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20-Feb-2024

Walmart, Inc. (WMT)

Q4 2024 Earnings Call

Walmart, Inc. (WMT) Q4 2024 Earnings Call

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CORPORATE PARTICIPANTS

Stephanie Schiller Wissink Senior Vice President & Head-Investor Relations, Walmart, Inc.

C. Douglas McMillon President, Chief Executive Officer & Director, Walmart, Inc.

John David Rainey Chief Financial Officer & Executive Vice President, Walmart, Inc.

John R. Furner President & Chief Executive Officer-Walmart US, Walmart, Inc.

Kathryn J. McLay President & Chief Executive Officer, Walmart International, Walmart, Inc.

Chris Nicholas President & Chief Executive Officer, Sam's Club

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

OTHER PARTICIPANTS

Michael Lasser Analyst, UBS Securities LLC

Krisztina Katai Analyst, Deutsche Bank Securities, Inc.

Simeon Ari Gutman Analyst, Morgan Stanley & Co. LLC

Rupesh Parikh Analyst, Oppenheimer & Co., Inc.

Kelly Bania Analyst, BMO Capital Markets Corp.

Robert F. Ohmes Analyst, BofA Securities, Inc.

Corey Tarlowe Analyst, Jefferies LLC

Paul Lejuez Analyst, Citigroup Global Markets, Inc.

Seth Sigman Analyst, Barclays Capital, Inc.

Walmart, Inc. (WMT) Q4 2024 Earnings Call

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MANAGEMENT DISCUSSION SECTION

Operator: Greetings. Welcome to Walmart's Fourth Quarter Fiscal Year 2024 Earnings Conference Call.

[Operator Instructions]

At this time I'll now turn the conference over to Steph Wissink, Senior Vice President of Investor Relations. Steph,

you may now begin. ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

Stephanie Schiller Wissink Senior Vice President & Head-Investor Relations, Walmart, Inc.

Thank you, and welcome, everyone. The format of today's call will follow prior quarters. First, our CEO, Doug

McMillon, will share his reflections on the quarter and year. Then our CFO, John David Rainey will review our Q4

and fiscal 2024 results, provide perspective on the key drivers of our financial framework, and offer initial

guidance for fiscal 2025.

Following these remarks we'll take your questions. At that time, we will be joined by our segment CEOs. John

Furner, from Walmart US, Kath McLay, from Walmart International, and Chris Nicholas, from Sam's Club.

In order to address as many questions as we can, please limit yourself to one question. Today's call is being

recorded and management may make forward-looking statements. These statements are subject to risks and

uncertainties that could cause actual results to differ materially from these statements. These risks and

uncertainties include, but are not limited to the factors identified in our filings with the SEC. Please review our

press release and accompanying slide presentation for a cautionary statement regarding forward-looking

statements as well as our entire Safe Harbor statement and non-GAAP reconciliations on our website at

stock.walmart.com.

Doug? We are now ready to begin. ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

C. Douglas McMillon President, Chief Executive Officer & Director, Walmart, Inc.

Good morning, and thanks for joining us to talk about our business.

Our team delivered a great quarter finishing off a strong year. We drove sales growth of 4.9% and adjusted

operating profit growth of 10.9% in constant currency. Highlights include higher transaction counts and unit

volumes, gains in-market share in the US and internationally, improved in-stock levels with inventory being in

great shape, and down versus last year, strong performance in Walmart US customer experience scores, even

during the high-volume days before Christmas, plus, this year, we passed $100 billion in global eCommerce sales

for the first time. We had a very good holiday season. We were strong in the US, Mexico, Canada and India

where we had the best Big Billion Days ever and we continued the strong performance in China with the start of

Chinese New Year.

Typically we see some of our customer experience scores dip during the high-volume hours and days we

experience during the holidays, but during Q4 the Walmart US team delivered three-year high customer scores in

our stores, for pickup and delivery from stores, and for those orders that flowed directly from our eCommerce

fulfillment centers.

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I'm excited about the omni-channel Net Promoter Score trends the team is driving. Across countries we continue

to see a customer that's resilient but looking for value. As always, we're working hard to deliver that for them,

including through our rollbacks on food pricing in Walmart US. Those were up significantly in Q4 versus last year,

following a big increase in Q3.

Our general merchandise prices are lower than a year-ago and even two-years ago in some categories, which

means our customers are finding value in areas like apparel and hard lines. In food, 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 last

year and high-teens versus two-years ago.

Private brand penetration is up in many of the countries where we operate, including the United States. During

our Q3 call, I mentioned that we might find ourselves in a deflationary position early in calendar 2024. In Walmart

US, we're there in general merchandise but the slope of the decline softened during Q4 meaning the prices are

lower than a year-ago but not as much as the trend line would have suggested at the end of Q3.

We saw the trend line for food and consumables in Walmart US soften too resulting in our retail prices in food and

consumables being slightly higher than a year-ago. In total for Walmart US, our year-end retail prices on like-for-

like items were inflated by about 80 basis points. Importantly, we're encouraged by our strength in terms of units

and transactions.

Sam's Club US is in a similar pricing position to Walmart US and outside the US our pricing comparisons to a

year-ago are in more of a normal range. We're excited about the momentum we see and we're pleased with the

quarter, but my focus stays primarily on what we're building for the longer-term. That future is an omni-channel

one where we simultaneously strengthen our stores and clubs and build a more compelling eCommerce

business.

As it relates to strengthening our stores and clubs, we're investing in remodels and supply chain automation to

improve the customer experience and increase productivity. Those things are going well. We'll remodel 928 stores

and clubs globally over the next year including 650 stores in the US. Not long ago we shared that we would be

building 30 new Sam's Clubs in the US over the next several years and more recently, we announced we will add

more than 150 Supercenters in neighborhood markets in the US over the next five years.

Most of those are new-builds in locations where we need a new store, but a few of them will be discount store

conversions to a Supercenter where we're relocating in the same community.

Outside the US, we'll open around 230 stores and clubs next year, mainly in Mexico and Central America and in

China where they'll mostly be Sam's Clubs. We ended the year with 47 Sam's Clubs in China, and they continue

to be quite strong on the top and bottom-line. We are by far the leading membership club operator in China with

28 years of experience there.

So, our physical fleet is getting stronger and it plays a hybrid role serving customers and members when they visit

and simultaneously enabling an important portion of eCommerce. Beyond our stores and clubs, we're continuing

to strengthen our first and third-party eCommerce capabilities and scale those businesses around the world. The

combination of marketplace and the commissions that go with it, fulfillment services, membership, advertising,

and our smaller but fast-growing data monetization business enable us to grow our bottom-line faster than our

top-line while delivering everyday low prices for our customers and investing in our associates at the same time.

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Marketplace is an engine for our business. As we've added more sellers in the US, we've seen more of them use

our fulfillment capabilities. Marketplace is also the fastest-growing aspect of eCommerce for us outside the US.

That growth helps us drive our global ad business. For now, we see the biggest dollar impact from Walmart US

and in India from Flipkart, but as these businesses scale in places like Mexico and Canada, we expect to see a

similar relationship.

Globally we drove advertising growth of 28% for the year to reach $3.4 billion. Our announcement today that

we've agreed to acquire VIZIO gives us the opportunity to reach and serve customers in new ways, and connect

more dots for those that advertise with us.

Membership's another area where we'll continue to enhance our offerings. Walmart+ members spend nearly twice

as much with us as non-members and they buy more over the course of a year. At Sam's Club US, we're rolling

out new exit technology that enables our members to use Scan & Go to just walk out after completing their

transaction on their phone, further enhancing their membership.

Last year, we began describing ourselves as a people-led, tech-powered omni-channel retailer dedicated to

helping people save money and live better. This description's really resonating for us inside the company. We can

prioritize our associates, our values, and our culture, and put impactful technology to work to help us fulfill our

purpose, strengthen the customer and member experience and strengthen our company.

Here is some recent examples of us being tech-powered. Our new generative AI-powered search on the Walmart

US app, which rolled out to iOS users last month and is coming to Android users this month, is a great example.

One of those popular searches this month was help me buy a Valentine's Day gift. And rather than searching

separately for things like chocolates, a card, jewelry, flowers, the search returns a list of results that are relevant

and curated.

And Flipkart launched a similar generative AI search tool which was available just in time for Big Billion Days.

Another example is our ability to provide customers and members with more convenient and affordable delivery.

We already offer express delivery in the US where customers can get their orders delivered fast, but what if you

need something faster? There's a pot of chili on the stove and you realize you forgot chili seasoning. Drone

delivery can get it to you in 15 minutes or less. Delivering by drone isn't new to us. Over the last two-years, we've

operated 37 hubs across seven states, completing 20,000 deliveries. By the end of the year, we'll make it

available to about 75% of households in Dallas-Fort Worth.

I'm really excited about how the pieces are coming together in the near-term. Our customers will have an

improved store experience given our remodels. They can pick up an order, have it delivered to their doorstep or

into their home or get a fast drone delivery when they want it. And this flexibility is enabled by a more intelligent,

more connected, and more automated supply chain.

From scaled businesses to our faster-growing newer businesses, we're well on track to continue to hit the

financial targets we laid out and make important investments for the future. And while we do this, we can grow in

a way that helps us achieve our goals of creating opportunities for our associates and becoming a more

sustainable business.

In 2017, we announced a bold ambition to work with our suppliers to reduce, avoid, or sequester one gigaton,

that's 1 billion metric tons of greenhouse gas emissions by 2030. We call it Project Gigaton. Our merchants and

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suppliers got to work and made investments in practical things like energy efficiency, packaging redesign, and

load optimization.

We've reported steady progress since then and we're excited to say that our suppliers have now reported projects

exceeding that 1 billion metric ton mark, six years early. We'll continue to work with our suppliers on real

initiatives, with real-world impacts, that make our products better and our business stronger.

As we think about developing our associates, we want them to feel, think, and act like owners. The degree to

which our team takes ownership, will have a big impact on our level of success. That's what motivated us to make

shares of Walmart stock part of US store manager compensation. It's also why we decided to do a 3:1 stock split.

Today, more than 400,000 associates participate in our associate stock purchase plan. That's a big number, but

hopefully even more will choose to participate and take advantage of the 15% the company contributes for the

first $1800 purchased by an associate each year.

Psychologically it just feels better to buy a whole share rather than a fraction. We believe in our plan and we're

looking for ways in addition to our 401(k) and the match that goes along with it, to help our associates build well

and do more than just earn a paycheck.

I'll close by thanking our associates for delivering a great quarter to end the year where we've accomplished so

much. We're out to build on our momentum. We have strong omni-channel businesses globally and they're

getting stronger. We're focused on executing the plans we have for this year and beyond, which we believe will

deliver top- and bottom-line growth within the framework we've discussed and improve ROI over time.

With that, I'll turn it over to John David. ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

John David Rainey Chief Financial Officer & Executive Vice President, Walmart, Inc.

Thanks, Doug. We're excited about the progress we've made in growing and evolving our omni-channel platform

in pursuit of our purpose to help people save money and live better. Our teams did a great job in the quarter

finishing the year strong.

For the year, in constant currency, we achieved 5.6% net sales growth and over 8% adjusted operating income

growth. We have strong underlying momentum exiting Q4 and are clear about the strategic initiatives we're seeing

driving profitable growth in the years ahead. This is reflected in the sustained sales and operating income growth

included in our FY 2025 guidance.

I'll recap Q4 results using the framework we introduced at our investor community meeting last year, growth,

margins, and returns. As a reminder, there's a supplemental presentation on our IR website with additional

information beyond my remarks.

First, growth. Constant currency sales increased nearly 5% or almost $8 billion in Q4, with strong growth from all

three segments, led by increased transactions across in-store, club, and eCommerce channels. International

sales grew 13% reflecting strength in Flipkart, Walmex, and China. International eCommerce sales increased

44%, reaching a penetration level of 25%, which is a record high for us. This included Flipkart's largest-ever Big

Billion Days event with 1.4 billion customer visits over the eight-day period.

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In the US, Walmart comp sales grew 4%, reflecting increased unit volume and share gains. Like-for-like sales

inflation was about 1%, moderating approximately 160 basis points from Q3 levels. We saw better-than-expected

holiday sales, including two record-breaking volume days leading up to Christmas.

Store-fulfilled delivery sales were up nearly 50% and we reached a $2 billion monthly run rate. Delivery has been

a key source of share gains among upper income households, and is also the most productive channel for

acquiring Walmart+ members.

Sam's Club US delivered comp sales growth of 3.1% excluding fuel, with strength in food, consumables and

health categories. eCommerce sales increased 17% and we gained grocery share in both units and dollars.

eCommerce continues to be a key point of differentiation for Sam's with delivery and curbside driving eCommerce

growth and in-club Scan & Go penetration up over 270 basis points.

Turning to margins. Enterprise gross margins expanded 39 basis points. Customers are responding as we

continue to manage pricing aligned to competitive historic price gaps. In addition, we had lower markdowns

resulting from strong inventory management, with Walmart US inventory down 4.5%, Sam's down over 8%, and

international relatively flat excluding currency.

This puts us in a good position to start the new fiscal year. The timing of Flipkart's Big Billion Days was a partial

offset to gross margins. And while category mix pressure continued this quarter, we're encouraged to see

sequential improvement versus Q3.

SG&A expenses on an adjusted basis, deleveraged 16 basis points largely due to higher variable pay expenses

in the US relative to last year as a result of exceeding our planned performance. One of the areas I'm most

pleased about is the improvement in eCommerce profitability within the Walmart US segment resulting from lower

eCommerce fulfillment cost and densifying the last mile.

Our store proximity to customers is an advantage, as we increasingly use stores to fulfill eCommerce orders.

We've lowered last mile store-to-home delivery cost by about 20% in the last year, even as we've shortened

delivery times the same-day from around 90% of stores. Combining the fulfillment efficiencies with improved

margins of eCommerce, we far exceeded the 200 basis points goal we outlined at our investor community

meeting and lowered eCommerce losses by more than 40% versus last year's level.

We also saw another strong quarter from our portfolio of higher-growth initiatives that reinforce our core omni

retail model. Global advertising grew approximately 33% led by international's 76% growth. International's growth

benefited from the timing of Big Billion Days, but still delivered full year growth of about 30%.

Sam's ad business achieved a new high with almost 50% more advertisers versus last year. Walmart US Connect

ad sales grew 22%, with more than 50% growth from marketplace sellers. We're encouraged by the strong

demand from new advertisers as active advertiser counts increased over 20%.

We're excited about our agreement with VIZIO to bring together their unique operating system and our Walmart

Connect advertising business. This combination would create new opportunities for advertisers to connect with

customers, empowering brands to realize greater impact from their advertising spend with Walmart. We believe

the deal would close during FY 2025.

Due to certain transaction-related costs associated with the acquisition, including for talent retention and

technology integration, we expect the deal to be slightly dilutive to EPS in the near-term. We plan to finance the

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acquisition to use cash and/or debt. Importantly we believe the transaction would be IRR accretive, delivering

returns ahead of our expected ROI.

Within marketplace and fulfillment services, Flipkart's momentum continued with double-digit growth. In the US,

Walmart's marketplace delivered strong holiday events including Black Friday, our largest marketplace sales day

ever. Over the past year, we've increased sellers 20%, with approximately 30% of sellers using Walmart

fulfillment services. And we're pleased with the trends in our membership programs around the world. Sam's Club

US reached another record high-level for member counts and Plus member penetration, which led to membership

income growth of 10% and Walmart+ continues to grow double-digits.

Strong sales and margins led to fourth quarter adjusted operating income growth of more than 13%, while

adjusted EPS of $1.80 increased 5.3%. Below-the-line, higher interest and noncontrolling interest were

headwinds to adjusted EPS.

Moving to returns. We generated over $35 billion in operating cash flow this year, an increase of nearly 24% due

to strong business performance and improvements from working capital initiatives. Return on investment

improved approximately 230 basis points to 15%, a level last achieved in 2017.

Our stepped-up investments aimed at improving margins and productivity resulted in capital expenditures of $20.6

billion. The magnitude of ROI improvements reflect some benefits from productivity initiatives that we initially

expected to realize in FY 2025. And as we announced this morning, we're pleased to raise the dividend by 9%

this year, the largest increase in over a decade, reinforcing our commitment to strong cash-returns to

shareholders. And as we continue to execute on our long-range plan, we will continue to evaluate the appropriate

payout ratio for our business.

We have a clear vision to deliver our financial framework of growing operating income faster than sales. I'd like to

spend the next couple of minutes on the initiatives we believe will drive improved incremental margins in the years

ahead, even as we stay customer and top-line focused, deliver value for them, and invest in our people.

Beyond steady, broad-based sales growth across segments, incremental profits will be derived from four key

areas. Business mix, productivity benefits from our supply chain transformation and automation improvements,

product mix, and geographic mix. These areas will contribute to improved eCommerce economics over the next

several years.

Starting with business mix. As I noted previously, we're excited about how our newer, higher-growth businesses

are scaling. Together these businesses have significantly higher structural margins in our core retail business and

they are growing significantly faster, which has the effect of bending our margin curve upward. Over the past year,

global advertising grew 28% to about $3.4 billion. Walmart US marketplace revenue grew 45%, with more than

35% of orders fulfilled by Walmart fulfillment services and lastly, global membership income grew 20%.

Over our planning horizon, the growth of this portfolio is expected to be one of the largest drivers of operating

income growing faster than sales. We believe global advertising and membership alone will represent 20% of

annual operating income in FY 2025. These profit streams allow us to fund investments in our core

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