The operator welcomes participants to Walmart's Fiscal Year 2025 Second Quarter Earnings Call and explains the format for the call. Steph Wissink, Senior Vice President of Investor Relations, introduces Walmart's CEO, Doug McMillon, and CFO, John David Rainey. They will be joined by segment CEOs for the question-and-answer portion. The call is being recorded and may include forward-looking statements. The risks and uncertainties involved are outlined in the company's filings with the SEC. The call is now ready to begin.

The company had a successful quarter with strong sales and profit growth, thanks to the team's efforts and focus on customer convenience. The company is seeing positive results in terms of inventory, merchandising, and customer satisfaction. International markets, particularly Walmex and India Flipkart, are also contributing to the company's overall growth. In the US, both Walmart and Sam's Club saw consistent sales throughout the quarter, with strong performance in food and improvements in general merchandise. The company's health and wellness business is also performing well. Overall, customers and members value value, a broad assortment, convenience, and trust when doing business with the company.

Walmart is constantly evolving and improving the way they provide value to their customers. They have lowered prices and increased their assortment of products, with a 32% growth in marketplace sales. Their e-commerce sales have also grown, with options for in-store pickup and delivery. Membership income and advertising have also seen significant growth. Walmart is also investing in automation and technology to enhance the customer, member, and associate experience.

The company is using data and large language models to improve their product catalog and help customers find what they need. They have used generative AI to create or improve over 850 million pieces of data in the catalog, which would have required a significantly larger headcount without AI. They are also using AI to assist customers in their shopping and help sellers on their marketplace. The company plans to continue experimenting and deploying AI applications globally.

The article discusses Walmart's commitment to responsible use of AI and their focus on meeting future needs while also growing profit and ROI. The company has seen success in their strategy, with increases in sales and operating income. They also welcome a new member to their board of directors and thank their associates for their contributions to a strong first half of the year.

In the second quarter, total net sales grew by 4.9% due to strong e-commerce growth of 21%. Walmart U.S. saw a 4.2% increase in comp sales, driven by strong traffic and unit growth. Private brand penetration is increasing and new brands, such as Better Goods and No Boundaries, are performing well. E-commerce sales in Walmart U.S. increased by 22% and weekly active customers by 20%, with store fulfilled delivery also growing. The international business saw sales growth of 8.3%, with food and consumables categories performing well. General merchandise growth has also improved.

The company's private brand penetration has increased in multiple markets, with e-commerce sales also seeing growth. In China, e-commerce orders delivered within one hour increased significantly, while in India, Flipkart grocery grew over 50%. In Canada, delivery pass members drove a significant portion of grocery delivery sales. Sam's Club in the US saw a 5.2% increase in comp sales, with digital engagement remaining strong. The company's private brand, members-marked, is also driving excitement and sales. The company is focused on providing everyday low prices and managing U.S. pricing to remain competitive. This has resulted in continued sales growth, share gains, and higher gross margins.

The company is showing sustained growth in its business without relying on price inflation. E-commerce losses are narrowing, particularly in the Walmart U.S. and Flipkart businesses. This is due to improved business mix and reduced delivery costs. The company's advertising, membership, and marketplace and fulfillment services are all growing, with strong performance in the U.S. and international markets. Sales in fashion, toys, hard lines, and home categories have all increased by more than 20%.

Walmart is seeing positive growth and efficiency in their international markets, with double-digit top line growth in Flipkart, marketplace growth in Mexico and cross-border trade in Chile. Their data analytics and insights division, Walmart Data Ventures, is also seeing strong results. The company is focused on optimizing their business model and leveraging their global scale to find savings in various expense categories. They are also making progress in their supply chain transformation, with a significant portion of their e-commerce fulfillment centers now automated and stores receiving freight from regional distribution centers. This has led to increased processing of units through their distribution and fulfillment centers.

The company is pleased with the returns from their investments in CapEx, particularly in automation of their supply chain. They expect these investments to increase their return on invested capital each year. The company's evolving business model has allowed them to fund investments while also delivering on their financial framework. In the second quarter, consolidated adjusted operating income grew 7.4% and adjusted EPS was above their guidance. They have raised their full-year guidance based on strong first-half results. For the second half of the year, they expect sales growth in line with their financial framework and for operating income to grow slightly faster than sales. They now expect full-year sales growth of 3.75% to 4.75% and operating income growth of 6.5% to 8%. Adjusted EPS is expected to be $2.35 to $2.43.

The company is focused on executing their business and serving customers, but acknowledges the uncertainty in the economic and geopolitical climate. They remain cautious in their outlook and have provided guidance for growth in sales and operating income for the third quarter. The timing of festive events and planned expenses will affect operating income growth. The company is confident in achieving their financial goals for the year and their business model is strong. They have factored in potential distractions, such as the election, into their guidance for the third and fourth quarters.

John David Rainey, CFO of Target, addressed a question about potential impacts from distractions such as the election on the company's performance for the rest of the year. He stated that while there is reason to be cautious due to the state of the economy and global affairs, nothing has changed in terms of their outlook since the beginning of the year. Target's business is executing well, gaining share, and their value proposition is resonating with customers. The next question was about the company's outlook on the consumer and their impressive performance in general merchandise. Rainey stated that they are not experiencing a weaker consumer and their guidance assumes this will continue. He also mentioned the success of their e-commerce efforts in terms of delivery density and scale, and the potential for further profitability in this area.

John David Rainey addresses questions about the outlook for the consumer and general merchandise in the second quarter. He mentions that each month of the quarter was consistent, with July being slightly higher. The company's outlook for the back half of the year is for a continuation of this trend. Rainey also notes that they are seeing positive growth in general merchandise for the first time in 11 quarters, which he attributes to the expansion of their assortment and increased relevance to customers. Lastly, he mentions that e-commerce continues to have a significant impact on their results.

The speaker discusses the progress of the company's e-commerce business, which has been the largest contributor to their year-over-year operating income improvement. They credit this success to the use of GenAI technology, which has made their catalog 100 times more productive and allowed them to expand their assortment of products. The speaker also mentions the increasing number of sellers on their marketplace and the positive momentum in the business.

Walmart is using the latest technology to improve customer experiences and match the catalog to their intent. Customers are shopping both in-store and online, and the number of customers using on-demand deliveries has grown significantly. Walmart will continue to focus on these areas and has recently expanded its delivery catchments. These efforts have contributed to the improvement of e-commerce profitability.

The Sam's Club associates have been successful in providing value for their members, with digital engagement playing a significant role. E-commerce is up 22%, with delivery, fulfillment centers, and pick up all doing well. In-club digital engagement, such as Scan and Go and frictionless exit, has also been successful. This has led to deeper member engagement, increased spending, and higher renewal rates. The e-commerce business is profitable and growing rapidly, with cross-category search through generative AI helping to drive profitability. The success of e-commerce also shows that it can lead to impulse sales, addressing previous concerns.

The speaker discusses the success of their e-commerce food offer and how new tools are helping connect impulse items, leading to improved sales and profitability. They then move on to address a question about membership growth, noting an acceleration in the second quarter, particularly at Sam's Club. They attribute this growth to a strong value proposition and a focus on enhancing the core value, digital engagement, and the Member's Mark brand. They also highlight the increase in Gen Z and Millennial membership as a positive sign for the future.

The Sam's Club business model benefits from increased customer engagement and frequent renewals. The company focuses on providing value, assortment, experience, and trust to its customers. With the expansion of assortment and improvements in search and AI technology, Sam's Club is able to better understand customer needs and provide convenient shopping options such as in-store, pick up, and delivery. This has prompted the company to be more proactive in marketing its offerings to customers.

The company has seen positive signs in general merchandise, specifically in the fashion category, due to their increased marketing investment. They plan to continue this strategy while being mindful of expenses and costs. The progress they have made in e-commerce has put them in a position to play more offense. The next question asked about the sustainability of strength in the health and wellness category and the impact on gross margins.

The company has seen better results in general merchandise, with strength in food and consumables. Despite inflation, they have managed to grow the business with higher transaction counts and unit growth. The merchants have experience in managing mix and are proud of the growth in health and wellness and other categories. Inventory is down 2% and the company is focused on being a great value to customers and managing mix to maintain margins. There may be some uneven growth, but the company is in a good spot with inventory, in-stock levels, and value for customers.

In response to a question about the spread between U.S. EBIT growth and U.S. comps or U.S. net sales, Doug McMillon explains that the company is being deliberate about reinvestment and considering the needs of customers, associates, and shareholders. He also mentions that the company has been able to turn the corner and have a healthy business mix, allowing them to focus on both short-term and long-term plans.

The company is focused on reinvesting in the business to maintain momentum and not sacrifice long-term success for short-term gains. In response to a question about e-commerce profitability, the CEO stresses the importance of not getting too hung up on one metric and highlights the progress seen in core e-commerce without advertising. The company's overall business is profitable and includes a strong store and club presence, as well as success in food and consumables.

The company is seeing strong progress in their newer businesses, particularly in advertising and membership, which accounted for over 50% of their operating income growth. The international business is also seeing balance across markets and channels, with the value and convenience play helping to decrease fulfillment costs and balance out profitability. The company has enhanced their Walmart Plus membership with new features and is seeing success in both attracting and retaining members.

John Furner, speaking on behalf of Walmart, is proud of the progress of the Walmart Plus program. He explains that the team is working hard to ensure that the offer is relevant to customers all across the country, and that they are constantly analyzing metrics to improve the customer experience. He also mentions that the program is applicable to customers of all income brackets, with members from below $50,000 to above $100,000 in income utilizing the service frequently.

The speaker discusses the progress of Walmart's automation efforts in their supply chain and the positive impact it has had on their results. They also mention the upcoming back to school season and their expectations for it.

The speaker discusses the benefits of automation in stores, particularly in regards to the ease of stocking and locating inventory. They also mention their progress in implementing automation in perishables and fulfillment centers. The back-to-school season has started off well, but there is still a lot of shopping left to do. The focus is on executing well and cleaning up inventory before moving onto the next holiday.

In this paragraph, the speaker addresses the topic of deflation and its impact on pricing and private label products at Walmart. They mention the importance of selling brands and the hope that branded suppliers will offer quality and affordable products. The speaker also discusses the growth of private label products and their focus on developing high-quality and value-driven options. They note that fresh food prices are behaving as usual, while general merchandise prices have come down and may not decrease much further. They also mention that inflation in processed food categories has been more persistent.

The speaker discusses the current state of gross margin and their expectations for the future. They mention a mix of factors that have contributed to gross margin improvement, including business mix, e-commerce losses, and shrink. They also state that they are advocating for their customers and lowering prices, not raising them.

The company is focused on driving everyday low prices and is not passing on any margin performance to customers in the form of higher prices. The international division had a strong Q1 and Q2, but there will be a significant impact from events in the back half of the year. The company is optimistic about their results in international, but recognizes that big events can have a disproportionate impact on the top and bottom line. One of these events is the Big Billion Days in India, a major sales driving event in Q3 and Q4. The next question is about comps by income cohorts and if low income households are driving comps or if it is primarily driven by upper income households. The company does not provide specific comps by income cohorts, but they mention that the share gains are primarily driven by upper income households. They do not provide information on the breakdown of grocery spend and general merchandise by cohort, but they mention that the upper income cohort is starting to turn the needle on general merchandise.

Walmart's CEO, Doug McMillon, believes that the company's focus on value and convenience will continue to attract customers from all income levels, leading to growth in the future. He also mentioned that the company is well-prepared for the upcoming holiday season, despite the uncertainty in the current environment. Walmart is expecting a good holiday season and is looking forward to serving its customers and members globally.

In the closing remarks, Doug McMillon expresses satisfaction with the company's progress in saving customers money and time, as well as driving short-term results and building for the future. He highlights the team's efforts in various areas such as e-commerce, international markets, and operating income growth. He concludes by thanking the team and ending the conference call.

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