Q3 2024 Walmart Inc Earnings Call
[music].
Greetings.
Welcome to Walmart's fiscal year, 2024 third quarter earnings call.
At this time, all participants are in listen only mode.
A question answer session will follow the formal presentation.
If anyone today 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 turn the conference over to Steph Wissink Senior Vice President of Investor Relations stuff you may begin.
Thank you and happy holidays, everyone.
<unk> me today at our home office in Bentonville, or Walmart CEO, Doug Mcmillon, and CFO, John David Rainey.
Doug will begin with his reflections on the quarter and year, John David will follow with his view of enterprise results and segment highlights using our financial framework of growth margins and returns before speaking to our updated guidance for the year.
For a specific segment level results. Please see our earnings release and accompanying presentation on our website.
Following prepared remarks, we'll take your questions at that time, we will be joined by our segment Ceos, John Furner from Walmart U S.
Caf Maclay from Walmart International and Chris Nicholas from Sam's Club.
Greetings.
Welcome to Walmart's fiscal year, 2024 third quarter earnings call.
In order to address as many questions as we can please limit yourself to one question.
At this time, all participants are in listen only mode.
Today's call is being recorded and management may make forward looking statements.
A question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
Please note this conference is being recorded.
These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC.
At this time I'll turn the conference over to Steph Wissink Senior Vice President of Investor Relations stuff you may begin.
Please review our press release and accompanying slide presentation for a cautionary statement regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our website at stock Dot Walmart Dot com.
Steph Wissink: Thank you and happy holidays, everyone joining.
Steph Wissink: Joining me today at our home office in Bentonville, or Walmart CEO, Doug Mcmillon, and CFO, John David Rainey.
Doug Mcmillon: Doug will begin with his reflections on the quarter and year, John David will follow with his view of enterprise results and segment highlights using our financial framework of growth margins and returns before speaking to our updated guidance for the year.
Thank you for your interest in Walmart Doug over to you.
Good morning, everyone and thanks for joining us to talk about our third quarter results and how we're seeing the rest of the year.
Our value proposition continues to resonate with customers, helping us gain share and drive e-commerce growth.
John David: For a specific segment level results. Please see our earnings release and accompanying presentation on our website.
We're on track to grow adjusted operating income at a faster rate than sales for the year consistent with what we discussed at our Investor meeting earlier this year.
John David: Following prepared remarks, we'll take your questions at that time, we will be joined by our segment Ceos, John Furner from Walmart U S. Kathryn.
We had strong revenue growth for the quarter across each of our segments com.
Kath Maclay from Walmart International and Chris Nicholas from Sam's Club.
Comp sales for Walmart U S were four 9% and three 8% for Sam's Club U S.
Speaker Change: In order to address as many questions as we can please limit yourself to one question.
Sales for Walmart International were up five 4% in constant currency led by wall mix in China.
Speaker Change: Today's call is being recorded and management may make forward looking statements.
Sams club continues to perform well, both in Mexico, and China, and while strength was broad based for walnuts.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
Our bodega out of our business is worth calling out as it continues to deliver outstanding growth.
Speaker Change: These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC.
E Commerce sales were up 24% in Walmart U S, 16% in Sam's club U S and 15% globally.
Speaker Change: Please review our press release and accompanying slide presentation for a cautionary statement regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our website at stock Dot Walmart Dot com.
Timing of our flip cart Big billion days event, which moved from Q3 last year to Q4. This year affected comparisons in our international segment, leading to a decline of 3%.
So we will see the benefit from the timing shift as we report next quarter.
Speaker Change: Thank you for your interest in Walmart Doug over to you.
Across markets the team did a nice job driving our seasonal events our in stock and inventory levels are in good shape. We finished down one 2% in inventory for the total company, including down 5% for Walmart U S.
Doug Mcmillon: Good morning, everyone and thanks for joining us to talk about our third quarter results and how we're seeing the rest of the year.
Doug Mcmillon: Our value proposition continues to resonate with customers, helping us gain share and drive e-commerce growth.
Doug Mcmillon: We're on track to grow adjusted operating income at a faster rate than sales for the year consistent with what we discussed at our Investor meeting earlier this year.
Both our topline and adjusted EPS came in better than what we projected at the beginning of the quarter, but we could've done a better job on expenses, which is reflected in adjusted operating income growing less than we expected.
Doug Mcmillon: We had strong revenue growth for the quarter across each of our segments.
Doug Mcmillon: Comp sales for Walmart U S were four 9% and three 8% for Sam's Club U S.
We had a couple of unexpected expense increases in SG&A and Youll hear more about those when John David walks through the numbers.
Doug Mcmillon: Sales for Walmart International were up five 4% in constant currency led by walnuts in China.
In the U S pricing levels in many food categories continue to be a concern.
Doug Mcmillon: Sams club continues to perform well, both in Mexico, and China, and while strength was broad based for walnuts.
Overall, our product costs are up versus last year and they remain up even more on a two year stack, which is putting pressure on our customers.
Doug Mcmillon: Our bodega out of our business is worth calling out as it continues to deliver outstanding growth.
<unk> prices are high, but we're happy to see lower pricing in dairy on eggs and with chicken and seafood.
Doug Mcmillon: E Commerce sales were up 24% in Walmart U S, 16% in Sam's club U S and 15% globally.
The pockets of Disinflation, we are seeing are helping but we'd like to see more faster, especially in the dry grocery and consumables categories.
Doug Mcmillon: Timing of our flip cart Big billion days event, which moved from Q3 last year to Q4. This year affected comparisons in our international segment, leading to a decline of 3% so.
The other good news is that general merchandise prices continue to come down.
<unk> is down low to mid single digits versus last year.
That enables us to rollback pricing, which will help our customers. During this holiday season, when general merchandise is so important for gift giving.
Doug Mcmillon: So we will see the benefit from the timing shift as we report next quarter.
Doug Mcmillon: Across markets the team did a nice job driving our seasonal events our in stock and inventory levels are in good shape. We finished down one 2% in inventory for the total company, including down 5% for Walmart U S. <unk>.
We still see pressure from mix, including outside the U S, which we expected, but I like the market share gains we're seeing in this category.
In the U S. We may be managing through a period of deflation in the months to come.
Doug Mcmillon: Our top line and adjusted EPS came in better than what we projected at the beginning of the quarter, but we could've done a better job on expenses, which is reflected in adjusted operating income growing less than we expected.
And while that would put more unit pressure on us we welcome it because it's better for our customers.
When I look at our P&L, it's continuing to change shape.
Generally I break it down is a combination of a traditional retail P&L and a newer version that starts with our digital businesses.
Doug Mcmillon: We had a couple of unexpected expense increases in SG&A and you'll hear more about those when John David walks through the numbers.
It flows from first and third party e-commerce pickup and delivery to businesses like membership advertising in fulfillment as a service at.
Doug Mcmillon: In the U S pricing levels in many food categories continue to be a concern overall.
It includes some faster growing higher margin components that combined with the more traditional P&L gives us a business model that's more profitable in percentage terms as it grows.
Doug Mcmillon: Overall, our product costs are up versus last year and they remain up even more on a two year stack, which is putting pressure on our customers.
We saw strong growth in all of these areas for the quarter and when you put it together with the supply chain automation work, we're doing you'll get a more sustainable business that can grow more effectively over time and create a better mix along the way.
Doug Mcmillon: <unk> prices are high, but we're happy to see lower pricing in dairy on eggs and with chicken and seafood.
The pockets of Disinflation, we're seeing are helping but we'd like to see more faster, especially in the dry grocery and consumables categories.
Marketplace is one of our engines for these mutually reinforcing businesses.
Doug Mcmillon: The other good news is that general merchandise prices continue to come down.
Meaning that marketplace growth pulls other businesses like fulfillment through.
Doug Mcmillon: <unk> is down low to mid single digits versus last year.
Back in September we held our first ever marketplace seller summit, we hosted thousands of current and potential sellers to let them see firsthand our commitment to this business and how we will grow it together.
Doug Mcmillon: That enables us to rollback pricing, which will help our customers. During this holiday season, when general merchandise is so important for gift giving.
Doug Mcmillon: We still see pressure from mix, including outside the U S, which we expected, but I like the market share gains we're seeing in this category.
Since the beginning of last year, we've more than doubled the number of items available to customers on our U S marketplace.
Doug Mcmillon: In the U S. We may be managing through a period of deflation in the months to come.
It's an important piece of what we're building and it's growing fast and not just in the U S.
Doug Mcmillon: And while that would put more unit pressure on us we welcome it because it's better for our customers.
We have a unique opportunity to grow in India, Mexico, Canada and Chile.
Doug Mcmillon: When I look at our P&L, it's continuing to change shape mentally I break it down is a combination of a traditional retail P&L and a newer version that starts with our digital businesses at.
We love the opportunity to grow our assortment. This way so customers can get what they want when and how they want it.
We're making shopping easier and more convenient or.
Doug Mcmillon: It flows from first and third party e-commerce pickup and delivery to businesses like membership advertising in fulfillment as a service at.
Our net promoter scores for pickup and delivery in Walmart U S are improving and we've started using generative AI to improve our search and chat experience. We released an improved beta version of search to some of our customers who are using our app on iOS.
Doug Mcmillon: It includes some faster growing higher margin components that combined with the more traditional P&L gives us a business model that's more profitable in percentage terms as it grows.
In the coming weeks and months will enhance this experience and roll it out to more customers.
Doug Mcmillon: We saw strong growth in all of these areas for the quarter and when you put it together with the supply chain automation work, we're doing you'll get a more sustainable business that can grow more effectively over time and create a better mix along the way.
When I step back and look at the company overall I Love, what we're building and how we're building at <unk>.
Got a good hand to play and a strong team making things happen.
Doug Mcmillon: Marketplace is one of our engines for these mutually reinforcing businesses.
It's a recipe for growth and improved margin and returns we've been discussing with you.
Doug Mcmillon: Meaning that marketplace growth pulls other businesses like fulfillment through <unk>.
Everyday low prices are a foundational component of us fulfilling our purpose, we bring <unk> to life on a year round basis by doing things like offering of Thanksgiving meal in the U S and Canada that costs less than last year.
Doug Mcmillon: Back in September we held our first ever marketplace seller summit, we hosted thousands of current and potential sellers to let them see firsthand our commitment to this business and how we will grow it together.
Our offering tremendous value for things like fashion electronics, and seasonal decorations and helping remind people that when theyre looking to buy toys, we're the place to come because we have the right product at the right price.
Doug Mcmillon: Since the beginning of last year, we've more than doubled the number of items available to customers on our U S marketplace. It's an important piece of what we're building and it's growing fast and not just in the U S.
This same focus on purpose and execution came through when I was visiting Chile, Canada and China earlier. This quarter. It was my first time back in China since before the pandemic.
Doug Mcmillon: We have a unique opportunity to grow in India, Mexico, Canada and Chile.
Doug Mcmillon: We love the opportunity to grow our assortment. This way so customers can get what they want when and how they want it.
Our team there run some of the most incredible Sam's clubs in the world and they continue to be a leader for us in terms of digital penetration and innovation.
Doug Mcmillon: We're making shopping easier and more convenient.
Doug Mcmillon: Our net promoter scores for pickup and delivery in Walmart U S are improving and we started using generative AI to improve our search and chat experience. We released an improved beta version of search to some of our customers who are using our app on iOS.
As I wrap up I know, we're all concerned about events across the world.
Or acts of terror political unrest impacts from storms like those in Mexico from Hurricane Otis.
Doug Mcmillon: In the coming weeks and months will enhance this experience and roll it out to more customers.
Pressure, we're feeling from stubborn inflation in some categories and other challenges beyond our control.
Doug Mcmillon: When I step back and look at the company overall I Love, what we're building and how we're building at <unk>.
As for our company, we care about everyone.
Doug Mcmillon: Got a good hand to play and a strong team making things happen.
We want to be a place where literally everyone feels comfortable and welcomed to shop our work.
Doug Mcmillon: It's a recipe for growth and improved margin and returns we've been discussing with you.
We want to live our values and create a warm safe and fun place for the hundreds of millions of people that will shop with us in the days and weeks ahead.
Doug Mcmillon: Everyday low prices are a foundational component of us fulfilling our purpose, we bring <unk> to life on a year round basis by doing things like offering of Thanksgiving meal in the U S and Canada it costs less than last year.
I am grateful to be part of this big team.
<unk> pool to work alongside our associates.
Now I'll turn it over to John David.
Doug Mcmillon: Our offering tremendous value for things like fashion electronics, and seasonal decorations and helping remind people that when theyre looking to buy toys, we're the place to come because we have the right product at the right price.
I'd like to start by thanking our customers members associates and partners for helping us deliver a good quarter. We're pleased overall with how the team executed and how our strong value proposition and Omnichannel strategy continue to resonate with customers.
Doug Mcmillon: This same focus on purpose and execution came through when I was visiting Chile, Canada and China earlier. This quarter. It was my first time back in China since before the pandemic.
We're gaining share seeing strong e-commerce growth and excited about the contributions from higher margin businesses like advertising.
Doug Mcmillon: Our team there run some of the most incredible Sam's clubs in the world and they continue to be a leader for us in terms of digital penetration and innovation.
Sales grew more than 4% gross profit was better than expected and we exceeded our guidance for EPS.
These results reinforce the benefits of our highly diversified business with broad based contributions across segments and markets channels and formats and strategic growth areas.
Doug Mcmillon: As I wrap up I know, we're all concerned about events across the world.
Doug Mcmillon: Or acts of terror political unrest impacts from storms like those in Mexico from Hurricane Otis.
While we're pleased with our top line results operating income was below our guidance due to higher than anticipated expenses largely certain legal accruals.
Doug Mcmillon: Pressure, we're feeling from stubborn inflation in some categories and other challenges beyond our control.
Doug Mcmillon: As for our company, we care about everyone.
I will provide more details on guidance shortly but the key takeaway is that we're raising our full year sales and EPS guidance, while reiterating our prior operating income guidance.
Doug Mcmillon: We want to be a place where literally everyone feels comfortable and welcomed to shop our work.
Doug Mcmillon: We want to live our values and create a warm safe and fun place for the hundreds of millions of people that will shop with us in the days and weeks ahead.
We expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year to align with our goal of operating income growing faster than sales.
Doug Mcmillon: I am grateful to be part of this big team.
Doug Mcmillon: <unk> pool to work alongside our associates.
Now, let me review the key financial highlights for Q3, using our financial framework of growth margins and returns.
Doug Mcmillon: Now I'll turn it over to John David.
John David: I'd like to start by thanking our customers members associates and partners for helping us deliver a good quarter. We're pleased overall with how the team executed and how our strong value proposition and Omnichannel strategy continue to resonate with customers.
First growth constant currency sales increased four 4% or nearly $7 billion.
Importantly, we saw traffic growth across both in store and digital channels.
John David: We're gaining share seeing strong e-commerce growth and excited about the contributions from higher margin businesses like advertising.
All three operating segments experienced mid single digit sales growth with comp sales for Walmart U S up four 9% in Sam's Club U S up three 8% excluding fuel.
John David: Sales grew more than 4% gross profit was better than expected and we exceeded our guidance for EPS.
John David: These results reinforce the benefits of our highly diversified business with broad based contributions across segments and markets channels and formats and strategic growth areas.
International grew sales five 4% in constant currency with wall mix sales up more than 9% and China up 25% with strong performance in Sam's club and E Commerce.
John David: While we're pleased with our topline results operating income was below our guidance due to higher than anticipated expenses largely certain legal accruals.
The timing of flip carts Big billion days pressured international sales growth is the event moved from Q3 last year to Q4 this year.
Provide more details on guidance shortly but the key takeaway is that we're raising our full year sales and EPS guidance, while reiterating our prior operating income guidance we.
So we expect the timing to be a benefit to Q4's growth rate for the segment.
<unk> also continued its strong momentum with annualized PPV or total payment volume, reaching one two trillion on nearly $5 8 billion monthly transactions and phone pay recently achieved an impressive milestone eclipsing 500 million registered users.
John David: We expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year to align with our goal of operating income growing faster than sales.
John David: Now, let me review the key financial highlights for Q3, using our financial framework of growth margins and returns.
We continue to grow share in key categories, particularly in Walmart U S grocery, where we delivered positive comps and saw strong share gains in both units and dollars.
John David: First growth constant currency sales increased four 4% or nearly $7 billion.
Grocery inflation moderated nearly 300 basis points from Q2 levels to a mid single digit increase versus last year, but on a two year stack. It was still elevated at a high teens percentage.
John David: Importantly, we saw traffic growth across both in store and digital channels.
John David: All three operating segments experienced mid single digit sales growth with comp sales for Walmart U S up four 9% and Sam's Club U S up three 8% excluding fuel.
We see our customers showing ongoing discretion and seeking value to manage within their household budget.
John David: International grew sales five 4% in constant currency with wall mix sales up more than 9% and China up 25% with strong performance in Sam's club and E Commerce.
While general merchandise sales were down low single digits year over year in Q3, the rate of change was stable to Q2 levels and we gained share across categories as.
As we enter the holiday season, we're working hard to lower grocery prices to ease the pressure for customers, giving them more capacity for general merchandise spend.
John David: The timing of flip carts Big billion days pressured international sales growth is the event moved from Q3 last year to Q4 this year.
Our business is rooted in a timeless purpose to save customers money. So they can live better.
John David: So we expect the timing to be a benefit to Q4's growth rate for the segment.
John David: <unk> also continued its strong momentum with annualized PPV or total payment volume, reaching one two trillion on nearly $5 8 billion monthly transactions and phone pay recently achieved an impressive milestone eclipsing 500 million registered users.
Against any economic backdrop, we are there for customers, how and where they need us and we're making shopping with Walmart and Sam's club more convenient.
Omni services, including pickup in store fulfilled delivery continue to drive strong growth leading to a 24% increase in Walmart U S ecommerce sales and 16% growth at Sam's club.
John David: We continue to grow share in key categories, particularly in Walmart U S grocery, where we delivered positive comps and saw strong share gains in both units and dollars.
Multichannel shoppers are more valuable engaging more often and spending more with us.
Pickup and delivery for Walmart U S has been a key source of growth and share gains among upper income households, and has become the most productive channel for acquiring Walmart plus members.
Grocery inflation moderated nearly 300 basis points from Q2 levels to a mid single digit increase versus last year, but on a two year stack. It was still elevated at a high teens percentage.
And international while mix is expansion of omni offerings led to $1 5 million Bodega store fulfilled digital orders in Q3.
We see our customers showing ongoing discretion and seeking value to manage within their household budget.
John David: While general merchandise sales were down low single digits year over year in Q3, the rate of change was stable to Q2 levels and we gained share across categories as.
In Canada, we continue to rollout our unlimited next day store delivery subscription called delivery pass, which is now available from two thirds of our Canada stores.
John David: As we enter the holiday season, we're working hard to lower grocery prices to ease the pressure for customers, giving them more capacity for general merchandise spend.
And I was in China recently, where our business is nearly a 50 50 split of physical and digital I was impressed with how we're serving omni customers with speed and accuracy through new engagement and delivery models.
Our business is rooted in a timeless purpose to save customers money. So they can live better.
Turning to margins.
John David: Against any economic backdrop, we are there for customers, how and where they need us and we're making shopping with Walmart and Sam's club more convenient.
Gross margins expanded 32 basis points, reflecting the timing shift of big billion days in India, and lapping last year's LIFO charge at Sam's Club U S.
John David: Omni services, including pickup and store fulfill delivery continue to drive strong growth leading to a 24% increase in Walmart U S ecommerce sales and 16% growth at Sam's club.
Walmart U S gross margins increased five basis points, reflecting lower markdowns and supply chain costs, but we're still seeing ongoing category mix pressure is health and wellness and grocery sales outperformed general merchandise.
John David: Multichannel shoppers are more valuable engaging more often and spending more with us.
Continued disinflation, along with the success of our merchants at Sams club and bringing down the cost of inventory.
John David: Pickup and delivery for Walmart U S has been a key source of growth and share gains among upper income households, and has become the most productive channel for acquiring Walmart plus members.
<unk> and us not taking the expected $50 million LIFO charge in Q3.
We no longer expect any further LIFO charges in Sam's club this year.
And international while mix is expansion of omni offerings led to $1 5 million Bodega store fulfilled digital orders in Q3.
As we've said previously over the next several years, we expect margins to move higher as we modernize our supply chain and scale higher margin growth initiatives. We've made good progress on both during the quarter.
John David: In Canada, we continue to rollout our unlimited next day store delivery subscription called delivery pass, which is now available from two thirds of our Canada stores.
We continue to deploy capital to build technologies and optimize our next generation supply chain with automation and productivity benefits starting to appear in our results.
John David: And I was in China recently, where our business is nearly a 50 50 split of physical and digital I was impressed with how we're serving omni customers with speed and accuracy through new engagement and delivery models.
We now operate nine regional distribution centers servicing U S stores with varying levels of automation with six more centers in active stages of construction.
John David: Turning to margins.
John David: Gross margins expanded 32 basis points, reflecting the timing shift of big billion days in India, and lapping last year's LIFO charge at Sam's Club U S.
Currently more than 15% of stores receive merchandise from these facilities, helping to get product to shelves faster and more efficiently.
During the quarter, we opened our third next generation E Commerce fulfillment center.
John David: Walmart U S gross margins increased five basis points, reflecting lower markdowns and supply chain costs, but we're still seeing ongoing category mix pressure is health and wellness and grocery sales outperformed general merchandise.
These one 5 million square feet facilities are expected to more than double the storage capacity enable two X. The number of customer orders fulfilled daily and we will expand next and two day shipping to nearly 90% of the U S, including marketplace items shipped by Walmart fulfillment services.
John David: Continued disinflation, along with the success of our merchants at Sams club and bringing down the cost of inventory.
John David: <unk> and us not taking the expected $50 million LIFO charge in Q3.
They also unlock new opportunities for our associates to transition into higher skilled tech focused positions.
John David: We no longer expect any further LIFO charges in Sam's club this year.
To support the store fulfilled digital business. We're on track to have seven stores with automated market fulfillment centers or mfc's operational by the end of this month.
John David: As we've said previously over the next several years, we expect margins to move higher as we modernize our supply chain and scale higher margin growth initiatives. We've made good progress on both during the quarter.
These MFC stock thousands of the most sought after items and are expected to increase order capacity and productivity, while also increasing inventory accuracy, which helps us deliver perfect orders for customers.
John David: We continue to deploy capital to build technologies and optimize our next generation supply chain with automation and productivity benefits starting to appear in our results.
As we focus on improving e-commerce margins, we're making good progress in lowering digital fulfillment cost and densify the last mile by tapping our broad store and club network.
John David: We now operate nine regional distribution centers servicing U S stores with varying levels of automation with six more centers in active stages of construction.
John David: Currently more than 15% of stores receive merchandise from these facilities, helping to get product to shelves faster and more efficiently.
Over the past year Walmart U S has increased the percentage of digital orders fulfilled by stores by 800 basis points and Sam's club fulfills nearly 60% of online orders from its clubs.
John David: During the quarter, we opened our third next generation E Commerce fulfillment center.
With the growth of our spark driver platform, we've lowered store to home delivery cost by 15%, even as we shorten delivery times to same day for more than 80% of our stores and in some cases as quick as 30 minutes.
John David: These one 5 million square feet facilities are expected to more than double the storage capacity enable two X. The number of customer orders fulfilled daily and we will expand next in two day shipping to nearly 90% of the U S, including marketplace items shipped by Walmart fulfillment services.
As we scale Walmart go local where densify the last mile and we're approaching a milestone of $12 million deliveries for other retailers with the service.
They also unlock new opportunities for our associates to transition into higher skilled tech focused positions.
I'd like to touch on our portfolio of higher growth initiatives. These businesses reinforce our core omni retail model and are key to driving operating income growth ahead of sales over time.
John David: To support the store fulfilled digital business. We're on track to have seven stores with automated market fulfillment centers or mfc's operational by the end of this month.
In Q3 this portfolio positively contributed to gross margins.
John David: These MFC stock thousands of the most sought after items and are expected to increase order capacity and productivity, while also increasing inventory accuracy, which helps us deliver perfect orders for customers.
Global advertising grew approximately 20% in Q3 with Sam's map growing over 27% and Walmart connect up 26%.
John David: As we focus on improving e-commerce margins, we're making good progress in lowering digital fulfillment cost and densify the last mile by tapping our broad store and club network.
As an illustration of the omnichannel benefits of our AD platforms more than 75% of Sam's map active advertisers are investing in search and sponsored ads as in club sales attribution has improved returns of digital AD spend by over 30%.
John David: Over the past year, Wal Mart U S is increase the percentage of digital orders fulfilled by stores by 800 basis points and Sam's club fulfills nearly 60% of online orders from its clubs.
International AD revenue growth was impacted by the timing of big billion days, but we're on track to deliver strong growth of approximately 45% for the full year.
John David: With the growth of our spark driver platform, we've lowered store to home delivery cost by 15%, even as we shorten delivery times to same day for more than 80% of our stores and in some cases as quick as 30 minutes.
Moving to marketplace and fulfillment services customer engagement continues to validate our strategy is to invest in ways to grow this business on a global basis.
John David: As we scale Walmart go local where densify the last mile and we're approaching our milestone of $12 million deliveries for other retailers with this service.
As Doug mentioned, we held the inaugural marketplace seller summit to help accelerate our marketplace growth.
For cross border sellers in the U S. We're expanding access to more customers beyond the U S. Canada, Mexico by opening our e-commerce marketplace in Chile to cross border products next year.
I'd like to touch on our portfolio of higher growth initiatives. These businesses reinforce our core omni retail model and are key to driving operating income growth ahead of sales over time.
Over the past year, we've increased marketplace sellers by more than 20% and the number of sellers utilizing Walmart fulfillment services is up over 55%.
John David: In Q3 this portfolio positively contributed to gross margins.
John David: Global advertising grew approximately 20% in Q3 with Sam's map growing over 27% and Walmart connect up 26%.
Next membership remains a compelling way, we deepen engagement with our customers Sam.
Sams club membership income grew over 7%, reflecting record member counts in plus member penetration.
John David: As an illustration of the omnichannel benefits of our AD platforms more than 75% of Sam's map active advertisers are investing in search and sponsored ads.
During Q3, we held events that were focused on member acquisition and digital engagement.
We'll take a similar approach again during Q4 offering discounted access to Walmart plus memberships, while providing members early access to the best savings events throughout the holiday season.
John David: In club sales attribution has improved returns of digital AD spend by over 30%.
John David: International AD revenue growth was impacted by the timing of big billion days, but we're on track to deliver strong growth of approximately 45% for the full year.
Turning back to the middle of the P&L.
SG&A expenses, Deleveraged 37 basis points on an adjusted basis impacted by higher year over year wage related cost in Walmart U S, including higher variable pay expenses relative to last year. When we were below our planned performance.
Moving to marketplace and fulfillment services customer engagement continues to validate our strategy is to invest in ways to grow this business on a global basis.
John David: As Doug mentioned, we held the inaugural marketplace seller summit to help accelerate our marketplace growth.
Store remodel costs were also higher as we rolled out 117 of our flagship design stores earlier this month and legal expenses increased.
John David: For cross border sellers in the U S. We're expanding access to more customers beyond the U S, Canada and Mexico by opening our e-commerce marketplace in Chile to cross border products next year.
Lastly, the timing shift of big billion days pressured international expense leverage in Q3, we will see the benefit come through in Q4.
John David: Over the past year, we've increased marketplace sellers by more than 20% and the number of sellers utilizing Walmart fulfillment services is up over 55%.
Third quarter, adjusted operating income grew 3%, including 270 basis points of currency tailwind, while adjusted EPS of $1 53 increased 2% and compared favorably to guidance of $1 45 to $1 50.
John David: Next membership remains a compelling way, we deepen engagement with our customers Sam.
John David: Sams club membership income grew over 7%, reflecting record member counts in plus member penetration.
Relative to our guidance Q3, EPS benefited by <unk> <unk> from releasing the LIFO Reserve, we had earmarked for Sam's club.
John David: During Q3, we held events that were focused on member acquisition and digital engagement.
Moving to returns over.
Over the last 12 months sales have grown more than 6% and operating income increased about 22% and when combined with a disciplined capital approach return on investment improved 130 basis points to 14, 1%.
John David: We'll take a similar approach again during Q4 offering discounted access to Walmart plus memberships, while providing members early access to the best savings events throughout the holiday season.
John David: Turning back to the middle of the P&L.
John David: SG&A expenses, Deleveraged 37 basis points on an adjusted basis impacted by higher year over year wage related cost in Walmart U S, including higher variable pay expenses relative to last year. When we were below our planned performance.
The primary driver was lapping last year's Q3 charge related to the opioid legal settlement framework.
Roy also reflects some benefits from productivity initiatives that we initially expected to realize in FY 'twenty five.
John David: Store remodel costs were also higher as we rolled out 117 of our flagship design stores earlier this month and legal expenses increased.
We continue to expect our ROI to increase over the coming years.
In addition to our strategy our financial position is an advantage and enables us to compete in an increasingly dynamic retail environment.
John David: Lastly, the timing shift of big billion days pressured international expense leverage in Q3, we will see the benefit come through in Q4.
Turning to guidance.
We're confident in our agility and our ability to execute and we're focusing our investment in areas, where we can widen our omni advantage deepen engagement and drive sustained growth and new revenue streams.
John David: Third quarter, adjusted operating income grew 3%, including 270 basis points of currency tailwind, while adjusted EPS of $1 53 increased 2% and compared favorably to guidance of $1 45 to $1 50.
We like our position relative to competitors as we've maintained strong price gaps and increased share while preserving flexibility to respond to competitive dynamics, but we're not immune from the vagaries of the economy we.
John David: Relative to our guidance Q3, EPS benefited by <unk> <unk> from releasing the LIFO Reserve, we had earmarked for Sam's club.
We see our customers showing ongoing discretion and making tradeoffs to be able to afford the things they want given the sustained high cost of the things they need.
John David: Moving to returns over.
John David: Over the last 12 months sales have grown more than 6% and operating income increased about 22%.
Recently, we've experienced a higher degree of variability and weekly performance and between holiday events in the U S, including seen a softening in the back half of October that was off trend to the rest of the quarter.
John David: And when combined with a disciplined capital approach return on investment improved 130 basis points to 14, 1%.
John David: The primary driver was lapping last year's Q3 charge related to the opioid legal settlement framework.
Sales during November have turned higher because unseasonal weather abated, and we kicked off holiday events.
John David: Roy also reflects some benefits from productivity initiatives that we initially expected to realize in FY 'twenty five.
So sales have been somewhat uneven and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago.
John David: We continue to expect our rois to increase over the coming years.
We still expect sales growth to moderate in Q4 versus prior quarters is grocery inflation further normalizes towards historic levels, but we are encouraged by the increased traffic and share gains we've seen and expect them to continue as.
John David: In addition to our strategy our financial position is an advantage and enables us to compete in an increasingly dynamic retail environment.
John David: Turning to guidance.
As such we're modestly raising our full year sales guidance to five to five 5% from 4% to four 5% previously primarily to reflect Q3s outperformance.
John David: We're confident in our agility and our ability to execute and we're focusing our investment in areas, where we can widen our omni advantage deepen engagement and drive sustained growth and new revenue streams.
For operating income, we're maintaining the guidance range of seven to seven 5% growth.
John David: We like our position relative to competitors as we've maintained strong price gaps and increased share while preserving flexibility to respond to competitive dynamics, but we're not immune from the vagaries of the economy we.
In addition to the 40 basis points of unexpected legal expenses in Q3, we also expect to record charges in Q4 totaling approximately 20 to 30 basis points related to unplanned store closures and recovery costs associated with the recent hurricane near Acapulco, Mexico.
John David: We see our customers showing ongoing discretion and making tradeoffs to be able to afford the things they want given the sustained high cost of the things they need.
John David: Recently, we've experienced a higher degree of variability and weekly performance and between holiday events in the U S, including seen a softening in the back half of October that was off trend to the rest of the quarter.
This impacted 28 of our stores in less than half of them have been reopened at this time.
Partially offsetting these costs is the approximate 40 basis point benefit from lower than expected LIFO charges compared to our prior guide.
John David: Sales during November have turned higher as unseasonable weather abated, and we kicked off holiday events.
The net effect is a 20 to 30 basis point headwind to our prior guide and as such we currently expect to be in the lower end of the operating income growth range for the year.
So sales have been somewhat uneven and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago.
John David: We still expect sales growth to moderate in Q4 versus prior quarters as grocery inflation further normalizes towards historic levels, but we are encouraged by the increased traffic and share gains we've seen and expect them to continue.
We expect merchandise mix pressure to continue in Q4 with grocery and health and wellness sales rates outpacing general merchandize and potentially be a bit more pronounced given the uncertain consumer environment.
Based on Q3 results and less of an increase in interest costs for the year than we previously expected, we're raising our full year EPS guidance range to $6 40 to $6 48.
John David: As such we're modestly raising our full year sales guidance to 5% to five 5% from four to four 5% previously primarily to reflect Q3s outperformance.
John David: For operating income, we're maintaining the guidance range of seven to seven 5% growth.
In closing, let me reiterate what I said previously aligned with our financial framework, we expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year operating income to grow faster than sales with.
John David: In addition to the 40 basis points of unexpected legal expenses in Q3, we also expect to record charges in Q4 totaling approximately 20 to 30 basis points related to unplanned store closures and recovery costs associated with the recent hurricane near Acapulco, Mexico.
We like our competitive position.
Our financial results clearly demonstrate that our omnichannel strategy is winning.
We're growing our share across categories deepening customer engagement across channels, while investing in areas to widen our competitive advantage.
John David: This impacted 28 of our stores in less than half of them have been reopened at this time.
Holidays are here and our value proposition resonates with customers looking to save money as they celebrate.
John David: Partially offsetting these costs is the approximate 40 basis point benefit from lower than expected LIFO charges compared to our prior guide.
Operator, we'd now like to open the line for questions.
John David: The net effect is a 20% to 30 basis point headwind to our prior guide and as such we currently expect to be in the lower end of the operating income growth range for the year.
Thank you at this time, we'll be conducting a question and answer session.
To ask a question at this time. Please press star one from your telephone keypad confirmation tone will indicate your line is in the question queue.
John David: We expect merchandise mix pressure to continue in Q4 with grocery and health and wellness sales rates outpacing general merchandize and potentially be a bit more pronounced given the uncertain consumer environment.
You May press Star two if you would like to remove your question from the queue.
From a distance using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
John David: Based on Q3 results and less of an increase in interest cost for the year than we previously expected, we're raising our full year EPS guidance range to $6 40 to $6 48.
So that one may address questions from as many participants as possible. We ask you. Please limit yourself to one question.
Thank you and our first question today comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
John David: In closing, let me reiterate what I said previously aligned with our financial framework, we expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year operating income to grow faster than sales we.
Yes.
Hi, Good morning, everyone I have one question I'll make it maybe two parts.
The first part of the legal expense.
So so that we can judge whether or not we should keep it and it sounds like you are keeping it in I'm not sure you're able to share what the nature of it is it seems like it was unexpected. So if there is any more color on it and then the second question is.
John David: We like our competitive position or.
John David: Our financial results clearly demonstrate that our omnichannel strategy is winning.
John David: We're growing our share across categories deepening customer engagement across channels, while investing in areas to widen our competitive advantage. The holidays are here and our value proposition resonates with customers looking to save money as they celebrate.
Alternative revenue and profit.
Wasn't it in in any way this quarter.
Do we get an inflection into next year that seems to be the big investment question.
And are we going to see it ramp up and does it doesn't happen in a certain period or it just continues to build thank you.
Speaker Change: Operator, we'd now like to open the line for questions.
I'll start and others may want to jump in on the legal expenses.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session.
Or related to largely related to prior periods and that was not anticipated within the quarter is around $70 million to $75 million. So we would not expect that to.
Speaker Change: If you'd like to ask a question at this time. Please press star one from your telephone keypad.
Speaker Change: Formation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
The car into the fourth quarter on the alternative revenue, perhaps I'll start and let others jump in our plan that we shared at Investor day is somewhat dependent on the level of investments that we're having and seeing improving unit economics, but it's also growing these parts of our business that are much higher margin, we talked about the growth and advertise.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: So that one may address questions from as many participants as possible. We ask you. Please limit yourself to one question.
Speaker Change: Thank you and our first question today comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
<unk>.
Across all segments quite frankly in international while it was slower in this quarter, we will see strong growth for the year all of these as they become a larger part of our overall business mix youre going to have an outsized contribution to our margin performance. So if you. If you go back and you think about what we shared at Investor day, saying that we.
Speaker Change: Yes.
Simeon Gutman: Hi, Good morning, everyone I have one question I'll make it maybe two parts.
Simeon Gutman: The first part of the legal expense.
Simeon Gutman: So so that we can judge whether or not we should keep it and it sounds like you are keeping it in I'm not sure you're able to share what the nature of it is it seems like it was unexpected so there.
Simeon Gutman: Any more color on it and then the second question is.
Expect over the next several years to grow sales, 4% and operating income greater than 4%. We would expect with each passing year, we are going to see a greater contribution from these higher higher margin profit streams, which help us to improve our margin and share.
Simeon Gutman: Alternative revenue and profit.
Simeon Gutman: Wasn't it in in any way this quarter.
Simeon Gutman: Do we get an inflection into next year that seems to be the big investment question.
Simeon Gutman: And are we going to see it ramp up and does it doesn't happen in a certain period or it just continues to build thank you.
This is Doug I would just add that I think you should evident in the continued to build category rather than an inflection.
Speaker Change: I'll start and others may want to jump in on the legal expenses.
Speaker Change: Or related to largely related to prior periods and that was not anticipated within the quarter is around $70 million to $75 million. So we would not expect that to.
Thank you.
Our next question is from the line of Kelly Bania with BMO capital markets. Please proceed with your question.
Good morning, Thanks for taking my questions.
Speaker Change: Recur into the fourth quarter on the alternative revenue, perhaps I'll start and let others jump in our plan that we shared at Investor day is somewhat dependent on the level of investments that we're having and seeing improving unit economics, but it's also growing these parts of our business that are much higher margin, we talked about the growth and advertise.
Just another follow up I guess on the legal expense assuming that impacted the EBIT number but maybe.
By that.
And just anything in particular that impacted the U S EBIT.
Maybe some unexpected expenses that came in relatively in line with your expectations.
Speaker Change: Zing.
Speaker Change: Across all segments quite frankly in international while it was slower in this quarter, we will see strong growth for the year all of these as they become a larger part of our overall business mix youre going to have an outsized contribution to our margin performance. So if you. If you go back and you think about what we shared at Investor day, saying that we.
I guess that's fair.
First question and then longer term as you think about this plan to grow EBIT faster than sales in coming years anything youre seeing with the consumer and it sounds like it's still choppy.
That may be easy to reconsider how much you might flow through to the bottom bottom line.
Speaker Change: Spect over the next several years to grow sales, 4% and operating income greater than 4%, we would expect with each passing year, we are going to see a greater contribution from these higher higher margin profit streams, which help us to improve our margin each year.
Sure I'll start and then John is probably going to want to jump in.
Yes, so legal expenses had U S segment.
There are some other items in there like I'll point out that we spent a little bit more on Remodels. We did an all time high level of remodels in the quarter.
This is Doug I would just add that I think you should evident in the continued to build category rather than an inflection.
But just as an investor this is investing in our business, which we definitely want to lean into we're excited about the returns we're seeing around that we're excited about the returns youre seeing on E Commerce and so there were some investments related to that but the vast majority of the delta between our guidance and actual performance was related to.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Kelly Bania with BMO capital markets.
Kelly Bania: Thank you for your question.
Good morning, Thanks for taking my questions.
Kelly Bania: Just another follow up I guess on the legal expense assuming that impacted the EBIT number but maybe.
The legal accrual in terms of our long term plan.
And as it pertains to possible changes in the consumer.
Kelly Bania: By that.
Kelly Bania: And just anything in particular that impacted the U S EBIT.
I think our value proposition proposition resonates more than ever when the consumer is pressured.
Kelly Bania: Maybe some unexpected expenses that come in relatively in line with your expectations.
And we've seen this year that they not only are coming to us for the value that we provide but also for the convenience and these are areas that we're investing in so we have a ton of conviction in the strategy that we have in place and our ability to execute on that we should separate that from calling out some maybe.
Kelly Bania: And I guess that's.
Kelly Bania: My first question and then longer term as you.
Kelly Bania: Think about this plan to grow EBIT faster than sales in coming years anything youre seeing with the consumer and it sounds like it's still choppy.
Kelly Bania: That may be easy to reconsider how much might flow through into the bottom bottom line.
Potential weakness or wildly and among the consumer that we saw in the back half of October but we're very excited about the plan we have in place and Kelly, It's Sean good morning.
Speaker Change: Sure I'll start and then John is probably going to want to jump in.
First I am also excited about the topline results of Farmington, and then ecommerce at 24 and the team has made a lot of improvements.
John: Yes, so legal expenses had U S segment.
There are some other items in there like I'll point out that we spent a little bit more on Remodels. We did an all time high level of remodels in the quarter.
The credit for that.
I had a couple of things there one about remodels as Sean David mentioned, we had 117 Remodels complete all on November 3rd we think Thats the largest number of remodels that you've ever had complete in a single day and then if you. If you add together late October and November It was 197 remodels in those remodels have improved apparel.
John: But just as an investor this is investing in our business, which we definitely want to lean into and we're excited about the returns we're seeing around that we're excited about the returns we're seeing on e-commerce and so there were some investments related to that but the vast majority of the delta between our guidance and actual performance was related to.
Improved hall to have wider aisles are really happy with the way the signing lab and they also have more investment for our online and pickup and delivery business, which is a key catalyst our ecommerce growth and help us with being flexible for our customers and any type of situation. They want to shop and so there were some costs associated with that in the quarter.
John: The legal accrual in terms of our long term plan.
John: And as it pertains to possible changes in the consumer.
John: I think our value proposition proposition resonates more than ever when the consumer is pressured.
John: And we've seen this year that they not only are coming to us for the value that we provide but also for the convenience and these are areas that we're investing in so we have a ton of conviction in the strategy that we have and are in place and our ability to execute on that we should separate that from calling out some maybe.
But we feel great about those being investments for the long term.
Kelly This is Jack and related to the last part of what you asked about I don't think theres anything that causes us to think operating income will grow faster than sales.
Speaker Change: Potential weakness or wildly and among the consumer that we saw in the back half of October but we're very excited about the plan we have in place and Kelly, It's Sean good morning.
We've had really strong sales performance now for a few years.
We were impacted by what happens in our environment.
We expect to grow share, we expect to have a healthy topline and as it relates to operating income we've got really good multiyear plan with two primary dimensions once the automation investments.
Sean: First I'm also excited about the topline results of Farmington and E. Commerce at 24, and the team has made a lot of improvements.
Sean: The credit for that.
Driving productivity improvements and the other dimension is related to our digital business has changed the shape of the income statement both of those things will be true and it's a multi year plan shows progress along the way. So you guys from quarter to quarter or year to year will see us make progress.
Sean: A couple of things there one about Remodels as Sean David mentioned, we had 117 Remodels complete all on November 3rd we think Thats the largest number of Remodels that Brad complete in a single day and then if you. If you add together late October and November It was 197 remodels in those remodels have improved apparel.
Not every quarter, maybe up into the right in every category, but if you look at what happens from a trend point of view those are the things we expect to deliver because operating income is growing faster than sales.
Sean: Improved hall to have wider aisles are really happy with the way the signing lab and they also have more investment for our online and pickup and delivery business, which is a key catalyst our ecommerce growth and help us with being flexible for our customers and any type of situation. They want to shop and so there are some costs associated with that in the quarter.
We our plan requires that we grow return on investment at a higher rate over time.
That's the plan.
Thank you.
Okay.
Our next question is from the line of Paul <unk> with Citi. Please proceed with your question.
Sean: But we feel great about those being investments for the long term.
Hey, Thanks, guys.
We have a really big E com business that continues to grow at a rapid pace I'm curious if you could talk about what's driving that growth.
Sean: Kelly This is Jack and related to the last part of what you asked about I don't think theres anything that causes us to think operating income will grow faster than sales.
Traffic versus ticket perspective, and how the growth in the marketplace sellers that you have seen us are contributing to that growth also curious if you could talk a little bit about general merchandise performance online I think you threw out some numbers last quarter about certain categories on the general merchandise side would love to hear how they performed.
Sean: Had really strong sales performance now for a few years, obviously were impacted by what happens in our environment.
Sean: We expect to grow share, we expect to have a healthy topline and as it relates to operating income we've got a really good multiyear plan with two primary dimensions once the automation investments.
Lines this quarter.
Hey morning, Paul It's John I'll start with Walmart U S and then pass it over to Kathy and Chris to talk about the other segments.
Sean: Drives productivity improvements and the other dimension is related to our digital business has changed the shape of the income statement both of those things will be true and it's a multiyear plan shows progress along the way. So you guys from quarter to quarter year to year will see us make progress.
I think as you step back and look at the growth. One we're pleased with our online pickup delivery business from Starz, we have strength in food. The team has continued over the last few years to expand our capacity and more importantly, they've made improvements on key metrics like the one we call perfect order, which is.
Sean: Every quarter, maybe up into the right in every category, but if you look at what happens from a trend point of view those are the things we expect to deliver because operating income is growing faster than sales.
Sean: We our plan requires that we grow return on investment at a higher rate over time.
Giving customers what they want when they want and I think that's a reflection of better in stock and food overall net helped us with our share gains in the food category.
Sean: That's the plan.
Speaker Change: Thank you.
Speaker Change: Okay.
Let's marketplace really pleased with the progress the team has made with let Tom Ward and many having the first segment as we mentioned earlier in the quarter, we have seen more sellers come online our assortment has grown significantly and just this week I was in one of the new fulfillment centers that John David mentioned in Lancaster, Texas.
Speaker Change: Our next question is from the line of Paul <unk> with Citi. Please proceed with your question.
Paul: Hey, Thanks, guys.
Paul: We have a really big E com business that continues to grow at a rapid pace I'm curious if you could talk about what's driving that growth from a traffic versus ticket perspective, and how the growth in the marketplace sellers that you've seen us are contributing to that growth also curious if you could talk a little bit about general merchandise performance.
As a great facility managed by a very qualified team and it's of course.
Reassuring to see the amount of marketplace inventory, that's coming in and seeing the number of marketplace sellers, which we're grateful for those sellers, who trust us to do their fulfillment and and that's been that's been promising.
Paul: And I think you threw out some numbers last quarter about certain categories on the general merchandise side would love to hear how they performed.
Speaker Change: Mines this quarter. Thanks.
Speaker Change: Good morning, Paul It's John I'll start with Walmart U S and then pass it over to Kathy and Chris to talk about the other segments.
Remember we had our first.
Event last week and getting into our holiday season, we have a long way to go from here until the end of the holidays, but really pleased with the results in marketplace, which is of course reflective of our results in the apparel and gifting and other categories that are in line with the question you asked about general merchandise. So these are important businesses because they.
Speaker Change: I think yes.
To step back and look at the growth one we're pleased with our online pickup delivery business from stars with strength in food. The team has continued over the last few years to expand our capacity and more importantly, they've made improvements on key metrics like the one we call perfect order, which is getting customers what they want.
They help customers shop, the way they shop.
The way they want to shop, when they want to shop and marketplace overtime of course will be a key driver to some of the other businesses like advertising as more sellers find customers on the Walmart marketplace they'll want to use services like our fulfillment services and our advertising business. So I'll turn it over to Kathy to talk about the international yes. Thank you for that question I think.
Speaker Change: When they want and I think that's a reflection of better in stock and food overall, and that's helped us with our share gains in the food category.
Speaker Change: Place really pleased with the progress the team has made with Tom warranted Minis, having the first summit as we mentioned earlier in the quarter, we've seen more sellers come online our assortment has grown significantly and just this week I was in one of the new fulfillment centers that John David mentioned in Lancaster, Texas, which is a <unk>.
If you look at our E. Comm result, it's minus three and that I don't think its a really distorted by maybe Jay if you actually look at the underlying growth across the businesses, while Max grew by 16% from an E. Comm perspective, Canada grew by eight E com by 16% a part of that was rolling out delivery.
Speaker Change: Facility managed by a very qualified team and it's of course.
Speaker Change: Reassuring to see the amount of marketplace inventory, that's coming in and seeing the number of marketplace sellers, which we're grateful for those sellers, who trust us to do their fulfillment and thats been thats been promising.
China, China significant number of stores.
If you look at China. The business grew to AECOM business grew by 38% I think all of the teams are really focused on really getting the disciplined dried up a perfect order and making sure that the experience to the customer is delightful.
Speaker Change: Remember we had our first.
Speaker Change: That last week and getting into our holiday season, we have a long way to go from here until the end of the holidays, but really pleased with the results in marketplace, which is of course reflective of our results in apparel and gifting and other categories that are in line with the question you asked about general merchandise. So these are important businesses because they.
I think we continue to learn from each of the different businesses.
<unk> with this yesterday and it's fascinating to see what the learning using G NII in the.
Speaker Change: They help customers shop, the way they shop.
Yes.
Three big billion days, it's just some really clever capability that makes it very seamless and easy to be able to shop online and then if you look at it from a marketplace perspective.
Speaker Change: The way they want to shop, when they want to shop and marketplace overtime of course will be a key driver to some of the other businesses like advertising as more sellers find customers on the Walmart marketplace they'll want to use services like our fulfillment services and our advertising business. So I'll turn it over to Kathy to talk about the international yes. Thank you for that question I think.
And we launched in Mexico, Canada, Chile, and South Africa marketplace. During the last 12 months.
Obviously, if I caught it our largest and most enrollment to our marketplace business.
Kathy: If you look at our E comm resolve its minus three and that I don't think is it really distorted by baby Jay If you actually look at the underlying growth across the businesses, while Max grew by 16% from an E. Comm perspective, Canada grew by eight comp in E com by 16% a part of that was rolling out delivery.
Accelerated marketplace price.
Also through our cross border trade, we have done that through Mexico, and Canada, two U S Cross border sellers and lastly, we launched.
While not fulfillment services in Mexico, Canada, and South Africa in the past 12 months.
Kathy: Turning to China.
Thank good results.
Kathy: That number of stores.
On a positive about the growth potential of marketplace and.
Kathy: If you look at China. The business grew to AECOM business grew by 38% I think all of the teams are really focused on really getting the disciplined dried up a perfect daughter, and making sure that the experience to the customer is delightful.
While not film it services.
So exciting time, Paul Thanks for the question I think what's really interesting for all of us, but definitely for Sam Mendes. One this I'd say, we're giving them what they want.
Speaker Change: I think we continue to learn from each of the different businesses and let Scott <unk> with us yesterday, and it's fascinating to see what the lending using gen III.
Percent of sales, 16% growth in the quarter, but we think you so really huge opportunity and as I think about e-commerce full omnichannel sales.
<unk> I think about it.
Interesting connected member so scan and go teach us all members to Orient digitally relevant business and they look to shop online.
Speaker Change: Yes.
Speaker Change: Three big billion days, it's just some oriented kind of a capability that makes it very seamless and easy to be able to shop online and then if you look at it from a marketplace perspective.
While they're on the way it over on the apps and we feel really good about that with the all time high.
In that space. The other thing is really interesting is as we look at the new membership we got the all time high number of membership.
Speaker Change: And we launched in Mexico, Canada, Chile, and South Africa marketplace. During the last 12 months.
Speaker Change: Obviously, if I caught it out largest enrollment Sheila marketplace business.
And a lot of those people are coming in now with digital engagement that coming in and that buying new memberships digitally.
Speaker Change: We're seeing accelerated marketplace price.
Feeling good in terms of mix GM.
Speaker Change: Also Andrew at Cross border trade, we have been that three makes it again, Mexico and Canada, two U S Cross border sellers and lastly, we launched.
Our club pick.
Grocery penetrated all strong.
We're feeling good about we don't have a marketplace and Sam's yet.
Speaker Change: While not fulfillment services in Mexico, Canada, and South Africa in the past 12 months.
We focused on the items I don't curation of great items, and I think thats going to be really important for the SME business as we as we go forward.
Speaker Change: Thank good results.
Speaker Change: On a positive about the growth potential of marketplace and.
Fishing finished with everything great items driving organic traffic. So we will continue to focus on those great items and I think we'll continue to get a lot of organic traffic that.
Speaker Change: While not fulfillment services.
Speaker Change: So exciting time, Paul Thanks for the question I think what's really interesting for all of us, but definitely for Sam Mendes one this and so we're giving them what they want.
<unk> also asked about general merchandise would you repeat that part of the question.
Speaker Change: Percent of sales, 16% growth in the quarter, but we think it's already huge opportunity and as I think about e-commerce full omnichannel sales.
I was just curious how general merchandise performed online, but in the U S business I think last time, you said there are several categories that were up double digits curious how how some of those general merch categories performed.
Speaker Change: <unk> I think about it.
Speaker Change: Interesting connected member so scan and go teach Selman just to Orient digitally relevant business and they look to shop online.
Yes, Paul.
Really positive strength in categories like hard lines, our auto care Center.
Speaker Change: While they are on the way it over on the apps and we feel really good about that with the all time high.
Is running really well and the events that you talked about alright, I mentioned earlier, it's great to see momentum with strong toy items and customers are responding to great guests like the the Barbie Malibu House, which is selling for $69 89.
Speaker Change: Is it not.
Speaker Change: That space. The other thing is really interesting is as we look at the new members. We've got the all time high number of membership.
Speaker Change: And a lot of those people are coming in now with digitally engaged members coming in and buying new memberships digitally. So we're feeling good in terms of mix GM and <unk>.
One on a rollback. So those types of items are working really well customers also great to see.
After the redesign of the App, how the team is merchandising general merchandise reflective of the season's red.
Speaker Change: Our club pick.
Speaker Change: Grocery penetrated all strong.
Speaker Change: Feeling good about we don't have a marketplace and Sam's yet.
The site was was really on point for Halloween before that for Labor day, and Youll see the site flip quite frequently so the team's doing a nice job reacting and categories to.
Speaker Change: Just on the items I don't curation of great items, and I think thats going to be really important for the Sam's business as we as we go forward.
Speaker Change: Ill finish with everything great items driving organic traffic. So we will continue to focus on those great items in.
So the plans that they have but there is some some categories. There was strengthened and as I said theres still a long way between here and the holidays. We have a good plan our people are ready our inventories and position. So we're ready for our customers.
Speaker Change: And I think we'll continue its got a lot of organic traffic that.
Speaker Change: You also asked about general merchandise would you repeat that part of the question.
Thank you good luck.
Speaker Change: I was just curious how general merchandise performed online, but in the U S business I think last time, you said there are several categories that were up double digits curious how how some of those general merch categories performed.
Our next.
Question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Hi, Thank you good morning.
I was wondering if you could go into any more detail as to what would explain a softening in late October.
Speaker Change: Yes, Paul.
Speaker Change: Really really positive strength in categories like hard lines.
It could partially due to student loans or is it more of a function of being a shoulder period or a lull before the holiday and just the variability you're seeing week to week that you noted increase the risk.
Speaker Change: Auto care Center.
Speaker Change: Running really well.
Speaker Change: And the events are talked about alright, I mentioned earlier, it's great to see momentum with strong toy items and customers are responding to great guests like the the Barbie Malibu House, which is selling for $69 89.
Being more promotional than maybe was originally planned in Q4.
Ken This is John David I'll take this.
Speaker Change: Before one on rollbacks.
Speaker Change: Some items are working really well customers also great to see.
Youre right to call out sort of the economic factors that may be driving us, where we're seeing credit tightening.
Speaker Change: After the redesign of the App, how the team is merchandising general merchandise reflective of the season's red.
In a period of time 12 months after the fed has begun raise.
The site was.
Raising rates, we've seen consumer balance sheets are getting back close to pre pandemic levels <unk> got.
Speaker Change: Was really on point for Halloween before that for Labor day, and you'll see the site flip quite frequently so the team's doing a nice job reacting in categories.
Payment of student loans, which affects about 27 million Americans. So all of these things could be contributing.
Speaker Change: So the plans that they have but there is some some categories. There was strength in and as I said Theres still a long way between here and the holidays. We have a good plan our people are ready our inventories and position. So we're ready for our customers.
I do want to point out John talked about the impact of weather can have on our business and learning that that can have profound effects on consumer shopping patterns and we saw anomalous weather.
In the back half of October so.
Speaker Change: Thank you good luck.
Speaker Change: Yeah.
There's a number of different reasons, we can't put our finger on is exactly and so that's why we take a little bit more of a cautious stance as we go into the fourth quarter call. It out perhaps more variability because there are some trends that have been different than what we saw the first.
Speaker Change: Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Kate Mcshane: Hi, Thank you good morning.
Kate Mcshane: I'm wondering if you could go into any more detail as to what would explain a softening in late October.
First 11 weeks of the quarter not to be alarmist I think our business is still performing really well that's why we called out what we've what we've seen thus far in November in particular, the events that we've had in Walmart U S. Some of the.
Kate Mcshane: It could partially due to student loans or is it more of a function of being a shoulder period or a lull before the holiday and just the variability you're seeing week to week that you noted increased the risk can be.
Kate Mcshane: More promotional than maybe was originally planted expected in Q4.
More festive events internationally, we've seen strong response from our customers but.
Kate Mcshane: This is John David I'll take this.
This is this was the trend we saw in the back half of October was different than anything else. We've seen this year and so we simply want to call that out.
John David: Youre right to call out some of the economic factors that may be driving us, where we're seeing credit tightening.
<unk> promotion, maybe this segment Ceos.
John David: In a period of time 12 months after the fed has begun raise.
Comment on this but I feel like we're in a good place from.
John David: Raising rates, we are seeing consumer balance sheets are getting back close to pre pandemic levels <unk> got.
Overall in inventory level, I don't necessarily see a more promotional holiday season then.
John David: The repayment of student loans, which affects about 27 million Americans. So all of these things could be contributed.
And what we are currently planning.
This is John Kay good morning, I think.
Encouraging is that our traffic or transaction counts remained strong and consistent throughout the quarter.
John David: I do want to point out John talked about the impact of weather can have on our business and learning that that can have profound effects on consumer shopping patterns and we saw anomalous weather.
At the end of October we did grow our Halloween business, a little less than we expected Im sure. There is something to do with weather and it being on a Tuesday, which is different than prior years and then as we got in November with the cold weather, we saw cold weather categories respond right away. Our event was strong so John David said it right.
John David: In the back half of October so.
John David: There's a number of different reasons, we can't put our finger on is exactly and so that's why we take a little bit more of a cautious stance as we go into the fourth quarter call. It out perhaps more variability because there are some trends that have been different than what we saw the first.
Where we.
We're just cautious of of a shift the shift that we didn't see but overall seeing the number of customers who shop continue to grow we are seeing new customers all year across a wide variety of income groups.
John David: First 11 weeks of the quarter not to be alarmist I think our business is still performing really well that's why we called out what we've what we've seen thus far in November in particular, the events that we've had in Walmart U S. Some of the.
We'll be ready for all of those customers will be ready for any anything that they need at the time I really like the flexibility of the team has built in we delivered Halloween up until six PM on the date of that out of the holiday, which is something we haven't been able to do before is our express and same day delivery service continues to grow which is helping us right up until the.
John David: More festive events internationally, we've seen strong response from our customers but.
John David: This is this was the trend we saw in the back half of October was different than anything else. We've seen this year and so we simply want to call that out.
John David: <unk> promotion, maybe this segment Ceos.
John David: Comment on this but I feel like we're in a good place from.
Points customers need product.
John David: Overall in inventory level, I don't necessarily see a more promotional holiday season then.
Thank you.
Our next question is from the line of Michael Lasser with UBS. Please proceed with your question.
John David: And what we are currently planning.
Speaker Change: This is John Kay good morning, I think.
Good morning. Thank you so much for taking my question looking towards next year, how linear relationship between Wal Marts overall comp any operating income growth.
John Kay: Encouraging is that our traffic or transaction counts remained strong and consistent throughout the quarter.
John Kay: At the end of October we did grow our Halloween business, a little less than we expected Im sure. There is something to do with weather and it being on a Tuesday, which is different than prior years and then as we got in November with the cold weather, we saw cold weather categories respond right away. Our event was strong so John David said it right.
So if you only cop, 2%, let's see could you still grow operating income at the higher end of your range call it 7% to 8% and how does the prospect of broad based deflation impact that especially as some of the naysayers.
John Kay: Where.
John Kay: We're just cautious of of a shift the shift that we did see but overall seeing the number of customers who shop continue to grow we are seeing new customers all year across a wide variety of income groups.
That Walmart comp in recent quarter quarters has just been driven by the.
The impact of inflation. Thank you.
Well.
Michael It's good to speak with you one of the things that we're looking at closely and our business units and we've seen good growth in units. So yes. There is.
John Kay: We will be ready for all of those customers will be ready for anything that they need at the time I really like the flexibility of the team has built in we delivered Halloween up until six PM on the date of the out of the holiday, which is something we haven't made little duo Flores, Our express and same day delivery service continues to grow which is helping us right up until.
Not been entirely driven by just higher prices, we think we're positioned well.
As we go into the end of this year and into next year to answer your question. It would depend upon what's driving that.
John Kay: Points customers need product.
The 2% comp and so it's hard to extrapolate trends from this year into that the team here, though is very focused on what could happen in a more deflationary environment and making sure that we're we have a cost structure that supports the revenue environment that we operate in so when you think about the relationship between operating income and.
John Kay: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thank you so much for taking my question looking towards next year, how linear relationship between Wal Marts overall call any operating income growth. So if you only cop, 2%, let's see could you still grow operating.
Sales on a multiyear basis, we actually feel like we're in a really strong position given what's happening in the business.
From one quarter to the next step that may not always be the case as we manage through certain headwinds, but we feel like we're positioned well for.
Michael Lasser: Income at the higher end of your range call it 7% to 8%.
Actually any economic environment, and I'll remind you like I know, there's maybe trepidation our concern among consumer al. This is when we shot. This is when Walmart is at its best when we can deliver value for our members and customers and so we look forward to being able to put our financial results in any economic environment Michael.
Michael Lasser: The prospect of broad based deflation impact that especially at some of the naysayers.
Michael Lasser: <unk>.
Michael Lasser: Walmart comp in recent quarter quarters has just been driven by the.
Speaker Change: The impact of inflation. Thank you.
<unk>, what we want to make sure we're doing everything we can to keep prices as low as possible for our customers.
Well.
Speaker Change: Michael It's good to speak with you one of the things that we're looking at closely and our business units and we've seen good growth in units. So yes. There is.
Really pleased in the in the U S business that a rollback count is up significantly over last year was it was a lot of fun to be able to tell all of our customers that Thanksgiving at Walmart This year will be a lower price than what it was a year ago. We worked really hard the last few years to keep it flat and it's coming down and Thats, great for customers, who had really stubborn inflation accounting.
Speaker Change: Not been entirely driven by just higher prices, we think we're positioned well.
Speaker Change: As we go into the end of this year and into next year to answer your question. It would depend upon what's driving that.
Speaker Change: The 2% comp and so it's hard to extrapolate trends from this year into that the team here, though is very focused on what could happen in a more deflationary environment and making sure that we're we have a cost structure that supports the revenue environment that we operate in so when you think about the relationship between operating income and.
Your site dry grocery so I'm excited when I'm in stores that I was in <unk>, Texas. The other day the number of rollbacks that we have out on feature in front of customers right upfront in categories like dry grocery and a lot of our fresh product categories have come in line eggs and dairy have come back in line from a year ago, that's great for customer.
Speaker Change: Sales on a multiyear basis, we actually feel like we're in a really strong position given what's happening in the business.
And as John David said, that's the time that that we win we deliver value and our team is ready to do that in any condition.
Speaker Change: From one quarter to the next step that may not always be the case as we manage through certain headwinds, but we feel like we're positioned well for <unk>.
Thank you.
Speaker Change: Virtually any economic environment and I'll remind you like I know, there's maybe trepidation our concern among consumer al. This is when we shot. This is when Walmart is at its best when we can deliver value for our members and customers and so we look forward to being able to put our financial results in any economic environment Michael.
Our next question is from the line of <unk> <unk> with Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking my question and I had a question just on the SG&A line. So at least in the Walmart U S business. It appears both wage inflation and remodels appear to be a significant headwind on that line. So just curious if do you expect those headwinds to continue into next year.
Speaker Change: <unk>, what we want to make sure we're doing everything we can to keep prices as low as possible for our customers.
Good morning, it's John.
No. The Remodels really that was a big number of Remodels ahead, I mentioned earlier 197 Remodels completed.
Speaker Change: Really pleased in the in the U S business that a rollback count is up significantly over last year was it was a lot of fun to be able to tell all of our customers that Thanksgiving at Walmart This year will be a lower price than what it was a year ago. We worked really hard the last few years to keep it flat and it's coming down and Thats great for customers you had really stubborn inflation accounting.
Duane late October and November 3rd of course, we will continue our remodel program.
Next year, we have a good plan on the number of sites and we are excited about the results that we're seeing from those we definitely here and.
Speaker Change: You cite dry grocery so I'm excited when I'm in stores that you've already Texas. The other day the number of rollbacks that we have out on feature in front of customers right upfront in categories like dry grocery and a lot of our fresh categories have come in line eggs and dairy have come back in line from a year ago, that's great for customer.
And know that our results change for categories like apparel home.
So I think where we have a good plan there it was a higher number at the end of the corridor in the month and what we had originally originally planned for some of that slipped into later periods. So I think we'll have a good balance as we move forward.
On wages.
Speaker Change: And as John David said, that's the time that that we win we deliver value and our team is ready to do that in any condition.
We're staffed ready for the holiday for the most part.
<unk> and distribution centers are completely staffed there are some some locations that will continue to hire and we didnt that'll we didn't go out this year with a large number of people that we intend to hire for the holiday. We're happy with our full time part time ratio and where we need hours in the next few weeks, which is really next week, our food leading into the event Wednesday.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of <unk> <unk> with Oppenheimer. Please proceed with your question.
Oppenheimer: Good morning, and thanks for taking my question and I had a question just on the SG&A line. So at least in the Walmart U S business. It appears both wage inflation and Remodels appeared to be a significant headwind on that line. So just curious if do you expect those headwinds to continue into next year.
Going into the Thanksgiving holiday and Black Friday.
We'll be ready to manage the business with our existing associates.
Speaker Change: <unk> good morning, it's John.
Thank you.
John: The Remodels really that was a big number of Remodels ahead, I mentioned earlier 197 Remodels completed.
Our next question is from the line of Casino <unk> with Deutsche Bank. Please proceed with your question.
John: Duane late October and November 3rd of course, we will continue our remodel program.
Hi, good morning, and thanks for taking my question.
General merchandise.
John: Next year, we have a good plan on the number of sites and we're excited about the results that we're seeing from those we definitely here.
Low to mid single digit deflation that you're seeing relative to the comp that you put up would imply maybe that the units have improved sequentially. So can you talk about what you are seeing in units.
John: And know that our results change for categories like apparel home.
So I think where we have a good plan there it was a higher number at the end of the quarter in the month and what we had originally.
Sorry, Scott just holiday and how it might be.
Are we thinking about price versus unit dynamic into next year and then two just wanted to see Katherine.
John: Finally planned for some had slipped into later periods. So.
John: <unk>.
John: A good balance as we move forward.
Their initial reflections on the new adult.
On wages.
John: We're staffed ready for the holiday for the most part.
Yes.
Yes.
The first question is about units in general merchandise and as prices have come down or are we seeing.
John: <unk> and distribution centers are completely staffed there are some some locations that will continue to hire.
John: And we Didnt, we Didnt go out this year with a large number of people that we intended to hire for the holiday. We're happy with our full time part time ratio and where we need hours. The next few weeks, which is really next week, our food leading into the event Wednesday, calling into the Thanksgiving holiday and Black Friday.
Thanks for that Mark.
So let's talk about general merchandise first customers.
Customers are responding to rollback, so as I mentioned on earlier in the Barbie category, which is the Malibu Dream House, So we see that consistently cros.
Are there other items in toys and towards the top of mind, because it's the Christmas whether it's the Morrison Doug home set that's rolled by $10 to $25, we have the old classic <unk>.
John: We will be ready to manage the business with our existing associates.
John: Sure.
Speaker Change: Thank you.
$49 down from 59 really good unit movements.
Speaker Change: Our next question is from the line of Casino <unk> with Deutsche Bank. Please proceed with your question.
We're also happy to see.
Said earlier, the number of rollbacks that are across the entire store ends and the assortment.
Casino: Hi, good morning, and thanks for taking my question.
Casino: General merchandise the low to mid single digit deflation that you're seeing relative to the comp that you put up would imply maybe that the units have improved sequentially.
Over 50% over last year or so customer.
Customers are responding, but most importantly, our team is proud to offer great values and lower prices to customers, who have been in a pretty steep inflationary environment in the last couple of years. So it's good to see.
Speaker Change: Can you talk about what you are seeing in units.
Speaker Change: Sorry, Scott just holiday and how might you be thinking about price versus unit dynamic into next year and then too.
Some of these these prices come back in line.
As far as how we think about that going forward.
Mentioned this earlier that the results in e-commerce are quite encouraging at plus 24 for the quarter and the breadth of the offer and E. Commerce as it develops I think is quite encouraging with growth in the marketplace continued acceleration in the online pickup delivery business in our first party business and as we get into this holiday season. The team is.
Speaker Change: Wanted to see Katherine with FCA and their initial reflections on the NIM.
Speaker Change: The first question is about units in general merchandise and as prices have come down are we seeing.
Speaker Change: Good morning.
Worked really hard on an inventory positioning the condition in stores. Our NPS levels are at a really good spot and have continued to improve but I think.
Speaker Change: So let's talk about general merchandise.
Speaker Change: Customers are responding to rollback, so as I mentioned, one earlier in the Barbie category, which is the Malibu Dream.
The result of that as we've had consistent traffic growth throughout the quarter and we continue to see that which is a good sign for what may be to come.
Speaker Change: See that consistently across.
Speaker Change: Are there other items in toys and towards the top of mind, because it's the Christmas whether it's the Morrison dot com set thats rolled by $10 to $25. We have the old classic Rbis $49 down from 59 really good unit movements.
Interesting to watch how that dynamic plays out between general merchandise and food.
So if you've got food prices.
Speaker Change: We are also happy to see as I said earlier, the number of rollbacks that are across the entire store and the assortment.
Doubleclick on that dry grocery versus fresh.
And think about where prices are compared to a year ago. In general there is still up in the two year stack is high but in some fresh categories. As we mentioned earlier, we are seeing prices come down on the GM side as things have come down it's come down.
Speaker Change: And over 50% over last year so.
Speaker Change: <unk> are responding, but most importantly, our team is proud to offer great values on lower prices to customers, who have been in a pretty steep inflationary environment. The last couple of years. So it's good to see.
Steep in the last few weeks, maybe relative to what we had seen before.
Speaker Change: Some of these these prices come back in line.
And so I think it's to be seen if the food prices come down in dry grocery and consumables and we start seeing.
Speaker Change: As far as how we think about that going forward.
Speaker Change: Mentioned this earlier the results in e-commerce are quite encouraging at plus 24 for the quarter and the breadth of the offer and E. Commerce as it develops I think is quite encouraging with growth in the marketplace continued acceleration of the online pickup delivery business in our first party business and as we get into this holiday season. The team is.
Deflation those categories that will free up dollars to be spent in general merchandise and with the rollback positioning in some of the prices were hitting it makes sense that people would be able to shift back to GM as they shop the box to the App. The great thing about our position is we don't really care. They can buy whatever they want to buy we're positioned for food.
Speaker Change: Worked really hard on an inventory positioning the condition in stores. Our NPS levels are at a really good spot and have continued to improve and I think.
Our position with fresh where we're positioned with apparel and with hard lines in with holiday season with the categories like toys.
Speaker Change: The result of that as we've had consistent traffic growth throughout the quarter and we continue to see that which is a good sign for what may be to come.
So we've got a good value regardless of which category Department you look at and we will play to shift as it happens and if we end up where both sides food MGM or deflated.
Speaker Change: To be interesting to watch how that dynamic plays out between general merchandise and food.
And then we just need to focus on driving even more units to your point.
Speaker Change: So if you've got food prices.
Dollar suspend you'll spend on it and we're there for that and we can do it in store club, we can deal with pick up we can do it with delivery. So we feel good about our position and we'll just manage it as the weeks and months play out and it's fascinating to watch it as you are.
Speaker Change: Double click on that dry grocery versus fresh.
Speaker Change: And think about where prices are compared to a year ago. In general there is still up in the two year stack is high but in some fresh categories. As we mentioned earlier, we are seeing prices come down on the GM side as things have come down it's come down.
Cas How's the job going.
Yes, Cristina thanks for the question.
Speaker Change: Steep in the last few weeks, maybe relative to what we had seen before.
I'd say first of all it's incredible.
In a quarter since I stepped into the role.
And so I think it's to be seen if the food prices come down in dry grocery and consumables and we start seeing.
Judy and her team have.
And I really exciting portfolio of businesses.
Speaker Change: Deflation those categories that will free up dollars to be spent in general merchandise and with the rollback positioning in some of the prices were hitting it makes sense that people would be able to shift back to GM as they shop the box to the App. The great thing about our position is we don't really care. They can buy whatever they want to buy we're positioned for food.
And it's been great to be able to get out into the market.
Over the last Quotidien in Mexico, China, and India, and just looking at the pace of transformation and the way the team rise to the challenge to be relevant in those local communities.
Extraordinary and the ability to cross blend between market.
Speaker Change: Position with fresh corporate position with apparel and with hard lines with holiday season with the categories like toys. So we've got a good value.
I guess that we have in the international business.
I've been impressed by the strength of the teams that we have out there.
Speaker Change: Regardless of which category Department, you look at and we will play to shift as it happens and if we end up where both sides food MGM or deflated.
And also just really impressed by how that translating our purpose and mission to save people money. So they can live better into being really relevant whether it's in Canada.
Speaker Change: We just need to focus on driving even more units to your point, they've got dollar suspend they'll spend and we're there for that and we can do it in store club, we can deal with pick up we can do it with delivery. So we feel good about our position and we'll just manage it as the weeks and months play out and it's fascinating to watch it as you are.
They are able to actually have a thanksgiving meal at a price lower than last year.
Well, Max Oh, sorry, well in Mexico.
As Hal down prices on basket, a basket of essential items.
Speaker Change: How's the job going.
No matter, where it is where you are in the international portfolio and the teams are working really hard to be relevant and help those communities celebrate the holiday and festivals that are rolling out.
Speaker Change: Thanks, Christine and thanks for the question.
Speaker Change: I would say first of all it's incredible.
Speaker Change: <unk> been a quarter since I stepped into the role.
It's JJ and the team have.
Q3 and into Q4.
Speaker Change: <unk>.
Speaker Change: Really exciting portfolio of businesses and it's been great to be able to get out into the market.
Started to join the team.
Okay, Thanks, Scott and Christina Thanks for the question.
I think probably I would just like to stop with the chromatin if I have it not running this business to think the Sam's club associates as such.
Speaker Change: In the last quarter Athene in Mexico, China, and India, and just looking at the pace of transformation and the way the teams.
Culture into the hard work that they have done to deliver the results that came I'm really proud of and I'm grateful to all of that closed and all the states kind of awesome to be here in Capex that would tell me that that would be the case.
Speaker Change: As to the challenged a relevant in those local communities.
Speaker Change: Jordan, Larry and the ability to cross blend between market.
Speaker Change: Great gift that we have.
I'm really grateful for the strong foundation, the Sam's club team as Bill freelance talent, a deep bench of merchant talent and it's really as a merchant led business. We've got amazing member led culture fantastic clubs and associates, great items strong brand member's Mark.
Speaker Change: International business.
Speaker Change: I've been impressed by the strength of the teams that we have out there.
Speaker Change: Also just really impressed by how that translating our purpose and mission to save people money. So they can live.
Speaker Change: Better into being really relevant whether it's in Canada, where they.
And the beginnings of a world class E Commerce business and all of that drives strong member value. So I see a really unique opportunity for <unk>.
Speaker Change: We are able to actually have a thanksgiving meal at a price lower than last year.
Speaker Change: Well, Max OSI and Mexico.
To use this momentum as a jumping off point to accelerate that.
Speaker Change: As Hal down prices on basket, a basket of essential items.
Driving greater interest and engagement offering unique value through great items that consumers can't get anywhere else.
Speaker Change: No matter, where it is where you are in the international portfolio. The teams are working really hard to be relevant and help those communities celebrate the holiday and festivals that are rolling out of it.
Deep understanding of members in a way that will make us more relevant to them and club and digitally. So we can appeal to an even broader set of kind of Seamus. So lots to go for really exciting so thanks for asking.
Speaker Change: Q3 and into Q4.
Speaker Change: <unk> joined the team.
Speaker Change: Okay. Thanks, Christine and thanks for the question.
Our next question comes from the line of Robbie <unk> with Bank of America. Please proceed with your question.
Speaker Change: I think probably I would just like to start with if I have it not running this business to think the Sam's club associate as such it already in culture and to the hard work that they have done to deliver the results. The team I'm really proud of and I'm grateful to call. It that close at all at this stage kind of fun to be here in Capex that would tell me that that would be the case.
Hello, Thanks for taking my question actually it's a follow up question on deflation I was hoping.
Doug.
Anyone else could you just talk about just to clarify what's driving the.
LIFO tailwind is it is it all general merchandise right now or is there a grocery in there.
Speaker Change: I'm really grateful for the strong foundation, the Sam's club team as bill freelance talent, a deep bench of merchant talent NH.
Doug you mentioned lowering grocery prices.
But you also mentioned I think stubborn inflation still out there in your opening comments.
Speaker Change: He is a merchant that business, we've got amazing member led culture fantastic clubs and associates, great items strong brand members, Mark and the beginnings of a world class E Commerce business and all of that drives strong member value. So I see it bringing a unique opportunity for <unk> to use this momentum as a jumping off point Chuck.
So is there just maybe even a little more color like is dry grocery getting set to deflate is that what you guys are seeing and then also where do wage pressures come in do you think wage pressures are also sort of disinflate ing now.
Ravi good to speak with you. This is John David I'll start address the LIFO part of the question and then maybe hand, it over to Doug and others on.
Speaker Change: Salary and driving greater interest and engagement offering unique value.
On the improvements that we've made there that that is as you know dependent upon the cost of goods that we're buying and we've seen the pricing level come down overall broadly, but I don't want to.
Speaker Change: Great items that consumers can't get anywhere else.
Speaker Change: A deep understanding of members in a way that will make us more relevant to them. Both in club and digitally. So we can appeal to an even broader set of kind of Seamus. So yes lots gopal really exciting so thanks for asking.
Mess fee the point to mention that our teams have actually done a really good job of working with suppliers to help affect that outcome.
Speaker Change: Our next question comes from the line of Robbie <unk> with Bank of America. Please proceed with your question.
This is not something that just happens to us. The team has worked to actually have this outcome. So it's far better than what we expected when we went into the beginning of the year and we're actually pleased to see this outcome.
Robbie: Hello, Thanks for taking my question actually it's a follow up question on deflation I was hoping.
Robbie: Doug.
Robbie: Anyone else could you just talk about just to clarify what's driving the.
And John David is that is that is just to clarify is that general merchandise vendors or is that all vendors, including grocery vendors.
LIFO tailwind is it is it all general merchandise right now or is there a grocery in there.
Its across all categories, it probably skews, a little bit more to consumables and Jim.
Robbie: Doug you mentioned lowering grocery prices.
Robbie: You also mentioned I think stubborn inflation still out there in your opening comments.
Robert This is Doug generally across markets, we have an inflationary environment.
Robbie: So is there just maybe even a little more color like is dry grocery getting set to deflate is that what you guys are seeing and then also where do wage pressures come in do you think wage pressures are also sort of disinflate ing now.
The U S and what we went through here. The last few years is more dramatic than.
What I've seen in the U S, but of course that experience set in Brazil, and Argentina and other places.
China is not really inflated.
That's an outlier as it relates to this conversation, but in the U S. Specifically as I mentioned, a few minutes ago in the fresh categories, you see beef up.
Speaker Change: Ravi good to speak with you. This is John David I'll start address the LIFO part of the question and then maybe hand, it over to Doug and others.
X chicken seafood down so.
John David: On the improvements that we've made there.
<unk> will do what commodities will do.
John David: As you know dependent upon the cost of goods that we're buying and we've seen the pricing level come down overall broadly, but I don't want to mess.
General merchandise.
Had been coming down and came down a little more aggressively in the last few weeks or months then the trend before that which we think is a really good thing.
John David: Yes.
John David: Point to mention that our teams have actually done a really good job of working with suppliers to help affect that outcome.
But it does start to have an impact on dollars when units.
Units don't go up enough to offset the deflationary impact as it relates to the.
John David: This is not something that just happens to us. The team has worked to actually have this outcome. So it's far better than what we expected when we went into the beginning of the year and we're actually pleased to see this outcome.
The dry grocery and consumables question feels like a key question will it come down with those categories come down.
Speaker Change: And John David does that is that is just to clarify is that general merchandise vendors or is that all vendors, including grocery vendors.
Hope they will on a two year stack in Walmart U S. John I think we're still mid double digits slightly versus a year ago.
Speaker Change: Across all categories, it probably skews, a little bit more to consumables and Jim.
We think we may see dry grocery and consumables start to to deflate in the coming weeks and months and so as we look ahead to next year we.
Speaker Change: Robert This is Doug generally across markets, we have an inflationary environment.
Could find ourselves in Walmart U S with a deflationary environment and John David mentioned earlier that caused us to think about what are we doing with expenses are we ready for that it's too early to call how dramatic it will be and as we mentioned earlier.
Speaker Change: The U S and what we went through here. The last few years is more dramatic than what.
What I've seen in the U S. But of course had experienced that in Brazil, and Argentina Other places.
Speaker Change: China is not really inflated.
Speaker Change: That's an outlier as it relates to this conversation, but in the U S. Specifically as I mentioned, a few minutes ago in the fresh categories, you see beef up.
We are happy about it we want our customers and members to have lower prices and we will manage mix and we'll manage through it better than better than anyone and it doesn't change anything.
Speaker Change: X chicken and seafood down so.
Our plan all the things that we've been doing to change to be able to serve people in new ways like with pickup and delivery and the expansion of the marketplace. All the things that flow from that that help us with operating income all those things are still true regardless of what the topline dollar growth rate looks like as a total enterprise and for a while now we've.
Speaker Change: <unk> will do what commodities will do Jim.
Speaker Change: General merchandise.
Speaker Change: Had been coming down and came down a little more aggressively in the last few weeks or months and the trend before that which we think is a really good thing.
Speaker Change: But it does start to have an impact on dollars when units.
Speaker Change: Units don't go up enough to offset the deflationary impact as it relates to.
Talking about four and greater than four if you look back at the last three years.
Our press to remember 2019, it seems like a long time ago 2019 grew fast in 2018 on a calendar year basis.
Speaker Change: The dry grocery and consumables question feels like the key question will it come down one of those categories come down.
Speaker Change: Hope they will on a two year stack in Walmart U S. John I think we're still mid double digits slightly versus a year ago.
So we had a a trending growth rate moving the right direction and then the pandemic hits and then inflation hits. So if you look back at the last three or four years, we've been growing fashion for if we find ourselves in a deflationary environment next year, and we grow at four or a little less than four or around four.
Speaker Change: We think we may see dry grocery and consumables start to to deflate in the coming weeks and months and so as we look ahead to next year.
Speaker Change: We could find ourselves in Walmart U S with a deflationary environment and John David mentioned earlier that caused us to think about what are we doing with expenses are we ready for that it's too early to call how dramatic it will be and as we mentioned earlier.
As long as we're growing share and improving what we're doing for our customers and members on the top line that will be what it will be we will get as much as we earn but the operating income percentage will still go up because we got this automation plan and we've got the digital businesses reshaping income statement.
Speaker Change: Are happy about it we want our customers and members to have lower prices and we will manage mix and we'll manage through it better than better than anyone and it doesn't change anything.
Which will help returns. So the plan is the plan. We are executing we're just trying to communicate with you today as we release our results. What we saw the last part of October in Walmart U S. In particular communicate what's happening with expenses, but fundamentally what's happening here is exactly what was happening here three months ago six months ago.
Speaker Change: That our plan all the things that we've been doing.
Speaker Change: To change to be able to serve people in new ways like with pickup and delivery and the expansion of the marketplace. All the things that flow from that that help us with operating income all those things are still true regardless of what the topline dollar growth rate it looks like as a total enterprise and for a while now we've been talking about for and greater than four if you look back at the lab.
Executing our plan.
And just anything on wage pressures Doug.
Yes.
Wage inflation is not as bad as it was before.
John mentioned earlier, what happened in Walmart U S I'm not worried about wages.
Speaker Change: Last three years.
We've got an appropriate wage.
Speaker Change: Hard pressed to remember 2019, it seems like a long time ago 2019 grew faster in 2018 on a calendar year basis.
<unk> for our associates planned for next year I think we're in good shape. We're staffed we've got a good plan.
Speaker Change: So we had a trending growth rate moving the right direction and then the pandemic hits and then inflation hits.
Not concerned about that aspect of it.
Great. Thank you.
Sure.
Our next question is from the line of Scot Ciccarelli with choice Securities. Please proceed with your question.
Speaker Change: If you look back at the last three or four years, we've been growing fashion and for if we find ourselves in a deflationary environment next year, and we grow at four or a little less in Florida or around four.
Good morning, guys. So another question actually on Remodels I know you had a lot over the last couple of months as you referred to.
Speaker Change: As long as we're growing share and improving what we're doing for our customers and members on the top line that will be what it will be we will get as much as we earn but the operating income percentage will still go up because we got this automation plan and we've got the digital businesses reshaping income statement, which will help returns. So the plan is the plan we are <unk>.
But given the strong returns on the Remodels does it makes sense to continue to accelerate that process. Even if it holds back earnings flow through a bit in the near term and then related to that if you do accelerate the process, where do you have to go on the timeline to where you start to see more benefit than incremental expense on a net basis.
I think the short answer is it does make it does makes sense to accelerate and we have accelerated so we will complete this year a couple of hundred more than we did the last few years. So the number of Remodels has gone up.
<unk>, we're just trying to communicate with you today as we release our results. What we saw the last part of October in Walmart U S. In particular communicate what happened with expenses, but fundamentally what's happening here is exactly what was happening here three months ago six months ago.
The team has gotten much more I'd say.
Speaker Change: Executing our plan.
Speaker Change: And just anything on wage pressures Doug.
And their arms around the process the new fixtures. The changes so the remodels are happening a bit quicker and more smoothly than than they were in years past and also the supply chain is helping we we were going to remodels in 'twenty, one 'twenty, two where we had a hard time getting fixtures and getting parts and getting equipment and on time. So we're feeling better about the way. These are all coming together.
Speaker Change: Yes.
Wage inflation is not as bad as it was before.
Speaker Change: John mentioned earlier, what happened in Walmart U S I'm not worried about wages.
Speaker Change: We've got an appropriate wage.
Speaker Change: <unk> for our associates planned for next year I think we're in good shape. We're staffed we've got a good plan now.
The performance of the Remodels we are.
Speaker Change: I'm not concerned about that aspect of it.
Speaker Change: Great. Thank you.
Continue to be pleased with on the topline we continue to be pleased with the NPS numbers, we see the customer reaction of the new assortment, particularly as I mentioned earlier apparel pads beauty home a number of categories.
Speaker Change: Sure.
Speaker Change: Our next question is from the line of Scot Ciccarelli with <unk> Securities. Please proceed with your question.
Scot Ciccarelli: Good morning, guys. So another question actually on Remodels I know you had a lot over the last couple of months as you referred to but.
Is really great and I mentioned novas and when that completed just a couple of weeks ago and you've already Texas.
Scot Ciccarelli: But given the strong returns on the Remodels does it makes sense to continue to accelerate that process. Even if it holds back earnings flow through a bit in the near term and then related to that if you do accelerate the process, where do you have to go on the timeline to where you start to see more benefit than incremental expense on net basis.
Such great purchase.
It's a great investment in the community it makes the store fill new refresh.
The people are there is there is a.
And a different look in their eye and a smile their associates are thrilled with the results and that we're really proud of it and as we got in the holidays.
Speaker Change: I think the short answer is it does make it does makes sense to accelerate and we have accelerated so we will complete this year a couple of hundred more than we did the last few years. So the number of Remodels has gone up.
I think that customers will really love to see in these communities all across the us more access to different products than they had before and one of the things that some partners in that.
Speaker Change: The team as Scott and much more I'd say.
All of these remodel processes at the customer notices the difference and I noticed the difference not only that facility, but in the product and I think we're delivering both of those from the Remodels. So we will continue an aggressive plan for the remodel locations into next year.
Speaker Change: And their arms around the process the new fixtures that changes so the remodels are happening a bit quicker and more smoothly than than they were in years past and also the supply chain is helping we reoriented remodels in 'twenty, one 'twenty, two where we had a hard time getting fixtures and getting parts and getting equipment and on time. So we're feeling better about the way. These are all coming together.
And so is there a headwind to profit flow through as that process continues at that pace now it's in the plan.
And in Q3 is a few that had.
The performance of the Remodels we are.
<unk> been in process slip into late October.
Speaker Change: Continue to be pleased with on the topline we continue to be pleased with the NPS numbers, we see the customer reaction of the new assortment, particularly as I mentioned earlier apparel hats beauty home a number of categories.
And then 117 in one day was quite a big number so what youll see going forward is a more balance of remodels completing by quarter.
Daily we would've liked.
Wouldn't want to have those so close to the holiday I think the teams have done a nice job, finishing the remodels and then getting back right into merchandising for the holiday. So it would be more even across quarters, but thats all built into our plan.
Speaker Change: Is really great and that I mentioned and when that completed just a couple of weeks ago and you holiday Texas.
Speaker Change: Such great purchase of such a great investment in the community. It makes the store fill new refresh.
Got it very helpful. Thank you. Thank you.
Speaker Change: People are there is there is a.
Our next question is from the line of Edward Kelly with Wells Fargo. Please proceed.
Speaker Change: And a different look in their eye and it's milder associates are thrilled with the results and that we're really proud of it and as we got in the holidays.
With your question.
Hi, Good morning, everyone. Thank you for taking my question.
I have a question on the gross margin in the U S.
Speaker Change: I think that customers will really love to see in these communities all across the us more access to different products than they had before.
The margin was up year.
I think the expectation was that it maybe could have been better than that I was hoping that you could provide some of the puts and takes around that.
Speaker Change: One of the things that's important to us.
Speaker Change: All of these remodel processes at the customer notices the difference and I noticed the difference not only that facility, but in the product and I think we're delivering both of those in the remodel. So we'll continue an aggressive plan for the remodel locations into next year.
Not sure if <unk>, one is maybe having a bigger impact.
Their suggestions thoughts on the gross margin this quarter and then maybe how we should think about that in Q4, and then a clarification around the legal charge.
Speaker Change: And so is there a headwind to profit flow through as that process continues at that pace now it's in the plan.
I think you said $775 million, but then 40 basis points, so I'm not really sure.
Speaker Change: And in Q3 is a few that had.
I'm a little bit confused about about that about that thank you, yes, the legal charges 40 basis points, Joe at that number.
Speaker Change: <unk> been in process slip into late October.
Speaker Change: And then 117 on one day was quite a big number so what youll see going forward is a more balance of remodels completing by quarter.
As it relates to our guidance for the year.
I will point out that seven to seven 5% operating income on our businesses $125 million.
Speaker Change: Ali we would've liked to at some point.
Speaker Change: Wouldn't want to have those so closer to the holiday I think the teams have done a nice job, finishing the remodels and then getting back right into merchandising for the holiday. So it would be more even across quarters, but thats all built into our plan.
That is really more.
It's kind of a precise number for the size of business that we are and so that the magnitude of some of these things like a hurricane like the legal charges push us to the to the lower end of that range for the year.
Speaker Change: Got it very helpful. Thank you. Thank you.
Speaker Change: Our next question is from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
On general merchandise.
We did see some of the impact from <unk>.
Edward Kelly: Hi, Good morning, everyone. Thank you for taking my question.
Business mix.
In the quarter, we benefited from that.
Edward Kelly: I had a question on the gross margin in the U S.
U S was up five bps, if I remember correctly, but.
Edward Kelly: Yes.
Edward Kelly: The margin was up year on.
Doug noted too like we're certainly trying to be.
Edward Kelly: The year I think the expectation was that it maybe it could have been better than that I was hoping that you could provide some of the puts and takes around that.
Lower prices for our customers and make sure that we're providing the value that they need. So there is a balance of all of that that's impacting those numbers.
Speaker Change: Not sure if <unk>, one is maybe having a bigger impact.
Speaker Change: Their suggestions thoughts on the gross margin this quarter and then maybe how we should think about that in Q4, and then a clarification around the legal charge.
Thank you.
Yeah.
Our next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Speaker Change: I think you said $775 million, but then 40 basis points, so I'm not really sure.
Hey, guys. Good morning, Thanks for taking the question just G. L. P. One just came up here on that last question just curious.
Speaker Change: I'm a little bit confused about about that about that thank you, yes, the legal charges 40 basis points.
Here, it's a thing maybe expand on maybe what you're seeing there how it's impacting your business.
Speaker Change: And then as it relates to our guidance for the year.
Currently and what you see for that going forward. Thank you.
Speaker Change: I will point out that seven to seven 5% operating income on our businesses $125 million.
Hey, Peter Good morning, Thanks, Thanks for the question.
It's still early.
Speaker Change: That is really more.
Time will tell how this affects the customer FX business and as we said before we are seeing some shifts in categories.
Speaker Change: It's kind of a precise number for the size of business that we are and so that the magnitude of some of these things like a hurricane like the legal charges push us to the to the lower end of that range for the year.
But right now we really don't have anything else to add.
Above and beyond what we've said in the past.
Yeah.
Okay.
Okay fair enough. Thank you.
Speaker Change: On general merchandise.
Yes.
Speaker Change: We did see some of the impact from <unk>.
Thank you. Our final question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Speaker Change: Business mix.
Speaker Change: In the quarter, we benefited from that.
Speaker Change: U S was up I think five bps, if I remember correctly, but.
Hey, good morning, everyone I wanted to follow up on the consumer I know it was discussed quite a few times today, but yes.
Speaker Change: Doug noted too like we're certainly trying to be too.
Throughout the year have discussed a number of different signals of sensitivity.
Doug Mcmillon: Lower prices for our customers and make sure that we're providing the value that they need. So there is a balance of all of that that's impacting those numbers.
Buying more around paycheck cycle seeking more value coming up with the promotional event. So just curious if you could provide a little bit more perspective on that and maybe more specifically what you are seeing in terms of market share across income cohorts. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Yes for Walmart U S specifically, John as it relates to share.
Hey, guys. Good morning, Thanks for taking the question just <unk> one just came up here on that last question just curious.
Thanks Ross.
We've been we've been pleased to see share growth all year, and we've talked about that across income groups and whats bullish.
Speaker Change: Here, it's a thing maybe expand on maybe what you're seeing there how it's impacting your business.
Speaker Change: [noise] currently and what you see for that going forward. Thank you.
What's been encouraging as of late is a bit higher share growth and general merchandise categories. We saw that month by month throughout the third quarter.
Hey, Peter Good morning, Thanks, Thanks for the question.
Speaker Change: It's still early and time will tell how this affects the customer effects business and as we said before we're seeing some shifts in categories.
I don't know that we have a lot more to add on the consumer than what we've already said.
I think we covered it.
Speaker Change: But right now we really don't have anything else to add.
We are well positioned and I think our value proposition across categories and the way, we are serving people, which helps them save time as well as save money.
Speaker Change: Above and beyond what we've said in the past.
Okay.
Speaker Change: Okay fair enough. Thank you.
It has to feel good about our position for the quarter, we get a lot of questions about what's happening in the U S economy, and other economies and what's happening with the consumer and we feel compelled sometimes to try and help explain what we're seeing but to be clear from our point of view, we are front footed offensive and feeling good about our opportunity in stores and clubs look good.
Speaker Change: Yes.
Speaker Change: Thank you. Our final question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Hey, good morning, everyone I wanted to follow up on the consumer I know it was discussed quite a few times today, but you guys throughout the year have discussed a number of different signals of sensitivity.
That's the way, we're thinking about the quarter.
Seth Sigman: Buying more around paycheck cycle seeking more value coming out of the promotional event. So just curious if you could provide a little bit more perspective on that and maybe more specifically what you are seeing in terms of market share across income cohorts. Thank you.
Okay. Thank you.
Yes, I'll just wrap up here, we've got a little over time.
I'm as excited as I have been we're executing our plan. We've got a good plan customers and members are choosing us and I think they have been choosing us not only because of price leadership, which they can count on and will continue but also because we're making it easier to shop with us our NPS scores in stores and clubs are encouraging our NPS.
Speaker Change: Yes for Walmart U S specifically, John as it relates to share.
Speaker Change: Thanks for asking.
John: We've been we've been pleased to see share growth all year, and we've talked about that across income groups.
John: And whats voice.
John: What's been encouraging as of late is a bit higher share growth and general merchandise categories.
Scores as theyre, improving across pickup and delivery are encouraging.
We just want to save people money and time and make this easy and help them have a great holiday season, and I think as it relates to the top line.
We saw that month by month throughout the third quarter.
Speaker Change: I don't know that we have a lot more to add on the consumer than what we've already said.
Can continue to expect that we will outperform and do well.
Speaker Change: I think we covered it.
As it relates to operating income growth will grow at faster than sales over time, because we've got really good automation planned metrics that Jon David outlined when we started the call are really encouraging we continue to feel very good about what that's going to mean for our business and then as it relates to the business mix having.
Speaker Change: We are well positioned and I think our value proposition across categories and the way, we are serving people, which helps them save time as well as save money.
Speaker Change: Causes us to feel good about our position for the quarter, we get a lot of questions about what's happening in the U S economy, and other economies and what's happening with the consumer and we feel compelled sometimes to try and help explain what we're seeing but to be clear from our point of view.
Having ecommerce grow so much.
Across our segments is awesome and encouraging and as a reminder, that is a combination of first and third party.
Speaker Change: Our front footed offensive and feeling good about our opportunity in stores and clubs look good.
Speaker Change: That's the way, we're thinking about the quarter.
And as we grow with our suppliers and also with our marketplace sellers, we get those opportunities to serve them with with ads to serve them through fulfillment services to monetize our data in different ways. So the business model change will continue.
Speaker Change: Great. Thank you.
Speaker Change: Yes, I'll just wrap up here and we've got a little over time.
Speaker Change: I'm as excited as I have been we're executing our plan. We've got a good plan customers and members are choosing us and I think they have been choosing us not only because of price leadership, which they can count on and will continue but also because we're making it easier to shop with us our NPS scores in stores and clubs are encouraging our MP.
It will enable that operating income growth to help us improve returns over time.
So.
And see about Christmas every year. This is my 30, <unk> year and I feel like.
It's a bit of a rerun that it seems like we're always talking about customers being price conscious and we always will be and they're always looking for the hot toy and the right gift for Christmas and they will come by food for us for Thanksgiving and for the Christmas meal, and then new year's will come and we will have clearance prices after.
Speaker Change: Scores as theyre, improving across pickup and delivery are encouraging we.
Speaker Change: We just wanted to save people money and time and make this easy and help them.
Speaker Change: Holiday season, and I think as it relates to the top line.
Speaker Change: Can continue to expect that we will outperform and do well.
Speaker Change: And as it relates to operating income growth will grow faster than sales over time, because we've got really good automation planned metrics that Jon David outlined when we started the call are really encouraging we continue to feel very good about what that's going to mean for our business and then as it relates to the business mix.
Christmas and we will have a strong January because customers will react to clearance.
At least the first couple of weeks when that's happening and we will update you on the fourth quarter and tell you how it went but we feel really good about our position and excited about executing this plan and appreciate your ongoing support and interest in our company.
Speaker Change: Having ecommerce growth so much.
Thank you.
Speaker Change: Across our segments is awesome and encouraging and as a reminder, that's a combination of first and third party.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Speaker Change: And as we grow with our suppliers and also with our marketplace sellers, we get those opportunities to serve them with with ads to serve them through fulfillment services to monetize our data in different ways. So the business model change will continue.
Speaker Change: It will enable that operating income growth to help us improve returns over time.
Speaker Change: So.
Speaker Change: And see about Christmas every year. This is my 30, <unk> year and I feel like.
Speaker Change: It's a bit of a rerun and that it seems like we're always talking about customers being price conscious and we always will be and they're always looking for the hot toy and the right gift for Christmas and they will come by food for us for Thanksgiving and for the Christmas meal, and then new year's will come and we will have clearance prices after.
Hi, I'm <unk> I'm with the product management team at all Walmart E. Commerce I took this role because I wanted to be able to build products that would really set the foundation for the <unk>.
Future of Walmart E Commerce, and retail and that's where Walmart really is right now defining what the future of retail is an exciting place to be a part of the team is really a huge plus here you've got a great culture, a super collaborative very diverse and really sets the bar high in terms of performance and you have the opportunity to really leave your mark and.
Speaker Change: Christmas and we will have a strong January because customers will react to clearance.
Speaker Change: At least the first couple of weeks when that's happening and we will update you on the fourth quarter and tell you how it went but we feel really good about our position and excited about executing this plan and appreciate your ongoing support and interest in our company.
Packed for what the future of retail could really be.
Yes.
Okay.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
[music].
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes.
Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Henry.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Tim.
Speaker Change: Hello.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay.
Yeah.
[music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
[music].
Speaker Change: Yes.
Okay.
Thank you.
Speaker Change: Oh.
[music].
Great.
Speaker Change: Yes.
Speaker Change: Okay.
Yes.
Speaker Change: Please go.
Speaker Change: Go ahead please.
Speaker Change: Hi, Brian.
Speaker Change: Okay.
Yes.
Speaker Change: Okay.
Speaker Change: Good morning.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Great.
Speaker Change: Sure.
Okay.
[music].
Okay.
Greetings welcome to Walmart's fiscal year, 2024 first quarter earnings call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to Steph Wissink Senior Vice President of Investor Relations Steph you may begin.
Thank you and welcome everyone. We're excited to discuss the results of a strong first quarter and our upwardly revised outlook for the year.
Joining me on the call are Walmart CEO, Doug Mcmillon, and CFO, John David Rainey.
Following prepared remarks from Doug and John David We'll take your questions.
At that time, we will be joined by our segments Ceos, John Furner from Walmart U S. Judith Mckenna from Walmart International and Kath Mclay from Sam's club.
In order to address as many of your questions as we can in the time allotted for this call. Please limit yourself to one question.
The operator will mute your line. After your question has been posed after management has responded we will move to the next person in line.
Today's call is being recorded and management may make forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC.
These review our press release and accompanying slide presentation for a cautionary statement regarding forward looking statements as well as our entire safe Harbor statement and non-GAAP reconciliations on our website at stock Dot Walmart Dot com.
Thank you for your interest in Walmart, Doug we are now ready to begin.
Good morning, and thanks for joining us to discuss our Q1 results.
We had a strong first quarter.
Sales growth was strong globally, including growth of 26% any commerce.
Profit grew much faster than sales and we made further progress on inventory levels.
The Omnichannel model, we're building continues to resonate with customers and members.
As expected a higher mix of sales in the food and consumables categories negatively affected gross profit, but strong expense management and progress with our newer mutually reinforcing businesses helped us grow profit ahead of sales at 17, 3%.
The business model, we outlined at our recent Investor Conference is taking shape.
International had a great quarter, continuing our momentum from last year sales.
Sales grew 12, 9% in constant currency and profit grew even faster at 41%.
China Wall, Max and flip cart, all saw double digit topline growth.
In China, the reopening of the economy coincided with the Chinese new year season, and that drove traffic to our clubs and stores.
Stamps club China continues its strong performance.
For India, a group of US were there last week and we let them even more excited about our opportunities flip cart and foam, how youre doing well our Walmart Tech team. There is strong and we have a big opportunity to increase our exports from India across quite a few merchandise categories.
In the U S. Both Walmart and Sam's club performed well with good transaction growth positive units in food and strong e-commerce growth.
We continue to gain market share in the grocery category, including with higher income and younger shoppers and we saw good growth in membership income in both businesses.
At Sam's Club U S member Count and plus member penetration hit all time highs in the quarter.
Our growth is now being driven by convenience. In addition to price we see it across formats and in common age cohorts.
In terms of inventory we're in good shape.
Stock is improving and excess inventory keeps coming down we see it in the numbers and I'm seeing in on store and club visits.
Globally customers continue to seek value given the impact of inflation.
We see it in the U S and in other markets like Mexico, Canada and Chile.
Private brand penetration is up about 110 basis points versus last year for Walmart U S and 50 basis points for walnuts.
We continue to manage our price gaps and deliver value for our customers and Walmart U S. General merchandise costs are now lower than a year ago, which is great, but there is still higher than two years ago. Unlike items.
And the dry grocery and consumables categories like paper goods, we continue to see high single digit to low double digit cost inflation.
We all need those prices to come down the.
The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families. We serve.
The stubborn inflation in dry grocery and consumables is one of the key factors, creating uncertainty for us in the back half of the year because of the cumulative impact on discretionary spending and other categories, specifically general merchandise.
We've got guidance, where it should be reflecting the appropriate amount of conservatism given the external environment, we feel very good about our performance, our multi year momentum and our ability to serve people. However, they want to shop and do it at a value.
We're executing well and performing well in all three segments John.
John David will say more about how we're thinking about guidance in a minute.
As we look ahead to Q2 and the rest of the year, we're focused on getting our merchandise costs and retails down to fight inflation for our customers and members, which will help us with mix pickup.
Pickup and delivery execution, whether that comes from a store or NFC.
Expense management and inventory management by item and category. There are places to play offense and there are places to be more conservative we shouldnt be treating every category the same way and we aren't we're playing offense, where we should and controlling what we can control.
Last month, we hosted our Investor meeting in Florida, where we visited a D C store and a Sam's club.
For those of you that made that trip. Thank you, we really enjoyed it and hope you did too we.
We had three takeaways.
First we're positioned to grow because we can serve customers and members. However, they want to be served.
Second over time, we expect to grow profit faster than sales and improve operating margin due to productivity improvements and the mix of businesses and third we will be disciplined with capital to improve ROI as we grow operating income.
I hope you can see how the investments we've made in recent years are driving results. We added nearly $11 billion in sales in Q1 delivered 58 basis points of expense leverage and expanded operating margin by 34 basis points.
As for returns, we want operating profit growing faster than sales and we expect to see an inflection in ROI in the coming quarters as we begin to lap large one time items from past quarters.
The Investor meeting also gave us an opportunity to show off a piece of the automation, we're working on in an ambient D C.
And while it's an important piece of what we're building our overall set of capabilities go far beyond that we're building a more connected intelligent and automated network.
Adding marketing fulfillment centers, or mfc's, which utilize the automated storage and retrieval systems and we expect to add thousands of electric vehicles to support our last mile delivery capabilities.
It's about creating a supply chain, that's better not just bigger.
We're excited about how our new capabilities will help our associates by making some of our more physically demanding jobs into more rewarding higher skilled career paths.
We're hosting our annual shareholders week events and a couple of weeks here in northwest, Arkansas part of the experience will include a tour of an MFC. We've just opened.
It will be a good chance to see another piece of what we're building.
I'll close by saying. Thank you. Thank you to our associates for helping us deliver another strong quarter, we're proud of them and pleased at both Walmart and Sam's club in the U S were recently certified as a great place to work by the industry leader in workplace excellence.
Thank you for your interest in our company now over to John David. Thanks.
Thanks, Doug I'd like to start by thanking our customers associates and partners for helping us deliver a strong quarter to start the year.
Despite a challenging macro environment the team executed and we made progress advancing our various strategic initiatives.
I'll begin by reviewing highlights for the quarter using the framework of growth margins and returns.
And then I'll spend a couple of minutes reviewing key themes from our recent investor day before detailing our updated guidance.
Starting with growth for the first quarter constant currency sales increased nearly 8% or about $11 billion with strength across all segments.
Walmart U S comp sales, excluding fuel increased seven 4%, including 27% growth in E. Commerce. After a strong start sales growth moderated as the quarter progressed, the 90 basis point deceleration in comp sales growth from Q4 was driven by pricing and the effect of lapping higher inflation rates in the <unk>.
Prior year period.
We continue to gain share and grow unit volume in grocery this was consistent with our expectations and how we built our plan.
At the headline level consumer spending has proven resilient, but below the surface. We continue to see signs that customers remain choice, particularly in discretionary categories. In Q1, we saw nearly 360 basis points shift in U S sales mix from general merchandise to grocery and health and wellness debenture.
Mark the magnitude of this shift exceeds the 330 basis points of category mix shift we experienced in all of last year. In addition to the persistence of inflation in food and consumables customers were also impacted by a reduction of snap benefits and lower tax refunds.
These impacts were partially offset by higher spending tied to an increase in the cost of living adjustment for social security benefits.
In our international segment sales were strong up nearly 13% on a constant currency basis led by double digit growth in China, <unk> and flip cart. Many of the same impacts on consumer spending in the U S affected our international markets too.
And Sam's club U S comp sales increased 7% with member fee income up six 3% average spend per member increased mid single digits.
Now on margins consolidated gross margins decreased 18 basis points with ongoing pressure from category sales mix globally. This.
This headwind was partially offset by a reduction in supply chain and freight costs relative to last year's heightened levels.
<unk> mix was a notable headwind across geographies and formats.
Walmart U S general merchandise sales declined mid single digits, while food and consumable sales increased low double digits.
Inflation in food and consumables came down over 400 basis points from the start of Q1 to the end of the quarter, but prices remain high and customers are being cautious with their spend and discretionary categories.
And while we make attractive margins in food and consumables, we have a lower margin than general merchandise, we expect category mix to remain a gross margin headwind for the balance of FY 'twenty four.
Higher margin initiatives that are connected to our core omni retail business, including marketplace advertising and membership continue to meaningfully outgrow the base I'll discuss each of these first marketplace and fulfillment services.
We're growing our marketplace with new items and sellers and an improved experience we've increased seller counts in the U S by more than 40% year over year and the number using Walmart fulfillment services has more than doubled.
We're adding higher profile in demand brands that our customers are searching for it.
But not typically distributed at Walmart elevating our profile as a digital shopping destination.
And in India flip carts Commerce platform continues to scale growing first time e-commerce customers and expanding its reach in tier two and tier three cities.
Cards E card business now includes more than 35000, Corona partners as well as providing fulfillment services for flip cart sellers and other third parties.
Moving to advertising, our global advertising business delivered strong growth of over 30% in Q1.
In the U S. Walmart connect advertising sales increased nearly 40% as we experienced strong momentum in new advertisers, particularly from marketplace sellers.
And the number of Threep sellers utilizing our AD capabilities has doubled over the past 12 months.
Sams Club AD business called member access platform grew double digits with the number of active advertisers up more than 50% versus last year.
Advertisers are responding to our recently launched in club sales attribution feature which provides advertisers with clear insights on the returns of digital AD spend both online and in clubs, while enhancing member experience and an international the advertising business continued to show strength led by flip cart adds which was up over 50%.
And lastly, membership Sams club member counts have had a multi year run of robust growth with another record high achieved in Q1.
Member counts have grown nearly 30% over the past three years, and we're increasingly attracting greater numbers of millennials and Gen Z.
We also like the trends, we're seeing from Walmart plus members nearly 50% of our Walmart plus members are coming from the online pickup and delivery channel.
<unk> spend more than non members they shop with us more frequently and the membership deepens engagement helps enable personalization and allows us to offer more services and to provide more offers on things that are important to our customers.
Turning back to the middle of the P&L.
SG&A expenses leveraged 58 basis points aided by strong sales growth across the enterprise.
<unk> focus on managing costs into moderating sales growth as inflation lessens and lapping some COVID-19 related wage costs in the U S last year.
All this together our operating income grew more than 17%. This is relative to sales growth of nearly 8%, which resulted in operating margin expansion of 34 basis points reinforcing the financial framework that we laid out at our Investor day.
As signaled when we issued FY 'twenty for guidance in February several below the line items impacted our Q1 earnings results, including higher net interest expense Q.
Q1, net interest expense was more than $550 million, and we issued $5 billion of debt at favorable rates.
Non controlling interest was also higher in the quarter due in part to stronger results from walnuts.
Adjusted EPS of $1 47.
Was better than we expected as sales outpaced our plan and cost leverage exceeded plan.
GAAP EPS was <unk> 62.
The difference between adjusted and GAAP EPS reflects an 85 impact from unrealized gains and losses on equity investments.
The team continued to do a good job managing inventory and we ended the quarter down 7%, including a more than 9% decline in Walmart U S.
Managing cost and inventory are two of the key controllable as we navigate an uncertain macro environment.
We're improving inventory efficiency and merchandise flow and addressing placement in order to better serve customers improve store in stock levels, while also mitigating future risk if demand softens.
Let me take a moment to discuss our returns were specifically return on investment or ROI, which declined by 120 basis points this quarter.
We calculate ROI on a trailing 12 month basis.
As such the decline in Q1 as a result of nearly $4 2 billion in charges, we incurred in Q3 and Q4 last year related primarily to the opioid legal settlement framework and the separation of flip cart and foam pad.
Together these negatively impacted the first quarter ROI by about 140 basis points. These will again be a headwind in Q2 and to a lesser extent in Q3 as.
As we lap these charges, we expect meaningful improvement in ROI in the back half of this year when.
When you look beyond these unique items, our underlying operational ROI is steadily moving higher.
At our Investor Day in April I said that we want our ROI to go up every year and I still believe that will be the case this year.
Let me briefly referenced key segment highlights for Q1.
For Walmart U S comp sales were strong up seven 4%, reflecting higher store traffic trends as well as strong growth in store fulfilled pickup and delivery.
From a category perspective comp sales were driven by strong growth in food and health and wellness, partially offset by a decline in general merchandise sales.
Unseasonably cooler spring weather negatively impacted sales and certain seasonal hardline categories, including lawn and garden.
Gross margins decreased 41 basis points, primarily due to ongoing pressure from category mix shifts.
As mentioned previously supply chain costs, and transportation were lower as we lapped last year's elevated levels.
Inflation remained high up low double digits in food categories. It is important to remember that while year over year inflation started to moderate as the quarter progressed. This was largely due to lapping higher levels from last year.
On a two year stack basis food inflation remains over 20% and continues to pressure discretionary wallets share.
Share gains in grocery continue including from higher income households, as our strong price gaps resonate with customers, who are increasingly prioritizing value and convenience.
We're also seeing market share gains in the areas of general merchandise, where we've invested to improve the customer experience such as entertainment and automotive.
In this environment as customers manage household budgets more tightly and are biasing spending toward everyday essentials, we're reinforcing our value proposition across the merchandise offering including seasonal event savings featuring high quality owned brands and leaning into opening price points for the Easter holiday, we offered customers a curated eastern mill.
Along with the traditional Easter basket for the same prices last year.
Brand penetration in grocery categories increased nearly 110 basis points in Q1, following a 160 basis points increase in Q4, and 130 basis point increase in Q3.
E Commerce sales were led by continued double digit growth in store fulfilled pickup and delivery.
Customers increasingly value convenience and speed of delivery, we have an advantage here as we leverage the proximity of our stores to fulfill and deliver digital orders to customer homes. In many cases, we can get orders delivered faster to customers while building a sustainable omni economic model.
Strong flow through on higher sales contributed to SG&A expense leverage, which offset gross profit pressure, resulting in strong operating income growth of 11, 7% relative to comp sales growth of seven 4%.
Our international segment delivered an outstanding quarter with strong growth in both sales and profit continuing the momentum built in the back half of last year International.
International grew both the top and the bottom line faster than the enterprise.
Sales grew nearly 13% on a constant currency basis led by double digit growth in China wall Maxim flip cart impressively operating income grew more than three times faster than sales up 41% with each market delivering year over year improvement.
The strong profit flow through is particularly encouraging as the team has been delivering operating efficiencies on top of strong sales growth.
In China sales increased 28% as the team executed well during the Chinese new year season, and also saw increased traffic because the Chinese economy reopens results were strong across formats and channels with continued member growth and higher member retention at Sam's club improved trends in hypermarkets and more than 50% sales growth in E Commerce.
<unk> had another good quarter with sales strength in Bodega stores, Sam's clubs and E. Commerce, we continue to take advantage of opportunities to expand our physical footprint.
Running more than 120 stores over the past 12 months, while also scaling our omnichannel capabilities.
As customers desire for convenience increases the team has rolled out a 60 minute delivery option to 80% of Walmart Supercenter and express stores in Mexico.
In India flip cart had strong topline results and improved its contribution profit.
The team continues to expand their products and services as an example, flip cart travel added to its portfolio of offerings by launching bus reservation services during the quarter through its clear trip platform and already is capable of offering 1 million bus connections to customers and we continue to be pleased with phone pays great performance during the quarter we reached.
An important milestone with annualized total payment volume or PPV.
<unk> the one trillion level for the first time.
For Sam's club U S comp sales were strong up 7% in Q1.
In addition to solid increases in both transaction and ticket <unk> E. Commerce sales were up 19% led by strong growth in curbside.
Sams delivered another quarter of record member counts and membership income growth was six 3%.
Plus member penetration also hit an all time high during the quarter.
And it was terrific to celebrate the 40th birthday of Sam's club during the quarter with member promotions and events. We saw incredible response from our existing and new members, including the largest quarterly membership sign up on record.
Operating income declined slightly as a result of an inflation related LIFO charge of $48 million.
Without that charge operating income would have increased 10%.
At our investment community meeting in April I outlined our plan to grow operating income faster than sales centered on three strategic building blocks of our financial objectives.
First we're focused on driving organic sales growth from our Omnichannel business model.
It's clear our omni model is resonating with customers across income demographics, who are seeking out Walmart digitally and in stores curbside and via delivery.
And we're growing mindshare for convenience, which nearly matches our mind share price.
As we continue to scale digital capabilities in our markets around the world, we have an opportunity to drive significant growth in the topline over the coming years.
The second component of our financial model is to diversify our earnings streams through improved product and business mix to improve product mix, we're focused on increasing sales penetration in higher margin categories like apparel and home through the expansion of our e-commerce marketplace assortment and an upgraded presentation and experience in our remodeled stores.
Our E Commerce assortment has grown to include over 200 million, Skus, and apparel and nearly $60 million and home categories and our newest remodeled super centers take a differentiated approach to showcase and general merchandise with more brand shops digital displays mannequins wider aisles and the updated fixtures.
We're very encouraged by the early reads on customer response to these initiatives and we plan to update 300 stores with these features this year.
In addition, as I mentioned earlier, we're making progress in improving our business mix as we scale our portfolio of highly attractive growth initiatives that reinforce our core retail model and will directly reshape our E Commerce enterprise profit trajectory.
This set of initiatives drive stronger returns and includes advertising data and membership in many markets collectively these initiatives generate operating margins that are appreciably higher than our core business and we expect will begin to positively influence operating profit growth relative to sales growth. This year. The third building block of the mall.
It'll includes improving returns by scaling proven high return investments in our supply chain to drive operating leverage and improved incremental margins were.
We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years, our capital structure and cash flow generation are an advantage and we're allocating capital responsibly with a bias towards increasing returns.
I'll reiterate what I said at our Investor day, we like our strategic position.
Overtime, we expect revenue growth across a diversified set of drivers improved category mix and increasingly accretive business mix, coupled with improved unit economics. This is all fueled by supply chain investments with attractive payback cycles. We expect the outcome will be operating income growing faster than sales.
Turning to guidance there continues to be a great deal of uncertainty looking out over the balance of this year as macro pressures on the consumer have gradually intensified.
As such we continue to maintain a prudent approach to our outlook while at the same time, having a high level of confidence in what we can control.
It's also not our historic practice to always update guidance exiting Q1, and we don't necessarily want to establish precedent and we think in this unique environment. It's important to provide an ongoing framework as our views evolve.
We're raising our full year guidance to reflect Q1 performance and our expectations for Q2.
We now expect net sales in constant currency to grow approximately three 5%.
Our expectations are for Walmart U S and international to grow slightly faster than our prior view for Sam's club growth to be consistent with our February guidance.
We expect operating income in constant currency to increase approximately four to four 5%, including an expected 100 basis point impact from LIFO charges.
And we estimate adjusted EPS to be in a range of $6 10 to $6 20.
Including unexpected 14th impact from LIFO.
There are also a few changes below the line our recent debt issuance yielded a more favorable interest rate than estimated and as such our net interest expense is expected to grow $600 million versus last year.
NCI or non controlling interest is expected to be closer to a 20 cent drag to EPS year over year, including strength in walnuts and.
And our tax expectations have moved toward the upper end of our prior range at approximately 26, 5%.
Looking at Q2, we're offering the following view.
Net sales growth in constant currency of approximately 4%.
Operating income in constant currency is expected to decline approximately 2% versus last year.
Excluding the $173 million benefit from Walmart <unk> insurance proceeds last year operating income growth in constant currency is expected to be flat to up slightly.
As you compare EPS versus the prior year.
We're lapping the <unk> <unk> benefit from insurance proceeds in other income and <unk> from JD is dividend and other gains and losses, resulting in a total of 10 cents of comparable EPS headwinds.
We expect adjusted EPS of $1 63 to $1 68 in Q2 this year.
In closing the year is off to a good start.
We're positioning our business to succeed with an expanding omni ecosystem that allows us to grow our top and bottom lines throughout any economic environment.
If the consumer environment tightens further we have a compelling value proposition with everyday low prices and a suite of conveniences to continue to gain wallet share.
If the macro environment proves we have the opportunity to sell more general merchandise and improve our margin mix through both our first party stores and E Commerce and third party marketplace businesses.
And the transformation of our business mix toward higher margin streams of value is underway, helping to protect our profits today and to drive better profit growth in the future.
I look forward to seeing many of you at our shareholders' meeting activities next month here in northwest Arkansas.
With that let me turn it over to the operator for questions.
Thank you well 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 a confirmation tone will indicate your line is in the question queue.
You May press Star two if you like to move your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
So so that we may address questions as many participants as possible. We ask you. Please limit yourself to one question.
Thank you and our first question comes from the line of Michael Lasser with UBS.
Good morning, Thanks, a lot for taking my question given the prospect of this inflation and the increasingly difficult traffic comparison and consumer environment that you are facing over the rest of the year. How much do you expect you will need to invest in price and other actions in order to maintain.
And overall <unk> com in the U S in the coming quarters.
How have you factored these investments into your updated guidance.
Fair to think that given your commentary around doing better than the two to two 5% prior expectation for the Walmart U S comp that it could be as high as 4% to 5% just given the momentum of that business. Thank you so much.
Hey, good morning, Michael It's John Furner.
Wanted to start first.
Our entire team for delivering a strong quarter and investing in the future at the same time it was great to see both of those things happen.
First let me just reiterate our our purpose as a company is to help people save money and live better and certainly in the last few quarters, we have seen new shoppers as John David mentioned, many of our higher income and younger.
And those shoppers are coming to us looking for value.
What's important for us as we look forward.
Is price is really important to the Walmart shopper we are at.
We are pleased with the price gaps that we see in the market those are consistent with where they have been the last few quarters.
Certainly some shifting that you heard about earlier from from brands to private brands and then.
Most important right now is the flexibility that we offer consumers all across the country, we've seen quite a few customers shift to pickup and delivery.
Our transaction count has been strong and as far as our plan. The rest of the year of course, we have built into the plan room for adjustments should the consumer change or the macro environment change.
As we mentioned some softness in general merchandise strength in food and consumables.
We will be able to manage things well should that continue we certainly think weather and other factors that have played into some of our mix shifts. So we have a plan that will enable us to deliver value across the entire year.
Michael This is Doug I'll, just add to what John said to remind everybody. When we were together in Florida, we talked about.
This is being a bit of a pivot where our investments are more focused on capital investments that income statement investments and we will continue proceed to invest in the supply chain things, we talked about a few weeks ago of course, but also would remind you about our remodel investments. So I think that when I think it was more an investment I think more about those things and I do necessarily income state invest.
<unk> income statement investments I think the other thing I would say is it's a great time just to be really good merchant like in our stores when I think about general merchandise, whether it's apparel or hard lines.
We're focusing our store leadership and our store associates on standing tall in those areas and because inventories in a better spot than it was last summer for example.
Can focus more on that rather than just dealing with the flow of inventory that was coming in so we can impact mix and do other things to drive our business beyond just considering income statement investments.
Thank you the.
The next question is from the line of Kate Mcshane with Goldman Sachs.
Yes.
Hi, good morning, Thanks for taking a question.
We wonder if we could ask around <unk>.
Other key trends for sales and if the moderation from Q1 has continued and can you remind us when the next lap starts to get easier with consumables.
Sure Keith This is John David.
The second quarter.
Rather the first quarter the way that progressed is as I noted in my remarks, we saw.
A moderation as we went through the quarter February was stronger than March and April were a bit of a tick down in that follow some of the trends that we saw and other consumer.
Behavior related to like snap benefits tax refunds and such.
This quarter has sort of started off basically how the last quarter ended so nothing notable really to say about the shift that we've seen thus far in terms of mix mix is going to continue to be an impact on us this year.
We began to I think it was most pronounced in the mid part of last year, where we saw the effect of that and certainly as we got into the back half of the year and consumer Pocketbook Pocketbooks were continuing to be stretch, we saw that shift in our business pretty pronounced from third to general merchandise.
The thing that I will say thats different this year is it's not just a shift to food and consumables. We've also seen in the first quarter, a shift to health and wellness smart.
And part of that is related to these GOP one drugs that are.
To treat diabetes, we're certainly seeing seen an uptick in that for us that comes at a lower margin and so that has some impact on our business as well.
I think the.
Persistent inflation in dry grocery and consumables. The biggest issue when you think about what we're up against and what will lap we started to see inflation occur in the back half of 'twenty one it accelerated in the beginning of 'twenty two much faster than what we expect to get to a higher level than what we expected.
Since then <unk> seen general merchandize start to come back down, but dry grocery and consumables have held and so as a customer, particularly if its a customer living paycheck to paycheck. They now have a two year stack. That's a problem and eventually becomes a three year stack. That's a problem. So working with those suppliers that are under.
The prepared food and consumable categories to get cost down more as fast as we possibly can would help them drive unit volume would help us with mix and free up cash for customers to use for discretionary goods and Thats. What were focused on have been focused on and it's just taking longer in those categories than we were.
<unk>.
Our next question is from the line of Oliver Chen with TV Cowen.
Hi, Thank you for these tech enabled retail ecosystem continues to shale really impressively what are some of the key priorities for advertising in marketplace and how they may intersect with artificial intelligence as well as.
Helping the margin mix.
A follow up for Judy China continues to be a really impressive on sustained momentum as well as better margins.
Highlights about how that reopening has done relative to your expectations and any thoughts on India as well. Thank you.
Hey, Oliver it's John.
Yes, first really proud of the team for their performance in e-commerce in the first quarter, the 27% of subs and they should all feel great about.
That's a combination of a few things we noted the growth in pickup and delivery of the significant growth in marketplace sellers and I think thats encouraging.
And that number or the number of sellers, who are using the services that we offer like our fulfillment services, which gets more of the assortment delivered in one or two days and we see a pretty significant increase in conversion rates. When a seller is using fulfillment services you can deliver within two days that also leads to growth in the advertising business.
<unk> ability that the team has developed for sellers and suppliers to reach groups of customers that are targeted at is really improving and I think that's that's definitely driving the results. There. So those business units. The way we've described them. They do help overall mix at the same time, we have some mix challenges as John David mentioned, but within.
The mix challenges in the first which is the real positive is the performance of the supply chain.
Supply chain versus last year is in much better shape. The team is performing so theres a lot of tailwind that's coming from our supply chain team.
And and they're ahead of our internal plans. So thats a real positive and then as John David mentioned there is there are some.
Mix issue that we're seeing between food consumables and general merchandise and then growth.
Health and wellness at it at a lower margin.
Hi, Oliver.
Just to my first point.
The kind of tech enabled ecosystem our marketplaces. Thanks, everybody just on progress on that internationally with a lot of leverage from U S land.
Paul to apply particularly from our marketplace.
Back to building I'll take global marketplace capability, we've just launched Walmart fulfillment services and a number of our markets. So that's really enabling that on the ecosystem, India. Its probably one of the better examples that we have.
Another Great example of building an ecosystem, putting the customer at the center of it and using our digital capabilities to figure out how we first.
And a simple and effective manner any hedge on David talk about the work that we're doing for example in travel, but we can also cross sell India product as well as our marketplace at the same time as selling tickets for paper whether that be useful at all for buses, which we've just launched and as far as China is.
Concerned they undoubtedly had a very strong quarter.
One of the important drivers of the quarter performance for international although we sell strategy across the board from most of our market.
And in particular as you commented.
<unk>.
Chinese new year, Chinese new year make a profound effect on the call.
Just to give you an idea of the scale of what happened.
The response of pain we.
Had all of our product position for Chinese new year.
Just in the fifteens, but I will ask people, what what happened actually everybody went home and they have no railroad area. It's not seem at pivot completely within a 10 day window and reallocate all of the inventory that we had around the country with a remarkable.
Can you just demonstrated their agility and resilience.
The Chinese economy.
Still patches undoubtedly consumer sentiment. If you look externally is better that it was not all the way to bright.
Yet pre COVID-19, it's about businesses that are benefiting from the reopening of Sam's club continues to Jay Wow, we have six new clubs opening.
And then on high Tech really focusing and doubling down on how we think about full field store fulfilled E. Commerce E. Commerce penetration remains at about 40%, which is a slight softening from where it was but that's also partly seasonal.
Of the Chinese new year time.
On India.
<unk> commented, we with that recently.
<unk>.
<unk> continue to impress us and meet our expectation.
The build out of the ecosystem.
I think we've talked about but its phone pay it's really impressive to see the results as well.
Reaching one Chilean <unk>.
36 million merchants online and enabling those merchants to be able to grow that businesses as well with really impressive to say what we're seeing in India is a buildout of an ecosystem in its own right between our tech capabilities between our sourcing capabilities.
Hi, it's becoming a mutually reinforcing flywheel.
The strategy for that market and we're excited what that going into the future.
Thank you. Our next question is from the line of Simeon Gutman with Morgan Stanley.
Good morning, I have a question for John David The Q2 outlook can you share if expectations has changed at all since you guided the full year and Relatedly you talked about how the second half spread with EBIT for sales growth should be stronger than the first half can you talk.
Does that does that shape or that spread change at all does it widen or roughly stay the same.
Sure Simeon good to speak with you.
Recall on our last earnings call, we gave a little bit of a head nod into Q2 performance because of some of the specific.
Specific issues that occurred in Q2 last year, and we said that at the time, we expect to be roughly flat.
Right now, we're saying the guidance is I'm speaking about operating income down 2%.
That's most impacted by again the insurance proceeds that we received last year.
Mix will continue to be an issue in <unk>, we do see some improvement in some of our supply chain costs freight costs.
We're benefiting from but that's the anomalous quarter for US as you think about this year as we get into the back half of the year and we see a more pronounced impact from some of the initiatives that we discussed at our Investor day around these higher margin higher growth areas that will begin to have a more outsized impact, but relative to where we.
We're in the last quarter the expectation for that in question has not changed we still expect that to be about the same. It just so happens that frankly, we just outperformed on the operating income line in the first quarter relative to what we thought so really really strong performance there.
Our next question is coming from the line of Kelly Bania with BMO capital. Please proceed with your question.
Good morning, Thanks for taking our question.
David You mentioned, the 360 basis point mix shift between food and general merchandise and you kind of touched on it a little bit but.
Should we expect that Q1 is the peak of that mix pressure and should that moderate throughout the year just help us understand what.
In your plan and then also on general merchandise can you just help us.
Understand what youre seeing in terms of unit versus net pricing at this point.
And also the 300 stores that Youre rolling out the new general merchandise initiative to can you share the lift that you're seeing there.
Sure I'm, writing down all of these questions here Kelly.
So first on mix shift.
I think it's fair to assume that the first quarter is necessarily going to be the peak. When we gave our full year guidance you might recall that we talked about an additional incremental.
<unk> relative to the 330 ish basis points, we had last year and so I think we'll continue to see that.
During the year a lot of that too depends upon consumer behavior, which is.
Yes, it's difficult to predict at best right now.
Our guidance assumes a rather cautious outlook there on on units. If you just take the first quarter and you break it down by segment.
Both Sam's and the U S, where if you look at it like say real sales. They were basically flat. The international segment I believe was up around 6% six 5% inflation adjusted so.
Certainly, we're seeing the impact of higher prices and the effect.
Consumer behavior on purchasing as it relates to units and then with respect to the stores that were re modeling before.
This I just want to caution that we're early on here, we've only down a couple of stores, but very excited about the results we've seen.
A quite sizable increase couple percentage points.
Ms of uplift of sales now to be clear that would be expected in any store, where you do a remodel youre going to see.
That initial uptick I think what we need to continue to monitor is how that levels out over time.
But when it got there.
The chance to go into one of these stores.
Certainly recognize the difference that than it is versus the rest of the network and so we're quite excited about this and the early response.
How many stores or the desktop.
Well we have.
And a couple of dozen now that are around the country and what we did is piloting here in Arkansas than we went to the northeast and we put these now on a number of markets.
And additionally, what's encouraging beyond just the merchandising whether its the great brands that you see in apparel layouts.
Really exciting changes on what we see is success in a number of markets. So we think this has more broad appeal than perhaps what we may have believed for me. When we ended the first one so the program is going well and we see several hundred of these.
And construction and on the way this year.
As it relates to the GM versus food and consumables mix you might comment on what Youre seeing any commerce general merchandise right and then how you would answer the question for Walmart U S. Specifically, how you view Q2 to Q4 as it relates to that mix.
Definitely.
Some interesting points when you when you dig into that.
General merchandise is certainly stronger in e-commerce and strong in the marketplace.
The trend is John David said four for the quarter. Today was just just a couple of weeks is very reflective of what was happening at the end of the first quarter, but where we have new items new brands. We have a lot of examples of digitally native brands that we found to somewhere in the meteor social media that are doing well that actually includes is inclusive of <unk>.
Food as well.
The mix right now.
As I said earlier has some positives between supply chain.
Food has definitely grown faster along with consumables to health and wellness growth is something that we didn't really expect going into the year that has accelerated quite a bit over the last couple of months.
So as we look forward.
One of the things that are harder to tell right now the general merchandise impact.
<unk> has been going on for the last three quarters or so.
But there are impacts from other things like tax refunds the weather some funds out there so a little unclear how much of this is temporary in the month that we're in.
Versus what we see in the rest of your but I certainly expect that.
The trends in food and consumables and the strength that we have in those as well as health and wellness will persist over the next few quarters I think.
Anything health and wellness the impact that it's having on on the mix and penetration could get larger based on the growth rates you're seeing in this they start types that John mentioned.
Our next question comes from the line of <unk> Parikh Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking my question I also wanted to go back to your U S. e-commerce acceleration during the quarter. What are you seeing from a category category perspective, and then for the balance of your do you also expect to continued significant contribution to your U S comp from E Commerce.
I will pass.
Definitely I am excited about the quarter.
Team has done a lot of work in the last year to improve overall customer experience, we measure something called CX scores, which looks at our assortment the number of sellers to quality.
The product display pages and they are really in the details of the business.
And the last quarter acceleration really across the board in ecommerce on pickup and delivery were very strong.
But we do look at this.
This entire business as part of the total omni channel offering and that's really important because when we talk about pickup and delivery at stores that does include ecommerce orders, where a customer was earning something in general merchandize. It just happened to be that.
Merchandise the items are in the store so in effect, we shortened the last mile which helps not only speed and time. It also helps the cost of the transaction.
Categories, though there is strong we have been strong in food and consumables really encouraged by acceleration in marketplace in categories like apparel, some acceleration in certain home categories. That's great to see and I think that will continue as both the cellar count and the item count continue to expand so we're really looking at customer churn and driving.
The business with with search to ensure that the customer gets whatever they want when they want it from Walmart.
Our next question is from the line of Scott <unk> with our five capital. Please proceed with your question.
Hey, guys. Thanks for taking my question.
No.
Palm oil into one here I.
I guess I was wondering obviously you guys have brought out some brand partnerships and exclusive partnerships, how do you see that evolving.
Store within a store it seems like Theres, a lot of opportunity in certain categories like electronics and Pat has done.
First one the second one is Walmart plus adding benefits and do you see that as a driver of more high income consumers.
And three is just the grocery climate, you've taken a lot of share from some of your bigger competitors and traditional grocery and do you think they're ever going to respond and thats. It. Thanks Jim.
Okay.
Hey, good morning, Scott.
First let me let me take all three of these.
Brands, we really like the brand shop that we set are physically in stores that are in the remodel I know you've seen a few.
But the results are really encouraging I think additionally in apparel.
What I really liked the team did.
They brought everything together for the customer so if youre if youre in the men's job you'll see the brands at the front of the Department men's denim just behind it shoes accessories all of their together, where traditionally we've broken things out by category now more holistic pets is certainly exciting with some of the things that are that are coming in online.
You will start you will see now and Youll see a lot more in the future a lot of branded shops inside of the digital experience, which enables brands to be able to put their entire assortment online whether it's first P. <unk> thats online or sold in the store the rest of the assortment there can be shop by brand and I think these are they are going really well.
First dozen or so or are pretty exciting Walmart plus.
To make progress.
It's an important part of the offer.
The only thing that we're doing obviously, but it is an important part of the offer we're.
We're encouraged by the growth of new members and importantly, what we are really ensuring on these new members is that we are helping them.
See the entire path to get to all of the benefits. We offer the core offer of course is based on deliveries that are unlimited without cost once you buy into the membership.
Most important thing that we get right. We measure ourselves really carefully is how can we call. The perfect order, which is exactly what you ordered on time and then we'll continue to work on things like like substitutions.
Then the last thing on grocery we are focused on ensuring that our stores are in stock each and every day, we feel better about the supply chain versus a year ago and that would include in stock availability would also include the cost of supply chain stores I've been at recently from Virginia to New Mexico and Texas.
Seeing much better execution in grocery and then second availability, which does help which does help the order pillars in order pickers, which makes the Walmart plus experience much better. So will really continue to focus on merchandising and pricing just the other day was with the team and solve this item called augments barbecue sauce, which is a digitally native.
Japanese flavor barbecue sauce, its just doing really well. So also I'm just personally encouraged by the way. The merchants are looking at new ways to find new items brings us alive and drive sales all across the country.
Our next question is from the line of Seth.
With Barclays. Please proceed with your question.
Everybody. Good morning. My question is really on advertising I think it's a relatively small quarter for this but the 40% growth obviously its accelerating its very impressive can you elaborate on that and what youre doing to drive that and then maybe more specifically for Sam as.
The advertising opportunity there.
I think a lot of growth in sellers on map there. So curious the opportunity. Thank you.
Sure.
Hey, good morning.
First I will talk about Walmart U S with advertising.
There has been.
Considerable momentum really that started last year, when we launched our second place auction capability. So this is it's a two sided market, but ultimately what we're trying to do is connect our sellers our suppliers to customers and that can be at the one to one level. It can be at the cohort level and so the team has done a lot to really increase our capacity.
<unk> capability to handle those transactions really well, what's driving it of course over time will be a better stronger bigger marketplace, so more marketplace sellers and helping them connect to customers and then more assortment that's easier to find my search also helps the advertising business grow and I'll turn it over to Jay to talk about international.
Yes, So same story, Randy which is at the ecosystem Buildout continues to be better strengthen our advertising business is everywhere. So the flip top grossing about 50% year on year, but we'll next equally had very strong price at about 64%, Yeah, Ron yes, but those businesses continue to grow we continue to learn and.
And then your scales about how to best serve the advertisers he wanted to come onto our platform and I think that's one of the areas that we've seen a lot of great global leverage and global learning as well to really help reinforce that.
I'll just say from the Sam's we talk about it's a little bit different from us and we don't have a marketplace, but what we are doing is stitching together you have our E com.
And then you need to also look at our scanning grace because both of those are indicative of a digitally enabled sale.
And so what we've been doing is working with advertising community on how do you influence the sales.
In club offline online offline and you cannot you can encourage you can advertise and now we're giving those advertisers visibility to in club sales and online sales and stitching them together they seeing this lift on their return on advertising spend.
And so it's a different model, so what John and Judy have but we're happy with the tools and capabilities. We are building out and how that's resonating with advertisers.
Our next question from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Okay.
Mr. Kelley. Please proceed with your question.
Yes, hi, guys good morning.
Right.
I wanted to ask you about the gross margin as we think about gross margin and <unk> through.
Through the year.
Could you maybe give us a little bit more color on how some of the pieces progress we think about things like freight markdowns, how that might influence the P&L in the back half and then related to shrink you Havent spoke about spoken about strength, we have heard it others.
It seems like it's a big industry as Joe just kind of curious as to how that's impacting you. Thank you.
Yes, I will take a good morning.
First supply chain in the first quarter.
<unk> definitely fell to tailwind from supply chain versus prior periods and including the execution all across the business. It becomes more of an issue as we lap Q2 last year Q2 last year.
In late Q1 last year would have been the peak of inventory as we work through our backlog of something like 100000 containers that had been delayed at port. So lapping those costs gets bigger as you look forward in the next quarter or so and then as you get into the back half of the year things tend to normalize a bit.
As far as markdowns last year, we had margin pressure throughout the entire year as we unloaded that trade and moved it from the ports to the distribution centers to the stores and through the entire chain. So the markdown comparisons.
Will moderate slightly as a forward buy.
Every year, including this year, we always leave room for seasonal markdowns and at the end of each season, we want to ensure that we are clean on inventory. So that we don't carry any liabilities for it and what happens when that happens is it makes it harder to set the next season, which back things up. So we will stay really focused on taking markdowns on time in fact.
In some categories like apparel were pulling some markdowns forward within the quarter to take advantage of the traffic that we will see over the memorial day holiday. So this is something that we pay.
A lot of attention to.
The last part of your question could you repeat a shrink shrink sorry, there are several in there on shrink.
I know it is a factor mix as I said, a few moments ago is affected by supply chain. It's affected by food consumable general merchandise mix, and then health and wellness. So below that level. There is of course shrink and as we've said in the past it's been challenging for US has been challenging early for for all of retail.
So we're going to actively manage this issue we always do we always have and we're going to continue to take the steps that are are reasonable and required to make sure. We're protecting our customers protecting our associates and protecting our assets and inventory.
We know a lot of communities have been affected by this but it's also important to note that that retail can't solve this issue all on its own and it will take communities stepping up and enforcing the law to be able to bring this issue.
Troll.
Our next question's from the line of Karen short with Credit Suisse. Please proceed with your question.
Hi, Thanks very much.
I had one clarification and then one question.
David I think in your remarks, you made a comment that alternative investments will protect profits and that comment is a little different from the analyst day, where I believe you said it wouldn't be additive.
And not subsidizing I guess four walls for lack of a better Macquarie. So I wanted to clarify that but then the bigger question I had is.
Could you maybe get a little color on what the spending pattern is with a higher income demographic.
And maybe you could quantify what you think your share is today.
Yes.
What are you sharing with them today versus prior to the pandemic.
Certainly Karen.
Two.
To clarify my comments in the prepared remarks.
All of these first of all work together.
Hard to just look at core retail and then separate out advertising membership fulfillment services. They are mutually reinforcing which is what makes them so attractive to us.
And those vary.
<unk> businesses that we think will.
Make our profits inflect in terms of the growth rate relative to sales going forward. So the protect profits. Please.
Please don't read too much into that.
We clearly are excited about this part of our business and this is the opportunity to have our profits grow faster than sales.
On the high end come cohort I'll start there and maybe John or others might want to jump in but that was probably most pronounced and by that I mean, the shift that we saw it was most pronounced in the.
Second quarter last year, when we got to the third and the fourth quarter. There was a little more balanced between the various income cohorts in terms of share gain and that's what we saw in the most recent quarter as well, but I think the big story here is that.
It's around how our value proposition for convenience is resonating.
We've always been known for price, but I think these the steps we've taken in the last three to five years to expand our ecommerce capabilities to expand online pickup and delivery you see that resonate with customers and it doesn't matter. What's your monthly income as everybody values convenience the same so that's.
That's the big takeaway here and I think it's an important point as you think about the future of Walmart as we have these new shoppers coming to us as we have higher income shoppers coming to shop for online grocery by general merchandise, we want to retain those we want to retain them with better experiences better product offerings, and we're seeing that and the actions that we're taking today.
And we spend a lot of time.
Of course, working on ensuring that we have flexible options for for any customer and in the case of the group that you asked about we definitely see in the data that there is a higher usage of e-commerce and pickup and delivery and then when you click into the things. They are buying you do see some differences so we do see within pickup and delivery.
Purchase rates of categories like prime b versus versus regular <unk>, great. So you see trade ups than we see it in apparel definitely seeing some growth in apparel in marketplace and that is definitely being driven by some of our newer higher income customers.
We're really excited about the growth of not only transactions about the number of digital users that we have on year on year, which is accelerating.
And I have to say I think there's a couple of behavioral trends that we're keeping an eye on so I do think our lower price point units same patio, so quick huh.
And what we're saying is people being very choice about where they spend their money, but they will say shopping laid out so in the past when we fit patio.
So it really quickly and now we're seeing people wait a little bit later into the season, we say, we're saying that like with mothers day sales.
Demand profiles looking at like the east due in 2018 2019 versus pandemic spent that people are buying a little later.
We also still kind of.
Cooler weather, which kind of changed the shape of how people are buying but what we are seeing is that way you get this really fabulous quality value equation right sales are up so we're looking at beef brisket. The other day, our beef brisket AUR is down 17% at tonnages.
Up 29%.
So amazing value.
<unk> sales are out.
60%, so we get this great kind of value quality combination together.
We're seeing members engage in spend.
And also.
I've been looking at kind of convenience and traffic drivers update paces in our cafes are up 29%.
There are areas, where you say if you get that quality equation, you can drive traffic into the club.
And we're just watching cautiously how they spend on those bigger ticket items that when those sales will come.
Our next question is from the line of Greg Melick with Evercore ISI. Please proceed with your question.
Hi, Thanks.
I wanted to follow up on inflation, because it seem to be a theme.
Our prepared comments.
Guess, what is the outlook when you talk to the merchants for inflation, both in grocery and across the store and what can Walmart do.
Sort of help help alleviate that and then as the industry being rational.
In terms of pricing and promotion.
Yes, as you look forward.
It's important to compare what we've been up against the last couple of years and if you go all the way back into late 'twenty. One that's when we started to see prices starting to rise and then 22 February March and April.
Quite acute obviously and rose at a rate that we werent expecting going into the year with a peak of inflation.
And year in July and August of last year, we saw a high double digits in categories like food and consumables.
And then as you get into a period that we're in now we're still seeing around high single digit to double digits and in parts of dry grocery and other places, but when you add that up over the three years. It gets to be a really high number which is clearly driving part of the shift the way we think about our value first we are.
Always always comparing ourselves to the prices that are out in the market, we feel good about our price positioning.
Second we've been able to look at key holidays like Thanksgiving last year Easter that we just went through and we've been able to keep a number of items on either a rollback program or base prices, where customers can buy key important holiday meals at the same price that they bought them for a year before as you look.
Forward.
It's not easy to predict clearly, we're not happy with the inflation that we see in categories like dry grocery and those persist as you get into the later part of the second quarter and third quarter. The in year number may look lower because we'll be comparing against such high numbers last year, but it's important to keep in mind that the two year stack, but at that point was still.
We still think it will be in the mid 20 so.
There was under a lot of stress.
Therefore, we see the shift to private brand that John mentioned, John David mentioned in his earlier remarks, so more ship this year than the year before and the year before the risk more of a shift in in 'twenty. One. So that trend continues we can be good mixed managers within food, but across the box as well.
The U S and around the World General merchandise prices as they are coming down presented opportunity leading down number one number two finding items in categories that have above average margins and shaving the margin off there to mixed sales up as customers want to buy a discretionary items. We are in a position to be able to show them value through the rest of this year that.
They might not find elsewhere and we can be aggressive in their private brand share is another thing youre seeing that number come up we have more influential on whats happening with private brands than we do with branded product and we do need some of these branded suppliers that are in dry grocery and consumables to get topline focused more than they have been for a while and generalization not everybody's in the same.
Place, but we're looking for those that want to be aggressive. So if we can make a difference on dry grocery and consumables.
Lead with general merchandise and then deal with what's happening in the fresh food categories, which are less consistent more volatile that some are up some are down relative to dry grocery and consumables thats. The way, we pull off a basket that generates the best value for our customers.
Yeah.
Thank you.
Last question will be from the line of Paul Lajoie with Citi. Please proceed with your question.
Hey, Thanks, guys.
Last year 2022, you gave a.
You gave some some numbers around SKU count and big increases in SKU count on marketplace throughout the year I'm curious if you can give us an update on your total SKU count currently and how you expect that to change in 2023.
Beyond and if you can give any color what percent of your marketplace customers can you also count as advertising.
And fulfillment services customers and what the targets are there. Thanks.
Sure.
In the marketplace in the U S and there may be other comments or other markets.
A lot of growth last year SKU count as we mentioned late I think it was Q4 and Q1, both in the $400 million range, we expect that to grow probably not at the rate that it grew last year, we made a lot of progress in both SKU count and seller count.
There is continued acceleration with a number who are using fulfillment services and advertising, but what's important about both of those services is let me start with fulfillment and helps the customer time to promise and it helps customers know when theyre going to receive their item customers want to get their delivery when they ordered it they don't want it early they don't want a late they want at the day of inland.
Sellers move their assortment of their inventory and our fulfillment channels then it's more certain for a customer that it's going to be next day delivery or two day delivery and that just helps us conversion rates. So if you are a marketplace seller.
And you want to know how to drive business at Walmart instead list on the marketplace, but inventory and fulfillment services and then Walmart connect is just a great way for the seller to be able to find audiences targeted audiences, who are looking for products and categories like the ones that are offered so it's really the three of those things that or put that they all come together to make.
The customer experience much greater and the data supports everything I just described.
From an international perspective on marketplaces, we continue to see scale growth across Mexico, and Canada. Both of those marketplaces are quite nascent and that you thought of it that can provide a lot of opportunity for the future while Max.
The percentage of Skus in Q1 versus the same time and the transient yet of course, our most mature marketplaces in India, which has hundreds of million dollars.
It continues to find new ways to serve customers, but when they recently launched flip cart fulfillment services.
Activity between advertising and providing the services to help sellers wherever they are in <unk> be able to get items to customers and our business is working really well again, we've only recently launched that we're already Randy contraction right across the country.
Thank you.
I think I'll go ahead and wrap up here, we ran a little over that's okay. I appreciate your questions.
Grateful to work with such a strong team the people that have been on this call, but all of those that are working our stores and clubs and throughout the company. I think you can see in our results that we've got a very strong and capable team and one that can adapt to environments there've been a lot of pivoted over the last few years in particular and they've done a terrific job of navigating all of that.
We feel strong about our position to grow the top line, we're positioned to serve customers and members how they want to be served I think the E comm growth this quarter being up 20%, 26% and an example of that but if they want to come to stores and clubs, where there, but I wanted to pick up order, where there you want to add a deliberate we can do that.
We are positioned to grow profit faster than sales through productivity and through the mix of businesses.
Karen in an additive way and then on the ROI will be disciplined with capital, but we are excited about our opportunities to invest in really grateful that you all came down to Florida. So many of you and saw what we're doing there and we just wrap up by inviting you to comment a couple of weeks. We will show you NMFC will go to a store will go to a club will answer more of your questions.
Feel like we're in a position to outperform and to continue to outperform because of the work that's been done to date and our ability to manage the business and pivot as we need to looking forward. Thanks for your attention today.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Good morning.
And welcome to Walmart's 2018 meeting for the investment community.
My name is Dan <unk>, and I lead the Investor Relations team here at Walmart.
Behalf of the entire company I'd like to welcome you to Walmart campus here in northwest Arkansas.
I would also like to welcome all of you that are listening live on our webcast.
After spending about 20 years coming to Walmart's investor meetings as a guest and an equity research analyst I am really excited to be part of the team this year.
Together with our executive team and our event solutions group the Investor Relations team is proud to present our program today.
We appreciate your interest in Walmart and I know the team looks forward to sharing our strategy with you and answering your questions.
Today's meeting is available on our web site stock Walmart Dot com.
Presentations will also be posted to our website as they are completed.
Today's presentations include forward looking statements, which are subject to future events and uncertainties.
Which could cause actual results to differ materially from these statements. Please reference our entire safe Harbor statement and non-GAAP reconciliations on our website stock Dot Walmart Dot com.
Hopefully you've had a chance to review the press release, we issued this morning.
Won't spend time on highlights, but did want to take a minute to discuss today's agenda.
Doug Mcmillon, Walmart's, President and CEO will kick things off in just a minute then you'll hear from our CFO, Brett Biggs and CEO of Walmart International Judith Mckenna at.
At that point, we'll take a brief break and when we return you'll hear from our newly appointed Chief customer Officer of Walmart U S. Janey Whiteside. She will be followed by CEO of U S ecommerce, Marc Laurie and CEO of Walmart U S.
Greg Foran, Greg will be joined by Chief Merchandising Officer, Steve <unk> and executive Vice President of Realty in Central operations, Mark Ibbotson, we will wrap up formal presentations with CEO Sam's club John Furner.
At that point, we'll take another break and will return for a Q&A session at the end of our Q&A session. Our formal meeting will come to a conclusion and we invite you to join us for lunch, where you'll have an opportunity to spend time with our executive team.
With that let's get our meeting started.
Okay.
Okay.
Okay.
Okay.
Okay.
Thanks.
Okay.
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Good morning, everyone and welcome we really do appreciate you, making the trip to Arkansas and investing your time with US we look forward to answering all of your questions and hopefully you will leave here with a really clear idea of where we're headed we will include some new presented this year to give you a better sense for our depth. This is not a <unk>.
Company led by one person or a small group of people and want to thank our broader diverse leadership team for their great work and their sense of urgency. These.
These continue to be exciting times that are full of opportunity to seize the moment. We're changing we are adapting we continue to transform the company.
We think and how we work with one goal and that is to earn the business of our existing customers as well as new customers today and tomorrow.
There are a few things you should take away from this meeting.
First you know us as a strong execution company. We're also an innovation company.
Current and emerging technologies make it possible to serve customers better than ever before and we're doing that.
Second we're moving faster and we have momentum.
Third we have unique assets that will enable us to win in an Omnichannel world and we believe that is the winning model.
Fourth we can invest thoughtfully plant seeds for the future while delivering good financial results in the near term.
Let's start with execution, we have momentum and customers are responding to the investments we've made over the last few years. The team is executing well and our plan to win in store and online plays to our strength.
In the U S comp sales have been positive for 16 consecutive quarters, we had a strong first half and our comp last quarter was the strongest growth in more than 10 years.
In our stores more customers are coming through our doors as traffic has improved for 15 consecutive quarters and inventory keeps coming down many of our backrooms, our MP enough that we built a 128 of our 200 U S training academies in those back rooms, where inventory used to be.
We've invested in our people through training and development higher wages increased benefits and more staying with US is retention has improved in a highly competitive job market. In fact, we've reduced our U S store associate turnover by over 1000 basis points year over year.
When it comes to ecommerce. We're also delivering an improved customer experience our sales in the first half of the year grew by 36%. We've also relaunched Walmart dot com and jet Dot com grown the assortment and added over 2000 brands this year.
Delivery accuracy is improving and other ecommerce bond and fundamentals are headed in the right direction.
Sams club here in the U S has reported positive comp growth for 10 consecutive quarters. Sams also had a strong first half with our second quarter being our highest comp in six years.
We're focused on club model fundamentals and members are benefiting.
Thriving club business continuously reinvest in price keeping gross margins low to drive membership sign ups in renewables, we're seeing membership grow and renewals improve.
Outside the U S. We've been executing well in the first half and at the same time, we've been taking action to reshape the portfolio.
We've had positive comp sales and our four largest markets for five consecutive quarters with walmart's, leading the way last quarter with over a 5% comp.
We're excited about the announced acquisition of corner shop to further drive grocery delivery in Mexico and Chile.
And India flip cart positions us well in a very large and growing market. The flip cart ecosystem will not only enable us to win in India, but it will also teach us more about the future of retail Judith will tell you a lot more about that in a few minutes.
And China Sams club continues to be a standout and we're learning to deliver an easy and fast experience with partners through our Super centers.
Our business in the U K has improved and the proposed combination with Sainsburys will be good for U K customers.
We also finalized the majority sale of a business in Brazil in August.
Around the world, we're serving customers better delivering financial results, creating value for shareholders and at the same time, creating value locally in communities.
Most recently, we're proud of how we've responded to Hurricanes Florence and Michael here in the U S. Together with our customers, we donated and pledged over $12 million to help those impacted by the hurricanes with over $6 million of that coming from the company and the Walmart Foundation.
So as previous investments and strong execution deliver results today. We're also working on tomorrow. We've done a lot recently taken a look at the timeline behind me. These are some of the bigger milestones of the past three years, let's grow through them quickly, but we want you to understand the breadth and depth of the change underway at <unk>.
To challenge your thinking about Walmart.
Did you know we file thousands of patents a year in categories ranging from last mile delivery to biometrics to augmented reality.
Did you know, we're working with suppliers to remove a gigaton, that's 1 billion tonnes of emissions from our supply chain.
Did you know we're pioneering the use of blockchain for food safety at scale and that will be increasingly able to trace products directly to the farm in seconds.
Did you know that we have developed a mobile video game that teach associates about store processes.
As you know, we're using machine learning across the enterprise from our supply chain to real estate to merchandising to legal and more you may be surprised to learn that we've got tech hubs in 12 cities around the world.
And that we performed nearly 3 million free health screenings for U S customers over the last four years and given over 10 million immunizations.
Did you know that Sam's club has a team of behavioral scientists that work to Gamify. The in club digital experience for new members in a way that drives member retention and we did it in three months, we're solving problems differently and more quickly.
Looking back we had a proven model and we naturally focused on execution.
As the numbers grew we worked on optimization and unintentionally became risk averse. After all a small mistake multiplied by a lot of transactions our stores is a big number.
But today, we're getting to re imagine retail in our business.
To do that we take risks try quite a few things and learn from our failures.
That type of behaviors in our DNA and we're waking up that part of our original culture.
Sam Walton himself said, we're always driven to Buck the system to innovate to take things beyond where they've been.
There is a cultural change underway at Walmart and we're enjoying it.
It brings back memories of not only things that worked but things that didnt work for us like Helen's Arts and crafts in a standalone pharmacy that we call dot drug we opened buds warehouse outlets, where we tried a different approach with clearance merchandize and we tried these huge stores called hypermarkets that turned into a concept you might be familiar with called Super centers.
Sometimes we plant seeds and they grow quickly.
Sometimes they take a while.
Sometimes we start something or one point over.
That doesn't work, but by version three point or 4.0 it does.
Spect us to test a lot and fails, sometimes but along that journey you should expect some successes and occasionally some big wins.
U S grocery pickup as a recent example.
In 2014, we took to our Standalone location here in Bentonville. When we were just getting started we've scaled grocery pickup from nothing four years ago to over 2000 locations today and by the end of the year will serve 70% of the U S population and we haven't sacrificed quality.
As we scale. This business we've consistently delivered one of the highest net promoter scores we've ever had our customers love it.
Having fresh food within 10 miles of 90% of the U S population is a structural competitive advantage that we are leveraging.
Customers also love, our pickup towers, which were growing from zero two years ago to 700 by the end of this fiscal year.
Now that we've learned to do pick up well it unlocks our ability to provide delivery.
By year end 800 of our U S stores will offer delivery covering 40% of the population by the end of this month, 50% of our Sams clubs in the U S will offer delivery through into card.
In China, we have a minority investment in J D downhill, which as of last mile grocery delivery company, one hour delivery from our stores through J D. <unk> grew from 16 stores two years ago to almost 200 Walmart stores in 30 cities. Today, you can now see last mile delivery capabilities being built in our key markets.
Of course, some of the things we've tried didn't work or Havent worked yet we tried grocery delivery with Uber and lyft, but switch to others as we all learned it's different to move a grocery basket than it is to move people or a restaurant order.
We don't have the right model to scale associate delivery, yet, but it makes sense. So we're working on the next iteration, we're planning more seeds for the future as we speak we're piloting our own open delivery platform in the U S called spark.
<unk> is piloting a club that uses technology to push the member experience to the edge of whats possible today.
We're piloting jet-black voice and text based commerce in New York and Theres, a waitlist to join.
We're testing autonomous self scanning technology to improve in stock and modular accuracy and in autonomous floor cleaner.
We're also testing a fast unload or a new technology for store receiving that helps make it easier to unload trucks, arriving from our distribution centers and we're learning how to automate picking groceries for online orders by testing Alpha bond, which brings products to an associate more efficiently to pack the customer order and there's a lot more we're working on and we can't talk about.
Just yet so stay tuned.
Beyond the customer experience, we're also innovating to drive out costs and work more efficiently.
We've rolled out our risk in casualty mobile claims app in our stores that eliminates paperwork and provides more timely information on customer or associate accident claims.
Over time, we estimate that this will help us save $17 million through more efficient and effective claims management.
We're also implementing intelligent automation across the business with over 500 software automation bots using machine learning to complete manual and repetitive tasks and areas like accounts payable payroll benefits logistics and transportation. They allow our people to focus on more engaging work and also help reduce expenses. This is saving SNF.
Estimated $30 million a year.
Is the nature of work continues to change we're innovating to empower associates to better serve customers thrive in their jobs and grow in their careers. This year alone. We are on track to train 500000 associates through our academies.
By the end of the year, we will have deployed 17000 VR headsets for training. These.
These investments are showing a return and helping fund future investments. For example, we know that managers, who go through academies have better retention rates than those who do not.
We will innovate in ways the customer can see and we will innovate to change from within.
We have a holistic strategy and you've heard most of it from us and you're going to hear more throughout the morning as you hear from the team, but I want to spend the time I have left on a few areas that I and we are particularly focused on to drive change.
First we're committed to making everyday easier for busy families. No doubt price leadership has been a cornerstone of our business that won't change is central to our purpose as a company.
We've also given them a broad assortment in terms of our store offer but theres a lot more possible as it relates to choice or assortment breadth in today's world and that's fantastic. So it is important that we keep adding items and new brands to our portfolio.
Over time, we'll use data much more effectively to serve up the best choice for each individual customer rather than a laundry list of choices.
In addition to price and assortment, we're going to save customers more time, we're making it easier we're making it faster and our friendly associates are making it more fun to shop in our stores, whether it's in store online will serve our customers with great merchandise and engage them in a way that makes shopping more enjoyable.
Second we're sharpening our focus on culture, and becoming more digital.
Our culture is unique and it's always been an advantage for us but to be successful in the future it has to be shaped.
Our four values are timeless.
Service to the customer respect for the individuals strive for excellence and act with integrity.
Behaviorally, we need more innovation, we need a greater sense of urgency and higher expectations.
We must become more diverse and more inclusive to achieve our business potential diverse associates and diversity of thought drive creativity and innovation.
As it relates to becoming more digital we're on the journey.
The potential to gather data and put it to use more effectively is exciting.
We're learning how to work differently.
How to put product management engineering and business leadership together to work in a more agile fashion.
We're improving many of our processes and we're empowering our associates with better tools and technology unsolicited on store visits associates are saying, thank you for the improved processes.
That's music to our ears.
These processes are more intuitive and we think associate experiences should be consumer grade.
So we're making progress in stores, but it's more than just that take our recent by the room launch and the home section on Walmart Dot Com, one product manager one designer and two engineers develop that from idea to launch in just two short sprints. That's four weeks in total that's fast.
Third.
To deliver strong efficient growth, we have to drive productivity managing expenses aggressively and be the size of when it comes to our capital and our time, we have to operate with discipline.
We've developed cost savings initiatives and a process to drive them that will give us additional flexibility as a company you can see our disciplined focus and our portfolio decisions. There's a pattern back to our decisions to exit vis restaurants in suburbia apparel stores in Mexico, our financial services business in Chile.
Thanks in Canada, and Mexico format, and store closures and the decisions announced this year related to Brazil, and the U K. We are actively repositioning the business and we will keep making deliberate decisions about where to play.
We are prioritizing the U S wall, Max Canada, India and China.
We are prioritizing comp store sales and e-commerce growth over new store growth.
We're investing in technology, especially cloud data and analytics and in our supply chain of the future including last mile delivery.
We see the big picture as it relates to an emerging retail business model that operates as an ecosystem.
We see lots of natural Adjacencies to our core business it starts with the customer and what they want and need.
We can serve them better by leveraging data and relationships to create a unique network of assets capabilities and services that provide solutions for them in an integrated and seamless way.
Buying and selling merchandize is important and it's a competency that takes time to develop at scale. We are thankful, it's a core competency.
Building on that from an omnichannel position with ideas like our third party marketplace or an advertising business for example makes sense.
As you saw from our recent announcement, we're expanding our entertainment ecosystem to bring new interactive content to our customers.
We're in the pharmacy and optical business, but we can do more to help our customers when it comes to their health.
We see a lot of opportunities.
And finally, we're building trust, which will become even more of a competitive advantage.
We will do that by improving the experience of shopping with us and by continuing to strengthen our compliance and ethics programs and acting with integrity will also do it by strengthening the fabric of the communities, where we operate in by making a difference in the world by using our scale for good.
Our customers want to feel good about shopping with us and many of them value the role that we play in communities when they feel good about us as a company that increases trust. So we're telling our story better and we're giving them proof points, we've eliminated 77% of the waste from our system.
As a result of new solar and wind projects will more than double our renewable energy in the U S. By the end of 2020 that means in two years, 35% of our energy globally will be supplied by renewables.
And our merchants are innovating with suppliers to make our products and our packaging more sustainable.
We're on track this year to reach our goal of providing 4 billion meals globally between 2014, and 2019 to those that need them 4 billion.
We're also proud of the opportunities, we're providing to our associates. In addition to better tools and training we increased the starting wage for our U S Associates. Several times. These past few years looking back we're convinced that this was a good business decision as worthy increases we've given them since then.
We're performing better as a business and retaining more associates will keep investing in our people their wages benefits and training by market as we have been this year.
We've also expanded maternity and parental leave for salaried and hourly associates and announced that will help U S associates earn a college degree at accredited universities for one dollar a day we've.
We've also hired over 200000 veterans over the last five years here in the U S.
In a world that is increasingly digital it will still be our people that make a difference at Walmart and help us win the future.
So in summary, here's what we hope you'll take away today.
We've proven we can execute and you can see the innovation.
We're not just reacting to a changing environment, we're shaping the future.
Second we're moving faster and we have momentum.
Third we have unique assets that enable us to serve customers better than others in important ways.
And last we're operating with discipline and investing thoughtfully, while balancing the short term with the long term.
I can't wait for you to hear for from the rest of the team so let's get going thank you.
Okay.
Certainly an upbeat, resulting guidance grocery and doing better selling more fresh food a reacceleration of the e-commerce sales gains as well and Sam's club, having its best comp sales in six years.
The Walmart delivery services coming to both Jacksonville, and Orange card, but the company says, it's not going to and they are they going to break this out in several other areas by the end of the year Walmart by controlling stake in India's largest E. Commerce company. What part is remarkable when you speak to store managers, they understand exactly what's happening I don't Kevin.
The Louisiana, Pennsylvania, New York, whether the gap.
Company is rejuvenate congratulations to them.
Good morning, all.
Also welcome you to Bentonville and for those of you on the webcast. We really appreciate your interest in our company every year for this event.
So as you can see from the video that we showed earlier in that video has been a really slow eventful uneventful year here in bentonville.
So a lot going on inside the company, it's a really really exciting time at Walmart and I'm looking forward to explaining why I feel so good about walmart's position and why I think you should too.
I'm, starting my 19th year, the company and I see as much opportunity today as much opportunity. The futures I did when I first came to Walmart, we're leveraging our scale, our unique assets and financial strength in ways that others can't to enhance and build structural competitive advantages.
It's a great company and its incredible culture that I feel certain will win with both customers and shareholders in the years to come.
So you've seen a few headlines from our release this morning, but I'll add some color over the next several minutes. There's a few things that I want you to take away from this morning.
We continue to transform the company to win.
Recent investments are paying off.
Our long term financial priorities remain consistent.
We're making progress on cost fueling our ability to win.
We're delivering against our guidance and we have good momentum as we head into fiscal year 2020.
Doug just described how we're planning to win in the future and I'm going to expand on that with a financial view of the company and how we believe investors should view us where a diverse omni company that looks quite different than we used to because of actions. We've taken over the past several years, what you see here, but we still have the same DNA that is may.
A successful over the last five six years.
When you take those actions and you put it on top of our existing business you can see the full view of what we build.
We have an ecosystem leveraging competitive advantages through omnichannel capabilities stores services e-commerce sites supply chain and a team of $2 2 million associates. It's an ecosystem that allows us to serve customers in a really unique way.
No one has the asset base that we have.
Then when you combine the ecosystem with our financial strength, there really isn't a company like Walmart.
We're the first company with half a trillion dollars in annual revenue a rock solid balance sheet with a double a credit rating.
Our diversified asset base physical digital and the most important geographies.
Nearly 265 million customer transactions, a week and strong stable cash flow and in fact over $28 billion of operating cash flow last year.
This financial strength gives us the ability to deliver near term results, while we're positioning the business for the longer term.
Now three years ago at this meeting we discussed investments that we needed to make to win long term. It was a challenging decision to reduce earnings in the short term, but those investments are paying off U.
U S store investments have led to improved customer experience, leading to strong sales and traffic.
In grocery pick up three years ago, we had fewer than 50 stores offering a service, but today, we have around 2000 stores with great customer satisfaction.
The investments we've made in Walmart Dot com and website redesign category specialists have led to key new brands on our site and we've been able to offer free two day shipping on ecommerce orders because of the fulfillment investments that we made in prior years.
We've also invested in technology and process improvements that have helped increase productivity manage inventory reduce cost and serve customers in new and exciting ways, but during this period. We've continued to deliver strong comp sales improvement in expense leverage strong dividends and consistent share repurchase.
So one of the primary questions I get from investors is when will you be done investing.
A business that doesn't invest doesn't want less we all know that.
We're going to continue to invest in our business thoughtfully and strategically.
We're focused on ensuring the good returns from these investments over time, and we've tracked well against what we said we'd do.
The payoff from past investments is helping fund new investments and that model is working for us the great thing about the financial strength that we have and the breadth of our business is that we can pull many different levers to ensure we find an optimal balance of investing long term with consistently strong financial results. There are a lot of different ways for us to find that balance.
<unk>.
Many companies have to choose between defending their core business and investing in new businesses, we can do both and still deliver solid financial results now.
A key reason why we can continue to thoughtfully invest in our future that the core business is really strong.
We're pleased with our first half performance, we've had some tailwind this year strong economies around the world, but I still feel good about our performance and in particular, the three plus percent comp in Walmart U S. In the first half our scale.
It's just so hard to put into context, sometimes percentages kind of lose meaning.
But that level of comp over full year in Walmart U S would result in growth of nearly $10 billion, which is quite amazing.
Walmart U S ecommerce sales have increased a strong 36% for the first half of the year and we expect to be around 40 for the full year.
The core of Walmart International continues to operate very well and walnuts is leading the way.
Sams club had a good first half with traffic driven comp sales and improvement in membership trends.
We're achieving expense leverage across many parts of the company and this leverage gives us the additional flexibility to invest in price and omni channel and an innovation.
So overall it was a good first half performance and we're well positioned for the back half of the year.
You've heard me talk about our financial priorities over the past couple of years and they haven't changed their strong efficient growth.
<unk> operating discipline and strategic capital allocate capital allocation and I'll spend a few minutes, providing more color on each one of these.
We continue to prioritize comp sales and ecommerce growth over new stores and this chart shows our ongoing transformation as well as any over the past several years, we've made significant progress in generating more growth from comp sales and ecommerce, while slowing new store openings, particularly in the U S.
So we see FY 15, approximately two thirds of our sales growth came from new stores and clubs and that's represented by the Blue shading on the slide but in FY 'twenty, we expect this number to be less than 10%.
As we've continued to elevate the customer experience in our stores, you've seen momentum with four years of positive comp sales and traffic in Walmart U S.
And U S. Ecommerce, we continue focusing on improving the customer value index, and you're going to hear more about that from Mark later this morning.
We're also seeing good comp growth in international including expansion of Omnichannel initiatives in key markets, like Mexico, and Canada and in China.
So you will continue to see us to invest in areas that will deliver strong efficient growth.
I'm really pleased with the progress, we're making around operating discipline, our cost culture is more evident again at Walmart.
It's impressive how the Walmart U S stores team has leveraged expenses for six consecutive quarters, even after raising the facility start rates earlier this year.
Theres a lot of good work going on in Walmart U S.
Last year, you heard me mentioned for the first time, a formal zero based budgeting process. You also now youll hear that referred to as cost transformation, our smart spin.
We have a team in place that's helping the organization find and execute on new savings ideas on my desk.
A list of more than 300 cost savings initiatives that are currently being worked or evaluated theres. Some big ideas, some of which youre going to take more time and there are a lot of smaller initiatives that can add up you know Walmart well you can take a lot of small projects scale them across the business and they can lead to some pretty impressive savings.
I'm also proud of the work we've done in working capital over the past few years, it's been a true total company effort over the past few years, we've taken out nearly $10 billion in working capital, which is allows us to invest for future growth.
We're leveraging technology data and analytics in new ways to be more productive, we're testing robotics and automation to handle routine tasks. So associates can spend more time, serving customers and if you were on the store carries yesterday you saw a number of these examples.
Another example of a new approach to innovation is our new Tech incubator in Austin, Texas, where we're working on analytics AI and machine learning. It's a different approach that allows us to recruit some of the brightest minds to a tech hub to help us solve complex problems more efficiently and effectively.
So when we tie it all together, we will continue to make progress on lowering expenses as a percentage of sales. We believe we can achieve about 20 basis points of SG&A leverage next year and believe we can generate a similar level of year over year leverage for the next few years, assuming consistent levels of comp sales.
Let me give you a few more examples of leverage opportunities. One examples utilities, we're in the process of a multi year rollout of replacing all fluorescent fixtures with Leds and our stores our clubs in our parking lots.
And not only is it good for the environment. These changes could reduce our annual energy cost by 200 million over time.
A little more than a year ago, we brought together the financing global services organizations to form a group called Walmart Enterprise solutions to drive more efficiency across the business on common services and practices. The Austin Tech hubs. You just saw is part of that group.
It's still early in development, but we're making progress.
One of our focus areas has been on box and as Doug mentioned earlier, we are starting to automate. These manual repetitive task in areas like accounts payable and that allows associates to focus more on engaging impactful work, which is good for our associates.
Another area of opportunity I've mentioned over the past years goods not for resale or GFR.
We buy tens of billions of dollars in goods and services just in the U S. So think travel services cleaning services maintenance supplies recently, we hired a new chief procurement officer to lead GFR, who has more than 25 years of direct and indirect procurement experience with multinational companies. We are really excited about having him join the company.
And believe this can be a big opportunity for us.
Here's an example high GFR can improve our business take the floor wax that we use in our stores.
We recently changed our new floor wax not only is the new wax cheaper it's also sturdier.
It doesn't need to be buffed is often resulting in less spin on the actual buffing as well as fuel for the machines.
That one change in floor wax will save us over $20 million a year.
So these small differences can make a big difference to Walmart so.
I think you can see we're attacking costs differently than in the past and it's starting to pay off.
When you see the changes in our capital allocation over the past five years. That's another opportunity you can see the company transforming the allocation of capital is quite different from before and aligned with how will serve customers in the future we've shifted spend away from new stores and clubs in the U S represented by the Black shading here and have allocated more capital to ecommerce store remodel supply chain.
Technology and this is roughly the type of allocation I think you can expect over the next couple of years.
While we transform if we continue to return a significant amount of cash to shareholders over the past two and a half years. We've returned nearly $34 billion to shareholders. We've increased our dividend for 45 consecutive years and we remain committed to our share repurchase program.
When we instituted the current $20 billion program a year ago, we estimated utilizing this authority over approximately two years earlier this year, we paused buybacks for a while due to the pending flip cart announcement now that we've returned to a more normalized pace of buyback we expect to utilize the remaining authorization over the next 18 months or so and that's <unk>.
<unk> and the guidance that we've given you today.
So speaking guidance, let's turn to how all this comes together.
Let's start with how we've done versus guidance, we gave both of the first of the year as well as our recent guidance in August.
Certainly the flip card acquisition makes comparability, a little more challenging we will try to make that as clear as we can for you today and.
In our Q2 earnings release, we updated full year guidance for this year on several metrics that exclude the impact of flip cart as it hadn't closed when we had our earnings release.
Today, we are reiterating that ex flip cart guidance as we still feel good about the underlying momentum of the business. However, today as you saw earlier for simplicity were formally updating our FY 19, EPS guidance to include flip cart.
When we closed flip cart, we noted that we expected a negative impact to FY 19, EPS of approximately 25% to 30 adjust.
Adjusted pro forma for a closing date.
This included if you remember operating losses as well as interest related to the debt that we had issued so we are adjusting our full year 19, EPS guidance down by 25 cents to adjust for flip cart.
So the $4 90 to $5 five adjusted EPS excellent cart from August will now be $4 65 to 480, including flip cart.
Okay. So to be clear, there's no underlying change to the EPS guidance that we gave in August. This is only an adjustment to include our best estimate of the flip cart impact in FY <unk> 19 EPS.
So and coming back to the slide as you can see when compared to the original full year guidance provided in February we met our most cases exceeded and raised our guidance and our August update.
One number I want to call your attention to the international net sales number it's about halfway down the slide when we gave guidance early in the year. It didn't include the Brazil transaction because it hadn't been done at that time, if Brazil, where in our sales number for the rest of the year. We would have exceeded our February guidance, which is why we have that checkmark by that number even though the actual number will be lower than we guided in February.
And I just want to make that clear for you.
So we're doing what we said we'd do.
Let's turn to expectations for our next fiscal year before I get to the guidance. So I want to mention a couple of things.
Certainly we're in a we're in a dynamic period of time and that includes the current environment around tariffs.
It's important to remember that two thirds of our U S purchases are made in the USA and that we import from numerous countries around the world.
Our merchant teams are monitoring market pricing and we'll respond as warranted.
Our goal is to always be the low price leader.
We will actively manage pricing and margins through this period.
Of course, we never want to raise prices and we will minimize impacts on our customers as much as possible while balancing the interest of investors.
I hope you appreciate today that we're giving you as much guidance as we believe practical given that we're still several months away from the start of the fiscal year and we will update this guidance for you as we get to February as we typically would.
All of our FY 'twenty guidance includes flip cart and that's how we report in the future. However in order to give you a better apples to apples sense of our business performance in the press release. This morning in our discussion today I'll reference a few metrics X flip cart.
Dutiful talk about flip cart and a few more minutes. We know you want to understand flip cart and particularly things like the path to profitability more clearly we're very excited about this investment India, It's a dynamic market and we certainly intend to win there.
And as you can imagine it is our objective to be profitable over time.
We're going to continue to find a balance of giving you some visibility to flip cart, but we ask you to also understand the competitive aspects of disclosure.
As I said earlier, we have a lot of levers to pull across the business to ensure the total company results are what we expect and also what you expect.
So with that let's talk about guidance as always guidance includes a number of assumptions, including that inflation currencies tax rates and economic.
Conditions stay relatively consistent in all of our major markets guidance also excludes any changes in the value of our minority interest in JD dotcom as we had an accounting change this year.
Also recall flip cart its only on our FY 2019 numbers for only a little less than half of the year.
So let's start with topline growth, we expect to deliver total net sales growth of at least 3% on a constant currency basis now as a reminder, we had Brazil in our consolidated results for a bit more than half of FY 19, and it won't be in our consolidated results and FY 'twenty will also continue to see additional planned reduction of tobacco sales at Sam's as we pursue our.
Strategy there those two items will account for about 100 basis points of headwind next year without those items, we would've expected sales growth to be more than a 4% range.
We expect continued momentum at Walmart U S with FY 'twenty comp sales growth of two 5% to 3%, which includes Walmart U S. Ecommerce Walmart U S. Ecommerce is expected to continue strong sales growth of around 35% FY 'twenty on top of the approximate 40% growth expected this year.
So with those two growth rates that would represent nearly a doubling of that business over a two year period.
In International we expect continued strong growth from Walmart as well as the addition of flip cart to drive international sales growth of around 5% on a constant currency basis.
Sam's club comp sales, excluding fuel and tobacco are expected to grow approximately 3% on top of solid growth. This year, we expect <unk> total sales to grow only about 1%, though do the tobacco sales reductions that I just mentioned earlier.
So overall, we expect continued strong top line growth.
Turning to profitability, we expect operating income dollars declined by low single digit percentage next year, primarily due to flip cart being in for full year next year and only a partial year this year.
If you were to exclude the operating losses from flip cart in the current year and next we would expect operating income dollars to be up a low single digit percentage next year in other words, we expect the profitability of the underlying core business to increase.
We also expect EPS to decline by a low single digit percentage in FY 'twenty, excluding the approximately 60 full year EPS dilution expected from flip cart versus only a partial year dilution. This year, we would expect EPS to reflect the low to mid single digit percentage increase.
Let me talk for a minute about e-commerce profitability.
We've been saying for a while the breaking out the profitability of stores versus E. Commerce is becoming more challenging given that the customer shopping in an increasingly omni fashion as the lines blur further we will likely find it increasingly challenging to break this out for you. However, we do want to give you some guidance for next year.
As you know we did increase our loss loss expectation for Walmart U S ecommerce in August and given how we measure it today, we expect losses to increase some next year we.
We continue to accelerate investments in same day grocery delivery people and technology in order to nail the fundamentals of ecommerce, including increased investments store eight to help shape the future shopping.
In addition, some of the acquisitions, we've made as well as getting additional home and apparel brands online will help improve margin mix over time.
But overall with the company the profitability of the total underlying business is in good shape.
We've made good progress on being more efficient lowering costs, especially in Walmart U S stores and as I mentioned earlier, we expect leverage we expect to leverage expenses by about 20 basis points next year and it would've I would've expected to be higher excluding flip cart.
As the tax we expect the tax rate in the range of 26, 5% to 27, 5% and this may seem a little high to you, but remember that the flip cart losses will have very little tax benefit in the near term as we said earlier, when we announced the closing.
We expect capex of around $11 billion in FY 'twenty fairly consistent with prior years and we expect the allocation of capital by segment also it would be pretty similar to what you see this current year.
We expect to only add a few new stores in the U S next year, which has been the trend.
In international we continue to see good opportunities for new store growth, primarily in Mexico, and China. So we'll add slightly more than 300 stores across international in FY 'twenty, many of which are fairly small in size.
As I said earlier, we're in a dynamic period, but we feel good about the things that we can control.
And as I stand here today, we believe our momentum will carryover in FY 'twenty as you can see from this early guidance.
As I close I hope you've gotten a sense of why we're excited about.
About the future and the strategy that we're executing we're leveraging you unique assets in ways that few can our business is strong.
We're changing how we work to operate with discipline and we're leveraging expenses, we're balancing investments for growth and profitability and we continue to be thoughtful on how we allocate cap how we allocate capital.
And we're delivering against our guidance.
This is a unique company and I could not be prouder to be part of the team that you say sitting over here, we have a lot of levers to pull in order to deliver that the near term results, while ensuring that we win long term.
I am confident.
We're going to be a winner and I want you to leave here today feeling the same way. Thank you.
[music].
Good morning, everybody, it's a pleasure to be with you. This morning, but it certainly been a busy eight months in my new role and we've got a lot to talk about and I know this morning. Many of you want to talk about fleet costs and our <unk>.
So I'm going to focus on that shortly.
First of all I'd like to such a broad context around the changing shape of Walmart International.
Today were 118 billion dollar business.
<unk> alone basis would actually be the largest retailer outside of the U S.
Over the last four years International has delivered a consistent performance.
We've seen sales rising around 3% and profit growing ahead of sales.
It's been a really clear strategy.
We recognize today that what got us here won't necessarily get us to where we need to go in the future.
Around the world customers expectations are increasing competition is intensifying and the macro issues are more complex than it's ever been before.
And Doug.
Seizing the moment about adapting and changing.
That's exactly what we've been doing we've been proactive.
Taking thoughtful and deliberate action to position our portfolio in each of our markets for future success.
Other recent months you've changes they have changed the shape and structure of the portfolio.
And to E Commerce and Omnichannel.
Investing in Flint.
India strengthened our last mile capabilities in Mexico, and Chile, with the announced acquisition of Cowen Michelle.
And in Japan, we entered a joint venture with rocket ton for grocery delivery and Doug mentioned that partnerships in China with JJ and J P. Gotcha.
But as well as investing we've taken deliberate steps to simplify our business.
We're divesting of noncore assets like our bank in Canada, and our financial services business in Chile.
<unk> made more fundamental moves to position our business for that long term success.
In June we announced the sale of an 80% stake in our Brazilian business to advent.
And in April we announced the Nic tension to merge our UK business after with the number two retailer that sainsburys and will.
42% shareholding in the new combined business when that's complete now some of you might have seen this morning, a statement for the U K competition authority and that's simply an outline of what theyre going to investigate and how is that going to investigate and just said that you know that contain no surprises for us whatsoever.
The common link in all of these actions is that we're being deliberate about where and how we choose to operate in.
And as a result, we're creating strong local businesses.
Accelerating omnichannel capability.
Prioritizing our resources and ultimately providing greater access to growth.
Walmart International role and Roma is to create long term sustainable and profitable growth.
We're going to do that through a strategy that is really simple.
Local businesses powered by Walmart.
Strong local businesses means locally relevant customer focused in each of the markets in which we operate.
Empowered by Walnut is the competitive advantage that is created by being part of the wall not sunlight.
Around the World, we know that one size does not crystal.
And to be a successful international retailer, we need to be even more local in the eyes of our customers, but at the same time, we have to continue to be deliberate about where and how we allocate our resources both people and capital.
That equation is going to be different by market.
So that is a three of our business that I'd like to add some color to affiliate before I move on to talk about pilot by well not a little and then India, Canada Walnuts and China.
Turning first to Canada that we've got a really strong business in Canada is closely aligned to the U S.