Walmart Inc. (WMT) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us at Oppenheimer's 26th Ann Consumer Growth and E-Commerce Conference. My name is Rupesh Parikh. I'm the Senior Food, Grocery and Consumer Products Analyst here at Oppenheimer. I'm very excited to introduce our next presenting company, Walmart. The company recently reported strong Q1 results and reaffirmed guidance. In particular, the Walmart U.S. segment delivered a 4% plus comp increase with broad-based momentum across categories. Walmart remains a top pick for us, and we expect management to continue driving industry-leading top and bottom line growth. So joining us today is Dave Guggina, the new President and CEO of Walmart U.S. So Dave, you recently appointed to the Walmart U.S. CEO seat. So I thought maybe you can kick it off by talking a little bit about your journey at the company and how this influences your approach to leading the U.S. business.

So Dave, you recently appointed to the Walmart U.S. CEO seat. So I thought maybe you can kick it off by talking a little bit about your journey at the company and how this influences your approach to leading the U.S. business.

Absolutely. First off, great to be here and good to see everybody. Yes, I'll give a quick background on my career and time at Walmart. So before Walmart, I worked in manufacturing and in digital retail with roles leading logistics planning, operations, quality, I had customer-facing functions like customer service. And then since joining Walmart in 2018, I've had the opportunity to lead teams in product, in automation and innovation. I led our supply chain for a number of years. And last year, I led our e-commerce business before stepping into this role 4 months ago. I would say that those experiences have shaped how I think about leadership myself. Whether you're running a fulfillment center or building technology or serving customers and a store online, it really comes down to helping customers get what they need, what they want and what they love, when and how they want it. I've also learned through the years the importance of having great associates, a fantastic team, the importance of execution and using technology for technology's sake, but to make work simpler for our teams as well as shopping easier for our customers. And as I step into this role, my focus is on building upon Walmart's strengths and continuing to innovate and deliver value for value and convenience for the millions of customers and members that we serve every day, Rupesh.

Great. So we're going to spend the bulk of our time digging into the Walmart U.S. strategy. However, before I start, I want to touch on the macro backdrop. So the consumer environment clearly remains quite fluid out there, higher gas prices, geopolitical uncertainty, SNAP changes, et cetera. So how would you describe the overall health of your Walmart U.S. consumer as we sit here today? And then what are your expectations for the balance of the year?

Overall, the consumer, I would say, is relatively healthy. Customer spending with us continues to be strong. You mentioned U.S. comp sales and your opening of 4.1%. If you exclude maximum fair pricing, that would have been at 5.1%, and that's an acceleration from our prior 4 quarters. Our omnichannel strategy continues to resonate with customers across income levels, and that's driven by really three things: value, convenience and speed. We delivered our best traffic growth in 6 quarters, and we continue to gain share across a broad base of categories, including general merchandise, which reached its highest share gains that we've seen in 5 years. Now I will note that there is variation in spending across household income groups with higher income customers continuing to spend with confidence while our lower income customers are feeling more pressured and making trade-offs, particularly in discretionary categories. But the good news is, is that this is when Walmart shows up with our purpose to help people save money and live better lives. And our business model is really built for this environment. And when customers become more deliberate in their spending, they turn to Walmart to save not only money but time.

Great. That's helpful color. Now I'd like to shift to some more strategic questions. So maybe starting on e-commerce, where momentum has continued with U.S. e-commerce growth in excess of 20% for now nine consecutive quarters. So Dave, this is clearly an area where you obviously have a lot of experience given your prior role as Walmart's U.S. EVP and Chief E-commerce Officer. So what are the key drivers behind the top line strength? And then what is your team's confidence in actually sustaining that momentum?

Yes. Rupesh, our momentum is driven by a handful of things. First, we are broadening the assortment, the in-demand assortment that's available to our customers. We continue to lean into price and value as we always have and we're enhancing the experience for customers. And if you can do those three things right, you can build trust. And once you build trust, you can earn frequency from customers. And that really reflected in the results. E-commerce grew at 26% in Q1, representing roughly 25% of our segment sales. It was our fourth consecutive quarter of e-commerce growth above 25%. And importantly, that growth is broad across the business. Store fulfilled delivery grew nearly 50%, our marketplace saw a growth of nearly 50% in advertising, which is really helped buoyed by both the former two grew by 36%. As for addressing your question on sustaining momentum, I really -- I want to emphasize we believe we're still in early innings in the e-commerce space. More customers are choosing Walmart for a combination of value, convenience and speed. And those advantages continue to strengthen in our business. As I noted, value remains core to who we are. We had 7,200 rollbacks across the business in Q1. About half of those were in food, and we saw a strong growth in response to those investments. We are actively making it easier for customers to stretch their budgets through solutions like our meals ready-to-eat meals like our rotisserie chicken in 2 sides, which feeds a family of 4 for less than $10 to our summer grilling basket which helps families host a cookout for under $5 a person or if you need something to wear to that cook out, maybe you can try Free Assembly or Scoop for summer fashion, which is really resonating with our customers. So we see significant opportunity ahead across the business as we continue to strengthen our omnichannel experience and deepen customer membership engagement.

Great. That's great color. So stores obviously play a critical role as well in your omnichannel strategy for serving both in-store shoppers and for your faster delivery. So on the Q1 call, your team indicated that you're now able to serve 60% of U.S. households within 30 minutes and then also share some interesting tidbits on the drone side. So going forward, what are the bigger opportunities you see to continue bending the curve on speed, convenience and then also to drive faster penetration of your faster delivery options?

Yes. I want to start with our stores. Our stores are one of Walmart's greatest competitive advantages and really they are the foundation of our omnichannel strategy. About 90% of U.S. the U.S. households live within 10 miles of a Walmart, enabling us to reach 95% of households and less than 3 hours and 60% in less than 30 minutes. So we can deliver very quickly. And as such, that has helped drive more than 50% growth in fast delivery sales in Q1. And what's exciting about this, Rupesh, in team is that the momentum continues, and we continue to get stronger in this space as we improve our core business. And here's a few ways that we're focused on improvement. One is batching. Another is chaining orders, improved routing. We're also focused on positioning more in-demand inventory closer to our customers through things like remodels, new fulfillment centers, new stores, better inventory management and better inventory flow. And through all that, we're able to make more items available more customers faster, and that drives conversion up. But at the same time, these investments don't just buoy our digital business. These investments elevate the in-store experience, remodels elevate the in-store experience, stronger merchandising, like the fashion brands that I mentioned earlier or expanding services like our pharmacy services, Fresh, our new Auto Care capabilities. Last year, we also opened or converted roughly 12 stores. And those locations are performing incredibly well. They're beating our expectations with higher digital penetration and stronger performance in spaces like beauty, fashion and baby. And that's why we believe our store network isn't just a competitive advantage today. It's one that really becomes more and more valuable over time as we make these investments and helps us deliver an even stronger combination of value, convenience and speed. So we're excited about the future here.

Okay. Great. So next area I want to touch on just agentic commerce. So I understand it's still early -- but your team has here some interesting data points on your AI shopping agent parking. So how are customers utilizing this today? And then where do you think this will go in the future?

I think what differentiates Sparky and maybe helps you get an idea of where we're going to go in the future is the combination of value of convenience and real-world execution and the scale of Walmart's in-store and online data connected with agentic commerce. So we connect AI-driven shopping directly to our omnichannel fulfillment network, and that includes our stores, our fulfillment centers, our forward-deployed inventory, all of the delivery capabilities with our Spark network, and we're seeing customers respond to those capabilities that I just mentioned. We had our weekly active users increased by over 10% quarter-over-quarter. We saw from the beginning of Q1 to the end of Q1, Sparky attributed GMV increased by more than 150% and we saw that customers using Sparky continue to build bigger baskets. We had shared this previously, but we mentioned it again in Q1. We're seeing baskets that are roughly 35% larger than non-Sparky users. What's also encouraging, I think speaks to your question of how are folks changing behavior is early on in Sparky's tenure with us. It's Sparky customers who are using it, we're really focused on what I would call spearfishing or looking for specific items, often general merchandise, they were looking for a particular item and they'd ask a lot of questions about that, I'm going to learn more about it. They are still doing that today. But as we have rolled out capabilities like replenishment, meal planning, Sparky is now aware that you're in a store and could help you find items in the store. We're seeing customers now not only purchase general merchandise, but utilize it for both consumables and food. And that's helped units that are purchased through Sparky increased by over 4x year-over-year. So I do want to emphasize it is still very early in this space, but we're excited about the opportunity ahead of us and Sparky and the capabilities that we've introduced in our ecosystem. And even outside of our ecosystem through Sparky is resonating with customers.

And then with Sparky, have you guys done anything to drive usage through advertising or anything else? Or is it simply customers discover it through primarily the app when they're shopping at Walmart?

So today, customers can discover Sparky through our app. It's at the center, lower navigation panel from the app, but also Sparky helps us engage with customers in other large language models. So we have deep linking experiences in other large language models and our testing embedded experiences where Sparky comes to life within an app, someone else's large language model.

Okay. That makes sense. Shifting gears. So I wanted to dive deeper into some of your alternative revenue streams, starting with Walmart+. So membership fee revenue growth accelerated late this quarter with net adds reaching a new Q1 high. What do you attribute the acceleration to?

Yes. Great call. W+ continues to see strong momentum, and our goal is for it to become really an essential membership for households across the U.S. Members are telling us that they love free shipping, that they absolutely love our fast delivery that's 30 minutes or faster, 3 hours or faster from our stores, and they love the easy returns. What's probably most encouraging is the level of engagement that we continue to see when someone becomes a member. Walmart+ members spend 4x more than nonmembers on with Walmart. We generate roughly 7x more e-commerce visits than nonmembers and roughly 2x more store visits than nonmembers. We're also seeing really strong growth in benefit usage, whether that's auto care benefits in-store, or our fuel savings, the $0.10 off at the pump, these are driving greater shopping frequency. And I also want to mention our “Who Knew?” campaign. It has really performed incredibly well. It's a really fun campaign, if you haven't had a chance to see it. In Q1, the “Who Knew?” campaign helped change perceptions, really influence perceptions around assortment, quality and delivery speed, all of those improved and our focused messaging, particularly around W+, express delivery and RX delivery drove 50% more paid memberships and delivery trials versus our average investments on those topics. So overall, the value and convenience of membership is continuing to resonate. And we see that in double-digit membership growth as well as in the frequency metrics that I just made.

Okay. Great. Your team has also continued to improve the Walmart+ experience. I know you guys continue to add new perks. I saw the hotel perk. I think you guys doubled the cash back on booking hotels through Expedia. I know there's a big focus on perfect orders. So what opportunities remain to further improve the customer experience for Walmart+ members from here?

Rupesh, we're always listening to our customers and our members and looking for ways to improve the offering, and we'll continue to do that. That's an evergreen problem that we'll continue to solve. First and foremost, that means to continue to strengthen the core value proposition. We will continue to focus on broader assortment, broader in-demand assortment, price and value, convenience and better, more lovable experiences in-store and in the app. We still see significant runway to improve the everyday shopping experience for our members, whether in-store or online. So that focus will continue. Beyond that, we're focused on adding services that make life easier for customers, whether that's streaming offerings like Paramount+ or Peacock, home services like furniture, assembly, TV installation or we announced last week that we are starting to do quick service restaurant delivery for subway. All of these things help customers not only save money, save time, but just simplify life. And I think it points to -- towards us leveraging our unique assets to solve more customer needs. I mentioned QSR since we announced that last week, maybe I'll just give a little more color on that. I think this is a great example of us using our unique assets in ways that only we can. We announced last week that we're lighting up delivery for the roughly 1,200 subway locations within our stores. And we're seeing really strong customer response in the stores that we have lit up to date. They're not only reaching into grocery, but general merchandise and locations are seeing added sales by enabling them to sell not in the store but digitally. And then I would just remind the group that we have over 3,000 restaurants in our stores, which will be the area that we are focused on for that capability for the time being.