Walmart Inc.

Good morning and welcome to Walmart's 2021 Investment Community Meeting. Thank you all for joining us on the webcast. We appreciate your interest in Walmart. I know the executive team looks forward to sharing their strategies with you and answering your questions. Now, let me get a few of our usual statements out of the way. The information presented at today's meeting should be viewed in conjunction with our press release and earnings materials that can be found on our website, stock.walmart.com. The presentations will also be posted on our website as they are completed. Today's presentations include forward-looking statements that are subject to future events and uncertainties, which could cause actual results to differ materially from these statements. Please reference our entire Safe Harbor Statement and non-GAAP reconciliations, which are included with our earnings materials on our website, stock.walmart.com. Hopefully you've had a chance to review our earnings materials and guidance issued this morning. You can see today's agenda on your screen, and in a moment, Doug McMillan, Walmart's president and CEO, will share some initial thoughts with you about our culture, our people, and our opportunities. And then he'll be back to discuss Walmart's strategic objectives after you hear from our CFO, Brett Biggs. Brett will discuss Q4 results and fiscal year 22 guidance, and then we'll conduct our first of two Q&A sessions today. We will have a brief 10-minute break following the Q&A session, and then you will hear from several other leaders who will discuss our priorities and strategies across the business. Following these presentations, we will have another brief break, and then we will conduct our second Q&A session. And at the end of that session, our formal meeting will conclude. With that, let's get things started.

Hello everyone and thank you for joining us for our 2021 Investment Community Meeting. We're grateful for your interest in our company and for the confidence so many of you have in our future. We believe that confidence is well-founded and we're excited to give you an update on the opportunities we see ahead. I've been a part of Walmart for more than 30 years now and I can't remember a time when there was so much exciting change happening inside our company. The world around us is changing in big and important ways. and I'm so encouraged by how our associates are leading and embracing change. We have a blend of experience and new thinking that are coming together to allow us to execute with more creativity and speed. We aren't the business we were just a few years ago, and we aren't the business you'll see in the years ahead. We're moving. David Glass was a CEO that followed Sam Walton. He led us into the food business and got us started outside the United States. In the 1990s, I remember him telling us repeatedly that the company was just getting started. Every time I'd hear him say it, I would think, really? We were already large by then, and so much had already happened. But today, I can tell our associates the same thing. There is so much opportunity still in front of us. We have the talent, the culture, and the assets to thrive in the next generation of retail, to invent it. We've been building for this moment. And the moment is here. It's up to us. We can make it true that in 2021, this company was just getting started. I know many of you have been investing in and following Walmart for a long time, and you know a lot about our company. This is a different business today, and we're just getting started. We're moving. Looking back at 2020, I'm so proud of how our big team has responded to the challenges. They just keep stepping up. It feels like our customers and society have come to appreciate our associates more than usual, and that's well deserved. So many have been selfless and courageous. We've tried to show our frontline associates in our stores, clubs, and supply chain our respect and gratitude with our words and our actions. They, along with our customers, our shareholders, our suppliers and partners, the communities we serve, and the planet we seek to strengthen, shape our decisions. We take a multi-stakeholder view because we know that mindset and approach deliver the most valuable, sustainable business over time. As for today, Brett will join us in a moment to talk about our results for the fourth quarter, as well as to provide an outlook on our expectations for the next few years. I'll come back after his remarks to talk through the acceleration of our strategy and how we'll deliver sustainable long-term growth. Then you'll hear from several of our leaders about the specifics of our plan. I'm confident you'll leave this session with a clear understanding of a few key points. First, innovation and speed. It's time for us to dial up our aggressiveness even more and go faster. Walmart is in a position of strength and we have momentum. Our confidence in our plan motivates us to accelerate and we'll walk you through why we feel that way. Second, We're building a new customer-centric business model. Our customers welcome us, serving them in new ways, and our assets and capabilities are being monetized in ways we haven't tapped into before. We have assets to leverage like our stores and supply chain, strengths like our store traffic and a brand trusted for value. We have foundational cornerstones like EDLP and EDLC. We can stay true to who we are and build on our strengths while building a mutually reinforcing flywheel. We're starting to drive the top and bottom line in more expansive ways. Our bottom line is becoming more diversified, which will enable us more operating income growth over time. We're repositioning to be in different businesses and exiting some geographies so resources are shifted to our priorities. We're building a better model, and it's uniquely Walmart. Third, we'll continue designing this business to create shared value for all our stakeholders. We're out to demonstrate that our company can do even more good for people as we grow. Communities are strengthened. Customers, associates, shareholders, and suppliers benefit. Everyone wins. I'll be back to share more specifics on the strategy in a few minutes. Now I'd like to welcome Brett to add his view on the quarter and the future. Brett.

Good morning and thanks, Doug. I've been with Walmart for more than two decades, and this is one of the most challenging and unique times we've all faced. However, it's also a time that presents great opportunities, and I'm looking forward to highlighting some of those for you this morning. I'm so proud of how our associates have responded in serving customers while accelerating our strategy. The recent progress in transforming Walmart into a truly omnichannel business prepared us for this period, and it helped shape our future. This is an important moment for Walmart, and we are ready. There are several things I want you to take away from this morning. First, we have great momentum. We just completed a year with record sales of $560 billion in constant currency, including record fourth quarter sales of more than $150 billion, and record operating cash flow of $36 billion. Profit growth was also strong thanks to a number of things. Strong sales, in particular improving general merchandise sales, improving e-commerce margins, and improved margin mix overall. Certainly we had tailwinds during the year, but we're performing extraordinarily well. This strong performance has allowed us to invest in the future of the business, invest in our associates, and give good returns to shareholders. From a position of great strength, we're now going to accelerate investments in supply chain, technology, automation, and our associates, allowing us to stay ahead of shifts in customer behavior. We strongly believe these investments will accelerate the company's top line and profit growth in the mid to long term. Active portfolio management is also strengthening the model and focusing resources, and we remain laser-focused on operating efficiency and delivering sustainable expense leverage. So let's turn to highlights of the fourth quarter and the year. During the year, we saw elevated sales levels related to customers stocking up, eating at home, entertaining and educating at home, and investing in home decor in their yards. And of course, those things were supported by stimulus spending. In parallel, we had incremental COVID costs, some of which will continue. We had a strong holiday season, followed by an acceleration in January. Total constant currency revenue was strong, increasing more than $10 billion for the quarter and $40 billion for the year. Walmart U.S. comp sales excluding fuel grew 8.6% in both Q4 and for the year, including 79% annual growth in e-commerce. Walmart U.S. grew net sales by $29 billion for the year. Now for context, that is similar to the annual revenue of Dollar General and Starbucks. Sam's Club wrapped up a terrific year with full-year comp sales growth of 15.8%, excluding fuel and tobacco, and membership income increased more than 9%. On its own, Sam's Club would rank near the top 50 in the Fortune 500. Outside the U.S., sales increased 6.3% in constant currency for the quarter, including 60% e-commerce growth with strength in India, Mexico, and Canada. Seven of nine markets posted positive comp sales, and for the year, international net sales grew more than $6 billion in constant currency. Adjusted operating income on a constant currency basis declined about 3% in the quarter. It was pressured by more than a billion dollars of incremental COVID expenses, including associate bonuses, as well as a charge of around $220 million related to a decision to repay UK property tax relief granted earlier in the year. The fourth quarter also included some increased tech expenses and increased wage pressure related to recently announced structure changes in Walmart US, as well as additional headcount to ensure a holiday season was a success, which it was. Excluding the UK charge, total company-adjusted operating income would have increased. Despite various headwinds, Walmart U.S. adjusted operating income increased 6.5% on solid gross margin improvement and continued reduction in e-commerce losses, as well as some benefit related to timing of allocations. For the year, adjusted operating income increased over 9% in constant currency, with each segment growing significantly, despite more than $4 billion of incremental COVID costs. Q4 adjusted EPS was $1.39, but would have been about 37 cents higher if not for COVID costs and the UK property tax repayment. Gap EPS was a 74 cent loss, significantly impacted by the loss on businesses in the UK and Japan, as both are classified as assets held for sale. That's partially offset by an unrealized gain in our investment in JD.com. the value of which has increased by $9 billion since our initial investment. Operating cash flow for the year was exceptionally strong at $36 billion, and the company returned $8.7 billion to shareholders through dividends and share repurchase. So in summary, it was a great year financially, and on an underlying basis, it was a strong finish. Let's now talk about how we plan to continue the strong momentum. Because of our financial strength, competitive position, and ability to execute, we're in a unique position to continue innovating and serving customers in multiple ways. Over the past several years, we've made great progress building an ecosystem of synergistic assets, and we've made strategic choices like reducing exposure to lower growth international markets while focusing on higher growth opportunities in the U.S., Mexico, and India. Now is the time to play even more aggressive offense. We're winning, and we intend to keep pushing the ball aggressively down the field. Over the next few years, we're going to step up capital investment primarily in the U.S. to improve the customer experience, support growth, and drive efficiencies. I'll give you some highlights, and you'll hear more as the morning progresses. As I mentioned earlier, our revenue grew $40 billion last year, putting us at least a year ahead of where we thought we might be. So we need to lean in more aggressively in key markets with increased capital and fulfillment capacity, supply chain, automation, and technology. This new infrastructure will allow us to expand e-commerce assortment, enabling us to reduce both shipping time and cost. We'll step up automation in DCs to deliver aisle and department-ready pallets to stores. We'll continue to refresh our existing stores by enhancing pickup and delivery capacity, merchandising programs, and efficiency initiatives. In India, we see significant growth opportunities for Flipkart and PhonePay. It's exciting to see the emerging middle class rapidly adopting e-commerce and using their mobile phones to use money transfer, insurance, and other services. Meanwhile, we'll step up technology investments to continue upgrading legacy enterprise systems and customer-facing technology. We're on a multi-year journey of modernizing our tech stack and capabilities to increase the efficient use of the cloud and simplify customer and associate experiences. As we accelerate investment, CapEx is expected to be around $14 billion this year, with most of the increase versus last year in the U.S. Over the next few years, we expect CapEx to be around 2.5% to 3% of sales. While this is higher than the past few years, it is far below the CapEx peak of 4% to 5% of sales during the period of heavy super-centered growth. This spin will allow us to fully optimize our strategy and, in turn, accelerate the company's top line and profit growth rates in the mid to long term. After a year or so of transition, these investments should put us in position for 4% plus sales growth and operating income growth rates higher than sales. 4% top-line growth would basically be the equivalent of adding a Fortune 100 company every year. Our unique financial strength allows us to continue to deliver strong returns to shareholders while growing the business. And as you saw this morning, we increased our dividend for the 48th consecutive year. And we authorized a new $20 billion share repurchase program, which we plan to execute over the next three years or so. There are so many initiatives underway that give us confidence that these are the right investments at the right time. We're already seeing proof points, and you'll hear more about these later on. We expect continued strong growth in the U.S. businesses and expect even higher international growth rates as we focus on key markets and making money in new ways. We'll continue improving margin mix through an enhanced general merchandise offering, new brands, and marketplace growth with a greater push towards expanding fulfillment and other services for sellers. We'll drive existing and new customer growth through initiatives like Walmart+. We'll grow sales and profit increasingly with growing higher margin businesses and advertising, financial services, marketplace, healthcare services, and the like. Our operating discipline will continue to sharpen. After a pause in FY22, primarily because of additional wage investments, I expect expense leverage to continue at or above 20 basis points a year. Let me turn now specifically to our expectations for this current year. We feel very good about the underlying business and ability to compete from a position of strength. However, we're still facing similar COVID-related challenges as we have over the past several quarters, which caused us to suspend guidance and continues to make short-term guidance very challenging. Despite that, we want to give you the best view we can at this time, given what we know and what we see right now. We know we'll have both headwinds and tailwinds this year, the balance and degree of which isn't clear. As the year progresses, we hope to get more clarity around COVID impacts, vaccine efficacy and availability, the scale and duration of economic stimulus, and the midterm economic climate globally. Even if conditions stay generally similar to now, for any length of time this year and with limited additional stimulus, we would expect continued solid underlying performance from Walmart U.S. with low single-digit comps and continued solid e-commerce sales growth. Low single-digit comps would result in around a 10% comp growth on a two-year stacked basis, so very healthy growth. We would expect the level of comp growth to be more heavily weighted toward the middle of the year as a result of the timing of COVID-related demand and stimulus in FY21. Now, of course, that could look different depending on future stimulus and or significant changes in customer spending patterns as the COVID crisis hopefully moderates at some point. The comparisons against last year are unique. There were stretches that were really strong and others less so, driven by how people responded to the virus, how they stocked up, how they responded to being at home more, and of course, stimulus actions. In international, excluding divestitures, we expect to see higher level of sales growth versus the U.S., with strength in India, Mexico, and China. And at SAMS, we expect low single-digit comps, excluding fuel and tobacco. Total company sales are expected to decline due primarily to the divestiture or anticipated divestitures of businesses in the UK, Japan, and Argentina. Excluding that, we would expect total company sales to grow in the low single digits. From a profitability standpoint, given the assumptions mentioned earlier, excluding the impact of divestitures, we would expect operating income and EPS to be flat to up slightly versus a very strong profit year in FY21. In regards to the UK transaction, when we announced it, we said we expected EPS dilution of approximately 25 cents in the first full year, assuming we held proceeds in cash. We expect to hold more cash than normal during this time due to strong cash flow, but plan to reallocate that cash in a thoughtful way in the coming quarters into new projects, as well as share repurchase. We still expect to make up for the EPS hit in the midterm, but there will be timing impacts that negatively affect FY22 EPS by about 20 cents. However, this should provide a tailwind to EPS growth in future years as we reallocate more of that cash. Due in large part to the international transactions, we expect operating income dollars and EPS to decline slightly in FY22 on a consolidated basis. But we expect Walmart U.S. operating income to increase in spite of some continued COVID costs, accelerated technology costs, and increased wages. Alternative revenue streams like advertising and Walmart fulfillment services are gaining traction and are expected to become a larger portion of profit growth in the future, including FY22, along with a fairly steady gross margin rate. Due to the international transactions and FY21 COVID-related expense and profit timing, we expect the FY22 quarterly profit growth cadence versus last year to be quite variable. We expect Q1 operating income to be relatively flat to last year, and EPS to be flat to slightly up, reflecting the presence of as-then-are financials for about half the quarter and some tax rate fluctuations. Due to the timing of FY21 costs and divestitures, Q2 and Q3 operating income and EPS may be down mid to even high single digits, with Q4 operating income and EPS potentially up mid to high single digits. Again, and I probably can't stress this enough, we're in a very unusual time, causing projections even in the short term to be very challenging and open to significant fluctuation. Many times I get asked by analysts, investors, and others, are we missing anything about Walmart? And I've thought a lot about this question lately. And even for someone like me that's been here for over 20 years, I have to step back and see the evolution through a different lens. Walmart's different than it was last year, three years ago, and certainly five years ago. It's faster, it's more creative, and it's less risk averse. It's actively creating its future by building on a set of unique strengths and capabilities. Let me describe the Walmart I want you to see. We have more customer store traffic than anyone in the world. We have one of, if not the largest pickup businesses in the world, and we're scaling delivery. We're one of the largest e-commerce companies in the world, approaching $100 billion in revenue in the next couple of years, and we believe $200 billion a few years after that. We have one of the largest marketplace businesses in the world, and now we're scaling a marketplace fulfillment services business to grow even faster. We're majority owner of one of the most successful retailers in the world, Walmex, with over $50 billion market cap with great growth opportunities. In India, we're majority owner of one of the largest e-commerce and payment businesses and one of the largest and fastest growing economies in the world. We have a $75 billion club business globally, one of the fastest growing segments in the retail industry. And it's a winner in three key markets in the U.S., Mexico, and China. We have a rapidly growing advertising platform, which should be a multi-billion dollar business in the very near future. We're a global leader in supply chain innovation with exciting initiatives on the table. We're a global leader in sustainability with a clear aspirational goal to become regenerative. We have both growth and scale. We reduced our exposures in Brazil, Argentina, the UK, Japan, and we'll still have a top line that's over half a trillion dollars. That's the Walmart I want to make sure you see. This is the time for us to accelerate, and we are ready. And as always, I thank you for your interest in Walmart, and I'll turn it over to Doug.