WMT
#Thanks, <UNK>, and good morning everyone.
Thank you for joining us to hear more about our first-quarter resulted and an update on our overall strategy.
We are off to a good start to the fiscal year.
For the first quarter, EPS was $0.98, which is above the top end of our guidance.
Excluding a $3.5 billion currency impact, we delivered total revenue of $119.4 billion which is growth of $4.6 billion or 4% over last year.
On a reported basis, total revenue increased 0.9% to $115.9 billion.
We exceeded both our EPS and Walmart U.S. comp sales guidance.
As we described in October, we are improving our stores, adding critical capabilities and deepening relationships with customers.
We are encouraged by the Walmart U.S. comp and believe it is attributable to real improvement in our store experience.
Our customers are giving us positive feedback and I am seeing it myself on store visits and you can see it in the traffic numbers.
We delivered comp sales of 1% in Walmart U.S. due to continuing traffic increases which improved 1.5% this quarter.
This was our seventh consecutive quarter of positive comp sales and our sixth consecutive quarter of positive comp traffic.
It is exciting to see the improvement in core retail fundamentals.
For example, I am encouraged by the progress we are making on inventory.
That progress is important in its own right and for cash flow purposes but it can also help create a virtuous loop.
When combined with our investments in training and associate education, wages and store structure, it is giving our associates more time on the sales floor to serve customers.
Our customer satisfaction scores have continued to strengthen and our in stock has gotten better.
Our associates are responding and I'm proud of them, Greg Foran, and the entire US leadership team.
In the quarter we did a better job of managing costs.
SG&A discipline improved as our store teams did a good job of more closely aligning expenses with sales growth.
Better expense management in the quarter gave us increased confidence to initiate our next phase of U.S. price investment earlier than planned.
Over time we intend to lower prices further in a deliberate strategic way to drive our productivity loop.
Doing this in a sustainable way takes time and we are seeing progress.
Globally on a constant currency basis, e-commerce sales and GMV grew 7% and 7.5% respectively.
Growth here is too slow.
The U.S. number is better than the global number but neither is as high as we would like.
We can see progress against several of the necessary capabilities we need to win in e-commerce but we are still working on a few others.
We need them all to come together to see stronger growth.
For example, our marketplace is ramping up but it takes time to build the assortment to the point where customers realize the depth of assortment.
We now offer more than 10 million SKUs on Walmart.com and we are growing that number through a combination of first-party and third-party items.
It makes sense that perception will trail reality and we will work on both during the course of this year.
We will build on the successes we have seen around the world including in the U.S. and we will continue to work through the challenges we have experienced in key markets like Brazil, China and the UK where our e-commerce and mobile commerce sales are softer.
We are pleased with our e-commerce operating system and happy to have our new e-commerce fulfillment centers operational.
Those are necessary building blocks.
I'm excited about the ways we are using technology to deepen our relationship with customers and help them save both money and time.
Our Grocery Pickup service in the U.S. continues to receive high marks from customers and we are continuing to expand it.
I am pleased to share we are announcing nine new markets today bringing our total number of markets to nearly 40 by the end of this month.
In addition, in some markets, we will double the number of stores that offer the service locally in May.
We expect to continue to quickly expand to new markets.
The Walmart app is also allowing us to serve customers in convenient ways whether it is by finding an item in store, researching a product or refilling a prescription.
Walmart Pay is enhancing our ability to provide a seamless shopping experience as customers quickly pay with their phone.
A few weeks ago we began to expand this service nationwide and we are on schedule to complete the rollout by the end of June.
Walmart International had a strong start to the year with 10 of our 11 markets posting positive comp sales and nine of those markets growing comp sales by more than 4% on a constant currency basis.
In particular, Walmex and Canada continue to perform well with strong sales, market share gains and solid profit performance.
China remains a strategic market for our future and is now our fourth largest international market from a sales standpoint.
We recently held a Board of Directors meeting in China and while visiting stores and e-commerce operations, I continue to be encouraged by the pace of operational improvements made by our team in China.
A highly competitive environment and food deflation in the UK continued to challenge the market significantly impacting traffic and comp sales trends in our business.
We are focused on making strategic investments to improve our position in the market and invest in price while being diligent in managing our bottom-line and cash flow.
At Sam's Club, we are pleased with the growth in membership income.
Plus member penetration is near an all-time high and we like the trend we are seeing.
It is clear that members recognize the value that a plus membership brings.
Comp sales for the period were in line with our guidance but we know we can deliver stronger results.
Leading in digital is a focus area for Sam's and the team is doing a good job of delivering for members as we continue to see strong growth in Club Pickup.
Finally, we look forward to welcoming many of our shareholders, investors and associates to Northwest Arkansas in a few weeks for our annual meeting.
This is one of my favorite weeks of the year as we get a chance to connect with you and share more of our thinking about the business.
We also bring in associates from around the world.
It is inspiring to see them and hear their stories.
We hope you will join us for a great meeting.
In summary, we are continuing to do what we said we would do on our strategic plan and we are getting traction as a result.
Now I will turn it over to <UNK>.
Thanks, <UNK>, and good morning everyone.
As <UNK> mentioned, our earnings materials are a little different this quarter.
Our intent is to continue to provide you with a high level of transparency and information but in a more efficient and concise manner.
For example, we have added specific comments and highlights on the performance of each of our operating segments within the financial presentation instead of being spread out among several parts of a lengthy transcript.
Therefore it is important that you review the financial presentation in conjunction with the comments from <UNK> and me.
We hope you find this new format more efficient we look forward to any feedback you may have.
With that, let's turn our attention to the results for the quarter.
I would like to start by taking a minute to thank all of our associates around the world.
Over the past few months, I have had the opportunity to visit with associates in our U.S. stores as well as in China, Japan and Brazil and I was encouraged by the level of dedication they continue to demonstrate.
As a company, we are executing against our strategic priorities and not only delivering short to midterm improvements but positioning Walmart for long-term success.
We still have work to do; however, we are pleased that our first-quarter results demonstrate continued progress.
First-quarter EPS of 98% was above our guidance range.
During the quarter, we saw a benefit from lower utility and maintenance expenses due to a milder winter in the U.S. and slightly lower costs from store closures announced last quarter.
From a revenue standpoint excluding the $3.5 billion currency impact, total revenue increased $4.6 billion or 4% to $119.4 billion.
On a reported basis, our total revenue increased 0.9% to $115.9 billion.
Walmart U.S. delivered comp sales of 1% due to continuing solid traffic which increased 1.5%.
This is our seventh straight quarter of positive comp sales and our sixth straight quarter of positive comp traffic.
Globally, e-commerce sales increased 7% and GMV grew by 7.5% in the first quarter on a constant currency basis which is not as strong as we wanted.
We are pleased with the ways we are using technology to deepen our relationships with customers and helping them save both money and time.
For example, our Grocery Pickup service in the U.S. will be in nearly 40 markets by the end of this month which is up from 22 when we started the year.
Advances we have made in fulfillment capabilities including our most recent center in Southern California, mean customers can get the items they want fast and at Walmart prices.
Although we are making progress on several of our key priorities, we have more work to do particularly in some of our largest international markets.
Gross profit increased 60 basis points during the quarter primarily driven by gross margin improvements in the U.S. which I will discuss in more detail shortly.
During the quarter, we were more disciplined from an expense standpoint.
However as anticipated, total SG&A increased compared to the first quarter of last year primarily as a result of our previously announced wage rate increase which took effect in February.
As you review our financial statement, you will notice a reduction in interest expense as well as an increase in net income attributable to noncontrolling interest.
As a reminder, the primary reason for the year-on-year variances is related to the sale-leaseback accounting correction we made in Canada during the first quarter of last year which impacted these line items and had a de minimis overall impact on operating income and EPS.
Along with solid operating performance, disciplined working capital management allowed us to generate approximately $4 billion of free cash flow which compares to $2.2 billion generated in the first quarter of last year.
We also returned $4.3 billion to shareholders in the form of share repurchase and dividends.
During the quarter, we repurchased nearly 41 million shares for a total of $2.7 billion.
With that, let's now turn our attention to the results for each of the operating segments.
Walmart U.S. had a good first quarter with comp sales ahead of guidance driven by solid traffic growth.
We continued to steadily execute against the plan we laid out a year ago and we are seeing positive results from these efforts.
Our customers continue to tell us they are happy with the changes we are making in our stores as evidenced by our customer experience scores which rose again this quarter versus last year.
Comparable sales were up 1% in the first quarter despite continued impacts from deflation and food which we estimate impacted our total comp by approximately 60 basis points relative to last year's first-quarter comp.
Customer traffic increased 1.5%.
E-commerce contributed approximately 20 basis points to the overall comp.
In addition, our Neighborhood Market format also delivered a comp sales increase of approximately 7%.
We have good momentum in the business as on a two-year stack basis comp sales for Walmart U.S. were up 2.1%.
We saw strength in general merchandise driven by solid sales growth in hardlines, home and seasonal and apparel.
While entertainment continues to be a sales headwind, we did see some improving trends in electronics.
Branded drug inflation and script growth drove pharmacy sales while better in-stock levels and a focus on the right assortment drove sales growth in both consumables and OTC.
Gross margin improved 44 basis points in the quarter.
We delivered improved margin rates in food, consumables and health and wellness as our continued focus on reducing costs both in how we operate the business and in procuring merchandise provided benefits.
In addition, transportation costs benefited from lower fuel prices, we had some improvements in shrink and we also lapped last year's incremental expenses related to the West Coast port congestion.
Operating expenses increased 11.5% over last year primarily due to previously announced wage rate increases.
However, our store teams were more efficient in managing expenses to more closely align with sales growth and a milder winter drove lower utility and maintenance expenses.
Overall the SG&A increase was partially offset by improved gross margins which resulted in an operating income decline of 8.8%.
Inventory continues to be a key focus area for Walmart U.S. and we are pleased with the progress we're making toward our goal of stronger working capital management.
Inventory declined 3.5% in the first quarter including a 5.7% decline in comp stores.
The inventory discipline is driving benefits across the store such as improved in-stock levels and more efficient processes for our associates.
Finally, as we communicated in October, price investment is always an important part of our growth plan.
We began the initial phase of additional price investment late in the first quarter lowering prices on key items in select geographies.
As always we are committed to providing quality merchandise at a great value using data and analytics to better serve our customers.
Heading into the second quarter, the execution of Walmart U.S.'s strategic plan remains on course.
For the 13-week period ending July 29, 2016, we expect a comp sales increase of around 1%.
As a reminder, the comp sales increase for the second quarter of fiscal 2016 was 1.5%.
Now let's turn to Walmart International.
Walmart International had a strong start to the year despite some continuing challenges in certain markets.
As a reminder in all countries except Brazil and China, our financial results are inclusive of our e-commerce performance.
Comp sales remain strong with all markets other than the UK posting positive comp sales.
Also worth mentioning, nine of our markets grew comp sales by more than 4% on a constant currency basis.
This year Easter benefited the first quarter some in International as the holiday last year fell within the second quarter given the one month reporting lag in all markets except Canada.
Overall, net sales grew 4.3% on a constant currency basis.
Reported net sales declined 7.2% due to the $3.5 billion currency headwind although the impact was slightly less than anticipated.
From an expense and cost of goods perspective, we are pleased with the continued progress we're making on our cost analytics program which includes fact-based negotiations and new merchant tools.
We are now expanding the program beyond the UK and Canada to include Mexico in Q2 and other markets in Q3 and Q4.
We are also focused on We Operate for Less initiatives across our markets and we are pleased that we leveraged expenses in the majority of our markets.
Form a profitability standpoint, operating income increased 22% on a constant currency basis and increased 8.8% on a reported basis driven by solid sales and broad gross profit rate improvement.
On a constant currency basis, inventory grew slower than net sales at 2.2% due to a focus on reducing unproductive and obsolete merchandise while on a reported basis inventory declined 6.9%.
Within the accompanying financial presentation you will find detailed information for our five major markets.
However, I will give some highlights on these markets starting with two which are performing exceptionally well.
WalMex continues to lead the way delivering strong results.
As a reminder, WalMex releases results under IFRS and the results discussed here are under U.S. GAAP; therefore some numbers may differ.
Sales momentum continued across all formats, divisions and countries led by strong results in food and consumables.
Total sales and comp sales performance significantly outpaced the rest of the self-service market.
Comp sales for WalMex increased 8.6% in the quarter.
From a profitability standpoint, higher gross margins driven by strong inventory management reduced clearance and good expense management led to strong growth in operating income.
In Canada, comp sales increased 6.7% driven by strong traffic growth of 4.6%.
Comp sales have now been positive for eight consecutive quarters.
The performance was driven by improvements in our merchandise assortment and price investment which led to strong customer traffic growth.
Our e-commerce business also continued to grow nicely with the expansion of online grocery in the greater Toronto area.
Even as e-commerce investments continued, our ability to leverage expenses led to growth in operating income that outpaced sales growth.
The UK continues to struggle, due primarily to fierce competition.
Improvements in price and product availability throughout the quarter were not enough to overcome traffic and food volume declines in our large-format stores.
However, project renewal remains a focus with the aim to simplify and strengthen the customer offer, reduce costs and drive sales.
The cost analytics program which is part of Project Renewal made good progress and delivered savings we were able to invest back into the business.
Our China business continues to grow and is now our fourth largest international market by revenue.
Despite a challenging macroeconomic environment, strong performance during Chinese New Year, double-digit growth in gift card loading and continued strengthening of fresh categories led to good sales growth and positive comps.
In Brazil, despite ongoing economic challenges, our team is making the right decisions to better position the business for both short- and long-term success.
We are pleased with the positive comp sales performance in the quarter.
Overall, our International strategy remains simple and focused and we continue to execute against our key priorities around the world.
Now let's turn to Sam's Club.
At Sam's Club, net sales without fuel grew by 2.9%.
Membership income increased by nearly 4% as Plus member renewables grew by more than 30% and Plus penetration was there an all-time high.
Comp sales excluding fuel increased 0.1% in the period as deflation especially in fresh meat and dairy continued to be a headwind and negatively impacted comp sales by approximately 50 basis points versus the first quarter of last year.
E-commerce performed well and contributed 60 basis points to the comp including sales through Club Pickup which grew by more than 30%.
In addition, our direct to home business experienced impressive growth.
Gross profit rate increased 18 basis points even as we made investments in price and in the cash rewards program.
As planned, investments in people and technology led to growth in operating expenses that outpaced our sales growth.
The team at Sam's is in the early stages of executing against the strategies as outlined at the end of last year.
We know we have work to do and we are on the right path.
For the 13-week period ending July 29, 2016, we expect comp sales to be slightly positive.
So let's wrap things up.
This is an exciting time for the company and our financial strength positions us to make the necessary investments in the business to drive sustainable long-term results.
We are proud of our overall results in the first quarter and there is momentum in many parts of the business.
Based on our views of the global operating environment and assuming currency exchange rates remain at current levels, we expect second-quarter fiscal 2017 earnings per share to range between $0.95 and $1.08.
We appreciate your interest in our company.
I look forward to seeing many of you at our Shareholder's meeting in a couple of weeks.
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