Release date: August 15, 2024
For the full transcript of the quarterly earnings call, please see the full transcript of the quarterly earnings call.
Positive points
- Walmart Inc (WMT, Finance) reported strong sales growth and exceeded expectations for the quarter.
- E-commerce sales increased by approximately 20% in each segment and 21% overall, indicating significant digital engagement.
- Global membership revenue increased 23%, with Walmart+ memberships growing double-digit and Sam’s Club US reaching record membership numbers.
- Advertising revenue increased 26%, driven by a 30% increase in Walmart Connect in the US.
- Automation and technological advances, including the use of generative AI, improve operational efficiency and the customer experience.
Negative points
- Despite strong performance, Walmart Inc (WMT) remains cautious about economic and geopolitical uncertainties that could impact future results.
- A reduction in costs was observed, largely due to increased marketing efforts and higher variable compensation costs associated with above-plan performance.
- The company is experiencing slight deflation in some areas, which could impact pricing strategy and margins.
- There is ongoing pressure from brand suppliers to increase costs, which Walmart Inc. (WMT) is actively fighting against.
- The timing of festive events in international segments may affect comparability and year-on-year growth rates, thereby leading to greater variability in financial results.
Questions and Answers – Highlights
Q: Can you explain or quantify how you factored in things like the election and other distracting events into your Q3 and Q4 guidance?
A: John Rainey, CFO: Given the economic, election and global situation, there is reason to be cautious in our outlook for the second half of the year. However, our business is performing well and we are pleased with our performance and positioning.
Q: What is your impression of consumers? And what do you expect for the development of the general merchandise sector?
A: John Rainey, CFO: Our outlook for the second half of the year is a continuation of what we have seen, with consistent performance. General Merchandise showed a positive trend for the first time in 11 quarters, driven by growing assortment and increasing relevance to customers.
Q: Membership growth was cited as one of the drivers of operating income growth in the quarter. What contributed to this growth?
A: Chris Nicholas, CEO of Sam’s Club: “We are experiencing unprecedented membership growth and plus penetration, driven by a focus on core value propositions, digital engagement and Member’s Mark. This growth spans all income groups and generations, with significant contributions from Generation Z and Millennials.”
Q: What do you think about the sustainability of starch in the health and wellness category?
A: John Furner, CEO of Walmart US: Growth in health and wellness is led by GLP-1 drugs, but other categories such as nutritional supplements are also performing well. Our retailers are managing the mix effectively and inventory is down 2% across the company, indicating strong inventory results.
Q: Can you give us an update on the profitability of the US e-commerce business?
A: Doug McMillon, CEO: We are seeing significant improvement in e-commerce margins driven by a better business mix and lower delivery costs. While we are not focused on a single metric, e-commerce profitability is improving and contributing to overall operating income growth.
Q: What are the main drivers of the increase in gross margin in the first half of the year and how do you see the development in the second half of the year?
A: John Rainey, CFO: The gross margin improvement was driven by business mix, improved core e-commerce margins and better shrink management. Our focus is on maintaining low prices for our customers over time, not increasing product margins.
Q: How do you see the development of prices and the penetration of private labels in a slightly deflationary environment?
A: Doug McMillon, CEO: We want to sell both branded and private label, with private label penetration likely to increase. Fresh food prices adjust quickly, while inflation in dry foods and consumables is more stubborn. We advocate for price investment from branded suppliers.
Q: What are your expectations regarding the competitive environment and the holiday season?
A: Doug McMillon, CEO: We are going on the offensive and expecting a good holiday season. Early back-to-school results are positive and we are prepared to serve customers and members worldwide during all of the holidays.
Q: How are you leveraging automation in your supply chain and what are the early results for back-to-school and college students?
A: John Furner, CEO of Walmart US: Automation is on track, with significant improvements in fulfillment centers and regional distribution networks. Back-to-school season is off to a good start, with 50% of customers still shopping.
Q: What key factors are driving the momentum of Walmart+ member growth and retention?
A: John Furner, CEO of Walmart US: The core proposition of free delivery and the focus on eliminating friction for customers are critical. Walmart+ is relevant across all income brackets and we see significant increases in spending when customers sign up and use the service.
For the full transcript of the quarterly earnings call, please see the full transcript of the quarterly earnings call.
