Q4 2023 Walmart Inc Earnings Call
Speaker 1: The.
Speaker 1: I that.
Speaker 2: at this time, more participants are in listen only mode.
Speaker 2: A question and answer session will follow the formal presentation.
Speaker 2: If anyone should acquire our British Assistant during the conference, please press star zero from your telephone keypad.
Speaker 2: Please note that this conference is being recorded.
Speaker 2: At this time, I'll turn the conference over to Steph Wissing, Senior Vice President of Vest Relations. Steph, you may now begin.
Speaker 3: Thank you and welcome to our Q4 fiscal 23 earnings conference call. Joining me today from Walmart's Home Office in Bentonville are CEO Doug McMillan and CFO John David Rainey.
Speaker 3: We'll follow a similar format to prior calls where Doug and John David will share their thoughts on the quarter, year, and year ahead. Following, we'll open the call to your questions. For the Q&A portion, we've asked our segment CEOs to join, including John Furner from Walmart U.S.
Speaker 3: Judith McKenna from Walmart International and Cas McLey from Sands Club. Today's call is being recorded and management may make forward-looking statements.
Speaker 3: These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
Speaker 3: These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC.
Speaker 3: Please review our press release and accompanying fly presentation for a cautionary statement regarding forward-looking statements, as well as our entire safe harbor statement and non-gap reconfiliations on our website at stock. Walmart.com. We are now ready to begin. Doug, over to you.
Speaker 3: Good morning, everyone, and thanks for joining us. We're excited about our momentum, the team delivered a strong finish to the year, and as our results in the last two quarters show, we acted quickly and aggressively to address the inventory and cost challenges we faced last year.
Speaker 4: We built momentum in the third quarter, and that continues. We're well positioned to start this fiscal year. For fiscal 23, we added $38 billion in sales globally, and we crossed $600 billion in revenue for the first time in our company's history. Globally, e-commerce now represents more than $80 billion in sales, and over 13% of our total sales.
Speaker 4: Walmart, U.S. grew sales by more than $27 billion. International had another strong year with sales and profit growth of about 9%, excluding the bestitures, restructuring, and currency. And SANS Club, U.S. grew sales by more than $10 billion as we delivered double-digit comp growth for the third consecutive year.
Speaker 4: with membership count at a record high and strong growth in membership income. All three segments have momentum. We're grateful to John , Judith, and their teams for how they're leading these businesses and showing results.
Speaker 4: The holidays were strong for us. From Thanksgiving to Christmas to Diwali to single stay, our teams were ready. We had aggressive plans and we delivered. Around the world, the teams leaned into our food and consumables strength, taking share in places like the US and Canada and delivered a good experience for customers and members in general merchandise. They drove sales and landed the seasons in a very good inventory position when it was on.
Speaker 4: a lot of volume to make this happen.
Speaker 4: As we navigated the short term, we also advanced our strategic priorities.
Speaker 4: Big picture, our strategy is simple. It's to bring our purpose to life for those we have the privilege to serve.
Speaker 4: We're a people-led tech-powered Omni-channel retailer that's dedicated to helping people save money and live a better life. That's who we are. Why do we exist? It's to help people save money and live better. How do we do it? By being people-led with clear values, a unique culture, and tech-powered.
Speaker 4: We're a people business focused on customers, members, and associates.
Speaker 4: We're constantly adjusting to put the right combination of wages, benefits, and education in place so that our people can build lifelong careers and achieve their full potential. You can start your career assembling bicycles and end up leading all of our US stores. You can start as a cashier and become a truck driver.
Speaker 4: You can start unloading trucks in a DC and grow to oversee an automated system moving freight through that DC. We provide opportunity, even as we continue to innovate through technology and prepare our business and workforce for the future.
Speaker 4: One of the things I have always appreciated about this company is that it's naturally hedged. If customers want more of something and less of something else, we shift our inventory. If the economy is strong, our customers have more money, and that's great.
Speaker 4: If things are tougher, they come to us for value. With today's inflation, we're continuing to see that happen. We're gaining share across-income cohorts, including at the higher end, which made up nearly half of the gains we saw in the U.S. again this quarter. And we're also capturing a greater share of wallet at SAMH's Club in the U.S. with both mid and higher income shoppers.
Speaker 4: Our goal is for the experienced they're having in our stores and clubs combined with our current capabilities for pickup, delivery, and membership. To result in them choosing us even as inflation eventually subsides.
Speaker 4: As we plan this new fiscal year, we've anticipated stubborn inflation in drug grocery and consumables in particular, which will have some mixed impact.
Speaker 4: We'll stay focused on General Merchandise and earn sales in those categories to offset that impact as much as possible.
Speaker 4: When we think about our business today compared to what it was during prior economic downturns, we now have a more compelling offer, a true omnichannel experience that makes us optimistic that more high-ranking families will continue shopping with us across categories because we have pickup delivery and membership.
Speaker 4: And we're improving in categories like apparel and home.
Speaker 4: Our recently remettled US stores have a focus in those areas and the earlier response from customers is promising. We're also improving our e-commerce assortment and presentation in those categories.
Speaker 4: We've always been known for great prices, and because of the work we've done around pickup and delivery from stores, clubs, and expanded absorbent through FCs, we're increasingly known for the convenience we offer. In fact, our US customer feedback showed strength in price and convenience. Our reputation for price remains strong, and our score for convenience has risen to nearly the same level.
Speaker 4: Our Walmart Plus members recognize our strength for convenience even more than the average customer.
Speaker 4: As it relates to our customer or member value proposition, we continue to have a strength with respect to value while we're expanding choice by growing our assortment on Walmart.com and we're improving as it relates to experience. Being an EdScale Omni Channel retailer creates unique opportunities to innovate in the area of experience.
Speaker 4: That includes products like Scanningo at SAMH's Club and a newer in-house conversational AI platform enabling a voice-in-chat capability being used by more than 50 million customers and an average of 1 million associates across the US, Mexico, Canada and Chile.
Speaker 4: We're driving a lot of change in Zotar Company. We know where to tap the brakes on cost and inventory, but our focus is more on the gas pedal, with respect to our strategic improvements related to assortment growth and our customer remember experience. We'll keep shaping the business model by scaling our newer
Speaker 4: Mutually reinforcing businesses in areas like marketplace, fulfillment services, and advertising. It's exciting to see our global advertising business grow to $2.7 billion for the year we just completed. That's nearly 30% growth.
Speaker 4: Over the last three years, while our front line focus was on navigating the pandemic and inflation, we still launched and started scaling new complimentary businesses using the technology and expertise we developed over time.
Speaker 4: You can see this in some of our recent announcements. The partnership we announced with Salesforce to help scale local fulfillment and delivery solutions for customers on their e-commerce platform is a good example. Or our new Walmart Business e-commerce site to another, where we're helping small and medium-sized businesses and nonprofits.
Speaker 4: save money and spend less on purchasing the items they need every day. Our fast-growing businesses in India, Flipkart and Phone Pay, announced a full separation, which will allow both companies to focus on their own growth paths independently and help unlock value for shareholders. Flipkart has continued to strengthen its market leadership position, any commerce, and is entering this year with...
Speaker 4: more than 30 new clubs across the country over the next several years.
Speaker 4: In addition to a multi-year plan to invest in and modernize our supply chain, especially in the US.
Speaker 4: I'll wrap up my comments today by saying thank you to our associates. I'm grateful for how they continue to step up for our customers and members, and I'm impressed by their creativity and resilience.
Speaker 4: We've worked through a lot of the operational stress in our business from last year, and we made progress on strategic initiatives as we did it. And we're doing it in a way that's uniquely Walmart.
Speaker 4: John David, over to you. Thanks, Doug. I'd like to start by thanking our customers, associates, and partners for helping us deliver a strong quarter to wrap up the year.
Speaker 5: We're pleased with how we finished the year. Our team demonstrated our agility and responsiveness to overcome the operational challenges from supply chain disruptions, excess inventory, and the shift in our merchandise mix. For the full year, enterprise sales on a constant currency basis grew more than 7%. And we surpassed $600 billion in annual sales for the first time.
Speaker 5: Adjusted EPS declined 2.6% for the year.
Speaker 5: Our performance in Q4 was better than our expectations due to sales upside and good expense leverage.
Speaker 5: Constant currency sales grew 8% with strength across all segments, including strong performance throughout the holiday season.
Speaker 5: Walmart US comps increased 8.3% including 17% growth in e-commerce with a combination of pricing due in part to inflation and share gains. Sam's Club US delivered its 12th consecutive quarter of double-digit comps.
Speaker 5: with growth of 12.6% excluding fuel on tobacco. And constant currency sales in Walmart International increased 5.5% led by Wal-Mex.
Speaker 5: As I discuss our profitability, it's important to note the reorganization and restructuring charges within the international segment affect year-over-year comparisons. So my comments regarding Q4 results will focus on the business excluding adjusted items.
Speaker 5: Cross margins were down 83 basis points, largely resulting from additional mark downs taken to address carry-over inventory balances, mixed head wins, and underlying inflation in our cost structure.
Speaker 5: With strong sales growth in the quarter, we leveraged S-GNA expenses by 89 basis points.
Speaker 5: Taking all this together, adjusted, operating income grew nearly 7%.
Speaker 5: Adjusted EPS of $1.71 was better than we expected going into the quarter.
Speaker 5: GAP EPS was $2.32. The difference between adjusted and GAP EPS reflects a $1.16 benefit from unrealized gains on equity investments, partially offset by a $0.55 charge related to business reorganization and restructuring in international.
Speaker 5: Inventory at quarter end was relatively flat to last year. This includes a nearly 3% decrease from Walmart US.
Speaker 5: I'm pleased with how our teams responded to the challenge early in the year to aggressively rebalance inventory for the current environment. It sets us up in a really good position going into the year.
Speaker 5: Let me briefly reference key highlights for Q4 by segment. For Walmart US, CompSells were strong throughout the quarter. In December was the largest sales month in Walmart US history. This was led by strength in food sales which increased high teams.
Speaker 5: partially offset by a mid single digit decline in general merchandise sales with softness and toys electronics home and apparel.
Speaker 5: The effects of product mix shifts have negatively impacted our margins. Over the last year, growth rate and health and wellness cells, which have a lower margin than general merchandise, have increased by 330 basis points as a portion of our mix.
Speaker 5: We continue to see strong share gains in grocery, with nearly half coming from higher income households, and private brand penetration increased over 160 basis points as customers prioritize value.
Speaker 5: Inflation remained high, up mid teams and food categories, which was similar to Q3 levels.
Speaker 5: E-commerce sales were led by continued strong growth in store fulfilled pickup and delivery in Q4. Over the last two years, store fulfilled delivery sales had nearly tripled and we're now doing over a billion dollars a month, which gives you an indication of why we're so excited about the progress here.
Speaker 5: Advertising cells were also strong this quarter, up 41%.
Speaker 5: Higher sales and lower COVID costs contributed to SG&A expense leverage, which offset gross profit pressure, resulting in operating income growth of 3.8%.
Speaker 5: In international, strong sales trends continued with growth of 5.5% on a constant currency basis, led by double-digit growth in Wal-Mex and China. Currency negatively affected reported sales results by about $900 million, or an approximate 340 basis point headwind to growth.
Speaker 5: Q4 cells benefited from successful festive events across our markets.
Speaker 5: Year-over-year comparisons were negatively impacted by the timing shift of Flipkart's big billion days event to Q3 this year versus Q4 last year. Looking at the second half of the year in total, international sales grew more than 9% in constant currency.
Speaker 5: E-commerce cells were strong with penetration at 21% with China leading the way at 48% penetration for the quarter.
Speaker 5: Wal-Mex had another great quarter with sales strength in bodega stores, SAMs clubs, and 14% growth in e-commerce. Segment-adjusted operating income grew faster than sales. Up nearly 17% in constant currency helped by effective cost management across markets.
Speaker 5: In India, Flipkart continued its strong momentum through Duwali and other seasonal events.
Speaker 5: We are particularly pleased to see flip cards positive contribution margin expanding.
Speaker 5: PhonePays recent valuation that Doug talked about was supported by annualized T-P-V reaching more than $950 billion, about 50% higher than just one year ago, while also exceeding more than $4 billion monthly transactions.
Speaker 5: Turning to SAMS Club, our strong momentum continued with Comps Up 12.6% in Q4 and up 23.4% on a two-year stack.
Speaker 5: The segment delivered another quarter of record member counts and membership income growth was above 7%.
Speaker 5: In addition to solid increases in both transaction and ticket, SAMH's e-commerce cells were up 21% year over year, with contributions from both curbside and ship to home.
Speaker 5: Operating income was pressured in the quarter by elevated mark downs, lapping higher co-branded credit card income last year, and an inflation-related life-o-charge of $14 million.
Speaker 5: With the strong trends that Sam's over the past several years, we're excited to expand our physical footprint through a multi-year investment in new clubs and supply chain optimization.
Speaker 5: Turning to guidance, as we sit here today, we find ourselves in a similar position to each of the last three years, where there is a great deal of uncertainty looking out over the balance of the year.
Speaker 5: While the supply chain issues have largely abated, prices are still high and there is considerable pressure on the consumer. Attempting to predict with precision these swings and macroeconomic conditions and their effect on consumer behavior is challenging. As such, our guidance reflects a cautious outlook on the macro environment, but at the same time, our excitement about our recent results.
Speaker 5: momentum in all segments and progress on our strategy, both for this year and the years that follow. We will position well and convict it about our plan.
Speaker 5: In FY24, we expect operating income growth to outpace sales growth. Given the persistence of high prices and the potential for further macro pressures, we are taking a cautious outlook for the year. We are guiding enterprise sales growth of 2.5% to 3% in constant currency and operating income growth of approximately 3%.
Speaker 5: This guidance assumes product mix pressures persist, but that our business mix continues to improve.
Speaker 5: Even with an estimated 100 basis point impact from life load charges, we still expect to grow operating income more than sales.
Speaker 5: We also expect Walmart U.S. Comp Sells growth of 2 to 2.5%.
Speaker 5: International sales growth and constant currency of approximately 6% and Thames Club Comp Sales Growth of approximately 5% excluding fuel
Speaker 5: Based on FX rates at the end of our fiscal year, we estimate a potential year-over-year enterprise sales tell-end of about $1.2 billion from currency.
Speaker 5: Our purpose starts by helping people save money and live better, and it's more important than ever in this environment as consumers manage household budgets more tightly, making frequent trade-offs and biocene spending toward everyday essentials. We're reinforcing our value proposition across our merchandise offering.
Speaker 5: including featuring high-quality owned brands and leaning into opening price points. We're accelerating share gains in our food categories in seeing signs of improved attach rates and consumables in high-frequency purchase areas of general merchandise.
Speaker 5: Our multi-year sales and operating income targets are just that, multi-year. In some years, our performance will be higher and in some years lower. We are confident, however, that we're building a business that allows us to grow our top and bottom line throughout an economic cycle.
Speaker 5: Over the past five years, sales have grown approximately 6% on average excluding the vestitures.
Speaker 5: This year will likely be lower, but we look forward to getting back to a sales growth trend more in line with what we've delivered over the last few years.
Speaker 5: Over that same period, operating income has grown at about half the rate of sales growth on an adjusted basis excluding the vestitures.
Speaker 5: This is the result of important investments we made in associate wages, pricing, technology and supply chain, which together strengthened our core business and position as well for the future.
Speaker 5: Importantly, while we navigate some of the short-term challenges, we're continuing to invest for the future. Invest in ways that strengthen our retail advantages by expanding our capabilities in marketplace, ad platform, data ventures, and fulfillment as a service.
Speaker 5: We're providing more convenience for customers, including pickup and delivery, scanning go and Wal-Mart Plus.
Speaker 5: We're working in partnership with our suppliers and sellers to use data, scaled fulfillment capabilities, and are rapidly growing ad platform to elevate inventory accuracy and in stocks, lower the cost of serve, and drive improved conversion.
Speaker 5: All of this improves the trajectory of our ROI and our margin profile.
Speaker 5: We will continue to invest in our associates through increased pay and benefits to reinforce the latter of opportunities at Walmart.
Speaker 5: But we're managing our costs in a way that allows us to achieve our operating income goals with these investments. In other words, we're staying true to our commitment of everyday low cost, enabling everyday low prices.
Speaker 5: We expect FY 24 CapEx to be flat to up slightly in total dollars compared to last year as we continue the multi-year investment in technology and innovation to optimize our supply chain and stores.
Speaker 5: Many of these tech enhancements are reaching a stage where we can rapidly deploy them across our network. And we have clear line of sight toward better efficiencies and ROI on these investments in the medium term.
Speaker 5: I want to call out a few other assumptions for our guidance for the year.
Speaker 5: Gross margin rate is expected to increase this year, though not back to FY22 levels yet.
Speaker 5: We expect gross margin to benefit from the lapping of higher supply chain cost and mark downs from this past year, as well as growth from our newer initiatives, many of which have a higher profit margin.
Speaker 5: Partially offsetting this, we expect product mix and inflation-related life charges to be gross margin headwinds.
Speaker 5: Based on current assumptions for inflation, LIFO charges for both Walmart, US, and SAMS Club could approximate roughly $500 million this year, with the headwind equally proportioned across quarters. This is an improvement from the 1 billion LIFO estimate we provided on the Q3 call due to modern
Speaker 5: at a lower rate versus the prior year, and our commitment to continuing to invest in our people and technology, we expect SGNA to deliver slightly in FY24.
Speaker 5: There are also several below-the-line items that will pressure EPS for FY24. First interest expense is an estimated to be about $750 million higher than last year. This translates to an approximate 20-cent year-over-year EPS headwind with Q1's impact less than the remaining quarters.
Speaker 5: Second, we do not expect a repeat of the benefit we realize from certain discrete tax items last year, and as such, expect our tax rate to be more normalized in FY24 at 25.5 to 26.5%. Resulting in an approximate 10-cent EPS had went.
Speaker 5: And lastly, in our non-controlling interest line, we expect an approximate 12 cent EPS headwind related to acquiring full ownership of mass-mart and alert innovation, as well as the impact to minority interests of strong expected performance at Wal-Mex.
Speaker 5: In total, these below-the-line factors account for approximately 42 cents of year-rear EPS element. connect I am
Speaker 5: The impact from these below-the-line items offsets the gains we're making in our core business, resulting in EPS being slightly down for the year.
Speaker 5: We expect full-year EPS of between $5.90 and $6.05, including a $14.00 headwind from LIFO.
Speaker 5: For the first quarter, we expect to see a higher rate of sales growth of 4.5 to 5% largely due to inflation. We expect operating income to increase 3.5 to 4%, including the negative impact of a life-o charge, approximately 235 basis points.
Speaker 5: EPS is expected to be in a range of $1.25 to $1.30, including an approximate $3.00 headwind from my foe.
Speaker 5: While we're not providing quarterly guidance beyond Q1, I want to offer the following perspective. We currently expect sales growth to be strongest in the first half, then moderating in the second half, reflecting our macro assumptions in a more difficult year-over-year comparisons.
Speaker 5: Because we will lap the benefit we received last year from insurance proceeds in 2Q, we expect operating income to be flat in 2Q relative to last year.
Speaker 5: We expect operating income growth to begin to outpace sales growth to a greater degree in the second half of the year versus the first half.
Speaker 5: In closing, I want to echo Doug's sentiment on our business.
Speaker 5: Over the last year, our team responded to some of the external challenges with the speed and nimbleness rarely seen in a company of our size, and we exited the year in a much, much better place.
Speaker 5: As I reflect on where we are today, I am more excited about our future than at any point in my time here. The opportunity in front of us is incredible. Our customer member value proposition has never been stronger. Perhaps that's more obvious during times like this when the consumer is pressured.
Speaker 5: We have become an Omni Channel retailer. Who else has the stores and clubs so close to so many customers and members combined with first and third party e-commerce and the combination of grocery and general merchandise and in multiple attractive countries. We're in the right markets with a breadth of assortment and ways of shopping like no one else with impactful and emerging digital and technological capabilities.
Speaker 5: diversified higher margin earning streams that are scaling rapidly. You will begin to see the significant benefits from the investments that we're making in things like our supply chain automation and our expanded e-commerce capabilities.
Speaker 5: We're at an inflection point to begin to accelerate margin expansion, reinforcing that the algorithm is in place.
Speaker 5: The macro pressures this year may obscure some of that progress, but won't take away from the long-term promise of many of these initiatives. We look forward to sharing more at our investor day in April . Thank you. Let me turn it over to the operator for questions.
Speaker 2: Thank you. At this time we'll now be conducting a question and answer session. If you'd like to ask a question today please press star one from your telephone keypad. And the confirmation tone indicate your line is in the question queue. Let me first start too if you'd like to move your question from the queue. This one's using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. So that we've made the rest of the question.
Speaker 6: thoughts about how that may manifest. And then John David on the technology call out, advertising Walmart plus artificial intelligence. What are your thoughts on things we should focus on in terms of those scaling? And finally, Judith, you had impressive momentum. Double digit growth at Wal-Mex in China. On the China reopening, would love any comments. And on the-
Speaker 4: and you can work in the answers to the questions he asked and if you want to. We were talking just before the call over about which adjective to use, and we were coming up with words like choiceful, discerning, thoughtful. I think you can see it in the mixed impact. Customers are still spending money when you think about our guidance and the place we positioned it.
Speaker 4: It's obviously not as clear to us what the back half of the year looks like is what we're experiencing right now in the momentum that we had coming out of the fourth quarter. But that's why we would characterize them. They're making choices. We expect that to continue through the year. You want to add something for Sam? Yeah, I just say if we went kind of to recall, we were watching with interest to see how they behaved in home and apparel, GM discretioners. Thank you.
Speaker 4: everything they did last year, there are so many things that they went through collectively and they just did a great job building momentum as the year went on. On the consumer, I think choice was a great word to describe it. There certainly was momentum coming out of the fourth quarter, but Walmart's built a lot of options for customers and will be more flexible.
Speaker 7: It actually was a strong quarter which ended a strong year for us with that top line and bottom line growth of around about 9% that strength came out of a number of our markets and you touched on Mexico and China but India as well had had a good year Maybe just talking about the consumer what never ceases to amaze me as you think about being a global business
Speaker 7: brands in terms of the way consumers were shopping as well. And that's pretty much held true in every market in which we operate. Maybe turning to Mexico, so I'll pick up a third part of your question within its first piece. Another strong quarter for Mexico, this actually tops off the ninth year in a row.
Speaker 7: The Consumer Health Fair, again choiceful, thoughtful, are really good words to describe it, but that breadth of forward allows us to play right across that spectrum. And in the quarter, Mexico continues to invest in price. They saw their largest ever price gap in the daggers, which is the key format. But that strength really comes from a three.
Speaker 7: point advantage that they have. The first is they continue to open new stores, which customers still want to be able to shop in physical stores. We opened 126 stores last year. We continue to expand our e-commerce footprint in Omni Channel. On demand, so grocery online and pick up is going from strength to strength. And then...
Speaker 7: China, turning to China, clearly the big news in China was the opening of China as I look though into last year. We saw continued front in hypermarkets, which is the higher end offering that we have within China's slightly different positioning to Samsung's clubs in the US and in.
Speaker 7: So, to us globally is what's happening in e-commerce in China. So, you'll have seen in the results that we talked about 70% growth in Q4, which was 163% two years back, for China on e-commerce growth in a penetration now reaching 48%. That is undoubtedly helped by the build-up into China.
Speaker 7: position speak to that. So I draw strong for international consumer behaviour similar around the world. It holds up as well in India which also had some strength in that and nowhere more so for the digital economy than our flip-cam phone pay business.
Speaker 5: Oliver, this John David, I'll take the question on the initiatives. And one of the exciting things about this is actually how they all work together. And importantly, not just working together, but how the investments that we're making in our supply chain help to make this a profitable operation for us. It's tough to single out one particular area, but if I had to, I'd say March.
Speaker 5: of our fulfillment services as well, which is a great benefit for us. But as we get more assortment on the marketplace, we get more eyeballs coming to our website. That allows more advertisers or makes more advertisers want to spend money there to with the larger audience. And this all sort of works together.
Speaker 5: And if you look at our e-commerce business today, it's an $80 billion business. And still growing. And we have a lot of opportunity there going forward. And so we've always been known for price, but as Doug noted in his remarks, we're also now being known for convenience. And a lot of the things that we're doing are helping our customers live better with the convenience that we're offering.
Speaker 6: Thanks, Doug John and John and Judith appreciate it. Best regards.
Speaker 6: John and Judith appreciate it best regards.
Speaker 2: The next question is from the line of Simeon Gutman with Morgan Stanley . Please just hear a second question. Good morning everyone. One theme of a question is the flywheel and the balance between investments and bottom line growth. The near term question of the theme is the 24-hour look looks like it's burdened by some
Speaker 6: maybe fleeting items, life, home, in particular, some of the bottom line. So what's the right way to think about it? Are these good guys into 25 or their house money that you invest? And then the conceptual question on this flywheel is what do you do with the high margin earning streams? John David mentioned.
Speaker 8: have you have you set out whether or not that goes back in the business and you roll your ebid dollars faster or you do let your margins expand at a faster rate thank you
Speaker 4: I mean, this is Doug, I'll pick it off and John David can add. I think generally it's the latter. We feel like that our price gaps are in a good spot, that we've made that's awful wage investments that we need to make. That doesn't mean that wages may not continue to grow up over time, but generally the shape of the income statement is in pretty good shape. And then we've got these other items that are...
Speaker 4: to see some of those numbers grow as in with advertising income. I think in the investment category, the thing that we're most excited about is the automation opportunity we have, and that's reflected in our capital guidance. We've shared with some of you how excited we are about some of the things that are in front of us in distribution centers that will impact stores in a positive way, but that's more of a cap,
Speaker 5: that's really before we expect a sharper acceleration in the years to follow. And we'll give you more insight into that at our investor day, but we're very mindful that we need to show a return for these investments. But the good news is the early reads on some of the things that we're doing are really exciting and support that continued levels of investment.
Speaker 5: e-commerce DCs where we see a 12-step process going down to five steps, making us a lot more efficient. And so these are high ROI investments where we've got clear line of sight into the return. So to your point, this allows us to not only invest appropriately with our associates and then continue technology, but also to see margin expansion over time.
Speaker 4: Thank you. Just quickly, our sales have been stronger these last few years. I mean, the 6% K year over the last five is a much higher number than you would have experienced with the company previously. But then we had these unusual things happen with COVID costs and last year inflation and supply chain costs.
Speaker 4: And we're hoping for something that looks a little more normal to go in forward that wouldn't enable us to push through the strategy in a way that you see it in operating income growth.
Speaker 2: Thanks. Our next question is from the line of Chris Orvers or JP Morgan. Please review your questions.
Speaker 6: Thanks everybody and good morning. So can you talk about how you're thinking about the Walmart US Comp Guide of 2-2.5 inflation has barely took down in recent periods and still up to the digits. Are you expecting Grocery Unit trends that deteriorate? Is Gen Mark still down this year and ultimately do you expect the US business to go negative again? For a very criticalya theater??????.
Speaker 6: existing markets or expand in sort of less dense markets and new geographies on the coast. Thank you.
Speaker 5: Good morning, Chris. This is John David. I'll start and then turn it over to Captain John for a little more color on their segments. But with respect to our guidance, so guidance is
Speaker 5: You know, it's tricky and so far as you want to provide transparency, but you also need to balance that with reliability. As we sit here today, we look at the progress that we're making in our business, and we've got a lot of conviction and excitement around that, but there's a lot of uncertainty with the macro backdrop. We've not been in a position where we've seen the Fed tighten this shortly. We see...
Speaker 4: that there remains to be a lot of unknowns as we're sitting here just a few weeks into the year. Yeah, and Chris, this is John , I'll just build on that. You know, certainly please to see some of them momentum and food and other categories, including unit growth in the last quarter. There was both traffic and basket expansion, which are both positive indicators. I think John ,
Speaker 4: You heard a bit about automation. So there's a lot of investment that we feel great about the return possibilities given the experience we've had with some of these technologies. And as you bundle all this together, we're positioning ourselves well, I think, to be able to grow and continue to grow like we have the last last few years. And since we merged our E-commerce and store business together, just about.
Speaker 7: I think we've talked quite a bit about the 12 quarters of double-digit comp growth. But if you look underneath that, it's strengths and growth across traffic every single one of those quarters across ticket. Our membership income has grown solidly across those 12 quarters. It was grown in E-Carm. We're growing with Scan and Go.
Speaker 9: share in our club channel, despite not opening clubs while I competed as were opening clubs. So if you look at that suite of kind of metrics, you look at it and you realise that the value proposition we have at SAMHSA's winning and it's resonating with our member base and it's resonating with new members. And so we are looking at growing both in fill-in opportunities as well as into
Speaker 10: Have a great year.
Speaker 2: The next question is from the line of Michael Lasser with UBS. Please just use your question. Good morning. Thanks for laughing at my question. On this call, there's been a few different references to an algorithm to 6 percent top line growth compounded over the last few years to growing operating income faster.
Speaker 5: than sales. Previously, we were under the expectation that Walmart was managing its business over the long term to a 4% top line growth and greater than 4% operating income growth. It's going to fall short of that this year. Is it still a realistic expectation that Walmart is managing?
Speaker 5: The enterprise that's 4% top-line 4.5% better than 4.5% operating income growth number. And is this reasonable for that to kick in as early as next year?
Speaker 5: Michael, good morning. This is John David. Good to speak with you. Yes, is the short answer. It's absolutely realistic to assume that. But when we put out multi-year targets, they're not designed or not intended to suggest that we can hit that in any macroeconomic environment in any year. And so we're certainly, our guidance this year reflects.
Speaker 5: some of the pressures that we see broadly in economies around the world. But we'll be able to get more insight into both our top line and bottom line in terms of what we anticipate over the next several years at our investor day in April . But we absolutely 100% believe that we've got a business that can't...
Speaker 5: investing in our associates and some of our technology that really put us with a give us a footing to realize some of these results of margin expansion and outsized growth in our bottom line over the next several years. All over this is Doug. I'll just second what John David said and then call out this last five years performance again and say six and three six percent.
Speaker 4: We are positioned to do well relative to the market, regardless of what happens in the environment. And as we're doing it, as you've heard us say for a long time now, we're changing the business model so that operating income can grow while still having low prices. Do both at the same time. That's what we've set ourselves up to do and we're making progress.
Speaker 5: at that and you can see it in the results in the pieces that we've shared with you already. If I can just say one more thing, Michael, what we're fundamentally focused on is growing the absolute dollars of free cash flow each year. It's when we look at the composition of our business and how it's changing and the returns related to some of these initiatives areas, it's just such that the financial architect
Speaker 5: in the US business this year, should you or incremental margin on that upside be consistent or better than it's been historically given? You'll be laughing. COVID costs, a lot of inventory disposition and other factors that shouldn't repeat this year.
Speaker 5: Yeah, it's a good call out. I appreciate the opportunity to address that. You're right if you look particularly for the US business. The incremental margins will be higher this year than what you typically see. And in large part for the reason that you mentioned, we're laughing, even in the last quarter, we've left $500 million of COVID costs alone in that quarter.
Speaker 11: We were just wondering with regards to the promotional environment within Grocery, are you still finding the promotional environment rational? Are there any areas that maybe aren't as solid as others? And I think you've alluded to this on the call today, but your view on the need for price investments in food going forward and the possibility of that being incorporated in your guidance for this year.
Speaker 4: Okay, it's John . Good morning, thanks for the question. First, just anchor what we're doing in the purpose of the company, and to help people save money and live better. So we're constantly thinking about making sure that our values are appropriate, given what's going on in the relative marketplace, and is dug alluded to earlier. We're...
Speaker 4: We're encouraged by the price positioning relative to the market and we'll continue to work on that. Externally, I wouldn't call it any major shifts in what we're seeing in terms of promotion. There has definitely been a shift and we see this internally as well and acceleration in the fourth quarter to more private brand versus brand of product. That shift really began last March and continued all year and the fourth quarter got a bit stronger.
Speaker 12: So, the answer is, I'm sure that you could talk about what the net impact of the football front-end was on the tall days results this past year, and whether expectations would get them to buy them for the upcoming year, and I'm also just curious what the plans are.
Speaker 12: and their own a shift of those things. So remember, just click on some of the time that you share these though. Or it can come to you, but it's both in your guidance for those upcoming years. Thanks. We had a difficult time hearing you. The question was about flip card and phone pay. And is it reflected in our guidance for the year forward?
Speaker 12: That's all we got. Can you clarify a little bit more for us? Sure. It was really a bad call. Flip-part foam pay contributed to results this past. That's all we got. That's all we got. We'll start the ownership of that. That's where I will have there.
Speaker 5: answer this and if we don't completely address your question then we can follow up after the call. But the one time costs related to the separation will call down separately from our results related to restructuring. But in terms of the core business and the way that that affects our results, a lot of our GMV growth, a lot of our revenue growth.
Speaker 5: investment that we've made historically, any commerce or any digital platform, you need an infrastructure that you can scale at a low marginal cost. And that's what Flipkart has done. They've invested in that infrastructure over the last three years to where now we're able to see that contribution profit continue to expand. And so we're excited about that. I think there is a part of your question that was.
Speaker 5: and they don't necessarily need to be tied together. And so this is an opportunity for them to unlock and realize more value independently than they can by themselves. June , anything you'd ask before I go on? Maybe just a comment on the separation as the key businesses. So you have to remember, when we first invested into Flipkart, phone pay had only just launched. It was four months.
Speaker 7: successful and we're setting them up on a path for long-term success. If I look at Flipkart now and John David, reference it and so did Doug, I'm really impressed that the contribution margins which are positive and do consistently positive for some time and that sets them up structurally, well, not only from a cost perspective in terms of
Speaker 7: And we acquired them, that reached $950 billion in last year, at the end of last year, that was their run rate. And they're now doing 4 billion transactions a month. So that separation allowed us to put both of them on the path to being the very best businesses. They can be in the long term and the fundamentals of India remain strong and in fact, strengthening.
Speaker 7: all the time. So it was a challenge from some of the adjustments that we needed to make in order to do that, but really testament to the strengths of both businesses and the economy in which we operate. I believe the last part of your question related to shared count assumptions for this year, let me take the opportunity to talk about.
Speaker 5: capital allocation broadly and answer in that question. We've been historically very balanced with respect to our capital allocation both investing organically, what we've done and mergers and acquisitions as well as dividend issue or buy back. And we will remain balanced going forward. But as we sit here today, I think the skills tilt a little bit more towards organic and best.
Speaker 5: older value. And so relative to last year, you'll probably see us do less on share by back. And therefore, people have less accretion in terms of the earnings impact. But last year, we saw dislocation in our stock, and we were opportunistic and more aggressive at that period of time, and will always be responsive to factors like that in the market. But our planning assumption.
Speaker 3: is to buy back less stock than we did last year. The next question is in the line of Karen Short. For Credit Suisse, please just do a quick question. Hi, thanks for taking my question. Just two. First of all, I wanted to talk about the Walmart US EBIT Margin structure, specifically within your guidance. Obviously, 22 are your...
Speaker 3: I would just ask is that you are obviously cautious for the reasons that you called out. But prior evidence is that you actually tend to do very well in week macro-environment slash recessions. So I'm just curious on the line that there's such a much more cautious tone. Thanks very much.
Speaker 5: I'll start, Karen, as good to speak with you. John may want to jump in, but I'll start with the first part of your question. So the EBIT structure related to the US business, there's a couple factors there. One is if you look over the last 12 months, we had a mixed shift in our business.
Speaker 5: like our initiatives advertising while Mark fulfillment services those are contributing to a larger share of overall business which has less of an impact as we look at this fiscal year there'll be more pronounced as we get into the next year and the year thereafter that where you see the the margin structure change a little bit more and certainly life owe is something that we expect to have some impact this year but not prolong effect in the year
Speaker 5: But again, I would just point you to the fact that there's just a lot that we don't know. We could tilt into a recession. We don't know what happens to consumer spending. We don't know what happens to layoffs, household income. And so given that, we're so early into the year and there's a lot of unknowns right now, we're simply taking a cautious outlook.
Speaker 2: Great, thanks very much. The next question is from the line of Robbie Ohms with Bank of America. Thank you, good morning. Thanks for taking my question. My question was just if we could get maybe a little more color maybe from Doug on Walmart
Speaker 13: and sort of how it's doing versus you're more on how it's doing versus expectations. And what they're responding to for the new sign-up, some more like that. And how do you see profitability of first-party e-commerce business evolving? Is that key to getting back to that?
Speaker 13: you know long-term algorithm of growing operating income faster than sales. Robbie, I'll go first. This is Doug John's going to jump in here too. I'll just say that the way that the business model is evolving that includes one P plus 3 P plus the services that go along with that including advertising income.
Speaker 13: to us make a ton of fence, they're mutually reinforcing, we're excited about the progress that we're making there, and Walmart Plus is one ingredient of that. And we'll continue to describe Walmart Plus to you, but not do that in such a way that the market gets overly focused on that metric. Because we want to be evaluated on several metrics, not just one metric, and we've seen...
Speaker 4: We like what's happening behaviorally with Walmart Plus, but it is just one component of a plan. Yeah, I think that's a great way to describe it. It's an important part of what we're building. And it's a way that customers can access an interesting combination of all of our assets from our digital front-end, which has become one experience over the last couple of years. The fact that we have inventory within.
Speaker 4: 10 miles and 90 percent of the population is another way that this call comes together. And the business model itself, we've said this before and I'll just repeat it. It's becoming more difficult to measure the differences and e-commerce and stores because stores are acting as fulfillment centers at times. Their stores primarily. And then there are fulfillment centers. So there are a lot of...
Speaker 4: which is great. Some cases, a higher income customer. So as we've said, in the real estate and quarters, we've gained share with higher income customers, Walmart plus, with delivery, and then these other businesses like advertising, full of services, marketplace, all add up to a better proposition for both the customer and the company.
Speaker 12: Great. Thank you. Our next question is from one of the fruit pesh parique with Oppenheimer. This is you with your question. Good morning. Thanks for taking my question. I hope you can ask more on food inflation as your team looks forward. What's your expectation for food inflation? And then I'm also curious on what you're seeing right now on the inflation front for nonfoods.
Speaker 4: And generally speaking,
Speaker 4: The food inflation has been the most stubborn of all the categories. We were in mid-devil digits in Q3 and Q4. Hasn't come down all that much. A little bit, I guess we could say, has come down the last couple of months, but it still would be a high level of disinflation at this point. So, this looks to be a little bit higher than what we were expecting going into the year, but this all leads back to the comments.
Speaker 4: prices as low as possible for our customers.
Speaker 13: The way to think about it is drag grocery consumables are stubborn, mid-double digit, and those are going to just be with us for a while. And it will get a little confusing because you'll probably hear inflation numbers that start to sound lower, but you'll have to remember that's on a two-year stack. So if inflation and drag grocery consumables is only three or five, that's on top of 15, and that's still a problem for the customers to oppress your their wallet. In the fresh categories, things are a little bit...
Speaker 13: and have the impact as it relates to us on mix over the course of the year. And that's one of the variables that's a little hard to call. What will GM look like in the back half of the year?
Speaker 13: and have the impact as it relates to us on mix over the course of the year. And that's one of the variables that's a little hard to call. What will GM look like in the back half of the year? Great, thank you for all the color. Thank you for all the color.
Speaker 11: Our next question is from the line of Kelly Bain with BMO Capital Marches. This is your third question. Hi, good morning. Thanks for taking our question. Just wanted to understand a little bit more some of the factors that were cycling from fiscal 23, including the pressures from Mark Downs, Nick and supply chain. I'm wondering if you can just help us.
Speaker 11: down their plan to be much lower, but maybe you can help us there. And then are you baking in some cushion for a more promotional environment or just help us understand really what is baked into some of those major margin buckets as we look to next year? Before these guys come in, I just want to quickly call out that we're profitable in food. And I don't want this...
Speaker 4: Great point, Doug, and on the 300 basis point, that comment was related to last year, the difference in mix between food and GM and the year that we just experienced. So we do think we'll have some mixed impact going into this year, which we stated, but we didn't say it was 300 for the year we're going into. Certainly, food inflation and GM sales can change that number, and that's why we, as we said, taken a cost, cut the salt look. You're being staying with them.
Speaker 4: like we said in earlier, we had a strong Valentine's, a strong New Year, pleased with the holidays that we just went through in the fourth quarter, but we want to remain open and flexible for the customer given any environment that we find ourselves in.
Speaker 5: Yeah, Kelly out this John David, I'll just a little bit more color and maybe looking at the fourth quarter is a good way to frame this. Our gross profit declined a little over a hundred basis points, and things 112 basis points in the fourth quarter. That was predominantly if you had to you'll bug at that. The largest contributor to that was marked down followed by mix.
Speaker 5: And so as we look at where we are today with much better, in a much better position around inventory and John jump in if you disagree here, but I feel like this year will be more of a normal environment for mark downs or more certainly more normal than what it was last year. And to John's point, the mixed impact is appreciably less than what the 300 basis points will look like.
Speaker 4: over time, we expect some of those to be better. However, down 3% of inventory, we're proud of that position, but there's still pockets of inventory in stores and some fulfillment centers and some categories like peril, where there's still more work to be done. So we want to make sure that we have room to address those things as we get into this first half of the year.
Speaker 4: We expect some of those to be better. However, down 3% inventory, we're proud of that position, but there's still pockets of inventory in stores and some fulfillment centers and some categories like peril, where there's still more work to be done. So we want to make sure that we have room to address those things as we get into this first half of the year. Thank you.
Speaker 12: Our final question is from the line of Greg Mellick with Evercore ISI. Please receive their question. Thanks. Really had a follow-up on the U.S. traffic trends and then on Sam's Club. For the U.S., it sounds like in that guy the dissaleration of the second half comp is all from left-and-play team and the U.S. will expect traffic to be up through the year to climb to the second half. Second on Sam's Club.
Speaker 4: I would expect that to be growth and traffic. That's what we've been seeing of the last several quarters led by food and consumables. The growth of pickup and delivery and then e-commerce to home is also helping. So stronger results than e-commerce at its core and also stronger from the delivery business. John David mentioned in his remarks that we had a billion dollar month in December , which is really...
Speaker 9: Last year we had a couple of big acquisitions around Super Bowl and that around July 4th. And I think the marketing of those as well as offering with curbside and scan and go and convenience meant that we're attracting a lot younger member base that we've, that what we've previously had. So I think we're really happy with...
Speaker 9: much what we're seeing is it's kind of neutralised any impact we could have, you know, expected to see to our renewal rate. But it's also a man that those members, because they get Sam's cash available to them on the app, are becoming more digitally engaged with us. So this whole kind of approach around driving convenience and digital engagement is working and we're seeing growth through the absolute membership numbers as well as staying strong and renewals.
Speaker 12: If I could, I'd love to follow up on the e-commerce part of the U.S. You talked about margin drivers with advertising and gave us some numbers there. Can you tell us what 3P is now as a percentage of that e-commerce business or shipments or any insight there?
Speaker 4: That's something we haven't disclosed. What we did say earlier, which is important, is the absolute number of items. It's now over 400 million. We have a really strong leader in the business who's building capabilities. And we know that they're seller demand.
Speaker 4: sellers all across the market are looking for more ways to diversify their own business. So this is a great time for us to make the improvements we're making with things like sign up and the ability to list catalogs more easily. And that's led to the item is Q Count growth.
Speaker 4: all across the market are looking for more ways to diversify their own business. So this is a great time for us to make the improvements we're making with things like sign up and the ability to list catalogs more easily. And that's led to the item is Q Count growth. That's great. Good luck and thanks.
Speaker 13: Thank you. At this time we've reached the end of the question and answer session. I'll turn the call to Douglas Nolan for closing remarks. Thank you all for your interest in the company. I think that three headlines are strong results, great team, bright future. On the results side, we have momentum. The fourth quarter was really good. We got the inventory into a good place. We're on our front.
Speaker 13: to be served. Stronger on convenience as well as being known for value. If they want to pick up, we can do that. If they want delivery, we can do that in various forms. And obviously we've got great stores and clubs. And then secondarily, the business model is changing. Some of the things we've been working on for these last few years are starting to scale and we're excited about that. So as we begin the year, we're going to say focused on those things and drive them and have the best possible year. And.