Walmart Inc. (WMT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome again to KeyBanc's Future Technology Conference. I'm Ed Yruma, KeyBanc's internet and e-commerce analyst. I have a few quick housekeeping issues I want to go over quickly. First, we'll be having a really interesting demonstration of a new technology called FaceCake that's at 9:30 immediately after this conversation, really one of the innovators in e-comm technology. Walmart actually uses them, so please stay tuned for that. We have a fun discussion. I'm collecting watches tomorrow at 5:00, have some fun to do, kind of fun and social. Please sign up for that. And finally, here for this conversation, please make sure to ask any questions within your web tool. We'll try to get to them as time permits. And I think we have a forward-looking statement to put up. While that's getting put up, I'll just give a quick introduction. From Walmart, we have Kary Brunner, Dan Binder; Michael Dastugue, the CFO of Walmart U.S.; and John Furner, Walmart U.S. John, Michael, thank you very much for joining us today. I think Walmart really is one of the success stories in a number of times actually in history of retail. And in particular, I remember being in New York and Doug getting on stage and saying, we're introducing the concept of time and really helping customers not only save money but save time. And I think from that kind of first principle came all of your investments in e-commerce, came -- some of the investments you made in your stores, and you really are one of the success stories. So congratulations to you guys.

John, I guess, some really big news today, Walmart Plus is finally launching. I want to understand kind of the plan a little bit. Do you think it helps attract new customers? Do you think it will drive greater wallet share with your existing customers? And on the delivery side, particularly on the same day, how quickly can you scale this offering?

Yes. Thanks for the time and the invitation. First of all, it's great to speak to you and the entire audience. But we are excited today about Walmart Plus. We've been working on this for quite some time. We started with the pilot last year, called Delivery Unlimited to learn, basically, how much -- how interesting customers would be with -- in a proposition like this. And today, we launched officially. So the sites are live. You can join for $98 a year, at $12.95 a month. And it gives customers access to 3 key benefits. And first, as you said, is unlimited delivery from the store for groceries, for consumables, for general merchandise and really the entire assortment. The second is there's a fuel discount at Walmart-owned stations, at Murphy stations, around the country. We'll be adding our Sam's Club stations in the future. So that's coming -- and that's all $0.05 a gallon. And the third is Scan & Go. And I know we're going to talk about technology some, so we can come back to that one. But our view is, this is a really attractive offer for just anyone who's interested in value and time. And like you said a few years ago, we added time as an active part of the conversation to the value equation. We always talked about quality and price, but you almost have to then subtract time taken away from customers as a detractor from the value equation. And so what this membership does, amongst other things that we're doing in the business, is to give people time back so that this time busy or time star-- busy family that we're focusing on, they're able to stay in stock, stay replenished. And then they get their -- the time in their life back to do the things that are important to them. And this year, more than ever, I think we've seen the customer probably skip 4 or 5 years of just natural evolution and growth and jumped right ahead into commerce in ways that we probably would have expected 2 to 3 years from now that we're here now. So the work that's been done up to this point, and you mentioned in the company's history, a lot's been done over many years to keep us in a position where we can prepare for things like this. And then we also -- we love the change at Walmart. It's the thing that we say that is most constant is we're always looking for changes. And certainly, this year, there have been a lot of changes, and I'm sure there will be more to come.

Can you talk a little bit about scaling same-day delivery? And I know you have a variety of providers, you've stood up a Spark network, which is your kind of in-house solution. How quickly can you scale that? And maybe talk a little bit about Spark and kind of why you're leaning into that.

Yes, sure. And scale over the last few years has come really through capital investments in stores and offering pickup in stores where we didn't have pickup in the past. And we're about 3,500 stores now working on the plan to finish up the entire supercenter fleet over the next year. So that's been the first. And the second, the productivity that we've been able to get in stores using things like AI and prediction and ML to power when people are going to shop to help as substitutions, we're also now able to because of the way we pulled the e-com merchants and the store merchants together to have an omni merchandise team. We're able to use this, call it, the search data, the intent data to help us think through things like replenishment across the course of the week. So the number of slides now can expand pretty well across the fleet. We've got a wide range of what's offered, and that number is getting bigger every day. And then finally, you were talking about the last-mile networks. We use a number of providers. We have a number of third-party services. We do have the Spark network, which allows drivers to sign up and then take orders, come to a Walmart supercenter or pick up an order and deliver it same day, and that's gone well. And then we've got other tests that we're thinking about along the way. You probably saw in the last couple of weeks we also announced 2 pilots with drone delivery services. One is with Zipline. That's a fixed-wing autonomous drone and then also a quadcopter drone with a company called Flytrex. So Spark can work on the ground. It can work in the air. But we're going to learn everything we can because ultimately, what we're trying to do is help the customer do 1 of 3 things and do that really well. And we want to help the customer shop in the store, if that's what they choose to do. Second, we want to be there if the customer needs to pick up. And then third, if the customer wants something delivered, we can handle all 3, and we'll be able to do that in a number of different ways. But we want to make this a really seamless choice for the customer.

You've had a number of different roles throughout the Walmart organization. One that stuck out in my mind was really when you were at Sam's. And I think you really innovated with some interesting in-store technology like self-checkout. I know that this is kind of a component of Walmart Plus. But what other opportunities do you have to deploy customer-facing technology inside of the Walmart Superstore? And obviously, one of your competitors is focused on just walk-out shopping. Do you think we'll see this at a Walmart over time?

Yes. Let me start with Sam's for a second. Sam's over the last few years has become an innovation hub for the company, and I'll just compliment the team there. They've done fantastic work over the last 4 or 5 years. And what's exciting to see now is I think anything that happened a few years ago is now accelerating. The innovations coming out of Sam's are fantastic and things like Scan & Go, there are a couple more that we're working on. We're able to just take from Sam's and put them at scale at Walmart because of the way that they're thinking through the tech. So I think a lot of innovation will continue to happen there but also at Walmart. Innovation happens all around us. I think what's interesting this last year is the pace of consumer change has gotten to a point where innovation and ideas can come from just about anywhere in the globe. So I also spent a few years living in Asia and got to see the pace of a change that was different from what I've been used to growing up in jobs all around the U.S. and also saw what happens when an entire generation of technology was skipped. So that was a part of the world where desktops and laptops are never that prevalent and that these big civilizations, big society just went straight to mobile. So when you start with a commercial mindset and a mobile mindset first, then we're able to put things at scale that feel like they would have been developed just very recently. So one of the applications that we've just put in front of the field is an application called Ask Sam, which is something that we piloted and launched at Sam's Club. And every day, associates all over the country are asking, clearly, tens of thousands of questions. And the questions are everything from functional questions to merchandise questions to their schedule, and this input of questions gets us in a position where we can really analyze the things that are important to our associate base, then go react to those, and build them better solutions to take the friction out of the workplace. And so this year, given the number of changes that we've had, everything from store hours to installing PPE, at a point, we had one door closed in the stores, we had to meter people, all these changes that our associates went through, and it's enabled us to quickly in real-time recognize the things that are top of mind. They're thinking about what that they need from us so that we can be great servant leaders when it comes to supervising this workforce through this global pandemic we find ourselves in.

You demonstrated at Analyst Day, I think, some of the robotics you're trying to add like Bossa Nova, AlphaBot. I know that you have some prototype stores where you have some automated fulfillment capabilities. Can you talk about kind of robotics in general, both in-store and your distribution centers? I guess, how are you embracing them? Where can they make your teammates work more efficiently? And how can it take cost out of your process?

Yes, sure. Great question, Ed. I think about it really in 2 parts. When you separate what's happening with the robotic experiments that we've been a part of and then what we're doing in the supply chain, it's a combination of computer vision and then augmenting the parts of the physical workplace that are harder to make the work easier for our associate teams. And I want to take those one at a time. First vision is basically an electronic representation of what we do in retail just about every day. We walk through facilities. We look around, we observe, we accumulate the things we see, and then we applied -- we apply years of accumulated judgment to decide what we should do. So some of the experiments that we have done successfully and one I want to talk about is something we referred to as IRL, and that's a lab in-store that we've been running over the last couple of years. That's an experiment that has now been integrated into the core business and is helping us determine where inventory is, the way that inventory is moving out of the building and help some things like inventory control so that you can be in stock for customers. That was an experiment we did in store A. Store A is our innovation hub. But we just integrated that back into the core business. So it's an example how Walmart thinks like a startup, can think small like a start-up, create a company inside the company, let it run on a bit and then bring it in. And so vision helps the management teams and the home office associates know better what's going on in real time. And as far as what do the robotics do that are so helpful, start with, if you're an associate in the store or, let's say, you're a store manager, every day, you're focused on staffing your store, keeping your store clean for customers, being in stock and then being in the best position so that a customer can buy something off the shelf, take it to the front end of the shelf where we can pick it off-the-shelf and then dispense it through one of the pickup operations. So what robotics and the supply chain are helping us do is deliver inventory that's palletized, ready to go, by aisle and so associates no longer having to unload trucks in the back that are full-loaded, sort it out, get it to the right department. It's just a streamlined process where what comes in is ready to go directly to the counter and it's set in order. So for our associates, the most valuable part of the work is, as I said, getting the store back in stock. So we're taking a lot of work out that leads up to the point where our associates can keep us in stock so that we're ready for either a customer to buy or a picker. But I think these innovations will continue over the next few years. And the pace of change, from my view, the way we see it is just going to continue to accelerate.

Can you talk about just innovation broadly? I've gotten a lot of questions from investors about how is Walmart getting so innovative. But actually, a quick history lesson, right? I mean, back to Mr. Sam's days, right, Walmart has been one of the innovators in technology and retail really since the beginning. How do you determine what innovations get scaled? Are there particular criteria you look for? And kind of what's the needle-mover versus what's kind of just a fun experiment?

Yes. Great question, Ed. And it is true that if you go back over the course of the history of the company, innovation has always been present from the '80s putting barcodes on inventory or the large communication satellite network that Mr. Sam put in and helped us lead into the future. But in every one -- every one of these ideas, we have to experiment. And so we can start small with experiments. We build MVPs. We've organized our teams to work like a product management team and product management not being the color of apparel or the size of patio set but building a tech product with business product, tech and engineering all represented, formerly integrated in the process. And we experiment a lot and we try things. And the first thing you have to do is be willing to say that, that experiment is not going to work and shut it down. And that's hard sometimes. When I have an idea or you have an idea, we want it to work. It's easy just to keep pushing. And then in the time till we end up getting the point where we could build a solution and then we go try to find a really nice problem to attach it to. But what we're trying to do at Walmart is first, to identify what we see are points of friction for the consumer first and then the associate second. And then we've got these listing tools, like I mentioned, for associates for Ask Sam, but we also take all sorts of feedback from customers. So problem identification is one. And then just creatively quickly within a week or 2, experiment and get a product out and put it in front of users or front of associates or customers and see if there's any take on it. And if there is, then we can build on it and then we can move to pilot and roll out. Or if it doesn't go anywhere, we can just shut it down. So we're thinking about innovation now in scales of days or weeks or months, not in terms of months or years. We frequently, in the company, have talked about, we used to do strategy once a year, and we would make sure that our strategy was ready for the next year, which led to a annual planning cycle. My team, if you looked at our calendar and what we worked on, you would think we're having strategy meetings every week, which we are. And it doesn't mean that we're changing the overall direction of the company long term, absolutely not. But within the direction that we're going for the customer, we're constantly working on what's next. So this year, things like express delivery, that was an idea that we knew that we needed to work on, and we had it out within just about 3 weeks from the idea to pilot. We've got another big group of changes in optimizing supply chain at the local level. Those are things that the team have now implemented it to come just 6 weeks from the idea until they could launch. So we've got to be out in days or weeks, not weeks or months.

Yes. I think Doug has mentioned a couple of times that advertising is a strong area of interest, obviously, Walmart U.S. to be a big focus of that. I guess, where are you today? And probably more importantly, how would you score your data efforts and really trying to understand what consumers are buying what? And how then, over time, do you integrate that with an advertising effort?

Well, data is going to be a huge part of every decision we make going forward. And we try to think about data as just like currency. Data is so valuable, and it's the integration of the data and then centralizing data around a customer experience that matters. And now if I were going to score it, I think we're in the early stages. We're in the early innings. Of course, I think if you ask me the same question in a year, I think we'll be much further along. I'll probably give you the same answer because the way you can use data, it just evolves so quickly. But just in the last -- within this year, actually, within the last couple of quarters, we've integrated really all of the business teams who are leading the e-commerce business and the store business. And at points in time, you'd almost feel like we were running 2 businesses independently and at times analysts competed with each other. Then over this last year, the 2 teams have come together. So the supply chain team has been integrated. The merchandising team, probably most important, most central to the strategy has been integrated. We've now got one marketing team, all thinking about a customer strategy in lieu of thinking through things as a channel strategy. So starting with the customer, we've made a lot of progress identifying the number of customers that we have at an individual level. As you know, we don't do loyalty programs. We've always worked on an everyday low price philosophy, which gives access to all customers or equal access to all customers the low pricing that Walmart has to offer. And so identifying people at the customer level was never a priority. But now with people that are shopping digitally and the improvements we've made in the digital experience, as you said, Walmart Plus is another way that customers will get to know Walmart, we will get to know customers. But taking all this data and integrating it by person, that now is enabling us to do things like give you push notifications and predicting the things that are going on in your life. And we've got a lot to learn. Some we're getting right and some we've got, we make mistakes on, and we're learning as we go. But Walmart having the portfolio it does from health care to the pharmacy, to the things that you buy in your grocery basket, understanding who in your family or who's living with you is important so that we can serve you in any occasion. The sign-up process, I just went through yesterday, for the second time when Walmart Plus was going live just leading into today. We start with a 2-week free trial. But if you'll answer a few questions, then we'll give you the first 30 days as a trial. And the questions are just basic things. But it's a seamless process, how many people live in your home, do you have pets in the home, so just this basic information is really going to help us know exactly what it is we need to do to serve our customers well.