Walmart Inc. (WMT) Earnings Call Transcript & Summary

Women in Investing conference. We're so excited to get this off the ground and see everybody here. The idea for this conference actually started many years ago, Steph Wissink, the Head of IR and I, when we were a sell-side analyst many years ago, we talked about how to promote women on Wall Street more because we were kind of tired of being the only women in the room in all of our meetings. And unfortunately, we just didn't have the right vehicle at the time. And so now share, we felt that we had the right vehicle within partnership with [ Alenia ], we thought it would be a great opportunity for us to bring women and investing together with the powerful, the talented women that are crafting the strategy, stories for their companies. So we thought we'd bring them all here and listen to them. I hope today you learn a lot. I hope that you get inspired by some of these women that have these wonderful careers. And please ask questions, introduce yourselves as opportunities arise. And hopefully, you'll -- you never know somebody could potentially impact your career or your portfolio. So with that, I'm going to introduce the -- our guest speaker, Tara Dziedzic, the Head of U.S. listings for New York Stock Exchange. So thank you so much for being here.

So first of all, I want to thank [ Shannon ], and ask [indiscernible] advisory for being here and bringing the SHARE series to 11 Wall Street. We really appreciate you all showing up Friday morning in December during the holiday season. So hope I you're excited and ready for this -- drink lots of coffee and have [indiscernible] today. So I have the listing team for the U.S. issues here in the New York Stock Exchange. [indiscernible] And what we do is engage with our listed companies. We have 2,300 companies from 47 countries around the world. And in aggregate, it's just such a tremendous phenomenal, the best-governed companies in the world, so much potential. And what we do is we democratize access for investors to participate in the growth and that growth story of listed companies. when you're private, when a company is private, there are only a few select investors and early founders that get to participate, and those really exciting in the growth years. And another thing that happens when a company goes public is job creation of a huge percentage of employment opportunities happen after a company pivots from private to public. So, we work with our listed companies and encourage them to leverage the New York Stock Exchange, our community, better trading, the tools and services and resources and then our visibility platform. But I will tell you a little bit about the New York Stock Exchange just because you are in a spot of really significant historical roots, but also pointing to the future. It's a very pivotal spot. So when you walk in the building, if you look through your shoulder, there's a giant state of George Washington. That's where our first President took the oath of office. So George Washington was sworn-in in that location, it was the capital of the United States at the time. A lot of folks don't know that the capital of the New York actually -- of the -- our country started in New York. It's also where the bill of rights was ratified, the Supreme Court met for the first time, Congress that for the first time. And importantly, Alexander Hamilton, hatches plan to write the report on the federal credit. And this is really where our country and our economy got it start right at the corner of Wall and Broad. So the New York Stock Exchange started 3 short years after our first president took oath of office. And also right down the street under an American Sycamore tree, they used to make buttons out of the bark, so it's called the buttonwood agreement. And that agreement really sets a way the stage for the way stocks are exchanged and were exchanged. Fast forward, we've had different locations at the time, we're literally trading under a tree with these 24 brokers. And then if it was raining, they'd go into the Tontine Coffee House. So we had a few different locations. We didn't settle in this building until 1903. But through every juncture of our evolution, we've been very forward thinking, adopted change, innovated, embraced technology. But one piece of our history that's really kind of fascinating. We honor in this room, which was when the first woman got her seat on the New York Stock Exchange. Muriel Siebert, she went by Mickie, pioneer. She literally like created the discount brokerage industry. She was a visionary and if you do the math, when she got her badge in 1967, we were founded in 1792, that took 175 years for the first woman to be able to participate as a seat owner. So we have a lot of women who worked in different capacities and through World War II in particular, there were a lot of women on the floor. And there's women who started brokerage firms in parts of the industry and the ecosystem, but Mickie really did breakthrough glass ceilings and became the first woman member. Then fast forward even further, our first woman President, Stacey Cunningham, we have a woman President of the New York Stock Exchange. Now, Lynn Martin. But it was 2018 that Stacey Cunningham became the first President of the New York Stock Exchange. So it took another 50 years after Mickie broke those glass ceilings and really paved the way and was a trailblazer for opportunities. So it's always good to introspect. Right now, our Board has a majority of women on our Board, the New York Stock Exchange Chair is a woman, Sharon Bowen, She's also the first woman of color -- person of color to serve as our Chair. And I really think that we are progressive and have embraced diversity amongst not just the trading floor, our listed company community and our own board structure. But one thing we do help our companies do is meet their diversity goals as well. We have a program called the Board Advisory Council, which is really remarkable where we help match the supply and demand. We have candidates who are qualified CEO nominated who are Board ready. And then that's the supply side. The demand side is our 2,300 [indiscernible] issuers, so we're always looking at Board refreshment to make sure that there's diversity where they want it. So we help our issuers with that. I'm sure you're going to have -- you definitely have a lot of great speakers today [indiscernible] Stephanie. So I just want you to enjoy it, think about how important and how full this spot is that you are today and have a great time. So thanks for coming in.

Okay. We are going to have our first presentation or fireside chat, I should say. Steph Wissink, the SVP of IR is going to start up Kickoff today and with her moderator, Deepti Manjee from Cowen. You guys want to come up here and sit.

Good morning, everyone. Thank you all for being here. As Shannon said, I'm Deepti Manjee, I am a Managing Director at TD Cowen, and it's a privilege for me to be here in this room alongside Steph Wissink from Walmart. I'll have Steph introduce yourself, and we can dive right into Q&A. I'm really excited to moderate this panel.

Thank you. It's good to be here with you. Thanks, everyone, for joining. So I'm Steph, I lead Investor Relations at Walmart. And as Tara referenced, 2,300 companies listed on the New York Stock Exchange, they all probably have an IR person or an outsourced IR consultancy that they use. Investor Relations is one function inside the organization that's responsible for all of our communications to our stakeholders. I've been in this role for just over a year. So I'm still a newbie in IR. I was on Wall Street for about 25 years as an equity research analyst at an investment bank covering the retail and consumer space. So loved that. [indiscernible] got invited to do this role and have really loved this as well. If you're not familiar with Walmart, we're not doing our job. So Walmart is a retailer [indiscernible] the largest retailer. We have about $650 billion of revenue. Our largest segment is the Walmart U.S. segment, which is the one that you're probably familiar with. It's about $450 billion. And we have about 5,000 locations. And one of the stats we love to share is that we have stores within 10 miles of 90% of the U.S. population. And worldwide, we serve about 240 million customers a week. So it's a very large enterprise, and we'll talk a little bit about that, but thank you for having me here today.

Terrific. So maybe you gave a somewhat of a snapshot, but just to set the stage a bit further. Can you just tell us a little bit about like what are the values of the company, what makes you super excited as an employee in your time at Walmart?

Yes. It's... The company is quite remarkable. So it started in 1962 by a man with the name of Sam Walton, Sam and his wife, Helen, built the company together. So there's already a signal that Sam was progressive and diverse in his thinking. Helen was very influential. Actually, she's still the spirit of element they're still very present in our company. The company listed on the New York Stock Exchange in 1970. And I went back actually do this down last night. So the stock listed was $16.50 at the time, which was actually a quite high stock price relative to the company's size. We've split the stock 11x since then. So if you had purchased 100 shares when we listed, today, it would be worth about $32 million. So you wouldn't be as rich as the Waltons, but you'd be richer. We -- in 1980, we reached a milestone, $1 billion in sales. So the company started in the '62 in 1980 was a $1 billion revenue company. In 1993, we had our first $1 billion sales week. So you can see how quickly the company became quite large. I made a note 2 in 1997. This was a milestone year for me because I graduated around that time, and they reached $100 billion in sales. So growing really, really fast. And then, of course, this last year, we were about $650 billion in sales. One thing I'll share about the culture of the company is -- and I studied a lot of companies over my career, and I'd love to see some of my former peers and colleagues out there. You learn a lot about a company by studying its financial history and interacting with its management team and talking to its people. And one of the true common threads of Walmart is that Sam Walton's founding spirit is still very much alive in our company. And in 1992, this is just a few years before -- excuse me, so a few years before he passed away, Sam received the Medal of Freedom from the President. It was George Bush Senior at that time. And he made a comment in that speech of receiving the mental freedom that the goal for Walmart was to help people save money so they could look better. And that's become our rallying cry as a culture. And it's still in our statement of purpose. It is clustered all over the walls of our headquarters in Bentonville, Arkansas. And every day, our people go to work to try to make things more affordable for people that are living paycheck to paycheck. And increasingly, people that want to save money because that's the best value hack that there is to live a better life. And so we spend a lot of time. We sell a lot of merchandise, and we want to be a price leader. Increasingly, we also want to be known for other things to like convenience. So Sam's spirit, Helen's spirit are very much alive in the company. And the way we describe ourselves today is that we're a people-led tech-powered omnichannel retailer, helping people save money and live better. So Sam's world is still alive.

Terrific. And that kind of leads me to the next question, which is, obviously, since its inception in the '60s, Walmart has had a huge impact in reshaping the retail landscape. There's many retailers that I grew up with in the 80s and the 90s that don't exist today, right? And Walmart has stood the test of time, partly, it's due to innovation and how you've really like been at the forefront of the intersection of physical and digital. And so can you speak a little bit about that?

Yes. This goes back to the founding. Sam really believed in the idea of community-based retail that having a store in the center of town, which was how he started the business, that, that was going to be something that really endured, through the ages. And so certainly, the form factor has changed at the time it was called the Five-and-dime. It's kind of a variety store with a few things that you would buy infrequently and a lot of things that you would buy frequently. And what it's changed into now is 65% of our business is in the grocery category. So food and consumables, things like beauty and pet and laundry care and the food that you consume, nutrition. And so there's an evolution to the business model. But this idea of being the hub of the community is still very much alive and well. And again, we're in 5,000 locations. So we often are the central point for a lot of these small communities. So the change that you've seen probably in the last decade or so, maybe even the last 15 to 20 years is the digitization of our business, which starts to change the idea of community boundaries because it's less now about how far you can travel, and it's more about how quickly we can get goods to you. And so e-commerce has really reshaped the business over the last 15 to 20 years or so. And our e-commerce business this year will be run rating about $100 billion. So it's not small. It's quite large actually. And we can learn a lot about how to sell product digitally. And I wouldn't say we're cutting edge in that area. We're certainly learning from the best that are out there, but we're hopeful to be even more of a shape shaper of the retail industry of the future. And the one area I would keep an eye on is how content is being connected to commerce. And the idea of shoppable content, if you're on social media, you're already participating in that. But we just launched our first rom-commerce content, so you can actually shop from these little digital shorts on TikTok now and all of the merchandise is available at Walmart. And so it's really interesting to see customers engaging with content as inspiration and clicking through it to build shopping baskets in a digital domain.

And I think beyond e-commerce, I think there's been a lot of shift like -- particularly post-COVID or during COVID where consumers are doing curbside pickup. There's also your membership program in same-day delivery. And so how has that been like a focal point for the company?

Yes. This is actually a really interesting trend that our business has deviated from the average. The average is that things spike during the pandemic in terms of digital consumption, including some of these omnicommerce areas like curbside and delivery and then had pulled back. Our business has actually been accelerating on the backside. And so our curbside and delivery business is compounding at over 50% growth, and it accounts for more than half now. of our e-commerce business. And what I really love about this is there is still an engagement or a touch point with a Walmart associate. So we can still deliver our value promise all the way through to the delivery or to the curbside experience. But what we find is that customers are in their minds now are prioritizing Walmart not only for the best prices, but the most convenient option. And this has really been a surprise to us. We didn't expect to see the resiliency of our online pickup and delivery business. And it's certainly one of the ways in which we're differentiating ourselves today. Our business in the most recent quarter was still growing in the mid-single digits. Our e-commerce business was up over 24%. And so you're seeing that distortion in customer prioritization towards convenience alongside value. So that was a really important validation point for us.

And then you spoke a little bit about higher engaging on TikTok to create a shopping experience. But just more broadly, like how is Walmart targeting the Gen Z generation? And how do you work with influencers, micro influencers to really draw people into the brand and like an appeal to a younger demographic.

Yes. This is a really important question because mind share is just as important sometimes as market share. You're going to hear later today from some really, really cool data companies that are studying what consumers are talking about, and I just find this area fascinating. This is now Walmart's strong suit. Sam Walton was a devour of vanilla ice cream. He like things to be simple, trusted, consistent regardless of where you are in the world, if you order a bowl of vanilla ice cream, you kind of know what you're going to get. And that was his approach. He then allowed the store managers to localize the feel of the store. But one thing we've never done super well is market our brand. What does Walmart mean in the world? What does it stand for in terms of a brand equity or brand ethos. We brought in a new head of marketing a few years ago that comes out of some much more forward thinking and progressive marketing platforms, other brands. And he's really started to reshape the concept of the cultural relevance of Walmart. So a good example is we are using the Mean Girls to do our holiday campaign. We're seeing -- impressions are up 300%, statistics that would say, okay, wait, people are now starting to talk a little bit differently about Walmart. That's -- it's going to take some time for us to kind of calibrate people's understanding of our business proposition and also our value proposition. But we see consistent signs of evidence that not only is the foundation of the business driving results, but our equity perception, our brand perception is starting to change. Obviously, we would love it if everybody thought it was cool to shop at Walmart. We're working in that direction. But I think that we're letting go some of that legacy of people having to shop at Walmart because they can't afford to shop somewhere else. We had to choose to shop with us. And so ensuring that the experience overall meets those expectations. And you talked about millennials, Gen Z and kind of the next generation. Boy, expectations are high. It is you're walking around with access to the entire world in your pocket. And the best of every experience sets the standard for what you expect. And so learning about the next generation of consumers is going to be really important to ensuring that we stay culturally relevant. The supercenter was designed in the '80s, right? We need to make sure that it's still relevant in the 2080. So working hard for that. But yes, I think part of it is marketing, brand equity and building a change brand perception of Walmart.

And Steph, you mentioned like over 60% is food and consumables in terms of your business mix. But I've seen a strong shift like just even personally where like fashion, for example, is being promoted by influencers on Instagram. There's like a scuba jacket that I feel like is trending my sister actually work for Walmart e-commerce. So she sometimes I'm like, oh, where did you get that and she's like Walmart. And so I think that I'm seeing a shift in other categories. So can you speak to a little bit about how there's been a push in just broader retail categories as well.

Yes, I grab your seat. Because just 3 years ago, we didn't even use influencers. We're a little bit late to the party, but with that, understanding what the role of influencers are in the broader portfolio of marketing activation. And influencers are really important in categories where you have trend inspiration and where you're looking for someone to curate. I mean if you go to our website today, we have 200 million apparel items. There's not enough time to scroll through 200 million items. And so content creators provide a really unique bridge to create unique cohorts of users or customers that are inspired by these content creators. And we love this network of creators that are out there. And what we love even more is the organic nature in which they build baskets for us. So we do not go to them and say, we want you to pick these 7 items and build this outfit because it matches our marketing campaign. We effectively give them credit and say, shop our site, find the things that you think would be most relevant to your community, your followers and help inspire your followers. And it's a really effective channel to curate, build community and also change that perception. So we're a big believer in content creators. Actually, one of my former associates from a prior Wall Street firm is now an influencer with 1 million followers, and I learned so much from her about how that business model works, but they want to create relevant content too and it's a business. And so when you can match kind of relevant access and high convenience and affordability with relevant content and content creators that are incredibly artistic and influential. It's a really great combination.

I mean I think that's the biggest benefit. I mean I have 2 kids under the age of 3. And I think that it's just -- like we will [indiscernible] on these influencers as a form of discovery because I just don't have time to actually go through, like, as you said, go through sites and search. So...

My grandmother used to shop at department stores and she had a personal shopper, which effectively was just a physical way that we're now on digital like that person would go through the store and pick out all the items that she thought, my grandmother would like and my grandmother would just turn up and going to the dressing room and then that woman would help her style the outfits. This is just a digital version of that and at scale, right? Now you've got millions and millions of content creators and there's a whole data engine behind that. So you can learn around what's trending, what's working. But yes, I always go back to that thought of the concept of having someone curate and select. It was unfortunately the only accessible to people that could afford to pay for a personal shopper. Now anybody regardless of income level can be inspired by these content creators. Instagram is free, right?

And there's trust. I mean it's anchored in trust.

Yes.

Great. So I think that as part of any retailer that kind of succeeds, there's an element of like listening to the consumer feedback loops. And so how are you listening to your consumer? And to what extent is that impacting or pivoting strategy and approach?

Yes, there's 2 tiers of customer insights. One is where we go out to our customer base and about 150,000 or 200,000 customers a week will provide feedback to us. They'll click on a QR code at the bottom of a receipt or they'll get an e-mail survey. And so that's more of a pulse how are they feeling? What are they thinking about? Clearly, transaction data is also a layer of data that tells us a lot about what they're doing. So how are you feeling? What are you doing? But then there's this robust set of alternative data that exists to help make sense of the why. Why might this be happening? We have added another layer to that stack. So kind of think of it as a 3-tier stack with 2 major bands, which is membership. When you engage in a membership model, whether that's at a club like a Sam's Club, which is part of our portfolio or Walmart Plus, which is within our Walmart ecosystem, the customer is giving you information in exchange for personalization. So there's a contract that's essentially established in that relationship. And so we have a growing, sizable and growing membership base. And so we're studying that membership base a lot. And it's not just high-income consumers. It's across the board, and we have a very large business, helping people save money in food, necessities, using government assistance programs, and so we're studying that cohort as well. But we're always looking for signals in the data that would suggest that we're meeting and exceeding or maybe not meeting and exceeding our customers' expectations. And that -- one of the biggest surprises for me coming into Walmart from the outside, having studied the company for 20 years, it's just how tactical the business is. We look at customer feedback every week, and we make decisions that you would see in our stores every week based on that feedback. So it's a real integrated part of the process.

You mentioned that there were -- it was the 200 million items on the...

400 million items in the website. 200 million in apparel.

Oh, wow. So I mean, to what extent is it like marketplace brands? Or can you talk a little bit about the marketplace strategy overall? And how is it differentiated from some of your competitors so...

Yes. It's a great question. So marketplace is a bit of a bizarre concept from a customer angle because you really don't know what products are Walmart own, what products are owned by a seller. It's a [indiscernible] to Amazon as well, so it's not unique to Walmart. But as we have thought about business management and risk management, inventory is a very big cost for us. So our business is $650 billion. 75% of sales are in inventory costs and costs related to moving that inventory around. So it's a very big expense. And there are categories like apparel and home, when you think about 400 million items on the website, 200 million in apparel, 60 million in home, those are categories that are very choice rich, trends, fashion, inspiration. So those are areas where we may not want to own all of that inventory. So we invite sellers in categories to come list on our website to effectively be almost what you describe as marketplace sellers, but some like setting up a room with tables and everybody comes in and sell their wares just done in the digital format. So we have thousands of sellers now that list on our website. And what's been the biggest surprise has been the number of brands that are coming to us saying, "Boy, it's really expensive for us as an e-commerce or digitally native company to go out and acquire customers, Walmart, you have a lot of customers. you need brands." And so brands like Solo stove, Dyson, Crocs, Michael Kors, others that you might historically have only found at department stores are coming to us and listing on our site as sellers and they're building a lot of brand shops online, and it's giving access to the Walmart customer base, giving access to new brands and things that they maybe already were buying, but they were buying away from us. And so it's a really exciting part of the business, one of the fastest growth areas of the business right now is marketplace.

Now how -- like AI, obviously, is extremely topical. It's been around for a while, but I think that it is something that's extremely top of mind from a consumer perspective, how is Walmart using AI? And how do you -- like to what extent is it shaping the consumer experience today? And to what extent do you feel like it will shape the consumer retail experience in store?

So we've been using AI for 7 years in our business. So we're getting pretty good at it. Generative AI is new and really exciting. We have a lot of areas of our business that are highly repetitive and relatively mundane. We have a very large claims and call center. We have a big customer base, and they pick up the phone and call the 1-800 number that they see on the poster in the store, and they've got complaints and need. And a lot of that's done through text-based note-taking. And that's one area where we've installed some AI and machine learning to help us synthesize a lot of conversational text. But as generative AI becomes more powerful, it starts to predict and anticipate and starts to create new forms of solutions. So really excited about the 3 areas where you're likely to see for Walmart is on the first side would be customer-facing, AI, influenced activity. So search, our digital experience, you'll see some of it in store as well in terms of how we market and build advertising in our stores. The second area is in employee productivity. So how do we task manage? How do we blend kind of someone's workday or schedule with the tasks that are the most important and the most impactful for the customer. So the system can start to calibrate how Workday might look. And then the last I would be the side that's the most hidden. It's back kind of inside the customer data and what can we do with generative AI and AI machine learning to help us realize key insights faster and apply those insights into our physical and digital business sooner so that when the customer gives us a signal, it doesn't take us so long to identify the signal and ultimately put it into practice. So speed is a key piece that's in the background. It depends on who you're talking to at Walmart, but everybody is really excited about AI for slightly different reasons. I'm already seeing some of the effects of the customer facing AI, and I probably wouldn't know it's AI, which is exactly what it should be. You shouldn't feel it's forced AI, but it's become really compelling as a key value unlock for us.

Got it. I think we only have time for one more question. So I think that -- well -- so let's end with this, which is like at the core of Walmart's value, empowering and delighting the consumer. And we're like, in this backdrop, it's like a more difficult macroeconomic environment. And so what are you -- with inflation and stuff. And so how is Walmart giving back to the consumer today?

Yes. It's a great question. It's a really important time for giving back to the consumer. We're fighting really hard to bring prices down. And you'll see it. Our Thanksgiving meal is a great example. We effectively took out all of the inflation and more in the food basket this year. We're doing that at the holiday season as well. We launched 25 great toys under $25. And if you price compare those to other retailers, you'll see you're saving about 50% on average, buying at Walmart. So we're really aware of the stress that the average household is feeling today, and we were just talking even earlier today, the cost of capital borrowing has gone up. And so the consumer's ability to spend into some of the extravagance that maybe we've had over the last couple of years is really starting to come back into normal spending patterns. So fourth quarter is a really important quarter for us to fight hard, and we do that on behalf of our customers, working with thousands and thousands of partners and suppliers. But the institutional investor community is really curious about what's going to happen next year. Are we in an environment where inflation comes down as you're probably reading in the headlines, the Fed is working really hard to bring inflation down. We'd like to bring it down faster. We'd like to make things more affordable. And I'll just close with the thought of if you have a fixed amount of dollars to spend and your food and consumables and your necessities are costing you more. The only way to do -- to spend on those things that you need is to borrow from the wallet of the things that you want. Well, that doesn't bring joy to a lot of people, especially if it's that way for a long time. And so we start to see some people are kind of growing tired of having to pay more for the things that they need. And so we want to bring pricing down in those categories as quickly as we can to unlock some wallet share, so people can spend into the things that really bring them a lot of joy.

And it's also time and convenience, right? And you talked about the gamification experience in the store but that...

I think for all retailers today, there's a really good question around what is the role of the store. For us in grocery, maybe a bit more obvious. But we're asking the customer to give us time, and time is money. And so that trade-off of time means that store visit needs to be worth it. And so you're going to see us also invest in our stores in a new way. And if you're in the New York area, we have a great example of this in Teterboro, New Jersey, store is wonderfully done, but you're going to see more of a store experience investment from us to make sure that if you're going to give us your time that we want to make it well worth it. And so it's not a bad experience when you come visit a Walmart.

Awesome. Well, thank you so much.