Walmart Inc.

Greetings. Welcome to Walmart Incorporated fourth quarter fiscal year 2019 earnings call and Q&A. At this time, participants will be in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Dan Binder with Investor Relations. Mr. Binder, you may begin.

Thank you. Good morning. and welcome to Walmart's fourth quarter fiscal 2019 earnings call. I'm joined by Doug McMillan, Walmart's president and CEO, and Brett Biggs, executive vice president and chief financial officer. In a few moments, Doug and Brett will provide their view on the fourth quarter, our outlook for fiscal year 2020, and discuss progress on our strategic initiatives. That will be followed by our question and answer session. Now, before I turn the call over to Doug, let me remind you that today's call is being recorded and will include forward-looking statements. These statements are subject to the 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 earnings release and 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. It is now my pleasure to turn the call over to Doug McMillan.

Good morning, everyone, and thanks for joining us today. We're encouraged by our performance for the year because we believe our customers are noticing our improvements, but we continue to see many ways we can serve them better. We're even more convinced they want us and expect us to bring our stores and e-commerce businesses together in a digitally connected, seamless way that makes shopping easier. We experienced a favorable economic environment in the U.S. for much of the year, and our associates made a lot happen to drive the strength of our results. Brett will go into more detail on our results shortly. I am particularly encouraged by our sales results in the quarter. In Q4, Walmart U.S. grew comp sales 4.2%, excluding fuel. E-commerce sales increased 43%, and we gained market share in key categories, such as grocery and toys, according to Nielsen and the NPD Group. Sam's Club finished the year with another strong quarter with comp sales growth of 5.3%, excluding fuel and tobacco. And in international, comps were positive in the majority of our markets. Strong top-line results allow us to reiterate the FY20 sales and profit guidance we gave in October, even as we landed FY19 ahead of where we expected. We strive to make every day easier for busy families as we increase convenience and save them money and time. Part of our strategy is to build on our existing strengths, such as having a broad assortment, including fresh and perishable foods, within 10 miles of 90% of the US population. Our stores and clubs are becoming more digital, and we're using technology to change how we work. More customers can now access our brand through multiple channels, and it's important that we engage them in different ways. We've learned that those customers who shop with us both in stores and online spend about twice as much in total, and they spend more in our stores. Across the business, you can see examples of how we're meeting the changing needs of customers and delivering solutions that are increasing customer engagement. In the U.S., we offer grocery pickup at more than 2,100 locations and grocery delivery at nearly 800 locations, which represents about 69% and 36% of the population, respectively. Feedback from customers about these services continues to be very positive, which speaks to the capabilities of our roughly 37,000 personal shoppers. In Mexico, we're delighting customers with new experiences, such as a secure digital payment option that's available on their mobile phones and in-store kiosks that offer a broad assortment of products with flexible pickup times. In addition, through our investment in the crowdsourced delivery platform, Dowda JD Dowja, customers in China get their merchandise in less than an hour of placing the order, and it's picked from a network of more than 280 locations. We continue to build trust which we believe will become even more of a competitive advantage. Around the world, Walmart plays an important role in the communities we serve by using our scale for good. Whether it's our work to promote small businesses and local farmers in places like India or larger scale initiatives, such as our effort to double our use of renewable energy in the U.S. by 2025, customers can feel good about Walmart, a company that starts every day with the goal of earning their business. It's nice to be recognized for the work we're doing to promote shared value, In fact, the company recently received an A- rating on the CDP's annual environmental scorecard up from a B rating last year, and we're ranked as the survey's top-performing U.S.-based food retailer. Shared value is an important concept and something that we have fully embraced as we think about how to best allocate our time and capital, deliver strong, efficient growth, reduce costs, and operate with discipline. Within this construct, customers, associates, communities, and shareholders can win. Now let's move on to highlights from the year for operating segments. I'll begin with Walmart U.S., where the team had a great year. Comp sales growth of 3.6% for fiscal year 19 exceeded our expectations. The work the team has done to balance inventory levels with in-stock rates is impressive. The team leveraged operating expenses overall, even as we invested in wages, training, technology, and e-commerce. Store-level productivity is strong, due in part to the training we're providing our associates. As the nature of work continues to change, we're innovating to empower associates to better serve customers as they develop new skills, thrive in their jobs, and grow in their careers. This coming year, we'll add new ways for associates to better manage their schedules and earn greater incentive payouts, and we'll introduce new training options, including through advances in technology and the gamification of educational experiences. Overall, I'm pleased with what I see operationally and with our merchandising. The investments we're making in our people, remodels, and technology are helping to ensure that our stores are easy to navigate, fast, friendly, and fun to shop. Having a great store or site starts with having great merchandise. In our stores, you can see the quality improvements in fresh food and in apparel with our new private brands. We're also doing well in our seasonal businesses and toys. We're making progress in e-commerce. Our focus remains on earning repeat visits and strengthening our assortment of merchandise. We're expanding our assortment, improving search, enhancing our website, and executing better on the fundamentals, such as product reviews, inventory mirroring, and on-time delivery to accomplish this. And, of course, we remain committed to providing a superior value proposition as we compete aggressively on price across a broad spectrum of products. Sales in e-commerce increased 40% for the year. We will continue to play offense and innovate as we shape the future of Omni Retail. This includes the expansion of innovative services like online grocery pickup and delivery. Our previous investments in fulfillment centers and systems, plus our acquisitions, are helping us drive strong sales, but we need to make more progress to improve profitability. Our fulfillment and shipping costs are improving as we continue to enhance our assortment. Repeat visits should increase and contribute to improved profitability. We made good progress during the year to add more brand and exclusive items through new partnerships with Lord & Taylor, Ellen DeGeneres, Advance Auto, Sofia Vergara, and Fanatics, to name a few. These initiatives are contributing to the improvements we see in key metrics, like the Customer Value Index, as well as MPS, which is now more than 10 points ahead of last year. Many opportunities exist, mainly driven by data, and we'll look to leverage our unique assets and capability better than we do today. At SANS Club, the team has taken bold steps to transform the business by focusing on people, products, and working in a more digital way. Excluding fuel and tobacco, comp sales for the year increased 5.7%, and e-commerce sales grew 27%. When someone downloads the app, shops on samsclub.com, or uses Scan and Go, they're more likely to renew. We're encouraged by the trends we see in membership. As of year end, we saw improvements in sign-ups and plus penetration, and membership count is essentially flat to what it was a year ago, despite the closure of nearly 10% of the fleet. In international, eight of our markets posted positive comp sales for the year, including the four major markets, and overall sales increased 2.9% in constant currency. It's been a big year for international as we run the business while shaping the portfolio. Walmex continues to be strong. The improvements we're making are helping drive traffic, and we saw improvements in MPS in each of our formats. Similar to the U.S., we're now leveraging our store base to offer same-day delivery. We recently expanded the available assortment to offer more than 5,000 general merchandise items to this service. We'll continue to invest in our stores and in e-commerce to build an omnichannel experience tailored to customers in this market. Our business in Canada also continues to perform well. The team's moving quickly to modernize the store base and expand omnichannel capabilities with a focus on gaining greater access to urban markets. For example, we've entered into new partnerships this year in cities like Toronto and Vancouver to help expand our delivery options in grocery and general merchandise. In the U.K., Brexit and the potential implications of a hard Brexit is increasingly on the mind of everyone, no matter the situation, as it will always work to keep prices as low as possible for its customers. I visited our team in the U.K. a few weeks ago, and I'm really impressed with their performance, their attitudes, and their leadership. They're amazing. In India, we remain optimistic about the e-commerce opportunity given the size of the market, the low penetration of e-commerce in the retail channel, and the pace at which it's growing. In the future, we hope to work with the government for pro-growth policies that can allow this nascent industry and the domestic manufacturers, farmers, and suppliers that benefit from it to develop and prosper. In terms of the regulatory environment, we were disappointed in the recent change in law and the lack of consultations. but the team has worked to ensure we're in compliance with the new rules. We're committed to providing sellers with a world-class platform to sell on and customers with a high quality of service. We hope for a collaborative regulatory process going forward, which results in a level playing field. Turning to China, we continue to see significant growth opportunities. Overall, we've identified provinces that are a priority for us, and we're improving the value proposition through better quality of fresh items as well as with new store designs and omni-channel initiatives. Uncertainties with trade or other macro factors can make for a more challenging environment, but I like the things we're doing to position ourselves in this important market. Across international, we're accelerating omni-channel capabilities. We're the furthest along in China due to partnership with JD.com, our relationship with Tencent, and the investments we've made in last-mile delivery. We're also accelerating omni-growth in Canada, Mexico, Chile, and Japan through partnerships and acquisitions. The international team has the talent and scale to deliver sustainable growth for the company and to make a difference in communities across the globe. In closing, let me say how pleased I am about all that we've accomplished over the last year and how excited I am about what's still to come. We see the future as a frictionless experience across stores and e-commerce, but we have more work to do as customers raise their expectations, competition persists, and the Omni retail story continues to evolve. We fully expect the pace of change to accelerate in the next five years versus the last five years as emerging technologies come together to transform retail even further and we're adapting. What we once could only imagine a decade ago will increasingly become reality. We will embrace new technologies to solve problems for customers in a seamless way and equip associates with tools to make them more productive. Within our ecosystem, We will pursue and grow adjacent businesses to increase customer engagement and will leverage core capabilities to deliver services to others that can generate new revenue streams. Our commitment to the customer is clear. We'll be there when, where, and how they want to shop. Our distinctive set of assets, financial strength, and innovative culture are delivering to customers new experiences that are uniquely Walmart. Brett, you want to pick it up there?