Walmart Inc.

Welcome to Walmart's second quarter fiscal 27 earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I'll now turn the conference over to Steph Wissink, Senior Vice President, Investor Relations. Thank you, Steph. You may begin.

Welcome, everyone. Joining me today from our home office in Bentonville are CEO John Furner and CFO John David Rainey. We'll begin with highlights of the previous quarter and our outlook for the year. Then we'll open the line for your questions. During the question and answer portion, we've invited Seth Dallaire, our Chief Growth Officer, as well as segment leadership to join, Dave Gugina from Walmart U.S., Chris Nicholas from Walmart International, and Latrice Watkins from Sam's Club US. So we can address as many of your questions as possible, please limit yourself to one question. For additional detail on our results, including highlights by segment, please see our earnings release and supplemental presentation on our website. Today's call is being recorded and management may make 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 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. That concludes my introduction. John, over to you.

Good morning and thanks for joining us. I want to start by thanking our associates around the world. Their commitment to serving customers and members every day is what drives our business. And the results we delivered this quarter reflect their hard work. This is a good quarter for Walmart and shows once again that our strategy is proving out. We've been investing against it for years, and I'm even more bullish today as we see the pieces increasingly powering each other. A strong retail foundation alongside faster growing businesses like marketplace, advertising, and membership. The math isn't simply one plus one equals two. The value comes from how these businesses work together with each one strengthening the others and expanding what the company can do as a whole. And as these businesses scale, they become a more meaningful part of our mix and they're changing the shape of our business. We're accelerating growth and improving the overall economics of the company. The model's working and we're confident in its power to drive durable, long-term growth in shareholder value. The underlying business continued to perform well in the quarter and was largely in line with our expectations, which assumed a slight moderation in sales growth from the first quarter. Overall, we continued to gain market share, we grew units and transactions, and membership fee revenue was at an all-time high on growth of 17%. We delivered another quarter of strong e-commerce growth, up 23% globally, including the 10th consecutive quarter of growth, over 20% for Walmart US. And we also expanded the reach of platform businesses like Walmart Plus and Marketplace to markets outside the United States, demonstrating how we're leveraging these for growth. and as we build and scale these capabilities across markets and begin to operate globally on the platforms we've built during the last few years of transformation, we're seeing the same dynamic. These businesses work together, deepen our relationship with customers and members and create additional opportunities for growth and stronger economics. Our core retail business had another strong quarter with sales growth at the top end of our guidance up 5% in constant currency. Comp sales for Walmart U.S. were 2.6% led by transactions, and Sam's Club U.S. delivered comps of 4.4%. International was up 7.9% led by China and India. For Walmart U.S., I feel good about how the underlying business is performing. The team delivered strong sales growth in categories like toys, pantry, and fresh, and we continue to see growth from higher income households. Changes in regulation around maximum fair pricing for certain drugs negatively impacted comp sales by 125 basis points. John David will share more about the makeup of the U.S. comp and talk through the additional color we provided in today's earnings presentation. Turning to profits, adjusted operating income grew 17.4% in constant currency. This includes the benefit from the receipt of tariff refunds in the quarter. And as we suggested on the last call, our intent was to deploy much of that back into price, and that's what we're doing. Importantly, our underlying profit growth was where we thought it would be, excluding this benefit. Because of our strong top and bottom line growth, we're raising our guidance for the year. Now let me take a moment to talk about specific drivers of our growth. First, everything we do starts with serving customers and members as an omnichannel retailer. Core to that is delivering value and maintaining price leadership. As we said, coming out of Q1, customers tell us they're still feeling some pressure, but it's clear. Customers are looking for value and convenience and they want things fast. And that's where Walmart shines. Having the best prices across a basket of goods helps us continue to build trust with our customers and members by helping them save money at a time when many households are carefully managing their budgets. The Walmart U.S. team delivered more than 11,000 rollbacks during the quarter, up from 7,200 rollbacks at the end of the first quarter, demonstrating our commitment to price investment. We're investing heavily in price because customers need us to and because we believe it drives market share gains over time. Our price gaps to conventional grocers here in the U.S. are strong and they continue to widen. The share gains we see from this channel have persisted alongside the drug and dollar formats. A secondary I'd like to highlight is our ongoing strength in e-commerce. The sustained growth we've seen in e-commerce across the company over multiple years points to more than a digital success story. It's evidence that customers and members increasingly choose Walmart because they know we combine low prices across a broad assortment with speed and convenience. The mix of e-commerce for Walmart International is now 30% with strong growth again this quarter in China, India, and Canada. Growth in Q2 was 19%. Sam's Club US grew e-commerce 26% with delivery from club up triple digits following the launch of our one-hour delivery back in April. Walmart US delivered growth of 24%, marketplace grew 52%, and advertising was up 38%. We believe a factor in this growth is our ability to deliver with speed. Customers and members around the world are getting super fast deliveries of baskets that include pharmacy, fresh, frozen, fashion, and general merchandise, often in under 30 minutes. Fast delivery in the US grew 48% for the quarter. Speed matters, and we have a significant competitive advantage. Our physical footprint, fulfillment infrastructure, and local delivery capabilities allow us to move closer to customers while maintaining an attractive cost structure. We've now expanded sub-30 minute delivery into 38 markets here in the U.S., giving millions of additional customers access to faster fulfillment. And speed isn't simply a fulfillment metric, it's an acquisition strategy. Customers who use fast delivery shop with us more frequently, they deepen engagement with us, and they're more likely to become Walmart Plus members. The advances we're making in speed of delivery create another reason for customers to choose Walmart for more shopping occasions. That's an important shift in how we think about growth. And as we become faster, we're not simply taking share within traditional retail categories. We're expanding the number of occasions where Walmart can serve customers, like food delivery, In the past, customers may have thought about Walmart primarily for groceries and general merchandise. Today, we're expanding beyond that. Meal solutions, prepared food partnerships like the one we announced with Subway, and faster fulfillment allow us to participate in a much broader share of everyday food spending. This is an exciting opportunity, and we're just getting started. The third area I'd like to highlight is our platform strategy. We're building capabilities that are increasingly scalable across markets. Marketplace, fulfillment services, membership, advertising, and other commerce solutions are strengthening our business and they're improving the economics of the company. This quarter, we expanded our U.S. Marketplace platform capabilities into both Mexico and Canada, and we launched Walmart Plus in Canada. Membership was also a highlight with double-digit growth for Walmart Plus and strong growth for Sam's Club in the US, China, and Mexico. We also gave a boost to our advertising business with the acquisition of Vibe. We believe Vibe expands our ability to help advertisers of all sizes reach customers through self-service tools while measuring results against real shopping behavior. Combined with Walmart Connect and Vizio, this further strengthens our platform and creates value for customers, sellers, suppliers, and advertisers. These are important milestones because they demonstrate the value we're creating across the company. Rather than building entirely new capabilities market by market, we're increasingly able to build once, improve continuously, and scale globally. That makes us faster and more efficient and allows customers in more markets to benefit from innovations developed anywhere across Walmart. The fourth area is our supply chain. We've invested in automation, technology, fulfillment capacity, and our physical network, and these investments are showing up in customer experience. They're allowing us to move inventory more efficiently, deliver faster, help with in-stock levels, and support the growth of both our first-party and marketplace businesses. They also strengthen the economics of our omnichannel model. And as we improve density and utilization across our network, speed and profitability reinforce one another. And you can see how these advantages build on each other. When we invest in our supply chain, it helps us get more products to our customers and members faster. When they get items faster, they shop with us more frequently, both online and in our stores. And as frequency increases, our suppliers and sellers want to be closer to the point of purchase. It's reinforcing. Finally, let me talk about how AI is helping make Walmart faster, more convenient, and personalized. We continue to take a people-led, tech-powered approach. We're using AI to make our work easier and help our associates grow and be at their very best. We believe AI will improve nearly every part of our business by making shopping better and our associates work easier. Sparky is a great example. The number of customers using Sparky is up 70% from last year, and the customers and members who use Sparky for shopping spend 40% more per order than others who don't. Someone recently shared with me that they asked Sparky for a weekly meal plan of healthy foods with high protein options. Within a few seconds, Sparky shared recipes and meal kits with the ability to add all the ingredients they needed to their basket with one click. Sparky even recognized the ingredients they had recently purchased, both online and store, so they didn't buy something they already had. It's building trust.