Walmart Inc.

Greetings. Welcome to Walmart's fiscal year 2023 third quarter earnings call. At this time, all participants are in listen-only mode. The 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. I'll now turn the conference over to Steph Wissing, Senior Vice President, Investor Relations. Steph, you may begin. Thank you.

Thank you. Welcome to Walmart's third quarter fiscal 2023 earnings call. I'm joined by members of our executive team, including Doug McMillan, Walmart's president and CEO, John David Rainey, 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 Cath McClay, President and CEO of Sam's Club. In a few moments, Doug and John David will provide you an update on the business and discuss third 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, everyone, and thanks for joining us to discuss our results for the third quarter. Let me highlight what you'll hear from us this morning. First, it was a good quarter. We delivered strong results on the top line across our segments, and our value proposition is resonating with customers and members around the world. We see this in our grocery business and stores and online and key markets like the U.S. and Mexico. Customers that came to us less frequently in the past are now shopping with us more often, including higher income customers. Second, we're being thoughtful and balanced about inventory levels by category and expenses as we work through the fourth quarter and position ourselves for next year. There are places where we'll remain aggressive and others where we're being more conservative. Third, while we prioritize retail fundamentals, we're also connecting and scaling newer, naturally related capabilities to our larger business so they become mutually reinforcing. Marketplace, fulfillment services, and advertising are examples. As it relates to the third quarter, it began with top-line momentum from the back-to-school season in the U.S. and Mexico, and that continued through festivals in India, China, and through early Deals for Days events in the U.S. Womack's had a great quarter, and so did Sam's Club in the U.S., as we continued our string of double-digit comp club sales growth. Kath and the team at Sam's have run double-digit comps for almost three years. We like the way those numbers compound. As a total company, we're seeing strength in stores, clubs, and e-commerce. Transactions are positive, and our penetration of e-commerce sales continues to climb. So far this year, 13% of our total sales as a company now start in a digital fashion, and that's led by Walmart International, which is already at 20%. With the cost of everyday items still stubbornly high in too many categories, more customers and members are choosing us for the value and assortment we're known for, and they're responding to the changes we've made to save them time. With this in mind, we're focusing on earning repeat business from customers who are now shopping with us more frequently than before. For example, a strong presentation throughout Fresh and Apparel are priorities, along with executing pickup and delivery to create a delightful experience that saves them time. And in the case of Walmart U.S., it also means selling more Walmart Plus memberships. As more people look to us for value, we want them to see that the experience of shopping with us is also compelling due to the new capabilities we've developed. Our app experiences around the world are a place where we introduce these newer capabilities. As our app becomes more a part of daily life for our customers and members, they find that they can do so much with it, like easily build a shopping cart, schedule a time to pick up an order or have it delivered when it's convenient for them, skip the line with Scan & Go, or find an item in their local store. As you would expect, we're helping families stretch their dollars as we head into the holidays. The Walmart U.S. team has set the retail prices for a typical Thanksgiving meal the same as last year. We're removing inflation on a basket of traditional Thanksgiving food items, including whole turkeys, for under a dollar per pound. The members' dollar is going further at Sam's Club, too, with racks of lamb and lobster tails priced more than 40% lower than last year. We're also making the everyday shopping trip better by lowering the price of the cafe hot dog combo by nearly 10% to $1.38. Around the world, our teams have this type of mindset. In Mexico, we've widened the price gaps in our popular bodega format by 100 basis points this year. It's incredible value at a time when customers need it most. We're finding creative ways to relieve pressure for families across our merchandise categories and countries. I'm proud of how our associates continue to step up. We're grateful for how they've navigated our inventory challenges this year and continued to prioritize the customer and member experience while doing so. During my store, club, and DC visits, they inspire me by the way they work together, the way they serve others, and how they're embracing change and contributing ideas to improve our business. Looking ahead, we updated our outlook for the year on results from Q3, yet we remained balanced in our approach to the rest of Q4 and next year. Inflation is being especially stubborn in some categories like dry grocery. Living with high prices through this year has a cumulative impact on our customers, especially for those that are most budget conscious. And so we're focused on bringing our costs and prices down as quickly as possible by item and category. Regardless of income levels, families are more price conscious now. So it's as important as ever that we earn their trust with value. In just a minute, John David will share more about the guidance we gave this morning. We're working to position ourselves to succeed regardless of demand levels through value and the experience we offer and the way we're positioning inventory and expenses. We're into the details, business by business. This is not a time to paint with a broad brush. We're focused on the things we can control. We delivered good expense leverage during the quarter across our segments. Strong sales growth helps, but we're also doing a good job of managing costs. And we're doing it in a sustainable way. We can keep costs in line and continue to invest in our people and technology, including supply chain automation, and continue to deliver value for customers, members, and shareholders. We've made good progress to improve our inventory position. Globally, inventory is up 13% for the quarter, including 12.4% for Walmart U.S. and 2.5% for international. Inflation drives the majority of the increase rather than units. In stock on replenishable items and active management of seasonal item quantities and sell-throughs are the priorities. We expect this progress to continue through the fourth quarter and that will end the year in even better shape. Our merchants have taken an item-by-item, category-by-category approach to match inventory with demand. We've worked through a unique period in history as we chased inventory in 2020 and 2021 and were too heavy in some general merchandise categories this year. Given where inflation remains and that economic uncertainty seems higher than normal, the quantity choice our merchants make is even more crucial than in a more normal time, back when there was such a thing as a more normal time. We can be more aggressive on shorter lead time items like food and consumables, but we're especially sensitive to quantity decisions on longer lead time items that are imported. We're thankful to have so many experienced and talented merchants. They've accomplished a lot these past few quarters. Just like John, Kath, Judith, and the rest of the team have done, they've demonstrated good judgment and a lot of hustle. Our flywheel continues to take shape. We're scaling our newer businesses and connecting them to our larger, established retail businesses, primarily by how we design digital interactions. One example is how our growth in e-commerce, especially the marketplace, fuels our ad business. More items and sellers drive GMV and improve customer satisfaction. And it also drives success in advertising. They're mutually reinforcing. If we double-click on advertising with Walmart Connect in the U.S., we see it's benefiting from growth in e-commerce and from improvements made within the business itself. And we've seen strong growth in return on ad spend over last year. In turn, this helped drive the highest ad spend all year for sponsored search in Q3. These improvements underscore Connect's strengths and position the business for continued growth. We also continue to see strong growth with Flipkart ads in India. Like much of what we're doing, advertising is working for us globally because we have something unique to offer media buyers, and these businesses create momentum for each other. As with advertising, growing our marketplace business also unlocks fulfillment services opportunities through both fulfillment centers and last-mile delivery. We're scaling these businesses in the U.S., and we're starting to ramp up in Mexico and Canada. The team in Mexico increased the number of sellers on our marketplace by 20% during the quarter. In the U.S., the marketplace on Walmart.com now offers about 370 million SKUs. That's an increase of more than 50% from Q2. Many of these sellers want to leverage our fulfillment network. They also want to use our advertising capabilities to drive demand, and we're making that easier for them. We recently shared that all new Marketplace sellers in the U.S. will be automatically onboarded onto our self-service ad platform. We believe this seamless integration will help both businesses scale even faster. What you see in our results is that we can run compelling stores and clubs, scale a first- and third-party e-commerce business, and connect them together in an omnichannel fashion that saves customers and members money and time. Our strategy unlocks growth opportunities for us in a thread that runs from digital retail to fulfillment and advertising and opens up even more opportunities with health and wellness and financial services. This quarter demonstrates, again, that we can navigate short-term challenges and build for the long term simultaneously. It's been my experience over all these years that Walmart is a well-positioned business and is inherently hedged. When times are good, we have room to grow. When things are more difficult, we sell things people want and need at a value and in ways they want to shop. And with new levers for growth across our flywheel, we're becoming even stronger and more resilient. I'll close today by saying thank you for your interest in our company. We like the momentum we're creating in our business, and we recognize the need for a balanced approach in the near term, given continued strains on our customers and members. Our team is focused and alert. Happy holidays, everybody. Here's John David.