Walmart Inc. (WMT) Earnings Call Transcript & Summary

All right. Well, good afternoon, everyone. My name is Karen Short, and I'm the staples and hardline retail analyst at Barclays. We're very pleased to once again welcome Walmart to the Barclays Staples Conference. Obviously, to state the obvious, with close to $550 billion in global sales, Walmart is the largest global retailer. At this point, it cannot be emphasized enough. But equally important, the list of successful global brands is very short. And clearly, Walmart would be at the top of the list. With us from Walmart, we're very pleased to welcome Brett Biggs, Walmart's Chief Financial Officer. As I think all of you know by now, the format will be fireside with no Q&A this year. You should see Walmart's safe harbor slide on the screen momentarily. Please refer to this in their latest SEC filings for any forward-looking statements that are made this morning. On TikTok, I would just like to point out and remind investors that Walmart is not elaborating on the topic beyond the public statement the company made on August 27. So if anyone is listening and thinks that I'm not interested in asking about it, that's not the case, it's just we have 30 minutes, and we want to get as much covered as possible.

So this is obviously a very unique time for any essential retailer. Again, we thank you very much for your participation and insights. So as the largest global retailer, you're obviously in a very unique position to get the pulse of the consumer. So I wanted to start off a little bit on whether or not you have any comments to make in general on the state of the consumer. And then I do want to ask this in the context of top line and market share in the U.S. because this seems to be the biggest point of contention, I guess, as it relates to whether you are or are not losing share. And then I'll jump into some other questions.

Yes, you bet. Thanks for having me. Looks a little different than last year, obviously, just again to state the obvious. As we think about the consumer, there's so much has changed in the last 6 months, so many dynamics. It's tough to peel through everything that's going on. You've had such disruption end of our first quarter, start of the second quarter. But in the same way you had stimulus, a large stimulus, particularly in the U.S. And so understanding, even in our second quarter results, I mean, some of that was stimulus, some of that was people spending money on things. They are not spending as much on vacations, gasoline, things like that, and so they would spend more in a place like Walmart. So it's tough to peel all those things apart. The economic numbers over the last few weeks have seemed to look better than they have over the past. Again, it's hard to know how much of that is stimulus-related, and we'll be watching, like everybody else, so what happens in Washington in the next several weeks around stimulus. But it's been a very interesting 5 or 6 months, certainly, from a retail standpoint with certain retailers closed, certain ones like us open. When you look at the period of time, overall, we feel really good about our business. We have gotten a lot of questions about market share. We know we've taken market share in certain categories, general merchandise, which is very good for us from a customer perspective as well as from a margin perspective. Grocery and consumer market share is a little tougher for us to read. There's a lot of things have gone on. I would say there was a lot of noise around the numbers. We significantly pulled back on our operating hours, which, you know, we started closing around 8:30 for most of the second quarter. Now we've taken those operating hours back to 10:00. We know that impacted us some in the second quarter, not having those operating hours like we had them, metering stores, things like that. Price is still really important, but with the stimulus dollars that were in the market, convenience became even more important, we think, during the quarter. Now we've made a lot of inroads as far as convenience over the past several years, and that benefited us. But I think people probably became a little less price-sensitive maybe in the second quarter. And from an out-of-stock standpoint, we had some struggles, as did a number of retailers in that second quarter. We're in better shape than we were a few -- certainly, a few months ago, and we're getting better every week. But there are certain categories that will take some time still to get back to where we want to be from an overall in-stock perspective.

On that note, and I'm probably going to just jump to Walmart+ fairly quickly. But on that note, in terms of the actual hour reduction and then in terms of the inventory, I think people may underestimate how much and how great the percent of sales are actually done at Walmart, say, from, call it 8:30 p.m. to 7 a.m. And most are probably really understating the basis point impact on your sales. So maybe can you -- any color you could give on that? And then on the inventory and, yes, the stocks, I mean, as you said in one of the earlier meetings, you obviously have become unbelievably efficient with inventory, and you probably basically just-in-time inventory, while you have all algorithms completely run out of whack. So is there -- could you talk a little bit about that and, I guess, the ability to override the algorithm that you've obviously been operating under for so -- for decades?

Yes. On the operating hours, we didn't -- we haven't quantified it externally, but it was important enough that we mentioned it quite a bit in our second quarter release. And I know there were times, even as a customer, when it was 8:30 and I wanted to go to Walmart, for a few weeks there, we weren't open past 8:30. And so you really had to change your mindset a little bit as a customer. I think we've got customers back now to where it feels a little more normal for customers. The other thing to mention, too, would be pricing. And our price gaps in a number of categories actually widened in the second quarter. And so when you -- a number of our competitors weren't as promotional in the second quarter or actually raised prices. We really didn't, and that created some noise as well around on the market share side would be on the dollar basis. On inventory, store managers do have some ability to override, but there's 2 kind of large buckets of inventory. One will be short lead time. That would be food and consumables, and we can make adjustments on that pretty quickly. But you've got to have supply down the chain with our suppliers to be able to do that as well, and that was a challenge for a little while, even though they're doing the best they can as well. And there's longer lead time. Think about holidays, Halloween, Thanksgiving -- not Thanksgiving, but Halloween and Christmas, where we're going to have to make bets a little further out. It's tougher to change those, so merchants have to make some assessments there. But store managers do have some ability, but we're -- our systems are such that they can look at the demand by store and pretty quickly adapt to a shorter period of time. Now the algorithms, over the last few months, I'm probably -- you're not going to want to repeat those all the time, but they do learn pretty quickly.

Okay. So jumping to Walmart+ because that seems to be the #1 topic. Maybe talk a little bit about -- so I should want to take a slightly different angle than some of the things that you've been asked in prior meetings. I frequently get the comment that Amazon didn't breakeven until it reached a certain number of, like, built whatever, hundred -- I guess, call it, $1 billion in sales. And so the comparison is that introducing this is going to only exponentially increase your losses. So I want to maybe see -- get your framework on that a little bit. I guess I would argue that the Walmart behavior as a shopper is just very different from how people shop Amazon, but is there a risk that you train the customers to start shopping Walmart like they shop upfront.

Yes. I mean, there's a number of things that we considered as we looked at Walmart+. One, it's really important, we think, for us to offer this for customers and now members in Walmart+. The world has evolved. Customers have evolved a lot over the last several years. And we've had a membership forever at Sam's Club, but people have gotten more used to using memberships, whether it's movies or streaming or other things that they do, and we felt like this was the right time to give customers that option. There's a number of things that we can do with this over time. So we've announced 3 main benefits at this point, but there will be other things that we do over time. It was important to get the membership at the right price point where we thought would be good for our customers, which is under $100, so feel good about that. Customers are going to -- they're going to shop however they want to shop, and we know that. And we've been setting ourselves up for that for several years. We still love customers coming on to our stores, and we think that's going to be a big part of what we do forever. And so having the opportunity to pick up in stores, making sure that the supercenters, in particular, are a great place to shop, those things are all going to continue to be important. Basket size matter. We think we'll continue to have basket size -- we think basket size will get bigger. We've seen that in grocery pickup where basket sizes are bigger than they are in the stores, and so that part is very different than what some of our other competitors might have. And now the ability to get increasing mind share with that customer on the grocery and consumable side and then be able to get more of their general merchandise business, which is great for us from a mind share perspective, market share perspective as well as margin perspective is a really important part of this.

So when you think about the demographics that this would appeal to, obviously, the question has come up that -- and I have had this question asked, why wouldn't people -- why would a customer pay a fee when there's a minimum of $35? So maybe can you just talk a little bit about the thought process behind that, but also just talk a little bit about why you think this is something that would appeal to all demographics because I think the perception is that it's only a higher-income demographic.

Yes. It's what -- we wanted to appeal broadly. I mean, Walmart's always been kind of democracy for shoppers. If you look at the U.S. population, we tend to mirror from an income level, racial, gender. We kind of mirror America, and that's what we like and the same as we do in other countries. But getting that bigger basket, the baskets we're seeing with most of our customers for delivery or pickup have, the $35 minimum wouldn't have seemed to have made that much of a difference. And it is a way for us to differentiate what we do from the way that we fulfill as well. So it does help us from a fulfillment standpoint. We think we give the customer still what they want. So that's, we think, is a win-win. And it just -- we want to do things that fit our customer base, and we don't think this appeals one way or another to lower income or higher income. We do think it is really broad reaching. That's what we like so much about it. We think we've got something in there for everybody, and the price point is really attractive.

And when you -- I guess, you obviously started testing this before you consolidated the apps, but is there anything you could talk to in terms of the behavior and attachment rate pre the consolidation of the apps from a general merchandise perspective, too, currently? And then anything you could talk to in terms of what you're seeing on the behavior now that the consolidation of the apps is in its final...

Yes. We won't talk about it specifically from a competitive standpoint, but you can imagine anything you can do to make it easier for that customer to go across the aisle, so to speak, and buy general merchandise, the better. And that's why the supercenter was such a great retail invention is because it brings people into the store for food and consumables, but then it has everything they need from the general merchandise side that mixes out in a way that makes sense. I don't think online is going to be that different, actually. And as we continue to get people in the top of the funnel with food and consumables and things like Walmart+ will help us do that, we will become more top of mind on general merchandise. And we have really good strong general merchandise business. We can make it stronger. The second quarter was a great reminder to all of us of what that flywheel really looks like when it works. And so what we've seen so far is we have made it easier for the customer to do that. There are things we'll continue to do that will make it even easier. I feel certain what will become of things a year from now that -- where we've made that easier than it is today.

Okay. And then you've commented a couple of times on the gap in price. And our price checks, at least in grocery, definitely show widening of the gap. So I guess, the question is, how do you think about when that gap will actually matter again? It just feels like consumers are so flushed with cash, all the things that they're not spending on. And if you're not necessarily getting credit for it, when do you think you will, I guess?

Yes, there's some things that are a bit counterintuitive right now. The price gap always matters. And the customer, they notice it. It's not as formulaic as we make it, but the customer notices that it still matters, for sure. If we don't get another stimulus package, which all of us are monitoring like you are, price probably matters even more. We will get back to something. And sometimes that feels a little more normal than this and price will matter. Convenience matters more than it used to, and I think that's here to stay. We've seen some trends accelerate over the last 5 months that are here to stay, more people in e-commerce, probably more people eating at home, things like that. Some of those work and, I think, work into our benefit now. But the price gap is always going to matter, and we're going to be thoughtful about it. There are price -- we want to find that optimal point where we're doing what we need to for customers, but also ensuring that shareholders get the benefit that they should see as well.

So on that cash topic, I don't know if you can answer this or not, but it seems that there may be a tax bill coming for many customers -- or many consumers who got the $600 stimulus weekly, meaning that there wasn't withholding taken out of that. I don't know if you've done any analysis on this at all because it kind of -- I would venture to say if there is a tax bill and that it will just be subject to regular tax withholdings, there are going to be a lot of shock to consumers in March. Do you have a view on that?

Nothing to specifically discuss. I think there's so many things right now that are unusual or that could have impacts down the road, as you say, first quarter, second quarter of next year, that we'll just continue to monitor. How they all work together and aggregate to have an impact on the customer, I think we're just going to have to just to make our way through things like that as soon as that becomes an issue.

Okay. And then when you think about the 2020 holiday season, maybe talk a little bit about how you're thinking about that from a competitive perspective because, on one hand, I could argue that the consumer is going to do anything and everything they can to make it as special as possible, because everyone's so bored. On the other hand, I could argue that you have Prime Day combined with no real Black Friday, obviously, no Black Friday, really. So how do you kind of think and weigh those 2 factors?

Yes. Our merchants, we've -- basically, the only thing we announced so far is we'll be closed on Thanksgiving Day, which is something new for us. I'm glad we're doing that. And then we'll announce more as we get closer to the holidays. Thanksgiving is still 2.5 months away, which in today's world seems like a long time. But there -- our merchants have -- on some of the long lead time items we talked about a minute ago, they've made bets of where they think the holiday will come out. It'll look -- holidays are going to look a lot different than prior years, as you said. How promotions from competitors work out over that period of time, I think, remains to be seen. But we feel good about how we're positioned for the holiday. I'm with you. I think people want to make this special, and so I would expect things like -- I'm not the head merchant, but I would expect things like Trim-a-Tree and other things like that, people who want to decorate their homes will probably be pretty big this year. We've seen that in other times when there's been a downturn in the economy, that people really want to go all out for the holidays. And there'll be some places where it'll be more conservative. And our merchants haven't been through something exactly like this, but we've had periods of time that have been either good or bad for the holidays from an economic standpoint. They're pretty good at knowing how to work their way through that.

Okay. And then maybe turning to e-comm becoming less unprofitable, I guess. I think people are trying to -- struggling a little bit with what to think is -- about in terms of what's structural in nature, in terms of probably more permanency or less unprofitable e-comm business. Maybe can you kind of talk a little bit about the puts and takes on how we should all think about that going forward?