Walmart Inc., Q1 2025 Earnings Call, May 16, 2024 - NYSE:WMT

NYSE:WMT

Stephanie Wissink, Senior Vice President of Investor Relations at Walmart, made the following statements during the Q1 2025 Earnings Call:

1. Opening Remarks:

   • Welcomed everyone to the earnings call and expressed appreciation for their interest in Walmart.
   • Mentioned that she was joined by Walmart's CEO, Douglas McMillon, and CFO, John David Rainey, who would share their views on the quarter.
   • Noted that segment CEOs John Furner (Walmart U.S.), Kath McLay (Walmart International), and Chris Nicholas (Sam's Club) would join during the Q&A portion.

2. Additional Details:

   • Directed attendees to the earnings release and accompanying presentation on Walmart's website for more details on the results, including highlights by segment.
   • Mentioned that they would try to answer as many questions as possible within the scheduled hour.
   • Provided operator instructions for the call.

3. Forward-Looking Statements:

   • Reminded listeners that management may make forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially.
   • Advised attendees to review Walmart's press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements, as well as the entire safe harbor statement and non-GAAP reconciliations on Walmart’s website.

4. Closing Statement:

   • Indicated that her introductory remarks were complete and handed the call over to Douglas McMillon to begin his presentation.

C. Douglas McMillon, the President, CEO, and Director of Walmart Inc., provided several insights and highlights during the Q1 2025 Earnings Call:

1. Opening Remarks:

   • Thanked everyone for joining the call and expressed appreciation for the interest in Walmart.
   • Acknowledged the presence of CFO John David Rainey and other executives from Walmart U.S., Walmart International, and Sam's Club.

2. Quarterly Performance Highlights:

   • Noted that the team delivered a great quarter to start the year, with sales growth of 5.7% and adjusted operating profit up 12.9% in constant currency.
   • Mentioned that all three operating segments performed well, driven by growth in units sold, transaction counts, and market share gains, including general merchandise.
   • Clarified that the sales growth was not inflation-driven, with like-for-like sales inflation in the U.S. at about 40 basis points for the quarter.

3. Customer Experience Improvements:

   • Highlighted the improvement in customer experience scores, attributing much of this success to the efforts of associates.
   • Shared that he visited various stores and clubs in Johannesburg, Cape Town, Toronto, Nashville, Los Angeles, Austin, Oklahoma City, and Dallas, and thanked all associates for their hard work.

4. Value Proposition:

   • Emphasized that Walmart is providing value through low prices on quality merchandise, with a combination of everyday low prices and a large number of rollbacks resonating with customers.
   • Cited the success of offering a basket of Easter items at a lower price than the previous year in the U.S. and Canada, which led to strong sell-throughs.

5. Inventory Management:

   • Praised the merchants for managing inventory effectively, with global inventory finishing down 2.7%.
   • Mentioned the growth in the number of Marketplace sellers and SKU count, indicating an improved selection for customers.

6. Enhanced Customer Experience:

   • Noted the completion of nearly 70 store remodels during the quarter and plans to complete more than 900 remodels this year, which are performing well.
   • Highlighted the improvement in curbside pickup and delivery capabilities, as indicated by customer experience metrics.

7. Strategic Initiatives:

   • Announced the expansion of Walmart Luminate, the data analytics and insights product, into Mexico and Canada.
   • Discussed the technology team's work on delivering innovation, including generative AI-driven product search and building platforms for Marketplace and data across countries.

8. Automated Supply Chain:

   • Mentioned the on-track implementation of automated storage and retrieval systems in distribution centers and fulfillment centers, expressing enthusiasm about the impact of this work.

9. Walmart U.S. Specifics:

   • Introduced the new private brand in food called bettergoods, which focuses on trends and premium quality while maintaining affordability.
   • Announced the introduction of on-demand early morning delivery to customer doorsteps as early as 7:00 a.m. and as quickly as 30 minutes.

10. Healthcare Clinics Closure:

    • Announced the difficult decision to close Walmart's U.S. healthcare clinics, citing challenges with reimbursement rates and costs.
    • Expressed gratitude to associates who worked in this area and mentioned the company's commitment to disciplined investments.

11. Workforce Changes:

    • Shared decisions to eliminate some home office roles and reduce the amount of remote work, emphasizing the importance of being together in person for culture, faster decision-making, creativity, and talent development.

12. Walmart International Highlights:

    • Noted the strong results with double-digit growth in sales and profit, driven by Walmex, China, and Flipkart.
    • Highlighted the growth in eCommerce, particularly store-fulfilled orders and Marketplace, and the focus on celebrations like Chinese New Year, Easter, and Walmart Canada's 30th anniversary.

13. Sam's Club U.S. Innovations:

    • Mentioned the deployment of computer vision and AI-powered exit technology that allows members to leave the club without standing in line for receipt checks, with plans to have it in all U.S. clubs by year-end.

14. Closing Remarks:

    • Reiterated the focus on improving customer and member experiences, being great merchants, building newer businesses, and improving returns.

    • Passed the call over to John David Rainey to discuss the financial results and outlook for the rest of the year.

John David Rainey, the Executive Vice President and Chief Financial Officer of Walmart Inc., provided significant insights and details during the Q1 2025 Earnings Call. Here is a detailed summary of his comments:

1. Financial Performance Overview:

   • Noted that the quarter's results demonstrated the company's ability to deliver on its financial framework of growing operating income faster than sales.
   • Mentioned that the execution across virtually every aspect of the business, share gains, and improving Net Promoter Score (NPS) from members and customers were contributing factors to the strong results.
   • Highlighted the benefits of improved margins in core retail operations and contributions from business mix.

2. Strategic Investments:

   • Emphasized that Walmart is investing in areas with strong capital returns, such as automation, store remodels, and digital tools and technologies.
   • Explained that these investments are widening the company's competitive advantages and providing levers to invest in people and price while achieving sales and margin objectives.

3. Sales Growth:

   • Reported that total net sales grew 5.7% on a constant currency basis, ahead of guidance of 4% to 5% growth.
   • Noted that the leap year contributed approximately 1 point to year-over-year sales growth.
   • Highlighted that International led the enterprise with constant currency sales growth of 10.7%, driven by strength in Walmex, China, and Flipkart.
   • Mentioned that International eCommerce sales were up 19%, with continued expansion of capabilities.

4. Walmart U.S. Performance:

   • Noted that Walmart U.S. delivered better-than-expected growth with comp sales up 3.8% and strong eCommerce growth of 22%, led by store-fulfilled pickup and delivery, Marketplace, and advertising.
   • Stated that traffic and sales growth were strong across both stores and digital channels, and the company was pleased with the unit growth.
   • Mentioned that the company is seeing higher engagement across income cohorts, with upper-income households continuing to account for the majority of share gains.

5. Sam’s Club Performance:

   • Noted that Sam’s Club U.S. comp sales ex-fuel were strong at 4.4%.
   • Mentioned that the Sam’s Club team continues to make progress on quality and value with Member’s Mark, the private brand.
   • Highlighted that Member’s Mark drove high single-digit growth in Q1 and is a growing reason why members join and renew alongside digitally enabled solutions such as Scan & Go and curbside pickup.

6. Margin Expansion:

   • Noted that consolidated gross margin expanded 42 basis points, led by Walmart U.S.
   • Mentioned that the company benefited from lower markdowns as a result of disciplined inventory management and favorable business mix, enabling strong margin flow-through from sales.
   • Stated that consolidated adjusted operating income grew 12.9% in constant currency, more than 700 basis points higher than sales growth.

7. Operating Income Growth:

   • Explained that the growth in operating income was partially offset by expense deleverage in U.S. segments related to higher variable pay expenses from outperformance.
   • Noted that Walmart U.S. was the primary driver of outperformance, but all segments contributed to operating income growing faster than sales.

8. Inventory Management and Pricing Strategy:

   • Mentioned that Walmart U.S. pricing is aligned with competitive price gaps and customers are responding favorably, resulting in sustained sales growth and higher gross margins.
   • Explained that improved inventory management and favorable business mix allowed the company to optimize pricing on everyday essentials and invest further in value within private brands.
   • Noted that the company's rollback program is driving customer engagement and supporting volume growth with grocery rollback counts up 45% year-over-year in April.

9. Seasonal Programs and Private Brands:

   • Mentioned the success of seasonal programs, such as Chinese New Year, Valentine's Day, and Easter, in reinforcing the company's value proposition.
   • Noted that the company is working with suppliers to bring innovation to U.S. customers while leaning into its own private brands as sources of value, quality, and newness.
   • Highlighted that private brand sales have seen strong momentum with grocery penetration up 30 basis points in Q1.

10. Inventory Levels and Efficiency:

    • Mentioned that inventory levels continued to come down with Walmart U.S. declining about 4% and Sam’s down nearly 5% at quarter end.
    • Noted that having the right inventory in the right categories and places has allowed the company to minimize markdown activity and support higher in-stock levels with goods flowing more smoothly through distribution centers and to stores.

11. E-commerce and Delivery:

    • Mentioned that global eCommerce growth was 21% in Q1 and eCommerce losses continued to narrow, notably in the U.S. with net delivery cost per order improving nearly 40%.
    • Explained that more customers are shopping with the company more often across more categories, moving along the pathway of delivery density and transaction margins that give clear visibility into profitability in this channel over time.

12. Business Mix and Profit Composition:

    • Highlighted the reshaping of the profit composition as an exciting part of the company's strategy, with enhancements to capabilities and higher-margin growth drivers such as advertising, membership, Marketplace, fulfillment, and data analytics and insights.
    • Noted that global advertising grew 24%, led by 26% growth from Walmart Connect in the U.S. and International's 27% growth.

13. Membership Programs:

    • Mentioned that Sam’s Club U.S. reached another record high level for member counts and Plus member penetration, resulting in membership income growth over 13%.
    • Noted that Sam’s China member count grew 25% with increasing active and renewal rates.
    • Mentioned that Walmart Plus continued to grow double digits as members engage with the company more frequently and spend more than other customers.

14. Marketplace Growth:

    • Highlighted that within International, all markets grew double digits led by Flipkart and Walmex, reflecting the strength experienced across markets.
    • Mentioned that in the U.S., Walmart Marketplace delivered strong results aided by 36% more sellers on the platform with 28% of sellers using the Marketplace fulfillment services.

15. Data Analytics and Insights:

    • Mentioned that Walmart Data Ventures continues to see strong demand from clients for insights on consumer behavior and trends in the company's omnichannel operations.
    • Noted that in Q1, this business doubled versus last year.

16. Business Discipline:

    • Mentioned that the company made the decision to close all 51 Walmart Health centers, resulting in a business reorganization cost of $0.02 per share in the first quarter.

17. Below-the-Line Items:

    • Mentioned that below-the-line items reflected slightly higher interest expense on relatively flat net debt balances and a lower tax rate year-over-year based on changes in the fair value of equity investments.

18. Guidance:

    • Noted that the team is executing at a very high level and that Q1 results exceeded expectations for both sales and operating income growth.
    • Provided guidance for Q2, expecting sales to increase between 3.5% and 4.5% and for operating income growth, in line with that, at roughly 3% to 4.5%.
    • Mentioned that EPS is expected to be between $0.62 and $0.65 per share.
    • Explained that operating income growth in Q2 would be impacted by the timing of tech and wage investments.

19. Full-Year Guidance:

    • Mentioned that combining Q1 results with the midpoint of Q2 guidance suggests that first-half sales would grow nearly 5% and operating income would grow about 8%.
    • Noted that the company feels good about its start to the year and that the outlook for the second half is consistent with 90 days ago.
    • Suggested that the company should be at the high end or even slightly above its sales and operating income guidance for the year.

20. Closing Remarks:

    • Expressed extreme pleasure with the results and highlighted the team's focus on the member and customer, discipline on cost, and leveraging technology investments.

    • Mentioned that profits are growing, customer NPS scores are increasing, and the company is running a great operation.