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    Walmart Inc (WMT)

    Q2 2025 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$59.31May 1, 2024
    Final Price$69.79August 1, 2024
    Price Change$10.48
    % Change+17.67%

    What went well

    • Walmart is experiencing all-time high membership growth and Plus member penetration, particularly among Gen Z and millennials, driving operating income growth and indicating strong future potential.
    • The company is making significant progress in automation, enhancing supply chain efficiency and store operations, which is expected to improve productivity and support long-term growth.
    • Walmart anticipates a strong holiday season, with positive early back-to-school sales suggesting strong performance for Halloween and Christmas, and is proactively increasing inventory to meet demand.

    What went wrong

    • Management is cautious about the economic and geopolitical environment, noting that "given the state of the economy, the election, set of affairs globally, there's reason to be appropriately measured in our outlook for the back half of the year," suggesting potential headwinds.
    • Ongoing investments may pressure operating margins. The company is being "thoughtful and deliberate about reinvestment," including price reductions and associate wages. Management acknowledges that "our operating income percentage came down for a period of years as we made investments," indicating potential margin pressures ahead.
    • E-commerce profitability remains uncertain, with management emphasizing that they are "getting into that zone where it's going to cross the threshold" but not providing a definitive time frame. This ongoing unprofitability in e-commerce could weigh on overall profitability.

    Q&A Summary

    1. Consumer Outlook & Guidance
      Q: Are you seeing a weaker consumer? How is guidance affected?
      A: Management reports that the consumer remains strong with consistent sales across months, including July being slightly higher. They have not seen a step down in consumer behavior and expect this trend to continue into the back half of the year. They remain measured in their outlook due to economic factors but feel well-positioned irrespective of economic conditions.

    2. eCommerce Profitability Timeline
      Q: When will U.S. eCommerce turn profitable?
      A: Management indicates progress in core eCommerce profitability, stating it was the single largest contributor to operating income improvement. However, they avoid specific timelines and emphasize focusing on the total omni business, including stores and clubs.

    3. EBIT Growth vs Sales Growth
      Q: Is EBIT growth outpacing sales growth sustainable?
      A: Management is deliberately reinvesting in the business while managing short-term results. They acknowledge a spread between EBIT growth and sales growth but emphasize a focus on long-term momentum rather than short-term metrics.

    4. Gross Margin Outlook
      Q: How do you view gross margin in the second half?
      A: Gross margin benefited from business mix and improvements in core eCommerce losses. Management is not raising prices but lowering them, aiming to drive everyday low prices for customers.

    5. Health & Wellness Momentum
      Q: Can you discuss health and wellness sales and margins?
      A: Growth in health and wellness is led by GLP-1 drugs and supplements. Merchants are managing product mix to maintain margins despite uneven growth.

    6. Membership Growth Impact
      Q: Is increased membership driving operating income growth?
      A: All-time high membership growth, especially at Sam’s Club, is contributing significantly to operating income. 50% of growth comes from Gen Z and millennials, with strong digital engagement enhancing member spend and renewal rates.

    7. Pricing and Deflation Impact
      Q: How is deflation affecting pricing and private label?
      A: Management is lowering prices, especially in fresh food and general merchandise. While private brand may continue to grow, they prefer to sell brands and encourage suppliers to invest in pricing.

    8. Automation Progress
      Q: Where are you on the automation journey?
      A: They are on track with automation plans, expecting about 3,000 stores to receive deliveries from automated facilities by year-end. Automation improves efficiency and helps associates better serve customers.

    9. Income Cohort Sales Growth
      Q: Are low-income shoppers contributing to comp growth?
      A: Both low and high-income customers are contributing to growth; value matters to everyone. Low-income shoppers focus on opening price points, but higher-income customers are buying more discretionary goods.

    10. General Merchandise Momentum
      Q: Will general merchandise momentum continue?
      A: General merchandise saw positive growth for the first time in 11 quarters. Expansion in Marketplace and improved eCommerce experiences are driving relevance with customers.

    11. Holiday Season Outlook
      Q: What are your expectations for the holiday season?
      A: Management is optimistic, with increased buying and a focus on strong execution. Early back-to-school results are positive, suggesting a good holiday season ahead.

    12. Walmart+ Membership Growth
      Q: What's driving Walmart+ membership and retention?
      A: The core offer of delivery from stores and fulfillment centers is attracting members. Delivering a perfect order increases likelihood of renewal; growth is seen across all income brackets.

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