Q3 2022 Walmart Inc Earnings Call
Greetings and welcome to Walmart's fiscal year, 'twenty, two third quarter earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad. Please.
Please note this conference is being recorded.
At this time I'll now turn the conference over to Dan vendor Senior Vice President of Investor Relations, Dan You May now begin.
Thank you Rob good morning, and welcome to Walmart's third quarter fiscal 2022 earnings call.
I'm joined by members of our executive team, including Doug Mcmillon, Walmart's, President and CEO, Brett Biggs Executive Vice President and Chief Financial Officer.
John Furner, President and CEO of Walmart U S excuse.
Judith Mckenna, President and CEO of Walmart International and Catholic way, President and CEO of Sams Club.
In a few moments, Doug and Brett will provide an update on the business and discuss third 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 limited to the factors identified in our filings with the SEC. Please.
Please review our press release and accompanying slide presentation for a cautionary statement regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our website at stock Walmart Dot com.
It's now my pleasure to turn the call over to Doug Mcmillon.
Hello, everyone and thanks for joining us we continue to have momentum sales were strong throughout the third quarter and we've seen a good start to the fourth quarter. Thanks to all of the thoughtful planning and hard work from our associates.
In addition to visiting stores and Sams clubs in the U S. This quarter also got to visit stores with the Canadian leadership team in the Toronto market. It was a reminder, that our associates around the world have served others throughout this pandemic with courage and resilience.
Our Canadian stores had some great items for Diwali, we sold through Halloween, well and the seasonal areas, we're ready for Christmas.
In the U S. We're ready for the holidays too.
There's a level of excitement in the air you can feel it had been walking away from these stores with the recurring thought we're ready we have the people the products and the prices to deliver a great holiday season.
Around the world. So many families depend on us for food apparel home items, Tvs and seasonal items like toys and Christmas trees.
They trust us to have what they're looking for and at the right price.
And while this year has its challenges we're in position to serve them.
All segments saw strong top line gains in the quarter, excluding divestitures and I could not be prouder of our team they continue to solve problems and move with speed.
Walmart U S drove a sequential acceleration in comp sales both on a one and two year basis and continued to gain market share in grocery.
Sams club had another very strong quarter as did Walmart International with China, Mexico, and India, leading the way.
Customers and members are shopping with us across channels, and we're making it easier for them speed matters. That's why we offer fast same day delivery to millions of customers around the world.
Walmart has served customers across economic cycles for more than 50 years. Each one is unique and they require us to adapt.
And this latest cycle.
The endemic caused shifts in how customers and members shopped and what they purchased.
The long period of sustained demand for goods has stretched supply chain, resulting in out of stocks and inflation.
Fighting inflation is in our DNA, Sam Walton loved that fight and so do we.
I want to thank our truck drivers merchants replenishment teams, our associates that move inventory through the supply chain and our suppliers.
They're working together creatively and quickly.
We have lots of variables to manage to deliver everyday low prices to customers and simultaneously strong financial results for our shareholders and we're using them.
We continue to make progress on our strategy. The team is moving fast and being aggressive as we build the pieces of our flywheel in.
In the U S. Walmart go local for last mile delivery is an example.
We're excited to have the home depot joined Walmart and Sam's club to share our white label delivery as a service platform.
This service is powered by our proprietary driver platform spark driver the technology behind it is now available in Mexico as we learned to build more digital products that can be leveraged globally.
<unk> continues to grow and is now active in 900 U S cities, providing access to more than 50% of U S households, and we're just getting started with.
We recently enabled a new feature within the spark driver App called shopping and delivery, which gives service providers the option to shop and deliver our customers' orders.
So if delivery slots are full at a location. This feature allows us to serve that demand.
<unk> platform has a lot of potential in the U S and beyond.
Selling advertising is another important piece of the flywheel, because it helps suppliers and marketplace providers sell more while creating a new profit opportunity for us.
Globally, we continue to see rapid growth in advertising income led by the U S flip cart and Mexico.
We're also making good progress at film pay and we're starting to ramp in Canada and Chile.
Beyond advertising income, we're creating new ways to gather and analyze data to fuel smarter faster decision, making to better serve customers members and suppliers.
Earlier this quarter, we launched Walmart illuminate and the U S, which is a new suite of data products created for our merchants and suppliers to reveal actionable category and item inside.
Our sales team is getting started and we're encouraged by the number of suppliers that have already signed up and their feedback.
Our work to become a regenerative company continues.
We had an offsite recently with over 50 of our leaders from several countries to imagine what more we can do and how we can pick up speed.
Environmental social and governance issues are important to us and we're committed to continuing our leadership.
In September we issued our first ever Green bond at $2 billion. It is one of the largest yet from a U S based company.
Proceeds are to be used to fund projects like renewable energy high performance buildings and zero waste.
Well, we've been investing in environmental sustainability projects for years, the size and design of this bond is aligned with the bold commitments, we've more recently made.
We hosted our sustainability milestone meeting in October many of our suppliers NGO partners and associates attended.
We shared a new goal at the meeting to achieve a 15% absolute reduction of our Virgin plastic footprint by 2025.
We think this goal and others announced at the meeting we will move our business in a direction that is good for the planet and good for business by giving our customers the things they love without things they don't.
Now, let's move on to segment results I'll begin with Walmart U S.
Comp sales of nine 2% or 15, 6% on a two year stack is remarkable growth.
The gains we've seen in market share for grocery and strong back to school results indicate our inventory position has improved prices in assortment are compelling and customers continue to move away from early pandemic behaviors. We.
We see tailwind and our results are strong consumer a degree of inflation and government stimulus are all factors.
But I also like what I see in the core of the business.
Transaction counts in our stores and clubs are growing.
Inventory is up 11, 5%.
Our price gaps are where we want them and we're innovating in the supply chain and adding capacity and.
And we're building businesses like Walmart go local Walmart connect Walmart Lemonade, Walmart plus spark delivery, our marketplace and Walmart fulfillment services.
Financial services is another area, where we know we can make a difference in our lives as so many we recently launched bill payment services in our stores as well as the ability to load money to a bank account or a prepaid card.
Moving to Sam's Club U S comp sales were strong at 13.9% excluding fuel.
Membership is the lifeblood of the club model.
Growth in membership income of 11, 3% is the fifth consecutive quarter of double digit growth.
Membership count reached a new record high during the quarter and overall renewal rates were strong across the board, including first year renewals and those for plus members.
Both individual and business members are shopping with us across channels and using the digital tools we have developed.
The new don't forget function with scan <unk> go is a great example, its a completely digital way for us to help members and drive basket size at the same time.
Based on our members shopping history, we can target items that a member may be forgetting in their trip all through the App.
And we already see an increase in the number of items in the basket.
Also expanding delivery options at Sam's.
Now offer same day delivery for 440 clubs using our spark driver network.
Turning to Walmart International we had another quarter of strong growth with sales up 10, 3% and profit up even higher at 17, 5%, excluding divestitures and currency. We ended the quarter in great shape on inventory and price gaps.
Back to school and other fall celebrations helps drive traffic for us as families began to get back to normal shopping patterns.
Festive season is off to a strong start with big billion days in India. We continue to see strong growth in E Commerce.
On a two year stack sales increased 91% led by flip cart in China.
We've talked about the importance of Omnichannel globally, and we continue to see the build out of these models across markets are.
Our small Sam's club depots that extend the reach of our large clubs in China helped deliver ecommerce growth of 96% with incredibly fast delivery for everyday items and.
In Mexico, we continue to expand same day delivery and express delivery orders quickly reach customers using crowdsourcing capabilities.
And in both Mexico, and Canada. The expansion of omni capabilities is driven by technology that we've developed to share across markets further leveraging our scale.
Our international markets are building flywheels that have common characteristics with each other and with the U S, which helps us innovate and leverage the technology we're building.
Our store and club formats are well positioned.
We're moving quickly to add and expand more digital businesses, including e-commerce and payments to create new business models, we are innovating for our customers, but the recent expansion of flip cart super coins across platforms.
We're also making important investments for the future while delivering profitable growth today.
You see examples of these investments in our supply chain in India, and Mexico, New clubs in China and store Remodels in Canada.
The team is delivering on its purpose of driving long term sustainable growth for the company.
With that I'll close today by thanking our associates around the world for what they do each day to serve our customers and drive results.
The holiday seasons here and we're ready.
Our teams have been working hard to ensure we have the people the products and the prices that will help make this season special for everyone.
I'll now hand, it over to Brett.
Thanks, Doug.
In the third quarter, our momentum continued with strong sales and profit growth in each of our segments, while continuing to accelerate our strategic priorities.
We're off to a good start for the holiday season in a good position to continue delivering strong results.
Despite the various macro and industry challenges our inventory position is good.
Doors and fulfillment centers are well staffed and our price position remained strong.
Customers should expect to find the items they want a great values and we are ready to serve them. However, they want to shop.
Our omni models, a substantial competitive advantage of shopping behaviors continue to evolve customers want choices in how they shop and our unique set of assets with a network of stores expanding digital capabilities robust distribution networks and innovative services very effectively serve their evolving needs.
Walmart U S comp sales grew nine 2%, including nearly 6% growth in transactions with in store shopping leading the way.
E Commerce sales growth was up 8% in Q3 against strong sales gains last year, resulting in an 87% two year stack.
We continue to see strong market share gains in grocery this year as well as unit share gains on a two year stack.
Sams club had another outstanding quarter with comp sales growth, excluding fuel and tobacco, a 15, 5%, including more than 10% growth in transactions and 32% growth in E Commerce.
Membership counts at another record high and renewal rates remained strong.
International results were impressive including e-commerce penetration of around 19% as omni services scale across key markets.
For example, Canada has expanded online grocery pickup from stores nationwide, while in Mexico customers Express delivery orders can be shipped via a gig drivers and under 90 minutes from 120 stores.
We continue to make good progress on accelerating the flywheel, we're seeing increased contributions from growth businesses, such as advertising e-commerce marketplace and spark last mile delivery.
Our delivery reach is expanding and our scale enables us to monetize this capability by offering same day services to other merchants through our Walmart go locals BTB initiative.
Now, let's discuss Q3 results.
As a reminder, the previously announced international divestitures significantly affect year over year comparisons. So my comments today will focus on the underlying business, excluding the effects of divestitures.
Also COVID-19 costs remained elevated globally, although lower than last year in most markets.
In addition, EPS includes a 67 cent negative effect from premiums paid for bond tenders, which allowed us to retire higher rate debt to reduce interest expense in future periods.
Total constant currency revenue grew more than 10% to over 139 billion.
Walmart U S comp sales momentum remained strong at 15, 6% on a two year stack due in part to strong U S consumer spending and some inflation strength in China, Mexico, and India led to international sales growth of more than 10% in constant currency.
Strong trends of Sam's club continued with comp growth of nearly 31% on a two year stack, excluding fuel and tobacco.
Currency benefited sales by about $1 3 billion.
Gross margin rate declined 51 basis points due primarily to increased supply chain costs and headwinds from fuel mix in the U S segments as well as format mix shifts in international However.
However, total gross margin dollars grew nine 6%.
SG&A expenses leveraged 13 basis points, reflecting strong sales and lower COVID-19 costs, partially offset by increased wage investments in the U S. As a result of these investments we've seen a great response to our holiday hiring programs with the addition of over 200000, new store and supply chain associates.
Operating income on a constant currency basis was up six 3% leading to adjusted EPS of $1 45.
As anticipated free cash flow for the year is about $8 billion lower than last year, primarily reflecting inventory increases and higher capex.
We repurchased $2 2 billion of stock in Q3, and $7 4 billion year to date up significantly from last year.
I am pleased with the improvements in ROI, even as we've made strategic investments with reported ROI, increasing 80 basis points to 14, 5%, which is among the best level in four years.
Now, let's discuss the quarterly results for each segment.
Walmart U S had another good quarter aided by strong consumer spending stemming in part from government stimulus and inflation.
Strong sales trends were led by grocery health and wellness and apparel factor.
Back to school categories also performed well along with automotive and holiday decor. We're.
We're pleased with the strong momentum in the grocery business as our strong price positioning and omni offerings resonate with customers.
Grocery sales were up nearly 10% as strong unit growth and low to mid single digit inflation benefited results. In fact food sales grew $3 $6 billion during Q3, which is the strongest quarterly growth in six quarters.
We're continuing to enhance and scale, our strategic growth businesses, both national and local partners have shown strong interest in our new Walmart go local business, while the spark driver platform continues to expand nationally Walt.
Walmart connect advertising sales have increased nearly 240% on a two year stack and in Q3, we launched a new demand side platform and partnership with the trade desk to expand off site media offerings.
We also added around 21 million items to our e-commerce marketplace assortment during the quarter significantly increased the number of items available for expedited delivery and saw continued strong growth in Walmart fulfillment services penetration.
Walmart U S. Gross profit rate declined 12 basis points, reflecting increased supply chain costs.
We're seeing inflationary cost pressures in some areas and our merchants remain laser focused on taking the necessary steps to mitigate supply chain congestion, while working with suppliers and monitoring price gaps to manage margins appropriately.
Our markdowns and increased contributions from advertising revenue have helped offset cost pressures.
SG&A expenses, Deleveraged 20 basis points due primarily to investments in wages, but operating income was strong up almost 6%.
Inventory increased 11, 5% in preparation for what we expect to be a strong holiday season.
Steps taken to mitigate transit important delays have positioned as well, including adding extra lead time to orders chartering vessels for Walmart goods rerouting deliveries to less congested ports and expanding overnight hours at key U S ports.
International had a great quarter with double digit sales growth strong momentum in e-commerce across key markets and operating profit growth outpacing sales.
E Commerce sales in constant currency grew 33% on top of strong gains last year with growth in China flip cart in Mexico, particularly strong.
We've nearly doubled ecommerce sales in international over the past two years and it's encouraging that our ecosystem is expanding and developing in areas such as digital advertising.
China accounts are quite strong in Q3, increasing 16, 5% with continued strength from Sam's club as well as more than 90% growth in ecommerce sales.
During the mid Autumn festival sales are terrific and we saw an acceleration in omni performance with nearly all hypermarkets setting online sales records. During this event.
Flip cart had another good quarter with strong sales growth and favorable trends in monthly active customers and users.
In anticipation of the holiday season, the team is double fulfillment capacity versus last year with dozens of new fulfillment center locations more than 1000 last mile delivery hubs and expanded relationships with Corona partners to handle a large percentage of last mile deliveries.
Comp sales in Mexico increased 6% and grew faster than the market According to and Ted with strong consumer spending on categories related to back to school and seasonal celebrations.
Customer adoption of omni offerings continue to grow.
And we're seeing a strong response to the launch of Walmart fulfillment services with one fourth the marketplace sales fulfilled through this network.
And Canada comp sales were up 6% and increased more than 13% on a two year stack seasonal sales events were especially strong in omni sales continued to increase.
Online grocery is now available in nearly all stores and we've launched express pickup within two hours and a couple of stores in Toronto.
International operating income in constant currency increased 17, 5%, reflecting strong sales and expense leverage.
Sams club continuing to deliver excellent results with strong growth in sales membership and profit <unk>.
Membership income was up more than 11% as we achieved another record and member counts strong renewal rates and increased plus member penetration.
Sam's operating income was up more than 10% a strong membership income and expense leverage more than offset gross margin pressure from supply chain costs fuel and inflation.
Now, let's turn to guidance, we anticipate Q4, Walmart U S comp sales, excluding fuel increasing around 5%, resulting in over 6% gain for the full year.
Annual adjusted EPS is expected to be around $6 40 for the year, representing 17% growth.
We continue to make good progress on our capital investments, but we now anticipate the timing of some investments originally planned for this year will flow into next year as a result.
We expect full year capex to be around $13 billion versus our original guidance of $14 billion.
In closing I'm very encouraged by the Q3 results and I'm optimistic about Q4.
I continue to be very excited about the evolution of Walmart into a one of a kind Omnichannel company.
Thank you for your 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.
Like to ask a question. Please press star one from your telephone keypad any confirmation tone will indicate your line is in the question queue.
First start to feel like most of your questions in the queue.
So participants are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Although please assemble the queue.
Okay.
Okay.
Yes.
Mr. Lasser. Please proceed with your questions.
Good morning, Thanks, a lot for taking my question when you laid out your algorithm of generating 4% topline growth.
Better than 4% operating income growth in <unk>.
<unk> wasn't nearly as hard as it is today, particularly with respect to wage inflation.
So looking out over the horizon over the next several quarters.
How does the current <unk>.
<unk> impact walmart's ability to sustainably generate its algorithm into next year, especially Brad as I think you just mentioned that some of the investments you were planning to make this year have been delayed into next year.
Hey, Michael It's Brad Yes.
Yes, I mean, I think as we.
Then we talked about last year. There are a couple of things we mentioned one was.
Time also we didnt see a stimulus coming.
We anticipate shipments coming in which ended up coming but I would look at that more as a.
Mid to long term algorithm, which I think is the way we portrayed that when we discussed it.
Right now, we're seeing inflation in areas and some of Thats demand driven some are supply driven.
Over time things will likely work themselves out but.
Context of how we think about the longer term growth of Walmart has not changed.
Okay.
And my follow up is for Doug Walmart field, a lot of new capabilities in the last couple of years growing digital AD business for.
Delivery network, while my membership program.
These new muscles are driving significant growth, but they are coming off a relatively low base.
Walmart you can make any substantive change is culturally operationally and how it deals with stakeholders by consumers or vendors.
Equally the ability to further gain scale in these areas.
Or the operating at the level that you would expect at this point.
Thanks, Michael that's a good question.
Thing that comes to mind is the change that has to happen.
Had happened to an extent and continues now related to working in a more digital fashion, we use the phrase here.
Florida box, which which is an agile way of working with customer.
Product.
<unk> technology engineering, all around the table designing omnichannel outcomes for customers and members.
Historically, if you look back years ago. When the company would have operated in specialized silos merchandising operations finance logistics et cetera, and the team's learned.
<unk> is still learning how to move faster again with the end in mind design with that outcome and that enables us to put technology to work in a way that is truly omnichannel not not siloed customers and members expect that we've got unique opportunities to deliver that.
Change inside the company has to happen to enable it.
Thank you.
Next question is from the line of Steph Wissink with Jefferies. Please proceed with your question.
Thank you good morning, everyone I wanted to give you guys a chance to talk a little bit more about how you activated your supply network and also your hiring tactics for seasonal labor couple of the numbers that stuck out in the release, where the inventory level and the Labour Count and then if you could just talk a little bit about that 11% inventory increase if there is any price in there that we need to be.
And then 200000 hires across I think you said stores and supply chain, but maybe give us a sense of how that balance where that labour resides relative to how your business has shifted more omnichannel.
This is Doug I think for that answer we need to get John <unk> to respond to supply chain and hiring challenges are around the world. John you want to kick it off yes, let's see.
First we wanted to make sure that we're positioned well for customers. It's an important time of year.
In general merchandise and in the food business.
Customers prepare to celebrate holidays, all across the country and and we took a lot of steps early in the year.
To try to get ahead of what we thought it could be some congestion and some other supply chain pressures that we've been facing throughout the year.
Some of the things that helped us in the quarter Brent mentioned, a couple of things like chartering vessels, ensuring that we were forecasting appropriately.
And then managing the labor across each and every piece of the supply chain has been paramount to being able to deliver an increase in inventory as you noted of over 11%.
There were pressures all along the way but.
No I would just complement the teams at Walmart that operating to supply chain and not only general merchandise and our food network's both networks have been running extremely well, there's a lot of volume going to the networks and the teams have been very innovative and approaches to solving these problems.
Despite these very complex and there have been a number of of <unk>.
Places, where we've seen acceleration that would be in throughput.
Inbound from our vendors and then outbound to our stores and fulfillment centers has been extremely strong.
From a supply chain perspective.
For international clearly HDI market.
Play.
Possession.
Many of the actions that John just described apply globally around the world because I take somebody like Mexico that Lockheed is about 93% domestically sourced question is slightly different and depending on the consequently, we spent the last couple of years expanding some of our supply chain capabilities and that's really stood us in good stead and then <unk>.
<unk> is ramping up our hiring in places like Canada.
The holiday season, as well that's quite normal throws our way.
With being able to do that we're doing some good work tugging on some of the chartering of the vessels.
<unk> is doing and I think this is where our scale and capabilities really come in to client from an inventory perspective, we're up about 10% you haven't yet.
Back to choose actually.
And congrats to Jay ex divestitures, even higher than that and for the first time I'll tell you. That's a good thing because it actually positions as well as the going into the peak of the holiday season.
Let me just add on to say central the sake, it's to leverage the walnut supply chain, let's try advantage.
Say what deliberately this each cohort inventory so we landed Halloween.
Christmas earlier, so everything's just shifted up a little bit which has put us in a good trading position.
Alright. Thank you. Our next question is from the line of Karen short with Barclays. Please proceed with your question.
Hi, Thanks, very much I just wanted to just ask a short term question. So looking at your guidance for <unk> wondering if you could.
Give some puts and takes on gross margin and SG&A I. Appreciate there are a lot of moving parts on the wage French but.
Slide four Q flow through on EBIT that is significantly higher in <unk> than it was in <unk>.
That's my first question.
Yes sure this is Brad.
But I think it's I think probably you answered your question a little bit. If there is there are puts and takes as we look at the quarters or has been for the last eight or nine quarters and there is really for every quarter and as we look at all the potential.
Things always stay on the supply chain, let's say at the labor market as we see them.
Pricing.
The EPS guidance that we gave is kind of an amalgamation of all of those things that have a different mix in Q4 too.
So.
Okay.
Thank you.
Next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Hey, guys.
Good morning.
It's kind of a question just around walmart's positioning during periods of inflation and recognizing that this is a level of inflation.
We haven't seen for a very long time can you just talk maybe take us through how the business historically at least has responded how customers.
Hey.
Are there changes or trade down or you do you get access to new customers, just curious sure youre kind of perspective.
This inflationary environment persists.
For longer.
Yes sure Peter.
Just thinking about Chinas justification is reminding us this week, just how much inflation, we've experienced inside Walmart around the world over time, we haven't seen this kind of inflation in the U S for quite some time, but we have operated in markets, where we have seen this basically forever and even more extreme so that experience is helpful.
We do start with wanting to keep prices low and the purpose of the company is to save people money and help them with a better life and we get excited about trying to do that and the company.
Kind of hedged well, if you think about it with an inflationary environment.
There are things that come along with that and in a deflationary environment, we can lead down and we're a low cost operator and.
We can take advantage of both situations. So in this case, our cost inflation is higher than our retail inflation and thats, what we would want but we've got lots of flexibility as we monitor price gaps to decide what we do with general merchandise, what we do with apparel for example, what we want to do it would be for the inflation that's happening there.
And it becomes a mixed management exercise with us trying to manage serving the customer remember well managing the bottom line, we would care a little less about how the gross margin and SG&A balance out as we would with the net looks like.
So we are managing in that fashion and that's what you can expect us going forward.
Sure.
Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Hey, everyone. Good morning, So I guess I'll ask a multi parter since maybe we're only getting one first on the gross margin.
<unk> 12, and dimension of the supply chain pressure.
How should we think about it being maybe a peak point and pain in terms of supply chain costs and how it bleeds into next year.
And I thought I think somewhat I don't know if it was Catherine Judith mentioned the buying forward of inventory.
Is this inventory just owned further upstream in the supply chain or it's already in your Dcs and stores that can be deployed.
Thanks, Simeon it's John let me think.
First part of the question and then we will handle the second part together.
As far as gross margin we start all these conversations with what's the right value for customers.
Our position in the marketplace and.
We've we've been pleased with the results in terms of price gaps over the last 18 months, we're in a better position than we were before the pandemic and we intend to keep our price gaps that way.
As Doug mentioned, our cost inflation is definitely higher than retail so we will.
We will hold on moving any retails as late as possible and what you saw during the quarter in the third quarter.
More specifically in gross margin were costs that came through in terms of supply chain that would be everything from our domestic supply chain labor international supply chains as well.
The benefits of lower markdowns and higher sell throughs that would include back to school, we had a very good back to school season Halloween sell through.
Both in food and general merchandise were very strong and we see customers who are are celebrating.
We're pleased our position as we go into Thanksgiving.
Been out stores around the country and in our feature mix looks much better than a year ago definitely you have a holiday feel last year, we were pretty reliant on on things like snacks and beverages to fill space and we are having the inventory shortages. So I feel really good about the positioning going into the holiday season.
Of the 11, 5% as I mentioned, a moment ago, but many ladies and gentlemen, all over the country have worked very hard to make that number come to reality.
Leading managing each each piece, which is both offshore and domestically I think the big advantage that Walmart has in times like this is about two thirds of what we source is sourced from the United States here in the country and so we've got a lot of flexibility in terms of being able to balance this out.
I'll, probably just add it's Cathy just say, it's a little bit member sentiment as well as supply chain. So we saw last year and again this year the amendment San amount of wanting to participate and faithful event early and so we took advantage of that.
Brought in inventory earlier, we bought up a 100% in Halloween costume suite.
We sent them and we felt through them I think Christmas.
Already had healthy cells for the rest of the inventories in country and on its way to the club. So I think that's what we're seeing by our member sentiment not trying to pull forward from a supply chain perspective to make sure. We can say it we've got it we've got access to it I would maybe just add to that.
We are prioritizing flow around the world and have been doing for some time. So those projects. What you may know the customers and lenders need most making sure that they've got places on the vessels when it international supply chain to bring demand. So is it in addition to people wanting to buy Elliot with also being rainy Phillips.
So about how that product is coming in as well.
The most important things that happen happened quite a few months ago as we all kind of held hands and decided to be aggressive.
So the seasonal businesses that were driving now we made a call on that.
In some cases, a year ago, and I think that helped us in terms of quantities getting them through getting them through earlier and I think it's going to play out that way I think it's going to be really strong as it relates to whether its peak or not Simeon there. There are variables like what happens with the virus is the market going to continue opening up and people will.
Same services travel and all those kinds of things and what does that mean to goods. So there is a demand side of this as well as the supply side of it and I don't know that any of us to call exactly where the peak is going to be.
But it doesn't really matter to us we're going to manage through it regardless of what happens when we get an opportunity to take rollbacks were out there asking suppliers even now.
Lenny do you want to get aggressive in swim upstream and take prices down while prices are going up to gain share.
So many suppliers to work with and she is from that you find people and some categories that can do things and as the months progressed, we expect to find more of them.
Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Hi, good morning, Thanks for taking our question.
It was mentioned in the prepared comments in the presentation about the impact of stimulus in Q3 and I was wondering if there was any way in which you can quantify how much stimulus had an impact in Q3 versus Q2. Realizing of course that we are getting further away from initial stimulus and what youre thinking of.
Contribution of stimulus could look like in Q4.
Yes, Kate this is this is Brad.
It's pretty challenging to try to quantify that impact with some of the other impacts that we're seeing as well obviously there are some some parts of the stimulus that of that wound down in Q3 things like child care credit static that kept going through Q3.
But demand is really strong unit demand is strong.
<unk> got our stores they're crowded.
We continue to see good demand and.
As you are.
Sure.
Question stated almost as we get further and further away from from stimulus I think it makes us feel better and better about the demand for what we're doing specifically.
Specifically in the U S. Good morning, as shown by the way specifically in the U S. We certainly see a consumer that has a strong balance sheet.
We see spending levels higher we see demand as higher traffic being up five 7% in the quarter is an encouraging sign and then having categories like apparel lead the business, which is discretionary our apparel team has done a great job positioning thats going into.
The back half of the year with new technology new product.
Having apparel lead is certainly encouraging and then also we're really proud of the results in food with two year share gains in units accelerating retail gains.
I think gives us an indication of how the consumer is feeling and how they're going to be spending the rest of the year. It seems like the most pronounced thing we saw with growth.
Growth would be in hiring like when the stimulus dollars started to go away the hiring situation changed faster we saw people come back in in a matter of weeks, we were back to being staffed.
Doug for its more pronounced on the on the demand side. It started yes. It certainly was and certainly felt the impact of that early in the year when the Delta various began and then in the last quarter or so we have added close to 200000 people in the workforce. We're really excited to welcome the 200000, new associates to the company about 25% of those are in the <unk>.
Apply chain another 75% of our.
Our stores in other areas, but thats been done to meet demand in and again, we're excited about our positioning in terms of people product and our pricing.
Yeah.
Our next question is from the line of Bob <unk> with Goldman Guggenheim Securities. Please proceed with your question.
Hi, two questions from me good morning, I guess the first one is can you share a little perspective on the Walmart plus membership program and what you've learned so far how you feel about it and the second question is can you talk about I think the 21 million items you added in the marketplace.
I know thats been a big focus for you guys. So just love to hear sort of where you think you are at this point. Thanks.
Good morning.
We're really excited about the Walmart plus program, we launched just over a year ago with some really core values for the customer which include unlimited delivery primarily from from stores, but that doesn't include ecommerce. The program also offers fuel discounts and scan and go and then most recently we offered early access to customers.
Plus members, who are shopping at our holiday events. So our plus members now have about a four hour window to be able to access product ahead of the market and certainly seeing great results in that plus is a really important part of our growth strategy over the long term, we know once a member.
<unk> becomes a member and typically those are members that are joining to our already pickup customers and we know their spend increases and add our first place wallet share growth. So looking forward to the progress.
We'll be able to make all of that.
And the second part of your question could you repeat.
Just some perspective on the e-commerce marketplace to $21 million, new items I know thats been a focus of just where you guys think you are at this point.
Yes, we're currently about 160 million items available so $21 million growth in the quarter.
Really nice gain and we certainly see high demand from marketplace sellers on one of the services that we're excited about is Walmart fulfillment services.
We can we can scale that business is just about as quickly as they will be able to add capacity. So that a lot of great plans and the supply chain, we've talked about supply chain a number of times. This year, but we've got a lot of innovation and investments in the supply chain that we're very excited about to add capacity for the overall network, but they're certainly willing and include and support our marketplace sellers.
Have a great seller value proposition as we look forward.
The next question is from the line of Andrew <unk>.
With Stephens. Please proceed with your question.
Hey, Thanks, good morning, I want to ask.
Sort of two part question related to your commentary around ROIC.
And some of the teams broader commentary around wage investment relative to inflation.
You're at one of the strongest ROIC metrics.
The metrics that you've seen in some time.
You are talking about it sounds like being pretty competitively positioned relative to hiring and being able to staff up back to full staffing as the stimulus.
So off.
<unk> also been investing in wages I am curious with all of those variables in place an inflationary backdrop.
How do you feel about your level of investment around wages and into the organization and do you think that we're in a an environment, where you can deliver against the productivity loop that we all were also focused on at the start of this year.
Hey, Ben how are you doing.
Yes, I'll go back to it's really what we've talked about it in.
February which Campbell.
<unk> earlier I still feel really good about the long term algorithm that the long term algorithm that we discussed.
February about being able to grow operating income faster than sales as a company going forward.
<unk> two.
Thank shareholders over time being pleased with the direction of ROI, we have some capital to invest in John's talked a lot about that particularly in the U S side on supply chain and we're going to do that because we think it's going to help us long term on both the topline and bottom line.
I am pleased with where we are from an ROI standpoint, we're focused on it and.
Over time this should continue to grow as a company.
So I mentioned in February was the importance of automation and we'll be talking more about that in the future, but if you just go back.
And review, what we said there and we've got opportunities in distribution centers fulfillment centers around the world to deploy new technology that will help us with productivity and that will take some capital investment, but if you look at what it delivers on the other side for customers and members as well as from a productivity point of view, we continue to be excited about that.
Last thing I would add.
Then just certainly the focus on topline Doug mentioned, a few minutes ago, but.
We made decisions about over a year ago to certainly be aggressive with inventory positioning on the team is really focused on topline growth.
The fun things in retail is adding up to score every day and that starts with with your revenue and with revenue growth. We are in a position where we can leverage our fixed costs and then as you have heard all throughout the call. This morning in the middle we can manage and we've got a team who are great at managing the middle of the middle of that include things like cost gross margins wages.
The other factors in the middle but.
Overall, we are happy to position 1 billion managed and then the last thing I'd say is we're excited about the investments and wages and associates on this last round positively affected about 565000 people and it's a really large number 565000 people got a raise and we're proud to be able to be in a position to do that.
Our next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Hey, Thank you great quarter, Brad was wondering if you could just unpack some of the moving parts on the third quarter U S. Gross margin progression at 12 basis points.
Looking ahead, how do you see that line item playing out in the fourth quarter.
Yes, Thanks, Chuck we didn't give guidance on any specific lines on Q4, but I think it demonstrates again.
So what we've said for many years just all the levers that we have to pull as a company to be able to for.
For our P&L to work at the same time that we're serving customers the way that we want to.
Really Q3 would be no different from the standpoint of levers moving one way or the other certainly add supply chain cost pressures just to make a input cost pressures.
But then when you get the demand that we're having it leads to lower markdowns.
Fuel was a pressure in Q3, which sometimes it's a positive sometimes it's a negative.
Feel really good about our advertising business, John and the growth that we're seeing in the U S. But also globally. So it's all of these things that come together and us as a management team cost side and margin side, it's up to us to manage those pieces in a way that gets to the results that we had in Q3 and the results that we've guided for and in Q4. So.
We've managed through.
Lot of different environments over the last eight or nine quarters in particular and feel good about this team's ability to continue to do it.
Our next question comes from the line of Edward <unk> with Keybanc. Please proceed.
Hey, guys. Thanks for taking the question a quick two parter for me I guess first you guys have added a lot of capabilities and use of AI.
Are you interested in understanding how it has made you change how you manage the business have you been able to get faster.
And then as a follow up on marketplace nice growth and assortment. It does seem like a lot of marketplace participants are selling items that are out of stock in the quarter Walmart business. I guess, how is your view on kind of marketplace in terms of enhancing assortment versus the offering consumers products that may be sold out at Walmart. Thank you.
So let me take good morning. This is John couple of things.
On your first question hybrid capabilities.
First the team has really changed the way they work over the last couple of years, we mentioned a few minutes ago, a more digital way of working which which we call in the business for in the box.
Quite simply we look for customer problems associated problems friction in the environment and then we assemble a team of people, which would which would include someone representing the customer and the business product technology design and these groups work through each of the problems and create digital products to take the friction.
Now along the way the real benefit is the data that's generated from these products I know. One example is our managing our back rooms of supercenters and neighborhood markets around the country using computer vision and augmented reality to not only know what's in the background, but what can be moved to the floor.
<unk>.
Augmented reality is away for associates to know how to direct work and from that we generate literally billions of pieces of data every week and is helping us with overall inventory management and I think our in stock positions reflect that work as an example.
<unk>.
On the marketplace, we've taken more of an open approach on the marketplace and we are ensuring that each of our search and recall algorithms are working on behalf of the customer and what what's really important in retail is knowing your customer understanding the customer's intent and then take into catalog, whether it's <unk> or threep.
And matching the items that they are looking for and then it's up to the team here to execute and we've got a really clear customer value index that we think about each and every day online and we measure ourselves to that so we're really centered on as I said a couple of times. This morning really centered on revenue growth focus on the customer and then we will work through to the other.
Pressures as Brent mentioned like we have the last eight or nine quarters.
Are you then ml and AI to do a number of different things we used it to help adjust to the pandemic and use the stores as fulfillment hubs than we used to predict the baskets smart substitution as our in stock assistant AI empowered and this modernization that we've been talking about.
With you guys in previous meetings is continuing which unlocks more capability to use that data we've moved 150.
Three petabytes of data to the cloud so far.
We've got room to grow there and we can put data and machines to work in ways. In this company that that we have not yet done, but we are making progress.
As a reminder, so that we may address.
Questions from as many as possible. We ask you please limit yourself to one question.
Our next question is from the line of Ravi homes with Bank of America.
Good morning, guys.
<unk>.
Rule on the one question just on <unk>.
Yes, I'll, let you know ahead of time.
I was hoping.
Can you can you frame.
Can you frame the digital advertising opportunities for us a little bit both maybe U S and internationally you guys I think I've mentioned it quite a bit on this call.
How big is it now how big can it get degrees Youre developing and then just my add on question is just I don't think you guys spoke about the gas prices rising and maybe remind us maybe John you could remind us the gas price impact on the customer outlook for Walmart.
Going up so much.
Ravi I would expect you to break that rule.
Thanks to digital advertising, we are really excited about it obviously, we're coming off a smaller base than some others. We shared that the two year stacks, 240% in the U S.
At some point, we may share a number with you were obviously talking about that the thing I'm excited about is happening everywhere Judith is driving an advertising income business around the world and this flywheel that we showed you guys in February is coming to life across markets in a way that generates a different business model.
That.
We'll change the company in the long term.
It's happening and we're excited about the fact, we've got traction in a number of different areas.
Gas prices are a concern.
We're not just in this country, but everywhere they were up dramatically versus a year ago and the customers had money and at some point that's going to come to an end hopefully that's a gradual process and hopefully gas prices come down and we sell a lot of fuel.
And both Walmart and Sam's, we're trying to help keep those prices down.
I'll just pick up a couple of things Ravi.
And as excited about the momentum I like the way the team has positioned the business and call. It Walmart connect it connects buyers sellers and customers on the platform.
It's really important that everything we do is centered around the customer in the last quarter.
We added a new Chief revenue Officer. Seth later, we're excited to have Seth onboard and looking forward to the impact you will be able to make in the business and as I've said on fuel certainly we're watching.
Pricing and fuel, where we can offer a value we will and we do.
We know that American spend a large percentage of their income on food and energy and so its pressure on energy prices, then certainly it's up to us the team to do it.
Everything we can to keep prices low and tight inflation and the team's doing a nice job of that.
It's J J, maybe just on our textile international one of the other things to add is the way that we're sharing technology, but also the capabilities around the world does that flywheel of bills out using the capabilities that we're building in differently.
Pulp market.
And that journey is really important so for example, the flip cart.
Tech platform, which is <unk>.
And really quite mature, which is currently not in Chile for example virus without connect and that program is deploying in Mexico and Canada.
One of those areas, where not only is it.
Benefiting all of the markets pretty much around the world. It's also ultimately being built offshore capability.
Thank you.
Next question is from the line of Paul Lajoie with Citigroup. Please proceed with your question.
Hey, Thanks, guys could you talk about cost inflation on the grocery side of the business versus general merchandise. What are you seeing on each and how do you think that compares to what competitors might be seeing and what you expect them to do in terms of passing it through to the consumer and how does that influence your decision.
Susan.
Pricing thanks.
Yeah.
Good morning, Paul This is John.
First.
As we said earlier our unit growth in grocery is growing faster than dollars and thats a position we'd like to stay in.
As long as we possibly can we want to keep prices low for customers all across the business and will be the last to go up so we're happy with our price positioning we see gaps that are wider now than they were before the pandemic began and we intend to maintain that position as far as the mix goes.
It's relatively even across the business. So there are areas with probably the exception of the beef category that really stand out from a grocery and general merchandise.
But we've got solid growth in general merchandise as well, leading the business is apparel, our health and wellness business has been strong so the supercenter in the overall business has an ability to mix that's quite helpful and in the last quarter part of the margin compression.
Compression, we were down about 12 basis points.
It was benefited by mix it was benefited by higher sell through and then was also benefited by lower markdowns as a result of the sell throughs and then we had supply chain costs that came through so the team at Walmart have a broad portfolio of categories and a broad portfolio of levers that they can use to keep prices low for our customers.
Thank you.
Our next question is from the line of Joe Feldman from Telsey Advisory Group. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Wanted to go back to something you guys mentioned earlier in the call I think Doug when you are in your prepared remarks, you mentioned.
<unk> seen that.
<unk>, causing shifts in shopping behavior, which we all talked about a lot and then a little later I think you guys talked about seeing some.
Those behavior shifting.
From what we saw during the pandemic and I was hoping you could share some thoughts on.
Basically what youre seeing.
And what you express just stay with us for the long term in terms of some of these behavior changes in terms of shopping.
I think pickup and delivery around the world will grow and the step change that occurred.
We'll stay and then grow from there probably at a lower rate that's what we're seeing here, but the store traffics. The biggest issue when the pandemic enabled at people came back to stores and I think they like stores they want to have that experience they enjoy.
Staying merchandise being around each other and Thats why omnichannel makes so much sense. So grateful for that there are other things like telehealth that will persist forever.
The that goods versus services tradeoff that happened during the Lockdowns and the heavier pandemic period.
We're definitely a big deal, we'll see how that plays out over time people eating at home I think they've enjoyed that.
And theyre going to do more of that and that gets to give us an opportunity across all of our formats around the world is there anything any of you would add to that.
I think we covered it.
Yes.
Thank you at this time.
We have reached the end of the question and answer session I will now turn the call over to Doug Mcmillon for closing remarks.
I'll just wrap up by saying, we appreciate your attention on Walmart and hopefully what you can see is that the business is changing week, we can sell customers and members things and a variety of ways. We can make money doing it the business models changing the digital transformations underway. This is a different company.
Any than it was and we've got a lot of runway in front of US. We're looking now at our input metrics were not just.
Enjoying the benefits of some of these tailwind.
Or where suddenly a company thats arrived we're paying attention to net promoter scores. We're working on the things underneath that will enable us to continue to grow regardless of what the environment's like there'll be a point in time some point in the future, where you guys will be asking us about deflation and you'll be asking us about.
How we're going to grow share and we're focused on growing share today and in that environment.
We run the company for the long term manage it for the short term and really proud of what the team is doing to make that happen and grateful to our associates.
Have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yes.
Okay.
Okay.
Okay.
Yeah.
Yes.
Yes.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.