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    Walmart (WMT)

    Q1 2025 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$59.83Last close (May 15, 2024)
    Post-Earnings Price$64.22Open (May 16, 2024)
    Price Change
    $4.39(+7.34%)

    What went well

    • Walmart's eCommerce growth remains robust, with U.S. eCommerce sales up 22%, driven by strong performance in the Marketplace and expansion in categories like apparel and fashion online.
    • International operations are delivering exceptional results, with top-line growth of 10.7% and bottom-line growth of 27%. Initiatives like Flipkart in India and Sam's Club in China are contributing significantly, with Flipkart's Myntra becoming EBITDA positive and Sam's Club China achieving a 50-50 split between offline and online sales.
    • Walmart is enhancing customer convenience and experience through technology investments, such as AI-driven search improvements and AI-powered exit technology in Sam's Club, leading to increased membership engagement and a higher proportion of Plus memberships at 54% of the member base, up 330 basis points year-over-year.

    What went wrong

    • Merchandise mix remains a headwind to margins, as customers are spending more on non-discretionary categories (food and consumables) and less on higher-margin general merchandise.
    • Despite strong Q1 results, the company is cautious about raising full-year guidance, citing uncertainty in the macroeconomic environment and consumer economic conditions, indicating potential challenges ahead.
    • Closure of all 51 U.S. health care clinics due to inability to achieve acceptable profitability and elimination of some home office roles, which may suggest difficulties in diversifying revenue streams and potential cost-cutting measures.

    Q&A Summary

    1. E-commerce Growth and Margin Expansion
      Q: How is e-commerce driving margin improvement?
      A: E-commerce incremental margins reached 12.5%, about three times our overall margin, reflecting strong profitable growth in online sales and new businesses like advertising and membership.

    2. International Performance and Flipkart IPO
      Q: What's driving strong international margins and Flipkart's status?
      A: International operating income grew 27%, aided by ecosystem growth in areas like digital connectivity in Mexico and sustainable e-commerce in China. Flipkart's Myntra is EBITDA positive for two quarters, and we're exploring the right time to IPO Flipkart.

    3. Gross Margin Outlook Amid Deflation
      Q: How are gross margins improving despite deflation and rollbacks?
      A: Gross margin benefits from lower markdowns due to better inventory, and growth in higher-margin businesses like advertising and Marketplace. Merchandise margins remain focused on value, even as gross margins evolve.

    4. Impact of Marketplace on General Merchandise
      Q: Is Marketplace growth affecting general merchandise sales?
      A: Marketplace growth in categories like pets and beauty exceeds 30%, attracting customers to new areas. While general merchandise comps are roughly flat, the expanded assortment increases overall GMV without cannibalizing core sales.

    5. Higher-Income Consumer Engagement
      Q: How are you attracting higher-income consumers?
      A: By enhancing convenience through delivery and online offerings, we're seeing growth with higher-income households, which comprise about one-third of our customer base. Improvements in fresh food and delivery services are resonating across income groups.

    6. Operating Expenses and Investment Outlook
      Q: Any updates on operating expenses and investments for Q2?
      A: While Q1 outperformed, some benefits won't repeat in Q2, such as favorable seasonal events. Planned technology investments and higher depreciation will occur, but we still see opportunity to outperform guidance.

    7. Consumer Spending Trends and Mix
      Q: What are the trends in general merchandise spending?
      A: Consumer behavior remains consistent, with minimal mix shifts. March was strong due to favorable weather and Easter timing, and similar trends are continuing into May.

    8. Walmart+ Membership Growth
      Q: How is Walmart+ differentiating in a crowded membership market?
      A: Walmart+ is growing double digits, offering unlimited deliveries and saving customers time and money. Improving perfect order rates enhances the value proposition, and we're pleased with the progress.

    9. General Merchandise Opportunities and AI
      Q: What are the opportunities in general merchandise and AI's role?
      A: We're excited about categories like apparel and hardlines, with e-commerce growth at 22%. AI is enhancing our search capabilities, creating a more solution-oriented experience for customers.

    10. Inflation Expectations Going Forward
      Q: Do you expect inflation levels to stay low?
      A: We expect inflation to remain around current levels, with general merchandise being deflationary, and consumables and food slightly above flat to up 1%.

    11. Factors Driving Business Performance
      Q: How do internal strategies vs. external factors drive performance?
      A: Our results reflect strong execution and focus on value and convenience. We prioritize internal metrics like perfect order scores, which improved nearly 900 basis points, over external factors.

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