner. I want to start first by thanking our entire team for delivering a strong quarter and investing in the future. At the same time, it was great to see both of those things happen. First, let me just reiterate our purpose of the company is to help people save money and live better. And certainly, in the last few quarters, we have kind of seen new shoppers. As John David mentioned, many are higher income and younger and those shoppers are coming to us looking for value. I think what's important for us as we look forward is price is really important to the Walmart shopper. We are pleased with the price gaps that we see in the market. Those are consistent with where they have been the last few quarters. Certainly, some shifting that you heard about earlier from brands to private brands. And then most important right now is the flexibility that we offer consumers all across the country. We've seen quite a few customers shift to pick up in delivery. Our transaction count has been strong. And as far as our plan, the rest of the year, of course, we have built into the planned room for adjustments should the consumer change or the macro environment change. As we mentioned, some softness in general merchandise, strength in food and consumables, we could -- we'll be able to manage things well, should that continue. We certainly think weather and other factors have played into some of our mix shifts. So we have a plan that will enable us to deliver value across the entire year.
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Doug McMillon: Michael, this is Doug. I'll just add to what John said to remind everybody when we were together in Florida, we talked about this being a bit of a pivot where our investments are more focused on capital investments than income statement investments. And we'll continue to proceed to invest in the supply chain, things we talked about a few weeks ago, of course, but also remind you about our remodel investments. So I think that when I think of the word investment, I think more about those things than I do necessarily income state investments -- income statement investments. I think the other thing I would say is it's a great time just to be a really good merchant. Like in our stores, when I think about general merchandise, whether that's apparel or hard lines, we're focusing our store leadership and our store associates on standing tall in those areas. And because inventory is in a better spot than it was last summer, for example, they can focus more on that rather than just dealing with the flow of inventory that was coming in. So we can impact mix and do other things to drive our business beyond just considering income statement investments.
Operator: Thank you. The next question is from the line of Kate McShane from Goldman Bank.
Katharine McShane: Hi, good morning. Thanks for taking our questions. We wondered if we could ask around quarter-to-date trends for sales and if the moderation from Q1 has continued? And can you remind us when the mix lap starts to get easier with consumables?
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John David Rainey: Sure, Kate. This is John David. The second quarter or rather the first quarter, the way that progressed is, as I noted in my remarks, we saw moderation as we went through the quarter. February was stronger and March and April were a bit of a tick down, and that follows some of the trends that we saw and other consumer behavior related to like SNAP benefits, tax refunds and such. This quarter has started off basically how the last quarter ended. So nothing notable really to say about the shift that we've seen thus far. In terms of mix, mix is going to continue to be an impact on us this year. We began to -- I think it was most pronounced in the mid part of last year, where we saw the effect of that. And certainly, as we got into the back half of the year and consumer pocketbooks were continuing to be stretched. We saw that shift in our business pre-pronounced from food to general merchandise. The thing that I will say that's different this year is it's not just a shift to food and consumables, we've also seen in the first quarter a shift to health and wellness more. And part of that is related to these GLP-1 drugs that are to treat diabetes. We're certainly seeing an uptick in that for us that comes at a lower margin, and so that has some impact on our business as well.
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Doug McMillon: I think the persistent inflation in dry grocery and consumables is the biggest issue. When you think about what we're up against and what will lap, we started to see inflation occur in the back half of 2021. It accelerated in the beginning of 2022 much faster than what we expected to get to a higher level than what we expected. Since then, you've seen general merchandise start to come back down, but dry grocery and consumables have held. And so as a customer, particularly if it's a customer living paycheck to paycheck, they now have a two-year stack that's a problem and eventually becomes a three-year stack that's a problem. So working with those suppliers that are on the prepared foods and consumable categories to get costs down more as fast as we possibly can would help them drive unit volume, would help us with mix and free up cash for customers to use for discretionary goods. And that's what we're focused on, have been focused on, and it's just taking longer in those categories than we want.
Operator: Our next question is from the line of Oliver Chen with TD Cowen.
Oliver Chen: Hi, thank you. The tech-enabled retail ecosystems continues to scale really impressively. What are some of the key priorities for advertising in marketplace and how they may intersect with artificial intelligence as well as -- helping the margin mix? And a follow-up for Judith, China continues to be really impressive on sustained momentum as well as better margins. Just highlights about how that reopening has gone relative to your expectations and any thoughts on India as well? Thank you.
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