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int64 | symbol
string | quarter
int64 | year
int64 | date
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string | company_id
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|---|---|---|---|---|---|---|---|
8,000
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Oliver, it's John. First, really proud of the team for the performance in e-commerce in the first quarter. The 27% is something they should all feel great about. That's a combination of a few things. We noted the growth in pickup and delivery, the significant growth in marketplace sellers. And I think what's encouraging behind that number are the number of sellers who are using the services that we offer like our fulfillment services, which gets more of the assortment delivered in one or two days, and we see a pretty significant increasing conversion rates when a seller is using fulfillment services you can deliver within two days, that also leads to growth in the advertising business. This ability that the team has developed for sellers and suppliers to reach groups of customers that are targeted, it's really improving and I think that's definitely driving the results there. So those business units, the way we've described them, they do help overall mix. At the same time, we have some mix challenges as John David mentioned. But within the mix challenges in the first, which is a real positive, is the performance of the supply chain. The supply chain versus last year is in much better shape. The team is performing. So there's a lot of tailwind that's coming from our supply chain team and they're ahead of our internal plan. So that's a real positive. And then as John David mentioned, there's the mix issue that we're seeing between food, consumables, and general merchandise and then growth of health and wellness at a lower margin.
|
8,001
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Judith McKenna: Hi Oliver, just on that first point on the kind of tech-enabled ecosystem and marketplace. We've seen some really strong progress on that internationally with a lot of leverage from U.S. learnings that we've been able to apply particularly from a marketplace perspective where we're building out a global marketplace capability. We've just launched Walmart fulfillment services in a number of our markets. So that's really been enabling that on the ecosystem. India is probably one of the better examples that we have, although Walmex has been another great example of building out that ecosystem. Putting the customer at the center of it and using our digital capabilities to figure out how we serve them best in a simple and effective manner. And you heard John David talk about the work that we're doing, for example, in travel, where we can also cross-sell in India for products well in our marketplace at the same time is selling tickets for people, whether that be for air or for buses, which we've just launched. And as far as China is concerned, they undoubtedly had a very strong quarter. It was one of the important drivers of the quarter performance for International, although we saw strength across the board from most of our markets. In particular, as you commented, the reopening of Chinese New Year, for Chinese New Year made a profound effect on the quarter. Just to give you an idea of the scale of what happened there and the response of our teams, we had all of our product positioned for a Chinese New Year event based in the cities where most people were. What happened is actually everybody went home into the more rural areas. And our team had to pivot completely within a 10-day window and reallocate all of the inventory that we had around the country. It was a remarkable asset, which just demonstrated their agility and resilience. The Chinese economy is still patches. Undoubtedly, consumer sentiment, if you look externally, is better than it was, not all the way to bright yet pre-COVID, but both of
|
8,002
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
consumer sentiment, if you look externally, is better than it was, not all the way to bright yet pre-COVID, but both of our businesses there are benefiting from the reopening. So Sam's Club continues to do well. We have six new clubs opening this year. And then on hypers, really focusing on doubling down on how we think about fulfilled -- store fulfilled for e-commerce. That e-commerce penetration remains at about 40%, which is a slight softening from where it was, but that's also partly seasonal because of the Chinese New Year time. On India, as Doug commented, we were there recently, both Flipkart and PhonePe continue to impress us and meet our expectation. The build-out of the ecosystem for Flipkart, I think we've talked about, but it's PhonePe, it's really impressive to see their results as well, leveraging over the 1 trillion TPV mark, 36 million merchants online, and enabling those merchants to be able to grow their businesses as well was really impressive to see. What we're seeing in India is a build-out of an ecosystem in its own right between our tech capabilities, between our sourcing capabilities, Flipkart and PhonePe, it's becoming a mutually reinforcing flywheel of strength for that market, and we're excited on what they're going to do in the future.
|
8,003
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Thank you. Our next question is from the line of Simeon Gutman of Morgan Stanley.
Simeon Gutman: Good morning. I have a question for John David. The Q2 outlook, can you share if expectations has changed at all since you guided the full year and relatedly, you talked about how the second half spread with EBIT for sales growth should be stronger than the first half, can you talk about does that shape or that spread change at all, does it widen, or roughly stay the same?
John David Rainey: Sure, Simeon. Good to speak with you. You might recall on our last earnings call we gave a little bit of a head nod into Q2 performance because of some of the specific issues that occurred in Q2 last year. And we said that at the time, we expected it to be roughly flat. Right now, we're saying the guidance is -- and I'm speaking about operating income, down 2%. That's most impacted by, again, the insurance proceeds that we received last year. Mix will continue to be an issue in 2Q. We do see some improvement in some of our supply chain costs, freight costs that we're benefiting from. But that's anomalous quarter for us as you think about this year. As we get into the back half of the year and we see a more pronounced impact from some of the initiatives that we discussed at our Investor Day around these higher-margin, higher growth areas, that will begin to have a more outsized impact. But relative to where we were in the last quarter, the expectation for that inflection has not changed. We still expect that to be about the same. It just so happens that, frankly, we just outperformed on the operating income line in the first quarter relative to what we thought. So really, really strong performance there.
Operator: Our next question is coming from the line of Kelly Bania with BMO Capital. Please proceed with your question.
|
8,004
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Our next question is coming from the line of Kelly Bania with BMO Capital. Please proceed with your question.
Kelly Bania: Good morning, thanks for taking our questions. John David, you mentioned the 360 basis point mix shift between food and general merchandise and you kind of touched on it a little bit, but should we expect that Q1 is the peak of that mix pressure and should that moderate throughout the year, just help us understand what's in your plan? And then also on general merchandise, can you just help us understand what you're seeing in terms of units versus net pricing at this point and also the 300 stores that you're rolling out the new general merchandise initiative to, can you share the lift that you're seeing there?
|
8,005
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Sure. I'm writing down all these questions here, Kelly. So first on mix shift, I don't think it's fair to assume that the first quarter is necessarily going to be the peak. When we gave our full year guidance, you might recall that we talked about an additional incremental impact relative to the 330-ish basis points we had last year. And so I think we'll continue to see that through the year. A lot of that too, depends upon consumer behavior, which is difficult to predict at best right now, and our guidance assumes a rather cautious outlook there. On units, if you just take the first quarter and you break it down by segment, both Sam's in the U.S. where if you look at it like, say, real sales, they were basically flat. The International segment, I believe, was up around 6%, 6.5% inflation adjusted. So certainly, we're seeing the impact of higher prices and the effect of consumer behavior on purchasing as it relates to units. And then with respect to the stores that we're remodeling, before I answer this, I just want to caution that we're early on here. We've only done a couple of stores, but very excited about the results. We've seen a quite sizable increase, couple of percentage points in terms of uplift of sales. Now to be clear, that would be expected in any store where you do a remodel, you're going to see that initial uptick. I think what we need to continue to monitor is how that levels out over time. But when -- if you got the chance to go into one of these stores, you certainly recognize the difference that it is versus the rest of the network and so we're quite excited about this and the early response.
Kelly Bania: How many stores have been done so far?
|
8,006
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Kelly Bania: How many stores have been done so far?
John Furner: Well, we have a couple of dozen now that are around the country. And what we did is piloted here in Arkansas, then we went to the Northeast, and we put these now in a number of markets. And additionally, what's encouraging beyond just the merchandising, whether it's the great brands that you see in apparel or layouts, a lot of really exciting changes. What we see is success in a number of markets. So we think this has more broad appeal than perhaps what we may have believed when we did the first one. So the program is going well, and we see several hundred of these in construction and on the way this year.
Kelly Bania: As it relates to the GM versus food and consumables mix, you might comment on what you're seeing in e-commerce general merchandise, and then how you would answer the question for Walmart U.S. specifically, how you view Q2 through Q4 as it relates to that mix?
|
8,007
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Yes, definitely some interesting points when you dig into that, Doug. General merchandise is certainly stronger in e-commerce and stronger in the marketplace. The trend, as John David said, for the quarter to date was just a couple of weeks is very reflective of what was happening at the end of the first quarter. But where we have new items, new brands, we have a lot of examples of digitally native brands that we found somewhere in the media or social media that are doing well, that actually is inclusive in food as well. And so the mix right now, as I said earlier, has some positives between supply chain. Food has definitely grown faster along with the consumables. The health and wellness growth is something that we didn't really expect going into the year that has accelerated quite a bit over the last couple of months. And so as we look forward, some of the things that are harder to tell right now, the general merchandise impact has been going on for the last three quarters or so, but there are impacts from other things like tax refunds, the weather, some funds out there. So a little unclear how much of this is temporary in the month that we're in versus what we'll see the rest of the year. But I certainly expect that just the trends in food and consumables and the strength that we have in those as well as health and wellness will persist over the next few quarters. I think that if anything, health and wellness, the impact that it's having on the mix and penetration could get larger based on the growth rates you're seeing in these drug types that John David mentioned.
Operator: Our next question comes from the line of Rupesh Parikh from Oppenheimer. Please proceed with your question.
|
8,008
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Our next question comes from the line of Rupesh Parikh from Oppenheimer. Please proceed with your question.
Rupesh Parikh: Good morning and thanks for taking my question. I also wanted to go back to your U.S. e-commerce acceleration during the quarter. What are you seeing from a category perspective and then for the balance of the year, do you also expect to continue significant contribution to your U.S. comp from e-commerce?
John Furner: Hi Rupesh, definitely I'm excited about the quarter. The team has done a lot of work in the last year to improve overall customer experience. We measure something called CX scores, which looks at our assortment, the number of sellers, the quality of the product display pages, and they are really in the details of the business. And the last quarter acceleration really across the board in e-commerce, pickup and delivery were very strong. But we do look at this entire business as part of the total omnichannel offering, and that's really important because when we talk about pickup and delivery at stores, that does include e-commerce orders where a customer is ordering something in general merchandise, it just happened to be that the merchandise, the items are in the store. So in effect, we shortened the last mile, which helps not only speed and time, but also helps the cost of the transaction. Categories though that are strong, we've been strong in food and consumables, really encouraged by accelerations in marketplace in categories like apparel, some acceleration in certain home categories, that's great to see. And I think that will continue as both the seller count and the item count continue to expand. So we're really looking at customer channel and driving the business with search to ensure that the customer gets whatever they want when they want it from Walmart.
Operator: Our next question is from the line of Scott Mushkin with R5 Capital. Please proceed with your question.
|
8,009
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Our next question is from the line of Scott Mushkin with R5 Capital. Please proceed with your question.
Scott Mushkin: Okay guys, thanks for taking my questions. So I'll just pile them all into one here. I guess I was wondering, obviously, you guys have brought out some brand partnerships and exclusive partnerships. How do you see that evolving store within a store, it seems like there's a lot of opportunity in certain categories like electronics and pet? That's the first one. The second one is Walmart Plus adding benefits, and do you see that as a driver of more high-income consumers? And three, is just the grocery climate. You've been taking a lot of share from some of your bigger competitors in traditional grocery and do you think they're ever going to respond? And that's it. Thanks.
|
8,010
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Hey, good morning, Scott. First, let me take all three of these. First, brands, we really like the brand shops that we set up physically in stores that are in the remodel. I know you've seen a few but the results are really encouraging. I think additionally, in apparel, what I really liked that the team did is they brought everything together for the customer. So if you're in the men's shop, you'll see the brands at the front of the department, men's denim just behind it; shoes, accessories, all there together, so we're traditionally we've broken these things up by category. Now they're more holistic. Pets are certainly exciting with some of the things that are coming. Then online, you'll start -- you will see now and you'll see a lot more in the future, a lot of branded shops inside the digital experience, which enables brands to be able to put their entire assortment online whether it's first P -- 1P that's online or sold in the store, the rest of the assortment there can be shop by brand. And I think these are -- they're going really well. The first dozen or so are pretty exciting. Walmart Plus continue to make progress. It's an important part of the offers. It's not the only thing that we're doing, obviously, but it's an important part of the offer. We're encouraged by the growth of new members. And importantly, what we are really ensuring on these new members is that we are helping them see the entire path to get to all the benefits we offer. The core offer of course, is based in deliveries that are unlimited without cost once you buy into the membership, that's the most important thing that we get right. We measure ourselves really carefully in something we call the perfect order, which is exactly what you ordered on time. And then we continue to work on things like substitutions. And then the last thing on grocery, we're focused on ensuring that our stores are in stock each and every day. We feel better about the supply chain versus a year ago. That would include in-stock availability, but
|
8,011
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
each and every day. We feel better about the supply chain versus a year ago. That would include in-stock availability, but also include the cost of supply chain. Stores I've been at recently from Virginia to New Mexico and Texas and Tennessee are seeing much better execution in grocery and in stock availability, which does help the order fillers and order pickers, which makes the Walmart Plus experience much better. So we'll really continue to focus on merchandising and pricing. Just the other day, I was with the team and saw this item called Bachan's Barbecue Sauce, which is a digitally native Japanese flavor barbecue sauce. It's just doing really well. So also, I'm just personally encouraged by the way the merchants are looking at new ways to find new items, bring those to life and drive sales across the country.
|
8,012
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Operator: Our next question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Hey everybody, good morning. My question is really on advertising. I think it's a relatively small quarter for this, but the 40% growth obviously it's accelerating. It's very impressive. Can you elaborate on that and what you're doing to drive that? And then maybe more specifically for Sam's, the advertising opportunity there, seeing a lot of growth in sellers on map there so can you see the opportunity? Thank you.
John Furner: Good morning. So first, I'll talk about Walmart U.S. with advertising. There's been considerable momentum really that started last year when we launched our second place auction capability. So this is a -- it's a two-sided market but ultimately, what we're trying to do is connect our sellers, our suppliers to customers, and that can be at the one to one level, it can be at the cohort level. And so the team has done a lot to really increase our capacity and capability to handle those transactions really well. What's driving it, of course, over time we will be better -- a stronger, bigger marketplace. So more marketplace sellers and helping them connect to customers and then more assortment, that's easier to find with surge and also helps the advertising business grow. And I'll turn it over to Judith to talk about international.
Judith McKenna: Yes. So same story really, which is, as the eco system builds out, it continues to be better strength in our advertising businesses everywhere. So the Flipkart growth is about 50% year-on-year, but Walmex equally had very strong growth at about 64% year-on-year. So those businesses continue to grow. We continue to learn and learn new skills about how to best serve the advertisers who wants to come on to our platform. And I think that's one of the areas that we've seen a lot of good global leverage and global learning as well to really help reinforce that.
|
8,013
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Kathryn McLay: Yes. And I'll just say from the Sam's. We talk about -- it's a little bit different from Sam's and that we don't have a marketplace. But what we are doing is stitching together, you have our e-com growth, and then you need to also look at our Scan and Go growth because both of those are indicative of a digitally enabled sale. And so what we've been doing is working with our advertising community on how do you influence the sales whether they are in club or off-line, online or offline. And you can nudge, you can encourage, you can advertise. And now we're giving those advertisers visibility to the in-club sales and the online sales and stitching them together. They're seeing this lift on their return on advertising spend. So it's a different model to what John and Judith have, but we're happy with the tools and capabilities we're building out and how that's resonating with our advertisers.
Operator: Our next question is from the line of Edward Kelly with Wells Fargo. Please proceed with your question. Mr. Kelly, please proceed with your question.
Edward Kelly: Yeah hi, good morning. I wanted to ask you about the gross margin. As we think about gross margin and progression through the year, could you maybe give us a little bit more color on how some of the pieces progress, we think about things like freight markdowns, how that might influence the P&L in the back half? And then related to Shrink, you haven't spoken about Shrink, we have heard it, others -- it seems like it's a big industry issue. Just kind of curious as to how that's impacting you? Thank you.
|
8,014
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Yes, I'll take it. Good morning. First, supply chain. In the first quarter, we definitely felt a tailwind from supply chain versus prior periods and including the execution all across the business. It becomes more of an issue as we lap Q2 last year. Q2 last year and late Q1 last year would have been the peak of inventories. We worked through a backlog of something like 100,000 containers that had been delayed at ports. So lapping those costs gets bigger as you look forward to the next quarter or so. And then as you get into the back half of the year, things tend to normalize a bit. As far as markdowns, last year, we had markdown pressure throughout the entire year as we unloaded that freight and moved it from the ports to the distribution centers, to the stores and through the entire chain. So the markdown comparisons will moderate slightly forward. But every year, including this year, we always leave room for seasonal markdowns and at the end of each season, we want to ensure that we are clean on inventory so that we don't carry any liabilities for it. And what happens when that happens is it makes it harder to set the next season, which backs things up. So we'll stay really focused on taking markdowns on time. In fact, in some categories like apparel, we're pulling some markdowns forward within the quarter to take advantage of the traffic that we'll see over the Memorial Day holiday. So this is something that we pay a lot of attention to. The last part of your question, can you repeat again, please?
Edward Kelly: Shrink.
|
8,015
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Edward Kelly: Shrink.
John Furner: Shrink. Sorry, there were several in there. On Shrink, no, it is a factor -- mix as I said a few moments ago, is affected by supply chain, it's affected by food, consumable, general merchandise mix and then health and wellness. So below that level, there is a core shrink. And as we've said in the past, it's been challenging for us. It's been challenging really for all of retail. So we're going to actively manage this issue. We always do, we always have, and we're going to continue to take the steps that are reasonable and required to make sure we're protecting our customers, protecting our associates, and protecting our assets and inventory. We know a lot of communities have been affected by this, but it's also important to note that retail can't solve this issue all on its own. It will take communities stepping up and enforcing the law to be able to bring this issue back under control.
Operator: Our next question is from the line of Karen Short with Credit Suisse. Please proceed with your question.
Karen Short: Hi, thanks very much. I had one clarification and then one question. John David, I think in your remarks, you made a comment that alternative investments will protect profits and that comment is a little different from the Analyst Day where I believe it would be additive and not subsidizing, I guess, for a lack of a better word, so wanted to clarify that? But then bigger question I had is, could you maybe give a little color on what the spend pattern is with the higher income demographics and maybe you could quantify what you think their share is today versus -- what your share is with them today versus prior to the pandemic?
|
8,016
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John David Rainey: Certainly, Karen. To clarify my comments in the prepared remarks, all of these, first of all, work together. I think it's hard to just look at core retail and then separate out advertising, membership, fulfillment services. They are mutually reinforcing, which is what makes them so attractive to us. And it's those very new businesses that we think will make our profits inflect in terms of the growth rate relative to sales going forward. So the protect profits that -- please don't read too much into that, that's -- we clearly are excited about this part of our business, and this is the opportunity to have our profits grow faster than sales. On the high income cohort, I'll start there, and maybe John or others might want to jump in. But that was probably most pronounced. And by that, I mean, the shift that we saw, it was most pronounced in the second quarter last year. When we got to the third and the fourth quarter, there was a little more balance between the various income cohorts in terms of share gain. And that's what we saw in the most recent quarter as well. But I think the big story here is that -- that’s around how our value proposition for convenience is resonating. We've always been known for price, but I think the steps we've taken in the last three to five years to expand our e-commerce capabilities, to expand online pickup and delivery, you see that resonate with customers. And it doesn't matter what your monthly income is, everybody values convenience the same. So that's the big takeaway here. And I think it's an important point as you think about the future of Walmart as we have these new shoppers coming to us, as we have higher income shoppers coming to shop for not only grocery but general merchandise, we want to retain those. We want to retain them with better experiences, better product offerings, and we're seeing that in the actions that we're taking today.
|
8,017
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: And we spend a lot of time, of course, working on ensuring that we have flexible options for any customer. And in the case of the group that you asked about, we definitely see in the data that there is a higher usage of e-commerce and pickup and delivery. And then when you click into the things they're buying, you do see some differences. So we do see within pickup and delivery, higher purchase rates of categories like [indiscernible] versus regular Grade B. So you see trade-ups and then if we see it in apparel, definitely seeing some growth in apparel and marketplace. And that is definitely being driven by some of our newer higher income customers. I'm really excited about the growth of not only transactions, but the number of digital users that we have on year-on-year which is accelerating.
|
8,018
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
Kathryn McLay: Yes. And I had to say, I think there's a couple of behavioral trends that we're keeping an eye on. So I do think our lower price point units like, say, in patio sell quicker and what we're seeing is people being very choiceful about where they spend their money, but they're also shopping a lot later. So in the past, when we fit patio, it sold really quickly. And now we're seeing people wait a little bit later into the season. We're seeing that like with Mother's Day sales. So those demand profiles are looking a lot like they used to in 2018-2019 versus pandemic spend. So people are buying a little later. We also saw kind of cooler weather, which kind of changed the shape of how people are buying. But what we are seeing is that where you get this really fabulous quality value equation right, sales are up. So we're looking at beef brisket at the other day. Our beef brisket AUR is down 17%. Our tonnage is up 29%. Our roses are amazing value. Roses sales are up 60%. So where you get this great kind of value-quality combination together, we're seeing members engage and spend and also I've been looking at kind of convenience and traffic drivers, hot baked pizzas in our cafes are up 29%. So there are areas where you see if you get that quality equation, you can drive traffic into the club, and we're just watching cautiously as how they spend on those bigger ticket items and when those sales will come.
Operator: Our next question is from the line of Greg Melich with Evercore ISI. Please proceed with your question.
Gregory Melich: Alright, thanks. I wanted to follow up on inflation because it seemed to be a theme on your prepared comments. I guess, what is the outlook when you talk to the merchants for inflation, both in grocery and across the store and what can Walmart do to sort of help alleviate that? And then is the industry being rational in terms of pricing and promotion?
|
8,019
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
| 313,055
|
John Furner: Yes, as you look forward, it's important to compare what we've been up against the last couple of years. And if you go all the way back into late 2021, that's when we started to see prices starting to rise. And then in 2022 February, March and April it was quite acute, obviously, and rose at a rate that we weren't expecting going into the year with the peak of inflation. And in year [ph], in July and August of last year, we saw high double digits in categories like food and consumables. And as you get into the period that we're in now, we're still seeing around high single digits to double digits in parts of dry grocery and other places. But when you add that up over the three years, it gets to be a really high number, which is clearly driving part of the shift. The way we think of value, first, we are always comparing ourselves to the prices that are out in the market. We feel good about our price positioning. The second, we've been able to look at key holidays like Thanksgiving last year, Easter that we just went through, and we've been able to keep a number of items on either a rollback program or base prices where customers can buy key important holiday meals at the same price that they bought them for the year before. As you look forward, it's not easy to predict. Clearly, we are not happy with the inflation that we see in categories like dry grocery and those persist as you get into the later part of the second quarter and third quarter, the in-year number may look lower because we'll be comparing to get such high numbers last year. But it's important to keep in mind that the two year stack at that point, we still think will be in the mid-20s. So consumer is under a lot of stress. Therefore, we see the shift to private brand that John mentioned -- John David mentioned in his earlier remarks, so shift this year than the year before and the year before, there was more of a shift than 2021. So that trend continues.
|
8,020
|
WMT
| 1
| 2,024
|
2023-05-18 08:00:00
|
Walmart Inc.
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Doug McMillon: We can be good mix managers within food but across the box as well from for the U.S. and around the world. General merchandise prices, as they're coming down, present an opportunity leading down, number one. Number two, finding items and categories that have above-average margins and shaving the margin off there to mix sales up as customers want to buy discretionary items, we are in a position to be able to show them value through the rest of this year that they might not find elsewhere, we can be aggressive there. Private brand share is another thing. You're seeing that number come up. We have more influence over what's happening with private brands than we do with branded product. And we do need some of these branded suppliers that are in dry grocery and consumables to get top line focused more than they have been for a while. It's a generalization, not everybody is in the same place, but we're looking for those that want to be aggressive. So if we can make a difference on dry grocery and consumables, lead with general merchandise and then deal with what's happening in the fresh food categories, which are less consistent, more volatile that some are up, some are down relative to dry grocery and consumables, that's the way we pull off a basket that generates the best value for our customers.
Operator: Thank you. Our last question will be from the line of Paul Lejuez with Citi. Please proceed with your question.
Paul Lejuez: Hey, thanks guys. Last year, 2022, you gave some numbers around SKU count, big increases in SKU count and marketplace throughout the year. I'm curious if you can give us an update on your total SKU count currently and how do you expect that to change in 2023 and beyond? And if you can give any color what percent of your marketplace customers can you also count as advertising and fulfillment services customers and what the targets are there? Thanks.
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John Furner: Sure. Good growth in the marketplace in the U.S. and there may be other comments on other markets. But a lot of growth last year. SKU count, as I mentioned late, I think it was Q4, Q1, both in the $400 million range. We expect that to grow probably not at the rate that it grew last year. We made a lot of progress in both SKU count and seller count. And there is continued acceleration with a number who are using fulfillment services and advertising. What's important about both of those services is, let me start with fulfillment, it helps with the customer time to promise and it helps customers know when they're going to receive their item. Customers want to get their delivery when they ordered it. They don't want it early. They don't want it late. They want it the day of. And when sellers move their assortment, their inventory, into our fulfillment channels, then it's more certain for a customer that it's going to be next-day delivery or two-day delivery. And that just helps with conversion rates. So if you're a marketplace seller and you want to know how to drive business at Walmart, it's to list on the marketplace, the inventory and fulfillment services. And then Walmart Connect is just a great way for the seller to be able to find audiences, targeted audiences who are looking for products in categories like the ones they're offered. So it's really the three of those things that are put -- that they all come together that make the customer experience much greater and the data supports everything I just described.
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Judith McKenna: From an international perspective on marketplaces, we continue to see SKU growth across Mexico and Canada, but both of those marketplaces are quite nascent in their development and provide a lot of opportunity for the future. Walmex added 50% of SKUs in Q1 versus the same time in the previous year. Of course, our most mature marketplace is in India, which has hundreds of millions of products on that. It continues to find new ways to serve customers. But when they recently launched Flipkart fulfillment services, that connectivity between the advertising, providing the services to help sellers wherever they are in India be able to get items to customers and our business is working really well. Again, we've only recently launched that, and we're already seeing really good traction right across the country.
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Doug McMillon: This is Doug. I think I'll go ahead and wrap up here. We ran a little over. I hope that's okay. I appreciate your questions. I'm grateful to work with such a strong team, the people that have been on this call, but all those that are work in our stores and clubs and throughout the company. I think you can see in our results that we've got a very strong and capable team and one that can adapt to environments. There have been a lot of pivots over the last few years, in particular, and they've done a terrific job of navigating all of that. We feel strong about our position to grow the top line. We're positioned to serve customers and members how they want to be served. I think the e-comm growth this quarter being up 20% -- 26% is an example of that. But if they want to come to stores and clubs, we're there. If they want to do a pickup order, we're there. If they want to have it delivered, we can do that. We are positioned to grow profit faster than sales through productivity and through the mix of businesses, caring in an additive way. And then on ROI, we'll be disciplined with capital, but we are excited about our opportunities to invest and really grateful that you all came down to Florida. So many of you and saw what we were doing there. And we'll just wrap up by inviting you to comment in a couple of weeks. We'll show you an MFC. We'll go to a store. We'll go to a club. We'll answer more of your questions. We feel like we're in a position to outperform and to continue to outperform because of the work that's been done to date and our ability to manage the business and pivot as we need to looking forward. Thanks for your attention today.
Operator: Thank you. This will conclude 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 Fourth Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note this conference is being recorded. At this time, I'll now turn the conference over to Steph Wissink, Senior Vice President, Investor Relations. Steph, you may begin.
Steph Wissink: Thank you. Welcome, everyone. We appreciate you joining us and your interest in Walmart. Joining me today from our home office in Bentonville are Walmart's CEO, Doug McMillon; and CFO, John David Rainey. Doug and John David will first share their views on the quarter, and then we'll open up the line for your questions. During the question-and-answer portion, we will be joined by our segment CEOs, John Furner from Walmart U.S.; Kath McLay from Walmart International; and Chris Nicholas from Sam's Club. For additional details on our results, including highlights by segment, please see our earnings release and accompanying presentation on our website. We will make every effort to answer as many of your questions as we can in the hour we have scheduled for this call. As a courtesy to others, please limit yourself to one question. 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 and non-GAAP reconciliations on our website at stock.walmart.com. Doug, that concludes my intro. We're ready to begin.
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Doug McMillon: Good morning, and thanks for joining us. We finished the year with another quarter of strong results. Our associates are doing a great job serving our customers and members. For the quarter, we had sales growth of 5.2% and adjusted operating income was up 9.4% in constant currency. We continue to gain market share across countries and income levels. As with the first three quarters of the year, transaction counts and unit volumes were up across markets. As we look at our results for the quarter and the year, we're pleased to see, first, a healthy top line. We're strengthening our ability to serve people how they want to be served in the moment. That's what's driving our growth. Our prices are low, and we're becoming more convenient. Customers are shopping with us more often and buying more items, including in general merchandise categories, which were up low single digits in Walmart U.S. and Sam's U.S. for the quarter. Second, we're growing profit faster than sales, and we have runway to scale our higher-margin businesses like membership, marketplace and advertising. We're mixing ourselves up, while simultaneously investing in lower prices and associate wages. Third, we're able to improve ROI even as we invest higher levels of capital to take advantage of the opportunities we see to strengthen the company. All three segments of our business had a good year. I'm proud of our leaders and all of our associates. They earned it. They're learning, they're acting fast and they're working hard. For the quarter and the year, we're pleased with our performance during the holiday seasons around the world. We performed well in the U.S., Mexico, Canada and in China, where Sam's Club just wrapped up a strong Lunar New Year. We also performed well in India. And I'd like to share the news that PhonePe, our fintech business, is making preparations for an IPO in India. Our PhonePe team has long aspired to be a public company, and we're excited to be taking these early steps. As a company, we drove a lot of volume
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long aspired to be a public company, and we're excited to be taking these early steps. As a company, we drove a lot of volume during the holidays and ended with our inventory level in good shape, up 2.8%. As always, we're working hard to help bring down prices. In Walmart U.S. last year, we had over 22,000 rollbacks. We're wired to help people save money and live better. The work we're doing to expand our assortment is another reason for our growth, as more customers are finding what they're looking for. In addition to low prices and a growing assortment to choose from, we're focused on delivery, speed and accuracy. If I could change anything about how we're perceived today, it'd be that more people know about our breadth of assortment online and our increasing delivery speed. For Walmart U.S., we recently announced same-day pharmacy delivery and the early response has been strong. Customers love being able to get a basket of items delivered to their door that includes fresh, frozen, general merchandise and now pharmacy. And because we're so close to them, they can get it fast. Sam's Club recently launched new shipping offer, including free same or next-day delivery from the club. Members asked for it and the team delivered. Listening to our members and solving what they want is a big reason why Sam's was recently ranked number one in customer satisfaction for retailers and the latest American Customer Satisfaction Index. Around the world, we're making great progress on delivering goods faster to customers and members. We're taking learnings from markets like China and quickly standing up fast delivery solutions in other markets. We continue to be excited about our investments in supply chain automation, and we'll share even more on that topic during our investor conference in April. These past few quarters, we've talked about how we're using AI. The progress we've made over the years with technology has put us in a position to leverage today's fast-moving capabilities closer to real-time. I'm very proud of
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with technology has put us in a position to leverage today's fast-moving capabilities closer to real-time. I'm very proud of Suresh, our tech team and all our leaders for how they're leaning in to adapt quickly. Today, I'd like to share two more examples. The first is related to a new AI agent for our merchants called [Wally]. Wally is learning to help us get to the root cause of issues related to things like out of stocks or overstocks with more accuracy and speed. Second, for developers on our tech team, we now have new coding assistance and completion tools that are helping streamline deployments and deliver code faster with fewer bugs. Last year, these tools helped us save about 4 million developer hours. This year, we plan to make these tools available to all developers in North America and India. As we become more productive and reduce the amount of time we work on routine tasks that gives us time to develop tools that help us grow the business and move faster. I love how we're changing how we think and work without changing who we are. I can see us getting faster. Earlier this year, we began opening some of our new home office buildings in Bentonville. We'll be transitioning to the new home office throughout the year. It's an exciting time. It's also a time to remember the special things about this company that we want to strengthen and perpetuate. Moving to a new location doesn't change who we are. Cultural characteristics like leadership, humility and a sense of urgency remain critical. Operating with an everyday low cost culture and mindset is as important as ever. We have a meaningful purpose of saving people money and helping them to live better. And we have a set of timeless values that shape our culture regardless of the address of our home office. Characteristics and beliefs like these drive our results and make us unique. I hope you'll come see our home office when you visit during our Associate and Shareholders Week in June and that you'll feel the momentum. We know who we are, and we like where
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during our Associate and Shareholders Week in June and that you'll feel the momentum. We know who we are, and we like where we're going. We feel like we're just getting started. Here's John David.
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John David Rainey: Thanks, Doug. I'm excited to discuss our fourth quarter and full year performance, provide some context on how we're executing against our strategic priorities and offer our outlook for the first quarter and full fiscal year 2026. Let's start with the headline. Walmart delivered another strong quarter, exceeding our sales, profit and earnings expectations. This performance reflects the strength of our business model and the dedicated work of our associates around the globe. Our focus remains on delivering value to customers and members while driving sustainable growth for shareholders. Customers continue to respond to our value proposition as we provide lower prices, a broader assortment and greater levels of convenience. With improved customer experience, we're earning their trust and seeing share gains as a result. Looking at the full year. Consolidated revenue grew 5.6% in constant currency, adding approximately $36 billion versus last year. Adjusted operating income increased nearly 10% in constant currency, and adjusted EPS was up 13%. Currency was a headwind to reported sales of approximately $3.2 billion or 50 basis points to growth and pressured EPS by about $0.02. Our business model is delivering as it's designed to do. This is the second consecutive year that we've grown sales more than 5% and operating income meaningfully faster. Relative to our plan, our performance has been broad-based across segments. E-commerce economics continue to improve, most notably in Walmart U.S. Our newer digital businesses have contributed to faster growth and more diversification of our product mix. Over the last year, global advertising grew 27% to about $4.4 billion. Walmart U.S. Marketplace revenue grew 37% with nearly 45% of orders fulfilled by WFS. And lastly, global membership income grew 21% to about $3.8 billion. Over our planning horizon, the growth of this portfolio is expected to be one of the largest drivers of operating income growing faster than sales. These new profit streams allow us to
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expected to be one of the largest drivers of operating income growing faster than sales. These new profit streams allow us to fund investments in our core business while also expanding our operating margins. Return on investment improved approximately 50 basis points to 15.5%, a level last achieved in 2016. CapEx totaled $23.8 billion. Our investments in stores and clubs through remodels and new construction have improved customer and member experience and have enabled us to broaden our last mile catchment area for digital orders. Investments in supply chain automation and productivity are expected to lower our cost to serve, which supports our EDLP commitment. Cash flow remained strong. And as we announced this morning, we're pleased to raise the dividend by 13% this year, the largest increase in over a decade, reinforcing our commitment to strong cash returns to shareholders. Our business has transformed over the past five years, and we're benefiting from the investments we've made in our core omni-retail business. Global e-commerce penetration is now 18% of sales, about 1,100 basis points higher than it was in FY '20. In the U.S. specifically, we've built marketplace capabilities to broaden our assortment while also growing the average number of e-commerce orders fulfilled from stores by over 500 million orders without new store growth during that time period. We're utilizing our stores in new ways to serve more customers and maximize returns, but we obviously don't have a stores-only approach for fulfillment. We're growing our fulfillment center capacity, including through investments in FC automation in parallel. While the shift in channel mix creates some cost pressure as we fulfill more orders through e-commerce, we've seen improved profitability during this period with efficiencies gained as we densify our delivery routes and with the contributions from newer businesses that are enabled by e-commerce growth. We've achieved this despite the margin pressure from merchandise category mix of sales shifting
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enabled by e-commerce growth. We've achieved this despite the margin pressure from merchandise category mix of sales shifting towards grocery and health and wellness and away from general merchandise, as consumer wallets have been stretched over the past couple of years. The way we've designed and grown our evolving business model with more diversified and durable sources of profit like advertising and membership has enabled us to grow operating income faster than sales despite these headwinds. Turning to our quarterly performance. For the fourth quarter, consolidated revenue increased more than 5% in constant currency, driven by strong results across segments, aided by 16% e-commerce growth. Currency headwinds reduced reported sales by over $2 billion or 120 basis points of growth. Walmart U.S. comp sales increased 4.6% including e-commerce sales growth of 20% with ongoing share gains across categories. Comp growth was led by increased customer transactions in both stores and e-commerce. Grocery remains a standout category with mid-single-digit growth, and we saw mid-teens growth in health and wellness due largely to GLP-1 sales, which contributed about a point to the segment comp, consistent with prior quarters. We're encouraged by the improvement in general merchandise, where we had low single-digit comp sales growth for the second consecutive quarter, including strength in hardlines, toys, home and fashion. U.S. customers remain resilient, exhibiting behaviors that have been largely consistent over the past year. As always, people are looking for value and they want to save time. Becoming more convenient is helping to drive our growth. During the quarter, we expanded our store fulfilled delivery catchment areas to now reach 93% of U.S. households with same-day delivery. The popularity of expedited delivery has resulted in more than 30% of orders coming from customers and members that elected to pay a convenience fee to receive their scheduled delivery in less than one hour or less than three hours. We're
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that elected to pay a convenience fee to receive their scheduled delivery in less than one hour or less than three hours. We're also encouraged by the initial response to our launch of same-day pharmacy delivery. We're the first to integrate pharmacy, general merchandise and grocery in a single online order and have gained new pharmacy customers with this service. Our focus on bringing down pricing through rollbacks continues despite pockets of food inflation in areas like eggs, bacon and ground beef. Like-for-like pricing in general merchandise and consumables was deflationary, while food remained inflationary in the low single digits. We're seeing higher engagement across income cohorts with upper income households continuing to account for the majority of share gains. Our international business in constant currency delivered sales growth of 5.7% reflecting strength in China, Walmex and Canada, while operating income grew faster. We saw positive traffic and unit growth across markets, with sales strength in general merchandise during festive events. As expected, the timing of Flipkart's Big Billion days event negatively affected year-over-year sales comparisons. Outside of India, e-commerce sales grew more than 20% across all markets. Speed of delivery continues to be important to customers. In the past 12 months, International delivered over 2.3 billion items same day or next day, which is an increase of over 30% with about 45% of those items delivered in under three hours. And our business in China continued to grow double digits with strength in Sam's Club and e-commerce. Sam's Club U.S. comp sales ex-fuel increased 6.8%, with strong growth in transaction and unit volumes, including increased penetration of members mark. E-commerce grew 24%, including triple-digit growth in club fulfilled delivery, as new perks like express delivery and the elimination of curbside pickup fees for the club membership level continue to resonate with members. With tech-enabled convenience prevalent both inside the club through
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club membership level continue to resonate with members. With tech-enabled convenience prevalent both inside the club through Scan & Go and Jusco Exit towers as well as via e-commerce, we are deploying digital solutions to differentiate ourselves in the warehouse club channel. From a margin standpoint, consolidated gross margin expanded 53 basis points. In our press release and earnings presentation, you'll see new disclosure regarding gross margins by segment. In Walmart U.S. improved gross margins reflected strong inventory management as well as lower levels of markdowns and improvement in business mix that has allowed us to manage pricing aligned to competitive price gaps and offset sustained merchandise category mix pressure. Gross margins in International benefited from the timing shift of Flipkart's Big Billion Day event. As our business model evolves, it's encouraging to see our profitability improve from a diverse set of offerings. Globally, e-commerce economics continued to improve in Q4, aided by an approximately 20% reduction in U.S. net delivery cost per order. We also continued to diversify our profit composition through business mix, as we skilled advertising, membership, marketplace and fulfillment and data analytics and insights. Our global advertising business increased 29%, led by 24% growth from Walmart Connect in the U.S. We're making good progress on expanding the number of U.S. marketplace sellers that also utilize Walmart Connect advertising with seller advertising counts up about 50% versus last year. We're also excited about the addition of VIZIO and its SmartCast operating system to our portfolio of advertising capabilities. VIZIO will help us serve customers in new ways to enhance their shopping journeys while also creating new opportunities for advertisers to connect with customers and boost product discovery, empowering brands to realize greater impact from their advertising spend with Walmart. Membership income was up 16% across the enterprise. In the U.S., Sam's Club continued to
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their advertising spend with Walmart. Membership income was up 16% across the enterprise. In the U.S., Sam's Club continued to grow membership count and increase its penetration of Plus members, resulting in more than 12% membership income growth, while Walmart Plus membership income grew double digits. Within International, membership income from Sam's Club China grew more than 35% as member counts continue to increase, helped by the opening of four new clubs in Q4. For Marketplace and Walmart fulfillment services, in the U.S. marketplace grew 34%, continuing the strong trends we've seen all year. With the broader assortment of the general merchandise brands and items customers want, marketplace sales and home management, automotive and seasonal all grew more than 20%. And with our low-cost fulfillment offering for sellers, WFS penetration reached record highs of nearly 50%, which is up nearly 600 basis points versus last year. Outside the U.S., we're seeing similar encouraging trends in both Mexico and Canada, the number of WFS sellers increased over 20% and sales of items delivered through WFS grew over 85%. Within data analytics and insights, Walmart Data Ventures continues to grow rapidly with net sales up double digits. Our client base nearly doubled over the past year, and we're excited about continuing to broaden our reach to new markets with the launch of the platform in Canada. SG&A expenses deleveraged 46 basis points in the quarter. Walmart U.S. deleverage was primarily driven by the timing of tech investments, increased variable pay as we exceeded planned performance and higher marketing and utilities cost. Transaction-related expenses for the VIZIO acquisition also impacted the quarter and were not considered in our guidance. In addition, International was impacted by the timing shift of Flipkart's BBD event. And Sam's Club U.S. was affected by the previously announced wage investments. While wage investments will pressure profit at Sam's for a couple of quarters, we're pleased with the member
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wage investments. While wage investments will pressure profit at Sam's for a couple of quarters, we're pleased with the member response tied to increased renewals as well as the improvement in associate turnover. We're continuing to optimize our business to deliver greater efficiency, and we're committed to balancing ongoing investments with improved returns for customers, associates and shareholders. Our business model provides the ability to fund wage investments for associates and price investments for customers, while also delivering on our financial framework. Summarizing the quarter, in constant currency, sales grew over 5% and adjusted operating income grew more than 9%, both exceeding the upper bound of our guided ranges. Adjusted EPS of $0.66 compared favorably to our expectations and reflected strong underlying business performance and lower tax expense. Reported EPS included headwinds of approximately $0.01 from currency and nearly $0.01 from costs related to the acquisition of VIZIO. Now let me turn to guidance. We've been operating in a highly dynamic backdrop for several years, and we expect this year to be no different. Our outlook assumes a relatively stable macroeconomic environment, but acknowledges that there are still uncertainties related to consumer behavior and global economic and geopolitical conditions. As a result, we've taken a similar approach to our initial guidance view for the year as we have in the past couple of years, balancing known risk with what we can control. We remain confident that Walmart is well positioned to navigate as it has over the last several years, while continuing to deliver value for customers and shareholders alike. For fiscal year 2026, we expect consolidated net sales growth of approximately 3% to 4%, including the negative impact from lapping leap year and the favorable contribution from VIZIO sales. Operating income is projected to grow faster than sales at 3.5% to 5.5%, including 150 basis points of negative impacts for the VIZIO acquisition related to
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to grow faster than sales at 3.5% to 5.5%, including 150 basis points of negative impacts for the VIZIO acquisition related to integration investments and transition costs, as well as from lapping leap year. Adjusted EPS is expected to be in the range of $2.50 to $2.60. This includes a headwind from currency of approximately $0.05 per share and a higher effective tax rate compared to last year. Recall that we guide sales and operating income growth on constant currency basis, volatility and currency rates had a meaningful impact on last year's results. If current exchange rates were to prevail for the full year, we would expect a headwind of approximately 100 basis points to sales growth and approximately 150 basis points to operating income growth, with more significant headwinds in the first half, given the degree of change in exchange rates versus last year. We expect CapEx to range between 3% and 3.5% of sales, as we invest in technology to optimize our supply chain, remodel stores and open new stores and clubs in both the U.S. and certain international markets. For the first quarter, it's important to note that our year-over-year comparisons can have an outsized impact on quarterly growth rates. We expect consolidated net sales growth of 3% to 4% in constant currency. This includes the negative effect of approximately 100 basis points to sales growth from lapping leap year and accounts for the shift in Easter timing from Q1 into Q2 our international portfolio, namely Walmex. Operating income is projected to grow 0.5% to 2% in constant currency, including the approximately 70 basis point headwind from the VIZIO acquisition, as well as the 250 basis point headwind to growth from lapping Leap Day. Our operating income guidance also takes into account the Easter timing shift and lapping last year's consumer stimulus timing in Q1 for Walmex. All of these items affect the year-over-year growth rates. But let me emphasize, our core business is still performing very strong. On a 2-year stack basis, the midpoint of
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growth rates. But let me emphasize, our core business is still performing very strong. On a 2-year stack basis, the midpoint of our guidance would suggest operating income growth of 15%. Reflecting strength and consistency in the underlying business, we expect Enterprise net sales and operating income growth to be relatively consistent across quarters after adjusting for calendar impacts. Additionally, we expect first half sales and operating income to grow in the range of our full year guidance. Notably, if current exchange rates were to stay where they are for the entire first quarter, we would expect a headwind of approximately 150 basis points of sales growth and approximately 250 basis points to operating income growth. First quarter EPS range is expected to be $0.57 to $0.58. This includes a headwind from currency of approximately $0.02 per share in a higher effective tax rate versus last year. As we've said in the past, the relationship of operating income growing faster than sales may not occur every quarter that we expect the framework to hold on an annual basis at the enterprise level. Before I turn it over to questions, I want to take a moment to thank our associates around the world for their hard work this past quarter and throughout fiscal year 2025. Their dedication and commitment to serving our customers and members every day is what makes Walmart such a special company. As we look ahead to fiscal year 2026, and I speak for the whole team here, we're incredibly excited about our business. It's not to say that there aren't challenges ahead, but our strategy is the right one. This team is executing on it. We're serving our customers and members better than ever before, and our associates and shareholders are benefiting, and yet in some ways, it feels like we're just getting started. We appreciate your interest in our company and are now ready to take your questions.
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Operator: [Operator Instructions] Thank you. And our first question is from the line of Michael Lasser with UBS.
Michael Lasser: Good morning. Thank you so much for taking my question. Over the last several quarters, as Walmart was in the early stages of generating returns from the longer-term investments that it's been making, it appeared that the company was more insulated to the macro as it was gaining significant market share. Now is Walmart entering a phase where there's just simply more economic sensitivity to the model or perhaps even less of a countercyclical benefit? And how is this factored into the sales and EPS guidance for 2026? And if this macroeconomic sensitivity results in a sales shortfall, what would be the course of action? It may be helpful to frame this with some insight into how the exit rate for fiscal 2025 unfolded. Thank you very much.
Doug McMillon: Hi, Michael, this is Doug. I'll respond quickly and then hand it over to John David. Basically, we feel the same way we have been feeling. Customers members are going to be looking for value. They're going to be looking for convenience, the changes that we're making in the company continue to have us appealing to them in those respects in an even better way. So our confidence level is high. I'm really pleased to see such a strong quarter, being up 5% and up 9% on the bottom line, feels really good. Great to see that the momentum is still there. Stores and clubs still driving volume, e-commerce changes are happening. So I think it's really consistent in terms of our view of how we look at the external environment.
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John David Rainey: Sure, Michael. This is John David. With respect to the sensitivity of our model to the macro environment, I hope investors think differently about Walmart because our customers and members are telling us that they do. We're not just known for value, we're also increasingly known for convenience. Our business is performing well. You asked about how we exited the year. January was actually our strongest comp in the U.S. business. But this increased relevance translates into improved financial performance for us as well. As we grow these digital businesses like e-commerce, the incremental margins in our e-commerce business globally for us in the quarter were 11% over twice the rate of what our overall margin is. But let me address what is maybe the question behind the question as it relates to the outlook for next year. Our business outperformed on virtually every operational and financial metric in the quarter. We feel like we're performing exceptionally well. The guidance that we provided, we feel is very consistent with what we've done in prior years. Keep in mind, each of the last two years, we've guided operating income of 4% to 6% growth annually. This year, if you normalize for the effect of Leap Day in VIZIO transaction, our guidance suggests an outlook of 5% to 7%. That reflects how we all feel about this business. We're really excited about what the year holds for us and what we can do there. We're one month into the year. So I think it's prudent to have an outlook that is somewhat measured. We don't want to get ahead of ourselves. There is certainly some unpredictability in any environment that we have. But we feel really good about our ability to navigate that. We feel really good about our relevance with customers. And we feel really good about how our business model is changing to inflect our profits upwards.
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Doug McMillon: Yes. When you take that noise out of the guidance, you can see that we're stepping things up a bit. I think that reflects our confidence. And to be in the position we're in right now with this momentum on the top line and the bottom line and inventory levels being so healthy, we feel like we're in a great spot to start the year. The 2.8% increase in inventory is what we would want. Our in-stock levels look good. We did pull a little bit forward around the edges, but we're selling through that stuff quickly. So, really in a good place to begin February.
Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Kate McShane: Hi, good morning. Thanks for taking our questions. Like, you had mentioned in the prepared comments that gross margins are still being impacted by mix. How should we think about the mix impact to gross margin in this upcoming fiscal year, especially as general merchandise growth continues to improve? And just as a second question to that, for your alternative revenue businesses. Have any of those businesses now reached scale? And if not, would you expect them to reach scale in fiscal year '25? Thank you.
Doug McMillon: I think we got a lot of room to run on the newer businesses. I mean you can see our shares are really low. It would be great to have general merchandise be strong. You guys might want to comment a little bit on what you're seeing right now?
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John Furner: Good morning, Kate, it's John. Thanks for the question. I would just start by saying that I'm really proud of our associates and our team for the quarter that they just had, up 4.6%. That compares to 4% a year ago. And really excited about the way they're taking care of customers and momentum that they have. In terms of mix, we did have in the material that we are encouraged by the recent couple of quarters in general merchandise. We're seeing better sales, better units. We're seeing unit flow through all across the box, which is great. We measure ourselves in units to ensure that we're delivering for customers. Doug mentioned inventory performance being up just about 3%. We're really pleased with that performance. As mentioned, our in-stock is better. Selling through and seasonal sell-through has been really strong in the last couple of quarters, which has helped our gross margin. And obviously, that results in savings of markdowns. And on pricing, I just -- I would say, again, thanks to the team we have over 5,800 rollbacks in stores today. Over 1,000 of those are new in just the last couple of weeks. So we remain focused on value. And I think we're in a really good position to be able to deliver flexibly for customers any way they want to deliver. And the team has done a great job understanding all the moving pieces and how they build that into the cost structure. And I'm really proud of the way the team is positioned going into this year.
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Chris Nicholas: Yes. I think -- it's Chris Nicholas here, Kate. What I would say is -- we are seeing a lot of momentum. John David talked about January being the strongest month of the quarter, and we saw the same thing, too. We're investing across the member value proposition, and it's really paying dividends and making it easier through digital engagement, making it easier through the member experience we're creating to buy everything you want, whether it's groceries, whether it's consumables, whether it's general merchandise or apparel, we see all resonating. And it's interesting. We're seeing our third quarter of GM comp growth, even though it's still a little deflated, so units are running ahead of comps. And we're seeing strength in TVs and technology and apparel. So we're seeing good strength on incredible items at incredible value. So it's not getting old.
Kath McLay: And I would just say, across international, as I look at kind of GM sales, we had really strong GM sales in Q4, particularly in events. So if I look across Mexico and Canada, we saw really strong response from our customers. We had our largest sales day ever in Walmex in -- during Elfin Irresistible. And a lot of the sales that we saw, particularly were coming through GM and apparel. So happy with how that's all mixing out.
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2025-02-20 08:00:00
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John David Rainey: Kate, this is John, David. We obviously have a lot to say about this since we're all talking. But I want to directly answer your question. Over the last year, the mix change for general merchandise in our business was down about 100 basis points. We're assuming this year is about half of that. But we're quite excited about what we're doing in general merchandise. One of the things that we didn't mention was the benefit that our marketplace is providing there. We have categories in our marketplace business like automotive, toys, patio that are all growing north of 20%. So these are good examples of things that are specific to Walmart and maybe not just a general macro effect of customers maybe not having their wallet stretched as much, but things that we're doing to provide better assortment where our customers are buying more general merchandise.
Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Hi, good morning. My question is on reinvesting and growing the business faster. It was mentioned that the e-commerce incremental margins were 11%. It looks like the enterprise in Q4 was 7%. And if we think there's upward pressure on this over time. So the idea of reinvesting at a healthy rate and growing earnings faster, you can clearly do both, which Doug called out a couple of years ago. The question is, why not invest faster? Because if incremental margins are rising, then top-of-funnel things like marketing and plus and anything related to e-commerce should be even more profitable and higher returns. And I think John David said, we're leading in a little bit, if you could speak to that and then talk about this debate of investing at a faster rate.
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2025-02-20 08:00:00
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John David Rainey: Simeon, thanks for the question. I feel that we're striking the right balance right now between investment and margin expansion. There are some table-stake items in our business, and that's investing in price, investing in our associates. We're always going to do that. Over the more recent years, we've invested a lot in our technology platform as well as supply chain automation. But those investments are actually driving the improvements that you see in our results this quarter. You don't deliver the bottom line at twice the rate of growth as the top line without some of these investments that we've made. So, as we look forward into the coming years, we certainly see the type of opportunity and incremental margins that we've had this quarter and maybe even something beyond that. But we can do that while investing for the business. We don't want to get overly focused on one quarter's performance at the expense of investing for the long term. We're trying to build a great company here, continue to build a great company and drive these kind of returns for a long period of time, and that requires investment.
Operator: The next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.
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Operator: The 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 question. Doug and John David, you framed the 5% to 7% constant currency EBIT growth kind of excluding the noise from the VIZIO and leap year. And it is consistent or maybe even slightly better than the past few years, originally, but it does seem a little conservative relative to what you achieved this year and to the momentum you have in the business. So I was wondering if you could just touch on two factors -- a couple of factors. One, the tariffs and just what you're assuming and how the consumer responds to that, how you're planning on passing that through? And if that is assumed to be any sort of headwind to earnings this year? And then also, the demand for expedited orders that you're seeing that continues, I think, to be helping the e-commerce profitability. Are you assuming that, that continues at the same pace or any changes there on that front?
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2025-02-20 08:00:00
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Doug McMillon: Yes, let me talk a little bit about tariffs and expedited orders. John David and then turn it over to you. As we've been saying, tariffs are something we've managed for many years, we'll just continue to manage that. We've got a great team. We know how to do that. We can't predict what will happen in the future, but we can manage it really well. And we're wired to try and save people money. So that will be our ultimate goal. And as it relates to delivery speed, it's important, and we're seeing behavior with our customers and members around the world that causes us to be excited about what's possible, and having these assets so close to people is such a big advantage and the stores are doing a great job of improving order quality and delivering with speed. And I think that will just get better and better as things go through the year. We will have, as kind of Simeon was pointing to flexibility. We manage the year. We don't just start the year with a plan and execute the plan. Things change. I mean look at what's happening with generative AI right now and the opportunity to build code in different ways. We've got opportunities to save money, get faster and we're making fluid decisions about how much we invest in technology, what do we put into wages and where, what needs to be done on prices this week? And to have the business model be morphing the way it is, just gives us the room to be able to do what we want to do strategically and manage the business for the mid and longer term, not just the short term while we deliver results each quarter, growing profit faster than sales.
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John David Rainey: Kelly, a couple of things. We don't have any explicit assumption in our guidance around tariffs. We feel like we'll be able to navigate that. Will it turn out differently than maybe what we expect today? Perhaps, and we feel good about our ability to do that though. With respect to the guidance, look, I think similar to last year, the last couple of years very consistently, we have to acknowledge that we are in an uncertain time. And we don't want to get out over our skis here. There's a lot of the year to play out. Again, we feel good about our ability to navigate the environment, whether it's tariffs or other macro uncertainty. On delivery with e-commerce, like overall, you're continuing to see this diversification of our business that is improving our profitability. The newer businesses and by newer businesses, I'll just suggest like advertising, membership, WFS, some of those categories, they contributed to over half of the operating income growth this quarter. So you're seeing this change in our business. As we leverage more of these digital channels, a lot of the faster-growing parts of our business are the higher-margin ones. Densification of our network is one, and so you're seeing as more customers avail themselves of the services that we provide, same-day delivery, things like that, and even paying for that, if they want it within one hour or three hours, that's continued to improve our e-commerce profitability. Just in the U.S. alone, just in the U.S. alone, we saw an 80% improvement in the level of e-commerce losses in the last year. So we feel really good about how the business is changing here.
Doug McMillon: This omnichannel position really is an advantage. We're still seeing curbside growth. We're seeing in-store in club growth, and we've got this growth in delivery and being able to do all of those things all the time is a big advantage.
Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
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2025-02-20 08:00:00
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Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Chuck Grom: Thanks. Good morning. Congrats on a great quarter and a great year. I was hoping you could discuss what you're seeing in Walmart Plus membership and whether that's accelerated or held steady in recent quarters? And then how much of the growth in Walmart Plus is being driven by Walmart Plus Assist. And then separately, can you talk about the underlying assumptions you have in the next year for like-for-like inflation, both in grocery and within general merchandise? Thank you.
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John Furner: Hi, Chuck, good morning. It's John Furner. Good to talk to you. We continue to be excited about Walmart Plus. We've had consistent growth over the last couple of years, last couple of quarters, the number of deliveries and the number of orders they're placing continue to rise, which is great to see. I just want to pick up one point we're talking about and with the last question with fast delivery and then our same-day our deliveries under three hours and under one hour, we grew 180% year-on-year, which is really exciting. So we see that offer continue to grow. And a large part of that offer is Walmart Plus members, so Plus members are seeing the value, and we see the repeat rates coming through. Our same-day delivery of over 5 billion units last year, over 100% growth for the year. And then the third thing that we mentioned this morning, which is really exciting to see how strongly it started is our pharmacy delivery program. We are seeing a lot of members and customers participate in this program. We think this will have a lot of momentum as the year goes. And it's exciting to see the number of customers who are building baskets while they have their prescription delivered. And that's true for both acute prescriptions where maybe you have a sick child, and you need groceries with it, or it's your regular prescription. So that's exciting to see. And then the second part of your question, in terms of inflation, we planned a very - I'd say a normalized year, and I know this is 1% to 2% There will always be some anomalies like what we're seeing right now with eggs as a result of avian flu last fall. Those things tend to work themselves out over time. So we don't have a large inflation number planned into this year.
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Doug McMillon: Yes. Maybe I know, Chuck, you didn't ask about it, but seeing as we're talking about membership. Membership in Sam's Club is at all-time highs as our renewal rates. And the reason for that is because of our incredible associates and because we're investing across the member value proposition. So our first year renewal rates this year are up hundreds of basis points. And so when we've talked to you all about the associate investments and the wage investments, we're seeing that paying dividend with turnover down 1,700 basis points year-on-year. So yes, good things still to come for Sam's Club, too.
Kath McLay: And then if you think about membership from an international flavor, if I look at Sam's Club where we have a straight membership, membership income grew there over 35% this year. So strong resonating CVP with the Sam's Club China business, but we also think about membership from a Know Your Customer perspective. And over the last year, we launched a program called Beneficios in Mexico, and we have had over 45 million customers sign up for that, which enables us to know them, to enable us to also personalize services and offerings to them.
Operator: Our next question comes from the line of Mike Baker with D.A. Davidson. Please proceed with your question.
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2025-02-20 08:00:00
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Operator: Our next question comes from the line of Mike Baker with D.A. Davidson. Please proceed with your question.
Mike Baker: Great. Thanks. I just wanted to ask about the overall consumer environment, what you're seeing? I think after last call, it was right after the election you had said that there was a little bit more consumer confidence after the election. Doug, in December, you had said something about storm clouds lifting or something along those lines. Are you still seeing that? Has anything changed in the last couple of months? It seems like the environment maybe has gotten a little bit more volatile. And related to that, I know this is asked a lot, but I'll ask it again. The rollback number of 5,800 seemed to be a little bit less than it was in the last few quarters. Remind us how we think about that? I don't think it's that you're investing less in price, but love to hear that explanation again. Thanks.
Doug McMillon: Mike, this is Doug. Let me clarify the storm clouds thing. What I said was we had seen clouds on the horizon and they never came. And I kind of feel that same way right now. We're just seeing a lot of consistency.
John Furner: Doug, I agree with the consumer environment. Very consistent. We mentioned the word resilient, mix has shifted slightly throughout the year, but really encouraged by the trends we saw in the last couple of quarters. So we're optimistic given all the things that we've done to improve our strategy, working in omni is an exciting way to work on behalf of customers. And what that means is we'll be ready to fulfill customers wants and needs any way they want to, whether it's in the store, at the curb, at their home, we're seeing growth rates across those. And so we're ready for any environment. This is a team that's experienced. They've been through a lot of changes in the economy in the last five to 10 years, and they know how to manage things really well. So, we'll react accordingly. But we -- again, we see a consistent, resilient consumer.
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2025-02-20 08:00:00
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Operator: The next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question.
Paul Lejuez: Thanks guys. You mentioned seeing lower markdowns in the fourth quarter. Curious how that came in relative to your plan and also what you assume about the promotional landscape for '26, whether you build in significant price investment into your guidance? And just remind us how that will shake out this year versus what you thought coming into the year? And then just a bigger picture question. You mentioned some increased investment in Canada a few weeks back. Just curious, how you view the long-term opportunity of that that market? Thanks.
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John Furner: This is John. Let me pick up the question on margins, markdowns first. It's really important for us we control and manage our inventory based on what our customers are wanting to buy the teams and the supply chain in stores, fulfillment centers did a really nice job flowing inventory. We made a number of improvements with technology, both in-store and across the supply chain to have a really accurate understanding of what we have, where it is, how quickly we can deploy that inventory for customers. And so, the results did show an increase in gross margin that we're proud of, but there are some pieces there that are important. There's gross margin for merchandise. There are also some other things in there like ad revenues and some things that increased margin that are part of our newer businesses, our new digital services. So our core margins -- our core markdown management, we're proud of the way that we've managed that. I feel great about inventory going into this year. That number of 50, 100 rollbacks is a large number of rollbacks historically. And that will fluctuate quarter-to-quarter. Again, we've added about 1,000 in the last few weeks. And we're prepared for all sorts of environments, whether it's more promotional or less promotional. We're going to focus on value for our customers and we're going to do everything we can do to control prices and keep prices low.
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2025-02-20 08:00:00
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Walmart Inc.
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Kath McLay: And if I pick up on Canada, I would say we're pleased with the top line growth we're getting in Canada. But one of the real highlights for me has been the e-com performance, which has been up 30%. And their growth has accelerated every quarter over the last year. And so we are seeing our offering in Canada, really resonating with the customer. We're focused on value. We were able to offer a Canadian Thanksgiving lunch for CAD 40 for four people. And so really leaning into making sure we have the price positioning right but also the customer is really responding from a convenience perspective. So we're excited about the business we have in Canada.
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 ask about VIZIO. Could you talk about some of the details around the dilution that you've embedded here and then perhaps discuss plans to integrate that, how do you expect to leverage their platform? And in general, as you think about Walmart Connect, pretty incredible momentum there. You've been really disciplined in building that out. I'm just curious how do you think about the growth outlook? Thanks so much.
John David Rainey: Sure, Seth. We're really excited about having the VIZIO team join Walmart and what that new platform will do for our customers. We do have some dilution related to the transaction cost with that in the first quarter, about 70 basis points. But we expect this transaction to be -- to begin being accretive to Walmart next year. And so this will create new channels for us to reach out to our customers and allow them to avail themselves of all the things that Walmart and Sam's provides. But John, do you want to add anything else?
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John Furner: Sure. Sure. I'm really excited about the addition of VIZIO to the Walmart family. I've known William and the team for a long time, and it's just great to have them part of the team. The operating system in VIZIO is an impressive operating system. It works with very little friction. It's easy to set up and install. I have several of these personally, and I've acquired more since we started talking about this acquisition. I'm just really pleased with the way it works for the Walmart Connect business to have more ways to distribute advertising for sellers and suppliers, that's really exciting for them. We hope to be able to do that in a very efficient way. So we're starting the process of integration. And over this next year, we'll be working on bigger plans for the brand as the teams get more time to work together.
Operator: The next question is from the line of Zhihan Ma with Bernstein. Please proceed with your question.
Zhihan Ma: Hi. Thank you very much for taking my question. I guess I wanted to follow up on the e-commerce side. If you could just help us understand what are the top three drivers of you improving e-commerce profitability between the alternative revenue streams and also reducing core e-commerce cost? And you mentioned retail media membership kind of driving more than 50% of EBIT growth. Are you able to share what proportion of EBIT dollars for now coming from the high-margin alternative revenue streams? Thank you.
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2025-02-20 08:00:00
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John David Rainey: Let me give you a couple of data points here, starting with the last part of your question. So if you just take advertising and membership, just those two categories, that was a little more than a quarter of the overall operating income for us in the quarter. So really encouraged about these new parts of our business. In terms of the drivers of e-commerce profitability and no particular order, there are a few things that I would call out. One is the densification of our network. So think of this as one of our drivers instead of delivering a package to one house on the street is now hitting four or five houses on that street. So we're able to spread those costs over more volume. And as more customers come to us, this is really improving the unit economics here. The second area would be the fact that over 30% of our customers that are having something delivered from a store are paying something extra to have that delivered within one hour or three hours. On Christmas eve, 77% of the orders were this express type delivery. So that certainly helps with the unit economics there. And the third area, are these newer parts of our business, like membership, like advertising that continue to have a lot of runway and improve our margins.
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. I wanted to start just with a follow-up on that question around e-com economics. So, incremental margin of around 11%, obviously, good margin. But what does that look like over time? Does that grow? How do we think about e-com overall returning to profitability or I should say, attaining profitability? And then, as we look out over time, in addition to that, just kind of curious, issues like immigration, does that -- how are you thinking about that? Any impact that that you think might have this year?
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2025-02-20 08:00:00
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Doug McMillon: Ed, this is Doug. When you look at the second P&L, as we've described it, it ends up being more profitable than the first P&L. First P&L being kind of the traditional retail store P&L. When you put together e-commerce components like membership and advertising, data monetization, all the things that we get to do as we scale an e-commerce business, it's both first-party and third-party, by the way, it just lifts the overall operating income percentage of the business, and that's what's happening. So the key is keep the foot on the gas as it relates to e-commerce growth, serving people how they want be served. And as I mentioned a minute ago, the great thing about omni is, however someone wants to shop in the moment, we can help them. We want to go to a store a club, we're there and we're close to you. You want to do curbside pick-up, you can. You want to get delivered in a variety of forms, we can do that too. As it relates to immigration, it hasn't been anything that's impacted us in any way that we could share anything interesting. It's a nonevent for us so far.
Operator: Our next question is from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Robbie Ohmes: Thanks for taking my question. I think this might be for John David Rainey. Just operating expenses delevered. I think it was 50-plus basis points in the fourth quarter, excluding the opioid settlement. Can you just help us -- tell us how we should think about the SG&A ratio for Walmart, the puts and takes for opportunities to be better than expected this year versus worse, but also the sort of way we should think about that long term for Walmart?
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2025-02-20 08:00:00
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Walmart Inc.
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John David Rainey: Sure, Robbie. It's good to speak with you. To start with, I think we need to be grounded in how our business is changing. I talked about in my prepared remarks that our business is 18% e-commerce right now. That's 1,100 basis points higher than it was five years ago. The SG&A related to a digital transaction, an e-commerce transaction is higher than it is for brick-and-mortar. So historically, we thought of our business when it was more brick-and-mortar as 20% or maybe slightly below that was a good way to think about the cost profile of that business. As our business moves more digital, it's going to create pressure there. It's just a channel mix equation. But at the same time, we've got a hyper focus as we always have on everyday low cost. But we have an opportunity to make investments in the business as well. If you look at the fourth quarter, marketing is an area that stands out that we invested a little bit more heavily into. It also drove some of the improvement that we saw in general merchandise. But fundamentally, as you think about our cost structure going forward, one of the big drivers is going to be the improvements that we see in supply chain automation. We're already seeing that. We're encouraged by some of the early productivity metrics. But still today, less than half of the stores in the U.S. are served fully by automation. And so there's a lot of benefit still to come here as we automate our supply chain as we continue to automate our stores that will drive improvements in SG&A.
Doug McMillon: We're excited to show you a few facilities in Dallas in April. You'll remember the trip to Florida, those of you that came, I think we’re going to have a similar positive experience when you see what we're doing there.
Operator: Our next question is from the line of Corey Tarlowe with Jefferies. Please proceed with your question.
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2025-02-20 08:00:00
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Walmart Inc.
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Operator: Our next question is from the line of Corey Tarlowe with Jefferies. Please proceed with your question.
Corey Tarlowe: Hi, good morning and thank you for taking my question. Doug, you had mentioned some exciting news regarding PhonePe. I was wondering if you could share any details around the business, around the growth or profitability today? And then just as another question. John David in your prepared remarks, you mentioned that ROI is an interesting stat that I think it's the highest it's been since 2016. Is there a way to maybe put into context just how high you think your ROI can go and where some of these newer investments rank as you think about the trajectory for your return on investment? Thank you so much.
Kath McLay: I'll pick up the one on just on PhonePe. I mean the PhonePe business to by the end of 31st of January hit 1.7 trillion TPV and they have something like 310 million transactions daily. It's a very strong business, and we're excited to make the announcement that they are going to commence their preparation towards IPO. That's a significant milestone for PhonePe. I think who's also going to celebrate its 10-year anniversary this year. So their business spans both financial services through the technology solutions and excited to be able to make that announcement.
John David Rainey: On ROI, first, I think we're fortunate to be a 63-year-old company that has the type of opportunities to invest in itself and drive the returns that we see. I mentioned supply chain automation as one example, but there are many, but these are returns that are approaching 20% in some cases. The standard that we're holding ourselves to is that we want to see our ROI go up every single year. And we've seen that result over the last couple of years. And so I'd hope that we'd be able to get to historical highs over some period of time. But we want to continue to see these investments pay off with our ROI going up.
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Operator: Thank you. Our next question is from Rupesh Parikh with Oppenheimer. Please proceed with your question.
Rupesh Parikh: Good morning, and thanks for taking my questions. I'll be quick here. Just as we look forward this year, I think free cash flow was down versus last year. I just want to get a sense if we're getting closer to a positive free cash flow inflection? And then we did see an increase in dividends, so just any updated thoughts on capital allocation going forward?
John David Rainey: Sure. I'll take that, Rupesh, good to speak with you. We do feel like we're getting really close to both in earnings and a free cash flow inflection as you look at the benefits of a lot of these changes in our business just becoming larger as the composition of our overall business. And hopefully, our capital allocation reflects the conviction and excitement that we have in our business. We announced a 13% increase in our dividend. Our plan this year assumes that we're going to buy back more stock than we did last year. And certainly, if the early reaction to today's announcement is any indication, we have an opportunity too right now. But we're also going to invest in our business with CapEx. And so I think we can be very balanced there going forward with both returning cash to shareholders and investing in ourselves.
Operator: Thank you. At this time, we've reached the end of the question-and-answer session. And I'll turn the call over to management for closing remarks.
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Doug McMillon: Yes, this is Doug. John David just mentioned how old we are. What went through my mind was we feel young. Like if you look at what's happening around the company, whether it's what we're doing with tech or moving to this new office location, there's a lot of freshness and newness and the momentum is helping to fuel that. We're really pleased to see that the consistent momentum in the fourth quarter showed up in our results. We're obviously known for saving people money, but we're increasingly saving them time and that matters, and it's driving our growth. And not only are -- is the team executing in the short term with things like unit growth and market share improvements and pricing investments and inventory management, but they're building for the long term and seeing ROI grow at the same time. And I'm really impressed by that and grateful for that. It's awesome to be in the position we are for international. International has got a really bright future, had a really strong year yet again on top of strong years in the past. All three segments had a good year. So we feel like we're in a good spot to start the year, and we'll just stay focused on playing offense and making the most of our opportunity. Thank you all for dialing in.
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, and welcome to the Walmart Third Quarter Fiscal Year 2025 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] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Steph Wissink, Senior Vice President of Investor Relations. Thank you. You may begin.
Steph Wissink: Thank you. Welcome, everyone. We appreciate you joining us and your interest in Walmart. Joining me today from our home office in Bentonville are Walmart's CEO, Doug McMillon; and CFO, John David Rainey. Doug and John David will first share their views on the quarter and then, we'll open up the line for your questions. During the question-and-answer portion, we will be joined by our segment CEOs, John Furner from Walmart U.S.; Kath McLay from Walmart International; and Chris Nicholas from Sam's Club. For additional detail on our results, including highlights by segment, please see our earnings release and accompanying presentation on our website. We will make every effort to answer as many of your questions as we can in the hour we have scheduled for this call. As a courtesy to others, please limit yourself to one question. 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 and non-GAAP reconciliations on our website at stock.walmart.com. Doug, that concludes my intro. We're ready to begin.
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Doug McMillon: Good morning, and thanks for joining us. Our associates delivered another strong quarter continuing our momentum. They're working hard to save our customers' and members' time and money, while simultaneously transforming our business for the future. For the quarter, sales grew 6.1% in constant currency and profit was up 9.8%. Globally, we drove strong growth in eCommerce, up 27%. Advertising grew 28% and membership income was up 22%. This helped us grow profits faster than sales even as we worked to help lower prices and invest in our associates. The rapid growth from these newer businesses is helping us strengthen our business model. All three segments of our business performed well. Sales for Walmart International grew 12.4% in constant currency. Comp sales for Sam's Club U.S. were 7% and Walmart U.S. delivered comp sales of 5.3%. Transaction counts and unit volumes were positive across each segment, and we continue to gain market share in the U.S., both in grocery and general merchandise. Households earning more than $100,000 made up 75% of our share gains. In the U.S., in-store volumes grew, curbside pickup grew faster, and delivery sales grew even faster than that. Becoming more convenient for our customers and members is helping drive our growth. We had almost no like-for-like inflation in the U.S. this quarter. It was nice to see general merchandise grow low-single digits in the U.S. even as prices are deflated by over 4%. We currently have about 6,000 rollbacks in Walmart U.S. across all categories. We're feeling some margin pressure from growth in GLP-1 drugs, so we're pleased to see general merchandise sales be positive. Across the company, inventory is in very good shape. The unique characteristics of this quarter included a U.S. port strike, two large hurricanes and the flooding they caused. Our team did a really nice job preparing before those events and they worked hard to aid recovery after the storms. The team that comes together from across the company to form our emergency
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they worked hard to aid recovery after the storms. The team that comes together from across the company to form our emergency operations center is impressive. They coordinate closely with federal, state and local leaders. They make sure our associates are accounted for and safe. And we set up distribution points at stores in the affected areas where we serve hot meals, giveaway supplies, offer showers, laundry services and phone charging. Through Walmart and the Walmart Foundation, we made a $16 million commitment, which we've delivered on. This includes 178 truckloads of needed supplies and cash grants totaling nearly $10 million to support local needs. Our truck drivers and other associates helped facilitate or serve 544,000 meals in the affected areas, supported by our non-profit partners. Our customers and members contributed an additional $14.5 million from in-store and online campaigns. I got a chance to see our associates in action in Georgia and here in Bentonville and I couldn't be prouder of them all. In total, the storms and the port strike lifted our sales growth by a small amount and negatively affected operating income growth by a larger amount. The takeaway should be that we delivered on our financial framework despite the noise from these events. This was clearly a strong quarter and the changes we've been working on for years are continuing to bear fruit. We're well-positioned to serve people how they want to be served, whether that's coming into a store, picking up an order or having it delivered. Our team has changed, developed new capabilities and learned how to work in new ways. We build new tech more effectively than we used to, and we're doing it with more speed. This is a more customer and member centric organization. I got to attend our Sam's Club grand opening in Grapevine, Texas a few weeks ago, and it was exciting to be there. We made quite a few changes to design of this club. We have an expanded area for curbside pickup and delivery orders, new category adjacencies with consumables
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of this club. We have an expanded area for curbside pickup and delivery orders, new category adjacencies with consumables near the pickup and delivery staging area, and a stronger general merchandise presentation that has improved the sales mix of those categories. Boldly, our Sam's team also eliminated traditional checkouts, so our members can use Scan & Go, and the new computer vision exit technology to exit the club faster. Just imagine a 150,000 square foot Sam's Club with no traditional checkouts. The week after that grand opening in Texas, I made a trip to China. The week before I arrived, we opened our 50th Sam's Club there with 60,000 members. All 50 clubs are performing well and we have more to come. About half our sales in China are digital, thanks in part to our network of over 350 club distribution points, which provide 1 hour delivery service to members extending the reach of our traditional clubs. We've learned a lot from operating around the world and we continue to learn from places like China, where social commerce including live streaming are growing quickly in places like India where financial services have digitized at scale. Last week, I got to spend a couple of days with our team in Mexico, where our team is driving innovation in lots of areas, including with our cellular service, BiTE, our financial services business, Kashi and with healthcare services, where we've helped over 400,000 customers visit a doctor in our in-store healthcare clinics. As in other markets, our Walmex team is growing eCommerce, adding newer businesses, including marketplace and advertising, and becoming an omnichannel retailer. As I mentioned last quarter, we're seeing early tangible results from the deployment of generative AI. I'm a little hesitant to talk about AI because I know someone will hear this in the months and years to come and chuckle about how old school it sounds, given how fast things are changing. But it's important to convey that we're learning and applying generative AI, AI and machine learning
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fast things are changing. But it's important to convey that we're learning and applying generative AI, AI and machine learning to solve the practical opportunities right in front of us. Our datasets are valuable and we're learning to put them to work to improve the customer member experience and assist our associates as they do their daily work. I'll build on the example, I shared last quarter about how Gen AI has helped us improve our product catalog by mentioning the personal shopping assistant we're building. We've had it in beta form for five months and it continues to improve. I'm excited about how it will improve the customer experience in the months and years to come, enabling us to provide a better experience than the one that starts by typing into a search bar and getting a list of results to choose from. We're racing to improve all the things that people love about shopping and remove or diminish all the things they don't. In addition to the customer facing work, 15 months ago, we deployed a Gen AI tool to all of our U.S. home office associates. It's called My Assistant. We've expanded access to home office associates in 13 additional countries and we continue to see engagement grow. It provides our associates a place to access knowledge and time saving actions in a secure environment. Since launch, 50,000 associates have used my assistant to ask 1.5 million questions. Our leaders can get insights into people related metrics, such as hiring and retention and associates can get answers to common policy questions, like, how do I order my discount card through a conversational experience. We'll continue to build on these use cases to enable more productivity and help identify the next best task for our associates in stores and clubs. Just as we're enhancing the customer experience with Gen AI, we're working to remove friction for our associates so they can do high value work that they enjoy, like, serving our customers and being merchants. I continue to be excited about how our associates are learning and
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they enjoy, like, serving our customers and being merchants. I continue to be excited about how our associates are learning and changing the way they think and work. With that, I'll wrap up and turn it over to our CFO, whose Baylor Bears beaten my Arkansas Razorbacks in basketball recently. We'll see you in March, John David.
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John David Rainey: Well, we look forward to that, Doug. I hope the Razorbacks have a good season, just not as good as the Bears. I want to start by thanking our team for delivering another strong quarter. We're encouraged by the steady momentum building across the business. Importantly, the drivers of our outperformance are similar to the past several quarters, with customers and members continuing to respond to our value proposition, as we provide lower prices and greater levels of convenience. We're broadening our assortment, improving customer experience and earning their trust, while seeing share gains as a result. We're also realizing benefits from the investments we've made in our core omni retail business and seeing improved profitability with newer businesses. We're executing on our strategy and the business model is delivering as it's designed to do, with operating income growing faster than sales, and yet there is much more opportunity ahead. As Doug noted, the hurricanes that impacted the Southeastern United States resulted in unanticipated expenses during the quarter. I'm incredibly proud of how our team responded to support the communities that we serve, using our fleet of semi-trucks, supply chain, logistics capabilities, product inventory, and financial resources to support the restoration effort. At the peak of the storms, we had about 400 stores, clubs and DCs closed. We're pleased that all of our associates in the affected areas remain safe and we continue to support them during this disruptive period. We've since reopened all of our supercenters except for two that were extensively damaged and we're in the process of restoring these stores to serve customers again as soon as possible. Now let me review the highlights of our financial results. Q3 sales, operating income and EPS all exceeded the top end of our guided ranges. Enterprise net sales growth was over 6% on a constant currency basis, with all three operating segments outperforming our expectations, aided by strong eCommerce growth.
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a constant currency basis, with all three operating segments outperforming our expectations, aided by strong eCommerce growth. Walmart U.S. comp sales increased 5.3%, including eCommerce sales growth of 22%. Growth in customer transactions and units across stores and eCommerce remained strong. Store fulfilled delivery increased nearly 50%, and surpassed $2.5 billion monthly run rate. We've now had 12 consecutive months of deliveries above $2 billion. Food categories were especially strong this quarter with unit volumes growing by the highest level in four years. We also generated mid-teens growth in health and wellness due largely to branded pharmacy scripts, including GLP-1. GLP-1 sales contributed about 1 point to the segment comp, while continuing to create mix pressures in gross profit. We're encouraged by the improvement in general merchandise, where we had low-single digit comp sales growth, including strength in home, hardline and toys. U.S. customers remain resilient with behaviors largely consistent over the past four to six quarters. They continue to seek value to maximize their budgets, while also choosing convenient options to save time. Our efforts to bring down pricing have helped as total like-for-like inflation has remained close to flat for the past four quarters, with Q3 general merchandise and consumables deflationary and food inflationary in the low-single digits. We're seeing higher engagement across income cohorts with upper income households continuing to account for the majority of our share gains. Our international business had another strong quarter with constant currency sales growth of 12.4%, reflecting strength in Flipkart, Walmex and China. We saw positive unit growth across markets with sales strength in both general merchandise and food and consumables. eCommerce sales increased 43%, and penetration grew across all markets with speed of delivery becoming increasingly important to customers. In the last 12 months, international delivered over 2.1 billion items same day or next day,
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important to customers. In the last 12 months, international delivered over 2.1 billion items same day or next day, with about 45% of those delivered in under 1 hour. Flipkart's BBD or Big Billion Days sales event was up double-digits in both top line and customer growth. The timing of the event was earlier than last year, benefiting our year-over-year sales comparisons in Q3 with the corresponding headwind expected in Q4. Walmex growth outpaced the comparable market for the sixth consecutive quarter. And our business in China continued to grow double-digits with strength in Sam's Club and eCommerce. PhonePay also had a good quarter with monthly transactions surpassing $8.7 billion and total annualized payment volume of approximately $1.6 trillion. Sam's Club U.S. comp sales ex-fuel increased 7%, including eCommerce growth of 26% with increased transactions and unit volumes accounting for almost the entirety of the comp growth. In response to member feedback, Sam's rolled out new perks in August like, express delivery and the elimination of curbside pickup fees for club tier members, which helped eCommerce growth. Since that launch, eCommerce growth has increased by more than 700 basis points versus our trends in the first half of the year, with club fulfilled delivery more than doubling in that period. The convenience Sam's provides both inside the club and via eCommerce is a differentiator in the warehouse club channel. Scan & Go penetration of sales increased more than 250 basis points and the nearly completed rollout of our Just Go exit technology across all 600 clubs is enabling about 70% of members to exit without a check. Members love it with member satisfaction scores on exit now close to 90. Our frictionless approach to serving members by leveraging technology is on full display at our new club opened in Grapevine, Texas, the first of 30 new clubs we expect to open in the coming years. If you're in the area, we'd encourage you to check it out. From a margin standpoint, consolidated gross margin expanded
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years. If you're in the area, we'd encourage you to check it out. From a margin standpoint, consolidated gross margin expanded 21 basis points, led by Walmart U.S. with international results pressured by the timing of Flipkart's BBD sales event. In the U.S., improved margins reflected strong inventory management again this quarter with a 0.6% decline on more than 5% sales growth, as well as a lower level of markdowns that has allowed us to manage pricing aligned to competitive price gaps. Providing everyday low prices for our customers and members remains a priority, and we continue to lower prices in the U.S. across our assortment of national brands and private brands. During the quarter, we had price rollbacks on approximately 6,000 items across our assortment, including around 3,000 items in grocery and have converted nearly 2,000 price rollbacks over the past year to long term price reductions. We're pleased with how customers and members are responding to our strong value proposition. As our business model evolves, it's encouraging to see our margins improve from a diverse set of offerings. Global eCommerce losses continue to narrow in Q3, most notably in Walmart U.S. While improved business mix helped, we're seeing good progress in core eCommerce margins. There are a few key factors driving this improvement, delivery densification, increased penetration of paid expedited delivery orders and the automation of our supply chain. As we scale our store fulfilled delivery business and expand our catchment areas, we've seen significant improvement in batch density with orders per delivery up 20%. In addition, the popularity of expedited delivery has resulted in more than 30% of orders coming from customers and members that elected to pay a convenience fee to receive their delivery in less than 1 hour or less than 3 hours. And lastly, we continue to make progress in the automation of our supply chain, as now more than 50% of our fulfillment center volume is automated, which is twice as much at this point last
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our supply chain, as now more than 50% of our fulfillment center volume is automated, which is twice as much at this point last year. This has the obvious benefit of lowering the per unit cost of delivery. These factors contributed to the third consecutive quarter of approximately 40% reduction in U.S. net delivery cost per order. Importantly, while we drive greater efficiency, we're enhancing service levels with customer NPS for delivery reaching all-time highs this quarter. We're also continuing to reshape our profit composition and business mix, as we scale growth drivers such as advertising, membership, marketplace and fulfillment and data analytics and insights. Our global advertising business increased 28% in Q3, driven by 50% growth in international, led by Flipkart, which was aided by the BBD event, as well as another strong quarter from Walmart Connect in the U.S., which grew 26%. We're building a highly unique retail media platform and I've been encouraged by ongoing tests showing customer receptivity to growth in digital ads, especially where ads help customers discover relevant items that are trending, navigate and compare choices and enjoy Walmart's everyday low prices. We're also pleased with the trends in our membership programs. In the U.S., Sam's Club continued to grow membership count and increase its penetration of plus members, resulting in 15% membership income growth, while Walmart+ membership income grew double-digits again this quarter. Within international, membership income in China from our Sam's Club business grew more than 30% as member counts continue to increase. For Marketplace and Walmart Fulfillment Services, in the U.S., Marketplace grew 42% in Q3, and we've now seen more than 30% growth in each of the past five quarters. The number of sellers on the platform continued to grow double-digits and SKU count is approaching 700 million items. With a broader assortment of the brands and items customers want, marketplace sales in beauty, toys, hardlines and home, all grew more than
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assortment of the brands and items customers want, marketplace sales in beauty, toys, hardlines and home, all grew more than 20%. We continue to leverage our next generation supply chain and technology to provide fulfillment for sellers at some of the lowest rates in the industry. As a result, more sellers are using our Marketplace Fulfillment Services with WFS sales penetration reaching record highs at more than 40%. Outside of the U.S., we're seeing similar encouraging trends. For example, our marketplaces in Mexico, Canada and Chile combined increased items by 20% versus last year. In Mexico, the number of items delivered through WFS grew over 50%, and during Flipkart's Big Billion Days event, we experienced same day delivery growth, 2.5 times higher than last year. This quarter, Flipkart also launched its quick commerce service called Flipkart Minutes in a number of cities, offering delivery in under 15 minutes for a variety of items, including groceries and electronics. And within data analytics and insights, Walmart Data Ventures continues to grow rapidly with net sales up double-digits. Our client base has more than doubled over the past year and we're excited about continuing to broaden our reach to new markets by launching the platform in Canada this month. As a reminder, the margin gains we've reported this year in the U.S. have been burdened by meaningful product headwinds from the outsized sales growth in health and wellness relative to general merchandise. Our plan calls for general merchandise to improve in future quarters, but to continue to underperform health and wellness in grocery until we return to more normalized purchasing cycle across GM categories. We remain focused on building out our marketplace assortment and emphasizing early emerging categories like apparel, home decor and automotive supplies. We're continuing to optimize our business to deliver greater efficiency and we're committed to balancing ongoing investments with improved returns for customers, associates and shareholders.
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and we're committed to balancing ongoing investments with improved returns for customers, associates and shareholders. Our evolving business model with more diversified and durable sources of profit has provided the ability to fund investments, while also delivering on our financial framework of operating income growing faster than sales. Price gaps remain healthy and we continue to advocate on behalf of customers for lower prices. Wrapping up Q3 results, consolidated operating income grew 9.8% in constant currency and adjusted EPS increased nearly 14% to $0.58 per share. Now turning to guidance. We are raising our full year guidance to reflect strong third quarter results. On a constant currency basis, we now expect full year sales growth of 4.8% to 5.1%, and operating income growth of 8.5% to 9.25% versus prior guidance of growth of 3.75% to 4.75% and 6.5% to 8%, respectively. Compared to our guidance that we provided at the start of the year, we now expect operating income to grow nearly 400 basis points more at the midpoint. Adjusted EPS is expected to be between $2.42 and $2.47 versus prior guidance of $2.35 to $2.43. This full year guidance implies fourth quarter constant currency growth in sales of around 3% to 4% and operating income around 5% to 7.5%. This guidance is slightly above our prior implied Q4 range and contemplates a series of wage investments that Sam's Club announced on September 17 to be effective in Q4. Recall that we guide sales and operating income growth on a constant currency basis. Currency fluctuations impacted the business negatively in Q3 after being a tailwind in Q1 and neutral in Q2. In Q3, currency pressured reported sales and operating income growth by about 70 basis points and 160 basis points, respectively. If rates stay where they are currently, we would expect a headwind to Q4 reported sales and operating income growth of approximately 100 basis points and 200 basis points, respectively. In closing, while we still have one more quarter to go before we close out this year,
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and 200 basis points, respectively. In closing, while we still have one more quarter to go before we close out this year, we're really encouraged by our operational and financial performance. We have a lot of conviction in our strategy. And the leaders sitting around the table with me today, along with our team of over 2 million associates around the world are executing on it. Hopefully, you share my sentiment and are as excited as we are to see what else is coming. We appreciate your interest in Walmart and are now ready to take your questions.
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Operator: Thank you. [Operator Instructions] Our first question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Kate McShane: Hi. Good morning. Thank you for taking our question. We wanted to focus our questions today on general merchandise and gross margins. While general merchandise inflected positive in the quarter, it still seems like mix is a headwind based on everything you walked through today. Do you have a view on when this gets more balanced? And if we were to see a more balanced growth rate in general merch versus consumables and the growth of the alternative revenue businesses, what could gross margin expansion look like?
Doug McMillon: Hey, Kate. This is Doug. As it relates to general merchandise, I'll go first and then ask all three of the segment leaders to speak. We love general merchandise. First party, -- being a first-party merchant is something that we obviously grew up doing. And when you go into our stores and clubs right now, the seasonal impact of GM is exciting and energizing. And so this is something that we're passionate about. And in today's world, we can grow first-party general merchandise in stores, in clubs plus through eCommerce with both pickup and delivery and the expansion of the marketplace. So I think we've got a lot of opportunity kind of big picture from a GM point of view. John, why don't you go first and then Chris and Kath can chime in.
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John Furner: Sure. Good morning, Kate. Thanks for the question. As Doug said, we're excited about the season. We're excited about seasonal merchandising. I've been in stores just the last couple of months in Utah, California, last week, Philadelphia, Tennessee and list goes on and on, and the stores are ready. They are really set for the season. We had a good back-to-school. We had a good Halloween, and it's important to string these holidays together. So we go into the season with momentum. We're excited about that and we think we have a great plan for the season, it's early November, so the team will be working on consistent execution the next couple of months to deliver the best quarter we can for our customers. As we said, general merchandise has improved. We are still experiencing some deflation in general merchandise. This is in the low to mid-single digits range that hasn't changed for some time, but we are positive in comp due to growth in units, primarily coming out of, as we said earlier, home, toys, some of our hardlines categories. We're seeing some real bright spots as well in the marketplace with fashion and apparel. I'm really excited about the mix. So we have a lot of ways that we can deliver to the customers, whether it's in the store, which really excited, again, as I said, about the stores being set seasonally and with our eCommerce business growing at 22% in the quarter, that puts us in a spot with some momentum as we enter the fourth quarter. Maybe Chris, go to you at Sam’s?
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Chris Nicholas: Yeah. Thanks, John. I mean, just a lot of similarity there with us. We love general merchandise. We get very excited about items. And if you think about the way that we've constructed all of our strategic priorities, this is not just a consumables and food game, it's definitely a GM game. If you think about increasing digital engagement, the growth in eCommerce that helps people see the great items we've got, then investing in the value proposition, we're investing in a Grapevine. And Doug talked about it in his opening remarks, we've put a lot of effort into how we merchandise both the items you can buy in club, but also the items that you can buy in this online to offline connectivity. And it's really powerful and we're seeing significant increases in the participation of general merchandise in that club, which I think is the best articulation of our strategy physically that we have today. And there's a couple of other things I'd say, from a comp point of view, we're really happy to see the second quarter of positive comps on GM. And -- but units are still moving ahead of comps, so there's still good value out there. And similar to John, like, in home tech, toys, seasonal decor, all doing really well. And back to college and Halloween, we're also really strong. So we see that momentum continuing.
Kath McLay: Yeah. And I'd say, from an international perspective, we saw strong growth in GM, in Mexico, India and China. And not surprisingly in those markets too convenience is really important. And so as we kind of are growing our strength in delivery to the -- from a same day and also within the hour, we're seeing the GM growth continue to kind of correlate with that convenience play.
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Doug McMillon: I think to drive GM growth over the next few years, eCommerce becomes crucial. Obviously, we've seen good growth there recently, but we got a lot more opportunity. And this week, when we were in Mexico or last week, we saw a pop-up toy shop outside of one of our stores that is just dominant in the toy category. It looks gorgeous, fun to shop, kids love it. We just have such an opportunity in the physical world as well as in the digital world to create excitement with general merchandise.
Operator: Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thank you so much for taking my questions. What is Walmart finding out about its ability to drive steady growth in the core business while reinvesting back in areas like price and wages to lay the foundation for the future. And as the company generates more evidence of the growth of the emerging alternative revenue streams, does it make sense to invest even more in these areas or are there diminishing returns such that the overall enterprise wide profit growth can accelerate next year and beyond even as you make sizable investments back in the business? Thank you so much.
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Doug McMillon: Yeah. Thanks, Michael. This is a real time conversation that we have all the time. Are we investing the right amount back? You called out prices and wages. I think those are the two areas that would come to the top of our list too. We think we are investing the right amounts, obviously, but it is a fluid situation. We watch price gaps, we watch what's happening in the employment market and have freedom now to be able to make different investments if we want to. So I think from a kind of an income statement point of view, I feel like we're being appropriately aggressive. And then on the capital side, that we've made some significant decisions over the last few years to invest in automation in the supply chain, for example, but we're also being, I think, very aggressive as it relates to store and club remodels. So I feel like on the capital side, we're also being aggressive. And as we do that, because of the way that we've set ourselves up, we can grow profit faster than sales and do those things at the same time. It's just a matter of degree and we will manage that as we go from week-to-week.
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John David Rainey: Yeah, Michael. I would add to Doug's point that, we feel like we're striking the right balance between profit expansion and investment in the business. We're all very focused on making sure that we are healthy for the next generation. We certainly provide an outlook over the next three to five years, but we want to continue to have the same type of financial performance after that and that requires a level of investment in the business. And as Doug said, we feel like we're striking that balance appropriately. In terms of the -- your part of the question about our ability to maybe accelerate profits into the future, look, we're comfortable with the outlook that we provided where we said that the way to think about our financial architecture over the next several years is that operating income will grow faster than sales and sales should on average, be about 4%. Some years will be a little better, some years may be a little bit worse. We've had two years now since we provided that outlook. And if you look at our performance last year and our performance year-to-date along with our guidance this year that would suggest that on the top line, we've grown about 5% and grown profits about 10%. We're really pleased about that, but that is not a matter of us being overly conservative or anything like that, it's really -- excuse me, it's really a matter of execution by the team sitting around this table. With anything that we do, with any strategy that we have, there's always going to be things where you -- areas where you overperform and underperform. But what you've seen is this team has done a really good job at executing on the basics and also our newer, faster growing businesses and so that's reflected in our financial performance. And if we execute better into the future, yeah, perhaps profits could grow faster, but the financial architecture that we've laid out is still what we believe today.
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Operator: Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Good morning. Hi, everyone. I wanted to talk about the top line, which it looks like it accelerated Q3 versus Q2, the underlying run rate. There were some storms and I know you mentioned port strikes. Can you talk about the underlying inflection you're seeing? What do we attribute it to? I don't know, if it's merchandising, marketplace, membership, all the above and have we inflected, does it feel like we've inflected to a higher growth rate? Thank you.
Doug McMillon: To me, it feels like it's pretty consistent. Like, if you look at what happened in the first three quarters in the underlying rate and then you look at what happened in this most recent quarter with the storms, things did increase a bit, but I still feel like we're kind of running the same level of momentum in the same economy. The fourth quarter will be fun to watch. The calendar is not our favorite with fewer days between Thanksgiving and Christmas. And I suspect when all that said and done, it will be similar to the kind of momentum that we've seen in the first three quarters.
John David Rainey: Yeah. Simeon, I'd add that it does feel very consistent to us. The one exception to that is maybe the timing of the Big Billion Days event. As you know that that can fall into the third quarter some years, fourth quarter other years, goes back and forth because of the way it fell this year, it added about 60 basis points of growth to the top line for us in 3Q. It also will work against us in 4Q. But other than that and which is just a timing element, the business is performing very consistently, as Doug said.
Operator: Thank you. Our next question comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your question.
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Christopher Horvers: Thanks. Good morning, everybody. Can you speak to the changes in the 4Q operating income guide relative to where you started the year ex the FX change? To what extent did you change the topline outlook overall and in the U.S.? Then you called out Sam's wage investment, but was there any changes in your expectation around gross margin given what you're seeing in the alternate profit pools and 4Q is a big spike in terms of volume, so could that tilt the U.S. eCommerce business to profitability? Thank you.
Doug McMillon: I'll address this and others may want to join in. Chris, the way to probably characterize this, if you look at our guidance last quarter versus what's implied this quarter, there's a modest improvement in 4Q performance. There's not been a lot of change before that in terms of our outlook for 4Q. The business has been performing, as we've said, pretty consistent. In terms of GM, maybe one thing that has improved and been a little bit better than what we expected at the beginning of the year. And by GM, I'm talking gross margin is shrink has performed a little bit better in the U.S. and Sam's segment for the first part of the year here. But other than that, the business is continuing to perform very consistently with prior quarters. You do -- some of the more digital businesses, the newer businesses that we have did inflect a little bit higher in 3Q. I think also keep in mind that that's a function of the movement of Big Billion Days that I just mentioned. But if you just -- you go down the list, you look at as an enterprise, 28% advertising growth, 42% marketplace growth, 23% membership income growth, like, we are executing. Our value proposition is resonating with customers and that's why you're seeing us gain share.
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John David Rainey: As it relates to profitability in eCommerce, we don't think we should raise to it. This is a long-term game. The 1P, 3P mix is one dimension to manage, for example. And if we should carry more first-party items and that somehow delays crossing a threshold of profitability, we're good with that, because that's what customers want, that's what will drive growth. If investments in delivery speed cause us to reach profitability a little later, that's fine too. We want to deliver faster. So I think we are very confident that we're going to make money in eCommerce. Whether that happens today, tomorrow or a week from now or a month from now, quarter from now, I don't really care. The total works and we've got a great opportunity to grow our eCommerce business. So I'm leaning long term and at some point, we'll tell you guys we made money in eCommerce and then just move on and not have that conversation anymore. And as we've said several times, when you look at the shape of the new income statement and you split it between the original income statement that looks like a store P&L and the newer income statement that's got membership, advertising, fulfillment services, data monetization, maybe some other things in it, it's more profitable. It just took a period of investment for us to get there. So again, we'll grow profit faster than sales. eCommerce will be part of the mix. Omni is our life, which we love. We think it's an advantaged position. And we look forward to someday telling you that we made money in eCommerce globally as it obviously varies by country as well.
Operator: Thank you. Our next question comes from the line of Robbie Ohms with Bank of America. Please proceed with your question.
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Robbie Ohms: Good morning. Thanks for taking my question. Doug, this may be for you. I get a lot of questions on the share gains with upper income consumers you guys keep talking about. I was hoping you could sort of talk about it across three dimensions, grocery versus general merchandise with that upper income consumer, price driving that versus convenience with that consumer, and then sort of stores versus this huge marketplace growth in terms of driving the upper income consumer.
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Doug McMillon: Yeah, Robbie. I'll go first, but I'll invite John or others to chime in here too. It is an all of the above answer. We want to sell grocery and GM. And if you go through and look at by category, by income level, it kind of plays out the same way general merchandise does, in that people come to us to shop as a primary destination in many instances and then they give us feedback across categories. And if you look at our offer in food and consumables, our shares are pretty high and consistent relative to some of the things we see in general merchandise. So over the years, we had a really strong market share in categories like toys, bicycles, but we had a lower market share in a lot of the fashion categories. And that's basically just the customer telling us over the years, I'd rather buy my apparel somewhere else. But in an omni world, we have an opportunity with brands, we have an opportunity with presentation to increase the amount of market share we have in some of those categories where we should have had a higher share all along and that eCommerce opportunity is kind of bearing out, as we grow our assortment, we're able to appeal to more people and appeal to higher income levels. So when I think about it from a category point of view, the themes look the same to me. We have more opportunity in fashion areas than we do in basic areas and that's always been true. As it relates to price versus convenience, everybody wants to save money and everybody wants to save time, but it's a continuum. And those that have more discretionary income and want to save time are liking what we're doing with both pickup and delivery. And I think that's one of the things that makes this moment in time different. We do get the question from time-to-time about whether this is sustainable. I look at what's happened with Walmart+ and the relationship you get through a membership, what's happened with our remodels and what's happened with convenience and it gives me more optimism that this is something that's going to last
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our remodels and what's happened with convenience and it gives me more optimism that this is something that's going to last a long time and it was a different inflection point. Did I leave anything, John for you to add?
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John David Rainey: Well, those – sorry, right on. I'll just add a couple of things to that, Doug. I think you covered a lot of it. But Robbie, we do get the question from time-to-time and we talk about the different ways that we can serve consumers and how that's different from say, a decade ago or even five years ago. As we've become omni, we have the ability to sell customers in the store or at the curve, deliver to their home and we can do that whenever they want and, in many cases, however, they want. I mean, you heard earlier the number of orders that are sub-3 hours and people are prioritizing time and price. So the -- one of your questions is, it's not an or, we want to be a great price and we want to be convenient and we can do both at the same time. The expansion in delivery catchments, the expansion with delivery density and the hours of operation have helped us lower our costs, which enable us to serve customers more flexibly. So we can do both of those at the same time. In categories like grocery, yes, price obviously matters and so does quality. We do see and as we noted earlier, a large percentage of our market share gains came from higher income customers that has been happening for several quarters. And we see categories like gluten free and dry grocery or grass fed beef, organic produce where our share in pickup and delivery is much higher and the mix is higher than in store. So we can be a great opening price point value in the store and we can sell high quality and we can deliver it the way that the customers want. And then last thing is, as Doug did mention this expansion in eCommerce, congrats to the team for another quarter with momentum at 22% growth. But leading that growth is our marketplace team and our marketplace business, which just tells you that our customers are looking for more of an assortment than they've had in the years prior to this one from Walmart and we're seeing bright spots in apparel, in toys, in healthy food. So it's across the board. We have a lot of work left to do.
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and we're seeing bright spots in apparel, in toys, in healthy food. So it's across the board. We have a lot of work left to do. Our assortment is growing. We think that will continue to happen over the next couple of years, but it's great to see the momentum across so many channels.
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Chris Nicholas: Maybe just to -- just push in from Sam's point of view, whilst we serve all income cohorts, we do definitely SKU high than the core of Walmart. And what I would say is that they love price more than anybody, like, price is a core competitive advantage of ours. But great items and great prices we think isn't enough and so you're seeing an acceleration in all of the metrics in Sam's because we're also leaning into experience and a big part of that is convenience, and we're really excited to see the impact of that.
Operator: Thank you. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.
Krisztina Katai: Hi. Good morning, Doug and John David. I wanted to dig into the strength of eCommerce a little bit. I was curious, if you could talk about what you think is a sustainable level of growth on a go-forward basis. Clearly, it's a much larger business, but you have a lot more that are driving it as well, whether we think about marketplace and membership. Just how do you see the rapid expansion of marketplace sellers and SKUs contribute to both eCommerce growth and as we think about improving the profitability over the next several quarters? And as part of that, can you talk about general merchandise performance, what you saw both in-stores and in the marketplace? And then just from an assortment perspective, as we think about newness and innovation that you called out, just what specifically are you excited most about holiday? Thank you.
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Doug McMillon: Is that all Krisztina? I'm excited about this year, not only the great items we have, but the convenience that we're going to provide. And I think you could just take our eCommerce growth rate over the last, I don't know, eight quarters and look at the trend line and you can expect that we're going to continue investing to create a better customer experience to result in more growth. And we have a relatively low market share in eCommerce versus brick-and-mortar and that's our opportunity. I think all the investments we're putting in place, including supply chain automation are aimed at capturing that opportunity. There's such a nice connection between these businesses. As you grow eCommerce first-party, for example, you get the opportunity to grow third-party. As you grow first and third-party eCommerce businesses, you get an opportunity to sell an ad, to sell a membership for delivery, to get additional data and it all does work together in a mutually reinforcing way. And so, as I mentioned just a minute ago, that's nice for us and that it mixes us up. It not only gives us topline growth, but it gives us bottom-line growth. It is -- I'll just wrap up by saying, it is still an item business and it's still fun. Like, we talk these days a lot about our technology and our investments. But when it gets to this time of year in particular, the hot toy is going to be fun to talk about Thanksgiving meal that's a lower price this year than it was a year ago is fun to be part of. We're sitting in a room today that's got a bit of Christmas feel to it, décor wise and it's exciting to be in this part of the year.
Operator: Thank you. Our next question comes from the line of Scot Ciccarelli with Truist Securities. Please proceed with your question.
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Scot Ciccarelli: Good morning, guys. So I think you've given us some numbers previously on how much of your EBIT growth was coming from your ancillary revenue streams. So the questions are, do you have a number for that this quarter? And then is it possible to rank the drivers between advertising membership 3P, etc.? Thanks.
John David Rainey: This is John David, I'll take that. The numbers this quarter are pretty similar to last quarter, so membership fees as well as advertising income contributed to a little more than half of our operating income improvement and a little shy of a third of the overall operating income for the business. Those are important growth drivers to our business, but they don't work without getting the basics right on core retail. So I think we're striking a nice balance for all of that. It is worth noting that this quarter were 18% -- our business is 18% eCommerce. And reflecting back on Krisztina's question, that's a 300 basis point improvement from this point last year. So we continue to make progress in these digital channels. And clearly, our customers are finding value in what they're -- what they're finding at Walmart.
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Kath McLay: Can I just add on that one too. I think, you look at our results, we've consistently grown profit faster than sales every quarter this year. And when you break it down, it's largely those ancillary businesses that are higher margin that are driving the result. I look at our advertising business was up 50%, and that is largely because of BBG, but the other markets growth is also strong and we'll see that kind of as you look at the half versus the quarter. When we look at the growth in those businesses, its advertising revenue, its membership. We're seeing like membership grow across each of the individual markets with slightly different offerings, but all of them tailored to what are the needs of the local consumers. So that with the addition of financial services as well as really helping that whole model play out and the consistency of the execution across quarters, I think has been one of the things I'm most proud of.
John David Rainey: Maybe one more thing to add, whether it's the international business or here in the United States, when we look at the composition of growth in GMV for us as an example, there's a healthy balance between increased traffic and improved conversion. So you've got more shoppers that are coming to Walmart or Walmart properties that are finding value in price and convenience. But we're also getting better at how we serve those customers and I say that through conversion. Like, we're getting better at converting someone who may just be eyeballs looking at our website to actually completing a checkout and putting something in their basket and having that delivered to their house. So we're pleased with our progress, but it also indicates we still have long ways to go. We know that we can get better and team is very focused on that.
Operator: Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.
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Peter Keith: Hey, thank you. Good morning. So maybe as a follow-up to Scot's question, you did flag general merchandise should continue to improve in the coming quarters. And I'm wondering if that continued improvement could have positive implications for some of these high value revenue streams such as marketplace, which accelerated nicely here in supplier advertising and the like.
Doug McMillon: Sure, Peter. Everything else being equal, you would expect that to have a positive benefit to the P&L as GM items tend to carry a higher gross margin than many of the grocery items. So we look forward to being able to benefit from that. But some of that is on us and continuing to grow our assortment through our marketplace, but some of it is a very -- a function of the economy overall and so we'll watch that closely.
Operator: Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your question.
Peter Benedict: Hi. Good morning, everyone. Thanks for taking my question. Really just around, it's around competition. I'm curious your observations, what you're seeing in terms of the competitive response to the share gains that continue to accrue to the business, I'm thinking primarily in the U.S., but really any comments around that would be helpful. Thanks.
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Doug McMillon: Peter, this is Doug. I think the only thing that I would say is that the competitive set we focus on today is different and it's changing over time, probably at a more rapid rate than it used to, being in China and Mexico recently, we have some strong competitors there and the ones we're focused on and learning from are different than the ones they were -- that we were focused on just a few years ago. Here in the U.S., we have fierce competition from all kinds of different directions. So our mindset is to be aware, to watch, to learn, and when we see the customer responding to something to react if it makes sense for us to react and to change if we need to change. So we try to stay focused straight ahead, eyes on customers, members, focused on our associates, have our competitors in our peripheral vision, but study them and learn and apply. I think you can see that in some of our results today.
Operator: Thank you. Our next question comes from the line of Karen Short with Melius Research. Please proceed with your question.
Karen Short: Hi. Thanks for taking my question and good to talk to you again. My -- I kind of have two intra-related questions. So your OpEx at 21.2%, I'm wondering what the potential is to get closer to 19% or get back to 19%, and obviously that's in the context of eCom as it relates to losses? And then the second portion is, just with all these alternative revenue streams that you have, at what point are you looking at a materiality conversation?
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John David Rainey: Karen, clearly those questions are for me. This is John David. We report, I'll take them in reverse order. We report on a segment basis right now. And that satisfies the requirements that we have for segment reporting. And so we'll continue to port out by international, Sam's and U.S., if something changes in our business, we'll reevaluate that in the future. On OpEx, there are a couple of drivers, first of all, in the current quarter to the increase and then I'll address your question related to where it could go. But in the current quarter, we saw a little bit more investment in marketing in the U.S. business and that's helping to drive some of the performance in general merchandise. So we're really pleased about that. The other is incentive pay for our frontline associates. We think it's important that our frontline associates are rewarded in the same way that shareholders are. And as we've outperformed this year, we've seen additional incentive pay for them and that pressured SG&A in the third quarter. The other element gets to, I think the essence of your question, which is the changing mix of our business. If you look at SG&A on a brick-and-mortar basis, it's less than what you have in digital channels. And so, as we continue to grow digitally, as we continue to have more of our business that's coming through eCommerce, you're going to see some pressure on SG&A. That said, the team here is very focused on continuing to try to provide everyday low cost to enable us to have everyday low prices for our customers. And so we'd love to get back to the 20% range on SG&A that requires work. But there's in any company, especially one our size, there's always opportunities for efficiencies and the use of technology to better serve our customers and members, so we're working on that, but you have to keep in mind going forward that as we get more digital, you're going to see pressure on the SG&A line.
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Operator: Thank you. Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Great. Good morning, everyone. Obviously, the strength in the quarter was broad-based, but I wanted to focus on the acceleration in average ticket in the U.S. I think that was the strongest in over a year. I am curious if that was impacted by the hurricane or if there's some other type of inflection that you're starting to see in basket size, maybe an improvement in GM or attachments? Is that also maybe a benefit of attracting that higher income consumer? Just any more context on that as we think about the run rate going forward? Thanks so much.
John Furner: Yeah. Good morning. This is John. I think everything you said, it does represent some of the improvements that we did see in the quarter. We did mention that there were some tailwinds from some one-time events that happened in the quarter. But the thing that I'm really proud of the team is we had the highest growth in units and food that we've seen in several years, which is great. Our general merchandise business, as we mentioned, despite some deflation in the low-single-digits to mid-single-digits range were positive comps, so the units outgrew that. I mean, it is all, I think a reflection of starting with are we selling the things that customers want to buy during the season they're in, seasons are important. We ended October with a strong Halloween. And so all those added up important and the shift from, I'd say, not necessarily from, but adding on digital business on top of our store business is helping us attract new customers and serve them well with the options that we have, the combination of both the product and the service offerings are working, the growth in the deliveries under 3 hours is impressive. The team has done a great job with that and we need to continue that. We know customers are looking for both value and they're looking to save time.
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Operator: Thank you. Our final question this morning comes from the line of Greg Melich with Evercore ISI. Please proceed with your question.
Greg Melich: Hi. Thanks, guys. I wanted to follow up on the membership growth and the -- what's driving that there and what sort of behavior you're seeing in terms of lift from people when they do sign up for Walmart+, in particular, and what that flows through in terms of the importance of data and then using that in the new businesses?
John Furner: Hey, Greg. It's John. I'll start with Walmart+. Walmart+ is a really important part of the offer. And as we said this morning, we have a clear strategy. Our results reflect the financial framework that we've laid out. The growth in eCommerce is an indicator of where the customer is headed and Walmart+ is a great way for customers to amortize the cost of delivery over time. And so when someone joins the program, we're focused right away on ensuring that we deliver their order on time, when they ask for it, not ahead, not after and that the order is full and it's complete with as few substitutions as possible. And when we do that well, that opens up the ability for the business to talk to them about other things that are going on in their life, whether it's changing the tires on their car or helping them with a birthday cake. There are just so many things we can do in core retail that makes life easier, add a value for our customers. So this is an important part of the overall equation. We mentioned results up over double digit in Walmart+ again, so good to see the momentum. And looking from here forward, in this quarter, in particular, it's about executing really well. We need to be really clear on our offer. We need to pull the orders on time without substitutions and we need to deliver to customers exactly what they're looking for. This is a time of year when families get together for meals and gifts and it's really important that we're there for them and we enable them to have the best season they can have.
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Kath McLay: And just from an international perspective, I think when we think about membership, there's a bit of a spectrum. So if you think about in Chile, we actually have a loyalty program, which allows us to have over 80% of our customers' data. And then if you look at it in Mexico, we've just launched Beneficios, which has allowed us to get 28 million members sign up, which allows us just to be a lot more personalized in the way that we show up for those members. Those are free loyalty membership programs right through to a paid membership where you're really bundling delivery capabilities. If you look at that, we're seeing growth across the -- most of the major markets. But if I then just point to Sam's China, they've had membership income grow of over 30%. And I think that is a testament to the quality of their CVP, and how attractive that is to our customers, not only the in-club offering, but also the ability to do convenience with like over 80% of their deliveries being under an hour. So we think about membership as a way of driving loyalty to create the ability to personalize, to have a richer, stickier relationship with our members and to bundle up the ability to do delivery, which is something our customers are telling us is really important.
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