Greetings, welcome to Walmart's Fiscal Year 2019 Third Quarter Earnings Release. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Dan Binder, Vice President of Investor Relations. Please go ahead, Mr. Binder.
Good morning, welcome to Walmart's Investor Relations call to discuss third quarter earnings. This is Dan Binder, I'm joined today by Kary Brunner, James Mann, Michael Brigance, and Shaneesh Gupta from our IR team. Hopefully, you've had some time to review our press release this morning, along with our other Q3 earnings documents. I'll hit on some key points, we'll open it up to Q&A.
As a reminder, our Q3 earnings press release, management commentary, and accompanying slide presentations are available on the investor page of our corporate website, stock.walmart.com. We may make forward-looking statements during this call. Please review the Q3 earnings presentation for a cautionary statement regarding forward-looking statements. In terms of key takeaways, we had a good quarter with strength in many areas of the business.
On a constant currency basis, net revenue was up 2.4%, or $2.9 billion year-over-year, exceeded plan. On a reported basis, this was just under $125 billion in revenue, currency negatively affected the top line by about $1.2 billion and operating profit by nearly $60 million. Adjusted EPS was $1.08 per share, that was about an 8% increase over last year.
From a GAAP perspective, we posted $0.58. Let me give you a little bit of color on sales. We continue to see strong momentum in the Walmart U.S. business with both comp transactions and comp ticket growth. As you saw, Q3 comps were, in the U.S., up 3.4%, on a two-year stack basis, were up 6.1%. It has been well over 10 years since we have seen back-to-back quarters with two-year stack comps above 6%.
We're pleased with the momentum in the business. At the time of our last call, we were about halfway through the back-to-school season, I told you that we were seeing strength in that business. I'm pleased to say that the season wrapped up with solid results, we ended the quarter with strong sales of fall seasonal goods, including Halloween.
While we don't break out grocery comps specifically, I will tell you that it was the best two-year stack comp in nearly nine years. I just wanted to point out that the hurricanes last year obviously provided us with some tough compares in that category, we were pleased with the momentum despite that tough comparison, particularly with fresh. As you also saw in today's release, U.S. e-commerce sales grew 43%, keeping us on track to achieve about 40% growth for the year.
We also continue to see good top-line results for international and Sam's Club. 9 of the 10 international markets reported positive comps led by Mexico. In Sam's Club, we saw reported strong comp store sales growth of 3.2%, excluding fuel, and 5.7%, excluding fuel and tobacco. Sam's Club e-commerce sales grew 32%, and we continue to be pleased with membership trends.
Lastly, as detailed in our release, we did raise our Walmart U.S. comp store sales guidance, ex fuel, from around 3% to at least 3%. We're now expecting full-year adjusted EPS of $4.75-$4.85, which was raised from our previous guidance of $4.65-$4.80. Just in terms of a reminder, I'd like to remind you that we will report fourth quarter earnings on Tuesday, February 19th, 2019. In addition, we have posted our fiscal year 2020 earnings release dates on our IR website.
With that, I'm happy to open up the call to your questions. Operator, if we could get started. Thanks.
Thank you. Our first question today comes from Peter Benedict with Robert W. Baird. Please proceed with your question.
Hi, guys. Maybe two questions. One, Sam said 27% private brand penetration. I think that was 23% or so a year ago. I'm just curious, which categories are driving the increased private brand penetration there? How does that penetration compare at Walmart U.S. and maybe the trend that you're seeing at Walmart U.S.? That's my first question.
Yeah, sure. Private brand has, in fact, been moving up. As you know, we consolidated down to one private brand at Sam's Club, and we've really seen strength in many areas as a club. We don't break it out specifically, but it was pretty broad-based. In terms of Walmart U.S., we don't break out private brands specifically, but it has been trending up, and I think that the takeaway here is it's not because we're really pushing it as much as the customer is really accepting it and responding to the higher quality, the price points, better packaging, et cetera. A nice trend there as well.
Okay, thanks, Dan. My follow-up would be, is there any additional color you can provide on Flipkart and how it impacted the various line items in the P&L? Whether it be revenue, is it safe to assume that Flipkart was dilutive to gross margin? Just any kind of color you can provide on Flipkart would be great. Thanks.
Yeah, unfortunately, we're not breaking out a lot of detail. I think you heard from Brett at the investment community meeting. We're going to try and give you color over time on how it's doing, high level. For competitive reasons, we're not providing a lot of disclosure on that piece of the business. It was dilutive, as you can see in our operating margin, and that's about all I can say on it at this point. We did have a great Big Billion Days, with strength in mobile, smartphones, record turnouts. We were pleased with that event.
All right. Got you. Thanks, Dan.
Our next question comes from the line of Karen Short with Barclays.
Hey, thanks. Just want to go to earnings guidance implied for the fourth quarter. There's a lot of one-times that were in last year's third quarter and a lot of one-times that were in last year's fourth quarter. I'm trying to back all of those out. When I look at the implied EPS guidance for 4Q and try to back into what that would mean for EBIT, I get EBIT in 4Q down quite a bit more than it was in 3Q'
This again, is on an adjusted apples-to-apples basis. I'm backing into 10+% - 15% down year-over-year EBIT. Am I kind of ballparking that? I guess if that's the case, why would it actually get worse in 4Q versus 3Q?
That number sounds high. I'm happy to get into the details of it after the call, but we did have Flipkart in the current quarter for only 44 days just because it's like many of the other countries, with the exception of Canada, there's a one-month lag. You have 44 days of Flipkart this quarter. The next quarter, obviously, have a full quarter of Flipkart. That would really be the only call-out that I would make. Again, I'm happy to get into the line items post-call.
Okay. My second question, just on Flipkart. We're looking at what the gross margin deterioration was in international. Obviously, you call out the fact that the deterioration was primarily a function of having Flipkart in the quarter. As we look to 4Q, should we take the run rate that you had in 3Q ,and adjust it for it only being a 44-day impact in 3Q as we think about the 4Q gross margin?
Yeah. We gave you some guidance at the time of the deal. We updated that guidance at the investment community meeting, indicating we expected about $0.25 of dilution from Flipkart. While we didn't specifically break it out here in Q3, that guidance has not changed. You should expect sequentially you're going to have more dilution in the international profit number on a year-over-year basis.
Okay, thanks.
The next question is from the line of Simeon Gutman with Morgan Stanley.
Hey, Simeon.
Good morning, Dan and team? My first question on the U.S. EBIT. Last year, I think it was in the commentary, there was a $150 million call-out of a negative impact to EBIT from hurricanes. My first question is what's the right way to look at the comparison? Because if we add back EBIT to last year's U.S., it would show EBIT for this year down a little with margin down. If we take it out, it paints a slightly different picture, shows it up and margin up. I don't know if there's a nuance the way we should be looking at it.
You're correct. We did break out some color last year on the hurricanes. We obviously got hit again with some hurricanes this year, so there was expense related to that, for all kinds of things, including equipment rental and so forth. We didn't quantify it this year, so it's really kind of hard for me to give you a perfect comparison. Just know there was definitely some noise in the number this year as well.
Okay. On a sales question. Grocery, you don't give us the exact comp, but you told us that the two-year stack was the best. We do know it moderated from, I think, mid-single to low single.
Yeah.
Your e-com business did accelerate. Growth is upto 43%. Bear with me on this inference, is it fair to say that the non-grocery part of your e-com business is accelerating? Is that a reasonable conclusion?
We don't break that out specifically, the color I would add is that the mid-single that you saw in our documents last quarter versus the low single that you see in the documents today for grocery, there was some rounding. I would just characterize this quarter as strong, at the stronger end of low single.
On a two-year stack, we called that out in particular because we wanted to highlight, obviously, that we had this hurricane comparison a year ago, but make sure you all understood that that business continues to have really good momentum and we've seen good share gains there.
Got it. Okay. Thanks, Dan.
The next question is from the line of Bob Drbul with Guggenheim Securities.
Good morning. I was wondering if you could just address a little bit, I think on the ticket growth, did inflation play a factor there? I just wondered maybe you could give us a little bit more color on the ticket growth. Then the second question that I have, there's some discussion on taking market share in key categories. Just wondering if you might be able to line up for us exactly what categories you feel like you're taking the most share currently. Thanks.
To answer your question on the ticket, that was not a factor of inflation. We have seen some cost input increases, but similar to last quarter. That's largely been offset by price investment, which as you can see in our gross margin, continues to be a factor, in fact, the leading factor for gross margin pressure. The reason for ticket improvement, I think, is a function of a few things.
One, online grocery continues to grow rapidly, and that is a significantly higher ticket than the average. Second, e-commerce also continues to grow rapidly, and that is a higher ticket. Even if you look within the store, fresh is higher ticket. That's been a leading comp category within grocery. You saw some strength in areas like apparel, toys, and automotive, good general merchandise mix as well.
That would really sort of sum it up. You have a follow-up, Bob?
Yeah. The follow-up is just when you look at sort of the market share in key categories, I'd be curious to see your take on that. You're gaining some share, but maybe if you could just comment on the toy category and sort of how you feel like you're positioned over the next 60 days.
Yeah. For competitive reasons, we wouldn't get too detailed into market share data. When we look at Nielsen and the NPD Group, it is very clear that we are gaining share in multiple categories. I highlighted grocery a minute ago. That's been a trend. You can see where others are reporting grocery comps versus ours in recent quarters. It's pretty broad-based.
Great. Thanks.
You did-
Sorry.
Just had a strong quarter, Bob.
Great.
The next question comes from the line of Paul Trussell with Deutsche Bank.
Good morning. Wanted to just maybe get a better handle around the adjusted guidance. The at least 3% growth from a U.S. comp standpoint could imply just a two comp at the low end. Is that how we should think about the framework of what the EPS guidance is based on? Any other puts and takes you can help us out with on the adjusted guidance?
Yeah, sure. There is nuance there, obviously. We wanted to send a message that we're feeling good about the business. To your point, if you were at three, you would probably be at about a two comp in Q4. Hopefully you took away from my comments earlier that we started the quarter strong. We ended it strong. There's momentum in the business. There's a lot of sales still in front of us, but we feel good about the business right now. We did want to make a slight change to the sales guidance, and you saw we took the earnings up as well.
Got it. On gross margins, there were some puts and takes there. You all were lapping the hurricane impact, but you did speak to ongoing pricing investments, all planned it sounds like, but also ongoing increases in transportation costs. Just any additional color you can maybe help us with on what's taking place there?
Yeah. I had a chance to really look at the walk year-over-year, the three things that I called out explain all of it. It's really very straightforward. You get heavy price investment. As I think I probably described to you in the past, that's kind of like religion around here. It's very consistent. It's very persistent. It's working. Customer's responding. That productivity move is working for us. Transportation costs, no big surprises. That's been pressure throughout the year, continues to be. That mix of e-commerce would be the last piece.
Got it. Thanks. Best of luck.
Our next question is from the line of Greg Melich with MoffettNathanson.
Hi. Thanks. I'll just start with maybe e-commerce. The 43% growth, going back to that, how much of a driver was the grocery pickup rollout? Was that a majority of the e-com growth?
Consistent with what we've said in the last quarter or so, it's been a significant contributor, we have not broken that out specifically. It is clearly contributing to that number in a big way.
Okay. That means it's the biggest thing, but it doesn't have to be a majority of it. I just want to make sure I'm translating the words correctly.
No, I wouldn't characterize it that way.
Okay. All right.
It's a significant contributor, but I wouldn't start to read into majority, minority.
Okay. Just on tariffs. I think The Home Depot sort of outlined, there's different ways you can talk about it, but so far, 1% of their U.S. purchases at the current rates with what's on the list. Are you able to give us something similar? Like I said, we'll go to 3.5% if we went to 25%. I know in the past you've said a majority of your U.S. purchases are done domestically, so just anything else, Dan, that you could give us on that front.
2/3 of our U.S. purchases are made in the U.S.A. We do have import. Part of that is just because we have such a big food and consumable business that's mid-fifties type mix. The other 1/3 is coming from other countries besides China. We haven't broken that out specifically, nor have we broken out the specific level of impact that we would expect.
Obviously, many companies are experiencing it. The key takeaway, I think, should be that we're going to manage the margins through this period. The merchants have been in these situations before. We are going to maintain our price gaps with the market. I think ultimately, it's a case-by-case situation. There's situations where we'll be able to take cost out to offset.
I couldn't describe it in a really simple form for you, I think what I'd want you to leave the call with is that we're going to be able to manage through it. At the end of the day, when the consumer is stretched on that dollar, I think Walmart has been in a really good position to benefit from it, given our Everyday Low Prices.
That's great. Last, if I could, on Sam's. Just wanted to get a sense as to the trend in profit being down despite stronger comps. If you could help us understand when we might hit that inflection where a comp of three or better could actually mean operating profit was up.
As you know, when John Furner started to head up that business, he made a lot of strategic decisions in different areas, one of which included price investment, included making investments in the member proposition. This quarter, we had some timing issues with bonus accruals that probably added a bit more pressure than we would've typically expected.
If you look at the overall business, we're pleased with the membership trends, we're pleased with the comps. The gross margin, excluding fuel, was up six basis points. That was helped by reduced tobacco volumes. There was some offset, though, from price investment, e-commerce fulfillment, and shrink. On the SG&A side, it was really a lot about wages, severance, some bonus accrual timing.
That's great. The 43 basis points of increase in OpEx, the big chunk of that was the higher incentive comp. I would call it one-off or unusual, it seems like that was particularly heavy this quarter, and we should expect something more normal there going forward.
That's a fair characterization, yes.
Great, Dan. Thanks a lot.
Sure.
The next question is from the line of Kelly Bania with BMO Capital Markets.
Hi. Thanks for taking my question. Just wanted to ask a little bit about just prices. It seems like grocery inflation is pretty nonexistent, at least in the government data. I was curious if you could talk about what you're seeing there, if you're seeing any deflationary categories, and what you're seeing in the competitive environment.
As we think about next year, as maybe there's some more pressure from the tariff on some of the discretionary categories, I guess, do you think it's an advantage to kind of maybe balance the two where there's maybe not some pressure on the food and grocery categories, but maybe some more on the other side, and I guess, just how you're thinking about that into 2019.
Yeah. In terms of inflation, we did see some cost inflation in the food category. I'd say meat and dairy more so, some produce. There was some offsets. Net net, if you look at the retail inflation, that was pretty much nonexistent. As I mentioned earlier, that was a function of price investment. Hopefully that adds some color. I'm sorry, the second part of your question was whether or not we would take some of the tariff pressure through price increases in other parts of the store. Was that it?
Yeah, just as you look at the cost pressures, it seems like there's more maybe on some of the discretionary categories and maybe less on the food and grocery side. I don't know if that's accurate, do you think that you kind of look at balancing those across the categories or, relative to some others that maybe are more in each category specifically and don't have that balance?
We would not take prices up in food to offset cost pressures in a category hit by tariffs, if I understand your question correctly. We're going to deal with the products that are affected by tariffs on an each basis, and we'll try and take cost out where we can. We're going to maintain price gaps at or better than current levels. Yeah, that's all I can really say at this point. We will manage margins around it, though.
Okay. That's very helpful. As we think about the gross margin outlook into next year, I think, the fuel and transportation and freight costs were one of the factors. I guess with oil prices just coming down so much over the last several weeks, just curious how that or if that at all impacts the outlook for next year.
Well, I'm not going to pretend to be able to predict oil prices. Certainly, it has been a factor. I think certainly the driver shortage has been a bigger issue and the freight piece of it has been a problem, too. That continues to persist. For the time being, we're anticipating continued transportation cost pressure.
Thank you.
The next question is from the line of Oliver Chen with Cowen and Company.
Hi. Thank you. Regarding the upcoming holiday and Black Friday, just open-ended, what are some of the features that you think are most incremental this year versus last year? The checkout experience sounds very helpful. Will that be a material transaction driver?
Then, a question we're receiving from clients is just the opportunity for the possibility of a Walmart Fulfillment Services service. Is that something that's entirely possible? Are there any thoughts on your capabilities with respect to that potential? Just because it sounds like you've been making so much progress with fulfillment and also just implementing so many changes in your marketplace that have really helped drive results. Thank you.
We had our press release out, I think it was last week, on Black Friday, you'll find a lot of what we're doing there this year versus last year. Obviously, toys are a big focus this year, we've got a lot of new toys, both in store, online. There's more space dedicated to it overall for the shopping period. As you highlighted, we've got Checkout With Me.
We've got the store maps. We've got the new website design this year, which we didn't have last year, so better online shopping experience. The overall assortment, I think, is more robust. We feel really good about the position, and I think we'll come out on the other side being winners. In terms of Fulfilled by Walmart, we have nothing new to announce today, so I really couldn't comment on speculation.
Okay. Our last question is just the e-com growth was so robust this quarter, and your guidance for the full year is around 40%. Is there an opportunity to raise that? How are you thinking about next quarter and what you just printed? The momentum is on your side, and we just feel like the momentum is more likely to continue favorably. Thank you.
Yeah, certainly, we've seen a nice acceleration now three quarters in a row in that e-commerce growth rate. It's been helped by online grocery. It's been helped by a lot of things that we've done on the website, on the assortment, private brand, pricing.
I wouldn't point to any one thing, but there's momentum there. I think we are certainly against a good consumer backdrop that's helped, I'm sure us and many other retailers. If we had anything new in terms of the guidance, we would've said so today.
The dispense arrays, somebody's asking me about those. We were impressed by the tests you've been doing there. Will those be in a position to roll out next year? Do you think it's something where you'll see net promoter scores at the same elite tiering as you have for curbside pickup? It really seems automated and seamless and you've made some really nice strides in what you demonstrated at the investor day.
The net promoter scores have been consistently strong for the online grocery experience, both pickup, which is obviously more advanced in its rollout than delivery. We're pleased with the customer response on both. Thanks, Oliver.
Our next question today will be coming from the line of Edward Kelly with Wells Fargo.
Hi. Good morning, guys?
Good morning.
I'd like to ask you about Click and Collect. Can you just talk about the impact Click and Collect has had on the grocery comp? I know e-commerce overall added 140 basis points. Seems like maybe that could be more for grocery. Just thoughts there, and then how much of Click and Collect do you think at this point is incremental?
The great thing about our grocery business is that there's so many different things that we're doing that are allowing us to take share, and certainly online grocery as a service, one that's free if you pick up in store, which is a pretty compelling value proposition relative to the market. It's been additive. We haven't broken that out specifically, but we are confident that it's allowing us to gain share while with existing customers, but more, also importantly, gain new customers. We haven't broken that out specifically, but we think it's significant enough to mention.
Just maybe a different way. Is there any reason to think that the benefit would be any different than what it is for the overall e-commerce benefit?
You're asking me if the contribution from online grocery to e-commerce-
I'm asking if the contribution from online grocery to the grocery comp, if any reason to think that it would be different than what e-commerce is driving for the overall company.
Yeah, I think that's two different analyses. I can comfortably say an online grocery is adding to both. We've got grocery traffic in the stores as well. Maybe the takeaway here is it's not cannibalizing us. We think a lot of that business is new business.
Okay, perfect. Just as a follow-up on Flipkart. Dan, I don't know to the extent that you can talk about the management changes happened there. Should we be concerned at all? Maybe any color on the strength of the bench within that business?
Obviously, we're disappointed that the situation arose. You've probably, at this point, read a lot in the press, and you've had our 8-K to refer to. We've taken actions to change the reporting structure, and we feel good about the bench. I think it's really important that when you look at a company like Flipkart, when you get to that size and that level of complexity, it's not only about one person.
We've made the appropriate changes and outlined that in the 8-K. Probably wouldn't say much more than that at this point, but we're committed to India. We still really love the business. We're going to continue to push forward. We felt it was appropriate to make the changes we did.
Thank you. The next question comes from the line of Edward Yruma with KeyBanc.
Hey, thanks for taking the questions. I guess first, on the U.S. stores gross margin line. You guys have done some changes to e-com, changing minimum order sizes or how many of an item you need to purchase to get delivery. Have you been able, do you think, to moderate the e-com drag in the face of what are accelerating results?
Second, I think you guys are lapping, in the fourth quarter, the removal of the co-manager position in stores. I guess if you just step back broadly, do you think you're going to be able to continue to leverage in-store OpEx? Thanks.
We don't comment a lot on margin rates in e-commerce, but we do like what we're seeing in the variable cost per unit. We were fairly clear, I think, at the investor meeting that there's work to do on mix, probably not going to say much beyond that at this point.
You've seen a lot of the smaller acquisitions we've made. You've seen the increasing SKU count over time. We talked about editing the SKUs online, I think to the tune of 20 million added, 20 million reduced. We're working towards a goal of improving the mix and, as I said, the variable cost per unit's coming down, that's good.
I'm not sure if I would say much more than that at this point, but in terms of your other question on operating expense leverage, I think you said in the stores, there's still a lot to do. Stores are leveraging really well. You saw 28 basis points of expense leverage for Walmart U.S. Stores were even better.
Obviously, that number is affected by e-commerce when you look at it in total. There is more to do, and I think some of that's going to come through some of the automation that you saw us put on display about a month ago.
Great. Thanks so much.
The next question comes from the line of Kate McShane with Citi.
Hi, good morning. Thanks for taking our question. This question is kind of in the same vein as the previous question, but with regards to the Walmart U.S. store expenses and being able to leverage that, how much of that would you attribute to the year's comp acceleration versus your own cost control initiatives?
Yeah. What you heard from us about a month ago was that the cost culture at Walmart is back. There's everything from zero-based budgeting that we've been pursuing to just getting greater productivity out of associates with the use of technology. There's a lot of different things that we're going after, and there's also a lot of levers that we can pull in different types of comp environments.
I think Retail 101 would suggest if your comp goes from 3.5% down to 1%, you're going to have a lot of adjustments to make. That's not what we're planning for. Certainly, that's not what we're seeing in our business. The things that we do control, we are doing well, I would say. I think there's more runway in front of us to go after a lot of other items.
I think you probably heard Brett talk about a list of 300 cost-cutting initiatives on his desk right now. That's a long list.
The only thing I'd add to that is that the stores, keep in mind that there was a wage rate increase at the beginning of this year. They're delivering this amount of leverage
Despite the fact that they have this incremental headwind. Greg Foran and the team just continue to find new ways. A lot of that has to do with inventory management and effectiveness there, as well as Dan mentioned, the automation that we're testing. We're finding new ways through automation as well as through process changes to be more efficient. It's bidding us on the operating expense line.
Okay, great. That's helpful. I have an unrelated question, a little bit more specific. We noticed in your management comments that it was called out there's a meaningful price gap versus competitors in Canada. I just wondered, is that how the competitive environment has been for some time? What is the thinking behind an eventual closing of that gap?
The price gaps are good. I mean, we've been investing in price in Canada as well. You see that in various markets around the world, where we're not only focused on, you know, omni-channel integration, but also improvements. I think when we mention price gaps, it's to the benefit that we're pleased with where we are and continue to expand it similar to the U.S.
The next question comes from the line of Christopher Horvers with J.P. Morgan.
Thanks. Good morning, guys. My first question is trying to diagnose the gross margin a little bit. In light of having sort of that hurricane compare on the gross margin, I think it was about a third of the degradation last year. These storms seem pretty small. In light of that, what factor drove sort of like the incremental headwind on a year-over-year basis? Was it the price? Was it transportation costs getting worse? Or was it the e-commerce impact becoming larger as that business has accelerated?
The price investment has been pretty steady. Certainly transportation has been a growing pressure through the year. Yeah, I wouldn't say the e-commerce impact was significantly different than last quarter.
Okay.
Okay.
Yep, that's very helpful. Then, The Home Depot yesterday or the other day made some bullish commentary about the upcoming tax refund season. I think they said that something like 60% of the benefit of tax reform still lies ahead, and that's going to come through higher tax refunds year-over-year. Just curious, given your customer base, have you looked at that? How are you thinking about that internally, and is there any quantification or any way you can help us think about it? That'd be great. Thanks very much.
Yeah, sure. Well, obviously, we pay a lot of attention to the macro factors. We think there's probably been a benefit this year already from tax reform, whether it's money directly in people's pockets or the business, the stimulation in the economy. We're not economists, we're not trying to set an economic forecast here.
We like the momentum in our business, and if tax refunds, these tend to ebb and flow over the years, as you know. Some years, there's timing issues, other times there's absolute benefits. Clearly, if it's putting more money in the pockets of our customer, we would hope to get that share of it, our fair share of it.
Our next question is from the line of Seth Sigman with Credit Suisse.
Thanks. Hey, guys. Good morning. My first question is just around the inventory growth for Walmart U.S. Seemed like comp store inventory was flat. I think that is a change in trend after being down for some time. Is there anything there related to tariffs or function of sales growth or anything else to highlight?
We said we were positioned well for holiday and yeah, toy is a big focus this year. There's more to do, I think. The level of improvement early on was significant because there was a lot of things that we were doing to pull inventory out of the back rooms. Obviously, once you've moved further down that initiative, there's a diminishing return from that. I think the goal of our team is to continue to get productivity out of our inventory up. I think in this particular quarter, as I mentioned earlier, there's some big opportunities this year that we're going after.
It's strong sales growth, the inventory management is still really effective.
Right. Understood. Okay. A follow-up question on the online growth, the 43%, a little bit better than last quarter. I know it's been asked a couple different ways, but I'm curious more just directionally whether online grocery contributed more or less to that total online growth this quarter, I guess relative to last quarter.
I would just think more given that you have more stores with online grocery. Any context on that? Then related, the stores that have online grocery for more than a year at this point, and I think you have an increasing number of those, just how are those performing relative to the base? Thanks.
Your first analysis seems pretty sound. There are more stores with more online grocery, so the contribution is higher. Your second question in terms of the stores that have had it for a longer period of time continue to improve and grow, but we haven't quantified what that maturity curve looks like exactly.
NPS scores continue to remain really high for that initiative.
The next question is from the line of Chuck Grom with Gordon Haskett.
Hey, thanks. Good morning, everybody. Just on the e-commerce side of the business, Dan, in the script, you guys talked about improving the margin profile. I was just wondering if you could amplify on that for us in terms of the opportunity, how long you think it's going to take. What do you think needs to get done?
The margin profile is a function, obviously, of two things. One, what you're selling, and two, how you distribute it. We're working on both. We've got sort of the head of the assortment that we're focused on with the rollout of online grocery, the tail of the assortment that we're focused on as we add sellers to the base, get a more robust set of SKUs and make these small acquisitions in both digitally native brands as well as vertical brands as well as specialty retailers.
We like the direction, but there's more work to do, and we just haven't laid out a specific margin profile by quarter. I don't know if that helps at all, but there's a lot of work going on both sides.
Okay, great. I apologize if the answer's already been, but I hopped on late. The Flipkart solution here, is it still expected to be $0.25? My second follow-up would be the cadence of the comp and traffic throughout the third quarter. Thanks.
Yeah. $0.25 is the last guidance we gave you. That hasn't changed today. That's nothing more to really say there. In terms of the cadence of the quarter, I mentioned earlier that we started the quarter strong with back to school, really wrapped up that season with solid results as we progressed through the quarter. Had great fall seasonal sales right into Halloween. Really happy with the cadence of the quarter overall.
The next question is from the line of Chris Mandeville with Jefferies.
Hey, good morning?
Hi.
Dan, how are you feeling on pricing relative to peers at Sam's? Just based on the ticket, it would appear as though you've maybe accelerated some of your investments in the quarter. While traffic seems relatively consistent on both the one and two year basis. I suppose maybe some of that was related to the shift from closed stores. As we progress into calendar 2019, how should we be thinking about that level of price investment going forward? What are your kind of early reads from a return basis?
Yeah. The ticket is affected by many things, certainly some price investment, but I think the lower sales of tobacco are affecting it. We're also seeing more frequent trips with the Scan & Go, so little more traffic, but maybe a little bit lower ticket on each of those trips. We haven't broken it out to the basis point. Those are some of the factors that we're seeing.
Sorry, just in terms of also the level of price investment, how would you guys feel in terms of your price gap today at Sam's versus competition and how would you fix it?
Well, we made price investments in different parts of the country, different categories similar to Walmart. We wouldn't break that out. It's something that we like the results from in terms of what we see with retention and membership trends and comps, et cetera, sales. Yep. That's a work in progress to answer your question.
Sorry, what was that?
That's work in progress.
Got it. Okay. My follow-up would be just in terms of China, you guys have saw some solid improvements sequentially on really the overall two year as well as in traffic. Any ability to speak to the contribution from that omnichannel event you referred to that took place in August?
Overall, we've been pleased with the results in China, as you've seen. It's been an economy that has seen some slowdown in GDP and it's a very competitive market, obviously. The dot com business, the flagship stores on JD.com are doing well. We're pleased with overall execution. I'm not sure I can say much more than that, it's moving in the right direction.
The next question comes from the line of Robbie Ohmes with Bank of America Merrill Lynch.
Hey, Dan. I had a follow-up question on the dot com's growth. For the fourth quarter. Last year, going into the fourth quarter, you guys had amazing dot com momentum. In the fourth quarter, e-commerce only grew 23% in the U.S. Can you just remind us what happened last year how we think about that as a comparison this year?
What's different this year where you wouldn't see that kind of drop off? I think to get to the close to 40 for the year, it kind of has to be close to 40, I think, for the fourth quarter. It'd be kind of similar trends. Last year the trends were kind of cut in half.
Last year we highlighted that there were two primary issues. One of the bigger ones was the promotional position we took year-over-year. We basically lapped that, and our philosophy around that issue hasn't changed. The other issue was capacity. We feel good about our capacity and our inventory position today. I think we're in good shape.
Keep in mind, Robbie, last year we left the Jet.com acquisition as well. Sequentially, that's why it slowed down.
We should think of it as an easy comparison, not it's tougher to drive momentum in the fourth quarter.
Well, if you break it apart, right? We've already lapped Jet.com, that was part of the drop as Kary just highlighted. The other piece was a position on promotion, which hasn't changed. That's not really an easy comparison either. The only piece that you would maybe characterize as maybe being easy would be the capacity issue, which I think we've addressed.
Got it. That's helpful. Thanks, guys.
The next question comes from the line of Scott Mushkin with Wolfe Research.
Hey, guys. Thanks for taking my question. I guess the first thing I wanted to understand a little bit, I think, at the meeting, Greg talked about competition getting a little bit more intense. It seems as I look at your fourth quarter, you guys have left room potentially to get a little bit more aggressive on price.
We certainly see competitors in consumables get more aggressive lately. I just wanted to see how we should look at the fourth quarter, sort of physically under these circumstances, and how able are you to react if the environment gets more competitive or continues to be more competitive, as Greg talked about?
Yeah. It varies by market. I think when I look at our forecast, while we don't break out the margins and SG&A specifically, I think as I mentioned earlier, there's been a very consistent approach to price investment. I think that systematic approach has produced results that we've been pleased with, and I wouldn't expect that to change in Q4. We're obviously going to be very aware of what's going on in the market.
We have lots of people dedicated to pricing, and as we've said in the past, nothing changes today in my comments, that we will maintain price gaps and we will be EDLP. We're finding, as you've seen in the numbers, the offsets and expenses to help fund that. That really starts to get the definition of the productivity loop.
Get the cost out, drive prices down, drive sales, and then do it all over again.
All right. My follow-up question goes to the club, Sam's. You have a competitor in the marketplace offering free memberships. Wondering if you guys have seen any kind of impact from that, and is that something you guys would consider, or are you doing it as well?
No. We haven't seen any discernible impact. We're pretty pleased with our membership sign-ups and overall improvement in membership trends. Certainly, some of that's been helped by the Plus membership penetration moving higher, which has been in part a function of a lot of things going on inside the club, to make it an attractive place to shop, but also the value proposition around free shipping with Plus membership. Yeah, no, I think, we're executing to the plan and it's as we expected.
The next question will be coming from the line of Michael Lasser with UBS.
Good morning. Thanks a lot for taking my question. If we trend out your e-commerce growth on a two-year stack basis, in the fourth quarter, it would imply you're going to grow 70%. It seems like what you're saying is because you're not going to be as promotional, we should be modeling something less than 70%. A, is that fair? When you say you're going to be less promotional, is that alluding to the fact that you are requiring a $35 minimum threshold purchase for free shipping, whereas Amazon and Target are requiring no minimum threshold for free shipping?
Yeah. My comments around promotion are not related to this year specifically. I was just highlighting that last year, well, if you think about holiday 2016, there were some promotional events that we did not repeat in 2017. Here we are in 2018, we are growing the business. We're aggressive. You can do the price comparisons. On a basket, we are lower than many of our competitors on the basket, many of the big ones.
We're happy with that position. We're getting the results we want at the top line and our 40% guidance, or around 40% guidance for the full year implies something in that range of, call it low to mid 40 type growth in Q4. You can do that math, right? It's fairly, I think, clear at this point how we think about Q4 growth in e-commerce.
I'm trying to understand the reason why it's been so much slower on a two-year stack basis because you have anniversaries, the Jet.com acquisition for the last three quarters, that's going to be fully embedded in the two-year stack. Is it also because a lot of your growth or a substantial portion of your growth has come from the online grocery pickup and that becomes less meaningful as a portion of the mix in the fourth quarter?
Grocery is a smaller percentage of sales of total, versus the other quarters, simply because it's the holiday quarter. It continues to contribute strongly to the overall e-commerce business.
Your next question will be coming from the line of Budd Bugatch with Raymond James.
Good morning. Thank you for taking my question as well. A lot of my questions have been answered, but you used to disclose the average wage per hour in the U.S., and obviously with a lot of the moving parts and the wage increases, can you disclose that number anymore, what that average is in the U.S.?
Yeah. The starting wage is, as you know, is $11 an hour. The average, I think, is 13 and a half, somewhere around there for U.S. stores. Of course, D.C.'s would be higher than that.
Okay. Thank you. My follow-up relates to some of the pretty sophisticated applications you have in the stores, both in Walmart U.S. and in Sam's. When I'm in the stores and use Walmart Pay, I always ask the people at the register if people use it, and I get very rare usage of things like Walmart Pay. Can you talk about the usage of Walmart Pay and maybe even Scan & Go in Sam's and maybe what kind of increases you've seen in the penetration of the usage of those apps?
Scan & Go has been a really popular app actually in Sam's Club. I spoke a little bit to how we think it's impacting our traffic numbers and ticket numbers. Great response from customers on that. We're really pleased with the ramp-up in Scan & Go. In terms of Walmart Pay in the Walmart stores, that's also growing, but we haven't broken out the specific stats around it.
These are all just areas, Budd, of increasing the level of convenience for a customer. As they choose to shop with us, they have choice in how they do that. As Dan mentioned, we're pleased with the Walmart Pay trends, and we would only expect that to grow.
I certainly hope so, Kary, because I really look for it when I'm in the stores, I'm in the stores a fair amount, I just don't see a reasonably decent usage of it, I would love to see more.
It's incredibly easy to use. I think as there continues to be more communications around it signage advertising and so forth, I think once you convert a customer to Walmart Pay, they really like it. It makes it very simple.
I'd also think that as we add more features to the app and draw more people to download the app, that should help our adoption rates of Walmart Pay.
Okay. All right. Thank you very much.
Sure.
The next question comes from the line of Joseph Feldman with Telsey Advisory Group.
Hey, guys. Thanks for taking me. Had a couple of quick ones. With Sam's Club, the traffic was up a lot, and I know some of it may just be the transfer from the stores that were closed, but is there anything else driving that big 6.2% traffic number?
The traffic, as I mentioned earlier, there's a lot of pieces that go into that. Closed clubs obviously is significant this quarter until we lap that event. We're also getting more frequent visits with the Scan & Go. People, just the behavior of the member changes a bit. That would probably be the other big call-out that I would make.
Got it. Thanks. One other one was with Sears going away and it may sound unrelated, but even the wildfires, those kind of exogenous pressures or factors, are you seeing any impact from them? Or maybe transfer sales or things that you're doing to help in the wildfire community? Kind of a two-part question there. Thanks.
No, I haven't seen anything specific as it relates to the fires. It's one small part of the country. Obviously, our store base, it would have to be pretty monumental to have a major impact. That's not a monumental event. It's obviously terrible, but there's nothing specific that I would speak to on that today. I think the other part of your question was around-
Sears.
Sears. Yeah. Look, there's a lot of retailers out there that are struggling, we pay less attention to what they're doing, a lot more on what we're doing and what we can control, market share is going to flow. Obviously, the big focus for us in the near term is the toy business, just given what's happened in the retail landscape.
In that particular category. We're in the market every day, every week, every month, getting better. It's getting better on price, getting better on private brand, getting better on assortments, on store level, shopability, experience of the customer. As long as we're doing those things, I think we're going to be able to take share from a lot, in a lot of different places.
Got it. Thanks, Dan. Thanks, guys.
The next question is from the line of Scot Ciccarelli with RBC Capital Markets.
Good morning, guys. Thanks for fitting me in here. Dan, earlier in the call, I think you mentioned some of the drivers to your average ticket growth, and you seemed to highlight both e-commerce penetration as well as fresh. Are there any other big contributors to the average ticket increase you've experienced in the last few quarters, or are those two factors really the lion's share?
We've seen some good general merchandise growth. Last quarter, as you recall, there was some seasonal benefits that we got from the way the weather broke, and certainly this quarter, we've seen really good strength in the apparel business, the toy business, automotive. These tend to be higher ticket categories, and I think that mix of business has helped us as well.
Got you. When you look at your e-commerce contribution, the 140 basis points that you highlighted, does that have a bigger impact on traffic or ticket?
Traffic, ticket as well, because you're getting a higher ticket on e-commerce. I wouldn't necessarily try and break that out here today.
Okay, understood. All right. Thanks, guys.
Our next question comes from the line of Ben Bienvenu with Stephens.
Hey, good morning, everybody. I wanted to ask about the receivables. How much of that decline year-over-year is being driven by Brazil, and how much of it is sustainable as we lap over that? Should we expect receivables to begin growing again as we move out of 2019?
Certainly Brazil and Flipkart play a role in that as well as FX. We don't break out the specifics, but those are the three pieces that have had an impact. Flipkart is adding, Brazil detracting, FX detracting. When I look at the underlying numbers, there's nothing unusual or concerning.
Okay. On the international inventory, for the last several quarters, you guys have been growing inventory at a slower rate than sales. You had partial contribution of sales from Flipkart this quarter. Is it reasonable to assume that with a full quarter's contribution of Flipkart sales, that trend you've seen in the past should sustain inventory growing at a slower rate than sales?
Yes, inventory, obviously being a snapshot in time, relative to our sales, would be a little bit out of line or misaligned. Yeah, the next quarter, you should start to see more normal trends, but we don't predict specifically or forecast inventory levels for the business overall, never mind international. It's safe to say that inventory is the focus around the globe. We've made good progress as a company. I would just leave that as the takeaway.
FX has an impact on that line as well.
Understood. Thanks, guys.
The next question is from the line of Rupesh Parikh with Oppenheimer.
Good morning. Thanks for taking my questions. On your free shipping threshold, clearly Amazon recently removed it for the holiday season. I'm just curious how you guys feel about the competitiveness of your offering in light of their actions.
Sure. We feel good about the offering. We feel good about our price points. We feel good about our price gaps on the full basket, and there's nothing to announce today on shipping.
Okay, great. There wasn't commentary this quarter on the consumer electronics category, so I was curious how that performed for the Walmart U.S. segment.
We had broad-based strength in general merchandise. Electronics didn't pop up at the top of the list this quarter. We did see strength in areas like mobile, for example. We're pleased with the TV business. We've moved with the market shifting towards larger screen sizes. We've gotten better assorted in connected homes. We feel pretty good about the direction of that business, both from a merchandising perspective and sales perspective overall.
Yeah, gaming had a good quarter as well and we showed off some of the new innovation we have there with the arcade games you might have seen in October when you were here. That amongst a number of other new offerings are really driving that business. Pleased with that.
Great. Thank you.
Our final question today comes from the line of Mark Astrachan with Stifel.
Thanks, and good morning, everybody. I wanted to go back to traffic in the U.S. and try and understand how it flowed through from a U.S. grocery standpoint. If ticket was roughly constant and overall grocery comp was even at the high end of low single digits, is it fair to assume there was some moderation in traffic sequentially in terms of contribution comp?
Traffic moderated largely because of the comparison to last year's hurricanes. We had hurricanes this quarter, but not as significant as last year. Overall, we are pleased with what we're seeing in the broader traffic trends. If you look at the two-year stacks on traffic over the last few quarters, you can see that really over the last actually four to eight quarters, you can see a nice progression. I would say on a two-year stack basis, we were pleased with what we saw.
One last housekeeping question. On interest expense, debt balance up in the quarter. Is there anything exceptional we should know in trying to model that from a floating versus fixed rate standpoint?
We do have some lower interest rate debt. That helps.
Flipkart
We had the Flipkart piece in there. Is there any other factors? I'm trying to think.
Those are the main ones.
Yeah.
Okay. Thank you.
Okay.
Thank you. I'll turn the floor back to management for closing remarks.
Great. Well, appreciate the time. We went a little bit over. I just wanted to make sure we fit everybody in. In closing, we are really pleased with the Q3 results. We have good momentum in the business. We feel good about our competitive position headed into the holiday season, and believe we're positioned to win. The IR team here at Walmart, along with our executives, wish you all a happy and safe holiday season, and have a great day. Thanks.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.