Q1 2022 Walmart Inc Earnings Call
Yeah.
[music].
Okay.
[music].
Greetings and welcome to Walmart in fiscal 2022 first quarter earnings call.
At this time all participants are in a listen only mode.
A question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Dan vendor with Investor Relations.
Thank you Rob good morning, and welcome to Walmart's first quarter fiscal 2022 earnings call I'm joined by a few members of our executive team, including Doug Mcmillon, Walmart's, President and CEO, Brett Biggs Executive Vice President and Chief Financial Officer, and John Furner, President and CEO of Walmart U S. In a few moments, Doug and Brett will provide you.
With an update on the business and discuss first quarter results that will be followed by a question and answer session before I turn the call over to Doug. Let me remind you that today's call is being recorded and will include 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 live.
Due to the factors identified in our filings with the C. C. Please review our press release and accompanying slide presentation for a cautionary statement regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our website at stock Dot Walmart Dot com. It is now my pleasure to turn the call over to Doug Mcmillon.
Good morning, and thanks for joining today's call our results for the first quarter were strong were pleased with our sales momentum and adjusted EPS growth of 43% versus last year. We had strong performance in all three segments as the pandemic continues its impacting the countries, where we operate in different ways. So our teams are adapting to overcome the.
<unk> and deliver the strong results were sharing today, we continue to be grateful to all of our associates for their dedication to serving others 2021 brings its own unique challenges and uncertainty, but overall my optimism is higher than it was at the beginning of the year for several reasons in the U S. Economic stimulus is clearly having an impact but we.
We also see encouraging signs that our customers want to get out and shop, our execution is improving despite the hurdles presented by the pandemic.
The second half will likely have more uncertainty than a normal year, but we like our position.
Our stores are getting stronger and our ecommerce capabilities are expanding as we continue to grow cut.
Customers will decide how and when they want to shop, and they'll find us ready whether they want to shop in store pick up an order or have it delivered.
Key elements of our strategy are coming together nicely, we saw an acceleration of traffic in our stores gained market share in grocery improved in stock levels and grew ecommerce sales globally by 43% in constant currency, excluding recent divestitures.
Global ecommerce penetration now represents over 12% of total company sales an increase of 340 basis points over last year.
Looking ahead, we will navigate the supply chain challenges and inflationary pressures, whether that's in cost of goods or wages will monitor our price gaps and adjust as appropriate with both customers and shareholders in mind as it relates to COVID-19, the past several weeks have been more challenging in some countries, India, Canada, Chile, and South Africa.
Our priorities at the moment supporting our associates is our primary focus but we're also investing our resources to support the countries as we found opportunities to do so.
In India, we're donating oxygen concentrator, <unk> PPE and financial support.
When it comes to helping people get vaccinated, we're engaged in multiple countries in the U S. We've administered millions of doses, we're taking steps to encourage our associates and everyone to become vaccinated given CDC guidance. Our U S associates that have been vaccinated can now work without a mask if they choose to and we've added a cash incentive is one more step.
To encourage vaccinations.
All of our Walmart and Sam's club pharmacies in the U S are administering vaccines and we can provide them without an appointment. We've also collaborated with national and local organizations to support more than 200 community events across the country. So far in India, we're facilitating vaccinations for our associates and their households, and our flip cart and film pay can't.
Tractors more than 200000 people across the countries, where we operate will keep looking for more places to make a difference.
This pandemic won't be over until it's over for everyone.
In addition to combating the pandemic, we also announced a new commitment to U S manufacturing during the quarter over the next 10 years, we've set a goal to purchase an additional $350 billion on items made grown or assembled in the U S. We estimate this commitment will create more than 750000, new American jobs and avoid 100.
Million metric tons of Cotwo shins.
We also want to make it easier for manufacturing in the U S to flourish. That's why we're launching an initiative called American lighthouses will bring together partners from the supplier community Academia and government among other groups to identify and overcome top down barriers to U S production.
We also have other exciting news to share as we continue to invest in the technologies of tomorrow.
Collaboration with Engie, North America, a power generator and services company, we're adding more than 500 megawatts to the U S renewable grid through three separate wind projects.
These projects are expected to supply renewable energy to hundreds of stores clubs and distribution facilities annually.
It's enough renewable energy to power over 240000 average American homes for a year that's on top of the four gigawatts of renewable energy currently supplied by our projects globally. This is one more example of the important work we're doing to become a regenerative company.
Now, let's talk more about our results for the quarter Walmart U S had another strong quarter the team delivered for our customers as they shop in our stores and online and additional government stimulus payments created a tailwind.
Our comp sales of 6%, including 37% growth in E Commerce, where strong strength was broad based across categories, including apparel home heartland and seasonal.
I recently visited stores clubs and supply chain facilities in New Jersey, Delaware D C, Ohio, New Mexico, Texas, Illinois, California, and Florida are continue to be grateful for the job our associates are doing and I am impressed by their spirit.
They're operating safely in a pandemic improving our in stock and standards working hard to fulfill pickup and delivery orders and vaccinating millions.
Doing all those things at once is an easy and we've had our challenges, but our associates continue to step up and they are strengthening our position as they do it.
In the U S. Our first party retail business is strong, but we're also making good progress in other important parts of our business.
Marketplace, CMV fulfillment services and advertising income with Walmart connect are all strong.
Flywheel, we showed you in February is being built.
Each component is positioning us to serve the customer better while diversifying the model as.
As we previously shared the top of the flywheel starts with being the best first place people shop.
Store remodels investments in pickup and delivery capacity and sales of Walmart plus fall into this category of activities we.
We need more capacity to get ahead of demand and we remain convinced these investments are smart ones.
This is one of the keys to selling more Walmart plus memberships, which is an important piece of our strategy over time.
In addition to work at the top of the flywheel will continuously add brands assortment and capabilities to our ecommerce general merchandize business with first party inventory and marketplace expansion, we will invest in our general merchandise business and grow in higher margin categories. The announced acquisition of Zika is a great example, this startup combines fashion and technology.
<unk> through a dynamic virtual fitting room and underscores the desire to grow our apparel business aggressively.
We continue our work to build a larger health and wellness business and help customers and associates have a better experience when it comes to their health care.
Our acquisition of <unk> is a big step in that direction, adding a telehealth capability was important just as we're doing with core retail we're building an omnichannel health <unk> wellness business.
At Sam's club the momentum continues.
Items are improving membership and sales comps are strong and a team keeps adding and scaling capabilities like curbside, we're seeing strength in categories associated with social gatherings as well as an increase in business member activity cat.
Categories like restaurants supplies are coming back.
We saw tremendous growth in membership income for the quarter and overall membership counts are at an all time high Mark our source business government stimulus helped our results, but I'm confident the underlying business is strong and moving in the right direction for our members.
Our international team has been busy transitioning the portfolio to higher growth markets and it's working as Youll recall, we recently divested our businesses in the U K, Japan, and Argentina, and as a result net sales for the quarter declined about 11% year on year.
On a like for like basis, when we remove the recently divested markets net sales increased five 1%. These are good results and demonstrate the segment's ability to deliver growth for the enterprise and.
In India for the first quarter flip cart and phone pay continued to experience strong growth as annualized total payment value run rate its own pay grew by more than 150% versus last year, a flip cart monthly active customers and users are key metrics and we're performing well.
Our recent announcement of our intent to acquire clear trip, a leading online travel company underscores our commitment to transform the customer experience through digital commerce, our growing base of customers means we need to continue to add new capabilities, including areas, such as logistics and data storage, the recently announced partnership with Adani.
Group will help us do just that.
Paul makes continues to be strong and the flywheel is coming to life our assets in this market uniquely position us to serve customers in new ways and they are responding and Mexico sales and E Commerce increased 166% and our same day delivery service is now available from 680 locations.
Similar to the U S. We're expanding our business to include more than just traditional retail.
Few areas of note include the advertising business, which saw an increase of more than 100% in new advertisers.
And our new mobile phone services network that provides voice data and home broadband, bringing access and value to our customers.
We doubled the number of users of these services during the quarter as customers enjoy the convenience of adding data to their plan right at the checkout.
In China, our ecommerce business in Sam's club continued to resonate with customers and members helped by a strong Chinese new year. The club business delivered strong sales across all categories, leading to double digit comp sales growth. We grew overall ecommerce sales, 60% on top of impressive growth last year.
<unk> from our business in Canada were good even as lockdown measures intensified as the quarter progressed, we started with strong sales in stores and ecommerce, but COVID-19 related restrictions on sales of certain merchandise categories towards the end of the quarter pressured our performance the underlying business is strong and we're confident in our Omnichannel model for this market.
I'll close today by thanking everyone for a strong quarter. It all starts with our associates and their focus on serving our customers and members were being aggressive and dialing up innovation and speed, we're moving fast to learn new skills and to sharpen our edge on existing ones and we will move even faster as we invest in key areas to accelerate growth into the future.
Thank you for your interest in our company now I'll turn it over to Brett.
Thanks, Doug we're pleased with strong first quarter results and the continued momentum in the business with both strong sales and profit growth while stimulus spending benefited results. It's exciting to see the continued progress in our underlying business as we execute on the fundamentals and progress with our omni strategy newer businesses within our ecosystem like advertising and fulfillment service.
Those are growing rapidly, helping margins and allowing us to continue to invest in other strategic priorities, our unique assets value proposition of financial strength put us in a great competitive position to win keeping the customer at the center of all we do as we expected we're growing grocery market share again in the U S compared to last year, According to Nielsen value in.
We will continue to resonate with customers as does the convenience we provide with our omni shopping options now, let's discuss Q1 results as we've mentioned previously the divestitures in the UK, Japan, and Argentina significantly affect year over year comparisons we outlined the anticipated effect of divestitures on key financial metrics. When we provided guidance in February So my comments.
Today, we'll focus on the underlying business, excluding the effect of divestitures total constant currency revenue growth was strong up five 8% to more than $132 billion with underlying business trends continuing to improve while stimulus spending benefited U S sales even versus last year's consumer stock up phase and initial stimulus Walmart U S comp sales were.
Longer than expected up 6% in the quarter and up 16% onto your stack Sams club grew comp sales nearly 11%, excluding fuel and tobacco and international sales growth was strong increasing more than 5% in constant currency with strength in India, Canada, and China globally E Commerce sales growth remains robust at more than 40% gross profit.
<unk> increased 96 basis points led by Walmart U S, reflecting mix shifts due impart the stimulus spending lower Mark Downs and lapping last year's COVID-19 related stock up which was more focused on food and consumables as expected SG&A expenses were pressured by increased wage and technology investments in the U S, partially offset by lower COVID-19 related costs, resulting in 'twenty one.
Basis points of deleverage overall, though I feel good about expense focus across the company operating income on a constant currency basis was up over 28% and adjusted EPS of $1 69 was 43% higher than last year's Q1, adjusted EPS. The divested businesses contributed seven cents of EPS due to partial period of ownership in the quarter GAAP EPS.
<unk> was 97 cents, which includes net losses on our equity investments as well as the incremental loss in international divestitures operating cash flow declined about $4 billion due primarily to inventory increases versus last year. When in stock levels are much lower due to stock up shopping we stepped up buybacks during the quarter with $2 $8 billion of share repurchase we can.
<unk> to feel great about the value of the company analysis Gus the quarterly results for each segment Walmart U S had another strong quarter aided by stimulus spending and underlying improvements in the grocery business as well as strength in reopening categories, such as travel celebration in personal care, we're particularly encouraged by the improving trends in store transactions, which turned solidly positive in April for the first.
I'm in a year. We also saw strong market share gains in grocery according to Nielsen and continued strength in e-commerce comp sales, excluding fuel increased 6%, resulting in a strong two year stack comp of 16% sales strength was broad based across channels with ecommerce sales growth of 37%. The omni strategy continues to resonate as customers utilize all the <unk>.
<unk> options, we offer and we continue to expand pickup and delivery capacity from stores customer trip consolidation led to nearly 10% increase in average basket size with 3% fewer transactions strong sales trends were led by apparel home and lawn and garden grocery sales declined against uniquely tough comparison, our comps were up low double digits on a two year.
Tag basis, including mid teens growth in food categories helped by strong price positioning improving in stocks and expanded store hours relative to last year. We're pleased with the progress of strategic growth initiatives, such as Walmart connect advertising e-commerce marketplace, and Walmart fulfillment services advertising revenue was robust with triple digit growth for the quarter gross profit rate was strong.
<unk> of more than 140 basis points, reflecting favorable mix shift to higher margin general merchandise categories and lower Mark Downs margins were also helped by lapping last year's COVID-19 related closures of business centers in auto care centers SG&A expenses, Deleveraged 49 basis points as increased associate wage investments and increased technology spend were partially offset by an approximate 400.
A reduction in COVID-19 related costs versus last year operating income was very strong up nearly 27% inventory increased 16%, reflecting strong sales growth and lapping last year's COVID-19 related effects on inventory, we continue to monitor industry challenges related to transit and port delays and our merchants are taken steps to mitigate the challenges, including adding extra.
Lead time to orders the fundamentals of the U S business continue to improve and we're confident we have the strategy structure and people in place to serve customers and reach our goals. This year and beyond International delivered strong Q1 results with net sales growth of five 1% in constant currency, including strength in India, Canada, and China. Despite many mark is being negatively affected towards the end.
The quarter by a resurgence of COVID-19 the benefit of strategic portfolio realignment to focus on higher growth markets is becoming more evident in topline growth E. Commerce sales increased approximately 64% and penetration grew more than 570 basis points to about 16% of sales currency benefited sales by approximately zero point $7 billion.
Comp sales in Mexico declined slightly against the tough comparison, but we're up low double digits on a two year stacked basis as the Omnichannel strategy continues to accelerate the Mexico business has made good progress expanding alternative revenue and profit streams within the ecosystem, including doubling the number of digital advertisers and continue to see strong growth in mobile services, Canada.
Comps increased three 4% with more than 115% growth in E. Commerce sales. Despite headwinds later in the quarter from COVID-19 related government restrictions on the sales of nonessential categories like apparel and general merchandise, China comps increased one 3% and were up 13% onto your stack strong Chinese new year sales continued strength of Sam's clubs in ecommerce growth of 60%.
All contributed to the result, flip cart continues to perform well driving strong and sustainable E Commerce, GMB growth and strong trends in monthly active customers and users even as the teams deal with the challenges we're serving COVID-19 cases in India International operating income was strong up more than 21% is better sales mix and fewer markdowns on certain markets benefited.
Margins. In addition to continued focus on expenses.
Momentum at Sam's club continued in the first quarter with comp sales growth of 10, 6%, excluding fuel and tobacco due in part to stimulus spending on a two year stack basis comps were up nearly 27% comps benefited from both increased ticket and transactions strength was broad based across categories with home and apparel, leading the way E. Commerce sales were strong increasing four.
<unk>, 7% led by strength in curbside pickup at the club. We're pleased with the continued strong membership trends as membership income grew about 13% we achieved a new high for overall membership counts during the quarter and saw higher renewal rates, including strong first year renewals and rising plus penetration operating income increased more than 16% in Q1, but excluding.
The negative impact of fuel profit increased 33% now, let's turn to guidance. Our typical practice is to not update guidance until the second quarter release, but we're in an unusual period, where Q1 stimulus led to meaningful sales and profit tailwind that weren't contemplated when we provided guidance in February the guidance discussed here assumes that COVID-19 conditions continue to improve and there won't be.
<unk> significant additional government stimulus packages for the remainder of the year, we now anticipate higher full year enterprise sales growth than originally projected primarily due to the strong Q1 performance and our initial forecast for Q2, excluding the impact of divestitures consolidated net sales growth is now expected to be up low to mid single digits versus our original guidance of low single digit increase.
We're also raising full year guidance for operating income and EPS to reflect the strong performance in Q1, and our expectation for a potentially better second quarter than previously expected on a constant currency basis and excluding the impact of divestitures. We now expect full year consolidated operating income to increase by high single digits for the year and EPS to increase by low double digits, which is in <unk>.
Kris from our prior guidance of both being flat to up slightly Walmart U S. Operating income is now expected to increase high single digits versus our original guidance of a slight increase the second quarter start off a bit better than originally anticipated a stimulus spending continues to benefit certain general merchandise categories, and we expect grocery market share gains to continue we now anticipate Q2 <unk>.
P S. Excluding divestitures will be up low single digits and it assumes a low single digit Walmart U S comp sales increase excluding fuel.
COVID-19 pandemic continues to create both <unk> and headwinds for our business. While Q1 was aided by stimulus spending primarily in the U S. Certain international markets continued to be negatively affected by the resurgence in COVID-19 cases and related government restrictions operations, particularly in India and Canada given continued uncertainty we're maintaining our original guidance for the back.
Half of the year and we'll update you as we gain clarity on key external variables related to the health crisis and their potential impact on our business and the global economy.
I'm very pleased with the first quarter results and feel good about the underlying strength of the business. Thank you for your time and interest this morning, and we'd be happy to take your questions.
Thank you.
At this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one telephone keypad and a confirmation tone will indicate your line is in the question queue.
Fresh start to hear later most of your questions.
[noise] district, using speaker equipment may be necessary to pick up your handset before pressing the star keys.
The number of analysts joining us today. Please ask one question.
Thank you and our first question is from the line of Aaron short with Barclays. Please proceed with your question.
Hi, Thanks, very much I wanted to focus on grocery because you've obviously mentioned that a couple of times.
This conference call.
The presentation and I guess, what I'm wondering is what is your approach to pricing given the price gaps that we're seeing with conventional and that combined with the fact that we are seeing unprecedented cost inflation and I guess, maybe asking a little definitely William.
To your broader goals for 2021.
Importantly, as recapturing share in grocery.
Hey, Good morning. This is John Furner, Thanks for the question.
First let me let me just start by saying that big Thank you to our associates our team around the country.
Just deliver the quarter and on the heels of such an interesting year last year, they've done a great job improving conditions, both in stores online and we're really proud of their performance in food.
Glad to start with that question over the quarter, we've seen a lot of progress with our inventory considering we started the quarter with a very large ice storm that affected supply change and then as we noted late in the quarter performance that resulted in and market share gains in food.
There is.
Our view of this that we showed back in February which is our flywheel in the top of the flywheel is our is our food and consumable business and our Super Center business, which is really important to the customer journey and.
And over the last 12 months specifically on your question.
On price over the last 12 months, we saw our price gaps improve versus the market.
And our merchants are working hard to ensure that that will continue on these market share gains that we saw in the latter part of the quarter are very encouraging and it's great to see that we're positioned well when when customers need to shift on customer shifted last year to shopping online. We are able to perform at that time and then we've seen some shift back into stores.
Or in the quarter and the.
<unk> is represented in the first quarter is a reflection of that so we feel good about the price gaps and the things that you always work on considering how many levers merchants have and everything going on in the market, but we forget about our position in the market and will continue to focus on share gains the rest of the year.
Thank you.
Our next question from the line of Paul Trussell with Deutsche Bank. Please proceed with your question.
Good morning <unk>.
<unk> results.
Just wanted to dig a little bit more on your updated guidance for the year.
Maybe if you can give a little bit of color as it relates to the.
Improvement in your two Q expectations, and then just provide a little bit more context on how youre thinking about or task versus second half of the year.
Hey, Paul this is Brett.
Good to hear from you.
Yes.
As we got through the first quarter.
And we started we start understanding how strong the underlying business is as John said it started out a little challenging with the weather we had in February but we saw the business strengthening as we went through the quarter and certainly some of that is going to be stimulus.
We readily admit that.
But youre seeing customers get back out again.
It feels like things are opening back up particularly in certain parts of the country. So we felt like it was the right time to go ahead and update guidance different than we typically do.
Given the strong performance and then what we've seen in the early parts of the second quarter. We felt that we should go ahead and update guidance as we did we Havent said anything really about the back half we as I said in my comments still a lot of uncertainties that are out there we have headwinds of tailwind I know they'll play themselves out over the next several months.
But I think all of us feel more confident than we did in February and.
Felt like updating guidance was the right thing to do at this point.
Paul This is Doug I would just add that when we imagine back to school Halloween Thanksgiving Christmas and what families are going to want to do we get really excited about the potential of that in and are buying.
In a consistent way with how we are managing it.
Okay.
Thank you and just a really quick follow up just on the margins just taken a little bit more in one Q, Greg could you talk a little bit more about what was the impact of the strategic wage and technology investments that you made.
Yeah, I mean, I'll talk I'll just start with gross margin gross margins, obviously were up significantly in the U S. About 140 basis points, you had really strong general merchandize sales this year, you're comparing that against the quarter last year that was very heavily influenced by food and consumables. So you get that dynamic on gross margin.
Certainly the wage investments had an impact.
I'll get into the specifics of that it did cause us primarily causes deleverage in the first quarter.
But we knew that was that was coming we're glad we did that and certainly ahead of the environment that youre seeing right now wage increases tech investment increases as well.
But it is offset by some other things.
That we're leveraging across the company Paul I still feel good about the over the overall.
Expense discipline and focus that I see across the company and as we said when we get through this year with the increased wage investments going forward I still feel good about our ability to leverage long term.
Thank you best of luck.
Sure.
Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Good morning, everyone.
I have maybe two part question, but I'll make it one question first.
You referred Doug and Brett in the transcript a lot of mentions of alternative profit streams are profit pools.
Can you talk about your visibility around the business and if these pools are giving you more confidence in sort of how you are managing the business that gives you more.
I guess wherewithal to invest back into it and then the second part of the question is.
Doug you mentioned, the flywheel and Youre investing in capacity ahead of growth.
Any update on when there could be an inflection or is it is it rolling or does it start at some point in the next fiscal year, where you are at a good place and maybe push a little bit harder on Walmart plus thank you.
Yes, Simeon this is Doug.
First as it relates to alternative profit Paul as John can chime in here as well, but I'm excited about marketplace I'm excited about what's happening with fulfillment services. Walmart connect performance was good we do have strong visibility into that and youre starting to see it happen in Mexico too and as we've said before this is the strategy makes sense for us everywhere and our key mark.
So the P&L is starting to change its shape as we described in February even more than a year ago and that does give us some room.
Where does that mean this is John I'll, just add on and say that we are excited about the three areas mentioned marketplace.
<unk> a number of films services and connect you said earlier.
Really optimistic about the results with Walmart connect with triple digit growth.
Platform is something that we've been working on for a while and as we talked to you a few months ago. It helps connect buyers sellers and suppliers in a way that's unique to Walmart and optimistic about what we see there.
On fulfillment services, it's great to see the team expanding capacity, we know we have seller demand my.
My team and I have spent a number of hours listening to sellers talking to sellers and figuring out all the tools that we need to add so this is important for their businesses as well and then as we said in the quarter, we had 37% growth in e-commerce on top of a big number last year.
<unk> doubled the business. The last couple of years. So excited about all three of those and they are clearly.
Clearly businesses that will help us with our flywheel going forward.
As it relates to capacity getting ahead of growth.
It's starting to happen the plan that we had for the year is being executed and as you are in stores you can see the stress at some of our stores are under in terms of the volume going through for pickup and delivery orders and in some stores, we're expanding space capital is going towards that and some stores will be putting in automation to really press the top.
Into this thing where we know we're going to have that kind of demand and the team is executing against that and we continue to be excited about it and we'll go as fast as we can go this year and do it well and I think we'll learn a lot from it and we're very confident that that capacity is going to be needed.
Thanks Best of luck.
Our next question is from the line of Bob <unk> with Guggenheim. Please proceed with your question.
Hey, good morning.
<unk>.
Just a couple of questions.
Largely around gross margin and pricing and inflation just wonder if you can talk a little bit about what youre seeing on the inflationary side different categories.
You did mentioned balancing between customers and shareholders, just sort of how you're approaching that and sort of tying it together when you look at the consumer.
<unk> more on value versus convenience just wondering if you could maybe give us a few examples on where you think youre, making progress around that value offering in this environment. Thanks.
Hey, Thanks for the question this is John again.
First is.
We said, we're really pleased with the performance in food and the team has just done a great job getting the entire supply chain back in stock.
Including stores, you've got changes in the stores, where we're shifting more of our stocking overnight. So we can free up more capacity during the day for things like picking as Doug said and do that in a way that is conducive to customer shopping so excited too to make those changes.
As far as price gaps, we've always had a principle here that everyday low price is important.
In the quarter.
We added about 30% more rollbacks in stores and what we would have had a year ago. Some other things that are important are the mix.
It makes the entire box, but the mix within food.
Pleased with the share gains that have been in meat and produce and bakery. So even within the food categories on the mix has been favorable to categories that tend to have better margins, which is enabling us to maintain price positions that we that we've been running in our GAAP expanded last year versus the market. We're pleased with the GAAP are proud of the gap.
And we will continue to use all the levers we can to maintain those enterprise gaps of the merchants at Walmart this year, even more prepared than than years in the past to be able to manage that because of the channels. They mix our merchants across the business can manage the channels from stores to E. Commerce First Party third party and then fine.
With the additional revenue and profit streams, we mentioned with Walmart connect marketplace and fulfillment services that will just help us going forward mix to make sure that we have the Wright gap for customers I do agree with you that that value as it can be more important than convenience last year by value has been an important pillar of ours for a very long time.
This mentality that John described related to roll backs is important to underline it applies in international Plaza, and Sam's club as well, Bob I'm reminded of a conversation in the early nineties.
As a as an assistant buyer and food my supervisor walked into the room with a few of US and said we're short on our profit number for the month and need you all defined price reductions that you can put in place quickly bring them to me by the end of the day.
And I thought I misheard him, how do you lower prices and increased profit and that's the beauty of retail in our mix and the Super centers and now with E Commerce and marketplace and fulfillment services Walmart connect we've got all these levers to be able to find places to go upstream do things differently than other people are doing it.
Have 30% more rollbacks in place right now in Walmart U S. For example positions us really well.
Thank you.
Okay.
Our next question is coming from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Hi, Thank you. Thanks for taking our question I know that in stocks was an area that you mentioned during 2020 that was hard to manage given the strong demand. Just wondering currently are there any areas within your inventory of categories that are light or you are still working to build that Paul.
Hey, good morning, Thanks for the question.
Certainly 2020 was was a challenge when it when it comes to inventory flow with phases, who answers from the startup phase two.
People moving into their home and then demand and supply chain challenges all across that were related to pandemic early in the quarter.
Felt like we were making pretty good progress and then we have this ice storm or head just a record number of locations closed for a few days, which put some stress on the supply chain and then as we got later into the quarter certainly we see improvements in our food and consumable business compared to what they would have been a year ago.
In general General merchandise.
Been a bit mixed it's better in many cases, but there are some pockets, where we continue to chase demand things like adult bicycles some of our categories in consumer electronics, and we're monitoring things like delays at the ports and other factors in the supply chain and we'll watch all those things closely to continue to react but.
Definitely some pockets in general merchandise, we're still chasing even even as we speak today.
Thank you.
Our next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Okay.
Good morning, guys.
That's a question on <unk>.
On U S ecommerce maybe for John.
You see the pick up activity continues.
To scale, but just curious.
While on the home delivery front, maybe what youre, what youre pushing on there just any updates and also your micro markets fulfillment Center tests.
Just curious kind of how you are.
How are you approaching that and just your thoughts on kind of the home delivery side of.
Fulfillment Avi of ecommerce thanks.
Sure sure Peter Thanks for the question.
In general we have been working on capacity improvements and capacity growth online.
Online pickup and delivery from stores and Thats something that we have have been.
Tackling for some time now and accelerated last year, and we manage things what we call things like slot utilization are available slots and we have more slots available for pickings for scheduled orders than we've ever had we also have more capacity to ship from store, which leads to I think the second part of your question.
Which is the in home delivery at home and it's a couple of things there.
One we are expanding our or what we call our Walmart and home services, which we just picked up another market and that's what we deliver.
Food and other items from from stores, all the way into the home, including in the refrigerator.
We have our market fulfillment.
Centers that you asked about we have several that are in construction, we expect to be launching those either late Q2 early Q3. So we're able to talk about that more once those large and then finally, we are excited about our last mile business.
We've been operating our first delivery vans that are Walmart branded.
In our market here in Arkansas, and we're learning a lot as we go forward, but we see lots of opportunities to serve customers, whether it's in store or it's at their home or it's at the curve and they wanted to do pick up we want to be extremely flexible and be able to serve customers anywhere. They want that last year. There were such a shift of people that were that were wanting to have deliveries shifted at home from shopping in <unk>.
Sure.
I think what we'll see more this year is a balance between home deliveries shopping in store and pick up as people get back out as Brad alluded to earlier, that's assuming that conditions with the pandemic continue to improve and we'll be ready should shifting changing direction.
Our next question is coming from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning, Thanks, a lot for taking my question can you quantify to the comments that you made in the script. One was from Bret noted that debt. The guidance increase was mostly due to stimulus related spending so how do you parse out the <unk> results and what you're expecting in <unk> and the impact.
From the stimulus in Q Doug.
Noted that Walmart plus is an important driver over time.
Can you give us a sense for where that program stands today and how it should unfold from here.
Hey, Michael spread to hear from you.
Yes.
Couple of things I mentioned.
Why isn't the script is the underlying business feels good and we're more optimistic about that part of it certainly stimulus benefited our results in the first quarter, but you can also get a sense of how we increased the second quarter at the original guidance was and what how we increased the guidance for that quarter. So that should give you a.
A little bit of sense of of how we're thinking about stimulus versus the underlying business I can tell you, though it is challenging to pick out exactly the impact of the stimulus because of the types of categories that you see benefited by stimulus are also categories. You see benefited by the economy opening up particularly on the general merchandise side. So it makes it a.
A little more challenging to pick through that.
Michael on membership.
Inside Walmart this is a new program for us the number one driver of selling memberships as debt.
Grocery supercenter pickup and delivery and as we said before capacity is our issue there and as we said in February our focuses on the quality of that experience not the quantity. We want some time to work on NPS, we want to build capacity, we are marketing the program and long term it'll be important to us, but we've got so many other thing.
Things going on.
With stores, improving in traffic and e-commerce growing at marketplace and all of that kind of stuff. We just we don't think that Walmart plus should be.
The primary focus at the moment for us with all of these other opportunities. So we'll keep growing it at some point I'm sure we'll share some more information with you guys about it I know there is a request for that because of streaming services and how much people are talking about subscriptions and memberships. These days.
So John I know, if you want to add anything, but thats, how I feel about right now, yes, I completely agree in that.
That we're doing is creating capacity to be able to serve more energy.
To begin work on market fulfillment centers, we're making use locations as hubs or for other stores and spokes and we've got a lot of really encouraging supply chain work going on that would help us use the wright algorithms to be able to pull inventory from all across the network and be able to serve people. So they.
The encouraging just in the last few months as C that that not only the capacity on our E. Commerce results have been strong delivery from stores, it's been strong delivery from our fulfillment centers has been strong. So these capabilities, we're putting in place will be a great Foundation for this program as we move forward, having a digital relationship with customers is important and that takes various forms.
We've seen with the App downloads for example, and App popularity and what happened last year in particular would pick up and delivery are really large expansion in the number of digital relationships, which helps us helps us with data helps us be a retailer of the future overall, we feel good about what's happening in those areas and those relationships.
I believe we'll continue to grow because of things like there are improvements in technology, we're working on improving the core experience.
Acquisitions I C kit in DMD or also other ways that customers will be able to connect with Walmart effectively and we will be able to help them with more and more of their lives.
Friction that make things simple for them.
Very helpful commentary. Thank you so much.
Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your question.
Thank you good morning, everyone.
A question on general merchandise improvements, Steve talked a lot about fluid, but I'd like to give you. Some time to talk about general merchandise you brought in new talent there you've made some strategic tuck in acquisitions and strategic partnerships as well.
Help us think about what we should be looking for in terms of progress on general merchandise and maybe if you could tie that back to some of your initiatives around marketplace as well.
What youre learning from your digital growth that might be driving some of your in store decisions around general merchandize. Thank you.
Sure let me take that one this is John again, we're really excited about the performance in general merchandize in the quarter.
As you mentioned, we did make it a number of changes with talent over the last year or the biggest change was last July when we pulled all of the channels together and traditionally we had teams of people we called category specialists that were online and then we had buyers that were in store.
We're referring to the mall as merchants because the merchants now have the customer relationship across all channels and the team has spent a lot of time thinking through and working on the Wright program to determine what in our assortment goes in store or <unk> and then was three P. M.
For example, just last week I was in Minneapolis, visiting one of our suppliers Nordic where it makes it look we're here in the United States and we went through the number of items that they havent stores, what's doing well, what's going to improve and then their entire catalog is available in the marketplace. It's our merchants are able to manage.
The assortment across channels and that gives them more levers to be able to serve the customer in a way that is frictionless and very clear, but in the quarter.
We definitely saw some changes with the way customers shop, partly due to the stimulus, but also just behavior changes.
Brent talked about it earlier categories like personal care proving travels is starting to really kick back in and when you look at all the categories that are that are selling at Walmart you can tell a lot about what's going on with customers across the country. So we definitely saw behaviors that are starting to reflect more opening up and getting back out and going to see people.
Of our <unk> business has been extremely helpful at administering millions of vaccines in the quarter and there was some of the changes even in the last week. We expect some of these changes with our customer could continue but we'll continue to watch that as the year moves on.
Okay.
Thank you. Our next question is from the line.
<unk> with Keybanc. Please proceed with your question.
Hey, Thanks for taking the question obviously, some very positive commentary in store traffic I know you noticed you noted that April an inflection when you see that store traffic begin to really improve are you seeing any other changes within the E comm business, either pickup or delivery and then as a follow up as that traffic improves are you seeing any favorable mix shifts. Thank you.
So the traffic in store.
The count of traffic as we said definitely change in April probably late March a bit that's when we started to cycle. Some of the really big stock up trips and what was happening last year were fewer trips and deconsolidation. It did put a lot of strain and stress on inventory and things like paper goods and food and consumables. So this year what is that shift began to occur.
And we saw the sheer numbers begin to reflect gains in food categories.
Combination of people getting back out comparisons to last year, but also.
Some normalization in terms of the frequency of our food that's purchased specifics.
Specifically within channels strong strong growth between all three as we said in the U S. Total comp of six including E. Commerce growth of 37, and an E. Commerce growth is a mix of what's being shipped to people's homes for fulfillment centers or stores and inclusive of pickup.
Finally, I would just say that.
We continue to expand capacity in all channels.
Cited about the expansion of slots available for shopping in stores. We're excited about the amount of capacity. We have in stores has shifted People's home and then we're continuing to work and invest in the in the supply chain have more capacity going forward for pure first party ecommerce.
Thank you.
Thank you. Our next question is from the line of Michael Baker with D. A Davidson. Please proceed with your questions.
Thanks, guys just two follow ups, if I could.
One the 100 basis point or so gross margin improvement can you sort of parse that out and how much is coming just from the mix from general merchandise and how much is being supported by the strength in the alternative businesses and if not an exact quantification maybe directionally and then the second question just to follow up on the comp guidance. So.
First quarter was better than expected second quarter guidance is up yet the full year comp if I'm understanding it correctly didnt change.
So should we read into something is that a decline in the back half or just too early to change it or you know low single digits is a pretty wide range I suppose it could be anywhere between one and three or four so what do we read into into that not.
Changing the full year guidance. Thank you.
Hey, This is Brad I appreciate the question Yeah, I think on the on the I'll start with the second one about comp guidance, what you said about.
But low single digits being a fairly wide range that is the case it is a wide range in and.
When you look at the big numbers of Walmart U S. It ends up at a in a really wide range. So I wouldn't read anything into that we feel great about the first quarter in the second quarter started out pretty well as we've said on gross margin I'll say start John.
Come in.
The biggest change of course was the general merchandize sales strength that we're seeing this year versus the big consumable strength that we saw last year in the first quarter and also when you start seeing strength in general merchandise, which we've had really over the last several quarters you see fewer markdowns theres a lot of add on benefits that come from.
From that for gross margin.
Yes, let me just add a bit.
On to the margin question.
Certainly there was strength in general merchandise in the quarter and we talked about the strength in food and food was more balanced this year than what we would've seen last year last year, we were really heavy in dry grocery and stock up items at the pandemic began to the strength and share gains that we saw in the first quarter in food most.
Specifically meat produce bakery and grocery, but leading in the fresh areas of certain helpful.
The third point I'd make is inventory positioning at the end of the quarter. Our inventory level is up which is a good thing last year. We had we had big stock outs in grocery and general merchandise, so I feel much better about our inventory position.
As Brad mentioned, our inventory is clean and.
We've been really disciplined about ensuring that we're clearing up into season and seasonal so we feel great. There and then the last thing I would say is the drivers of E. Commerce attributed profit rates have been strong having merchants in the position of having all channels and their remit given a category and what the customer wants is helping with the driver.
<unk> of E Commerce, which would include things like contributed profit rates, while mark connect et cetera.
Great. Thank you I appreciate that color.
Thank you. Our next question is from the line of Kelly Bania with BMO capital. Please proceed with your question.
Hi, good morning, Thanks for taking our questions.
I also wanted to touch a little bit on general merchandise so with in the U S. So with low 20% growth just curious if you.
Thank you gained market share there.
We were thinking maybe 26% market growth, which is kind of rough estimate, but just curious how how you're thinking about that how you measure that and also how your efforts with Walmart fulfillment services and third party are maybe contributing to your general merchandise growth.
Okay.
This is John.
I'll take your first question first.
The share performance.
And general merchandise, we think is about flat to last year.
And we manage a month in arrears are data for February and March. So we feel good about the performance in the first two thirds of the quarter.
Certainly saw as you said strength across our merchandise and in the 20 range.
So I think we're positioned well feel good about where the share is versus a year ago, particularly excited about performances in categories like home and apparel in the quarter and the positioning we have going into the second quarter certainly some some tightness in the supply chain as we mentioned earlier in select categories that we're in.
We've had high demand and stresses in the supply chain, but we're watching that carefully and feel good about the improvements in in stock all across the business, including the helmet centers and stores.
But again I think we're most encouraged by the demand and seeing things like travel and other things open up and be able to to be ready for customers is important as we move forward.
And then the second part of your question on fulfillment services.
A number of of capacity.
Improvements that are coming online. This year. So we're excited about the impact of those will have not only on the top line and for the customer, but also for our sellers and Mark.
Sellers are looking for for more services and ability to ship in <unk>.
That's a great way to enable small businesses for growth. So as the year goes on we'll see more and more capacity come online order fulfillment services.
Our next question is from the line of Scott Ciccarelli with RBC capital markets. Please proceed with your question.
Good morning, guys.
My question is on the U S. EBIT increase that you saw I'm wondering how much of that increase was attributable to what I would assume is a structurally more profitable e-commerce operation given that the growth in scale, you are able to garner last year and related to that any updated color regarding the profitability run rate of e-commerce today.
Good morning, Scott This is John.
Specifically on your question on E. Com, we feel good about the drivers of the E com profitability, which is attributed profit rates and that would be gross margins less the cost of shipping. We also feel good about the alternative revenue streams that are included Inc. An ecommerce which are things like the marketplace.
Vilma services like I said earlier, we're expanding capacity, we now have seller demand and we're really proud of the triple digit growth in Walmart connect so all of those added together are helpful. In E Commerce P&L on the breakout we actually are not breaking up the difference in stores and E. Com because it has just become so blurred as we've transitioned.
And omni business, we have our merchants that are every single channels by category stores are acting as stores that is pickup centers and in some cases fulfillment centers. We have fulfillment centers I think it's almost centers, which go direct to home and at times they shipped to our stores.
Inventory can be consolidated with an order and put into our last mile network. So it's just it's just.
Not possible for us to break those out given how blurred the lines.
But overall I would say the team are doing they're just doing a great job with the contributed profit rates and the mix within not only the mix within the business like general merchandise versus other things, but within categories that are doing a great job improving contributing profit rates.
Very helpful. Thanks, guys.
Okay.
Our next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question, Greg Good morning, and great quarter here.
The macro question from me when you look at the data and see how the consumer's allocated.
Most recent stimulus checks.
Curious how they compare and contrast, what you saw in April.
In late December.
This past year.
Yes.
The same amount or are we seeing more allocated to savings and therefore, there is some pent up demand that could get spent.
Months.
Hey, Chuck This is Brad Yeah, I think we're seeing a little bit of both I mean, youre seeing youre seeing customers definitely get out and spend again.
Lending rates are.
Our good income rates are good but savings rates are actually still almost at an all time high which would lead you to believe there is going to be some pent up demand as we get to the back half of the year. So.
And a lot of ways, the consumer balance sheet, unless you're in certain industries that were really impacted by COVID-19, the consumer balance sheets about as strong as it's been.
Now a lot of that students stimulus money, that's gone into the economy that way, but in either case. It would indicate that there is some demand coming.
Our next question comes from the line of Robert <unk> with Bank of America. Please proceed with your question.
Hey, good morning, guys.
Doug you mentioned the.
The Omnichannel health and wellness business can you remind us what what.
That could ultimately look like.
And maybe we then.
The current like pharmacy recovery, how thats playing out I know you guys have been involved with vaccines and everything anything going on that's going to accelerate the Omnichannel healthcare dream for you guys.
Yes, Ravi I'll I'll jump in first and then John can add I think the pharmacy business has performed really well considering everything our pharmacists have been doing.
It's been an incredible challenge to do everything that they've done since the pandemic started including all of these vaccinations that theyre doing if we did have to shut down our vision centers for awhile optical though is back open and that has helped a lot.
The ultimate destination does look like an omnichannel destination, where we leverage those historical businesses together with new health care services and the digital front end that John mentioned earlier and I mentioned in my remarks with me AMD.
Can imagine a future, where we will be able to reach customers on their devices in their homes to help them think about their health care in terms of what they eat how much they move and then what types of health care services, they need and where they get them and so I think you can see as building together those capabilities that would help people have access to.
Care more of an outcomes based health care system Greg.
Value accessibility and serve a lot of people that need to be served and also end up with a really good business that fits together well with a large food retailer and so we've just been working through that strategy executing the pieces and if you look back at the <unk> Zone acquisition. This latest acquisition of AMD you can.
C S. Adding some capabilities. In addition to those that were building on our own.
Thanks, Doug.
Go ahead I was just kind.
Is this something that longer term fits in with Walmart plus as well.
We'll get back to you on that Ravi.
Ravi This is John.
I just wanted to reiterate the excitement for the idea of an Omnichannel health care solution for customers and Walmart together, our pharmacists in our pharmacies have performed very well in the last year given all the challenges they face.
They've opened up curbside delivery delivery to home, we've got central fill pharmacies now helping assist.
With cost and efficiency of the service suite that they offer is of course different by state, but the way our teams jumped in and found ways to help get the country vaccinated has been nothing short of Amazing I was in a store here locally last night and just seeing a number of people will be able to walk up and get their vaccine was very encouraging.
And then as Doug said the market changed last year, we had opened a number of clinics and we continue to open clinics. We're excited about the prospect of Glenn It's Green and then a large part of healthcare shifted to digital last year and the entire industry and <unk> of this acquisition of <unk> to enable relationships with customers on their device in their home and <unk>.
To execute service care with our pharmacies and clinics on the backside of that is a really exciting prospect and it's a big part of our flywheel going forward.
Thank you at this time, we've reached the end of our question and answer session and I will turn the floor back to Doug for closing remarks.
Just want to close by saying Thank you to all of you for for following our company. So closely hopefully you can see that.
In addition to the U S tailwind that we've got strength building in the company as I mentioned I was in a lot of stores. During this last quarter end and standards are improving in stocks improving against the challenges that that obviously the pandemic broad, but we've also got great momentum and strength in Sam's club International had a really good quarter in one of the best quarters.
We've had in a while in international in the portfolio work that unit and the team have been doing there is working and.
The situation with the virus in India.
As tragic and will support not only our own folks, but but the country as much as we can to try and get through that and I'm sure there'll be other hotspot cities and countries that will deal with in the coming weeks because this pandemic start over.
Pandemic aside economic stimulus to side, our focus is on the input metrics the underlying fundamentals of the capabilities that we're adding and we see ourselves, making real progress against those that the company has changed a lot and there is more change coming and I'm grateful to the team and excited about the future.
Thank you all.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.