Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Walmart Inc (WMT, Financial) reported strong sales growth and exceeded expectations for the quarter.
- E-commerce sales grew about 20% for each segment and 21% overall, showing significant digital engagement.
- Global membership income grew 23%, with Walmart+ memberships up double digits and Sam's Club US achieving a record high member count.
- Advertising revenue grew 26%, driven by a 30% increase in Walmart Connect in the US.
- Automation and technology advancements, including the use of generative AI, are improving operational efficiency and customer experience.
Negative Points
- Despite strong performance, Walmart Inc (WMT) remains cautious about the economic and geopolitical uncertainties that could impact future results.
- Expense deleverage was noted, largely due to increased marketing and higher variable pay expenses tied to above-plan performance.
- The company is experiencing slight deflation in some areas, which could impact pricing strategies and margins.
- There is ongoing pressure from branded suppliers regarding cost increases, which Walmart Inc (WMT) is actively fighting against.
- The timing of festive events in international segments can affect year-over-year comparability and growth rates, adding variability to financial results.
Q & A Highlights
Q: Can you frame or quantify how you have factored in things like the election and other distracting events into your guidance for 3Q and 4Q?
A: John Rainey, CFO: Given the state of the economy, the election, and global affairs, there's reason to be measured in our outlook for the back half of the year. However, our business is executing well, and we feel good about our performance and positioning.
Q: What does your guidance assume in terms of your outlook on the consumer? And what do you see happening within the general merchandise category?
A: John Rainey, CFO: Our outlook for the back half of the year is a continuation of what we've seen, with consistent performance. General merchandise showed positive inflection for the first time in 11 quarters, driven by expanding assortment and relevance to customers.
Q: Membership growth was noted as one of the drivers of operating income dollar growth during the quarter. What contributed to this growth?
A: Chris Nicholas, CEO of Sam's Club: We're seeing all-time high membership growth and Plus penetration, driven by focusing on core value propositions, digital engagement, and Member's Mark. This growth spans all income cohorts and generations, with significant contributions from Gen Z and millennials.
Q: How are you thinking about the sustainability of the strength in the health and wellness category?
A: John Furner, CEO of Walmart U.S.: Growth in health and wellness is led by GLP-1 drugs, but other categories like supplements are also performing well. Our merchants are managing mix effectively, and inventory is down 2% across the business, indicating strong in-stock results.
Q: Can you provide an update on the profitability of the U.S. e-commerce business?
A: Doug McMillon, CEO: We're seeing significant improvement in core e-commerce margins, driven by better business mix and reduced delivery costs. While we don't focus on a single metric, e-commerce profitability is improving and contributing to overall operating income growth.
Q: What are the key drivers of gross margin expansion in the first half, and how do you see this playing out in the second half?
A: John Rainey, CFO: Gross margin improvement is driven by business mix, improved core e-commerce margins, and better shrink management. We are focused on maintaining everyday low prices for customers and not increasing product margins.
Q: How do you see the trajectory for pricing and private label penetration in a slightly deflationary environment?
A: Doug McMillon, CEO: We aim to sell both brands and private labels, with private brand penetration likely to grow. Fresh food prices adjust quickly, while dry grocery and consumables have more stubborn inflation. We are advocating for price investments from branded suppliers.
Q: What are your expectations for the competitive landscape and holiday season?
A: Doug McMillon, CEO: We are playing offense and expecting a good holiday season. Early back-to-school results are positive, and we are prepared to serve customers and members through all holidays globally.
Q: How are you leveraging automation in your supply chain, and what are the early results for back-to-school and back-to-college?
A: John Furner, CEO of Walmart U.S.: Automation progress is on track, with significant improvements in fulfillment centers and regional distribution networks. Back-to-school season has started strong, with 50% of customers still having shopping left to do.
Q: What are the key factors driving the momentum in Walmart+ membership growth and retention?
A: John Furner, CEO of Walmart U.S.: The core offer of delivery without cost and a focus on eliminating friction for customers are key. Walmart+ is relevant across all income brackets, and we see significant spend increases when customers join and use the service.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
