Q2 2025 Walmart Inc Earnings Call
During the question and answer portion, we will be joined by our segment Ceos.
Speaker Change: John Furner from Walmart U S cast Maclay from Walmart International and Chris Nicholas from Sam's Club.
Speaker Change: For additional detail on our results, including highlights by segment. Please see our earnings release and accompanying presentation on our website.
Speaker Change: We will make every effort to answer as many of your questions. As we can in the hour. We have scheduled for this call as a courtesy to others. Please limit yourself to one question.
Speaker Change: Today's call is being recorded and management may make forward looking statements.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
Speaker Change: These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC. Please.
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 and non-GAAP reconciliations on our website at stock Dot Walmart Dot com.
Speaker Change: Doug that concludes my intro, we're ready to begin.
Doug: Good morning, and thanks for joining us we had another good quarter with strong sales growth and even stronger profit growth exceeding our expectations.
Doug: The team not only drove our short term results, but they also continued to drive change setting the stage for our future.
Doug: Their good work is resulting in our customers and members not only being able to save money on an increasingly broad assortment, but also save time.
Doug: <unk> matters.
Doug: We're uniquely positioned to provide it.
Doug: When I'm out in stores and clubs around the world are shopping on our App I'm seeing the benefits of doing the basics well.
Inventories are in good shape merchandising is improving and our associates are making good things happen.
Doug: The strength, we saw for the quarter was broad based our business outside the U S continues to lift the total company in terms of sales and profit growth.
Speaker Change: <unk> had another strong quarter in India flip cart again delivered positive contribution margin and phone Bay continues to deliver amazing growth and total payment volume.
Speaker Change: In China strong membership trends in Sam's club continued to drive double digit sales growth and about half of our sales there are digital.
Speaker Change: We continue to gain market share, including in general merchandise and transaction counts in unit volume are up across markets.
Speaker Change: In the U S for both Walmart and Sam's club comp sales were fairly consistent throughout the quarter.
Speaker Change: Food continues to be strong and it's encouraging to see improvements in general merchandise and our U S health and wellness business and Walmart and Sam's club, primarily due to sales of G. O P. One drugs is contributing to our strong comp sales so.
Speaker Change: So far we aren't experiencing a weaker consumer overall.
Speaker Change: Around the world our customers and members continue to want for things they want value they want a broad assortment of items and services.
Speaker Change: They want a convenient and enjoyable experience buying them and they want to do business with a company They trust.
Speaker Change: These four things are constant but.
Speaker Change: But the way we provide them is changing and changing fast the results. We're delivering are due to real progress across these dimensions.
Speaker Change: As it relates to value, we're lowering prices for the quarter, both Walmart U S and Sams Club U S were slightly deflationary overall, Walmart U S. Food prices were slightly inflated as we exit Q2, but down 30 basis points versus Q1.
Speaker Change: In Walmart U S. We have more than 7200 rollbacks across categories customers from all income levels are looking for value and we have it.
Speaker Change: As it relates to assortment, our item and seller count continues to grow Walmart U S marketplace sales grew 32% for the quarter.
Speaker Change: If you're a Walmart customer you have so much to choose from and if you're a seller youre going to want to be on Walmart Dot com.
Speaker Change: As it relates to the customer or member experience E. Commerce sales grew about 20% for each segment and 21% overall.
Speaker Change: Sometimes it's most convenient or enjoyable to visit one of our stores are Sam's clubs.
Speaker Change: Sometimes it's more convenient to pick up and order and sometimes it's more convenient to get it delivered.
Speaker Change: Our store and club businesses are growing pickup is growing faster than our in store or club sales and delivery is growing even faster than pick up.
Speaker Change: Delivery accuracy and speed continue to improve.
Speaker Change: Our e-commerce progress creates more optionality for our customers and fuels the growth of our newer businesses globally membership income grew 23% Walmart plus memberships were up double digits and Sam's club U S achieved a record high member count.
Speaker Change: Globally advertising grew 26%, including 30% growth for Walmart connect in the U S.
Speaker Change: Advertising sales driven by marketplace sellers were up nearly 50%.
Speaker Change: As it relates to strengthening our business for the future. We continue to be pleased with the automation work happening in our supply chain and our progress with technology overall.
Speaker Change: We're finding tangible ways to leverage generative AI to improve the customer member and associate experience.
Speaker Change: We're leveraging data and large language models from others and building our own.
Speaker Change: One example is that we've used generative AI to improve our product catalog.
Speaker Change: The quality of the data in our catalog effects nearly everything we do from helping customers find and buy what theyre looking for to how we store inventory in the network to delivering orders.
Speaker Change: We've used multiple large language models to accurately create or improve over 850 million pieces of data and the catalog.
Speaker Change: Without the use of generative AI. This work would have required nearly 100 times the current head count to complete and the same amount of time.
Speaker Change: And for associates picking online orders showing them high quality images of product packaging helps them quickly find what they're looking for.
Speaker Change: Customers and members are already enjoying AI powered search on our App and site.
Speaker Change: And now they'll have even more help with a new shopping assistant that provides advice and ideas answering questions like which T. V is best for watching sports.
Speaker Change: Looking ahead, the assistant will be able to respond with more specific follow up questions like how's the lighting in the room, where youll place the television.
Speaker Change: Helping our sellers on our marketplace is also an area, where we see opportunities to be better using generative AI as.
Speaker Change: As we work to do all we can to help our sellers grow their businesses. We're testing a new experience to select U S. Based sellers that allows them to ask us anything.
Speaker Change: We want our sellers focused on selling so the more we can make it a seamless experience the better the.
Speaker Change: The new assistant will quickly summarize and provide the seller with distinct answers without them, having to sort through long articles or other materials.
Speaker Change: The use cases for this technology are wide ranging and affect nearly all parts of our business and we will continue to experiment and deploy AI and generative AI applications globally.
Speaker Change: Anchored in the responsible use of AI, while also moving with speed and in an <unk> way to meet our future needs and scale. These experiences.
Speaker Change: Today's Walmart is different.
Speaker Change: Where people led and tech powered weed.
Speaker Change: We put ourselves in a position where we can continue to grow because we're serving people. However, they want to be served.
Speaker Change: We can grow profit faster than sales, while investing in our associates and lowering prices for customers and members and we can grow ROI as we make the right capital investments and grow profitability.
Speaker Change: Before I close today I'd like to welcome Bob Morris as the newest member of Walmart's Board of directors, Bob brings more than 38 years of global business experience, including as the global share of price Waterhouse Coopers until his retirement in June of this year bobs experiences and skills are highly relevant to the oversight of walmart's governance and strategy and we are.
Excited to have them.
Speaker Change: As always I'd like to thank our associates. They delivered a great first half of the year and we're looking forward to a strong second half.
Speaker Change: With that I'll turn it over to John David.
John David: Thanks, Doug.
John David: I'm going to start with thanking our team for delivering on a good quarter.
John David: We're pleased with our results and the continued progress, we're making executing our strategy.
John David: Since we shared our financial outlook at our Investor Day in April of last year.
John David: On average we've increased our quarterly sales by more than 5% and our quarterly operating income by 9%. These.
John David: These financial results reflect that our value proposition extends beyond great prices into convenience.
John David: Our combination of price trust assortment and experience has made us more relevant with our customers and members than ever before.
John David: Q2 sales operating income and EPS all exceeded the top end of our guided ranges.
John David: Second quarter total net sales growth was four 9% on a constant currency basis with all three operating segments outperforming our expectations aided by strong global e-commerce growth of 21%.
John David: In Walmart U S comp sales growth of four 2% was driven primarily by strong traffic and unit growth across both stores and digital channels.
John David: Customers continue to be discerning and choice for looking for value to maximize their budgets, while leaning into seasonal celebrations.
John David: Pace of sales was largely consistent by month during the quarter.
John David: Across categories, we're providing low prices and winning customer consideration <unk>.
John David: <unk> and general merchandise with Walmart U S comp sales growth in hard lines home and fashion.
John David: We're also seeing higher engagement across income cohorts with upper income households, continuing to account for the majority of gains even while we grow sales and share among middle and lower income households.
John David: We're seeing private brand penetration continue to increase and we're highly encouraged by customer uptake of our new food brand better goods in the early excitement surrounding the relaunch of our young adult fashion brand no boundaries.
John David: E Commerce sales in Walmart U S were up 22% and weekly active customers increased 20%.
John David: In addition to the great progress, we're making in our fulfillment centers. The close proximity of our stores to customers has also unlocked new capabilities and enabled faster delivery times.
John David: Store fulfill delivery was up about 50% in Q2 with customers increasingly choosing in pain for delivery of their e-commerce orders in under one hour or under three hours.
Speaker Change: Our international business delivered constant currency sales growth of eight 3%, reflecting strength in walnut ex China and flip cart.
Speaker Change: Across markets sales were strongest in food and consumables categories, and we're encouraged that general merchandise growth has improved year over year.
Speaker Change: Our private brand penetration increase in multiple markets as customers continue to focus on value.
Speaker Change: And our Bodega and Walmart formats in Mexico, nearly half of customer orders included a private brand item in Q2.
Speaker Change: E Commerce sales in our international markets were up 18% cut.
Speaker Change: Customers are responding favorably to the increased convenience as we scale pickup and delivery capabilities in China, We increased E. Commerce orders delivered within one hour by 28% to 59 million orders and in India flip cart grocery grew over 50%, while providing next day delivery and over 200.
Speaker Change: Cities.
Speaker Change: And in Canada, our delivery pass members drove more than 40% of grocery delivery cells with order frequency significantly higher than that of nonmembers.
Speaker Change: Sams Club U S comp sales ex fuel increased five 2%, including e-commerce growth of 22%.
Digital engagement remains strong with scan and go penetration surpassing 30%.
Speaker Change: And with our increased convenience of or just go technology now operational in 325 clubs over 50% of our members can exit without a check improving member NPS by more than 800 basis points compared to the clubs without this technology.
Speaker Change: Member's Mark private brand continues to drive excitement of sales in digital penetration increased during the quarter.
Sam: Sam is also growing membership across all income levels and with younger demographics with Gen Z and millennials constituting about half of new members in Q2 of <unk>.
Sam: Positive signal about the future growth of the business.
Sam: From a margin standpoint.
Sam: <unk> gross margins expanded 43 basis points led by Walmart U S and international segments.
Speaker Change: We're focused on providing everyday low prices for our customers and members and we're managing U S pricing aligned to competitive price gaps cut.
Speaker Change: Customers and members are responding to our value proposition. We're seeing continued sales growth share gains and higher gross margins, we're demonstrating that we're able to grow our business on a sustained basis in the absence of price inflation.
Speaker Change: Global ecommerce losses continue to narrow most notably in our Walmart U S and flip cart businesses.
Speaker Change: While improved business mix is helping we're also encouraged by the progress in core ecommerce margins due largely to another quarter of nearly 40% reduction in U S net delivery cost per order.
Speaker Change: Flip cart contribution margin also expanded significantly in the quarter.
Speaker Change: Scale and delivery density are key.
Speaker Change: As more customers are shopping with us more often across more categories, we're improving delivery density and transaction level margins.
Speaker Change: With improving business mix, we're continuing to reshape our profit composition as we scale growth drivers such as advertising membership marketplace, and fulfillment and data analytics and insights.
Speaker Change: Our advertising businesses around the world continue to scale with global advertising up 26%.
This was driven by another strong quarter from Walmart connect in the U S, which grew 30%.
Speaker Change: We're also pleased with the trends in our membership programs.
Speaker Change: In the U S. Walmart plus membership income grew double digits again, this quarter and Sam's Club U S reached another record high level for member counts in plus member penetration, resulting in 14.4% membership income growth.
Speaker Change: Within international membership income in China from our Sam's club business grew 26% as member Count continues to increase and in May We opened our 48th club in China, and we welcomed around 50000 people on opening day for.
Speaker Change: For marketplace, and Walmart fulfillment services in the U S. We've now seen more than 30% growth in each of the past four quarters as we continued to increase seller counts on the platform by double digits.
Speaker Change: Growth from sellers, using our marketplace fulfillment services increased 800 basis points in Q2, surpassing 40% penetration.
Speaker Change: Sales in fashion toys hard lines at home all grew more than 20%.
Speaker Change: Outside the U S. We're seeing similar trends as we enhance our capabilities and product assortment for.
Speaker Change: For example, flip cart delivered double digit topline growth and more than doubled the number of units that delivered same day and.
Speaker Change: In Mexico, we grew marketplace items and sellers by around 60%.
Speaker Change: And in Chile, We launched cross border trade, adding sellers from China, and the U S to our local marketplace offering.
Speaker Change: Within data analytics and insights Wal Mart data ventures continues to see strong results as clients value. The insights, we provide bringing together consumer behavior with omnichannel sales and inventory trends across our platform.
Speaker Change: Our client base has increased nearly 200% versus last year, as we launched new tools and enter new markets, including the expansion of our Walmart illuminate product in Mexico in May.
Speaker Change: We're also optimizing our business model to deliver greater efficiency.
Speaker Change: I've been encouraged by how our teams have renewed our long standing everyday low cost operating mindset.
Speaker Change: Ideas are being implemented across the organization and theyre beginning to yield tangible results.
Speaker Change: By leveraging our scale as a global enterprise, we're finding savings and supplies transportation storage third party service contracts and various other expense categories in other areas, we're maximizing the utilization of our assets and using tech to streamline our operational processes together these efforts translate.
Speaker Change: Meaningful savings.
Speaker Change: We're also making good progress on our supply chain transformation, and we're seeing the direct benefits to customer experience.
Speaker Change: In Walmart U S more than 45% of our E. Commerce fulfillment center volume is now automated and we have about 1800 stores receiving some level of freight from 15 of our regional distribution centers that are in varying stages of automation implementation.
Speaker Change: And as a result, our supply chain teams are processing more units through our Dcs and Fcs.
Speaker Change: And while we are spending more on Capex and we have historically, we're pleased with the returns from these investments, particularly the automation of our supply chain.
Speaker Change: We expect these investments to yield returns that will allow us to increase our return on invested capital each year.
Speaker Change: Importantly, our evolving business model with more diversified and durable sources of profit has provided the ability to fund investments and prices for our customers.
Speaker Change: Ages and benefits for our associates, and leading edge technologies to power our growth all while delivering on our financial framework of operating income growing faster than sales.
Wrapping up Q2 results consolidated adjusted operating income grew seven 4% in constant currency, reflecting strong growth in sales gross margins and membership income partially offset by expense deleverage across segments largely related to increased marketing and higher variable pay expenses tied to our.
Speaker Change: Our above planned performance.
Speaker Change: Operating income also benefited from reduced ecommerce losses during the quarter.
Speaker Change: Adjusted EPS of <unk> 67 per share was above the upper end of our guidance of 62 to 65.
Speaker Change: Turning to guidance for.
Speaker Change: For the first half of the year, we reported net sales growth of more than 5% and adjusted operating income growth of almost 10%.
Speaker Change: We are raising our full year guidance to reflect strong first half results.
Speaker Change: Looking at the second half of the year, we expect the business to achieve sales growth in line with our financial framework and for sustained structural improvements and incremental margins.
Speaker Change: This should result in operating income growing slightly faster themselves when looking at the second half in total.
Speaker Change: We now expect full year FY 'twenty five sales growth of 375% to 475% and operating income growth of six 5% to 8% versus our prior guidance of growth of 3% to 4% and 4% to 6% respectively.
Speaker Change: Adjusted EPS is expected to be $2 35.
Speaker Change: To $2 43.
Speaker Change: Versus prior guidance of $2 23 to $2 37.
Speaker Change: We're focused on executing on the things that we can control focused on our business and serving our customers and members.
Speaker Change: But the economic and geopolitical backdrop that we operate in is perhaps more uncertain than normal and we're not completely immune from the volatility that can result from mix.
Speaker Change: And while we have not seen any additional fraine of consumer health and our business other economic data out there as well as the state of affairs globally would suggest that it's prudent to remain appropriately cautious with our outlook.
Speaker Change: Reflecting these considerations our guidance is for growth in Q3 sales of $3 two five to $4, two 5% and operating income of 3% to four 5% with EPS expected to be 51 to 52 cents.
Speaker Change: There are two primary factors influencing Q3 operating income growth.
Speaker Change: First as is the case in most years the timing of first of events in our international segment has a bearing on sales and profits by quarter and can affect year over year comparability in growth rates.
Speaker Change: And second the timing of planned expenses is more concentrated in Q3 versus Q4.
Speaker Change: In closing.
Speaker Change: With the results we've delivered through the first half we're in a good position to achieve our financial goals for the year.
Speaker Change: Our business model is delivering strong momentum E. Commerce is sustaining its strong growth and pulling new value streams and profit pulls along with it.
Speaker Change: Simply put our value proposition is broader and more relevant to our customers and members than ever before.
Speaker Change: We appreciate your interest in Walmart and are now ready to take your questions.
Speaker Change: Thank you.
Speaker Change: And that will be conducting a question and answer session if.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad at a confirmation tone will indicate your line is in the question queue.
Speaker Change: Let me first start to if you like to remove your question from the queue.
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 we may address questions as many participants as possible. We ask you. Please limit yourself to one question Youre liable that'd be made it afterward.
Speaker Change: Please for our first question.
Speaker Change: Our first 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 can you frame or quantify how you have factored in.
Speaker Change: Things like the election and other distracting event.
Speaker Change: Into your guidance for <unk> and for Q.
Speaker Change: Haven't seen an impact from these distraction as of yet, whereas many others, who are serving the consumer have why would you experienced an impact from that as you move through the rest of the year. Thank you very much.
Speaker Change: Michael This is John David Good morning, Thanks for your question.
Speaker Change: Good thing about elections as they come along every four years and we get to a <unk>.
Speaker Change: Have a lot of history with what we're seeing the impact of that as I noted in my prepared remarks, given the state of the economy. The election set of affairs globally Theres reason to be appropriately measured in our outlook for the back half of the year, but effectively nothing has changed for that period of time relative to what we thought at the beginning.
Speaker Change: For the year, our business is executing very well, we're gaining share we're seeing that our value proposition is resonating with customers.
Speaker Change: So we feel good about what we can control and the performance of the business.
Speaker Change: We'll continue to monitor what happens over the course of the coming months and we think that we are positioned very well irrespective of whether we're in a more recessionary or more expansionary type period and some of the volatility that may result from that.
Speaker Change: Our next question is from the line of Oliver Chen with TV Cowen. Please proceed with your question.
Oliver Chen: Alright. Thank you in your remarks you.
Oliver Chen: Mentioned that you arent experiencing a weaker consumer what does your guidance assume in terms of your outlook on the consumer unrelated to that is general merchandise.
Oliver Chen: <unk> performance was impressive given the trends and what we're seeing what do you see happening within that category and will that momentum continue to your guidance assume that stays flattish.
Speaker Change: Lastly, just on E. Commerce, you continue to make really nice strides on the density and scale.
Speaker Change: The head in terms of profitability drivers and how much more room. There is for delivery density I imagine that can just get better and better. Thank you.
Speaker Change: Overall I'll try to address each of those questions real quickly.
Speaker Change: In terms of the outlook for the consumer let me characterize this or give some context in the second quarter. So each of the months of the second quarter were relatively consistent.
Speaker Change: If you were to look at the pure comps for each month July was actually slightly higher but we think that that's largely a result of where the days of the week fell in the last month of.
Speaker Change: Our last week of the month.
Speaker Change: So we did not see a step down and our outlook for the back half of the year is really for more of a continuation of what we've seen even in the first couple of weeks of August here things have been remarkably consistent. So I know everyone is looking for some piece of information that may be indicates further weakness with our members and our customers were.
Speaker Change: We're not seeing it but we feel like we're.
As I mentioned in my my prior response measured in our outlook and positioned well with respect to general merchandise all of them a couple of comments and maybe John or Doug wants to jump in but we are we like what we're seeing in general merchandise first time in 11 quarters that we've seen positive inflection there I think some of this is not so much what's happening.
Speaker Change: And broadly in the economy, but specific to our business. If you take our marketplace business. As an example, there are many categories that grew over 20% in the quarter as we're expanding our assortment, we're more relevant to customers and I think that's driving some of what we're seeing in general merchandize Lastly on E Commerce.
Speaker Change: I would say that that continues to have an outsized contribution to our results. If you look at the second quarter and you were to parse out the various pieces of our business. For example, advertising membership fulfillment services core e-commerce without the benefit of any of those was the single largest contributor to our year over year opera.
John David: Income improvements so we really like the progress that we're making there John may want to comment on some of what's happening in the U S, but but continue to make good progress on.
John David: Hey morning, Oliver It's John Thanks for the question I'll.
John David: I'll, just pick up a bit where John David left off and <unk>.
Tom Ward: First really proud of the progress the teams made Tom Ward and others, who have done a great job with ecommerce a 22% result is is impressive and we're proud of it.
Speaker Change: The progress behind it maybe we'll just start with customers.
Speaker Change: The the thing that Doug mentioned in his earlier remarks about using Gen. AI for the catalog has been a great enabler over the last few months, it's about 100 times more productive to use gen AI versus having people work through each product display pages thats really important in the context of the marketplace, where we have had so much expansion.
Speaker Change: And in terms of the number of sellers and the number of assortment.
Speaker Change: And the number of items in the assortment so for customers more and more we are really feeling like Walmart can sell you anything that you want to search for and for the sellers that are coming on that it's an exciting time because there is so much momentum in the business all around so that the Ginnie I product that we're using has helped us populate the attributes.
Speaker Change: And the characteristics of hundreds of millions of items that would've taken as I said 100 times longer if we had tried to do that manually. So when we're trying to really understand the intent of customer has in each session when they're on the side or in the store and then we're able to match the catalog to their intent in a much more effective way because the detail of each item in the products.
Speaker Change: Play pages has gotten so much better. So that's one example of abusing the latest technology that we can to try and improve customer experiences and so customer.
Speaker Change: Customers in many cases start shopping in the store, we know there's much more value when a customer shopping both in the store and in there and ecommerce.
Speaker Change: Third when they joined Walmart plus we see even a more frequency and then the last thing I would say is.
Speaker Change: Something that we said earlier about convenience the number of customers who are enjoying the benefits of a convenient on demand deliveries and when I said in a man I mean less than three hours and that has grown at a very high rate over the last few quarters and this last year and so the flexibility that the team has been able to operating customers whether it's in the <unk>.
Speaker Change: Store at the curb delivery or with plus or in this on demand channel, which is really fast in many cases is less than an hour for the full of store assortment across the country has been great and so we'll continue to lean into these areas number one and then and then second you mentioned density in frequency, we just recently expanded our dill.
Speaker Change: Livery catchments include about another 15 million homes across the country and that is a result of the density and the business. The team has built and all of those things added up are helping us of this core e-commerce profitability improvement that John David mentioned, which has been really helpful for the total P&L yet.
Chris Nicholas: And Hey, Oliver It's Chris Nicholas say from Sam's club just to build on the answer from a Sams club point of view.
Chris Nicholas: You know our incredible associates have done a great value for a great job for our members and our results are reflected in that and if I think about how we've done that digital engagement has been a really big part of it. So we think we take a look at the numbers John David talked about some of them, but E. Commerce is up 22% that's delivery from clubs that's delivery from Philip.
Speaker Change: <unk> incentives and that's pickup from club in all three of those are resonating really well.
Speaker Change: On top of the E Commerce piece, we have a digital engagement in club with a scan and go up 190 basis points I'll. Just go frictionless exit that John David talks about is really resonating I think less when we when this went to print. It was 325. We're now at 380 clubs. So feeling really good about that and what that does is it help.
Speaker Change: Drive just a much deeper engagement with our members they're spending more they are more prone to renew which we feel really good about and it's worth mentioning and it's something we've talked about before that the Sam's club ecommerce business is profitable.
Speaker Change: And and it's growing rapidly. So we're feeling good about the mix, we're feeling good about the alpha and and its and its across the membership base too.
Speaker Change: Oliver This is Doug one of the questions. We used to get was how do you feel about e-commerce as it relates to impulse sales people walk into stores and clubs and they buy things that they didn't necessarily have on their list. When they came in can you do that with ecommerce and one of the interesting things that's happening with generative AI as they cross category search is more effective which.
Speaker Change: Serves up more general merchandize items and it helps drive ecommerce profitability as you were asking about earlier. So we're in this situation, where we've got the best E Commerce food offer and new tools are helping us connect impulse items that are general merchandise.
Speaker Change: In some cases, which helps us improve both sales and profitability.
Speaker Change: Our next question is from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Kate Mcshane: Hi, good morning, Thanks for taking our question.
Speaker Change: <unk> growth, which is one of the drivers of operating income dollar growth during the quarter and then it did seem to be an acceleration from Q1 to Q2.
Speaker Change: Actually at Sam's club.
Speaker Change: Wondering if there was something meaningful that had changed from.
Speaker Change: Quarterly standpoint, or a sequential standpoint and <unk>.
Speaker Change: Like increased marketing as part of the reason that operating expenses deleveraged in the quarter.
Speaker Change: Did that have anything to date with some of the increased membership.
Speaker Change: Thank you.
Chris Nicholas: Hey, Chris Nicholas say from Sam's Club first and I'll just touch on the membership growth pace. Three we are seeing all time high membership growth. We're seeing all time high plus penetration tusa. The health is really good and we're also seeing growth across all income cohorts and old generations. One of the really exciting things. We're seeing is it 50% of the growth that we saw.
Chris Nicholas: <unk> in the quarter was Gen Z and millennials and that really talks to a really strong health for the future. We're getting people early in their lives and we see them.
Speaker Change: Continuing to be sticky the reason that it's working as we're focusing on all parts of our value proposition. So we're focusing really hard on enhancing the core value proposition, we're focusing really hard on that deepening of digital engagement and members Mark is doing really well as well and you saw that in terms of transactions. All units were ahead of comps too.
Speaker Change: What's good about that for a membership model is the more engagement you have the more frequently that they engage with you the more prime they are too when you. So just good quality health of the Sams club business drives more members in and drives that renewal rate up.
Speaker Change: And cadence it's Jon good morning. Thanks for the question, let me address the marketing question.
Speaker Change: In addition to the comments Chris made about about membership.
Speaker Change: And if you step back what we open the call with US we know what customers are interested in and around the world and that those four things talked about value assortment experience and trust.
Speaker Change: And well of course, we have always focused on being a great value with everyday low price and were driven to an everyday low cost culture to support everyday low price. So customers can always depend on us for the best value of our basket of goods. What's happened in the last couple of years is a really rapid expansion in assortment, we've talked about that for the last few quarters.
Speaker Change: On calls like these and other places, but as the assortment has expanded our ability to show those items and a very high quality way using new tools like generative AI and improving our search has enabled us to understand better what customers are looking for by season by session by time of week.
Speaker Change: And it felt like it was the right time, given this increase in and convenience. In addition to pickup and delivery. So if you can shop in the store you can pick up on a schedule you can deliver in a scheduled delivery schedule and then there's the acceleration of this convenience experience felt like the right time that we need to be more bold about telling our story to our customers and.
Speaker Change: Starting late in the first quarter, we decided intentionally to increase our marketing investment to tell the story to our customers about all the things that we can do for them, which has led to what we feel good about our some really important early positive signs in general merchandise, including unit growth, which led to the results we talked about it at the end of the quarter.
Speaker Change: But seeing things like marketplace, and specifically fashion within marketplace lead the way is encouraging. So this this could be something that we continue over time, we'll learn as we go we'll be very thoughtful about how we manage mix, how we manage expenses and how we manage our costs across channels, but seeing customers respond to these new offers that we have.
Speaker Change: The marketplace and with with apparel home other categories. It's been really exciting we still have lots of room to improve but the progress. We've made on the ecommerce experience across businesses across markets puts us in a position, where we can play more offense and be more aggressive as it relates to marketing, so whether it's that or the capital investments in some.
Speaker Change: Why chain what.
Speaker Change: What youre seeing is that we are playing offense.
Speaker Change: Our next question is from the line of <unk> with Oppenheimer. Please proceed with your question.
Speaker Change: Morning, and thanks for taking my question. So I just wanted to go back to the momentum Youre seeing that health and wellness category just wanted to get a sense of how you guys are thinking about the sustainability of strength that youre seeing there and then anything outside of G. L. P. One that's contributed to the momentum and then just from a gross margin perspective, as you look at stronger growth in grocery and within health and wellness housing.
Speaker Change: Mix product mix impact on gross margins playing out versus how you thought about for the year.
Speaker Change: A repurchase John I'll take that.
John David: So let me start with the mix in general in the quarter as we noted better results in general merchandise, which is of course helpful.
Speaker Change: We have strengthened in food and consumables.
Speaker Change: And we also talked about inflation really being exiting the quarter roughly flat slightly down in some areas. So we're growing the business with higher transaction counts and higher unit growth, which of course is encouraging our merchants have a.
Speaker Change: A lot of experience over the last few years and the last few decades, maybe it's the best way to say it at managing mix in any kind of situation. So yes. There are there is growth in health and wellness led by G. O P ones, but there's other growth in the category like supplements that we're proud of them. This is the time of year as people go back to school back.
Speaker Change: To college, you can lean into categories like over the counter supplements and we can do really well, but when you when you step back and look at the entire business inventory is down 2% across the business. That's a decrease on top of a decrease last year and we're proud of the in stock results that we have and so our merchants have a number of levers. They can use them first of course, they want to be great value to.
Speaker Change: <unk>, we have 7200 rollbacks and then our merchants can mix across categories. In many cases by taking a high margin item and taking a rollback on it you can shift sales to category two items within a category to bring the category up and and you can do that while you have pressure in other places. So at this point, we're managing the margin we're managing mix I don't have any.
Speaker Change: Concerns about our ability to do that at this point.
Speaker Change: We will see growth.
Perhaps it's uneven in certain cases, that's always been the case, but we're in a good spot in terms of inventory in stock value being ready for customers. So that we can manage our mix.
Speaker Change: Thank you. Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Good morning. Thanks, everyone. My question, it's on the spread between U S EBIT growth and U S comps for U S. Net sales it looks like the first half of the year, you're running four ish and change comps and you youre doing EBIT growth of about 7% to 8%. So about a three to four point spread my quest.
Speaker Change: <unk> is two parts.
Speaker Change: First are there active decisions of reinvestment that we can do both reinvest and grow curious how much reinvestment is happening and second that 3% to four point spread is that representative of the business is run rate or is this still scaling and then that spread should continue to widen going forward. Thank you.
Doug: Simeon This is Doug we are being thoughtful and deliberate about reinvestment and we start out thinking about the customer first what's the level of in price, but price investment, where our gaps and as we've been saying for some time now where we're <unk>.
Speaker Change: Feeling comfortable with where our gaps are and will continue to support those as needed and it is great to see prices come down we are wired to help bring prices down and we'll continue working on to get more rollbacks to help customers and help members save money on the second thing, we think about as our associates and Where's our level of compensation what investments need to be made there.
Speaker Change: And you have seen now for years.
Speaker Change: String of different investments that we've made and our associates, whether that's hourly or management. We obviously think about shareholders. All the time and it's not lost on me that our operating income percentage came down for a period of years as we made investments and it feels good to have turned the corner on that and have a healthy business mix. So that we can do both in parallel.
Speaker Change: So whether it's a one year operating plan or it's a five year plan, we're kind of in that season right now when we think about a five year view.
Speaker Change: We're trying to be deliberate about reinvesting in the business. So that the momentum continues and we don't find ourselves having managed the short term.
Speaker Change: And to the detriment of the long term.
Christopher <unk>: Our next question is from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.
Christopher <unk>: Thanks, Good morning, everybody and you talked about the U S e-commerce business turning profitable perhaps in the next one to two years. After <unk> was there any refinement to that timeframe and then related to that in the first quarter you talked about.
Speaker Change: I think total contribution three to $300 million to $400 million in the alternative profit tool growth that you saw in that first quarter is that improving and can you talk about how that arc of improvement trends as we look out into the future. Thank you.
Speaker Change: Sure. This is Doug I'll go first and others can join in if they want.
Speaker Change: As it relates to ecommerce profitability for some time now I've been trying to stress to everybody not to get too hung up on it and we've got a business with a lot of variables here and we're going to manage them, all and theyre going to be new businesses that we invest in and in the short term don't make money, but make money in the mid to long term.
John David: And at some point will tell you that we've crossed the threshold and that ecommerce is profitable will then talk about whether that includes advertising or does include advertising you heard John David say earlier, we saw a lot of progress in core e-commerce during the quarter, which which is absent advertising and we focus on that and we're seeing really great improvement there and so I'm I'm encouraged.
Speaker Change: By it but with Walmart I wouldn't get hung up on one metric too much whether it's advertising income or membership income or ecommerce profitability look at the omni total we have a great and huge store and club business around the world that is profitable we make money in food, we make money in consumables, we make money in general merchandise and will eventually make money in E Commerce and we're good.
Speaker Change: Did that zone, where.
Speaker Change: It's it's going to cross that threshold in and we'll talk about that at some point and then we'll put that to bed and we'll be talking about something else.
Speaker Change: I'll just add on the newer businesses, we continue to see great progress there in the quarter, just maybe cherry pick a couple of a much took advertising and membership those two alone accounted for over 50% of our operating income growth and so.
Speaker Change: As Doug and others have alluded to all these things work together, we've got to be really good at the core basics to have those work, but continue to be pleased with these faster growing higher margin parts of our business that you all are seeing are changing.
Speaker Change: The reflection of in terms of how our financials look our margins are inflicting higher can.
Speaker Change: Can I just had to like.
Speaker Change: As I look across the international business there is so much balance.
Speaker Change: Across the market and we do have markets, where we have we are E. Comm profitable we have channels Weiwei E comm profitable, but what we say holistically is that wall with the value and convenience play that is growing density, it's helping out fulfillment costs come down and that is helping the overall profile.
Speaker Change: But it's just a very balanced results across markets as we're saying that omni continuing to increase as a component of our business and saying the profitability mix really balance out.
Cristina <unk>: Our next question is from the line of Cristina <unk> with Deutsche Bank. Please proceed with your question.
Cristina <unk>: Hi, good morning, and congrats on really strong results.
Cristina <unk>: Wanted to ask on the momentum and numbers that you have done a lot to enhance the walnut business. You added. Many new features. So one is what have you found to be working but not only in attracting but also retaining members and then second can you update us on the uptake of the Walmart plus SaaS program and how you think about the sustainability of that.
John David: As we think about the low income consumer taken advantage also of convenience and value. Thank you Zee and good morning, It's John I'm happy to address that question.
John David: Of course, we I'd say, we're proud of the progress in Walmart plus the team is working really hard on ensuring that number one the offer is built in such a way that is very relevant to our customers all across the country. The core of the of the offer of course is delivery without cost from either the fulfillment centers.
Our stores and our ability to attract people starts with the offer of our ability to retain people ends with how well we execute that proposition. So we spend a lot of time and energy. We start every week going through all the metrics on how we did on the week before the month before the quarter before and then building roadmaps to ensure that.
John David: Any friction that we are putting in front of customers who are doing everything we can to try to eliminate that we know that when we deliver what we call a perfect order, which is part of our over customer experience score that the likelihood of repeat and renewal goes up significantly. So we focus a lot on ensuring that customers get what they ordered when they ordered it with.
John David: Only appropriate substitution when those are absolutely necessary and those are all helping.
John David: In terms of assist and other things. We we have a membership program that should and is we believe very applicable for customers at all income brackets. We have members who are delivering very frequently who are below 50000, a year in income and we have members who are delivering frequently and growing above 100000, and so this flexibility.
Speaker Change: <unk> is super important and as I said earlier when a customer.
Speaker Change: <unk> from just shopping in the store to stores and e-commerce, our stores and ecommerce and they become plus and then within plus they use what described earlier is on demand sub three hour delivery, we really see spend rates and and the amount of time and energy money people are spending less go up significantly so it's about the entire journey.
Speaker Change: Ernie and as Doug said earlier, I Wouldnt way too heavy on one in particular metric in particular, Walmart pluses and important part of our program. It's not the only thing we do we do a lot of other things over the people that joined we want to make sure that we deliver the very best experience that we possibly can that's within our control.
Speaker Change: Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Chuck Grom: Thanks, Good morning, Great results, all automation, where are we on that journey today and how much of the benefits or are we seeing in the P&L over the past couple of quarters versus what you expect to flow through over the next several years and then separately on August comps and some solid any early thoughts on back to school back to college. Thank you.
John David: Hey, Jack John I'll take that first them I'll start automation, then and talk about Mexico for a second.
Speaker Change: As you know we have a number of facilities and a number of types of facilities around the country that we are automating in the supply chain.
Speaker Change: We have our regional distribution network, which is primarily an ambient network.
Speaker Change: Progress there is as it is right, where we planned it to be.
Speaker Change: Continue to be pleased with the progress of our provider in this space and by the end of the year roughly we should see about 3000 stores of the 4600, having deliveries from automated facilities in some in some way so the progress is good.
Speaker Change: The ability of it.
Speaker Change: For a store to get a load in that is palletize, it's by aisle and as we build more density in these centers not only used by aisle in many cases, it's by section when an associate needs to stock a pallet is so helpful. I mean, I remember working in stores years ago, and it was a bit of a treasure hunt to try to find the items needed. The cases you needed.
Speaker Change: But our not only our automation, but then the in store technology to help us locate what we own and know where it is it makes it much easier for our associates to access inventory and get those things in front of people.
Speaker Change: The second type automation of course is perishables, that's a network that we're we're pretty new in that we have about three facilities that are underway and then our fulfillment Center network is probably the furthest along with the highest percentage of buildings that are converted and we're really pleased with the accuracy. The number of steps. It takes an associate to run inventory through in our Bayer broker.
Speaker Change: Per unit is showing significant improvement in those centers.
Speaker Change: As part of your question back to school.
Speaker Change: It started off strong this last couple of weeks.
I've been in a number of operators have been in stores all over the country, where we're looking at how how ready they are for back to college and back to school about 50% of our customers still say they have a lot of shopping left to do we have over 2 million School list uploaded on the site. So we still have a lot of trading ahead of us. So good start we have to continue to execute really well.
Speaker Change: Well cleanup come out of the season strong. So that then we can move to the next holiday, which will be labor day, we take all these one at a time, we focus on what we can control we execute we clean our inventory up and then we move forward. So good start but a lot of trading left to do.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Cory <unk> with Jefferies. Please proceed with your question.
Cory: Great. Thank you and good morning, So Doug a couple quarters ago.
Cory <unk>: You had mentioned to us that deflation could be a real possibility and now in the prepared remarks today.
Speaker Change: For the quarter, both Walmart and.
Speaker Change: And Sam's club, you mentioned or slightly deflationary overall so.
Speaker Change: I'm wondering what do you think this means for the trajectory for pricing as we look ahead.
Speaker Change: But what does it mean for your price gaps and then Additionally, how do you think private label.
Speaker Change: Ladies into this as.
Speaker Change: I think we've continued to see those price gaps widen as well and that also is continuing to increase in terms of penetration in the business. So how do you see that adoption unfolding in the midst of in the broader context of pricing potentially being slightly deflationary.
Speaker Change: Yes, Corey first I would say, we want to sell brands, it's important to Walmart to sell brands and show a value and so we're hoping that our branded suppliers do the right things with both quality and price to get to the value that our customers want to see.
Speaker Change: I would guess that private brand continues to grow although it would be okay with us at the percent of total leveled out for the reason that I just mentioned our teams are doing a better job with private brand as it relates to both the development of the product the quality of it and the value. So.
Speaker Change: So that's good and helpful for customers and we will keep doing that.
Speaker Change: Looking ahead from a pricing point of view fresh food is behaving like it does supply and demand moves faster than things suggest whether it's in proteins or it's fruit and vegetable general merchandize come down My guess is it doesn't come down a whole lot more but it's great that the prices are down and that rollbacks are being reflected.
Speaker Change #100: In dry grocery processed food consumables are where where inflation has been more stubborn and as we mentioned, we still have slight inflation, even in last quarter and in those cat in the food categories.
Speaker Change #100: So I'm, hoping that what we see from our branded suppliers is investment in price and we're seeing that from some of them and not others.
Speaker Change #100: We have less upward pressure, but there are some that are still talking about cost increases and we're fighting back on that aggressively because we think prices need to come down. So I don't forecast that we're going to see a lot of deflation in our number looking ahead at.
Speaker Change #100: It probably levels out about somewhere.
Speaker Change #100: Where we are with the mix being reflected as I just described.
Polish Way: Thank you. Our next question is from the line of Polish way with Citigroup. Please proceed with your question.
Speaker Change #102: Hey, Thank you guys. Following the gross margin expansion in the first half how are you thinking about gross margin in the second half, which drivers of the first half margin expansion stay the same which fall off and are there any new drivers of gross margin that we might see pop up.
Speaker Change #103: The second half.
Speaker Change #104: And then maybe related to that what are your expectations for the competitive landscape relative to what you've seen over the past several months. Thanks.
Speaker Change #105: Paul John David will respond to the gross margin question, but I just want to jump out in the front part of that and say, we're not raising prices, we're lowering prices, but we don't want product margins to go up when we talk about margin improvement in our company its business mix a mix of geographies. It is not that we are increasing product margins.
Speaker Change #106: I'd just add to that Paul that.
Paul: If you look at some of the drivers of the gross margin improvement as Doug noted business mix drives a large part of that we've also see an improvement as I mentioned earlier and just core ecommerce losses.
Paul: Within.
Paul: The core merchandize mix, we had a little bit of benefit from improved shrink and.
Paul: In the quarter similar to what we saw last quarter as well.
Paul: As we were at higher levels last year, but as Doug noted, we're advocating for our customers we want to drive everyday low prices and we're not intending to achieve any of our margin performance by pass this along to our customers and members in the form of higher prices.
Doug: Let me just call out too we had talked.
Speaker Change #108: We had a really strong.
Speaker Change #109: Op, Inc, resulting Q1 key and we pulled out that Q2 would moderate it did but it's still a really strong without into Q2.
Speaker Change #110: But one of the things that I'm finding an international is that there is a significant amount of impact from events and we will have baby day in the back half, which does change the profit profile of the back half, but we're still really optimistic and bullish about the results we're driving.
Speaker Change #110: International It's just recognizing that there's big events do kind of have a disproportion that kind of impact on the.
Speaker Change #111: The ratios across between topline and bottom line, what does bvd stand for L. B day is big billion days, which is a really big sales driving event in India that happens around Q3 Q4.
Speaker Change #112: Our next question is from the line of Kelly Bania with BMO capital markets. Please proceed with your question.
Kelly Bania: Hi, good morning, Thanks, Thanks for taking our question.
Kelly Bania: I was curious can you talk a lot about the share gains by income cohorts and how thats, primarily driven by upper income households, but would you be willing to kind of give color on comps by income cohorts and I think a lot of investors are just really curious if you are growing comps up low income households.
Kelly Bania: <unk>.
Kelly Bania: Or how much of electric pumps are being driven by that upper income and maybe if you can tie in any color beetle grocery spend in general merchandise by cohort is it really that upper income cohort, that's starting to turn the needle here on general merchandise any color there I think would be helpful. Kelly.
Kelly Bania: Kelly This is Doug I'll go first and if anybody wants to add they can I don't know that we can add a whole lot more color, except to say that value matters to everyone, whether you're above or below 100000 in income, we do see behavior differences and the lower income levels more focus on opening price points and a month behavior looks different all the things that you would expect but they.
Kelly Bania: Still need us for general merchandise price points and as it relates to higher income people. They can buy more discretionary goods and they can pay more for convenience and we're offering all of it so.
Speaker Change #114: I think our future looks like it's got a spread across income levels, that's different than our past because of convenience I think the Walmart plus membership delivery the things we're doing with Remodels John in the U S stores I think all these things are coming together to give us a shot at it continuing to have growth with higher income levels, regardless what happens in the <unk>.
Kelly Bania: Economy.
Speaker Change #115: Thank you.
Ravi almost: The next question is from the line of Ravi almost with Bank of America. Please proceed with your question.
Ravi almost: Oh, Hey, Thanks for squeezing me in I, just was wondering from the team with the back half guidance I'd be curious to get your thoughts on what kind of holiday Walmart is planning for this year.
Ravi almost: In the U S.
Speaker Change #117: You don't even globally.
Speaker Change #118: It's going to be great Ravi.
Speaker Change #119: Smile, all smiling at each other.
Speaker Change #120: You guys know, what we know about the volatility of the environment and all the things that are in front of us but the good news is we have a long history of dealing with volatility and surprises of all forms, especially in more recent years.
Speaker Change #121: It is nice that the early days of back to school went well, sometimes most times I guess that does give some indication as to how Halloween and Christmas will will will go we bought increases and we're playing offense. So we're expecting to have a good holiday and we look forward to serving our customers and members through all the holidays around the world.
Speaker Change #121: Thank you at this time, we've reached end of our question and answer session I will turn the call over to Doug Mcmillon for closing remarks as always thanks for your time and attention and we're feeling pretty good about where we are we believe we're making real progress not only as it relates to saving people money, but growing our.
Doug Mcmillon: <unk> through both first party and third party and importantly, saving people time, regardless of your income level, you need to and you want to save time and convenience is a big deal and we're improving that part of our experience. The teams driving results right now the unit growth market share growth pricing improvement really good inventory management, it's great to see.
Doug Mcmillon: And it's also great to see ROI of 230 basis points in the quarter at the same time that the team's doing a great job driving short term results. We're building for tomorrow on the E. Commerce growth is strong that includes the marketplace business, which helps pull through things like membership and advertising and fulfillment services, resulting in that new business model.
Katherine: And I'm also really excited about international as it relates to building for Tomorrow and we're in a great position in the right markets and this business is more than a domestic business. It's got global leverage global benefits and Katherine the team are figuring out ways to help make that be true across markets, where they see benefits by being part of Walmart and 8% operating income growth for the quarter was really good.
Katherine: So we're trying to do a good job of both managing the short term and building for the long term at the same time and I think that's what we're seeing happen and I'm, just really grateful to the team.
Katherine: Thank you all.
Speaker Change #124: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.