The paragraph is the introduction to Walmart's First Quarter Fiscal Year 2026 Earnings Call. The operator welcomes participants and notes that the call is being recorded. Steph Wissink, Walmart's Senior Vice President of Investor Relations, introduces the key speakers: CEO Doug McMillon and CFO John David Rainey. They will provide insights on the quarter and answer questions, joined by segment CEOs John Furner, Kath McLay, and Chris Nicholas. Participants are reminded to limit to one question each. The call includes forward-looking statements with associated risks as detailed in Walmart's SEC filings and press release. Doug McMillon begins with thanks to Walmart's associates.

The paragraph highlights Walmart's strong first-quarter performance, showcasing growth in sales, profit, and eCommerce, along with effective inventory management. The company emphasizes its commitment to reshaping its business model for greater profitability, fueled by improved delivery speed and coverage, particularly in the U.S., China, and India. Despite challenges like U.S. tariffs, Walmart remains optimistic about its short- and long-term opportunities. The paragraph concludes by acknowledging recent progress in discussions with government officials.

The paragraph discusses the impact of tariffs on retail prices and inventory management, emphasizing the importance of maintaining lower prices despite tariff challenges. The company benefits from well-managed inventory, improving eCommerce profitability, and growing higher-margin businesses like membership and advertising. The wide range of products, including replenishable items, allows for flexible inventory management. Strong, long-term supplier relationships and a focus on U.S.-made products—comprising over two-thirds of sales—are crucial. The company is committed to increasing its U.S. purchasing volume and announced "Grow With Us" to support small U.S. businesses.

The paragraph discusses the impact of tariffs on a company's supply chain, highlighting that 60% of their U.S. suppliers are small businesses and that they hold an Open Call event for new U.S. suppliers. It outlines the challenges posed by tariffs, particularly on imports from China, affecting categories like electronics and toys. The company aims to keep food prices low despite tariff pressures, focusing on minimizing fresh food waste and stabilizing prices on key items. They manage this by potentially shifting production locations for general merchandise, a strategy they've been developing over the years.

The paragraph discusses a company's efforts to manage and mitigate the impact of tariffs and cost pressures. They are creatively absorbing costs, shifting materials to avoid tariffs, and using their strong omnichannel capabilities and diverse profit streams, such as eCommerce, marketplace, membership, and advertising, to maintain profitability. The company is confident in its strategy to grow profits faster than sales and effectively manage tariff-related cost pressures. They remain committed to improving assortment, delivery speed, and scaling new businesses while acknowledging that higher tariffs may lead to increased prices. The company highlights the timing of tariffs and inventory as factors affecting quarterly results and expresses gratitude to their associates for their hard work and adaptability.

The article paragraph highlights the collaboration between the home office and tech associates to navigate short-term challenges while focusing on long-term goals. It emphasizes past resilience and upcoming events like Associates and Shareholders Week. John David Rainey discusses the company's strong first-quarter performance and omni strategy, leading to increased sales momentum and competitive advantages. The company is making progress in high-growth areas like advertising, membership, and marketplace services, with April results exceeding expectations. Despite currency headwinds, Walmart saw a consolidated revenue increase of 4% in constant currency and strong eCommerce sales growth. Walmart U.S. comp sales increased by 4.5%, supported by robust eCommerce and grocery sales.

The paragraph discusses Walmart's recent sales performance, highlighting a high-teens increase in health and wellness sales due to higher prescription and over-the-counter sales, while general merchandise sales slightly declined. Walmart's focus on value and efficient eCommerce options is emphasized, including more than 5,000 price rollbacks and a 60 basis point increase in grocery private brand penetration in the U.S. Internationally, sales grew by 7.8% in constant currency, driven by strong performances in China and Flipkart, and significant eCommerce growth, including quicker delivery options. Despite some early quarter challenges in Walmex, sales returned to expectations. Sam's Club U.S. saw nearly 7% comp sales growth excluding fuel, with significant eCommerce growth and increased digital transaction usage among members.

In the latest quarter, Walmart experienced a 12-basis point increase in consolidated gross margin, driven by strong performance in the U.S. and improvements in business mix and eCommerce profitability. U.S. gross margins rose by 25 basis points due to disciplined inventory management and reduced markdowns. ECommerce saw profitability in both the U.S. and globally for the first time, aided by reduced net delivery costs and higher customer fees for faster delivery. The growth in higher-margin areas like advertising and membership fees contributed to improved profitability, with global advertising revenue up by 50% and membership fee income up by nearly 15%. Sam's Club and Walmart+ memberships in the U.S. showed significant growth, while Sam's Club China membership income soared by over 40%. Despite these gains, international performance was slightly weaker, and SG&A expenses saw a minor increase.

The paragraph discusses Walmart's financial performance and strategies. It highlights that expense deleverage is due to planned investments in associate wages and increased depreciation expenses, among other factors. The company has experienced higher casualty claims costs, which they expect to persist for a few quarters. Despite these challenges, adjusted operating income grew by 3% in constant currency, and adjusted EPS exceeded expectations. Inventory levels are healthy, which is crucial during tariff impacts affecting pricing and demand. Walmart is leveraging its experienced team and resources to manage these issues, while its strong cash position allows for investment in strategic areas like supply chain automation and store expansion. Walmart completed a $4 billion debt issuance and repurchased $4.6 billion in stock during Q1, showing confidence in their business. Full-year guidance will be updated at the end of the second quarter if needed.

The company's leadership expresses confidence in their long-term financial strategy and ability to grow sales and operating income despite uncertainties posed by tariffs. They acknowledge the potential short-term financial impacts and have modeled various scenarios based on trade policy outcomes and demand elasticity. While they aim to achieve their full-year sales and income targets under most likely scenarios, significant increases in tariffs could jeopardize their earnings growth. They are prepared to invest strategically to strengthen their position during this uncertain period.

The company is confident in meeting its annual sales growth and operating income targets despite potential fluctuations in average unit retail (AUR) versus unit sales and large quarter-to-quarter variations. The highly fluid operating environment, influenced by tariffs and trade negotiations—particularly with China—poses challenges to forecasting. The U.S. is their main sourcing market, with significant imports from China, Mexico, Canada, Vietnam, and India. Two accounting methods, including the Retail Inventory Method (RIM), may affect financial performance forecasting due to tariff-induced cost pressures. Encouraging trade discussions could present opportunities, while prolonged elevated tariffs present risks.

The paragraph discusses how Retail Inventory Method (RIM) accounting can affect ending inventory and cost of goods sold, particularly during periods of fluctuating prices. Price increases can lead to inventory markups and margin gains, while markdowns can offset these gains. The company is experiencing unprecedented swings in margin and earnings due to additional inventory costs. There is a risk of LIFO-related charges during inflation, as seen previously in Sam's Club U.S. Sales growth is anticipated to be 3.5% to 4.5%, with potential headwinds from current exchange rates affecting reported sales growth by 120 basis points. The range of operating income outcomes is broad due to the dynamic trade discussion environment and inventory accounting impact, making it difficult to provide reliable operating income guidance. Investors are encouraged to consider multiple quarters together for a better perspective.

The paragraph discusses the company's financial outlook and achievements, specifically highlighting the expectation of larger gains from markups in the second quarter, which may be partially offset by markdowns in later quarters. Despite this, the company believes it can meet its annual operating income targets. The company emphasizes the importance of inventory management and expresses confidence in its strategy and strong top-line momentum during dynamic operating conditions. It anticipates emerging stronger from economic uncertainty. During the Q&A section, Paul Lejuez from Citigroup asks about the company's milestone in achieving profitability in its eCommerce business. John David Rainey responds, detailing that the company achieved global enterprise eComm profitability, with the U.S. and Sam's segments being profitable, while the international segment was slightly unprofitable, leading to an overall profit for the quarter.

The paragraph discusses factors driving Walmart's performance, particularly in the U.S. Key points include network densification, allowing cost-efficient delivery to multiple households, and reduced delivery costs due to supply chain improvements. A significant portion of customers now opt for expedited delivery, highlighting convenience. John Furner attributes success to investments over the past decade, such as unifying apps, new fulfillment centers, and an omni-channel approach. The company has experienced substantial growth in rapid deliveries and consistent overall growth, reporting a 21% increase for several quarters.

The article paragraph discusses Walmart's efforts to provide flexible shopping options for customers, such as counter shopping, curbside pickup, in-home delivery, and third-party delivery options. These initiatives have contributed to a decrease in delivery costs and improved business operations, leading to a profitable quarter. Walmart's omni-channel capabilities have also been successful during the Easter and Mother's Day periods. The paragraph concludes with a question from Simeon Gutman of Morgan Stanley, who asks why Walmart isn't investing more in growth given the importance of increasing gross profit dollars, especially from January to March.

In the paragraph, Doug McMillon and John David Rainey from Walmart discuss the company's strategy in navigating the current retail environment. They emphasize the need to be flexible with pricing and investment decisions based on market conditions and customer responses. McMillon highlights the desire to grow profits faster than sales by balancing customer and shareholder interests, while Rainey underscores the importance of maintaining a balance between investment and profit growth. He notes that even though this is a year of investment, they aim to grow profits faster and points out the diversification of income streams, with advertising and membership contributing significantly to profits.

The paragraph discusses the performance of a company's membership and consumer trends in the recent quarter. Membership growth was strong, with all segments experiencing double-digit increases, particularly internationally. The company is maintaining a long-term investment strategy. Christopher Horvers from JP Morgan inquires about consumer behavior among different income levels, noting strong gains among upper-income households and a perceived weakening among lower-income consumers, who may be shifting to lower-cost shopping options. John Furner responds by affirming that customer growth has occurred across all income levels, with new customers and a focus on value and delivery speed, despite general economic concerns.

The paragraph discusses how the company experienced a rebound in sales from March to a strong April, emphasizing customer priorities around seasonal events and home meals. The company is focused on enhancing customer experience both in-store and online, with successful store remodels and improving fast delivery options, aiming to significantly expand their delivery capacity. Additionally, the company is prioritizing value in various product categories like meat, produce, apparel, and toys, and emphasizes the importance of remaining flexible for customer needs. Christopher Horvers adds that the membership warehouse model, with its curated items and competitive pricing, appeals to a wide range of customers and highlights the importance of convenience and time-saving for their customers.

The paragraph discusses the company's capital allocation strategy, specifically focusing on CapEx (capital expenditures) and share buybacks. The company plans to maintain its CapEx at 3% to 3.5% of sales, with potential fluctuations within that range, to support investments that drive long-term returns despite higher current costs. They prioritize allocating funds to areas with the highest returns. Additionally, the company increased its share buybacks in the first quarter compared to previous years, signaling a willingness to commit more to buybacks amidst market uncertainties.

The company is aggressively engaging in share buybacks, having surpassed last year's total within the first quarter of the current year. They plan to continue this approach due to their confidence in their strategy and the potential for creating shareholder value, especially in response to price dislocations. Alongside buybacks, the company aims to balance spending by also increasing dividends and investing in capital expenditures. Additionally, they reported impressive growth in their advertising sector, particularly with Walmart Connect, which saw a 31% year-over-year increase. The company is in the early stages of integrating VIZIO into their operations and anticipates valuable contributions from it. Their core advertising business is bolstered by strong performance in their marketplace, with consistent growth in gross merchandise value (GMV) and marketplace sellers' advertising.

The paragraph highlights Walmart's recent achievements and future opportunities, including the launch of pharmacy delivery and maintaining strong relationships with suppliers. The conversation shifts to address concerns about elevated tariffs, with Michael Lasser from UBS questioning their impact on Walmart's margins. John David Rainey responds by reassuring that, despite the current tariff environment, Walmart does not foresee any long-term changes to their business strategy or margins and believes they can navigate the challenges.

The paragraph discusses concerns about the impact of tariffs on prices and the economy, particularly for retailers. The speaker emphasizes that the aim is to ensure price increases are temporary and do not affect wage growth. They note that tariffs had been as high as 145% for China and 50% for other countries, which is detrimental to retailers and the economy. Although there has been progress in reducing tariffs, they are still considered too high. The guidance provided assumes current tariff levels, but some categories still face price hikes, affecting consumers negatively. During a Q&A, Edward Kelly from Wells Fargo asks about how the company plans inventory given the uncertainty of tariffs and whether they should remain conservative or take more aggressive actions during a temporary pause in tariffs.

In the paragraph, Doug McMillon addresses a question about avoiding risks similar to those faced in 2022, particularly for retail. He highlights Walmart's strength in managing replenishable items by collaborating closely with suppliers to adjust sales plans based on cost and retail changes. This approach allows them to respond effectively to economic changes like tariff adjustments. For seasonal products like Halloween and Christmas items, planning further ahead is trickier, but they base decisions on sales plans and assumptions about tariffs. To mitigate risks, they adjust quantities accordingly and partner with suppliers to manage inventory flow, aiming to prevent a repeat of 2022's issues.

In this paragraph, John Furner discusses how Walmart is managing its inventory and supporting sellers on its marketplace amid tariff challenges. Walmart has developed several tools, including the Walmart Fulfillment Service, which enhance inventory visibility and mobility across the country. Currently, there are no concerns about port backups in the U.S., ensuring smooth inventory flow. Marketplace GMV growth has been consistent, contributing significantly to eCommerce growth, which saw a 21% increase. Combining store operations, eCommerce, and fulfillment services has led to Walmart's first profitable quarter in the U.S. Additionally, there is mention of 50% growth in advertising and 15% growth in membership.

The paragraph discusses the financial performance and growth in various areas, focusing on advertising, membership, and e-commerce (eComm). John David Rainey indicates that advertising growth was strong, particularly noting a 27% increase when accounting for a comparable basis. Membership also saw significant growth, with international growth over 20% and double-digit growth for Sam's and U.S. operations. The membership and other line in the P&L includes additional income sources like sustainability income. Concerning e-commerce, Rainey refrains from specifying past losses but emphasizes consistent improvements across segments like Flipkart and Sam's, highlighting positive contribution profit trends.

The paragraph discusses a company's achievement of reaching overall profitability through digital platform growth, marking a significant milestone. Robby Ohmes from Bank of America asks about deflation in general merchandise and its outlook, including the impact of tariffs and differences between in-store and eCommerce sales. John David Rainey responds, noting that general merchandise has been deflationary for over a year, with low single-digit declines, but unit growth continues. He highlights a consumer shift towards spending on necessities over discretionary items like general merchandise. The team has made progress on the assortment, and monitoring will continue. John Furner is also invited to contribute to the discussion.

The paragraph discusses the company's performance across various categories, highlighting strong growth in toys, kids' apparel, baby products, and eCommerce, with a 21% growth rate attributed to a favorable category mix. February's performance was affected by unusual weather, including snowstorms and leap year complications, but March normalized. The Easter period showed significant improvement despite slight negativity in general merchandise due to deflation. Sam's Club almost achieved positive GM sales in a deflated environment, driven by unit sales. Rupesh Parikh from Oppenheimer asked about the sustainability of momentum in the health and wellness category, particularly pharmacy. John Furner responded by noting mid-20s growth in the pharmacy sector, excluding GLP-1s impact, with prescription growth over 10% in the quarter, indicating positive trends.

The paragraph discusses a company's recent market share gains, crediting their successful outcomes to the efforts of their pharmacy staff and the launch of a pharmacy delivery initiative. This delivery service has increased digital engagement and user sign-ups on their platforms. Chris Nicholas highlights that Sam's Club has been recognized as the J.D. Power Pharmacy Company of the Year for the ninth consecutive year, with an ex-GLP growth exceeding 10%. David Bellinger from Mizuho Securities asks about the company's wide guidance range for Q2 profitability and the outlook for the full year, seeking clarity on their confidence in maintaining their projections, particularly regarding margins and operating income. John David Rainey begins to address these questions before deferring to Kath for insights on international operations.

The paragraph discusses the uncertainty and volatility in tariff levels and inventory management, with expectations of higher markups in the second quarter. It emphasizes the importance of managing inventory to avoid markdowns in the third and fourth quarters. Despite the uncertainty, the company has confidence in its team to navigate the dynamic environment, drawing on past experience. Kath McLay comments on varying quarterly performance across international markets, noting weaker results in Mexico and Canada and strategic investments in high-growth areas like India. The overall sentiment is positive, with a belief in the potential for improvement.

The paragraph discusses the challenges and considerations in retail accounting related to inventory markups and sales timing for Q2, Q3, and Q4. Doug McMillon explains that Q2 earnings might appear unusually high due to markups applied to all inventory, regardless of whether it's sold at that price, leading to a wider range of outcomes. He stresses that the uncertain environment makes it hard to predict future markups in Q3 and Q4. Ultimately, effective management of sales forecasts, inventory, and pricing decisions is essential. The operator then invites Greg Melich from Evercore ISI to ask a question regarding the impact of current tariff rates, specifically mentioning a 30% incremental and a 10% baseline rate, and the expected time lag for these to affect shelf prices.

In the paragraph, Doug McMillon discusses the gradual impact of tariffs on imported goods, which began increasing in April and continued through May. He emphasizes that the effect won't be immediate but will feel gradual, particularly with seasonal items like back-to-school products. McMillon highlights the concern over food inflation, as customers have been experiencing rising food prices for years and are wary of further increases. He hopes for policy changes to alleviate tariff-related costs on imports like bananas. The impact of tariffs varies by category and country, with imports from China facing higher costs. Overall, there is upward pressure on prices throughout the year, leading the company to focus on ensuring supply chain flexibility and reliability. McMillon believes they are well-positioned compared to competitors.

In the paragraph, John Furner discusses the strategic priorities for marketplace development, emphasizing flexibility for customers and expansion of product assortment. Key focuses include enhancing supply chain capabilities, utilizing stores for local and cost-effective deliveries, and providing sellers with essential tools and services. Sellers will benefit from access to inventory data, sales rates, and customer cohorts, with the ability to advertise through Walmart Connect to reach relevant audiences.

The paragraph discusses the company's efforts to monitor and manage inventory elasticity, ensuring efficient supply chains and quick customer fulfillment. Kath McLay highlights progress in international markets, particularly in Canada, Chile, and Mexico, where the marketplace GMV grew over 30% year-on-year, driven by new seller sign-ups and increased SKU counts. High engagement with new tools like Walmart Connect in Canada is mentioned. The session concludes with Doug McMillon expressing confidence in the company's momentum and strong eCommerce growth across all segments, each growing over 20%.

The paragraph outlines the company's strategy of strengthening its business model by focusing on growth in advertising and membership despite challenges like tariffs. The company is confident in its ability to manage the short-term environment effectively, prioritizing customer service and low prices. It aims to execute its strategy to change the business model and achieve faster profit growth than sales growth. The message is of confidence in their plan, and the conference call is concluded.

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