Walmart Inc., Q4 2024 Earnings Call, Feb 20, 2024 - NYSE:WMT

NYSE:WMT

Stephanie Wissink, Senior Vice President of Investor Relations at Walmart Inc., made the following remarks during the Q4 2024 Earnings Conference Call:

1. Opening Remarks

   • Welcomed everyone to the call and outlined the format.
   • Noted that CEO Doug McMillon would share his reflections on the quarter and year.
   • CFO John David Rainey would review Q4 and fiscal '24 results, provide perspective on financial drivers, and offer initial guidance for fiscal '25.
   • Mentioned that segment CEOs would join for the Q&A session.

2. Forward-Looking Statements Disclaimer

   • Reminded listeners that management may make forward-looking statements subject to risks and uncertainties.
   • Advised to review Walmart's filings with the SEC for factors that could cause actual results to differ materially from the statements made.
   • Directed listeners to Walmart's press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements, the safe harbor statement, and non-GAAP reconciliations on the company's website at stock.walmart.com.

3. Introduction of Doug McMillon

   • Indicated that Doug McMillon, the CEO, was ready to begin his remarks.

C. Douglas McMillon, the President, CEO, and Director of Walmart Inc., provided the following comments during the Q4 2024 Earnings Call:

1. Opening Remarks:

   • He thanked everyone for joining the call and highlighted that the team delivered a great quarter, finishing off a strong year.
   • The company saw sales growth of 4.9% and adjusted operating profit growth of 10.9% in constant currency.
   • Noted highlights such as higher transaction counts, unit volumes, market share gains, improved in-stock levels, and inventory being in great shape.
   • Mentioned strong performance in Walmart U.S. customer experience scores, even during the high-volume days before Christmas.
   • Walmart passed $100 billion in global eCommerce sales for the first time.

2. Holiday Season Performance:

   • The company had a very good holiday season, being strong in the U.S., Mexico, Canada, and India, where they had the best Big Billion Days ever.
   • Continued strong performance in China with the start of Chinese New Year.

3. Customer Experience Scores:

   • Typically, customer experience scores dip during the high-volume hours and days experienced during the holidays, but Walmart U.S. delivered 3-year high customer scores in stores, for pickup and delivery from stores, and for orders from eCommerce fulfillment centers.

4. Pricing and Value Proposition:

   • Across countries, customers remain resilient but are looking for value.
   • Walmart is working hard to deliver value, including through rollbacks on food pricing in Walmart U.S., which were up significantly in Q4 versus the previous year.
   • General merchandise prices are lower than a year ago and even 2 years ago in some categories, allowing customers to find value in areas like apparel and hardlines.

5. Food Pricing:

   • Prices are lower than a year ago in places like eggs, apples, and deli snacks, but higher in other places like asparagus and blackberries.
   • Dry grocery and consumables categories, like paper goods and cleaning supplies, are up mid-single digits versus the previous year and high teens versus 2 years ago.
   • Private brand penetration is up in many countries where Walmart operates, including the United States.

6. Inflationary Position:

   • During the Q3 call, he mentioned that Walmart might find itself in a deflationary position early in calendar 2024.
   • In Walmart U.S., the company is in a deflationary position in general merchandise, but the slope of the decline softened during Q4, meaning prices are lower than a year ago, but not as much as the trend line would have suggested at the end of Q3.
   • The trend line for food and consumables in Walmart U.S. also softened, resulting in retail prices in food and consumables being slightly higher than a year ago.
   • For Walmart U.S., year-end retail prices on like-for-like items were inflated by about 80 basis points.

7. Omnichannel Strategy:

   • The future is an omnichannel one, where Walmart simultaneously strengthens its stores and clubs and builds a more compelling eCommerce business.

8. Investments in Stores and Clubs:

   • Walmart is investing in remodels and supply chain automation to improve the customer experience and increase productivity.
   • Plans to remodel 928 stores and clubs globally over the next year, including 650 stores in the U.S.
   • Recently announced the opening of more than 150 supercenters and neighborhood markets in the U.S. over the next five years, and 30 new Sam's Clubs in the U.S. over the next several years.
   • Outside the U.S., plans to open around 230 stores and clubs next year, mainly in Mexico and Central America and in China, where most will be Sam's Clubs.

9. eCommerce and Digital Initiatives:

   • Walmart is continuing to strengthen its first and third-party eCommerce capabilities and scale those businesses around the world.
   • Marketplace, fulfillment services, membership, advertising, and data monetization enable the company to grow its bottom line faster than its top line while delivering everyday low prices and investing in associates.
   • Marketplace is an engine for the business, with growth helping to drive the global ad business.
   • Globally, Walmart drove advertising growth of 28% for the year to reach $3.4 billion.

10. Acquisition of VIZIO:

    • Announced that Walmart has agreed to acquire VIZIO, which provides an opportunity to reach and serve customers in new ways and connect more dots for advertisers.

11. Membership Programs:

    • Membership is an area where Walmart will continue to enhance its offerings.
    • Walmart+ members spend nearly twice as much as non-members, and they buy more over the course of a year.
    • Sam's Club U.S. is rolling out new exit technology that enables members to use Scan & Go to just walk out after completing their transaction on their phone.

12. Technology Initiatives:

    • Described Walmart as a people-led, tech-powered omnichannel retailer dedicated to helping people save money and live better.
    • Examples of tech-powered initiatives include generative AI-powered search on the Walmart U.S. app and drone delivery capabilities.

13. Environmental Sustainability:

    • Highlighted the company's progress on Project Gigaton, which aims to reduce, avoid, or sequester 1 gigaton of greenhouse gas emissions by 2030.
    • Suppliers have now reported projects exceeding the 1 billion metric ton mark six years early.

14. Associate Ownership and Wealth Building:

    • Motivated to make shares of Walmart stock part of U.S. store manager compensation and to do a 3-for-1 stock split.
    • More than 400,000 associates participate in the associate stock purchase plan.
    • The company is looking for ways to help associates build wealth and do more than just earn a paycheck.

15. Closing Remarks:

    • Thanked associates for delivering a great quarter to end the year and emphasized the company's focus on building momentum.

    • Highlighted the company's strong omnichannel businesses globally and the focus on executing plans for the current and future years.

John David Rainey, the Executive Vice President and Chief Financial Officer of Walmart Inc., provided significant insights during the Q4 2024 Earnings Call. Here is a detailed summary of his comments:

Opening Remarks

• Financial Performance: Highlighted strong performance in Q4 and FY 2024, with 5.6% net sales growth and over 8% adjusted operating income growth in constant currency.
• Strategic Initiatives: Noted the clear strategic initiatives driving profitable growth and the sustained sales and operating income growth included in the FY 2025 guidance.

Growth Metrics

• Net Sales: Constant currency sales increased nearly 5% in Q4, driven by strong growth across all three segments, with increased transactions across in-store, club, and eCommerce channels.
• International Sales: Grew 13%, reflecting strength in Flipkart, Walmex, and China, with eCommerce sales increasing 44% to reach a penetration level of 25%.
• U.S. Sales: Walmart U.S. comp sales grew 4%, reflecting increased unit volume and share gains, with like-for-like sales inflation at about 1%.
• Sam’s Club U.S.: Delivered comp sales growth of 3.1%, excluding fuel, with strength in food, consumables, and health categories. eCommerce sales increased 17%.

Margins

• Gross Margins: Expanded 39 basis points due to competitive pricing alignment and lower markdowns from strong inventory management.
• SG&A Expenses: Deleveraged 16 basis points, primarily due to higher variable pay expenses in the U.S.
• eCommerce Profitability: Improved within the Walmart U.S. segment, resulting from lower eCommerce fulfillment costs and densifying the last mile. Last mile store-to-home delivery costs were reduced by about 20% in the last year.

Higher Growth Initiatives

• Global Advertising: Grew approximately 33%, led by International's 76% growth, with strong demand from new advertisers.
• Marketplace and Fulfillment Services: Flipkart’s momentum continued with double-digit growth, and Walmart’s U.S. Marketplace delivered strong holiday events.
• Membership Programs: Sam’s Club U.S. reached another record high level for member counts and Plus Member penetration, with membership income growth of 10%. Walmart+ continues to grow double digits.

Returns

• Operating Cash Flow: Generated over $35 billion, an increase of nearly 24% due to strong business performance and improvements from working capital initiatives.
• Return on Investment (ROI): Improved approximately 230 basis points to 15%.
• Capital Expenditures: Reached $20.6 billion, with ROI improvements reflecting some benefits from productivity initiatives initially expected in FY 2025.

Strategic Initiatives Driving Margins

• Business Mix: Noted the significant growth in global advertising ($3.4 billion), Walmart U.S. Marketplace revenue (45% growth), and global membership income (20% growth).
• Supply Chain Transformation and Automation: Discussed the phased deployment of automated technologies, with 13 regional distribution centers retrofitted with varying levels of automated storage and retrieval systems.
• Product Mix: Continued expansion of eCommerce assortment, particularly for general merchandise.
• Geographic Mix: International portfolio is accretive to sales and profit growth and expected to be a larger contributor to enterprise performance.

Guidance

• FY 2025 Net Sales: Expected to grow between 3% and 4% in constant currency.
• Operating Income: Expected to grow 4% to 6%.
• EPS Guidance: Provided a range of $6.70 to $7.12 on a pre-split basis and $2.23 to $2.37 on a post-split basis.

Closing Remarks

• Technology Investments: Expected CapEx to range between 3% to 3.5% of sales for the next couple of years, with good visibility on the ROI of these investments.
• Thanked Associates: Acknowledged the efforts of Walmart’s 2.1 million associates worldwide.
• Stock Split: Mentioned the 3-for-1 stock split, effective February 23, 2024, aimed at making stock more accessible to employees and aligning their interests with external stakeholders.

Question and Answer Session

• Response to Michael Lasser (UBS Investment Bank, Research Division): Explained the optimism in the FY 2025 outlook, noting improvements in gross profit driven by changes in business mix, despite not relying on raising prices. Mentioned the expectation of some SG&A deleverage and the persistence of product mix headwinds.
• Response to Krisztina Katai (Deutsche Bank AG, Research Division): Discussed the drivers behind the strong gross margin improvement, including inventory management and lower markdowns. Addressed the improvement in digital contribution margin, including cost of fulfillment reduction and densification of the last-mile network.
• Response to Simeon Ari Gutman (Morgan Stanley, Research Division): Commented on the strategic initiatives for FY 2025, emphasizing top-line growth, automation, and the evolution of the business mix through Marketplace and advertising.
• Response to Rupesh Dhinoj Parikh (Oppenheimer & Co. Inc., Research Division): Discussed the performance of remodels and the positive signs in the general merchandise offering, particularly in apparel, home, beauty, and pet departments.
• Response to Kelly Ann Bania (BMO Capital Markets Equity Research): Provided insights on the growth of the advertising business, including the impact of the VIZIO acquisition on accelerating the connected TV business.
• Response to Robert Frederick Ohmes (BofA Securities, Research Division): Explained the strong transaction growth in Q4, driven by more customers, more frequent visits, and the use of same-day services and express deliveries.
• Response to Corey Tarlowe (Jefferies LLC, Research Division): Highlighted the impact of generative AI on improving search experiences and the rollout of My Assistant on the Me@Walmart application.
• Response to Paul Lawrence Lejuez (Citigroup Inc., Research Division): Provided details on the increase in rollbacks, their funding, and the focus on key categories.
• Response to Seth Ian Sigman (Barclays Bank PLC, Research Division): Discussed market share gains, particularly among higher-income consumers, and the importance of convenience in attracting customers.

These summaries encapsulate the key points and insights provided by John David Rainey during the earnings call.