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    Walmart Inc (WMT)

    Q4 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$54.33October 31, 2023
    Final Price$55.08January 31, 2024
    Price Change$0.75
    % Change+1.38%

    What went well

    • Walmart is successfully growing operating income faster than sales, driven by higher-margin initiatives like advertising, Marketplace, and membership programs, which are expected to contribute 20% of annual operating income in FY '25.
    • Significant improvements in eCommerce profitability, with cost of fulfillment reducing by 20% over the last year and eCommerce losses lowered by more than 40% versus last year's level, moving towards breakeven.
    • Strong market share gains across virtually every category, particularly among higher-income households earning over $100,000, indicating that Walmart's value proposition is resonating with a broad customer base.

    Q&A Summary

    1. Fiscal 2025 Outlook
      Q: What's driving the optimistic FY25 outlook and margin expectations?
      A: Management feels better about the economy compared to last year, having avoided a recession. They're expecting 3–4% constant currency sales growth for FY25, up from 2.5–3% previously. Growth in higher-margin areas like advertising is improving gross profit without raising prices. They anticipate some SG&A deleverage due to business mix changes but are focused on growing operating income.

    2. Gross Margin Improvement
      Q: What drove the gross margin increase and eCommerce profitability?
      A: Gross margin improved by nearly 40 basis points, driven by lower markdowns and inventory down 4.5%. Strong sell-through and better inventory management reduced markdowns significantly. Cost of fulfillment in eCommerce decreased 20% over the past year, improving contribution margins. They have a line of sight to eCommerce breakeven when including advertising and fulfillment services.

    3. Advertising Growth and Acquisition
      Q: Can you elaborate on advertising growth and the VIZIO acquisition?
      A: Advertising grew 28% for the year, reaching $3.4 billion, contributing an estimated $300–$400 million to EBIT. The acquisition of VIZIO accelerates their advertising platform into the connected TV business, enhancing profitability growth. However, details are limited until the deal closes.

    4. Strategic Initiatives and Investments
      Q: What are the key measures of success and investment plans for FY25?
      A: The focus is on maintaining top-line growth across categories and leveraging price opportunities in general merchandise. The automation plan aims to improve inventory accuracy and associate productivity, reducing markdowns. Growth in Marketplace and advertising will help change the business mix and shape of the P&L. Management believes they can grow operating income faster than sales while investing aggressively in the business.

    5. Transaction Growth and Customer Traffic
      Q: What drove strong transaction comps, and can this momentum continue?
      A: Transaction comps were up 4.3%, with more customers shopping more often, including a 17% increase in weekly active eCommerce customers. Growth is seen across consumables, food, and general merchandise. Increased use of same-day services and express deliveries is enhancing convenience. Improved inventory management and technology are aiding accuracy and customer satisfaction.

    6. Technology and AI Initiatives
      Q: How is AI impacting the business now and in the future?
      A: Management is excited about generative AI to improve customer experience, associate productivity, and reduce costs. AI has notably improved search functionality, enhancing solution-oriented search experiences. They've deployed "My Assistant" for associates, providing access to AI tools. At Sam's Club, AI is used for an "easy exit" process and inventory management, removing 35 million tasks for associates last year.

    7. Market Share Gains
      Q: How are market share gains among higher-income consumers progressing?
      A: They gained share in virtually every category, with higher-income households (over $100,000) being significant contributors. In general merchandise, two-thirds of share gains came from this demographic through digital channels. The value proposition of convenience and price is resonating across income levels.

    8. General Merchandise and Remodels
      Q: What is the performance of general merchandise and store remodels?
      A: Store remodels are showing promising results, with plans to remodel 650 more stores after completing nearly 700 last year. There's more space for customers, improving results in apparel, home, beauty, and pet departments. Strong sell-throughs, especially during seasonal events like Valentine's Day, indicate positive trends.

    9. Pricing Strategy and Rollbacks
      Q: Can you detail the rollback strategy and its impact?
      A: Rollbacks are up around 50% from last year, spread evenly across categories. In general merchandise, prices are down low single digits. Key items like French bread returned to $1, driving sales up 40% over last year. Merchants balance funding through various levers like initial margin and inventory management.

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