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Walmart Inc. (WMT) Q2 2023 Earnings Call Transcript | The Motley Fool

walmart inc. (wmt -0.30%)q2 2023 earnings call August 16, 2022, 8:00 AM m. et

content:

  • prepared remarks
  • questions and answers
  • call participants

prepared remarks:

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greetings. Welcome to Walmart’s fiscal 2023 second quarter earnings call. [operator instructions] Please note that this conference is being recorded. At this time, I’ll turn the conference over to Dan Binder, Senior Vice President of Investor Relations.

dan, you can start.

dan binder – senior vice president, investor relations

thank you, roberto. good morning and welcome to walmart’s fiscal year 2023 second quarter earnings call. I’m joined by members of our executive team, including doug mcmillon, chief executive officer; and John David Rainey, Executive Vice President and Chief Financial Officer; john furner, president and chief executive officer of walmart us; Judith McKenna, President and CEO of Walmart International; and Kath Mclay, President and CEO of Sam’s Club. In a few moments, doug and john david will give you an update on the business and discuss second quarter results.

after our question and answer session. before turning the call over to doug, let me remind you that today’s call is being recorded and will include 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, among others, the factors identified in our filings with the SEC.

Please review our press release and accompanying slideshow for a cautionary statement regarding forward-looking statements, as well as our full safe harbor statement and gap-free reconciliations on our website at stock.walmart .com. I now have the pleasure of turning the call over to doug mcmillon.

doug mcmillon – CEO

Good morning and thanks for joining us. A few weeks ago, we informed you of our expectations for how we would perform in the second quarter and for the year. the second quarter ended stronger than we had anticipated, and john david will touch on that in a bit and provide more detail on the second half of the year. our sales were well ahead of plan with inflation driving up our average transaction size, but we know the amount and persistence of inflation is taking a toll on many families.

of the usa uu. to mexico to canada to chile, they are prioritizing how they spend their money. we’re pleased to see more families of a variety of income levels choosing us for value. our purpose is to save people money and help them live better, and that’s especially important right now.

After the first trimester, we shared how the environment had changed. the cost of food and fuel, a greater mix of food and consumable sales, and excess inventory in general merchandise categories were among the most challenging items for us at the time. As we move into the second quarter, food inflation continued to rise and we continue to see a higher mix of food and consumable sales in many of our markets, putting pressure on margins across the board. food gifts in the usa uu.

increased in the mid-teens for the quarter with food units slightly negative and virtually flat out of the quarter even with double-digit inflation. Another weight on the margins has been the number of downgrades we’ve taken. Starting in March, we knew we needed to move quickly and aggressively in some categories, and we did. we have made good progress in reducing inventory levels where we focus and take markdowns.

The aggressive approach we took to moving through apparel, in particular, put financial pressure on us, but helped ease pressure on our stores and through our supply chain. we are making good progress in reducing costs. we have reduced the number of shipping containers in our system, for example, to more than half of the q1 level and are now much closer to our historical averages. we are also managing the prices to reflect our total costs.

traders are adjusting by category to reflect where we expect demand to be. we had our store managers meeting last week and among other things we shared examples of items where we are keeping prices low or reducing prices. these tend to be opening price points, private label, food, and consumable items.

We want to help families put great value meals on the table in our other private brands to ease the pressure they feel. The quality, value, and convenience we offer make Walmart a smart choice, and we’re seeing more middle- and upper-income shoppers choose us. As I’ve been to our stores recently, I’m pleased with the way we’ve executed back to school.

As we finished it off in some markets, we went back to college in the appropriate stores with items like mini-fridges, floor-length mirrors, and futons. in july i was able to visit our associates in india. after visits to flipkart, mantra, and phonepe, a flipkart fulfillment center, and [inaudible] to see how they’re using phonepe, I left even more excited about what’s happening in these businesses and what’s to come. having visited several of our international markets this year, I’m pleased with how connected we are now and how much of what we’re building is common across markets as we scale market business and compliance advertising and financial services take steps to make a bigger difference in health care.

Looking ahead, I’m looking forward to a good end to the back-to-school season, and we’ll be transitioning into the holidays soon. our fall and holiday products look great. there’s a lot of new stuff and we have a strong position at opening price points in all categories. From Halloween to Christmas and the great billion days of flipkart, we’ll be ready.

we will have a cleaner inventory position and will have a strong seasonal presence. We expect inflation to continue to influence the decisions families make, and we’re adjusting to that reality so we can help you more. Regardless of the level of inflation and while we work in places where we have too much inventory, we continue to advance our strategy. we’re becoming more digital, even more relevant as an omnichannel retailer, and related businesses like fulfillment and advertising continue to grow.

We are building a different business and we are making progress. let’s move on to our operating segments. i will start with walmart u.s. the strong comparisons we see in food and consumables are driving market share gains.

pickup and delivery are solid. growth is improving at walmart.com, including the marketplace. And more people are choosing to be members of Walmart Plus, or to step up at home. walmart plus is an important component of our plan and we announced the addition of a streaming benefit.

walmart plus members will receive a subscription to paramount plus at no additional cost as part of their walmart plus membership in september. the premium streaming service offers a wide range of content with original series, movies, family shows and live sports. we’re excited about the upcoming release and we know our members will be too. Beyond membership, the team is also working to get items to customers faster, while also reducing the cost of delivery through a significant increase in the number of orders processed by stores. /p>

We have increased this volume by almost 40% since a year ago. Speed ​​matters, whether it’s how quickly we deliver items to customers or how quickly we scale new business. our white-label delivery platform service, walmart go local, will celebrate its first anniversary later this month. Powered by our spark driver platform, I’m excited about the growth I’ve seen so far and the expectations for the future.

You have surpassed 1 million deliveries so far with go local. We expect to have around 5,000 collection points by the end of the year and customer satisfaction scores are strong. we continue to sign up large-scale clients and are moving forward with the largest unlock, which is small and medium-sized businesses. our technology and experience will help many of these businesses grow while contributing to our operating margins over time.

advertising is also working well. At Walmart U.S., the Connect team continues to bring more value to vendors and sellers who advertise with us. improvements in search and our own big buyer data have led to performance improvements for our advertisers, both year over year and sequentially. we’ve seen the number of active advertisers spending with us increase by 121% over last year.

Even more encouraging, these enhancements have improved the overall site experience for our customers by helping them find the right products or discover new ones that are most relevant to them. As you’ve heard us say before, advertising is a global priority for us. we continue to see strong growth in markets outside of the us. USA, like India and Mexico. turning to sam’s club in the united states.

Ancillary sales were strong again in the second quarter, up 10%. and marking the tenth consecutive quarter of double-digit compensation growth. Similar to Walmart, gross profit came under pressure during the quarter from higher-than-normal markdown activity to clear excess inventory. we will continue to make progress as we move into the third quarter and will be in great shape as we enter the holiday season.

We like what we see in terms of membership. Total accounts are up approximately 9% from last year, and plus member penetration continues to grow. Moving on to Walmart International, where we again performed well in the second quarter with nearly 10% sales growth, including double-digit comparisons in the three largest markets of Mexico, Canada and China. we’re also accelerating our digital businesses, including strong e-commerce growth in the last two years.

Mexico is up 31%; Canada, 32%; and Chinese 152%. we see this growth even as customers choose to make more purchases in person. It really shows the power of operating through multiple channels. just like usa In the US, we see the effects of inflation in the way people shop.

in mexico, we saw that all formats performed well, and bodega was especially strong with compositions above the overall walmex average. we widened our price differences for cellars by 140 basis points in the second quarter and we see that more customers buy this format. while inflation remains high, most of our markets are increasing compensation above inflation. I’m proud that we’re helping families access the things they need at more affordable prices.

I’ll end today by thanking our associates for all they do every day to support customers and members. i would also like to welcome john david for his first earnings call with us. and with that, I’ll give it to him.

john david rainey – executive vice president, chief financial officer

thanks, doug. I’d like to start by thanking our customers, associates and partners for helping us deliver another strong sales quarter. we are moving a lot of volume through our business, and I am proud of how our associate team has responded and served customers as we drive through this unique period. We delivered strong top-line growth with total constant-currency revenue up more than 9% in the second quarter.

Sales were strong in all segments, particularly food and consumables. Customers are increasingly turning to Walmart to help them save money while facing widespread inflation pressures. As we navigate the current environment, we know that we are not immune to major macroeconomic changes. we face cost pressures similar to what others see related to excess inventory, fuel prices and supply chain.

but our business model is structurally sound and our position in the market is strong. As the year has progressed, we have seen more pronounced consumer swings and declining business activity. As an example, instead of higher priced deli meats, customers are increasing purchases of hot dogs, as well as canned tuna or chicken. private label penetration also tilted higher.

And in the food category, specifically, the growth rate of private label doubled compared to the levels of the first quarter. We will continue to manage prices for customers in a way that preserves our price gaps and allows us to profitably gain market share. we’ve been very focused on managing controllable costs and as a result we achieved expense leverage in all three segments in the second quarter, even though we haven’t fully outperformed the salary caps implemented last year. During the quarter, we also made progress in reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with shipping container buildups.

We are encouraged by the initial steps some vendors have taken to help us reduce the cost of purchasing products. We’ve also taken similar steps to manage our support and overhead costs, and we’re achieving significant savings on purchasing goods, not for resale. At our stores and fulfillment and distribution centers, we’ve seen labor productivity metrics improve. we’re finding efficiencies and cutting expenses while continuing to focus on operational excellence.

I want to spend a moment discussing inventory. as a backdrop, the changes we have seen in consumer behavior throughout the pandemic, moving from physical stores to online, along with big changes in the purchase of goods versus services. and then the reversion to pre-pandemic norms has been sharp and difficult to predict. These trends have been exacerbated by inflationary pressure on the consumer that many of us have never experienced in our lifetime, the effect of which has recently changed consumption patterns in certain categories for us, particularly general merchandise.

The result of all this put pressure on our inventory levels which peaked last quarter. More importantly, the team has a deep understanding of our inventory levels and the content has come a long way over the last quarter. Inventory levels have improved about 250 basis points from the first quarter in our grocery business alone, despite the strong sales volumes we are experiencing. we’re also moving forward by selling through excess inventory, especially in hardline categories.

at the end of the second quarter, walmart u.s. Inventory growth was 26% compared to last year, reflecting an improvement of more than 750 basis points from first quarter levels. in particular, about 40% of the year-over-year increase is related to inflation. General merchandise inventory growth rates are down more than 15 percentage points from the first quarter, but there is still work to be done.

We have liquidated most of the summer seasonal inventory, but are still focused on reducing exposure to other areas such as electronics, home and sporting goods. We also canceled billions of dollars in orders to help align inventory levels with expected demand. we estimate that only about 15% of our total inventory growth in the second quarter is still above optimal levels, and our actions in the third quarter will allow us to make significant progress toward rationalizing absolute levels and mix, which will allow our stores to be well positioned ahead of the holiday season despite the short-term challenges we face this year, we continue to advance our flywheel strategy and diversify our revenue streams.

for example, global advertising business grew nearly 30% in the second quarter, led by walmart connect and flipkart, as new advertisers turn to walmart to deepen customer relationships. We now have over 240 million items in our US. uu. e-commerce assortment, and the number of sellers in our marketplace has increased by approximately 60% year over year. We continue to add more customers to our data company offerings and the number of Walmart Plus memberships continues to grow.

We are also excited about the development of automation and technology across our business and how it will continue to help drive greater efficiency. During my first few months here, I’ve been able to get out and visit our stores and see our distribution and fulfillment centers and witness the technology and supply chain automation that we’re installing in our stores and centers. An example is the Vizpick technology that we have implemented for our associates in the United States. stores.

This tool uses augmented reality to speed up the inventory management process, allowing associates to get needed product from the back room to the sales floor more efficiently. This not only saves associates time, but also helps avoid lost sales due to out-of-stocks at the side counter. it’s a win-win. In short, our business is resilient.

And with the omnidirectional capabilities we’ve built, we’re better positioned now than in previous periods of economic weakness. now let’s look at some additional financial details for the second quarter. As mentioned above, each of our segments generated strong sales growth. walmart usa uu.

Ancillary item sales accelerated to 6.5% growth, reflecting strong grocery sales with a higher average ticket size. international sales in constant currency were up 9.9% strongly in mexico, canada and china, while sam’s club u.s. delivered comps of 10%, excluding fuel and tobacco. Consolidated gross margin rate decreased 132 basis points, reflecting further downgrades and unfavorable mix changes in the US. uu.

companies. Sam’s Club’s gross profit was also negatively affected by a LIFO charge due to higher inflation. On the expense side, SG&A increased 45 basis points, helped by higher sales, partially offset by the US. Salary investments implemented last year.

Operating income decreased 6.8% and adjusted earnings per share was $1.77. two discrete elements positively affected our results. operating income benefited from a favorable insurance settlement of $173 million during the quarter. Adjusted earnings per share also benefited from this, as well as a $182 million special dividend from one of our equity investments.

Operating cash flow was $9.2 billion, reflecting lower operating income, higher inventory amounts due in part to inflation and the timing of certain payments. During the quarter, we returned $4.9 billion to shareholders through dividends and share buybacks. Through the second quarter, we are ahead of our original share repurchase plan for this year and now expect to repurchase $10 billion to $11 billion worth of shares by fiscal 2023. Now let’s look at segment results.

walmart usa. uu. Offset sales momentum continued with non-fuel growth of 11.7% over a two-year stack. food sales were especially strong with mid-teen growth, while overall merchandise sales were weak, particularly in electronics, apparel and home. transactions increased 1%, while the average ticket increased 5.5%.

We were pleased to see eCommerce sales growth improve sequentially, up 12% year-over-year in Q2 and 18% over a two-year stack. Selling, general and administrative expenses were leveraged by 21 basis points, reflecting higher sales and lower covid costs, partially offset by salary investments. the team did a good job pivoting the expense structure, so the scheduling challenges of q1 weren’t repeated. gross margin pressure led to a decline in operating income of around 7%.

International had another very good quarter. sales were strong, up 9.9% in constant currency. Currency headwinds negatively affected reported sales results by about $1 billion. Each of our major markets generated positive offsetting sales with Mexico and China leading the way.

eCommerce sales at constant currency grew 15% on top of last year’s strong gains. Complimentary sales in Mexico increased nearly 11% with strong growth in stores, as well as e-commerce sales, which grew 18%. the team is doing a good job reinforcing our pricing and positioning message as customers navigate this inflationary period. In China, offset sales increased more than 14% with strong growth in e-commerce sales, which were up 77% in the quarter and more than 150% in two years.

E-commerce penetration continues to grow in both our sam’s clubs and hypermarket stores as customers increasingly choose omni-directional solutions to meet their shopping needs. Canada’s offsetting sales rose more than 10% even as higher levels of inflation are beginning to put pressure on consumer spending in general and discretionary merchandise categories. flipkart continues to meet our expectations, and the team is preparing for a billion days. i traveled to india last month and was impressed with how the flipkart and phonepe teams are innovating for the customer and driving growth.

phonepe continued to experience strong growth with an annualized tpv of more than $830 billion, reaching a record level of monthly transactions of around $3.1 billion. International operating income in constant currency increased more than 28%, partially attributable to the recovery of the aforementioned insurance for previous operating interruptions in Chile. Sam’s Club had another strong sales quarter with a 10% increase in compensation excluding fuel and tobacco, an increase of more than 20% in a two-year stack. transactions increased by 9.8%.

eCommerce sales grew 25%, with a strong contribution from curbside orders and delivery. Membership revenue increased nearly 9% with another record quarter in total membership and continued growth in positive member penetration. Sam added more new members in the second quarter than any other quarter in recent years, benefiting from membership drives. expenses 131 basis points, including fuel and 72 basis points excluding fuel, mainly due to higher sales and lower covid costs.

But gross margins were down due to steep markdowns, supply chain and fulfillment costs, and an inflation-related lifetime charge of 70 basis points pressured profitability. as a result, operating income decreased by around 35%. Now let’s move on to orientation. With the updated financial guidance we released last month, we describe the pressures that led us to adopt a more conservative outlook for current year performance.

Let me take a minute to give you more details. When we provided guidance three months ago, we did not expect food and fuel inflation to accelerate to the levels we experienced in the second quarter. In fact, Walmart U.S. Food inflation rose by double digits year over year, and we saw an increase of nearly 400 basis points as the quarter progressed compared to levels at the end of the first quarter.

The rising cost of essential items and the new prioritization of spending by customers led to significant changes in our business mix. the grocery sales mix increased nearly 300 basis points, while the general merchandise sales mix decreased more than 350 basis points. this led to additional rebates on general merchandise in our us. uu. business, particularly in apparel at a time when inventory clearance was already higher than expected in the industry.

Higher fuel prices also put pressure on our supply chain expenses. however, we ended the quarter on a strong note and ahead of our updated 2nd quarter guidance provided last month, and the 3rd quarter back-to-school season is off to a strong start. Contributing factors to the outperformance included strong sales at the end of the month with a good flow to the bottom line and lower than expected supply chain cost. we are taking additional pricing action in the third quarter to improve inventory levels in the second half of the year, and incorporating more conservative category mix assumptions into our guidance.

Our outlook for sales and earnings reflects trends we’ve seen so far this year, as well as uncertainty around inflation and consumer spending in the coming quarters. We have updated our guidance for fiscal year ’23 to reflect better second quarter results compared to the guidance we provided in July. we continue to believe that the sales and earnings guidance we provided at the time for the second half of the year adequately reflects the heightened uncertainty in this environment and is our best view of expected performance. For the third quarter, we expect net sales growth of about 5%, including compensation sales growth of about 3% for Walmart U.S.

We expect operating income to decline 8% to 10% and adjusted earnings per share to decline 9% to 11%. For fiscal year ’23, we expect net sales growth of about 4.5%, including compensating sales growth of about 4% for Walmart U.S. we expect adjusted operating income and eps to decline between 9% and 11%. Excluding the effect of divestitures, this would translate to net sales growth of 5.5% and a decline in adjusted operating income and EPS of 8% to 10%.

Before I close, I’d like to share my perspective as someone who is new to Walmart and meeting many of you for the first time. I am excited to join the company at such an opportunistic and transformative time. certainly retail in general is under pressure right now, but that shouldn’t detract from the incredible opportunity in front of us. It starts with our mission to help people save money so they can live better.

We do that every day on an unmatched scale by helping people afford the things they want and need. this mission permeates our culture in everything we do. I have joined an exceptional leadership team. their history of operational excellence, their strategy, the drive to win is just something I wanted to be a part of.

And combine that with the resources we have and the investments we’re making in things like supply chain automation, enhancing our e-commerce capabilities, and diversifying our portfolio with higher-margin products and services like data and advertising that they will result in longer lasting streams of income as they scale. we have the potential not only to be relevant in the next chapter of retail, but also to help define it. And when we execute these things, we have the ability to measurably increase our shareholder value over time. I think some of the best days of Walmart are ahead of us.

I look forward to working with you now and would be happy to answer your questions. thanks.

questions & answers:

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[operator instructions] and our first question is from bob drbul’s line with guggenheim values.

bob drbul – guggenheim partners – analyst

good morning, and, john david, welcome. congratulations.

john david rainey – executive vice president, chief financial officer

thank you.

bob drbul – guggenheim partners – analyst

maybe two quick questions, if you could. the first one i think doug you mentioned that middle and upper income shoppers are choosing walmart. just wondering if you can elaborate a bit more on trading at walmart that allows you to get a share of the grocery market. and the second question is if you could give us a little bit more information about what you’re seeing, what you saw with sales at the end of the quarter and what you’re actually seeing so far at the beginning of the third quarter.

doug mcmillon – CEO

bob, this is doug. I’ll kick it off and then ask john to comment. At Walmart USA business, we’ve seen middle to upper income customers come to Walmart looking for value, unsurprisingly, food and consumables in particular are places they’re looking to save some money.

That’s not a total surprise. I think the strength of it is encouraging. and then as far as the end of the quarter, a number of things happened. fuel prices started to move a bit.

back to school was strong. and then this revenue phenomenon that you pointed out also gave some strength to the last week of the last month of the quarter, which was a little bit different than the pattern we had seen in the first two months of the quarter.

john david rainey – executive vice president, chief financial officer

yes, doug. it was a little different than may and june for sure and led to, has led to the start of q3 being stronger in places like back to school. food and consumables continue their momentum. and I think [inaudible] really changed late in the third quarter, early; sorry, late 2nd quarter, early 3rd quarter, the traffic count was a little bit stronger than we’ve seen in [inaudible] in two months.

doug mcmillon – CEO

We had a laugh before the call started today about some of the anecdotal things going on. You won’t be surprised that the backpacks are strong, for example, but we are surprised by how strong the men’s panel is. and we have a program that costs less than $12. I bought two of them personally, and it’s a great value.

And at the same time, some of our clearance prices have dropped a lot. we’re trying to work through what we’d call season two code clothing, and we’ve got some new stuff that’s selling well. so it’s almost like you can point to different areas to make the case for what you want the sales story to be.

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our next question is from kate mcshane’s line with goldman sachs.

kate mcshane – goldman sachs – analyst

hello. Good Morning. thanks for taking our question. our question focuses on rebates.

We’re curious if the level of downgrades you plan to take in Q3 will be similar to what you did in Q2. and it looks like inventory will be a lot cleaner for the fourth quarter, but it looks like there’s still a lot of inventory in the industry and the consumer that might need to be motivated by promotions given the amount of inflation. how should we think about the markdown environment in the fourth quarter, even in the context of cleaner inventory at walmart?

doug mcmillon – CEO

kate, this is doug. Thanks for the question. I think what we should do is listen to all three segments on that. we’ve made progress.

john, why don’t you go first, but let’s hear from kath and judith too?

john furner – president and chief executive officer, walmart us.

I started with the second quarter from the end of the first quarter to the beginning of the second quarter, there was definite progress in inventory, around 750 basis points of improvement. we considered q2 as the most urgent to remove clothes and some are seasonal that we needed out of the way and sold out before q3 really started to arrive. we certainly progressed in clothing. there’s more work to be done on general inventory with a 25% increase and about 40% of that inflation, then the rest, there are two things.

one, it helps us in terms of stock, we were out of stock last year for the whole year. so we have made improvements to stock. I think our results in many categories reflect improvements in stock availability. but then there is a delay that we continue to work on.

At the end of the first quarter, we said it would take a couple of quarters to resolve. I would just reiterate that that remains true. and we will continue to leave room to make sure we manage our inventory levels well and get to a position in the fourth quarter at the end of the year that we will be proud of.

doug mcmillon – CEO

I think the fact that we were so short last year, combined with how much inflation affected the number, has been lost to history a bit. it’s true that we have too much inventory and that created markdown pressure, particularly at walmart u.s. wear. but when we look at the overall inventory, as john david has already discussed today, it’s not like the vast majority of it is merchandise that we didn’t want.

A year ago and the year before, frankly, we were delivering products at such a high level that we needed that inventory just to fill the side counters and our features.

john david rainey – executive vice president, chief financial officer

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That’s right. in 2020, 2021, we would have had direct sales in seasonal categories with very little markdown at the end of the season. and of course there is some normalization to get back to where we might have been before the pandemic hit. >

doug mcmillon – CEO

We’re repeating ourselves, but the level and pace at which inflation changed in the first quarter, and continued in food and consumables in the second, simply caused behavior to change rapidly, and that caused apparel to be more difficult than we expected, and that’s where the downward pressure on the dollar came from. kath, do you want to be next?

kath mclay – president and CEO, sam’s club

yes. I would really just say, if I look at our inventory position right now, for the last two years, as we speak, we’ve had 10 double-digit quarter bars. For the past two years, we have struggled to stay ahead of having enough inventory. and then we’re off a deflated base when you look at what our current position is.

This year, we obviously have the contraction with inflation. but what we have seen is that we have a very good quality inventory. we are very happy with the seasonal sets we have. halloween looks fantastic back to school college has been good.

the turnout has been great. I think what I would say is in our number in this quarter, some of it has been markdowns and some of it is actually reserve inventory because we wanted to get ahead of ourselves and make sure we reserve the money for the third quarter. so we can have a really strong q3 kind of results. this is how we approached the sales in the second quarter.

judith mckenna – president and chief executive officer, walmart international

For international, we saw good progress in inventory quarter over quarter. some of that helped by position fx in that, but also underlying. I think looking at it, our year-over-year increase is absolutely planned. And as you’ve heard, that skinny we had last year is really showing.

and I think that’s the theme for everyone. we just didn’t have enough inventory at the time. that leaves about 25%, which is some gm categories in a couple of markets, specifically, which would be chile and canada. but I’m very comfortable with the way the market has that.

And just as a reminder, at least for Chile, the end of our quarter is one month before the end of the business quarter. so we’re already seeing some of that liquidation in the market.

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The following question comes from Peter Benedict’s line with Baird.

peter benedict – robert w. baird and company – analyst

hello. good morning guys. Thanks for taking the question. I just want to talk a little bit about groceries, the strength there, particularly food.

Can you talk about pricing, how do you handle it? I know units, they seem to have been down for the quarter, but they improved to, I guess, flat as you came out of the quarter. how do you think about prices in relation to units? what is the promotional environment you are seeing within supermarkets and how is the strength of supermarkets divided in-store versus online and curbside?

john david rainey – executive vice president, chief financial officer

pedro, i’m juan. let me take your question in parts for just a second here. I mean, first of all, value is always the most important thing when it comes to us and deciding how we want to serve customers. so we will always rely on value for customers above other things.

and what we want to do and what we try to do during this whole period is to arrive as late as possible. we’ve certainly been passing through prices when we see things like total cost of goods going up, those have to be passed through. we are managing our supply costs as best we can. units strengthened throughout the quarter, particularly in July and late July.

I think you heard that before. so to see some positive units there was refreshing given how we had started the quarter. fuel prices were falling. so we think that might have had some impact as well.

In terms of the market, we are really focused on low prices every day. we have a strong recall campaign throughout the store, which would include food, consumables and general merchandise. and then generally just in the food categories, our availability improvements, I think you can see them in stores more consistently and across categories. just remember this time last year, we had pockets of stocks continuing to emerge, the only one we really faced in the second quarter in a major way was baby formula, which is now improving.

doug mcmillon – CEO

the history of the unit is, one, the transaction count which increases a bit in this environment is also important to mention. the average basket was way above, but it’s great to see transactions grow at walmart u.s. business too.

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our next question is from steph wissink’s line with jefferies.

steph wissink – jefferies – analyst

thank you. good day everyone. I wanted to follow up doug on your comments on how the basket is changing for consumers. I think you mentioned in the protein category and even some private label areas then.

maybe it will lead us to the family budget you are looking at regarding your transaction structure. and then as you look at your guidance for the back half, maybe a follow up would be what you’re assuming in terms of product basket composition class or even within private label versus national brands?

doug mcmillon – CEO

yes, john. you jump here too. I think what you should take away from the orientation of q3 and q4 is that we expect the environment to look a lot like q2. And when it comes to the decisions that people make, what I would highlight is John’s variety: you have all kinds of income levels shopping in different ways and we’ve seen strength in some categories.

It’s really encouraging. for those who are under the most pressure, who are more price sensitive, private labels are stronger, package sizes are different. opening price points, john, could you talk a little bit about what you saw at the christmas gathering, looking at things like thanksgiving food. the team is doing a great job of protecting the opening price points for people who are more price conscious.

john david rainey – executive vice president, chief financial officer

steph, looking back on one of the meetings we had in new york in 2020, we talked a lot about serving customers in a flexible way as we develop our different businesses. and just to add to doug’s comments, serving customers in the store is something we’ve pushed ourselves on for a long time. our collection business continues. delivery is growing with walmart.

so the variety of ways that we’re able to serve clients, I think that’s been helpful, especially given how many ships clients have had in their lives over the last couple of years working at home and then in many cases , they go. in the workplace. so as customers change, we can serve them in a variety of ways. When you click on products, our extensive product portfolio, both e-commerce and in-store, including numbers you’ve heard from John David previously in the market, gives us the ability to serve a wide range of customers. And then, as doug mentioned last week, we get all of our managers together in denver, which is always an exciting and fun experience to get the team together.

but what I constantly hear is that the team is doing a really good job of balancing how to improve quality and sell higher price points and stay focused on opening price points. So having Thanksgiving potlucks in a position where you can buy an entire meal for under $50 for a family of four is exciting. so there is a value game and there is a quality game. and wherever the customer goes and how things change, we will be ready to serve them and we are developing the capabilities to be able to do so at will.

steph, I would just add. this is juan david in terms of our guidance in the second half of the year, the changes we have seen in consumer behavior have been difficult to predict and the pace at which they have occurred has been abrupt. and so our guidance for the later half doesn’t really make any changes to what we’re seeing in the second quarter in terms of mix changes in our business.

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our next question is from michael lasser’s line with ubs.

michael lasser – ubs – analyst

good morning, and thanks for answering my question, and welcome, john david. Walmart has been experiencing some quiet and possibly temporary factors weighing on its profitability this year, including staffing issues at 1Q and well-documented inventory issues. so looking ahead to next year when some of these inflationary pressures inflationary cost pressures are apparently going to recede and you’ll have overcome some of the challenges and the underlying drivers of alternative operating income growth should continue why doesn’t walmart Will it be in a position to outperform its long-term algorithm in 2023?

doug mcmillon – CEO

sure. I’ll take that, Michael. Thanks for the question, you’re right.

Certainly, we’ve incurred some costs this year that are more, call them, one-time in nature related to supply chain and higher inflation, but it’s hard to predict how long that will persist. indeed, the inventory situation has improved. but the effect on mix changes in our business is largely the result of higher inflation, and that may persist for some time. so we are being cautious about the outlook.

We’re obviously not giving guidance for next year at this time. But look, what I would point out to you is that our belief in our long-term plan hasn’t changed, it hasn’t wavered. when you look at the long-term plan that the management team laid out earlier in terms of what we’re doing with the flying strategy, the ability to grow operating income faster than revenue. And you look at that on a multi-year basis, we have as much conviction today as when we established it.

very excited for the future. but the short-term period, this is a moment in time, and we’re being cautious about the outlook because there’s a lot we don’t know.

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our next question is from edward yruma’s line with piper sandler.ed yrumahey. Good Morning. thanks for taking the question john david curious about his perspective given his most recent stop at walmart ad and fintech businesses he has a lot of paypal experience on that.

how do you assess where they are today? And more or less, how do you think about the long-term growth opportunity?

john david rainey – executive vice president, chief financial officer

sure. I appreciate the question. Well, I certainly believe in what’s going on with digital payments, fintech in general, and the secular tailwinds that exist there with consumer behavior, moving more digitally, online. And if you look at the investments that Walmart has been making, they’re in those areas, whether it’s expanding their e-commerce capabilities, their marketplaces, even getting into financial services.

Given an early look at what the company is doing, I have to say I’m very impressed with the extensive capabilities and resources dedicated to this. And I think it’s a great opportunity for Walmart to move forward. and frankly, one of the reasons I’m so excited to join, be a part of this, and help shape this outcome.

judith mckenna – president and chief executive officer, walmart international

it may be worth adding the financial services phone in india. you heard we were there recently, and john david, you also came with us and were able to visit the business there. it was: you’ll have seen in the scripts we had today that they increased their annualized transaction tpv to 830 billion. last quarter, that was 770 billion.

very good progress there, and now they also have monthly transactions of 3.1 billion per month, which is incredible. I think the really encouraging way that they’re approaching this space is looking at not just payments, but also merchant services, and that two-sided network is a big part of that. but equally, starting to expand into financial services as well with a real focus right now on insurance and driving that. your knowledge and ability to share that knowledge around the world to help other markets like mexico from best practices, which they should be looking at, has been incredibly invaluable and one of the real benefits of being a global company.

doug mcmillon – CEO

I’ll just add, judith, that I shared the excitement we all had when we went to india and met with the team. to put it in perspective what is phonepe doing and if you look at the largest digital payment companies outside of china and the world phonepe after a very short history is already about two-thirds the size of that and what is becoming the largest market in the world in a very short time. so it’s a really exciting opportunity.

sure. I think you also asked about advertising. the relationship between digital growth, market growth and advertising is something that we are trying to take advantage of. in the case of the us.

business, the ability to attribute post-sales to in-store transactions puts us in a unique position. and we’ve made some improvements lately for people who consume advertising from us.

john furner – president and chief executive officer, walmart us.

we have, and knowing more about customers and how they shop, knowing more about them in retail is important, and the growth in pickup and delivery and the growth in plus, the growth in the market and e-commerce help us. being able to identify the right vendors and suppliers that we can connect, hence the term – name walmart connect. we can connect them to have an environment that not only increases the profit and loss statement, but more importantly, increases the customer experience and helps you get exactly what you are looking for. I can’t remember a business with the margin structure of the ad business here at walmart and having 30% growth for the quarter was good to have.

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our next question is from kelly bania’s line with bmo capital markets.

kelly bania – bmo capital markets – analyst

hello. good morning, welcome to you, john david.

john david rainey – executive vice president, chief financial officer

thanks, kelly.

kelly bania – bmo capital markets – analyst

lots of comments about inventory, but just a couple more. Can you clarify the dollar amount of inventory that you estimate would be surplus? and can you help us understand how much of that is in apparel or other categories and the magnitude of the discount that you hope to eliminate through that and when you hope to get back to a clean position? And I guess to go on that, do you think this discount from you and others in the industry could drive some demand starting in the second half? and have you considered that in your second half guide?

doug mcmillon – CEO

sure. I’ll take a stab at that, Kelly. so if you think about it, just take the us. uu. inventory increase in the second quarter of $11 billion.

If you break that down, about 40% is due to inflation. so don’t think in units, think only in dollars. and then you look at, as doug pointed out, things like the fact that we’re growing as a company, that we have less inventory next year and you normalize all of that, you really bring it down to about $1.5 billion of inventory than if we could wave a magic wand , we would make it disappear today. and the fact is that we will sell it.

but if we were to start from scratch, that’s what we’d get rid of. On the rate side, as John noted, inventory problems were most acute in apparel in the second quarter. As we move into the third quarter, I’d say home electronics and apparel are probably the areas that stand out the most.

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our next question comes from simeon gutman’s line with morgan stanley.

simeon gutman – morgan stanley – analyst

Good morning everyone. still focusing on gross margin. the United States. gross was down around 106 or 107 in the second quarter.

can you comment on how much is the mix versus the discount? and to us, it seems like the mix isn’t getting any worse, if that’s fair. and then the levels of liquidation in q3 versus q2, will the liquidation/downgrade occupy a greater proportion in the third quarter versus the second?

doug mcmillon – CEO

sure. simeon, i’ll try that too, and maybe john wants to join in. so yeah… I’ll just point to the overall 132 basis point decline in gross margins. and there are really three things that I would say in order of magnitude that contributed to calling it, two-thirds to 75% of that.

so number one would be the markdowns, number two is the mix and number three is the lifo load that we talked about at sam’s. and then there are all the various puts and takes that make up the balance of that. As far as the markdowns in the third quarter, look, we feel like we’re in a better inventory position and they’re obviously very related. so we expect that we will not see the level of markdowns that we experienced in the second quarter.

but so do we, assuming nothing changes with the consumer. so as we noted we are being cautious with the outlook and will wait and see what happens.

john david rainey – executive vice president, chief financial officer

in the usa uh, simeon, this is john. in the usa In the US, we didn’t have the lifo charge, so a larger percentage of our markdown problem would have been in apparel. We still have a little more to work on, but we’re close compared to where we might have been two years ago. so we’re getting closer to a position where apparel is behind us, and that was the issue that we spent most of our time worrying about during the second quarter because we need to move forward because the products were bought a long time ago. /p>

for the rest, in the first quarter and then in the second quarter, as the container backlog is resolved, that has created a lot of what is the problem today, where we feel good that we would have liked to have months ago, and then this season it’s all here at the same time. so we’ve ingested all that inventory. we have largely gotten out of the container storage and moving business. we have the inventory in the network.

so that we have a good management of what we have, where it is. and then as I said earlier in the call, at the end of q1, we need a couple of quarters to figure it out, and that’s exactly what we do. so john david is right. we will sell it.

we will fix it. Yes. There will be some responsibility, but clothing was definitely the issue we had that got queued the most and would have really hurt us if we hadn’t addressed it.

dan binder – senior vice president, investor relations

I was going to say, simeon, in your question about the mix, if you check our presentations, you will see that our mix changes year after year, and you will see that also in q2 when we register our q, at the end of the first quarter, it was a change quite significant as we were outpacing stimulus spending. we recalibrated our expectations at the end of the first quarter, and then it was even worse than we expected for the second quarter. so that’s what you’re seeing reflected in our view when we look at the back half, we don’t want to get ahead of ourselves just because sales have strengthened at the end of the quarter.

doug mcmillon – CEO

yes. I was also going to double click on that some more. the fuel that has dropped in recent weeks is helpful. it’s still inflated 27% per gallon compared to a year ago nationally.

so the absolute expense an American family is spending on fuel is still high [inaudible] is the amount of food inflation. and i think q4 last year is the time we started seeing each other. food inflation rises. it was sort of low to mid single digits.

so when you get to q4, you start comparing a food inflation number to the inflation number. therefore, a two-year buildup of food inflation will be something to keep an eye on. If he told us that fuel is going to continue to decline and food inflation is going to moderate, that influences how we think about overall merchandise inventory. and as we’ve been working with merchants over the last few weeks it’s been kind of fascinating to think about how decisions are made and category by category because you don’t want to get into too defensive a mode and we were looking at halloween decorations last week john And there are some things, outdoor decor, particularly like inflatables, that are really fun and cool and new.

and when you see them, you think, we can sell. oh, you can buy that. like we’re going to blow up some of those. and we want buyers in some categories to have that mindset and be aggressive.

Elsewhere, we want to be more conservative so we don’t repeat the mistakes we’ve made in the first half of this year. That is something very interesting to work on. a lot more leadership is needed from our commercial team, for example, that normally, we think we’ve made some good decisions sub-category by sub-category during the second half of this year, we canceled some orders, trying to get the right thing area by area so that we don’t end up being too conservative in places where we shouldn’t be.

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Our next question comes from the bank of america robby ohmes line.

robert ohmes – bank of america merrill lynch – analyst

hello. Good Morning. Thanks for taking my question. I think a continuation of that, doug.

I think it’s probably harder for you guys to predict where fuel prices are going to go, but you do have some visibility into food inflation given the importance of your part in that. he sped up a lot in the second quarter. Has that continued into the third trimester? and I guess, the guidance assumes that it stays at the level of the second trimester? Or do you think he could go higher on 3q before maybe fading in the face of comparisons on 4th? any kind of color in what you’re assuming would be great. and a quick second for kath it’s just that the house and clothes comparisons were much stronger in cms.

was that all clearance? or is there something different between sam’s and walmart u.s. in terms of household linen sales?

john furner – president and chief executive officer, walmart us.

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robby, this is john. I’ll take the first part of your question. Relative to — as far as food inflation is concerned, it definitely went up in the second quarter and months of the quarter. so July was higher than June.

June was higher than May. I think it’s too early in the third quarter to try to decide if we’re going to be here, if it’s going to go up or down. so for now, we assume that this is the level we are at and that it could continue. And some of the factors to consider are one of the costs that is part of how we price food: the cost of moving food.

so diesel fuel continues to move down, that could be an inflation-related tailwind. however, there are still some basic products. we see some categories in the store where the prices are starting to go down, but there are other categories where we are still going up. so I think it’s too early to call in the quarter.

We certainly expect some of these larger macroeconomic conditions to lead to lower food prices, but we can’t say we’re seeing that happen yet.

kath mclay – president and CEO, sam’s club

and it’s kathryn, sam’s. about home and clothing, what he would say is that it’s actually a multi-year story. so it’s not clearance. It’s been the investments that we’ve made in quality that we’ve had in the home, apparel, and season, and we’re seeing better quality brands, and we’ve seen that resonate with our member base, and that’s continued into this year. .

doug mcmillon – CEO

also a member with higher income than the profile you see on walmart u.s.

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The following question is from Rupesh Parikh’s line with Oppenheimer.

rupesh parikh – oppenheimer and company – analyst

so firstly on the markdown front, I was curious if you can comment on what to see excessive markdowns as we try to think about next year. And then, second, Sam’s Club’s gross margins were down nearly 300 basis points. I want to get an idea if you expect any of that to be structural. or do you expect that to make up the drop in margin over time?

john furner – president and chief executive officer, walmart us.

on sale, kind of break it into pieces. last year and the year before, there weren’t really a lot of sales to speak of because we were chasing demand and in many cases, at the end of the seasons they were very clean. so going back to a point where there are sales in the season is something quite normal that we would experience. and how we try to manage the direct selling season compared to historical rates in 2018 and 2019.

And of course things are always going to be different, but it’s a good barometer for where we land. in the second the business is much bigger than it was in 2019 so these volume levels continue to improve which then leads to the dynamics of how much you buy which ultimately the amount you buy versus the demand will lead you to its direct sale and discount. numbers. so for the fourth quarter, we mentioned that we’ve canceled billions in orders.

We feel much better about the second half of the year. we still have inventory to work with and ingest from backorders, as we said. so we need a couple of rooms to do that. and then going into next year we’ll have buying levels that are more in line with how we see current demand.

of course, many things can change. we need to know more about the price of fuel and inflation in the state of the consumers that we have there, but we’ve definitely had more time and success in aligning purchases with our current inventory levels and the way we see demand going in combination terms today.

kath mclay – president and CEO, sam’s club

And for sam’s part of the question, I would say that if you look at our gp rate, there are two major things going on there. one is the $123 million lifo charge, and the other is what we call markdowns. but there are two things in a player there. most of that amount is a strategic decision we made to build an inventory reserve for the third quarter.

and that’s really pushing those downgrades from q3 to q2 to set us up for success and make sure we’re really competitive going into q3. so I don’t see it as a trend. I see that only this quarter, the impact in this quarter.

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our next question comes from joe feldman line with telsey advisory group.

joe feldman – telsey advisory group – analyst

hey guys. Thanks for taking the question. I wanted to check what you’re seeing with the supply chain these days. I mean I know the cost of fuel has gone down, and we’re hearing container prices have gone down.

but are you getting a more regular flow of inventory than you need right now? or just your opinion on the global supply team would be very helpful.

john furner – president and chief executive officer, walmart us.

joe, this is john. First, let me thank our supply chain team, our merchants. They’ve been through a lot. the environment has been extremely dynamic and they have really made a big difference for the whole company.

In recent quarters, how has it been? there was a container buildup that really started last fall when the ports backed off. We have worked them. in terms of container costs, they are down from where they were, but they are still higher than a year ago and they were higher than the year before. so it’s still inflated and those costs flow.

fuel cost, as doug said earlier, fuel has come down from its peak at the end of the first quarter, beginning of the second quarter, but it’s still high. and those are actual costs that are passed through and customers will see those prices at the counter and on the site. so overall we see a better flow. we see better availability.

Our availability rates on food, consumables and then our general merchandise consumable portions are much better than they were a year ago. but I still think we have some work to do to get back to where we were in 2019, but still uneven in places. and anytime in retail, let inventories pull back like they did. creates pressure to get the right inventory to the right location in front of the customer.

so optimistic that it can improve as these inventories are reduced, but it will take a few more months to work with the inventory buildup that is on the net.

doug mcmillon – CEO

Joe, I would just add from a P&L perspective and think about the earnings cadence from Q3 to Q4, we started experiencing more pronounced supply chain costs in Q4 last year. so from a cost standpoint, that makes comps a little bit easier. and if you’re thinking about operating income in the fourth quarter versus the third quarter.

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our next question is from chuck grom line with gordon haskett.

chuck grom – research advisors to gordon haskett – analyst

hello. thank you very much, and welcome, david. when you look at the factors behind a better back to school and a strong finish in July, and it looks like August so far, I guess, how would you rank the key contributors? lower gas prices, there was a big increase in state tax breaks this year compared to last year. and I guess the upgrade has altered your view of the upcoming holiday season somewhat in terms of how you think the consumer will react.

john furner – president and chief executive officer, walmart us.

I think there are three factors that stand out, and you’ll see it in the numbers. One is that there are more customers buying from the brand than we’ve seen before, including better traffic numbers. fuel prices fell throughout the month of July. and I think the third one that is important is school attendance levels, we think they will be higher.

There are very few cases of remote schools right now, and there were a few last year. things like backpacks and lunch boxes. and then there are other programs where some school lunches were paid for last year that will be funded by families and parents this year. therefore, there is a change in all of those factors leading to higher spending at the end of July and beginning of the third quarter.

As for how it relates to the rest of the year, again, there are a lot of unknowns as we go through the rest of the year. fuel prices keep moving but keep going down, that would be a great thing. and we will have to look at the shape of the consumer and see how they are buying. but i would like to reiterate what john david said earlier, we are really committed to the long term plan and our long term vision of the business.

And it’s been great to see some of the improvements to the areas of the flyer that are adjacent to retail that will help the business as a whole in the long run.

doug mcmillon – CEO

john, I would add in regards to better than expected performance for 2q. as noted, the supply chain cost better than we expected. and in any quarter, when you close, you’re going to have some options at the end of the quarter. some may fall in your favor.

some may work against you. in the first quarter, supply chain costs were worse than we expected when we closed the quarter. And so when we updated our guide late last month, we had a similar expectation. it actually fell backwards in our favor.

and that contributes to better-than-expected performance relative to our guidance at the end of last month.

john david rainey – executive vice president, chief financial officer

I would just add, when you think about supply chain costs and we get bills from quarter to quarter, a lot of the things that we’ve experienced in the last few quarters have been unusual, container fines and excess fuel charges and things for the style. so there was, it was higher, an expectation of a higher cost and it just came, it felt good.

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our final question will be from ben bienvenu’s line with stephens.

ben bienvenu – stephens, inc. – analyst

hello. Thank you. Good Morning. I want to ask when you move through a cycle like this with consumers trading down and between the price and you gain market share and gain new customers, how sticky does that share end up being on the other side of this inflation? could we see this strengthen their long-term equity position and perhaps let them come out of this environment in a stronger position with the consumer? and then as a follow up you noticed that you are seeing a happy medium and some useful exchange at walmart.

what do you see in low-income households? Is there a store outside of walmart?

doug mcmillon – CEO

yes. we certainly hope to maintain participation around the world, and I think this inflationary environment is going to last for a while. so people are going to be aware of the value, which plays to our strengths. end-to-end e-commerce experience is a focus of ours.

We want to continue to grow our pickup and delivery businesses around the world. we, of course, also want to increase and maintain the share of customer spending in stores. moving away i think if any of you want to comment he can do so i think we stay on the low end and add on the high end, generally speaking.

john furner – president and chief executive officer, walmart us.

I think that’s exactly right. And in relation to the first part of your question, well, what have we seen in previous cycles? we saw some uptick in the last cycle. that was a recession in 2008, ’09. but there are a few things that are different now that I think I’d like to point out.

and in that time period, we had our store business and a small e-commerce business. we had no food pickup. We do not ship from stores. we do not deliver groceries.

we didn’t have walmart at home. we didn’t have walmart plus. so our ability to serve customers more flexibly than we could have 13 or 14 years ago was quite dramatic. so there’s definitely a lot of work to do to make sure that we’re taking care of those customers and we focus every week on satisfaction scores and delivery accuracy and things like first-time pick rate, which is an indicator of what what we got your entire order the first time we try to deliver it.

all of these will be important in terms of being able to retain new customers. but we definitely have a number of ways that we can serve customers today that, frankly, didn’t exist the last time we went through a recession.

doug mcmillon – CEO

We plan to sell more walmart plus memberships to help cement those relationships, and the flagship announcement should help us do just that.

john furner – president and chief executive officer, walmart us.

yes. we’re excited about the announcement, doug. The Paramount brand has a lot of children’s programming. has live sports.

There are other movies and dramas. so it’s a wide variety of content that I think our members will enjoy. and that was frankly member-led research when we talked to members and asked them what benefits they were looking for, the no. 1 feature outside of both store and e-commerce product delivery was an entertainment benefit.

And there were others who talked about it, but entertainment was at the top of the list, and that’s what led to the decision to add this benefit to the program.

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At this point, we have come to the end of our question and answer session. and I’ll turn the call over to doug mcmillon for final comments.

doug mcmillon – CEO

yes. As always, thanks for your attention. We appreciate you focusing on our company. I’ll finish with maybe three points.

hopefully the first one is seeing the results and hearing from us that we’re making progress. we are addressing our inventory issues. we are setting prices to reflect our cost structure. Second, more people choose Walmart and Sam’s Club and our brands around the world.

the warehouse business in mexico, for example, is very strong. therefore, being able to attract more clients and a more diverse set of clients is a positive for us. And then thirdly, we continue to change the business and execute on our strategy, our e-commerce growth, our digital transformation, the market growth, the growth of these related businesses that are unlocked by this digital transformation that’s happening in the company. It’s something we’re focused on. Regardless of short-term pressures, we are making progress towards the long term.

certainly, we hope to put the pressures that we had in the first half behind us as quickly as we can, recover the delta percentage of operating income that we experienced in the first half as much as possible, as quickly as possible. but as you can see from our guide, we acknowledge reality. the world around – around the world is feeling various pressures, most pronounced by inflation, of course. therefore, we believe we put ourselves in a good place to continue to progress and the value when customers and members focus on values ​​is something that plays to our strengths.

so we’ll make the most of it. thank you all.

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[operator signature]

duration: 0 minutes

call participants:

dan binder – senior vice president, investor relations

doug mcmillon – CEO

john david rainey – executive vice president, chief financial officer

bob drbul – guggenheim partners – analyst

kate mcshane – goldman sachs – analyst

john furner – president and chief executive officer, walmart us.

kath mclay – president and CEO, sam’s club

judith mckenna – president and chief executive officer, walmart international

peter benedict – robert w. baird and company – analyst

steph wissink – jefferies – analyst

michael lasser – ubs – analyst

kelly bania – bmo capital markets – analyst

simeon gutman – morgan stanley – analyst

robert ohmes – bank of america merrill lynch – analyst

rupesh parikh – oppenheimer and company – analyst

joe feldman – telsey advisory group – analyst

chuck grom – research advisors to gordon haskett – analyst

ben bienvenu – stephens, inc. – analyst

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