Walmart Inc. (WMT) Earnings Call Transcript & Summary

Good morning, everyone. I'm Steph Wissink, Senior Vice President of Investor Relations at Walmart. And as many of you know, it's accustomed to start meetings at Walmart with the Walmart cheer. So thank you for joining in on that this morning. Today, we've got quite the agenda planned for you. We have a set of presentations that will be followed by store and club tours. Today's presentations are being recorded and the information presented and the statements made may include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Please refer to our cautionary statement regarding forward-looking statements as well as our entire safe harbor statement and non-GAAP reconciliations on our website at stock.walmart.com. Doug, over to you.

Good morning. I was wanting to speed those robots up. That cheer was a little slow. Good morning, and thanks for being here again. Thanks for yesterday and last night. It was fantastic. As I mentioned yesterday, the three headlines to take away from our meeting today are first, growth. We'll continue to grow because we can serve customers and members however they want to shop. Omnichannel is the winning approach. We have a unique position and opportunity given our capabilities and proximity to customers. Second, margin. We'll improve our operating margin through a combination of productivity improvement and our mix of businesses. And third, return. We'll improve our return on investment through that operating margin improvement and by being disciplined with capital. I'll use the description of Walmart that I shared last night to talk about all three points. Let me start with our people. Nothing happens that isn't accomplished by our associates. Today's Walmart is about 2.1 million people. We're united by our purpose, values and culture. We're running stores, clubs and e-commerce businesses in 20 countries. We have sourcing associates living in an additional 13 countries, and we're leveraging skill sets insight from all over the world. We have a broad and diverse team that brings a variety of expertise. It starts with our associates at the frontline, serving customers and members in our stores, clubs, supply chain and technology areas. As you know, we've made important investments in their wages, benefits and incentives as well as their educational opportunities over the years. Big picture, our reward system is designed to create a ladder of opportunity. We want to build careers not just jobs. Retail jobs have always had higher turnover than in most industries, and that's still true. And if someone wants to join us temporarily as many did during the pandemic, that's okay. But our goal is to keep and develop people. In the U.S., about 75% of our store club and supply chain management started in their careers as hourly associates. We invest in more than just wages. Health care coverage for U.S. associates starts at $33 per pay period. We provide up to $20,000 in support for adoption and/or servicing. A birth mom receives up to 22 weeks of paid leave. As it relates to education opportunities, in addition to our own internal academies, Live Better U enables our associates to choose from 75 programs in areas like business management and data analytics from 25 education providers, including Purdue University, Morehouse College, and Oregon State University. 105,000 of our associates have taken advantage of that since 2018. We pay for 100% of the tuition, books, fees and taxes, and associates have saved an estimated $333 million in tuition costs. We believe our combination of wages and benefits have us well positioned to achieve our growth and profitability objectives. We'll adjust as the market changes, but our current position, including our investment in education have us in the right range. We have all kinds of jobs. We have over 25,000 technology associates. We have a large number of data scientists, product managers and designers shaping our customer member experience. 46% of our global management team and 36% of our global officers are women. 29% of our U.S. officers are people of color. And we're leveraging talent from all over the world. Our Country President in Canada grew up in Argentina. Our leader in Mexico is Brazilian. And you may notice this morning that our team brings with them experience from all over the globe. We've got a strong, deep and diverse leadership team. Being people-led is about purpose, values, culture, opportunity and belonging. It's our people that make the difference. Our culture, our humanity is what differentiates us. Since we covered technology last night, let's jump to being an omnichannel retailer, and I'm going to spend a bit of time here. The whole statement is about service to our customers and members. We don't exist if we don't serve them well. Across our markets, they can come to a physical store such as a supercenter, a neighborhood market or a discount hyper like Bodega Atara or Sam's Club. They can take their phone and shop anywhere, anytime they want. They can pick up an order or they can have it delivered. In some markets, they can have it delivered all the way to their refrigerator. We've now scaled those capabilities and are well positioned for future growth. As it relates to our objective of sustained growth of 4% in our retained markets, we've grown revenue at 6% these past 5 years and 8% over the last 3 years as recent tailwinds kicked that number up. In the 3 years before the pandemic, we grew between 3.1% and 3.6%. We know there'll be variance from quarter-to-quarter and year-to-year. But regardless of the headwinds and tailwinds, we believe we're now positioned as a total company to grow at about 4% over time going forward. That growth will be enabled by our strength in physical retail and our expanding digital relationship fueled by pickup and delivery. We'll build on that digital relationship with our first- and third-party e-commerce assortment and general merchandise in particular. We're leveraging our advantages while strengthening our position where we have room to win market share in areas like e-commerce, apparel and hardlines. We'll do that by growing our assortment, improving our app design and focusing on customer and member NPS. We're now in a phase that is less about scaling store pickup and delivery, e-commerce assortment and e-commerce FC square footage and more about execution and operating margin improvement. Sorting out which part of an order comes from a store or club, which part comes from an FC and how they work together to enable a delightful customer experience requires a supply chain that is connected from a data and software point of view. John illustrated this yesterday afternoon, and you saw a piece of it in the DC. We're now able to fulfill customer needs with a flexible connected omnichannel network enabled by data. Membership is the customer's preferred way to pay for delivery and it creates a lot of opportunity for us. It deepens engagement, it helps enable personalization and enables us to offer more services to our members. Bringing this all together to unlock a new phase of growth requires putting the customer member first and then working backwards to optimize the math, the financials. We're doing this today and we see the improvements in efficiency and margin. We see the opportunity to accelerate that progress with investments in supply chain automation, which includes data, software and robotics. We'll improve item location, out-of-location accuracy, in-stock levels, unit economic costs and delivery speed. The combination of sales growth, productivity improvements and business mix changes will enable us to grow profitability faster than sales. E-commerce starts with an owned inventory first-party assortment. Our contribution profit in first-party e-commerce merchandise, calculated as gross profit less variable costs, has been improving due to mix with apparel and home being a larger percentage of the total. The addition of third-party assortment through the marketplace increases selection for customers and strengthens our business model. The combination of marketplace fees, advertising income, fulfillment services and data monetization, diversifies our income streams and helps us drive incremental profit growth. Combining our physical footprint from stores, clubs and our supply chain with new services and better technology and you get the leading omnichannel retailer globally. More than ever, we're taking advantage of benefits across segments as a total company in the areas of talent, knowledge transfer, enterprise services like sourcing and technology, including back-office software solutions. This is not just a U.S. brick-and-mortar business. We've built a set of mutually reinforcing businesses that drive growth and engagement from customers and members. Our 5-year plan calls for us to grow profitability faster than sales. We know where our price gaps need to be, and we'll manage them as we grow profit faster than sales through productivity and business mix. As it relates to capital investments, it's exciting that we have so many places to invest in our business and earn a strong return. Around the world, we'll invest in remodels and we'll open some new stores and clubs here in the U.S. as we've continued to do internationally, in particular, across Mexico and Central America. We'll build out a last-mile fleet of vehicles here in the U.S., and we'll leverage our Spark driver delivery platform. The bigger and newer news, the supply chain automation investments, have attractive returns individually and in total. Think of these as automated storage and retrieval systems in four forms. There's one type and partner for our ambient centers like you saw yesterday. There's one for perishable food, there's one for e-commerce FCs, and there's one for market fulfillment centers or MFCs. Please come and join us in [indiscernible] in June for shareholders, and we'll show you an MFC and share our latest thinking on store remodels. As it relates to the automated storage and retrieval systems, we've taken enough time to prove them out. It wasn't easy. Teams and engineers and operators put in years of work on the software, kept continuously proving the hardware and assembled new and existing data sets to make it all happen. And we're getting faster at converting. The first DC took about 12 months to complete. The most recent one, in 6 months. We'll keep improving in all those ways, and we'll keep making those assets meet or beat our financial and operational expectations as we grow. This isn't a leap of faith. It's a methodical building of our next-generation supply chain. All of that comes together to help us deliver our purpose: We're dedicated to helping people save money and live better. Our strategy is simple: It's to bring this purpose to life for our customers and members. We're convinced that value, consistent everyday low prices earn trust. Customers don't have to worry that they'll see a lower price on an item they purchase the next day or the next week. We aren't playing a game with them. And at the same time by reducing the volatility of high-low sales activity, we avoid promotional markdowns and extra labor and other costs that come along with inventory surges. We enable our merchants and suppliers to focus their energy on innovation that will result in better prices and better products for our customers and members. They can spend time on availability, new items, improved packaging, more sustainable products rather than on advertising markdowns and moving sale inventory around the store. It's a trust-building everyday low-cost approach. The combination of stores and clubs with pickup and delivery enables us to save people more time. The shopping experience, especially as it relates to convenience is how we've driven so much growth in recent years. And as we learn how to save people even more time, it will propel our growth in the future. We're encouraged that our recent survey results show a strong score on price and an improved score on convenience that's almost as high as our score for value. When it comes to our opportunity to serve with healthcare, we'll build on our pharmacy OTC optical and hearing businesses, along with the Walmart health centers, where we're learning the right set of services. With financial services, we've offered products to customers for many years. And we're excited about the opportunity across markets to digitize those and provide the right suite of services at their fingertips. Our primary focus is and will always be on retail. We're merchants. But we've grown large and successful service businesses over the years, and they're complementary. In summary, we'll grow our top line, improve our margin and improve our return on investment. That's reflected in our 5-year plan. We think growing a company of this size in the 4% range over time and growing profit faster than sales is achievable, and that's what we're setting out to do. The strategy we've been working on for years has put us into a position to see more benefits for shareholders. We're really excited about it and feel blessed to be part of this company. Thank you for your time. Please welcome John David.

Thanks, Doug. Good morning. Doug has given you a sense of our ambition to shape and lead the future of scaled omnichannel retail. Now I'm going to share with you how that translates into our financial objectives and our investment priorities. We have the building blocks in place to define the next chapter of retail and expect to do so while driving strong growth in shareholder returns. As you experienced yesterday at our DC and you'll experience today in our stores, we're investing in ways that strengthen our existing business, our people and our unparalleled network of stores, clubs and fulfillment centers. But we're also investing in our future growth, our e-commerce platform and the high-value initiatives that are made possible because of it. Together, these create an unrivaled global retail ecosystem that has significant competitive advantages, and we believe will drive improved margins and cash flows. Let's start by looking back. Over the last 5 years, the business has delivered 6% sales growth and 3% operating income growth. And at our last Investor Day in February of 2021, we outlined a plan to achieve 4% sales growth on average with greater than 4% operating income growth. Since that time, our compounded annual growth in sales and operating income has been 8.2% and 4.8%, respectively. Higher inflation, as Doug noted, has been a partial driver of our top line, while at the same time, pressuring the mix of our business, putting pressure on the bottom line. What's not obvious though, and this delta between sales and operating income over the last 5 years is the intentional reinvestment in critical areas of our business. These were investments to strengthen our competitive position. To help quantify this, roughly 1/3 of this gap can be explained by our investments in e-commerce and technologies that are now powering growth in our omnichannel ecosystem. The remaining 2/3 of the delta reflects investments in wages to support our people and prices to solidify our EDLP approach, linking directly to our position of being people-led and our purpose to help customers save money on everyday essentials. Retail has changed a lot in the last 5 to 10 years. And the change over the next 5 to 10 years is likely to be just as significant. Customers are demonstrating preference for multichannel offerings, convenience, value and selection. And up to this point, for most, it's proving challenging to provide all of these things at attractive economics. What's important to understand is this, the investments we've made in people, price, e-commerce and the high-value technology capabilities are why we are at an inflection point today. The benefit of any technology platform is being able to scale it at a lower marginal cost. The investments in our supply chain, coupled with the retail ecosystem that we've created, are what we believe will allow us to realize more attractive returns through operating and fixed cost leverage. When we reflect on where we are today, we believe that approximately 4% sales growth and growing operating income at a faster rate are still the appropriate targets for us for the next 3 to 5 years. The investments we've made have positioned us well and stand to generate steady and sustained growth at higher margins. In fact, we think the opportunity for operating income growth over the next 3 to 5 years could be better than what we've outlined. Looking ahead, the building blocks of our financial model are to drive organic sales growth through our omnichannel business model, diversify our earnings streams through improved category and business mix and scale proven high-return investments that drive operating leverage and improve incremental margins. Underlying our financial targets is a disciplined approach to capital allocation, which includes growing our dividend, opportunistic share repurchases and investment in our supply chain and automation, providing improved unit economics. So let's start with sales growth. Our omnichannel model is resonating with customers seeking out Walmart online and in-stores, curbside and via delivery. And we're growing mind share for our convenience, which nearly matches our mind share for price and appeals to customers regardless of their income level. Our primary growth goal in all of our markets is to drive first place [wallet] share across categories. Our multiyear growth outlook assumes that all three business segments contribute to enterprise growth. Walmart U.S. is building an ecosystem of value around its core, which is just getting stronger. Sam's has great momentum, and we expect sustained mid-single-digit growth from new clubs and membership growth. And our international segment is positioned to grow at an even faster rate with enterprise growing -- in the enterprise with high single-digit growth -- compounded growth with all major markets contributing, most notably Mexico and India. Next is category mix. We've made significant progress in our food and consumables business, consistently growing our share and deepening customer trust. We want to do the same thing with general merchandise by investing in our in-store and online experience. While inflation is still an issue and category mix pressures are expected to persist this year, we're focused on improving shopability, curation and clarity across choice-intensive areas such as apparel and home and more tightly connecting our stores and online experiences. We think that we're set up to win more share of general merchandise demand as category mix normalizes. Our global merchandise strategy reflects a combination of first party and third-party items, and we view marketplace as a key driver across our markets. To grow our marketplace business, we're focused on high-quality items and sellers, monetizing fulfillment services and activating sellers to use our advertising platform. Our marketplace experience for both sellers and shoppers is earning us a position of being more desirable for many more brands. And you'll hear more about that from John and Judith today. The next driver of our financial objectives is business mix. Many of the efforts to change our business mix were underway prepandemic but the effects of COVID cost and supply chain disruptions and inflation this year have clouded the ability to see our progress. But these underlying drivers of business mix are graduating from cost to benefit with accelerated payback supporting our view of faster profit growth going forward. I'll unpack these business mix drivers a bit further, starting with our store network. We're investing in our stores and clubs. For Walmart U.S., I hope many of you have had a chance to visit a remodeled Walmart Supercenter to see the enhancements we've made to the shopping experience. Our customers are telling us they want more value and more inspiration, more often across channels. We want to evolve our position among consumer mind share from utilities, so think price and convenience to engagement and loyalty. Sam's Club has grown 43% over the last 3 years. Our clubs have been refreshed and modernized and you'll see this today as you walk through a nearby club. Sam's is an item business, and our merchants continue to strengthen the offering across categories. Based on momentum, we're seeing significantly stronger club volumes and rising awareness and preference, especially among Gen Z and millennials. This gives us confidence as we look at opening 30 new clubs in the years ahead. And our investments in our international portfolio will continue to be concentrated in areas of outsized growth. Walmex continues to deliver steady gains based upon a portfolio of distinct formats and expanded services. India represents a significant growth opportunity with strong demographics, and we have a uniquely local approach to each. China is more digital today than any other market where we operate. And it gives us direct insight into how markets like the U.S. could look in future years. Each market plays a critical role in the reshaped portfolio, and we're excited by the growth prospects for the international segment. But today, there's a blurring between the physical and the digital worlds. This plays to our advantage. We fully believe the future of retail is omni. And we like our position with more than 10,500 stores, an unmatched proximity to customers and our major omnichannel markets. When we talk about last mile at Walmart U.S., we really mean it. 90% of the U.S. population lives within a 10-mile drive of one of our 4,700 stores. Said differently, delivery drivers need to only drive 10 miles or less to reach 90% of the U.S. population. Today in our Walmart store, you'll see how we're activating pickup and delivery at scale, emphasizing customer experience and deepening loyalty. As evidence of this, our pickup and delivery business has grown at an over 40% compounded growth rate over the last 3 years. And last year, we executed more than 200 million curbside pickups and fulfilled more than 600 million online orders. Across our U.S. network, online pickup and delivery customers shop more frequently across all channels, including in-store, and they spend $1,000 more per year than -- with Walmart than a traditional customer. And online pickup and delivery has proven to be a key source of sign-ups for Walmart+ with nearly 50% of members coming from this channel. We pursued an aggressive digital growth strategy over the last 5 years. E-com now accounts for $82 billion or 14% of our net sales, and this compares to $25 billion or 5% just 5 years ago. And the run rate in monthly volume -- recent monthly volume is even higher, growing year-over-year in the high teens, putting us on a path to reach $100 billion in the very near term. Importantly, we are already seeing a directional change in our digital margins as we leverage our stores to fulfill, activate the local delivery networks and scale up high-margin value streams such as advertising, data, memberships and marketplace. What's important to understand about this business is that we don't have to squint our eyes or cross our fingers to imagine profitability in this channel. In Walmart U.S. today, we have a positive contribution profit in our e-com business, and we expect nearly 200 basis points of additional improvement in the coming year as a result of the investments that we've made. Sam's has a profitable e-com business today. And Flipkart has a positive contribution margin, which continues to expand, supported by a healthy category mix in their fast-growing ads business. And in China, where we have a roughly 50% e-com penetration, predominantly fulfilled from stores and clubs, we already have a profitable e-com business. By incorporating omni strategies, and our connected ecosystem of value drivers, we see the potential to have enterprise-level e-commerce profitability in the next few years. I talked earlier about the investments we've made that have helped us with profit. These investments have funded and are now scaling a portfolio of highly attractive growth initiatives that reinforce our core retail model and will directly reshape e-commerce and enterprise profit trajectory. This set of initiatives drive stronger returns and includes sophisticated advertising gateways, insight-rich data portals for both suppliers and sellers and next gen loyalty and membership pillars for customers in many markets. We've made choices to orient our focus towards growth initiatives with higher structural margins and higher sustained returns that also fortify our core. This group of high-value initiatives, high-margin initiatives is advancing from startup to scale and seeing meaningful increases in contribution margins. Collectively, these initiatives generate margins that are appreciably higher than our existing business. And we expect to begin -- will positively influence operating profit growth relative to sales this year and accelerate in future years. To this point, we've talked about how our investments are reshaping our profit outlook. You might be asking, what about reinvestment in people and price? We are a people-led business, and we fully believe in a future where people are at the center of how we differentiate our value proposition. We're winning customer mind share for price and convenience, and we aspire to win for service and experience as well. Retaining talent and establishing career opportunities for our associates remains a central objective for our growth ambitions. We believe over time, the number of associates will grow, but at a slower pace than in the past as we complement people growth with technology and automation. We're confident we can make the investments needed to remain competitive in a tight labor market while also growing our profitability. As people are paired with technologies that improve their efficiency and productivity, we realized improved unit economics and more satisfied associates. On price, we've invested in our price to reinforce our EDLP position. We will continue to advocate for customers and reduce prices when possible. We're comfortable with our current price gaps to the market. It's something we monitor very closely. And we're confident in our ability to win share by maintaining the price gaps we've established. Customers across income cohorts and especially Gen Z and millennials, are increasingly choosing to purchase quality, affordable brands that we own, including members market Sam's and great value at Walmart. Private Brands. Private brands now account for more than 20% of our sales at Walmart and over 30% in Sam's Club. And at Walmex, private brand penetration reached 15% last year. Where in departments such as home, private brands are growing 4.5x faster than branded products. Now let's change our focus for a second. Let's talk about capital. We previously stated that we expect our CapEx to be at 2.5% to 3% of sales. And this year's CapEx to be flat to slightly up from last year, which would be at the upper end of that range. That is still the right way to think about our business over the next few years. This is what I want you to understand, we view capital allocation as every dollar having to compete for the best return. And we view our capital expenditures through the lens of return on investment. The investments we've made over the last few years in things like store-level technologies and supply chain automation are yielding returns in excess of what we originally contemplated. Further scaling precisely these types of investments is what will allow us to realize a profit inflection. In the next 5 years, nearly 90% of our CapEx will be in these high-return areas like e-com, supply chain and store investments. Our capital structure and our cash flow generation are a competitive advantage. And we're allocating capital responsibly with a bias towards organic growth and improving margins. We're going to be very return focused. We want our return on investment to go up every year. And we believe in our planning horizon it can meaningfully improve. Underpinning these growth drivers is a focus on improving unit economics. As you observed yesterday, we're building a scaled system of supply chain capabilities that requires a combination of data, software and robotics. The investments in automation are already far exceeding our productivity targets, in some cases, 30% better as we're able to better flow inventory at lower cost with less manual labor. By the end of fiscal year '26, so in 3 years, we expect that approximately 65% of our stores will be serviced by automation, and we estimate approximately 55% of our fulfillment center volume will move through automated facilities and unit cost averages could improve by approximately 20%. Importantly, as you'll see during a store visit today, this automation has been designed with a human-centered view, improving how merchandise arrives at stores. Our targeted 4% compounded growth implies that over the next 5 years, we'll add more than $130 billion of sales on top of our $600 billion base today. Automation enables us to improve our throughput at lower cost and to change how our associates work in new and better ways. Most notably, it allows us to reallocate labor hours closer to the customer to improve both the customer and associate experience. Let me take a moment to translate these objectives into simple financial outcomes. Core sales growth, measurable business mix shift and a lower SG&A ratio will be the key sources of profit advancement over the next several years. We expect to achieve sales growth in the midterm in the 4% range. In some years, it may be more. In others, it may be less. But on average, we expect it to be around 4%. We're improving our category mix and expect gross margins to meet or exceed prior peak as economic recovery in future years supports a more normalized category mix and automation drives efficiencies and improving unit economics. We expect the benefits to business mix to be most notable in the pace of gross profit improvement and a level of operating leverage. Many of the fixed costs needed to execute our higher-margin streams are in place and our marginal cost to grow is lower. I've given you a lot to think about today. To summarize, we like our position. We like our position because we see revenue growth across a diversified set of drivers, improved category mix and an increasingly accretive business mix, coupled with improved unit economics. This is all fueled by supply chain investments with attractive payback cycles. We expect operating income to grow faster than sales. But as you've heard, we have drivers that could push that growth to levels twice that. Our management team is motivated and incentivized to execute. And we're focusing on fewer, more concentrated initiatives that reinforce our competitive advantages and can change the profit trajectory of our company. Now we'll bring up our segment leaders to connect our vision and financial objectives to their strategies and priorities. Kath McLay, CEO of Sam's Club will start followed by Judith McKenna, CEO of Walmart International; and John Furner, CEO of Walmart U.S., will close the session. Then we'll all be back up to take your questions. Thank you, Kath.

Well, good morning. I'm excited to share with you today a little bit about Sam's. I don't know that in my entire career I've ever had such a compelling story to share. So it's a great opportunity to kind of unpack what's been happening at Sam's. It's been driving this growth. This Friday, it's our 40th birthday. And this last chapter has been a real chapter on growth. On April 7, 1983, Sam opened our first club in Midwest City, Oklahoma. And we have come such a long way since then. In FY '23, Sam's Club U.S. had record sales of $84 billion across 600 clubs in the U.S. and Puerto Rico and online. As John David said, over the just past 3 years, our net sales have increased 43% and we've been on this streak of 12 consecutive quarters of double-digit comp growth. We continue to set record highs for membership with strong renewals, including our tenured renewal rate, which is in the low 90s, which is in line with industry standard. Our membership has grown nearly 30% over the past 3 years, and we're attracting an unprecedented number of millennials and Gen Zs. We've actually added so many members. It's like we've added clubs without actually having to build the physical clubs. And we've grown channel share without expanding our physical footprint. So as we turn 40, Sam's Club is growing. And we're doing it with the attention to detail of an experienced retailer. We are clear on our value proposition, and we're disciplined in the way that we execute it. Over the last few years, we've invested in wages, prices and our fleet standards. Every week, key leaders meet together in our trade meeting and analyze the important basics of our business like club standards, right down to the gloss on the floor of each club; price leadership, including a daily basket of 150 items directly comparable to our competition; membership feedback on products that they love as well as ones that they don't; and convenience on indicators such as NPS and metric performance, on delivery speed and completeness of orders. You see when you get the details right, the growth follows. So looking back at FY '23, we entered the year with momentum, and we didn't slow down. Sam's Club delivered strong results with comp sales up nearly 11%. We saw strength in both transaction and ticket. And e-commerce performed well, up 22%, and it's growing in a way that's profit positive as members continued to take advantage of conveniences like curbside, ship to home, Scan & Go and now Scan & Go Cafe. Our membership income rose by 8.6%, and we like the strength of our higher tier plus membership. Despite reporting a modest year-over-year decline in operating margins due to markdown, supply chain and LIFO, we rebalanced our inventory to enter this current fiscal year in a strong and healthy position. So as I noted earlier, Sam's Club has been on a roll. Our 3-year compound annual growth rate is 12.8%. And again, that's without building clubs until now. Because of that strong top line and the membership results over the last couple of years, we want to offer that Sam's Club experience to more people in new markets. So we're expanding our physical footprint. In January this year, we announced plans to open at least 30 new clubs with the first to open next year right here in Florida. We're also trying to invest in and modernize our supply chain. We'll add new distribution and fulfillment centers across the country, including five this year. One of our first locations will be in Atlanta. I'm excited about the strategic growth investments and have confidence in the returns we'll see from our investments in clubs, DCs and FCs. So it's worth asking, how do we get here? Well, let me walk you through our strategy. Sam's Club is an item-driven business. We offered a limited number of great items at disruptive prices. It is a really simple and effective formula and it powers our growth. We want to beat the competition on quality, we want to meet them on assortment, we want to lead on price, and we want to differentiate on convenience. So last year, to better explain our strategy and how it all comes together, we introduced our Sam's Club flywheel. So if you see that slice at the top, that's build a member obsessed culture. And that, I would say, is the key to our future growth. Our flywheel starts with the member, and it flows from there. If we build a member-obsessed culture, we can't help but design and curate items and services that our members love. And if they love our items, we can't help [buy] deep and provide low prices. And if we have great items at disruptive prices and we open up multiple channels for our members to shop, then we can't help but drive our membership and revenue. So then we can invest more into our associates who then, in turn, take better care of our members, reinforcing that member-obsessed culture. Our flywheel is a reflection of our priorities as a business and the evolution of our strategy as we compete and grow. I'm especially proud of the way that we've lifted the bar on quality. Our merchants have done a great job, and we believe it's our time to actually lead. We're seeing great progress on quality when it comes to our private brand Member's Mark. It's now a multibillion-dollar business representing more than 30% of our sales, excluding fuel. And if we're a stand-alone company, it would rank in the top half of the Fortune 500 list, just Member's Mark branded alone. Last year, we relaunched Member's Mark as a more sustainable, purpose-driven brand. We say that it's made with the member and the planet in mind. In other words, we want to sell the highest quality items that are also sustainably made. It's part of our overall effort to be a regenerative company. So let's take a look. [Presentation]

I think Member's Mark may be unique among private brands and that it's actually made with our members as well as for them. So we have this group of about 40,000 members. We called them Member's Mark community, and they actually influence the design and flavors of the items that make their ways to the club. So I'll give you an example. Our private brand chocolate-covered almonds, originally rated below 4 stars with members. And that for us is not good enough. So our product developers took our members' feedback, and we started over from scratch. They developed a new formula and they shipped it and the national brand to the almond lovers in our Member's Mark community, and they tried both. And the new formula now outperforms the national brand. The star rating for this item is now 4.7 out of 5 and sales are reflecting that change. I think you have some of those almonds on the table in front of you. I hope you enjoy them. Another Member's Mark category where we've made great progress as well is apparel. Apparel sales of our private brand have increased more than 30% year-over-year, and we've seen substantial growth in Net Promoter Scores for overall apparel sales from our members. So they're telling us that they like what we're offering and what they're buying. Member's Mark is our #1 seller in apparel as members are responding to this improved quality as well as trend relevance. We're also continuing to invest in brand partners that our members love. In the past year, we've added national brands like Lands End, Christian Siriano, and Vince Camuto and members are responding. Total apparel sales have increased by nearly 12% year-over-year, even as we've reduced SKUs to make it easier to shop as well as to stock. We've had more apparel sales than ever with fewer brands because we had the right brands. So I don't think it's a coincidence that as we've added new brands to apparel, relaunched and improved the overall quality of our private brand and focused on conveniences like Scan & Go, curbside and delivery that we're actually attracting a much younger demographic. I mentioned those digitally savvy Gen Z and millennials earlier. Well, over the past 2 years, millennials and Gen Z have grown the fastest with our member base, increasing at some 65% and 120%, respectively. And not only are those cohorts growing, but combined, they have the highest growth rate in sales, they are more likely to have joined us organically, and they have the highest digital engagement with us, including the use of Scan & Go technology. So just to dive in on Scan & Go a little. Overall, more than 1 in 4 of our members now shop in the club with our digital app Scan & Go. The NPS on Scan & Go is 90, which is phenomenally high. Members who use it are more likely to renew because it just delights them. Let me show you how all of this fits back into our flywheel and feeds our momentum for more growth. So by designing and curating items members love, in this case, apparel, and providing easy access digital conveniences like Scan & Go, we attract members like our Gen Z and millennial cohort. These cohorts provide good examples of the digital relationships we're developing with our members. These relationships generate data, data that Sam's Club uses to enhance the value of our membership. Because of data, we know our members better than ever, that allows us to lean into personalization and rich performance tracking. And this leads to lucrative relationships with our third parties. An example of this is our recently launched digital advertising platform, which we call MAP, which stands for member access platform. It's growing fast and has a high operating margin. And we're excited about MAP's ability to enhance our members' experience while also contributing to profitability. Because of our rich first-party data, we can track the return on digital ads by a member shopping behavior for both online as well as in club. And I think that's the first for the industry. So as our flywheel has spun faster, we've invested back into the business to fuel further growth. We've enhanced the look and feel of the entire fleet of clubs making them brighter, easier for members to navigate and more colorful. Both our members and our associates love it. We've invested in technology to help us better serve our members and enable our associates. Our inventory scrubber, which you can see on the screen, takes 22 million pictures a day, automating some 35% of inventory management tasks. As we've rolled out new technology, we've made jobs more efficient. That's enabled us to create new jobs while keeping our headcount nearly flat. As a result, we've been able to invest in wages. Our average wage rate, including incentives, is $19 an hour. To underscore that, over the past 3 years, we've increased our top line by 43%, we've kept our headcount nearly flat, and that's allowed us to invest back into our associates. And I'm really proud of the way that we've invested in them. We've developed work schedules that fit their lives, we've created career ladders that opened doors for them, and we're fostering a safe and welcoming work environment. Like the rest of Walmart, we are people-led, tech-powered business that saves people time and money. But I also think Sam's Club is different in important ways, especially when it comes to the warehouse membership business. We've developed unique relationships with our members and suppliers that should result in continued growth and market share. So I want to close with five ways that I think Sam's Club stands out to generate growth, operating margin and returns. One, members love our value proposition of quality items, disruptive prices and convenience. We want to make that value proposition available to even more members, so we're growing our physical footprint as we continue to grow e-commerce. Two, we work with and for members to design the quality items they want. By soliciting their feedback during product development and design, we're highly confident of success when we go to market. Three, we're attracting younger members who have a more digital relationship with us across all channels. Fourth, our e-commerce business is growing in a way that is profit positive. We're using our physical footprint to optimize our digital approach. And lastly, we're using our data to work differently with our suppliers and see opportunity for growth with our member access platform. And we have insights on how our members shop and our suppliers love it. Our confidence about the future at Sam's Club is greater than ever as we continue to attract the next generation of digitally savvy members who trust us to be a partner in their lives. We're building a strong relationship with our members that they can't find anywhere else and seeing a path to being #1 in the growing club channel. Thank you for your time and interest in Sam's Club. I'd now like to invite Judith McKenna to the stage.

Thank you, Kath. And happy birthday to Sam's Club. The cake last night was fantastic for anybody that got a chance to try that. Good morning, everybody. It is a real pleasure to be here. As you've been hearing, our company is well positioned for growth, margin improvement and to strengthen our return on investment. Our international markets outside of the U.S. will contribute to all of these. In that context, what I'd like to do is tell you a little bit about the role that Walmart International plays for the company overall and the opportunities that being a global business creates. Today, we're already the world's largest international omnichannel retailer. And we provide a source of long-term and sustainable growth for Walmart. We have a path to grow to approximately $200 billion in GMV over the next 5 years. And at the same time, we will more than double our profits. We also expect our digital penetration to more than double during that time frame. Now this is the first time we've talked about our ambition, but it's really important. Because without understanding that, there is a real temptation to see the complexity rather than the significant opportunity, which Walmart International brings. Over the last few years, we spent time radically rearchitecting the portfolio. We've made some really bold changes, which give us confidence in our future. And the results can already be seen with our 9% sales growth and 9% profit growth last year, which followed strong numbers the year before. Back in 2018, our sales were $120 billion, which then was about the same as our GMV. We divested of our businesses in Brazil, Argentina, Japan and our largest business at the time, which was Asda in the U.K. In round numbers, they accounted for a production of about $40 billion of sales. But in parallel, we invested into a majority stake in the Flipkart Group in India. Today, we've already made up a significant proportion of those sales. So what's the rationale for the moves? The strategy is really simple, it's strong local businesses powered by Walmart. And we use that as our North Star to assess where we could operate most effectively. Now it was clear that all of our businesses would need to become digital and omnichannel, and that required investment. But we knew that if we made choices, we could make those investments needed in those businesses that showed the highest growth and return potentials in the long term. So we made deliberate choices to focus our footprint and to focus our resources and our talent where it mattered most. We now operate seven businesses across 19 countries: Canada, Chile, China, Walmex, Massmart, Flipkart and Phone Pay in India. Excluding the U.S., these provide access to 40% of the world's population as well as more than half of global GDP growth outside of the U.S. over the next 10 years. That means we have meaningful scale concentrated in the right places. Our 500,000 amazing associates around the world serve 80 million customers each week. We operate 5,200 stores, but 96% of them are in three primary formats: Walmart, Sam's and our Bodega format in Latin America. And built on that foundation, we have e-commerce platforms in every market. Today, we already have 21% of sales digitally. And we plan to double that number over the next 5 years. And as you heard from John David, our China business is already almost 50-50 today. This omnichannel breadth is unparalleled because it gives us access to customers across generations and income levels. We've got really big ambitions. But as my boss -- my old boss, Greg Foran used to say, you get one point for talking about it and nine points for actually doing it. So what are we doing? We're bringing our purpose of saving people money so they can live better to life. We're doing that through that strategy, strong local businesses powered by Walmart. But what does that actually mean? Well, each of our businesses is relevant to and tailored for the customers and communities we serve. And each is anchored in value, access and trust. And that core is amplified by their ability to leverage the unique benefits of being part of Walmart. Simply put, that means we're common where we can be but only different where we need to be. And one of the most important ways we're common and maximize leverage is that we have shared strategic priorities across international and in fact, across Walmart being market leading in omnichannel, building scaled global marketplaces and growing complementary and reinforcing new businesses and income streams. When those three priorities are combined into an ecosystem, they actually become even more effective. So let's let me take a minute and maybe give you an example of these using Mexico and India to talk about it. Our Walmex business is listed on the Mexican Stock Exchange and operates more than 3,700 stores across Mexico and Central America. By the end of this year, our sales will have doubled since 2014. And since then, that business has delivered a TSR of 162%. As of yesterday, it had a market cap of $70 billion. Walmex is a remarkable business. It's dedicated to finding solutions for their customers, but at the same time, accelerating growth and returns. In Mexico specifically, we're providing access to goods and services for the country's 130 million people, half of them are under 30. And we're building an ecosystem that connects customers to the benefits of the digital economy across stores and online. Just as in the U.S., the proximity of our stores to the population is high. And today, we're already the leading omnichannel retailer in the country, in fact, in the region. We're building on our omnichannel offer from stores with a first-party extended assortment and a growing marketplace seller community, including very recently cross-border sellers. That might sound familiar. It should. We're using the same playbook as the U.S., and we're scaling it fast. In addition, though, we have a digital wallet called Cashi, and we recently received approval to purchase a small Mexican fintech company, which will help us on our journey to become an open loop. One of the things I love about Cashi and why it's tailored specifically for Mexico is that you can use it even without a bank account. We also have a mobile and telecoms business called Bait that today has 8 million total users, and offers cheaper mobile data for customers right across Mexico. And we recently launched a health membership program to provide first contact health care for less than $2 a month. And our Walmart connect business there is growing into being one of the biggest major companies in Mexico. But much of the work that Mexico is doing is built on a common capabilities, technology, such as the glass e-commerce platform, Walmart fulfillment services and the marketplace global seller platform, common processes such as maximizing store pick efficiency or optimizing store layouts. And of course, product, including thank you to Sam's Club because we have items in Mexico that come from Sam's Club in the U.S. [ Guil Loureiro], our CEO in Mexico, who was previously CEO of our Brazil business, and his team recently hosted an Investor Day. I think they summed up Walmex well. They said our ecosystem will generate mutually reinforcing benefits for our customers. We're not just creating new businesses. We're creating an ecosystem, which is bigger and more valuable than the sum of the parts. And I find that really compelling. But let me turn now to India. In India, we have digital businesses. But just as in Mexico, we serve people throughout the country, where and how they want through the nationwide networks that Flipkart and PhonePay have built. Both platforms are anchored in scaled world-class technology solutions that are built for India. And increasingly, we're seeing opportunities to leverage that technology, whether it's the Flipkart ad tech platform in Chile, the PhonePay fraud detection system, which we'll use and adopt for Cashi in Mexico or Flipkart supporting Massmart in Africa to build marketplace platform. The leadership position that each of these businesses has means that we're even more confident today than when we very first invested into them. The scale of the addressable market in India is significant. 1.4 billion people with a median age of 28, and it's forecast to be the world's third largest economy by 2030. It's estimated that nearly 700 million people there are already online, but only about 1/3 of them have ever made an e-commerce purchase. Today, Flipkart is the e-commerce market leader. It is truly customer-centric with a deep engineering capability and a DNA of solving problems for the Indian customer. It's a really powerful example of how marketplaces and new businesses combine to create customers who can get value, access and trust. Flipkart's core commerce platform continues to scale. It's winning first-time e-commerce customers from Tier 2 and Tier 3 cities and beyond. Its app is opened 2.4 billion times each month. And we recently added online health care and travel to provide even more access for people in a more trusted environment. But at the heart of Flipkart is eKart. This was developed to solve the unique logistical challenges for e-commerce in India. It is a pan-India supply chain network, which includes 35,000 Kirana partners, think of small mom-and-pop shops, who can help provide last-mile delivery capabilities closest to the customer. It also provides low-cost fulfillment services for sellers. And it recently began to use its network to provide logistics to third parties. As Flipkart continues to scale, the business model is strengthened, including its fast-growing ad tech business. The business now has a positive contribution margin that is continuing to expand. But we're pleased, particularly with the progress that they're making to become operating income positive. PhonePay continues this theme of access value and trust. They're building on their massive core payments platform, the rails, which now link 450 million users to 36 million merchants and generate over 145 million transactions a day. In the year after we invested in them, TPV, which is total payments value, was around $70 billion. This February, on an annualized basis, it hit the remarkable number of $1 trillion. Payments are driving revenue growth. And we're building on that with an increasing range and depth of financial services for both customers and merchants. For auto insurance, we're already the second largest digital provider in India. And we've recently launched a fast-growing gateway for merchants. It's a powerful business model. And we announced in January a funding round for PhonePay with blue-chip investors, which valued that business at $12 billion. We're comforted in and really proud of both businesses. Given the growing financial strength of their respective cause, we have clear path to profitability for both and at the right time to IPOs. But I've only talked about two of our markets, but it is also important to note that by 2027, 1/3 of that profit will come from outside of these two. We really like the markets that we're in today. And each of our businesses has a unique and important position in our portfolio. So finally, that brings me to leverage. This is one of the areas I'm most frequently asked about. Our strength in Walmart International is that we're not a one format or one platform retailer. We're deliberately operating local businesses specifically tailored for the customer flexible in their approach, which are strengthened by the global leverage that we've been able to create in recent years. We think of leverage in four dimensions: Technology, knowledge transfer, talent and services. I've referenced examples of the first three, as I've talked, but let me briefly share one more regarding services, and that's our global sourcing capabilities. As John David and Doug shared, our company will grow, improve operating margins and improve returns. Not only is Walmart International driving -- helping drive all of these, but our sourcing business is a sweet spot that hits all three. We recently began restructuring the Walmart sourcing organization to better serve all of our customers around the world with Walmart U.S. as its largest customer. But to give you a sense of the scale of this business, think of the equivalent to a top 5 global CPG company but truly leveraging the volumes and specifications of product across a wide range of categories in an efficient and regenerative way. Think of it like bites to barbecues to bananas. Today, they collaboratively source for over 300,000 unique items, providing value, access and trust for customers everywhere and at the same time, strengthening communities through sustainable job creation. So in summary, I'll leave you with a couple of points. The restructured portfolio is working. We're focused where it matters to drive growth, margin and returns. Our ambition is simple: To reach GMV of $200 billion and more than double our profits over 5 years. We've developed a blueprint for how to successfully run an international retailer. Our businesses are relevant to the customers and communities they serve, but they have common foundations. They have what makes Walmart, Walmart, and they have the huge benefit of global leverage. So that approach and our results to date give us the confidence that we can achieve the compelling financial ambitions that we've set out. But I will say that none of this would be possible without the brilliant teams around the world who make all of this happen. So I'm going to end with a huge thank to each of them for making a difference. Thank you. John, over to you.

All right. Thank you, Judith. It's a great message. Well, I'm excited to be back in front of you again to talk about the U.S. business and a lot -- a lots happened since we had a meeting like this just a few years ago. And I want to start right where Judith closed and talk about how proud I am of the team. Just about, I guess, 2 or 3 weeks ago, we had around 7,000 of our leaders together in Orlando, not too far from here. And we put up this number of $79 billion in growth, and it's a pretty special number because that's our growth just over the 3 years. But because we're in Orlando, we put it in perspective, and I just told the team basically what you just did is you grew an entire Disney over that period. And we did it, with the same kind of stores and they really have won their distribution center. So really, I just want to say hats off to the entire team for what they did. It's been a unique period, and we had things like tailwinds. We've had inflations, but the team really deserved the credit for what they did. And I was also really, really proud last year of the reaction the teams had to the inventory challenges. Now first, the team identified what was happening quickly. They stayed positive. Every week, we go to stores and they just would have the smile on their face, and we're going to work through it. But the team worked through 100,000-plus containers of inventory over the first half of the year, and they got us into a really good place, and I'm really proud of them for what they did. But it's not all just a coincidence that these things happened and the growth happened. Despite the challenges and everything that happened in 3 years, we took major steps to become an omnichannel organization. And that began in 2020, really in the middle of the year, we made the decision to pull our e-commerce team and our store team together into one team. And since that time, there have been just dozens of changes like we talked about one app and moving to the glass platform, launching Walmart+. And there's just a whole list of things that you can see here. But we have one team that is leading everything from operations to stores, e-commerce altogether. And we have one team led by our Chief Operating Officer, Chris Nicholas, who is here, who leads what we call the end-to-end organization. And that would include everything from production to delivery to the customer across the chain. That includes our supply chain, including our imports, our distribution centers, our fulfillment centers, stores, last mile, even into the customer's home with Walmart and home. And we've always said at the end of the chair, the customer's #1, the customer comes first, but I want you to know that we're really working that way across the organization today. So I want to talk about our priorities, our priorities for more growth. And the most fundamental way we do that is we win in retail. That's who we are. At our core, we're merchants. We've been merchants for a long time. That hasn't changed for over 60 years. So ultimately, like you've heard this morning, we win with merchandise, we win with value, and we'll continue to work to build more flexible options for our customers. And even something like Walmart Connect that you've heard about this morning. The reason we have Walmart Connect is to connect merchants to connect our suppliers, our sellers to customers, and we can do that while improving mix. And on the fundamentals on merchandising, I'm really, really pleased with the progress. You'll see that in the store this afternoon. But quality is improving. That includes the store. It includes online. We have strong price gaps that we're proud of. And recently, I've been much more pleased with the in-stock levels that we're seeing all around the country, and that's great to see, the recovery from the last couple of years. Our store managers are in much better positioned today to be merchants and merchandise their facility. They're in much better shape on inventory. And so you know about our momentum in food and consumables, and we are going to continue to work to soften the effects of inflation for our customers. We'll continue to lean into everyday low prices, we'll lean into our rollback program. And we've invested in customer offers just this last 6 months or so in Thanksgiving and Christmas to have those meals at the same price as last year, and we're going to do the same thing for Easter right now. And we're pleased with our progress when it comes to self-manufacturing and production. We have plants in both the dairy department and the meat department. And it's played an important role, particularly the last few years in maintaining supply across the country. And one number I think is really exciting is we have today, 22 owned brands, private brands, 22 brands that are over $1 billion in sales and just eight of them alone are in the food and consumable areas. So really big number of brands. They're growing. There's a break called vibrant life in the pet apartment, which is accessories and apparel, pet beds, and it just is the latest to hit $1 billion. And then in areas like beauty, we have new brands like the Hair Lab and Relub -- revolution. And pet and beauty both are important categories because they're categories where customers are looking for more options like pet costumes or other things that we've seen trend up in the last couple of years. But the teams continue to make a lot of progress in merchandising. And then we've talked about, as you know, a large part of our growth recently has come from high-end customers. And those are customers who have come to us for food or consumables during the pandemic or during times of inflation. And that's something that's happened previously when there are other dips in the economy or changes, people came to us for value. But we haven't always been able to hold on to those customers. But this time, I'm really confident it can be different because we offer so many more solutions in terms of flexibility with omni store solutions. So having these options, the flexible options paired with great product and great price and great value, give us confidence in our ability to retain these customer groups. So we're also making progress on the omni options. I mean improvements in the store with remodels. We've been growing our curbside capacity, our NPS and wait times have improved pretty significantly, and they're also improving for our delivery business. And that has led us to success with our most powerful recent tool, which is Walmart+ and we see retention rates improving. We also see higher engagement from customers and higher frequency from those who joined the Walmart+ program. Now the average member, you heard this earlier, spends quite a bit more than a nonmember. So it's an important part of the puzzle we're solving going forward for the long term. And I've also -- I'd also add that the newer customers, like our existing customers, they love the focus on regeneration and sustainability. We have a micro cycle called Built for Better, where you'll see a showcase of products that are EnergyStar certified, Rainforest Alliance certified, certified by the Better Cotton Initiative. And those are important categories as well. So John David mentioned, we're really focused on growing our general merchandise categories. And it's important. It's important both for mix, but it's also important to help us retain those new customers. They come to us for everyday little price in grocery, in consumables but when they see the latest apparel offering in stores and online or patio furniture or tools, there are a lot of great categories there that can help them rethink Walmart and rethink this in a way that they'll stay with us. And we're going to continue to invest in our private brands all across GM like Free Assembly and SCOOP. And our apparel strategy, it's really about three things: It's about the elevated brands, it's about national brands and it's about staying focused on opening price points. And it's really important we do that because it helps us reach a wide variety of customers. And then general merchandise is also a place where we are fighting inflation. Our On-TV brand is now priced 29% less than a year ago, and it's now the #2 unit seller in the United States. And then for Easter, we have over 100 items that are less than $1. So that really helps customers build an Easter basket at a great price. So another one I'm really excited about is our remodel program. And if you've been in our flagship stores in the New York metro area, you would have seen some of the changes. And those include the great brand shops that are upfront, we have digital displays, we have mannequins, we have wider aisles and we have upbeat fixtures. The customer feedback has just been fantastic. And we are really encouraged by the early results we're seeing out of the remodel program. In the media last couple of days or if you've been online, you probably have gotten a chance to see our new -- our relaunched home page. The page itself looks great. It brings the best of the entire assortment together, a lot more color. It's vibrant. And we've always said you should be able to walk into a Walmart store and tell what season it is. And I think you'll see that happen exactly the same way on the home page now. So really love the way this is turning out. And then you heard a bit this morning about the marketplace. 3P is a really important part of the overall portfolio. And some of the numbers, I think, that are interesting is our e-commerce selection, we're now over 400 million SKUs online, so significant growth from a year ago. And 200 million of those are in apparel and over 60 million of those are in home. And then we've seen our seller account just this year increased 50% over the year before. And when it comes to sellers, there are important services that we offer that help them be a more successful seller at Walmart. One is 175% growth in the number of sellers who are using Walmart fulfillment services and over 100% growth in the number of sellers who are using Walmart Connect. So that's a big win for us. It's a big win for our customers, and it's a big win for the seller. Additionally, we are increasingly becoming a destination for products that are made, grown or assembled in the United States. And those products represent about 2/3 of our product spend. And just a couple of years ago, 2 years ago, we decided to spend an additional $350 billion of product -- on product made, grown -- some in the U.S. over 10 years. So we're happy with the goal, but not only do customers care about this goal, it's good business as the last few years have shown. And then this item here is our new Ozark Trails bicycle. It's a great item. I saw it at our meeting we had just a couple of weeks ago, but it's a 39% price gap to the market. And then you can see that it's a [indiscernible] here in the United States. So there's just a few ways that we're going to continue to focus on winning in GM. And when it comes to inventory, I just want to add a bit more because it's been a hot topic for the last year or so, and it's key to winning in retail. So first, we feel good about our inventory position in total. You heard that in our latest quarterly results. Overall, I would tell you that the supply chain is clear, the supply chain is current. And looking at what's left, we still have some pockets of apparel. We have some clearance in stores we're going to work through. But that's all accounted for in our plan. So we're in much better shape than we were a year ago. And the impact of that is store managers are now in the position where they can merchandise their store, we can lean in the top line, they have more autonomy and autonomy with things like store level markdowns and we're becoming more efficient. So I want to talk about people. It's exciting, not only to look at the growth, but also what it means for the individuals on our team and distribution centers and stores and fulfillment centers. And when you look across the United States, over the last 5 years, we've increased the percentage of our full-time associate base to 68% and we've increased the average hourly wage about 30% to over $17.50 per hour. We promoted an average of 195,000 associates each of those years, and we've achieved an enrollment in Live Better University of 100,000 people, which is really exciting. And I'm excited about the tools -- the digital tools, the way of working. Apps like Me at Walmart and the 1 million handheld devices that we distributed to our associates has helped them migrate so much of the work they used to do in the backroom with paper and sitting at terminals out to the sales floor where the real value is added. And those are things like setting modulars, working at side counters, working inventory management, it's all in their hand. And then later today, when you're in the store, we'll show you a program called VizPick that uses computer vision and augmented reality to help associates map their inventory, track their inventory and work their inventory exceptions. One of the tools we've talked about to you a couple of times called [ Ask Sam ], which allows associates to get questions answered on the floor on a range of topics. We've had over 2.3 billion questions answered by [ Ask Sam ] just in the last couple of years. So really great uptake. And over 80% of our team are now clocking in on their handheld device when they come to work. So the third priority I want to talk about, which we've covered the last day or so is the next-generation supply chain, the network. And as we talked about yesterday, we are now able to fulfill customer needs with a flexible omnichannel network that's connected and enabled by data and automation. It's a huge step change for us. And I know you've heard the threat of data the last couple of days, and it's really a big enabler. But for years, we've been serving customers with three separate networks, the supply chains that were great at what they did operating all in parallel. We now have one network, and it's allowed us to consolidate inventory much earlier in the supply chain and deconsolidate as late as possible, many times that's at the customer's home. And a key part of the strategy is automation. You saw that yesterday. And if you ask us why automate? The answer is, it helps our customers, it helps our associates, and it helps our business. Automation helps our customers with better accuracy, availability and speed. Automation helps our associates. It results in less manual labor. And over time, we've said we'll believe that we will have the same number of associates, possibly even more, but we'll have a larger business. And there'll be new roles that will emerge that are more technical, better designed to serve customers, and they'll pay more. And then finally, automation helps our business. It increases productivity and it reinforces everyday low cost. And the key nodes in this network are the store network. They are the stores. And for years, we've said and you heard it again today that we have inventory positioned within 10 miles of 90% of the U.S. population. And that's important because we know customers want speed. And we also know that the last mile cost more than the middle mile. And the little -- the middle mile is more costly than the first mile. So having 4,700 points of distribution shortens the last mile, lowers delivery time and it lowers costs. So we're becoming more competitive on picking and fulfilling in stores. Delivery [indiscernible] stores are growing. The FCs are creating more density. We're delivering more doorsteps, garages and as I said, many times at or into the customers' home. So in the future, all of that will become more automated, driven by data and software. And one great example of this is the market fulfillment center, which is a fulfillment center that's attached to a store location. We have a few of those in place now. We have more on the way. And once we have our software integrated with the solution repurchase, the hardware solution, we'll put even more on the ground. So in several stores, we've already created the space for the market fulfillment center, either using existing space or adding on to the store. And until we have the automation in place, we've decided that we'd set up a bridge solution, which we call a manual NFC. And this is where the associates do all the picking, but it's in a special place away from the sales floor. So we've got one of these in Grapevine in Texas, and I've been there I think, 3 or 4x now where we've added this. But it's exciting to see what's happening there. So take a look at the video, and I'll tell you a bit more about it. [Presentation]

That store, you heard in the video, is fulfilling almost 3x the online orders of an average store and a 99% fill rate is outstanding. It's really great to see the innovation. And you heard also the traffic on the weekend. So shifting a lot of the work from the sales floor to the MFC, yes, it improves actually speed, but it gives more room back to in-store shoppers on the weekend. So this will be even better when we get the automation in place. And again, if you come to see us in June, you'll see some of that. As a result of this, though, we did create a new lead called the NFC lead. And [ Lynn ], who you saw in the video, we got to promote her in front of all of her peers, all 7,000 of those just a few weeks ago to the first ever MFC lead. So really exciting for her, really exciting for people. So I want to stop there and I want to bring up the two members of the end-to-end team to share a bit more. First, [ Mohanna Kala ]. Mohan leads a team called the Centroid, which focuses on supply chain strategy and automation. And then [ Pratiba ]. Pratiba [indiscernible], she leads our automation team. Welcome. Thanks for coming.

Thank you.

So Mohan, maybe start with you. We'll talk about a few things here this morning. But we've said throughout the last couple of days that data and technology are the things that tie this work together. And you've been talking about this vision of what you wanted to do for several years, and now it's all come together. So let's hear about it.

Absolutely. So we are very excited about leveraging data and technology and software and how it's accelerating our supply chain, both digitally and physically. We are rethinking our data architecture. We are rewriting the algorithms inside our planning and execution engines with an omnichannel customer in mind and a connected and flexible network. Now that means better product availability and reduced cost per customers. The smart engines that we are creating can orchestrate the flow of product from suppliers anywhere in the world to the store shelves and to customers' homes. So the impact of high product availability and reduced costs for our customers is immense. The foundational piece of this transformation is our ability to anticipate customer demand. Our forecasting engines are looking at customer demand at a finer grain than ever before across all demand types: Grocery, ambient, in-home, go local, et cetera. In the picture here, you'll see half mile hexagons, which we call pixels, which is the level at which we are predicting customer demand across all channels. Our forecasting engines will also have the capability to continuously update as they receive better signals from our stores, from our associates, from our customers as well. And then our dynamic inventory placement and replenishment engines will then use this forecast to deploy millions of items in the right quantity at the right location across our stores, our fulfillment centers and our distribution centers to support this demand and maximize product availability. John, here again, data and technology play a very critical role in evaluating billions of trade-offs to ensure inventory is optimally placed and ensure that our customers always have access to items that create price and convenience. We then leverage our suite of last mile engines, design customized service areas in towns and cities across the U.S. with the right fulfillment and delivery capabilities to reach more customers while reducing our cost per delivery. The picture here shows three stores in the Dallas market and their service areas. You will see that there are a combination of pixels. You also see that the service areas around the stores are not just uniform circles but that was our traditional approach. Now we use digital simulation tools to assign the right pixel to a store to fully service the customer demand while balancing capacity and costs. Finally, our routing engines are focused on designing smart clouds that can combine multiple order types, grocery, ambient, in-home, go local and even e-commerce packages coming from our fulfillment centers in the same trip to build density and further reduce our cost to serve. John, as you can see, we are taking a customer-centric approach to designing our supply chain and providing better omnichannel experience how we deploy inventory, how we better understand customer demand, and how we design and deliver through our last mile with the ultimate goal of helping our customers save money and live better.

And these optimization models can be used for supply chain. So we talked about flexible and being dynamic. These models enable that. They also work for other things like advertising and understand where demand can come from the signal. So it's a really great work and great to see this come together. Pratiba, you're relatively new in this role, but -- at the company a long time, including the relaunch of members market Sam's, which is fantastic. The automation is an enabler of all this. And the way that we are using -- or understanding demand, optimizing and then deciding where to deploy comes to life for automation. So tell us about that.

Yes. John, like you said, I have the responsibility for leading the innovation and automation team for Walmart U.S., which means my team is responsible for designing, developing and deploying automation across our network. But when we think about automation, we don't use automation for the sake of automating. We are being very intentional in why, where and how we deploy automation. Yesterday, you all saw an example of automation that we are deploying in our ambient distribution centers. A number of you asked me about other types of automation. And I will show you a few examples today. So first, let's start with an automated fulfillment center like this one that just opened recently in [ Joliet ], Illinois. These automated FCs are setting an entirely new precedent for the speed of fulfillment. The massive, automated storage and retrieval system that you see here is designed to hold tens of millions of SKUs, which is double the storage capacity compared to a traditional FC. What I'm most proud of is when customers' orders are ready to be fulfilled, our associates no longer have to walk long distances. Instead, they stand at an ergonomically designed workstation that is designed for their comfort and products come to them. By designing automation with our people in mind, we've surpassed our associate Net Promoter Score in these facilities. Actually, customers also feel that benefit because these new FCs can double the number of orders we are able to fulfill in a day, which means packages arrive at customers' doorstep faster than ever before. Now let's take another look at the automated perishable distribution center. These state-of-the-art DCs are just remarkable. Their primary purpose is first to receive perishable merchandise from our suppliers. Second, store the cases and pallets of merchandise in an automated storage system that is nearly 80-feet tall. And third, retrieve them when a store order is ready to be assembled. One of my favorite parts of this process is watching, how our algorithms go to work to assemble cases and create this perfect pallet. The speed and efficiency of this operation results in us being able to fulfill more than 2x more product compared to a traditional perishable distribution center. And our associates love working here because we are evolving their most physically demanding jobs in the traditional -- sorry, traditional DCs, which is our case order fillers into a tech-powered jobs like operators and technicians. Third, John, as you mentioned, we are also going to add automated market fulfillment centers to stores, which will increase our digital capacity. Automated MFCs are fulfillment centers that are built in the back room of a store. There are a few unique things about the way our MFC solution is engineered like the proprietary design of the system. Here, the bots are the only moving part of the entire operation, which makes it a more capitally efficient solution. They navigate a dense storage system that holds tens of thousands of items in totes and the inventory is separate from the store inventory. Why is this important, you may ask? Because it reduces substitutions and last minute out of stocks for our customers. When customers place their pickup and reorders, the totes are retrieved from the storage system and then brought to an associate to assemble the digital orders at workstations. Adding both manual and automated MFCs is only going to get us -- to expand our digital capacity as we continue to lean on our stores as forward deployed fulfillment centers. They are really going to help us deliver the perfect order that delights our customers every single time. So as you can see, they are not taking a one-size-fits-all approach when it comes to automation. We are looking at our facilities and designing unique solutions that match the needs of our customers, our associates and the business. And John, what I'm really excited about and encouraged by is that we are doing this with the best engineering and tech talent who are customizing our hardware and software combinations, and tailoring the solutions to best meet our omnichannel operations and make sure that we are creating a competitive advantage.

That's great. Thanks to both of you for coming up. Thank you [indiscernible]. So you can -- thank you, both. So you can hear and see what we said earlier that we're creating a flexible omnichannel network that is enabled by data and technology all throughout. So I'll just conclude by showing you the same priorities that you saw yesterday: Growth, margin, returns. We're investing in growth in merchandising, e-commerce and supply chain. And our mix is changing with retail, John David, and our newer businesses we talked about, like Walmart Connect and data. And the investments in supply chain will enable stronger returns. So Steph, I'll call you back up and we'll build on the next section. Thank you very much.

We're going to begin our Q&A. We've got three mics, one for each section in the room. I'm going to call the executive panel up. [Operator Instructions] Greg, let's start with you.

Greg Melich with Evercore ISI. I had two questions. First, thanks for the update on the history, but also going forward, the 4%. What inflation number do you assume in the top line in that 4% as you're thinking out for the next few years? And then my follow-up was on competition.

Could you give us your inflation number first, Greg, so we know?

[indiscernible] 3% this year, 3% by the end of the year.

How does that compare to what you're thinking?

Pretty close. Greg, we're assuming that this year is going to be somewhat anomalous. Still feeling the effects of higher prices last year. But hopefully, as we get to next year and then certainly beyond that, we get to a more normalized inflationary environment, not just inflationary, but overall economic growth as well.

One of the reasons why we issued guidance in the way we did is because there's volatility in that number, of course, by category, by country, by timing. So the team went through this year more than we would do in a typical year and looked at by category, by month, what are we up against? What do we think it's going to look like this year? We know we'll be wrong, but we think we're directionally in the right space. And we'll have to tell you after it's over with how it all worked out.

I guess the follow-up is on -- as we went through COVID, Amazon built looks like a couple of hundred square feet of fulfillment center capacity and their margins got crushed as they went through that. Now that they're focused on getting those margins back, how do you view Amazon with roughly the same GMV as you now competitively as you really look to focus into EDLC and driving improved returns over the next few years?

Yes. We learned from Sam Walton to pay attention to what competitors are doing well. And certainly, Amazon has done a lot of different things well as have other key competitors. But most of our focus is on what we can control, our customers and how we get better. So as you could hear yesterday and today, we're working on what does that customer and member experience look like in-store, in club, for pickup, for delivery? And how do we just keep getting at what we're doing? And it's a full-time job figuring out how to put all the pieces that we have together in a way that deliver that customer member experience and also improve economics as we go. And it required us to put data together, put software together, work differently to maximize that. So that's where our focus is.

Kate McShane, Goldman Sachs. Thanks for the meeting today. I wanted to ask about the upside, John, David, that you had mentioned from the operating income dollar growth. I think you said it could be 2x versus what you outlined today. First of all, do I have that right? And second, what accelerates or flexes to get to that high-end level?

Yes. Well, let me start with what we don't control, and that's the economy. Certainly, we don't envision that the economy that we're in today is going to be something that persists for the 3- to 5-year planning horizon that we have. So assuming we get back to more normalized growth, I think that underpins this forecast. But you appreciate with any set of initiatives that a company has, there's range of outcomes that can happen that depend upon how customers respond to that, how well we execute as a team. And so when you look at the various initiatives, and they're all different, the upside represents us doing at the higher end of that range. And then the lower end of that is more in line with what we talked about in terms of the -- just outgrowing sales, that 4%.

It's really been a unique set of years when you look back to 2020, 2021 with the pandemic emphasis and then what happened with inflation in this year that we just finished. And so when I look at what occurred the 4% and greater than 4% objective still feels like it was a reasonable thing to put in place. It still feels reasonable today. And I think some of you get really focused on the relationship of those two numbers. So we kind of joked around the 6% and 3% number for the last 5 years and could -- if we could choose, would we have changed that to 5% and 5.5%? Or none of us want to give up on growth. We want growth in units and dollars to be as much as possible as we serve customers and members better. But we recognize that, that operating income percentage does need to find its way to a higher level. We just don't want to do that at the sake of raising prices or anything that's detrimental to the business in the shorter or long term. So I think the key is how do we put the productivity enhancements in place and how do we change the actual business model with these other income streams that are very complementary to make that a sustainable change. And the pace at which we do that is the key, and there's a lot to execute. We showed you yesterday this distribution center, and we've shared that we've been working on it for 6 years. Executing that is not easy. The work on data software and the physical aspects, not easy. And it's not like we just snap our fingers and open the second center or the third enter and the fourth center, it's plug and play. It's work. So there's an execution aspect of what we've got to get done over the next few years that will reveal that outcome. We are confident in our plan and our ability to do it, but there are a lot of moving parts to actually deliver it. So it's a little hard to call the timing. I think we'll have to earn it as we go and update you quarter-to-quarter.

We're distributing the questions by section. So let's go to Michael next.

This is [ Michael Kessler ] from Morgan Stanley, asking on behalf of myself and Simeon Gutman. So first, maybe to follow up on operating margin expansion, balancing that with growing EBIT dollars. That's a big debate among many retailers. How do you think about that balance? And the fact that you expect margin expansion, I guess, does that mean that you don't see as many opportunities to reinvest to grow the dollars? Or it's about, I guess, the balancing act there?

Yes. Well, with the first part of your question, we actually look at a suite of metrics, and that's why we frame this in the way that we did, where it's not just growth. It's expanding margins and higher return on investment. And so to the extent that we get stronger sales growth, we're going to see the EBIT dollars follow that margin expansion as well. So it's kind of how we think about that. In terms of some of the investment that we made, like I think it's important to understand that a lot of these things are in place today to where we'll be allowed to actually grow at a much more attractive incremental margin, lower unit cost in terms of what exercises are realizing a lot of the fixed cost leverage that we have in the business. We'll continue to see that going forward. And as we scale some of the investments that we've made in supply chain automation, even some of the technology investments, we'll see that improve more as we go through our planning horizon. But a lot of that is in place today to help us realize those more attractive incremental margins.

Great. And John, one quick follow-up on e-com profitability. You mentioned getting there in the next few years. Can you just contextualize a little bit how much -- how close we are today to that versus how much progress you made in the last few years? And any gating factors as far as why you may not get there as fast as you think?

Sure. Let me take that. First, important to recognize that scale matters in each one of these operations, whether it's e-commerce as a channel to stand-alone fulfillment centers or the e-commerce business that moves through stores. And so what John David said that's really important is contributed profit rates are improving and the mix of business is improving at the same time. And we really look at those in parallel. So contributed profit rates, which would be what you sell a product for the cost of it, labor, marketing, other variable costs that are attached to it. As that becomes positive and grows, then you can see the path to being able to leverage our fixed cost to a point of breakeven and profitability. The second piece of it, which is second for a reason because these should be additive to customer experiences are the businesses that result -- or exist because of the result of the growing e-commerce business, which is the advertising business, data and other services that are margin accretive. So the two of those put together -- both, in parallel, or improving, and then we can see the path to profitability, but we do those in parallel. So each week, Kath and her trade meeting, I have a trade meeting and we go through the economics -- unit economics of what customers buy, how we fill it and the P&L associated with it. And then separately, ensuring that we are additive customer experience as we work on these other businesses that are great for mix.

Chris Horvers, JPMorgan. So my first question is gross margin versus SG&A. The old productivity in loop was invest in suppressed gross margin, leverage OpEx, flat operating margin. A lot of what you're talking about are good factors for the gross margin. So if you're okay with where price gaps are in the market, why couldn't gross margin expand over time?

We actually expect for it to increase. I noted that in my comments, but it's improving because of the change in the business mix of our company as these areas that John just referred to, things like fulfillment services, marketplace, all these other areas that are higher-margin advertising as an example, as those contribute more see gross margin go up. It's not going to go up, as Doug mentioned, though, because we're going to raise prices over time. That's not the method to do that. At the same point in time, as I noted in my slides, we see an opportunity for SG&A leverage as a lot of these fixed investments or these fixed costs are in place that allow us to grow without continuing to add this overhead or additional expenses around that. The unit metrics around this are much more attractive than they were a few years ago.

And then as a follow-up, can you talk about what you're seeing from the U.S. consumer side. There's been some news about the low end, maybe seeing some more pressure. Snap headwinds. Obviously, you've seen trade down into the Walmart U.S. from the high-income consumer. So how are you thinking about the consumer today? And what are you hearing in your surveys?

And similar to what we've talked about the last couple of quarters, certainly appreciative of the number of customers who have traded into the brand, we welcome those customers. And a lot of growth is happening with the pickup and delivery business from stores in addition to other channels. So I'm confident and excited about our ability to retain customers that we've been growing because of the options and flexibility we offer. Like we've talked about last couple of quarters, there has been some trade between brand and private brand. There have been trade -- trading down, trading over within protein categories and other things. And mix remains a concern on the business side for us. It's on the customer side, of course, we're completely focused on customers -- serving customers flexibly any way they want to be served, and we would always take strength over weakness in the economy. But we're positioned well, and we have a food business that's profitable and growing. And we'll manage mix carefully as we move throughout the year.

Krisztina Katai from Deutsche Bank. Just wanted to touch on what you talked about earlier in terms of the new revenue streams as part of the longer-term opportunity for Walmart. Can you expand on that a little bit? I think there was a slide that said $3 billion in contribution, including membership since FY '20. Where can these realistically grow? And to what degree do they play into the 4% top line growth and to improving the longer-term ROIC?

Do you want me to take that? Yes. So yes, you can tell from that slide that that's obviously a fast-growing but a much more significant part of our business today. And fundamentally, that sort of underlines the thesis around the business mix change. You've got these smaller parts of our business that are higher margin, but growing at a much faster rate. And so the simple math is that, that suggests that our margins should go up. We think there's significant opportunity in a lot of this, but it's sort of twofold. One is the apples-to-apples comparison of the transaction where the pure unit economics are more attractive somewhat because of like what you saw yesterday and the investment in our supply chain. We're able to do this at more attractive rates. But at the same point in time, there's a growth opportunity there. And things like delivering to customers. As you have more growth in your network, you're delivering more packages to a cul de sac you've got density improvements in the economics around that. We think that the value proposition to customers is very compelling, and we're lean in to the areas following what we hear from customers. And so we think there's a big opportunity there. And this -- to John's point, sort of it's an ecosystem of value drivers. The more sellers we have in the marketplace, the more assortment that we have, the more eyeballs are coming to our marketplace. The more eyeballs coming to our marketplace, the more advertisers want to spend dollars. All of this works together, and we think that we've got a strong foundation to help grow this.

Let's go to Paul right next to you, [ Kerry ].

Paul Lejuez, Citigroup. It's been a unique period of inflation for everybody, for the industry. I'm curious what you guys have learned about your consumer, about your competitive landscape, your competitors, how they behave during this period and how that might influence your future decisions about how to price goods as we maybe see disinflation eventually, perhaps deflation? And then just secondly, you gave a gross margin -- a GMV for the international business, a goal. I think it was a 5-year goal. I believe that's $200 billion. Anything that you could share in terms of the detail of what your U.S. GMV goal is over that same period?

Yes. Why don't we take the inflation question first. John, you and Kath and others, Judith can jump in here. But what goes through my mind is the business is uniquely diversified in an important way. We can protect opening price points and help serve customers that need us most, and I think that showed up big time on the Thanksgiving basket, where we held prices that resonated, people needed it, they wanted it, they appreciated it. And as higher income customers come to us, whether that's in Walmart or Sam' s Club, our opportunity to do good, better and best merchandising is a fantastic opportunity. We can put fashion apparel out under the SCOOP brand or the Free Assembly brand, and everybody responds to that in those income levels. I think the apparel business in Sam's Club that Kath told you about is another example. So one of the things I love about this business is how flexible it is. You can be a merchant with opening price points. You can be a merchant with better goods. You can do that in stores, you can do that in clubs, you can do that online. And so we're portfolio managers, portfolio managers as it relates to the merchandise assortment, portfolio managers as it relates to the channel, et cetera. And so what I've seen our team do and what I'm seeing them do now is to learn how to do good, better, best merchandising even more effectively. And I think that unlocks an opportunity for us from an e-commerce point of view that is significant and the in-store and club experience need to cause people to realize they can go to walmart.com or samsclub.com and find just about anything they're looking for, nicer brands, nicer product without us walking away from the foundational opening price point business, which is so important to us.

Yes. And the everyday low price philosophy, we've talked about a lot for a long term. And I agree with your statement in your question that this has been a pretty unique period and I would include probably the last 3.5 years in that period. And we decided in 2020 that we were going to stick to our philosophy and we're going to continue to price as low as we possibly could for the customer. And because we weren't high low, there wasn't a large decision whether we in promotions or continue the promotional environment we were in. So we want to be the lowest price in a trusted way on a basket of goods over time. And we did that through the 3 years. So we took a long view of customer value and earning customer trust because of pricing. And while we said two ways describing comfortable, proud of the price cuts we have, we'll always put those at the top of the list things to solve for because if we don't serve customers well, then all of the investments and all the other initiatives in the background, what really matter long term. We have to be great at serving customers and earning their trust each and every day on a basket of goods from the digital app all the way to physical store where someone is shopping, we've got to be great for them all the time there. So I think this long-term consistency really matters. I don't add -- anything, Kath?

I think people are just highlighting the value. So we've been looking at what are those national brands that are willing to partner with us to go after unit growth. And where they don't want to play, where do we use our private brand to be able to play that role. But I think people are attracted to where they can get value in the marketplace. I keep thinking back to -- do you remember we had a quarter where we were just almost on the line of making the double-digit comp. And our protein merchant was out in the market, and they've got this great deal on crab legs. And so we offered all the value to the member. And the sales of that one item was enough to be able to push us across the line to get double-digit comps for that quarter. And it shows the power of value that people are going after and the power of an item. And if you can show that value to the member, then I think they can see the value in the warehouse model and they can see the value in being able to get a great quality item at a disruptive price.

Good for everybody but the crabs. That's a lot of crab legs.

You also asked about the consumer, though, just real quickly. There are a couple of cross currents in the quarter for us. You mentioned Snap. And so that's a net negative for us, but I think it's important to note that a lot of that is recaptured through under other tender types. Offsetting that someone is you've got an increase in social security benefits with cost of living adjustment, which is a benefit to us. And then taxes also represents something that has an impact in the quarter. Earlier in the quarter, we were seeing taxes or tax refunds higher year-over-year during the last probably 5 or 6 weeks, we've seen that decline. I think net through the quarter, it's actually down year-over-year. So those are some crosscurrents that have affected our business. But when you take all of that together, it's -- the quarter is still shaping up as we expected.

And as it relates to U.S. GMV or enterprise GMV, we debate from time to time whether that's a metric we should share and when we should share it. I don't think we've got an update on that now, but it's on our minds.

Scott?

Scott Mushkin at R5 Capital. I want to push back a little bit or kind of poke a little bit at the U.S. growth rate that you guys are projecting. It seems like it would be down below the 4% for the enterprise given the growth rates of the other divisions. So when we look at it, we look at nominal growth in the U.S., prepandemic, it would be suggestive that you could do better than that, especially with what we've been seeing here today and what we've been researching. So why not set the bar a little bit higher?

Yes, John. He's asking if we've got sand in our numbers, which is a question that I ask from time to time.

So I'm getting pressure on my -- thank you, Scott. Certainly excited about all the opportunities and prospects we've said over the last couple of days and growth in traffic units, both the things we're focused on. And then this growth of new customers is exciting. For the first quarter, we have guidance. We're going to stay with that today because there is uncertainty as we talked about for -- from a number of factors. But what excited me going forward are the home page, seeing the team, really merchandising our presence online is fantastic. You and I had a chance to walk one of the flagship stores together before we started to expand it. We're really excited about not only the customer presentation, but the brands and the way it came together. The early results are good. And you know me, so I'm a merchant and I'm focused on the top line and items and prices and brands, and we start every day with growth. And long-term growth over time leads to our ability to leverage all the infrastructure and costs and other things. [ Robbie ], 3-plus years ago, you asked me a question about pickup and will we have the capacity that we'd hit soon. And the team has just done an amazing job at finding new ways to expand capacity grow pick up. You saw the manual MFCs, the other MFCs. So each was exciting. Every time we innovate, we open up more space for more innovation. The forklift you saw yesterday wasn't even an idea until we opened up innovation. We had space. So we'll continue, Scott, pressing forward. Doug, I know my expectation, whatever I say should be higher, and we'll keep pushing at the head.

You didn't do any better than I did.

Yes.

So my follow-up is on price. You guys, again, gaining a lot of market share, a lot of initiatives to gain efficiencies. How do you balance going after market share, vis-à-vis, profits maybe?

Yes. It's always a balance. There's always the balance of line and what we see from customers, and that's where we start. Every week on Monday, we start talking about the customer experience. We start with MBS, and we work our way down to how the financials of the business are working. So it's always about customers and top line, one. Second, the price gap, we'll never take for granted. The market is dynamic. It's always going to continue to move and over 60 years. And for the next 50, 60, 70, 100, whatever we can do, we've got to ensure that those gaps in place. Second, we think about our associates. We want to give our associates the best possible tools we can to be able to make them more productive and extend their careers and there's an associate named Alan in the facility we're in yesterday, who was about 25 years in loading and unloading trucks. He was thinking of resigning and he's now become a robot tech. He's a bot tech. He's changing batteries and wheels and chips, and he's telling us he's got another 20 years to go. So that balance is important. And then the third, of course, are the returns, and we have got to deliver returns and grow top line and the bottom line faster than that, John David, as we said, over time. So it's always a balance of those three. But we would always start with what's the customer value and ensuring that we are serving customers and delivering the way that we should.

When I think about market share, price is just one of the levers to grow market share, and it's not the one that I would focus on this moment for us first because of where we're already positioned. It's more about apparel product quality, being on time as it relates to fashion and in-store presentation. It's growing the first- and third-party assortment, especially the third-party assortment online. It's executing a pickup order and delivery order perfectly. That's the way to grow share and earn share. And price is a component of it, but those other things are what's going to drive sustainable share growth for us. And it's just been a difficult 3 years with the pandemic and the out-of-stocks. And then what happened last year and with all the other changes internally, I think we've just got opportunities to improve as it relates to being great merchants and executing those things, and that's where I expect share growth from. And I think it's a similar story beyond just Walmart U.S.

Let's go to Chuck and then we'll go a mic to the second row.

All right. Chuck Grom from Gordon Haskett. Steph, great presentation and great to see you guys. A question for John, just on the remodel programs. I was wondering if you could expand on the pace of the number of remodels you think you can do? The lift you might expect to see? And then for Kath on Sam's Club, personalization. You're really pioneering on that front. Can you speak to the upside there?

Yes, sure. So the first part of the question, we're really excited about what we've called the flagship remodel. We launched the first Elm Springs, Arkansas just over 1.5 years ago. And early results are fantastic. It's one store. So we wanted to get that out and see what happened. A number of those have been implemented in the New York, New Jersey area. We have others all across the country. And Chris, probably, the number is around 300 in the year we're in of that prototype. So a lot of confidence that has come together. And the process leading to it, the innovations that you see in the store, many of those happened in different parts of the country. And when we saw that those were working, then we brought them to the single store to see how they all work together and the results were very encouraging from not only NPS, but we call it 5-star rating, what customers say about the store and then the financial results. That led to the decision to an expansion of about 25 of which are in the Northeast and then around 300 this year. The remodel program in total is larger than that. So we'll roughly, in this year, on a pace of touching all stores within about 7 years, but 300 will make it to the program that you saw. So we'll have more to talk about results later as we get more on the Street.

On personalization, I would say there's three areas that we work on, and we've got more maturity in the first part. The first part is looking at personalization and membership -- on member's journey. And so if I know that a member is with us as a club member, but they're not plus or they're not on auto renew or they don't use Scan & Go, then we incentivize them along that journey until we get them to be a plus member who's using Scan & Go, and on order and new and they use our credit card because that is the most loyal and stickiest relationship we can have with them. We've got quite a mature model as we go through that and different techniques of being able to engage different cohorts that are in different maturities through that model. The second area that we look at is personalization from a, what we call, a persona or a cohort. So I have this group of that all enjoy shopping in fresh, but these group that are like them, but they don't shop in produce specifically. And so how do we incentivize them, whether it's just through prompts, whether it's through telling them inside information. Our least preference is to give them like financial incentives but that's also available to us. We've got the personas build-out to look at kind of how do we start to behave people -- have people behave with us in a more stickier cross-category relationship. So it's a second area. And the third area is just how do we personalize the look and feel of the website for each individual member based on what their shopping purchase history has looked like. So I would say there is a lot of upside in 2 and 3 that we haven't explored yet. I think we feel good about where we are in 1, but 2 and 3 specifically have value for us in our digital ads business and our relationship with our suppliers. While we've built up the tech, we haven't necessarily got to maturity in the ways of working. So for me, that's like some unexplored upside for us that we haven't really kind of really got to material.

Kelly, let's go to you next, then you can pass the mic across the aisle.

Okay. Kelly Bania from BMO Capital. I just wanted to go back to CapEx and make sure I understand the message clearly and how that looks over the next few years in light of the automation rollout. And if there's any change at all into your outlook for growing free cash flow dollars?

Sure. Well, just now, I think we're nine questions in before we got a CapEx question. So I would have missed the over-under on that, Kelly. So a couple of things to note about CapEx. One is, as I talked about earlier, we're very return-focused. We want our ROI to go up every year. And importantly, a lot of the CapEx that we're spending on these projects like you witnessed yesterday, we've got experience with them. We actually know what some of the returns are. So in that sense, this is kind of analogous to 2 decades ago when we had the supercenter that was a proven model with known returns, and then we scale that out. That's kind of what we're doing right now with supply chain. The other thing I'll note, which I think is important is that it's actually pretty remarkable and unique to be a 60-year-old company and have this kind of organic investment opportunity that can drive these types of improved returns. That's why I said capital for us is a competitive advantage. There's not a lot of companies that can go do what we're doing. And so as you look at CapEx over the planning horizon, we expect it to be at this level for the next few years. But importantly, whether it's higher than that or less than that, we're very focused on making ROI as an enterprise go up each year.

Can I ask one more on high-margin initiatives? With respect to advertising, what's really different about Walmart's advertising business? What differentiates it? Or is it 3P in those 400 million sellers? Is it the size of your grocery business and the leverage there? Just what really stands out versus peers?

It's really a combination of all three. The food business is extremely interesting for customers and suppliers. And the e-commerce business is also interesting for suppliers and sellers. And then something Kath said, which congrats on the same team for the performance also being ahead is ability to close the loop from advertisements that have been viewed by a customer in closing the loop, not only online, but to an in-store purchase. So the more of -- in our case, the more members become digital and we are able to communicate with them in two ways, then the greater ability to close the loop like that for advertisers. And Sam's, of course, has the wonderful advantage of having membership numbers attached to every transaction, every member. So I think that's really the path. And then at Walmart, it's the same, plus then the marketplace opportunity.

It's Bob Drbul from Guggenheim Securities. I was wondering if we could talk a little more about Walmart Plus just in terms of any metrics you might be ready to share with us, Doug. And just the traction there, any of the involvement in terms of the overall business. And then -- and the second question is just on last mile, with a lot of the supply chain initiatives, there's a lot of talk -- moving it closer and closer. Can you talk a lot -- talk more about last mile delivery costs and what you're seeing, driver availability and just profitability with that piece of the business?

Yes. And John, before you comment on Walmart Plus, I think, Bob, I would just remind everybody that everything you asked about applies, I think Judith to Mexico, maybe India and other places, this business model that's changing that includes these components, stores and clubs, plus all the e-com stuff plus advertising plus last mile, all of that is happening everywhere. So one of the things that we think about when we release our quarterly results, for example, is how is it best to communicate to you all about what's happening in the segments and what's happening across. And in my experience, we're closer to being a true global enterprise with synergies across than we've ever been. We grew with international acquisitions, picked up different brand names, picked up in some cases, different formats, different systems. And the work that's happened as of late is causing us to be able to work across and get leverage and speed in a different way than we used to. So I just want to tune your ears as we have future conversations, when you ask about an ad business which through my mind is the world, not just Walmart U.S. or membership, which is playing a role in international markets, too. I think these components are going to obviously play out everywhere. And Walmart Plus?

Yes. It's an important part of the overall offer. We've said that, and I just want to reiterate that. And some of the things that are really exciting. Number one is the amount of times a member spends with us, and then the annual spend is significantly higher than other channels. Consistent growth in the numbers since we launched in October '20. What we've moved to most recently that I think is really helpful and also very challenging for the team is measuring what we've referred to a couple of times today which is called perfect orders. And perfect orders mean no substitutions, exactly what the customer ordered and on time, not early, not late, but on time. And during the pandemic, many of the things that we did, we launched delivery to get people what they needed as soon as we could. In some cases, that was early. And that actually is a hindrance to NPS, which I'll talk about. And as the last few weeks, we're seeing the highest NPS levels with Walmart Plus members that we've seen. So what we've really been focused on is trying to be the best way possible and for members. We've always said, for the entire organization, we want to be the best, not the biggest. The best can lead you there. So we're focused on the best in serving members. How that all relates then to the last mile delivery is a large percentage of our deliveries from stores are to Walmart Plus members, but that's not the total. And then there are deliveries from fulfillment centers. And think of this chart we showed yesterday with the three supply chains; the ambient, the perishable and fulfillment; being able to bring more of those deliveries together, so that they come from a delivery station, which is also a store in a band creates a situation where cost we can see going down pretty dramatically. So your most expensive delivery from store is a single grocery order. A single grocery order with GM comes down and in-home order with grocery and GM all pulled together, bring the variable cost down. So when John David mentioned driving through a cul de sac and having more deliveries, that's really the goal. So building density and frequency of delivery is what [indiscernible] the marginal cost, which leads back to one of the original questions, e-commerce profitability, that's helped contribute profit rates continue to decline on the operational metric of e-commerce.

I'm still concerned that, that metric should we share it, would punch above its weight, whatever the number is. And I don't want that to happen. So the Day 1 number we give you for membership across markets, you'll evaluate that upon on how you feel about it. Then the next quarter, you'll ask where it is. The next quarter, you'll ask where it is. When we would rather you focus on comp sales in stores, what's going on with pickup? Are we winning with delivery? This can be a very successful company without membership, except that membership is the best way to play to play for -- pay for delivery from a customer point of view. And so as they become members to pay for that, that opens up opportunities for us to do more. But in the big scheme of the company, it's important and we like the behavior we see from people when they become members, but it just needs to be taken into a context, and that's why we're sensitive to it.

Okay, Peter. And then Karen, and then Rupesh.

Thank you. I'll be quick. So Peter Benedict of Baird. A question on ROI. So if we look at the business a decade ago, it was around 17%. I think 2 years ago, you were around 15%. Last year wasn't great for obvious reasons. This year, you'll probably land somewhere around 14%. So John David, the question is how do we think about the next 3 to 5 years? You said you're targeting kind of annualized improvement in ROI. What's a reasonable target as you think about maybe and then are there stretch goals? Just trying to kind of put a finer point on that.

Instead of giving you a number, Peter, let me tell you more about the trajectory. This year, we'll see a pretty marginal increase, nothing to really get too excited about, but we do want it to go up. As we look at our 5-year plan, there's a more notable increase the following year. Then again, as a lot of these investments are in place, we talked a little bit yesterday just about the pace of rollout and some of the automation that you saw in our DC. As that has more scale, then the last 3 years, the 5-year plan, you see more notable increases. And so we want to get up to the highest ROI that we've ever had. A lot of that depends upon our ability to execute. It depends upon assumptions around consumers responding to the offering that we have. But we believe that we've got a plan in place that, as I said, can meaningfully improve our ROI over the next few years.

Karen Short, Credit Suisse. Good to see you all. So I have two questions for you. The first is, as we look at alternative profit and with the context of greater than 4% total operating profit growth, you could envision a scenario where operating profit ex alternative starts to even decline just within -- like depending on what you think the growth rates are. So I'm wondering what you would say to that in terms of operating profit ex alternative. And then just philosophically with respect to earnings, obviously, you've given guidance, and it's somewhat conservative, I suppose, for this year. But what is your philosophy on actually flowing through upside or reinvesting?

Do you want to take that?

Yes, just on the tailwind, I think we're more focused on flow through right now than we've been. The slide that John David showed where we've made investments on price, wages, e-commerce and technology, we feel like those investments needed to happen to serve customers well. They had an income statement impact. I got asked yesterday on the bus, is there a pivot to more of a CapEx investment cycle than an income statement investment cycle? The answer was yes. There's a phase here we're moving into that looks more like capital, primarily driven by the remodels and automation. And so I think that's important context as you think about how do we view flow through? I look at the operating income percentage of the company and how we've done over the last few years and the choices we've made and feel like things are in place now to be able to make that pivot. And so our mindset has shifted.

And I think that builds to the other part of your question, if you strip out some of these initiatives that we have that are higher margin, higher growth and just we'll call it core retail. This is why I had the slide at the beginning to show the delta between sales and operating income. We will continue to invest in our associates. We'll continue to invest in price, but that is more business as normal going forward versus what you may argue was a little bit of catch-up historically. And so we feel like we're in a much better place as we think about our core retail business going forward where margins can keep up with sales.

I would just say as well on that one. You do need to think about these as being part of what we do. And I think there is a danger of separating it all out, because it's completely driven by each part of it. And increasingly in our business, it's becoming harder and harder to figure out which piece flows into which piece of it. So I'd just encourage you to think about it in a whole as well, because that's the way we look at the business. And as John said, you can't -- without the retail, you wouldn't have these streams, but they actually help bring people to the site, because we have great adverts from our sellers who get to show their products as well. So just to think about as you think about what that model looks like.

It's a really good point, Judith. And candidly, we had debates like what we disclosed around e-commerce, because it's harder and harder to actually bifurcate what is something happening online versus having a brick-and-mortar store, because those lines are blurring so much. And you're right, Judith, it's an ecosystem. [indiscernible].

They're blurring because they're complementary. And I think we've done a good line as it relates to what we do and what we don't do. You can imagine the debates we have about what businesses are we in, what do we resource, what's the prioritization, but I think we're clear on what the priorities are and what we're doing is all interrelated, and that's a good thing for the customer as well as for the business model.

Rupesh Parikh, Oppenheimer. So two questions. So the first on working capital. So it is going to be lower than it was prepandemic. Just want to get a sense if you see any working capital opportunities, whether an inventory turnover or on deleverage. And then second, as I shop talked last week and I know Judith was there as well, a lot of discussion there in AI and ChatGPT. So just want to get a sense of if you see any new use cases in that area and how aggressive Walmart is investing in AI right now?

Maybe I'll take the working capital piece, and then Judith and Suresh probably is welcome, cover the second part of the question. You're exactly right, Rupesh. When we look internally at our plans for the year and we look at our working capital metrics and really the suite of them, we recognize that compared to what we've done historically, we've got a pretty good opportunity, and it's something that we're very focused on. We want to be able to use the cash that we have or use our balance sheet as efficiently as possible. And I think a lot of things probably changed for good reason during the pandemic, where maybe certain payment standards were relaxed or whatever, but I think there's an opportunity to bring that more in line with what we've done historically.

Yes, I'll take the AI stuff. So a lot of excitement about ChatGPT, generative AI. Definitely presents a pretty significant advance in computing. But we have actually been using ML including large language models for quite some time within everything that we do. The demand forecasting slide that Mohan put up with those hexagons, that's driven by our own ML models. Personalization that we have talked about quite a bit, that's all using ML. Substitutions we actually built our own model, which actually has been recognized outside in terms of how we serve our customers. So ML on top of the data that we collect has been an integral part of the digital transformation right from the beginning. Specifically with respect to large language model, we've actually been using GPT 3.0, which is the open source version for quite some time to actually drive the text-to-shop that you saw in the video last time. It's also been used for answering customer questions. Chile uses it, Mexico uses it. So it's deeply embedded in everything that we do. For GPT 4.0 and all the new things that are coming out, LLaMA has come out, we are actively working both with open AI and with all the open source initiatives, with Microsoft, to actually take the latest developments and integrate that into our systems. If it benefits our customers, if it makes our associates more efficient and more productive and if we can draw better insights about our business, we will use it. And we have been doing it right from the beginning, and we'll just continue to accelerate that.

You actually got a chance to see some of the AI yesterday in our supply chain. [indiscernible] was talking about this. But even when the robots are going to retrieve packages, when one slows down, that's not optimal. And we're learning from that constantly so that we can constantly route those at the same speed. And so that's an example of that in practice that you saw yesterday.

We're going to go to Ed, and this might be our last question.

Eddie Yruma from Piper Sandler. You called out the opportunities in India and Mexico, you omitted China. I was kind of curious if there have been any changes in the market and the role of the market longer term? And then second for Suresh. You talked about addressing the tech deficit. Are there any places that you think Walmart's leading in tech today or areas you flagged to lead?

Maybe I'll start with China. There is a limited amount of time to talk about which market. So about Mexico and India, because there's been a lot of change within those. Our China team and the China market has seen huge amounts of change over the last couple of years. As everybody knows, through that COVID period and then opening up at the beginning of this year was quite dramatic in the change that we saw. The move that they've had to 50-50 of online and offline with this total store pick model has probably been the biggest change that we've seen. Prepandemic, those levels were less than 10% penetration. That is a huge shift in a really short period of time. We've continued to see just like the club channel here that our Sam's Club are doing well. They appeal to a higher demographic within China, but our hypers as well are seeing traffic beginning to turn towards that. I do think the Chinese consumer has been under real pressure. But I think that we're seeing some better signs of consumer confidence improving. And just like in the rest of the world, people are thinking about where do they want to shop. They're going to still shop online. It's still really sticky. However, we are seeing people wanting to come into stores, particularly for occasions. So Chinese New Year, we saw the buildup to it in Q4, and we're starting to -- we saw through Q1 real strength in that as well, particularly on more premium products as people wanted to celebrate and open up. So still think there is a lot of runway in China. The last couple of years have given our business there, a bit of a chance to reevaluate to really think about what's important for customers and how do we build off the core of it. But we'll continue to open Sam's Clubs, and you might see us open the odd hypermarket there as well, but the online strategy is really important.

Yes. And in terms of technology, there are many different areas where we are not only doing world-class technology, but I would say that we're very unique. Let's start with omni, right? So we are the only retailer at scale where we can understand customer both online, offline. And so we have a lot more insights about what our customers do. That allows us to be able to better tune our models, to be able to better -- to be able to close the loop in better ways. The whole closing the loop as far as advertising is concerned, that's industry-leading. Nobody else is doing it the same way that we are able to do. What you saw in supply chain, which is connecting multiple different supply chains together, that requires deep technology. I don't think anybody else has the capability to be able to do that. We are actually also investing very deep in the technology stack as well. We have got a hybrid cloud that combines out of the best of public cloud with our partners with our own private cloud investments, and we are tying it to the [indiscernible] as well, this is something that's pretty groundbreaking. Nobody else has been able to do that. So plenty of examples throughout the enterprise in terms of how we are leaning forward using technology to better our customers and our associates.

All right. I think we're up on time. Doug, I'm going to turn it over to you to close out the session this morning.

Yes. Let me start with gratitude. A number of you have followed us for a long time, and you know us well, and we appreciate that. Thanks for paying attention to our business. We were excited to have this time with you the last couple of days to show you the distribution center and look forward to showing you this store and club. I hope you get the sense that we've got, which is we're leaning forward on our front foot. We've got great opportunities and we're positioned to take advantage of them across the business in lots of different ways. I think that the purpose that we talked about last night is important. It's timeless. It motivates us. Our values and culture are clear and our strategy is clear, and we're really focused right now on execution. Let's just get some of this stuff done and it's happening. It's moving and what the team has done during these last 3 years to move forward on the strategy while managing other short-term things that came our way is really impressive to me. We have fantastic leadership team, many of which are represented here, but a bunch aren't. And we've got a great set of associates making this stuff happen. So we're excited about this year and excited about these next few years. And we'll visit some more when we go to the store and club in just a little bit. Thank you all.