Walmart Inc.

Greetings. Welcome to Walmart's fiscal 2022 second quarter earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Dan Binder with Investor Relations. Dan, you may begin.

Thank you, Rob. Good morning and welcome to Walmart's second quarter fiscal 2022 earnings call. I'm joined by members of our executive team, including Doug McMillan, Walmart's president and CEO, Brett Biggs, executive vice president and chief financial officer, John Ferner, president and CEO of Walmart U.S., Judith McKenna, president and CEO of Walmart International, and Kat McLea, president and CEO of Sam's Club. In a few moments, Doug and Brett will provide you an update on the business and discuss second quarter results. That will be followed by our question and answer session. 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 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 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-gap reconciliations on our website at stock.walmart.com. It is now my pleasure to turn the call over to Doug McMillan.

Good morning and thanks for joining us. Results for the second quarter were strong. Excluding divestitures, we saw revenue growth of 7.6% in constant currency, leveraged expenses, and grew operating income ahead of sales at 24.1% in constant currency. Recent quarters have demonstrated more than ever that our omnichannel strategy is the right one as we serve customers regardless of how they want to shop. There are occasions when people want to visit a store, times when they want to pick up, and times when they want to have it delivered. We're going to keep innovating and executing to get better at all three as our diversified Omni model positions us well to gain share in high growth markets around the world. I want to thank our associates for the work they did to deliver these results. They continue to step up and serve others in an inspiring way. Since the pandemic began, we've been clear that our priority is the safety of our associates and those who shop with us. We think it's important that as many people in the U.S. get vaccinated as soon as possible and vaccines be made widely available around the world. As the Delta variant spread and as the potential for future variants persists, we made the decision to require our U.S. teams above store and club level to become fully vaccinated by October 4th. At the same time, we doubled the cash incentive to get vaccinated for hourly associates in the US to $150. We're grateful to those associates that are already vaccinated. I'm confident in the fundamental strength of our business, even as we navigate the benefits from economic stimulus in the US for both this year and last year. We've proven our ability to serve customers in challenging environments and across multiple channels, formats and countries. The phrase serving customers has traditionally meant one thing at Walmart, but today it includes serving marketplace sellers, our advertising partners, and those that want to use our fulfillment services or proprietary software. Our advertising business in the U.S., Walmart Connect, nearly doubled during the quarter versus last year, with active advertisers up more than 170%. And this isn't confined to the U.S. We're growing ad businesses in Mexico, India, Canada, and most recently in Chile. Our fulfillment services for marketplace sellers continues to scale, too. We're on track to hit full-year double-digit GMV penetration by year-end. We also announced during the quarter that we'll serve other businesses through certain in-house technologies used for pickup and delivery. Our partnership with Adobe is an example of that. These are a few examples of how we're using our assets to scale new businesses within the company and build new streams of revenue and profit. Our tech and product teams have made a lot of progress modernizing our technology and way of working. We're starting to see the fruit generated by their efforts as we build innovative solutions that have utility across the enterprise. We're starting to see more examples of where one idea or one tech product can benefit more of our businesses and faster. Cloud-powered checkout comes to mind. This technology enables seamless experiences for customers and associates like mobile checkout with me, scan and go, and self-checkout. More than 30 applications across five countries are leveraging cloud-powered checkout for retail transactions. Things like building a 360 view of the customer using machine learning is important for our business in the US, but it's also important in other markets. That's why we're now leveraging this technology in Mexico and in Central America. The Ask Sam app that you've heard us talk about was originally built for Sam's Club Associates. Now the same concept has been adapted for use in super centers. It helps our associates be more productive and better serve customers. I'm really pleased about the work our tech teams are doing to unlock value across the business. Now let's move on to segment results. I'll begin with Walmart US. The underlying business is strong, even as we navigate the many effects of the pandemic, as well as government stimulus this year and last year. Customer behaviors changed during the quarter as people were shopping with us more in stores than online. As that shift occurred, we gained market share in grocery. Even as e-commerce growth slowed as we layered on top of tremendous growth last year, we feel good about our two-year stacks of comp sales and e-commerce growth. The good news for us is that we can serve them either way. And of course, they get to choose. We also saw nearly triple-digit growth in advertising sales through Walmart Connect and added thousands of new sellers on our e-commerce marketplace during the quarter. I like the progress we're making with Walmart fulfillment services too. We saw 150 basis points, sequential improvement in GMV measured as a percentage of marketplace GMV. Recall earlier this year, we announced a step up in CapEx spending with heavy emphasis on supply chain in the coming years. This will mean additional capacity and automation from our largest fulfillment centers to our stores. These investments are aimed at increasing assortment to broaden our appeal with customers and get product positioned and picked efficiently to deliver it faster. These investments will increase capacity, help support the growth of Walmart Plus, and improve productivity. From our merchandising point of view, we launched new private brands in healthcare and pet categories. The new insulin product we're offering is a huge win for customers. We call it RelyOn, and it will save customers up to 75% off the cash price of branded insulin products. Sam's Club in the U.S. continues to impress. 19 years ago, I got the opportunity to become the chief merchant at Sam's, and I can confirm there hasn't been a time in at least 19 years when Sam's has had this much momentum. They also have strength in so many key metrics, including our most important membership metrics. We saw that story continue this quarter with membership income growth of 12.2%, the fourth consecutive quarter of double-digit growth. Total membership counts are at a record high and overall renewal rates, and those for plus members continue to be strong. Similar to clubs in China and Mexico, members are shopping with us in club for pickup and delivery. Sam's is an innovation engine for the company, and they're showing us all what's possible with technology products like Scan and Go. For our businesses outside of the U.S., we continue to see strong results in continuing markets through a combination of top-line growth and operating discipline. Excluding divestitures, net sales increased nearly 13% in constant currency. E-commerce continues to play a bigger role for us. Net sales penetration for e-commerce was about 19% in Q2, an increase of more than 700 basis points from last year. We're strengthening our omni-channel approach in Mexico, China, and Canada. In Mexico, we launched Walmart Pass, a membership model where customers get unlimited same-day delivery from stores, completed the rollout of Scan and Go to all Sam's Clubs, added new sellers to the marketplace, and grew our online SKU count by 30%. China had a particularly strong quarter with growth in e-commerce of 75%. During the 6-18 festival, e-commerce penetration in this market reached 45%. Our business in Canada also had strong e-commerce growth of 41%. We've seen an uptick in net promoter scores there as more customers are shopping with us across channels. Our e-commerce marketplace in India, Flipkart, continues to drive strong growth in GMV, in line with our high expectations. This team has been busy. They introduced Flipkart Camera, our first of its kind technology at scale for the Indian customer that allows users to view products in their physical environment, expanded their grocery business to over 70 cities, and launched a new commerce platform called ShopSee to help reach the reseller community. They're also increasing customer stickiness with Flipkart Plus. It's a tiered program based on spend that helps us drive higher repeat rates. Customers in the program transact more frequently and we see lower churn than others. They also recently completed a new funding round, which placed a value on the business of about $38 billion, significantly higher than the valuation when we invested just three years ago. There were large votes of confidence from a strong group of investors, and we'll put those dollars to work to deliver growth in key areas such as grocery, fashion, and our supply chain. You should see the common threads and leverage points across our businesses. Increasingly, we think about global businesses and global tech products rather than thinking or working a country at a time. There's more of a digital-first mindset here. Before I close today, I'd like to remind everyone of the new ESG report we published last month. I encourage you to invest time with each of the briefs to understand our priority issues along with the progress we're making against our commitments. For example, on emissions, we've reduced absolute scopes one and two greenhouse gas emissions by more than 17% since 2015. Our original target was 18% by 2025. The tremendous progress we've made means we're on track to achieve the updated target we announced of a 35% reduction by the same date. Additionally, our suppliers report having avoided more than 186 million metric tons of CO2 emissions in 2020 for a cumulative total of more than 416 million metric tons avoided since we started Project Gigaton in 2017. I also want to take a moment to mention an announcement we made on July 27th regarding the Live Better You education program. Walmart will now pay 100% of college tuition and books for associates as part of our commitment to invest nearly $1 billion over five years in career training and development. This means that roughly 1.5 million full and part-time associates in the US can earn a college degree or learn other skills without the burden of debt. This is a fantastic initiative, giving our associates the opportunity to learn and grow. I'll close by thanking our associates for how they serve others and our leadership team for their vision and ability to lead so much positive change so quickly. They built us into a global leader in omnichannel retailing with a model that is uniquely Walmart. Our team is designing with a customer at the center of our flywheel, which is coming together nicely. It's exciting to imagine how far we can go. And now over to Mr. Biggs.