Q1 2021 Earnings Call
[music].
And 21 first quarter earnings call.
This time, all participants will be in listen only mode. A brief question answer session will follow the formal presentation.
If anyone should do car operator assistance during the conference. Please press star zero from your telephone keypad.
Please note that today's conference is being recorded.
At this time I'll turn the conference over to Dan vendor. Mr. Vendor you may now begin.
Thank you Rob.
Good morning, and welcome to Walmarts first quarter fiscal 2021 earnings call.
Im joined by several members of our executive team, including got Mcmillan, Walmarts, President and CEO, Rettig Executive Vice President and Chief Financial Officer.
John Connor, President and CEO, Walmart U.S., Mark Laurie President and CEO, Walmart U.S. E Commerce, and Dan Bartlett Executive Vice President Corporate Affairs.
A few moments, Doug and Brett will provide you an update on the business and discuss first quarter results.
That will be followed by our question and answer session.
Before I turn the call over to Doug Let me remind you that today's call is being recorded and May include forward looking statements.
These statements are subject to risks and uncertainties that could cause actual results could differ materially from these statements.
These risks and uncertainties include but are not limited to the factors identified in our earnings release and in our filings with the SEC.
Please review our press release and accompanying slide presentation for cautionary statements regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our web site at stock got Walmart Dot com.
It is now my pleasure turn the call over to Doug Mcmillon.
Thanks, Dan Good morning, everyone and thanks for joining us to discuss our first quarter results our position different business.
Given the amount of disruption.
We and the rest of the world and face in recent months, we've developed a set of five priorities to got our decision, making since the crisis began and now use them to frame my comments.
They are one support our associates that are serving on the front line to serve our customers that need access to food and critical supplies three help others, including the communities. We serve new associates looking for work suppliers, we partner with those at lease space in our stores plus the work of federal state and local governments for manage the short term well.
Operationally and financially, including our cash position and inventory level and five drive our strategy forward, even as we navigate crises.
First our solutions they had been flat out amazing their dedication and hard working they continue to adapt as prices challenges asked to work differently more than ever I think society sees them and appreciate their service to others as Dubai.
So our first priority has been supporting them in every country, where we operate their physical safety financial health and emotional wellbeing have been to top of our list in the U.S., we've done that by providing extra pay and benefits, including two special cash bonuses to all hourly associates and assistant managers and our stores Sam's clubs distribution and fulfillment centers.
Also accelerated payment of first quarter bonuses and made it possible for hourly associates to access to earn a weekly rather than every two weeks in order to help them with their personal finances, we've done similar things in our international markets to support and reward assumptions from an operational standpoint, we reduce store hours to allow for additional cleaning and sanitizing.
We posted social distancing decals implemented protocols for temperature checks again metering the number of customers in a store club at any one time and installed these cards at pharmacies and checkouts.
Also all associates are required to where face coverings, which we provided to them.
Since the middle of March we've hired more than 235000 associates in the United States. The majority on temporary basis to help relieve some of the burden face are shifts in stores and supply chain facilities as well as to help provide opportunities for people who have been displaced from their previous jobs.
Beyond financial and operational efforts, we've implemented a number of benefits to support associate health and wellbeing. These have included a new Covent 19 emergency lead policy and waving the co pay for assessments using doctor on demand for associates and family members covered by Walmart Health plan.
We are pursuing strategies testing associates for the virus, including in the longer term antibody testing.
Of course, Coburn 19 has affected many communities and our people we felt the impact of this awful virus within our Walmart family and we mourn the loss of some of our own.
Our hearts go out to their families.
Our frontline associates have always been the priority in our company and through this crisis, they're playing an important role in each country's ability to respond we continue to support them and look for ways to operate safely as possible.
After supporting our associates, our next priority is serving customers.
In the US the first quarter started out as expected, but at the pandemic spread we saw the mix of sales shift heavily toward food and consumables as we've previously experienced in China.
This was the first stock at phase that we all saw so vividly.
We experienced unprecedented demand in categories like paper goods surface cleaners, and grocery staples for many of these items, we were selling in two or three hours, what we normally sell in two or three days.
The quarter progressed, we saw second phase related to entertaining and educating at home.
Goals and video games took off parents became teachers adult bicycles started selling out as parents started to join the kids.
An overlapping trend then started emerging related to de out why at home related activities.
Games home office exercise equipment and alike.
It was also clear a lot of people were taking a do it yourself approach as they bought items like bandanas and sewing machines to make masks.
We can see customers looking to improve their indoor and outdoor living spaces, our home categories and stores and online pick off.
For the ended the quarter another phase emerged covenant relief spending as it was heavily influenced by stimulus dollars leading to sales increases in categories, such as apparel televisions videogame sporting goods and toys discretionary categories really popped towards the end of the quarter.
Our supply chain is amongst the most capable in the world, but in this environment, we have stretched it.
Not only have products and categories like hand, sanitizer disinfecting wipes in sprays toilet paper beef and pork and hard to find but items such as laptops office chairs and fabric have been cleared out in some of our stores and online.
We're working to recover our in stock position as we begin the second quarter.
From an inventory standpoint, we ended the quarter down about 8%, but we have higher levels of inventory in some areas and lower than desired levels and others were working intensely to improve in stocks for high demand items, and adjusting order volumes and taking markdowns on items that have moved more slowly.
We expect environment to stay quite volatile in the coming weeks and months, Brett will discuss that more in a minute.
The third priority for us has been to help others, because some of our suppliers and tenants are feeling pressure, we've taken steps to support them.
In some instances, we're able to provide greater flexibility with delivery windows. We've also simplify the process to qualify for our supply chain Finance program.
For our in store tenants, we weights or discounted rent through April and May.
Community organizations that serve as a social safety net are under incredible pressure to.
We're helping them through Walmart and the Walmart Foundation, we've given more than 35 million to cope with 19 relief in response initiatives with $10 million of this focused on food security in the U.S.
We continue through donations from our stores nbcs to local food banks, and if found new ways to engage our customers and supported this effort.
Finally, we're collaborating with federal and state governments in March we were asked to stand at testing sites for Cobot 19, and some of our parking lots.
As of today Weve opened 139 sites and we expect to open an additional 44 more by the end of May.
We've also asked some of our apparel suppliers to convert production to PE for healthcare workers. This has led to nearly 2 million additional medical gallons in our country supply to date and we expect roughly 10 million will be added by the end of June through our partnership with Mckesson.
We also partnered with Salesforce and state farm to provide face masks and shoe coverings to healthcare workers.
I'm proud of what we've done as a company over the past several weeks I'm really proud of how are people have stepped up.
As we've supported associates in served customers in communities Weve also been able to effectively manage the business and continued to make progress against our long term strategy.
During this extraordinary period, we've continued our everyday low price discipline and we continue to build trust with customers some of whom are trying our products and services for the first time.
Despite strong ticket growth and sales in the first quarter mix shifts negatively affected gross margin and we incurred higher cost to operate.
Our increasingly seamless omni channel customer proposition is resonating this strategy positions the company well during this crisis and we remain convinced that it will in the future.
Before this crisis, we were already seeing robust adoption of online pickup and delivery.
As this crisis created a need for social dispensing and required people to stay at home customers embrace to pickup and delivery, even more pickup and delivery are attracting greater numbers of new customers.
The number of new customers trying pickup and delivery has increased for X since mid March.
We expanded slack capacity is demands well and we've increased the number of general merchandise items available to choose from I think it's Tom we stop referring to our supercenter pickup and delivery capability as online grocery because it's becoming much more than grocery.
Beyond expanding assortment, we also created a pickup our specifically for those at risk and for first responders and we worked with the FDA to expand the snap online pilot to more states.
Walmart Dot Com also saw surge in demand during the quarter is customers opted for greater convenience and increase social distancing.
The U.S. ecommerce business grew 74% in total growth and marketplace outpaced the overall business, even as first party sales were strong.
In the US we quickly rolled out ship from store and we're now temporarily fulfilling orders placed on Walmart dot com through about 2500 of our stores. We also launched expressed delivery to provide customers the convenience of having the orders delivered to their door and under two hours expressed as a result from nearly 1000 stores to.
Today, and our goal is to be in around 2000 stores by the end of June.
Our tech teams are continuing to execute for example, we've launched more than 70, new or accelerated capabilities in response to the virus.
We've done this while staying focused on core products like one app and express delivery as well as building out. The next Gen Tech stack, we talk to you in New York about that a bit.
Even as we continue to drive our strategy, we're maintaining disciplined we're reducing expenses in areas outside of the stores and clubs like hiring above store level management consulting services and of course travel we're continuing to review other areas of the business for efficiency opportunities.
One decision we've made it to discontinue jet dot com.
While the brand name may still be used in the future our resources people and financial had been dominated by the Walmart brand because it has so much traction we're seeing the Walmart brand resonate regardless of income geography or age. The jet acquisition was critical to jump starting the progress. We've made the last few years not only have we picked up traction with pickup in the.
Delivery, but our Walmart dot com non food ecommerce growth accelerated after the rival that mark in the jet team healing into the Walmart brand quickly.
We don't anticipate a significant accounting charge due to this decision and the vast majority of associates at previously been assigned to the Walmart brand.
At Sam's club in the US the value of a membership has never been more evident and they've been growing strong and E commerce as well.
Sam's tested and implemented a pickup and delivery service in pharmacy and Institute, a concierge drive up service for seniors and others at risk I'm really proud of the work of our international markets.
I have served customers. During this time period in a terrific way in the quarter, Mexico in China led the way with strong sales through Omnichannel and Sam's club.
Our 26 international countries are experiencing different effects and timing as it relates to covert 19, except for Canada April falls into Q2 for international markets and we can tell you. It was a challenging month, we expect that to continue in several markets throughout our second quarter.
The closure of stores and warehouses and some of our markets contributed to volatility and sales for the quarter and we expect even more in Q2 for instance, the flip car business was limited by government regulation to selling only essential items for several weeks and in South Africa, a large number of stores were closed.
But broadly speaking in each market our teams are stepping up to serve customers and help their communities.
I want to close where I began by thanking our associates.
We are more grateful to them and I can articulate.
The effect. This virus is having around the world has made it clear that we all need to do everything they can to help each other and our communities get through this.
At Walmart, we're blessed to have unique set of assets and a strong business that puts us in a good position to support our associates and serve our customers communities and shareholders.
I wish junior families. Good health and I look forward to seeing in person when the Tom's right. Thank you for are interested in Europe for your interest in our company.
Yes, thanks, good morning, everybody.
Before reviewing our first quarter results I want to add my thanks to associates for their amazing effort, serving our customers in our communities.
I'm, so proud of extraordinary dedication of our people and the agility of this company.
Due to the health crisis, the first quarter had the broader set of challenges we've ever faced globally, including various government regulation significant sales variability mix shifts and channel shifts due to changing consumer habits. All of this led to significantly higher than anticipated sales lower gross margin rates and higher expenses, which I'll discuss shortly.
Our omnichannel investments have us on a unique position to serve customers in ways, others can't customers are gravitating toward store pickup and delivery driving record demand for these services, leading to triple digit growth than us ecommerce sales during peak periods.
The strategic importance of providing multiple options for customers has never been clear.
We continue leaning in aggressively in key areas, but also maintaining.