Walmart Inc. (WMT) Earnings Call Transcript & Summary

Welcome everyone to our 2023 associates and shareholders celebration, and to our executive Q&A panel. Thank you for joining us in Razorback Stadium. We are webcasting this. I'm going to read our safe harbor as a matter of procedure. Today's webcast is being broadcast recorded. And during this session, management may make 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 review our press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements as well as our entire safe harbor state and non-GAAP reconciliations on our website at stock.walmart.com. Thank you for your interest in Walmart, and thank you to our executive team for joining us today. Doug, I'm going to turn it over to you, and we're going to start with our positioning statement as well.

Yes, I'd just briefly say thank you for being here. Thanks for coming this week. Thanks for staying. I hope you enjoyed this morning's session if you're able to attend that, and you enjoyed the store visit and hopefully, you got to see the MFC as well, and you'll ask us some questions about that. We feel pretty good about our position. We feel like we're positioned to grow. We've got opportunities with our stores improve. We've got opportunities with pickup. We've got opportunities with delivery. That's around the world. So when I think about growth, we certainly think about inflation and pricing and what's going on with customers, but kind of, to a degree, regardless of the circumstance, we feel like we're well positioned because we offer a good value to customers and members, and we can serve them how they want to be served, and that's only increasing as it relates to our capabilities. Secondly, we still, as we mentioned in our investor conference, are excited about our opportunity to grow profitability greater than sales through a combination of productivity improvements business mix. And then lastly, return on investment, we expect to go up time as we improve that profitability and also continue to be disciplined with capital. We have that in our plan. We are excited about these capital investments that are in front of us. And as we get data, we'll make real-time decisions based on our ability to execute as it relates to the pacing of that. But we're, every bit, as committed as we were when we had you in Florida a few months ago as it relates to the automation opportunities in front of us, including the one that you saw an example of this week. With that, I'll open it up for questions.

It's Michael Lasser from UBS. And Doug, I don't think anyone in this room has ever seen a CEO run as fast as you did on stage. So it's great to see your many talents. The question I had is for those of us who've watched Walmart for a long time, generating growth in top line and profit has proven to be challenging as there's been a lot of investment cycles. Why is now the time when Walmart can pivot to generating both growth in sales and profit in excess of sales, especially at a time where we're seeing all these pressures across retail, and a lot of the strategies that are intended to drive this outcome are arguably going to be replicated by others.

Yes. When you think about the 4 big areas of investment, and John David highlighted them when we were in Florida, and he and others can add to my comments here. Let's break them apart. As you may remember, I'm sure you do, we made significant price investments over a period of years. And what we're saying about that is we like the range that we're in, and we monitor competitive gaps but we like the range that we're in. As it relates to wages, kind of a similar answer. We made a lot of investments, and we feel like we've gotten ourselves into a good range. There'll continue to be increases in wages, and that's factored into our plan, but not as dramatic as what we might have seen in previous years. The third area is e-commerce. And we had a lot of investments to make, to scale a business, and the pandemic created some behaviors that created an acceleration of what we expected to happen. And as those things happen faster than expected, that puts us in a different position as it relates to e-commerce and omnichannel. And then fourth one was technology. And Suresh and the team have done a fantastic job of making a lot of improvements happen top to bottom as it relates to our tech stacking capabilities and so we're more in a run rate state as it relates to that. So those were the 4 big areas, and we just find ourselves in a different position right now as it relates to those. And as we talked about in Florida and maybe on the earnings call, those were income statement investments. And this pivot that's happening is towards more of a CapEx and balance sheets set of investments that have attractive return. So we think we're in a different phase. The external environment is the external environment, and it will continue to be fluid. But as I mentioned a minute ago, we think we're well positioned to deal with that as things play out.

I would add, too, Michael, that if you think about these areas where our initiatives are where we're growing, setting supply chain aside for a second, they're largely digital, right? And if you think about a start-up or a company that is trying to launch some digital effort, one of your challenges is scaling that. Now if you think about our set of assets, we actually have that. Like this is an advantage that we have. And so as we layer on these initiatives, these digital initiatives, we've got this backdrop of our reach around the country and around the world, frankly. And so I think that's why we feel we're at this inflection point where we can begin to see the bottom line begin to outpace the top line.

Perfect because this goes right after what Michael's talking about, Scott Mushkin R5 Capital. So to dovetail off of that, I mean both of us have covered Walmart a real long time at this stage. I think the fear that we have is the plan you guys have put forward, particularly in the U.S., but also internationally is incredibly strong. We're seeing things in the apparel business that I don't think anyone would ever dreamed of 5 years ago. So if the economy really turns down in the back half of the year into next year, how committed are you to kind of, hey, this is the right direction, and we're going to make these investments because long term ROIC is there versus some real potentially significant pressures macro?

Let's take automation first, and then you guys comment on any of the components that you want. The pieces of automation, specifically these automated storage and retrieval systems that Dave Guggina and Chris Nicholas and [ Parthiva ], is [ Parthiva ] here? We're just going to recognize her for her award this morning.

You might call her by her other name.

We are very confident in those. And we need to finish them off, and they started. And you want to finish them off because the benefits that flow through from the complete system are greater than individual parts. So a high level of commitment as it relates to that. Do you want to talk about apparel a little bit?

Sure. I'd love to talk about that and just merchandising in general. As you've seen, Scott, we're really happy with the new brands and the assortment, the way the team is managing it. So I think that's exciting. And the great new lines and home as well. The e-commerce team, just a few months back, Tom, relaunched the website with a much more, I would describe as attractive merchandise-first, customer-first view as people land, and we're happy with the results there. I think the other thing that is important is this is a team back here to our left that are really well qualified to manage just about any environment based on what they can control. And our inventory is positioned well. We like the value, as Doug said, that we have in front of customers. And then the initiatives we've been sharing between automation and technology that's in the supply chain, handheld devices with associates. I feel like we're really making a lot of progress in making jobs more effective, more efficient in getting people what they need to be able to do, complete the task they're working on where they are. So we're meeting our associates in front of customers in a good way. So I'm excited about it. I love we had some merchandise featured this morning in the meeting, and it's just the first thing we think about we wake up every day is top line and merchandising.

Yes. I think it's -- I would echo that, that each individual market is thinking that way. In addition for us, the reshaping of the portfolio has really helped us. We've got a much more focused portfolio with a broader diversity of markets, all at different stages and impacted in different ways. So in some ways, that gives us a natural hedge across the international group as well. And because we're more focused, we've been able to make the investments where it matters. And for us, one of the big growth areas is e-commerce, but we're actually seeing that becoming improving from a profitability perspective as well. So it's both the portfolio and the businesses that we're in are helping us in that respect.

Maybe lastly, remodels. We like what we see as it relates to the customer response to the remodels, not just apparel, but the broader set of changes, and we'll continue those. The stores need to be remodeled. We've got an aggressive plan as it relates to the count -- store count, and I expect we'll see that through.

Thanks for today. By the way, that was quite spectacular, not like any analyst or shareholder meeting I've been to, and it's Karen Short from Credit Suisse. I wanted to just ask a couple of questions on vendors. So obviously, it has come up in terms of vendors seeing weak volumes, but that happens to also coincide with your very, very strong growth in private label. So I kind of want to find out what is the tipping point in terms of when the vendors have to realize that they can't pass on inflation, just given how much more ammunition you have in private label? And then I had a second question. During the tour, I guess, there was comment that you had doubled the rollbacks in food specifically. So I'm wondering where you kind of stand on rollbacks and philosophy on food specifically.

Let me start by saying, we'll just go back to value. We're happy, pleased with the value that we're managing for customers. And we start there every week. We start with NPS scores, customer satisfaction scores, what we're seeing in pricing. And customers have been switching. We've been probably talking about that 2 to 3 quarters now that we've seen a shift to private brand. Our strategy is to offer a wide assortment to customers, and we don't have any metrics or goals that we're saying we're trying to get private brand to a certain point. We have an assortment that we're proud of that offers value. Inflation has been really stubborn, particularly in dry grocery, and that is the place where we have seen the most switching to private brand over the last 2 or 3 quarters. And that continues as we sit here today. Rollbacks are a great way for us to be able to work with suppliers, sometimes they're large suppliers, sometimes they're medium suppliers. But situations where we can increase value for customers, tell them what the value is, and we're seeing a lot of response to that. And you'll continue to see that on our home page and our pickup and delivery business that primarily comes out of stores, but across e-commerce. So there's still a lot of inflation that we think is extremely stubborn, and customers need value. So our team is going to continue to work on doing everything we can to create efficiencies. Supply chain has been a tailwind in terms of mix. Grocery's been a higher percentage of our volume, which has some mixed implications. Although switching with private brands also has its own set of implications on mix.

It's encouraging that general merchandise pricing has been coming down. And there may be an opportunity there for us to show a value and will use rollbacks as a tactic most of the time to drive more demand than we might be thinking we could drive in the third and fourth quarter of this year. So I expect the whole store, not just the food area, to have a strong representation of rollbacks.

Simeon Gutman, Morgan Stanley. Short term and then a little long term. The short term is if we can talk about the tempo of the consumer. I know we spoke only 3 weeks ago, but it seems like it's rapidly changing or evolving. This inflation, the speed of which, it looks like it surprised retailers in the first quarter if -- the last 3 weeks, if you can give a gauge. And then the second question or the follow-up is profit growth faster than sales growth. There were some parameters on longer term on timing a couple of years. Curious what your -- what is acceptable in terms of when we see that spread really widen out, whether it's this year or we start in '24 and beyond?

I'll start Simeon with consumer. No real update since the last time we spoke. We know customers, they want value. That's clear. They're celebrating seasons and holidays. We were pleased with the performance of the site with categories like floral for Mother's Day, but they're still shifting exactly like we talked about in Q1 and Q4 of last year. So that continues. Inflation is starting to lap. So you'll see the absolute numbers this year in inflation look like as though they're lower. But when you look back at a 2-year stack, dry grocery, for example, is in the 20s, and it remains high and isn't really coming back that quickly. And that's led to the actions that the team had taken to try to get prices down where we can. And where we see value rollbacks that are great versus where we've been or versus the market, we see the consumers moving right away. I think the last thing I would add that I haven't said and maybe you can take the second part of the question. I haven't talked about is the flexibility that the team Walmart is offering consumers is seeming to landing -- land really well. And there have been a lot of big expansions with the number of slots available for pickup, the app integration that we did about a year and a half ago is really coming to life. That feels much better. And so regardless of the economy environment we're in, I think we are much better positioned. We're really well positioned to be able to deliver customers flexibly the way they want to be served at the time they want to be served. And I think that's helping us as well.

And then on the second part of your question in terms the timing of profit growth outpacing sales. Our guidance this year implies it's happening this year. I know we're 1 quarter into the year, but it happens on a marginal basis this year. The first quarter, we doubled our sales growth in terms of profit growth. And that was better than what any of us had anticipated when we set our plan as well as when we set our guidance for the first quarter. So we're pleased with that. I think the first quarter came in pretty strong. We should be able to continue to maintain sort of what we talked about in our guidance, is next year where we see a bigger inflection. And again, when we talked about this at ICM, at our Investor Day, we frame this in a range of opportunities, right? And a lot of this depends upon how quickly we're able to invest in some of the supply chain automation, a lot of other things. And all of this assumes a macro environment, which your guess is as good as mine. And so we think that we are positioned when you look at the structure of our P&L going forward and where we're growing, that we should be able to outpace sales growth. And we hope by a sizable amount over the next several years, but it begins to inflect more next year.

Bobby Griffin from Raymond James. Thank you guys for the event and the time. It was a lot of fun, pretty star studded as well. So thank you. Doug, you mentioned first question, you kind of mentioned your happy with the early signs from the remodels. I believe in one of the videos there in Teterboro, you either mentioned a 20% comp post-remodel or 20% growth. So maybe can we talk a little bit about that and clarify that for us? And the second question is for Judith. Some pretty big goals to go from $100 million to 2 -- $100 billion to $200 billion in revenue in 5 years. So maybe just can you unpack that for us, some of the key drivers you see in getting to that target?

Judith, why don't you go first?

Yes. So it's a pretty ambitious target that we put out there. And the markets that we have today have plans to be able to get there. Three main areas of focus for us. The first is scaled and leading omnichannel businesses around the world. It's a natural advantage that we have from a leverage perspective in the businesses that we have. The second is scaling our global marketplaces. We're right in the middle of developing, with Suresh's teams help, a global platform. We already have marketplaces in Mexico and Canada as well as the U.S., of course. And we have our Flipkart business as well, which is a really significant marketplace. So that gives us our second engine of growth. And then the third area is the ecosystems that we're building around the different businesses. Mexico is probably one of the best examples of this because in addition to having payments, we're also into telecoms and we've just recently launched into health as well. So 3 very clear areas where we can see growth coming for the future. But as I say, the real trick of all of those is very few of those we're doing on our own. The real secret is the powered by Walmart piece, which gives us the confidence that the technology is there, the knowledge is there and the capabilities are there to be able to deliver against it. From a market perspective, a couple of our markets really help that engine, Mexico being one of those. I think many of you know what a scaled business that is already, but also Flipkart as it develops further will be another one of those key drivers of growth. Every single one of the market contributes to it.

And on the remodels, we're really pleased with the product that we see in Teterboro. That prototype has iterated over about 1 year, 1.5 years in Elm Springs, which you got to go to yesterday. It's a combination of a lot of exciting things, new merchandising. The layout of the store has some improvements. The sidelines are better, the signing clear. What's not in the Teterboro store, but you saw yesterday, are digital shelf tags, which also help associates and will eventually help customers be able to find items and price more effectively and quickly. The manager there, I wanted to highlight her. Her story is amazing, fantastic. I met her a couple of times over the last year or so. And her inspiration was, I think, came through the video, which we wanted you to know the type of people that we have all over the country. And the number is the growth rate in her store that is this year over last year. And of course, stores vary as these come out depending on the market and where they are, but that was the number that reflects the growth in Teterboro.

Did you approve the video beforehand? Were you aware that she was going to share the number?

Mostly.

Brad Thomas with KeyBanc. Thank you again for having us. I want to ask a follow-up on automation. Clearly, very exciting things happening there. Can you talk a little bit more about some of the gating factors to rolling it out, and potentially the ability in the years ahead to accelerate and pull forward some of that rollout?

Yes, it's really exciting, great progress. We've been working with some of these providers for years to get to this point. Dave Guggina in the back, Dave, why don't you grab a mic and just talk about the plan from here.

Dave introduce yourself, again, if you would.

Dave Guggina. I lead Walmart U.S. Supply Chain. I don't want to get too close to the mic. So -- absolutely. Some of these technologies, as you know, we've been working on for years. We start with proof of technology. We move to proof of concept, then we pilot our technology, and then we scale the tech. Many of you were in Brooksville recently. That's a technology that we've communicated that we're scaling across the entirety of our ambient network. So all 42 of our regional distribution centers will have that technology. And it allows us to take a 1.2 million square foot facility and shrink it down to 800,000 square feet and double the throughput of the facility itself. And it's incredible how it reshapes work for our associates as well. It takes some of the most physically demanding jobs that we have in our supply chain and allows our associates to use their creativity, their empathy for one another and their problem solving skills as cell operators. So we couldn't be more excited to continue to roll it out.

Mike Baker from D.A. Davidson. I'm wondering, is a recession good for you guys. I think we've always thought of maybe you outperform and comparably you're better in recession, but your business this year seems stronger than normal while it seems like the economy is slowing. So is there something different now that's making you pick up even more share now than in the past? And I guess the second part of that question is how do you hold on to that success if and when the economy hopefully eventually gets better?

None of us are cheering for a recession in any country where we operate. We want our customers' family's members to have more money, not less money and have growth. That's what we want. We'd rather have that environment to operate in than the other. But value does matter in an environment where people are more price conscious. So we certainly care a lot about that. Anything else to add?

Well, I would just -- to build on that, Doug, one of the things that we talked about at ICM was this concept of liking our position. And to unpack that a little bit, like we -- to your point, Mike, like we're known as a company when times get tough and customers look for value, we're going to gain share. But we also think that we're positioned to succeed if things get better. And so we like our position, almost irrespective of what happens in the economy. It doesn't mean that we're immune to some of the economic whims of the -- and what could happen to us. But we like our position better than anyone else's. We would take our hand, play it versus anything else?

Having an opportunity to serve all kinds of people, which is maybe even more true right now, does give us the opportunity to potentially hold on to them. And I think pickup, delivery, Walmart Plus, the store environment, get a bunch of these remodels done and let them see those changes, all of those things give us a better chance of having them come back in a year, 2 years and 3 years than maybe they would have in the past.

Kelly Bania, BMO Capital. And thanks also for letting us in on this incredible event. So 2 questions. One is shrink. You've got solid competitors left and right getting hit pretty hard with shrink. Maybe you can just understand what is Walmart doing different or what maybe you've done different in past years to set yourself up just to reassure investors that you're not going to have a shrink moment, and that is under control at Walmart?

Well, first, shrink is part of the overall mix we think about in terms of merchandising, and mix has been affected by a number of things. Now first, I would like to give credit to the supply chain team because the improvements in supply chain this year versus last year, given the inventory increases we had a year ago, has really helped us. So those increases have been offset partially by the change in merchandise mix, more food, less general merchandise as percentages of total. Third, there is some shrink in there that's up a bit this year, was up a bit last year. It's not all over the country. There are markets where we see it more than other places. And then there is another positive benefit of mix that's coming from the new businesses we've been building like our data business and advertising business. So I think it's important just to think about, like previous questions, there is portfolio of businesses with inside the U.S. business that we can use to be able to manage value for customers really well. One big aid this year is inventory is down. Anytime inventory goes up, the chances of shrinkage tend to go up with it. Last year was obviously an acute event when the supply chains backed up in Q4 of '21 and then Q1 of '22. So having that behind us has gotten us into a much better position. I get into the stores almost every week. I'm not every week there. Sometimes I can't get out. I wish I could get out every week. It's great to see what our teams are doing, but I'm seeing much better inventory control, inbound and backrooms and distribution centers and what is on the top shelf. So I think the overall process, what the team is doing to manage inventory well, to know what we have and where it is and keep control of it is a good thing to have in terms of positioning for the long term.

Okay. Another question on e-commerce. So if I look back over the years, the discussion on e-commerce was always, we've got to got to get the right mix, right? And whether it was general merchandise or 3P versus 1P. And you gave some interesting stats, I think, a couple of weeks ago on the number SKUs you have on 3P. But can you just give us any sort of KPIs on where you are in that journey of getting the e-commerce mix to where you would like it to be?

It's a huge opportunity for us. Market continues to change, as you know. The last quarter, Tom and the team should be proud of the results that they delivered. A lot of strength at 27% growth, a significant portion was driven from pickup and delivery from stores, but there are other businesses that are growing digitally like the pharmacy, delivery to home. There's a nice growth momentum, I'd say, is a better way to describe it with Marketplace. We talked about 400 million items at the end of the quarter, and we're there or thereabouts. But we continue to find quality sellers who are able to deliver broader assortments for customer. Customers have a lot of choices, and we want to be there whenever they want to make those choices. The other thing I would add is we've seen nice uptick with the sellers who are using services like fulfillment services. The best part of that is we can give the customer a shorter guarantee in terms of the time it takes to deliver when the inventory is in one of the Walmart facilities, and then that leads to better connection with Walmart Connect to cohorts of customers that are relevant. So all these things really work together. But if you really dial back what's in the middle of it. It's understanding what customers want when they want it. And I just feel like the opportunity to continue to serve customers better is right in front of us and we can keep improving.

Yes. Just from an international perspective, many of the things, again, are very similar for us. Development of the marketplaces, particularly in Mexico and Canada, is a huge driver that enables us to really start to shift what the mix looks like within that as well. We're still standing up stores from an omni perspective as well. And one of the things for us is if we can get, much as the same as John and the team have done, is the entire store already online so that people can shop the GM and apparel side of it as well as the food side, that's a big win for us. Both in our sort of supercenter formats, but also in other Diageo formats right across Mexico. So that is part of the way that we're thinking about it. In a similar way things like Walmart fulfillment services and the work that we're doing on having a single seller experience. So if you're a seller and you want to list on Walmart, you'll be able to ultimately choose which markets you want to be able to sell to. That's a big deal and a big unlock, especially for us in international, because many of the great sellers at the U.S. have got it means that we can switch them on from a global perspective as well.

I think when we think about it, too, we're thinking more each versus baskets. So it's much healthier for us to sell a basket through a digitally enabled sale. So curbside and delivery to home encourage baskets, and that's obviously a lot better economics for us. So we are seeing our growth coming through curbside and delivery from the club, which frees up the FCs to be a little more selective about what we ship out of those. The other side of it we think about, too, is then how many of those transactions, how many of our transactions start with a digital engagement. So scan & go, we talked about 1 in 4 or 25% -- over 25% of our transactions in the club start with or are on scan & go. And then about 11% to 12% of our sales are like ship-to-home e-commerce. And so when you kind of put that together, you have this really great platform to be able to engage with our members differently because the transaction is happening on their phone versus them working off-line through the club. Nd so just playing as we're getting more of the transactions being done on a person's phone or device, you have a very different way of being able to engage. And as you add the scan & go as well as the e-commerce traditional type of baskets or shopping occasions, you're getting a lot of our transactions are happening in that way, which gives us a much different way of being able to gauge with them now than we have in the past.

I'd like to call out how our people have changed and grown. We were store experts, and we recruited e-commerce expertise and technology expertise in a variety of ways, including acquisition. And if you fast forward to today and you hear how people think and what they know, including the people that are here in our broader group of merchants and operators, they are omni now. There's a digital language. There's a different mindset as it relates to how we build technology. It is truly omni, and you're seeing that pay off in the way we think about 1P, 3P, pickup, delivery, there's like real-time problem-solving. We had a Board meeting this week, and Tom came and gave an update, and Seth as well, and when you hear folks talk about the progress that we're making, we were growing top line, the pandemic accelerated some things. And while all that was happening, people were unpacking all these different choices about app design, how you get a product to a person, what's the trade-off between speed in getting 2 orders if one came from a store and it was fast and the other one came from the FC. What's the customer think about that? All those trade-offs, as you make them on behalf of the customer, member first but then optimize to improve profitability underneath that as best you can, given our assets, you get a different and better outcome. So it's just so encouraging me to me to know how much progress our leadership team has made. We don't get any questions anymore about do you have or need e-commerce expertise because it's now just become omni expertise across the board?

Rupesh Parikh, Oppenheimer. So just on health and wellness going back to your last report, tremendous momentum in that segment, and we've been getting many questions there. How do you think about the sustainability of that momentum? And if you look at what Walmart is doing, is there anything you guys are doing specifically that's driving even stronger momentum than others?

Yes. Let me take that. First, a few things. There has been consistent momentum in the last 3 or 4 years. We've opened a few more clinics. There was some acceleration here in the pandemic with vaccines, which helped us with a number of capabilities that has led to other businesses in terms of like immunizations and other services we could offer, including some states there are more services you can now do. Some acceleration, obviously with GLP-1 drugs, and those are drugs used to treat diabetes. There's been quite a bit of uptake there. As far as sustained momentum, we don't know yet it's growing at this point, but a bit of a detriment in terms of mix because it's a lower margin class of drugs. But overall, the team has, I think, done a great job engaging patients, new patients and then the pharmacist is a person that most customers, they'll see their pharmacists more than any of their health care professional in their lives. And Brian and Kevin Host and the team who run the pharmacy have done a really nice job with NPS cores, they're amongst the highest we've ever seen. So the personal contact, I think, is really helpful for a business that sells food and sells apparel, over the counter and the entire assortment that we sell.

It's Scott Mushkin again from R5. So just a follow-up on a couple of things. General merchandise categories, obviously, a lot of emphasis on apparel. But it would seem that you have probably other areas in general merch that you have opportunities. And I was wondering if you want to scale those and where you think those are. The second thing, we can all, at least I can see the -- probably a lot of people can see what you're doing with those 42 DCs and how much of an advantage it is. What are your other big opportunities and kind of scale those for us as we run through that? And finally, flagships like Springdale, how many can you have?

Sure. Let me take the first 2, and Latriece Watkins is going to walk up and talk about merchandising here in just a second. We're committed to the remodel program. We are committed to the changes, Scott, that we've made with the flagship stores that you saw. Some stores will get elements of that depending on configuration, size, shape, but we like what we've done in apparel. We like the layouts. We like the signing package, we like the navigation. We really like the areas that we have invested in for costumers and associates like break rooms and restrooms. I think those are all great. So those will continue to move forward. The common thread that is really important with automation is the data and the software. The automation itself, the installations in the 42 centers, that's just the ambient network. We have another set of technologies we'd love to share at some point that are on our perishable network similar to what I showed this morning. You got to see the MFC this week. But really what ties it together and makes it all efficient are the people that are leading and the tech that's powering it. And we talked about that being people-led and tech powered that's a really important layer. So the team has done a nice job with control systems and data layers, and I think that progress will just continue, and we'll see more and more productivity come out of all the investments as time goes on. And as far as general merchandise Latriece Watkins has been our key person now for a few weeks. So Latriece would love for you to give us your early thoughts.

Good afternoon. I think what you've heard us say is general merchandise is important to the mix of the basket for our portfolio for everything that we've said we wanted to deliver. And we know it's important to our customers. In discretionary categories, we've obviously seen more pressure there than we have on the food and consumable side at the core. But what we also know is we are famous for things like seasons, and you can see as we bring things to life in store during key seasons, general merchandise is an important part of those seasons. I think the second thing that's important about general -- excuse me, about general merchandise is it is core to how we think about driving the business forward. You would have seen, yes, apparel, but also home and the investments we've made in home and bringing that to life in our new stores. I think in total, we want to be a place that provides value to our customers across all the categories that they shop. And while they know us for some of the key categories like food and consumables, we know that general merchandise helps us round out that basket in a meaningful way. And it's an important part of getting -- while inflation is coming down, getting it in front of customers, so we can get it back in their baskets.

Marketplace plays a role, too. And Tom, a lot of progress has been made there that can expand brands and GM presence beyond just home.

Arian Razai with Guggenheim. I wanted to ask about advertising and maybe your aspirations to becoming a top 10 in the U.S.? And maybe what are you seeing with recessionary concerns? Like is there like a point resellers pulling back on investments? The second question I have about Flipkart. Can you talk a bit more about the market share? I know the growth in India is projected at a very high rate. And are you holding the market share? Like what's happening there? Or anything additional on Flipkart would be super helpful.

I'll start with Flipkart. So it continues to be the market-leading e-commerce platform across India. Since we made the acquisition, they have continued to meet our expectations at every step of the way. What I'm really interested and excited about is the way they're developing their merchandise capabilities, starting -- when they're originally founded, they started as a mobile phone business. They expanded that to actually books, then they went into mobile phones and then they expanded that out. And today, they have real strength, not only across like the core GM categories that they're originally famous for, but they very much, like Latriece was talking about, are building out a home business, which is very much in tune with the Indian consumer, particularly in Tier 2 and Tier 3 cities as they come online to shop for the first time, but equally have a very strong apparel business as well. In addition to the new business areas that they're building out, where we're now seeing some inflection point for them is their contribution margin positive. You've heard me say that previously, and they continue to improve on that position. So I'm really excited about the business because not only are the strength of engineering talent we have there and the infrastructure with the eKart distribution platform that they have right across India, but also the market opportunity continues to look really impressive to us as well. We recently made the move to split, Flipkart and PhonePe into 2 separate business. There's a number of reasons for doing that. Not only does it help us set up for long term for a path to IPO for each of them, but it also redomiciles our Flipkart business into India as well. It's a heavily financially regulated business. You may be aware we just did a fundraise on that business, which has got a 12 billion valuation. So in India, we've got these 2 great businesses. We've got the Flipkart e-commerce platform, which is expanding. And then we've got a payments business as well, which is equal really thinking about how it now changes from being a pure payments platform into insurance and into other areas beyond that. So every time everybody hears me talk about India, and we were just there a couple of weeks ago, we're doing a lot more things in India as well such as sourcing from there. You heard me talk about some of the development as well. It continues to be a very positive story for us.

Then Seth Dallaire, our Chief Revenue Officer, Seth, do you want to answer the question on advertising?

Sure. In terms of demand, we're actually seeing demand quite strong in a couple of different fronts. So -- and for a couple of different reasons. So 1P brands, as we see more consumers mix into some of the private label products, they step in and want to defend their category share and are oftentimes spending in that respect in advertising. And the technology investments that we've been making an improvements in the retail media products in ways that we allow brands to speak to customers while they're shopping, they're not as developed yet. And when we flipped our auction to a second price auction from a first price auction essentially, things reset at a lower price. So now if we have more advertisers coming in, there's actually quite a bit of value for advertisers in our sponsored products listings, which is where they can really performantly speak with customers and drive sales. On the 3P side of the business as well in the marketplace, which we talked about earlier, as we load more assortment into the e-comm side and into the marketplace, the more sellers participate with us, they want to bring their brands in front of customers as they're building baskets, particularly if they're new brands or brands that Walmart customers haven't seen before, which is also bringing in quite a bit of demand on the advertising side.

And just -- go ahead, Kath.

I was just going to say, from a Sam's perspective, we've seen double-digit growth in our ads business. And we call it MAP. I think 2 things that are worth calling out. One, as we stitch together online and offline transactions, advertisers are able to see if they present a digital ad to a member, if they put it into their basket online, that's what they've traditionally seen, but then now they can see the next time that person shops in club, do they also purchase it. That's giving a much more attractive return on advertising spend to our suppliers. So that's helping fuel the growth. I think the other part is, as we build out kind of cohorts in our membership, we can be very targeted around personalizing those offers. So instead of a digital ad going to everyone, it's very specific in who it goes to. And I'd say we're just in the beginning of that journey. So there's still a lot of upside in that area for us leaning into the future.

I was going to build on that advertising dollars tend to follow where the eyeballs are going. And if you look at our digital business, our e-commerce business, that was up 26% or 27% in the first quarter. Contrast that to others that are actually seeing declines there. So to build on Seth's point, like we're seeing strength in advertising because that's -- we're gaining share in a lot of these areas.

Just to add from a global perspective, it's the same piece where we've got the strongest digital offerings. We're seeing really strong growth coming through from advertising as well. And in fact, we're just about to put the -- some of the Flipkart advertising platforms into some of our markets as well to enable that growth as our global platform continues to get built out.

One of the -- Michael Lasser from UBS. One of the outcomes of this very cogent plan that you could -- that you're in the process of executing could be that you're going to put a lot of pressure on the others in retail. And we've seen, as others in retail experience own pressures and challenges, they tend to invest in price. We saw that with Dollar General. We saw that with Family Dollar. We saw it with Target. So how do you think about the possibility that you are so successful that it puts pressure on others, they invest in price, and you have to use some of this outsized profitability improvement to reinvest back in price, and it stifles the plans that you have?

The investments in productivity, automation to drive productivity and the business mix changes give us flexibility. That's the way that we think about it. So we just want to keep serving customers and members, keep the top line going. Be good merchants in general merchandise discretionary categories, manage that gross margin mix. And then we'll see how things play out. And we'll react as we need to react. We're going to be a price leader. We're based on value, but our newer business model gives us even more flexibility to make those kinds of choices if we need to.

Our long-term plan contemplates some amount of price investment. What we're trying to clarify is it's not that step change that we had a few years back. We feel like we're much better positioned going forward to react to sort of business as usual with respect to that.

Karen Short from Credit Suisse. I just want to ask a question on, one, the MFCs 'and two, the remodels. So I guess the first question is, obviously, the MFC is still very early stage. How quickly could you roll those out to a greater -- a much greater percent in the store base. And then as it relates to the remodels, obviously, that 20% number is outstanding, but could you accelerate annual remodel, I guess, cadence?

Yes. I'll take those in order. Excited about the MFC that you saw this week. It's the second location with that type of technology. We acquired the company that produced it and created it. So we've spent the last 6 months-or-so working through software, data, efficiency. And I think over time, we'll continue to optimize it. While there are many things we love about the site you saw, some of the areas need to be bigger, some need to be smaller. So we've learned a lot from that first unit. And over the next year, the next few dozen that we'll probably do in the next year, so we'll make some improvements that will make it even better for our associates and for customers. Ultimately though, it does have the significant impact on the capacity and accuracy of what can be picked at a store. Well, we said back at the ICM when we met a couple of months ago, is we're trying to make sure that we have the most efficient at last mile that we can. And a shorter last mile is a much better experience for the customer and for the cost of the business than a long last mile. So having stores in 4,000-plus locations, 4,700 locations enables us to consolidate really late, shorten the last mile and what the MFCs are doing is showing we can have a lot more productivity and a lot more accuracy. Early days, as we always said in the flagship stores, really pleased with the look, the merchandising, the aisles, the items as it all comes together. We're really pleased with that. And then we'll do more remodels this year than we've done in the last couple of years. We're on track to having a good year, probably around 700 remodels in total. A significant number of those, we're still working through how many will be like the flagship, but probably close to 40% to 50% of those this year will have that look and feel.

I want to ask about AI. Curious -- I know there's some application across the company. Curious, the path over the next, call it, 5 or even 10 years is saving money on the cost side, being more productive. And then if there's any applications that are already in your forecast, how AI is changing the business?

Suresh.

Love that question of the time, right? So a few things. The recent advances in generative AI, this is -- it's very, very significant, but it's only the latest of a long series of advancements that have happened when you look at the general field of machine learning and artificial intelligence. And we have been using ML and AI throughout our systems for a very long time. When you place an order online and if we want to do a smart substitution for you because in your order, that actually comes -- the recommendation actually comes from ML. We use natural language in a lot of our internal applications as well as with customer-facing applications as well. A large fraction of the customer contacts are now automatically answered by natural language processing systems. Even internationally, Chile, actually is one of the leaders who are there. So AI is deeply integrated into a lot of systems that we do. When we take a look at latest, the generative AI capabilities, we are very excited about that, by the way. You can think of it in sort of 2 large categories. One is around customer experience. So we think that these capabilities are going to really accelerate the customer experience in a very meaningful way. It will help our customers be able to navigate our selection better, we'll be -- it will be able to help our customers go through their shopping mission, if you would. We have given some examples before of, "Hey, I'm looking for a cell phone for my dad, what is the best cell phone that I want to find?" These kinds of shopping journeys, I think, generative AI can have a really positive impact. The other major area is internally around how we -- how our associates work, how we run our business, how we get insights from data. All of these are areas where, I think, as generative AI becomes small and more mature, we will start seeing the impact of that. And we have already started a number of initiatives where we are pulling in the latest developments that are happening outside, both for our internal tools and to drive customer experience.

Will we partner with other technology companies to leverage generative AI? Or will we build our own large language models or both?

Yes, both. There are a lot of foundational breakthroughs that have already happened, whether it's OpenAI, whether it is on Google side or even open source. We want to take advantage of all of the -- all of the breakthroughs that are happening. But we want to do that in such a way where we take that and we make it uniquely Walmart so that it works on Walmart data, speaks retail. And so for those kinds of things, we will take the developments outside and we will make it work within the Walmart environment in a way that is going to be beneficial for our associates and for our customers.

So when you think about increasingly intelligent software, others will build it. Some of it will be open source, some of it won't. We'll build our own. And then the question is who's got the data? We have data, a lot of it. So we can apply our own expertise. We have a great tech team these days, and we can partner with others where we should to try and put that to work in a way that we haven't before. And we use data today much more than we have in the past. But what's happened in recent months, we were on a trajectory before, but the breakthroughs of the recent months have created new opportunities for us to do some things in terms of personalization for customers and associates and find efficiencies in the business that we couldn't have done before. So one of the questions for business leaders is what's your mindset, your posture as it relates to it? And ours is to be aggressive. There are risks, and we are learning about those risks and thinking about those risks, protecting PII, managing data sets that include HIPAA information. There are places to be slow and thoughtful. There are other places where we can be faster and more aggressive. And I'm excited about the potential that our team has to take full advantage of this. And as we said today, I think Walmart's different that it was before. There's an aspect of being tech powered that is more real. And that's been true in different periods of our history, but it certainly feels very real today.

The one follow-up is that it's open-ended and theoretical. But if you have a $1, what's more transformative, automation or AI, over the next 5 to 10 years?

Well, we don't want to choose. I mean, to a degree, we've got this capital investment plan related to the automation, and that's in our plan, and we can see it through. And some of this work can pay for itself fairly quickly, and we've got room in the plan to be able to be aggressive.

Doug, if I could add...

Donna Morris leads our people team.

I think the exciting thing is a lot of our investments in technology have been focused on our customer and frankly, the ability to serve our customers. And for the most a lot of our technology was aimed at our very large frontline associate base, which it should be. But when we think of the early opportunities with Gen AI, it actually will change and shape the ways of working for those that are, frankly, are campus office associates and optimize their performance just like we've been leaning in to optimize and make our front line more effective and efficient. So the way we would like to think about is people led, and we can actually make our people better by augmenting their work through Gen AI. I think there's incredible opportunities across each of the functions to actually leverage. And from a people space in general, I think there's a disruption because we've long talked about the need for self-service. Most individuals just want to find things on their own. They don't want to call someone. They want to find it. And so in a world of Gen AI, it's opening up the opportunity for individuals to self-serve. So we're really excited. We're partnering with Suresh and his team. He's got a whole council set up, and I think you're going to see some pretty exciting things that we can do to support our campus office associates being as effective just like we're making the jobs in the front line better because of technology.

Donna led the people team for a software company before she joined us in 2020, just in time for the pandemic. And those skills are showing up in the work that she's leading today.

It's Scott Mushkin again at R5. So I'm going to try to ask Michael's question again on you guys are incredibly disruptive at this point in retail, particularly consumables, spreading a number of your competitors, you've been taking a lot of share out of, inflation has kind of tapered that over a little bit. We've seen a lot of people on the ropes, we get into a recession, they get desperate. So I'm a big believer in Andy Grove, only the paranoid survive. How paranoid were you and are you that some of these guys would come a little unglued as inflation cools down and the volume losses more exposed?

Paranoia and humility are still at a high level here. But as John David mentioned, we've got some things built into our plan. And we have a business model transformation underway that gives us more flexibility. I don't have anything more to say about that right now. John David, do you?

Well, just maybe to go kind of tie this back to the question that was raised earlier around how this relates to profit growth relative to sales. We're not going to do that every single quarter, meaning outgrow sales with our profit. There's going to be quarters where that's just not the case for certain reasons. But what we've talked about is over a multiyear period, we believe that can happen. And we think that we're set up very well for that to happen. We operate in a very competitive environment. But given sort of the structural nature of what we're doing, we think that that's the outcome.

Mike Baker from D.A. Davidson. Again, with a couple of follow-ups. One sort of what Scott just asked, but just more specifically, on the promotional environment, like a lot of retailers missed in the last couple of weeks. Are you seeing it any more promotional now than maybe you thought it would be 3 months ago? And then another follow-up just on the remodels. Remind us what the incremental lift you're seeing and if you want to talk about the cost, the return on capital, any of those things yet? Or is it too early to discuss those. And actually one more there. You just said 700 stores. Prior it was like 300. So I assume the 700 is over time, but -- did I hear that right? And what's the time frame for that?

Yes, let me clarify. In the total number of locations, about 700 remodels across the United States, about half of those, slightly less, are going to look like the flagship stores that you've seen. That's the plan. The first stores had to be assembled constructed on site and what the team does that they're great at is engineer where we can move things at pace and at scale so that they can happen faster with less cost. So I think we'll see the cost of those remodels continue to come down. But what we're going to be really careful to do is make sure that we maintain the same customer experience in those stores as what you saw yesterday and what you've seen in the Northeast. So the fixturing is important, the look and feel, the merchandise look and feel is important. And we know it's more attractive for more suppliers to sell into an environment that comes together the way that, that did. On product, I think I would just reiterate, we're focused on trying to keep prices as low as possible. You heard the team all throughout the morning. And this stubborn inflation, particularly in dry grocery, is something that we want to continue to work on. I think I said it earlier, but we start every week with customer satisfaction, Net Promoter Scores and where we see our pricing, how it mixes out versus the market. And that's a really important thing for us to always maintain in this new business model, if you will, that has a lot more options for our customers is important. I think question about is it automation or software will always be both because the consumer environment that we operate in, the consumers we serve, they're dynamic. So we can't just automate the same process over and over and over because customer changes. And the software looking ahead at things like intent measuring demand all across the market, help us determine where the customer is going and be able to use the more fluid aspects of our supply chain dynamically to get ahead of where the customers are going.

One more, just a follow-up. You said -- so what are the other half of the 700 would look like? Talking about the flagship, what's the other half?

Yes. There'll be similar in nature. They'll have a lot of the same colors, the same signing program, clear tile -- take tile off the floor, great facilities for associates in the front. They won't have all the assortment that you -- what you would see in the flagship stores. And that's really a matter of pace on how fast we can bring all these things to life. It's a large footprint. And for suppliers, and that would include merchandise suppliers and fixture equipment suppliers, it does take some time to change the program as we go.

And Mike, none of us are assuming that we see 20% lift in sales in perpetuity, just to be clear. But we do like what we see. And you would expect an uplift when you do a new remodel like that. And to be clear, we've only done a few but given the improvement that we've seen in the customer experience and the shopping experience gives us conviction around doing this at scale in our network.

We're going to leave it there for questions. Doug, I'll turn it over to you for closing remarks.

Thanks, again, for coming. Hopefully, with the time we spent together this year, you're starting to get a sense for how the company has changed and is changing. Sometimes people call us a big box retailer, and I think that's really not the right definition at this point. It's inadequate. And even brick-and-mortar is inadequate. We're a different company than we were. We have a different set of capabilities. We can serve people in a different way, and the flow through as it relates to the income statement and return on investment is different as a result. And really excited about our opportunity. We don't control everything happening in the external environment. We're built to adapt and have been adopting and will continue to do that based on what the short-term circumstances are. The story we've been telling you this year is about not just this year, but beyond this year, and we've got that kind of long-term view. So thanks, again, for coming. Good to see you all.