The operator welcomes participants to Walmart's Fiscal Year 2024 Third Quarter Earnings Call. The call will include a question-and-answer session and will be recorded. Steph Wissink, Senior Vice President of Investor Relations, introduces CEO Doug McMillon and CFO John David Rainey. They will discuss the quarter and year results, and John Furner, Kath McLay, and Chris Nicholas will join for the Q&A portion. The call may include forward-looking statements and participants are advised to review the accompanying materials on the company's website.

During the third quarter, Walmart saw strong revenue growth in all of its segments, with a 4.9% increase in comp sales for Walmart U.S. and a 3.8% increase for Sam's Club U.S. The company also experienced growth in its international markets, with a 5.4% increase in sales led by Walmex and China. E-commerce sales also saw significant growth, with a 24% increase in Walmart U.S. and a 16% increase in Sam's Club U.S. However, unexpected expense increases in SG&A affected the company's adjusted operating income. Additionally, the company is facing concerns about pricing levels in the food category in the U.S.

The company's product costs have increased compared to last year, but there have been pockets of disinflation in certain categories. General merchandise prices have decreased, allowing for rollback pricing during the holiday season. The company is seeing pressure from mix, but is gaining market share. The P&L is changing to include both traditional retail and digital businesses, resulting in a more profitable business model. The company's marketplace is a key factor in driving growth for other businesses.

In September, Walmart held its first Marketplace Seller Summit and has since doubled the number of items available on their U.S. marketplace. They are also expanding in countries like India, Mexico, Canada, and Chile. Walmart is focused on making shopping easier and more convenient for customers and is using generative AI to improve their search and chat experience. They are also committed to offering everyday low prices and providing value for items like fashion, electronics, and toys. The CEO is pleased with the company's growth and execution, as seen during his recent visits to Chile, Canada, and China.

The speaker expresses gratitude for the team and discusses challenges faced by the company, such as global events and inflation. They emphasize the company's values of inclusivity and creating a positive shopping experience. The next speaker thanks customers and partners for a successful quarter and highlights the company's strong performance and diversified business. They also mention higher expenses affecting operating income but raise sales and earnings per share guidance for the full year.

In Q3, sales grew by 4.4% and all three operating segments experienced mid-single digit sales growth. Walmart U.S. saw a 4.9% increase in comp sales, while Sam's Club U.S. saw a 3.8% increase excluding fuel. International sales grew by 5.4% in constant currency, with strong performance in Walmex and China. The timing of Flipkart's Big Billion Days event will benefit Q4's growth rate for the segment. PhonePe also achieved a milestone of 500 million registered users. Walmart U.S. grocery saw positive comps and strong share gains, while general merchandise sales were down low-single digits but stable compared to Q2 levels. Customers continue to seek value to manage their household budget.

The company is focused on lowering grocery prices to help customers during the holiday season and maintain their mission of saving customers money. They are seeing strong growth in e-commerce and omni services, particularly in pickup and delivery. The company is also expanding omni offerings in international markets. Gross margins have improved due to timing shifts and lower costs, but there is still pressure from a mix of health and wellness and grocery sales. The company did not take an expected LIFO charge in Q3.

The company expects higher margins in Sam's Club due to modernization of supply chain and growth initiatives. They have made progress in building technologies and optimizing the supply chain, with nine regional distribution centers and three e-commerce fulfillment centers in operation. The company plans to have seven stores with automated market fulfillment centers by the end of the month, which will increase order capacity and productivity. They are also focusing on lowering digital fulfillment costs and using their store network for last mile delivery.

In the third quarter, Walmart has seen significant growth in its digital orders fulfilled by stores, with Sam's Club fulfilling 60% of online orders from its clubs. The company has also reduced store to home delivery costs by 15% and shortened delivery times, with some orders being delivered within 30 minutes. Walmart's portfolio of higher growth initiatives, including global advertising and marketplace and fulfillment services, have positively contributed to gross margins. The company is also investing in ways to further grow its marketplace business on a global scale, with plans to expand into Chile next year. Overall, Walmart is seeing strong growth in its marketplace and fulfillment services, with a 20% increase in marketplace sellers and a 55% increase in sellers using Walmart Fulfillment Services.

In the third quarter, Sam's Club saw growth in membership income and focused on member acquisition and digital engagement. SG&A expenses deleveraged due to higher wage and store remodel costs, but adjusted operating income and EPS still increased. Return on investment improved thanks to sales growth and disciplined capital approach. The company expects ROI to continue to increase in the future. The company's financial position is an advantage in the competitive retail environment.

The company is confident in its ability to execute and is focusing on investing in areas that will drive sustained growth. However, they have experienced some variability in sales due to economic factors and unseasonal weather. They are cautiously optimistic about the consumer and have slightly raised their sales guidance for the year. They expect to see continued traffic and share gains, but also anticipate charges related to legal expenses and hurricane recovery in the fourth quarter.

The company is facing some unexpected legal expenses, which will partially offset the lower LIFO charges and result in a 20-30 basis point headwind to their prior operating income growth guide. They expect merchandise mix pressure to continue in Q4 and are raising their full year EPS guidance range. They believe their omnichannel strategy is winning and their value proposition resonates with customers during the holiday season. The legal expenses are being kept in, but no further details were provided.

During the earnings call, John David Rainey addressed the issue of legal expenses, stating that they were largely related to prior periods and not anticipated for the current quarter. He also mentioned that the company's plan, as shared at Investor Day, is dependent on investments and improving unit economics, as well as growing higher margin businesses such as advertising. CEO Doug McMillon added that these profit streams will continue to build rather than see a sudden inflection. Another analyst, Simeon Gutman, had asked about the legal expenses and whether there would be a ramp-up in alternative revenue and profit. Rainey clarified that the legal expenses were around $70-75 million and not expected to recur in the fourth quarter. He also mentioned that the company expects to see a greater contribution from these higher margin profit streams each year, helping to improve their margin performance.

Kelly asks about the impact on U.S. EBIT and any unexpected expenses, and how the company plans to grow EBIT faster than sales in the future. John explains that the legal expenses had a significant impact on U.S. EBIT, but there were also investments in remodels and e-commerce. He also mentions that the company's value proposition resonates with consumers during times of economic pressure. John clarifies that while there may have been some weakness in the consumer market, the company is confident in their strategy and ability to execute it.

The speaker is excited about the company's topline results, which saw a 49% increase in sales and a 24% increase in e-commerce. They credit the team for making improvements in areas like remodels, which have resulted in wider aisles and more investment in online pickup and delivery. These investments may have affected costs in the quarter, but they are seen as long-term investments. The company expects operating income to continue growing faster than sales, thanks to automation investments and the changing shape of the income statement due to the digital business. This is part of a multi-year plan for progress.

The speaker discusses the company's progress and plans for growth in various categories, with a focus on increasing return on investment. They also mention the strong performance of their e-commerce business, driven by growth in online pickup and delivery, strength in food sales, and improvements in key metrics. The team is pleased with the progress of their marketplace and the recent First Summit, led by Tom Ward and Manish.

In the quarter, there has been an increase in sellers on the Walmart Marketplace, with a significant growth in assortment. The new fulfillment center in Lancaster, Texas is performing well and there has been a promising amount of marketplace inventory. The first event in November was successful and the company is pleased with the results in marketplace, which is reflective of the general merchandise category. Marketplace is an important business for customers and will drive other businesses like advertising. The e-commerce outlook of minus 3 is distorted by Baby Day, but underlying growth in Walmex and Canada is strong, with both seeing a 16% increase in e-commerce.

The growth of e-commerce in China has been significant, with a 38% increase. Teams are focused on perfecting the ordering process and creating a delightful customer experience. The Flipkart team has been learning from using gen AI during their Big Billion Days. Walmart has also seen accelerated growth in their marketplace and cross-border trade, as well as the launch of Walmart Fulfillment Services in Mexico, Canada, and South Africa. Sam's Club is also seeing success in e-commerce, with 13% of sales and 16% growth in the quarter. The focus is on creating a digitally connected member and increasing online and app sales.

The paragraph discusses the performance of Sam's Club and the increase in membership, particularly from digitally engaged members. The focus on great items and curation is expected to drive organic traffic. In terms of general merchandise, categories like hardlines and auto care have seen positive momentum, and the team is reacting well to seasonal plans. The site is frequently updated to reflect current events and holidays.

The company has a good plan and is ready for customers with inventory in position. However, there has been a softening in late October, possibly due to economic factors such as credit tightening and student loan repayments. Anomalous weather may also have had an impact on consumer shopping patterns. As a result, the company is taking a cautious stance for the fourth quarter and acknowledging the potential for more variability. However, overall the business is still performing well.

The paragraph discusses Walmart's recent strong response to festive events and their inventory levels. The company's CEO mentions that they are not expecting a more promotional holiday season than planned. Another CEO mentions that they have seen consistent traffic and transaction counts throughout the quarter, but there was a shift in growth during the end of October. He also mentions the team's flexibility in delivering products and their growth in Express and same-day delivery services. The question from the analyst is about the relationship between Walmart's overall comp and operating income growth in the upcoming year.

The speaker discusses the potential impact of a 2% comp and broad-based deflation on Walmart's operating income and sales. They mention the importance of units and a strong cost structure in managing through economic headwinds. They also express confidence in Walmart's ability to deliver value for customers and keep prices low, as evidenced by an increase in rollback count in the U.S. business.

In the paragraph, the speaker discusses the positive impact of lower prices at Walmart for Thanksgiving and how the company has worked hard to keep prices flat in previous years. They also mention the success of rollbacks and lower prices in categories like dry grocery and fresh products. The speaker also addresses concerns about wage inflation and remodels, stating that while remodels will continue in the future, they have a good plan in place to balance these expenses. They also mention the positive results of remodels on categories like apparel and home.

The company is fully staffed for the holiday season and is pleased with their full-time to part-time ratio. They have not hired a large number of additional staff and are confident in their current associates to manage the business during the busy weeks ahead. In terms of general merchandise, customers are responding well to rollbacks and there has been an increase in units sold due to lower prices. The new roles of Kath and Chris are also mentioned, but no further details are given.

The speaker is pleased with the significant number of rollbacks and lower prices being offered in the store, especially in the face of recent inflation. They also mention the encouraging results in e-commerce and the team's efforts to prepare for the upcoming holiday season. The CEO also discusses the potential impact of food prices on general merchandise sales.

The company is confident in its current positioning and ability to adapt to changes in consumer behavior. The new CEO, Kathryn McLay, has been impressed by the strength of the international teams and their ability to stay relevant in local markets. She has also observed how the company's purpose of saving people money is being effectively translated in these markets.

The speaker, Chris Nicholas, thanks the Sam's Club associates for their hard work in delivering strong results in the last quarter. He expresses his pride in being a part of the team and the strong foundation that has been built. He sees a unique opportunity to accelerate growth through digital engagement, offering unique value, and a deep understanding of members. He is excited about the potential for Sam's Club to appeal to a broader set of consumers. A question is then asked by Robbie Ohmes from Bank of America.

In response to a question about deflation, John David Rainey and Doug McMillon discuss the LIFO tailwinds and the factors driving them. Rainey explains that the improvements made are dependent on the cost of goods and have been affected by the team's efforts. McMillon adds that there is generally an inflationary environment across markets, with the U.S. being more dramatic. He also notes that China is not experiencing inflation.

In the U.S., there has been a mix of increases and decreases in various categories, with beef up but dairy, eggs, chicken, and seafood down. This has had an impact on overall sales and expenses, and the company is preparing for a potential deflationary environment in the coming months. However, they are still committed to their plan and strategies for growth, such as expanding pickup and delivery services and the marketplace.

The speaker reflects on the past three years, noting that 2019 showed faster growth than 2018. However, the pandemic and inflation have affected growth rates. Despite this, the company is focused on improving for customers and increasing operating income through automation and digital businesses. They are executing their plan and not worried about wage pressures.

The speaker is asked about the company's plan for remodels and if they will continue to accelerate the process despite potential negative impact on earnings. The speaker confirms that they will continue to accelerate and have already completed more remodels this year than in previous years. The team has improved the process and the supply chain is helping with getting necessary equipment and fixtures on time. The remodels have been successful in increasing top line sales and customer satisfaction, particularly in categories such as apparel, pets, beauty, and home. The speaker shares a personal experience of visiting a recently completed remodel and the positive impact it had on the community and associates. They believe the remodels will be well received by customers during the upcoming holiday season.

In paragraph 32, John Furner discusses the importance of customers noticing the difference in both the facility and product during remodel processes. He mentions that there will continue to be an aggressive plan for remodel locations into next year. When asked about potential headwinds to profit flow through due to the pace of remodels, Furner explains that it is all built into their plan and that the teams have done a good job of balancing remodels and merchandising for the holiday season. The next question is about the gross margin in the US, which was not touched year over year. Furner attributes this to GLP-1 and discusses the legal charge of $75 million, which equates to 40 basis points.

In this paragraph, the speaker discusses the company's guidance for the year and how various factors, such as the hurricane and legal charges, have pushed them towards the lower end of their projected range. They also mention the impact of business mix and their efforts to lower prices for customers. When asked about GLP-1, they state that it is still early to determine its effects on the business. The final question is about the consumer, but no further details are given.

The speaker discusses the company's recent growth in market share and their focus on providing value to customers. They are optimistic about their position in the market and confident in their strategy. They mention their strong performance in general merchandise categories and their belief that customers are choosing them not just for low prices, but also for convenience.

The company's MPS scores in stores and clubs are improving, and they are focused on saving customers money and time during the holiday season. They expect to outperform in terms of sales and have a strong operating income growth due to their automation plan. The growth of e-commerce is also encouraging and will lead to further business model changes. The company is confident about their position and excited to execute their plan.

The conference has ended and participants are free to disconnect their lines. The speaker thanks everyone for participating.

This summary was generated with AI and may contain some inaccuracies.