Greetings, and welcome to Walmart's Secoo Year 2019 Third Quarter Earnings Release. At this time, all participants are in a listen only mode. A brief question and answer session will follow the presentation. 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, and welcome to Walmart's Investor Relations call to discuss Third Quarter Earnings This is Dan Binder, and I'm joined today by Carrie Burner, James Mann, Michael DeGantt and Shintech 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 and then we'll open it up to Q And 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 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 point On a reported basis, this was just under $125,000,000,000 in revenue and currency negatively affected the top line by about 1,200,000,000 and operating profit by nearly $60,000,000. Adjusted EPS was $1.08 per share, and that was about an 8% increase over last year. From a GAAP perspective, we posted $0.58. Now, 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% and on a 2 year stack basis, were up 6.1%.
It's been well over 10 years since we have seen back to back quarters with 2 year stack comps above 6%. So 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, and I told you that we were seeing strength in that business. I'm pleased to say that the season wrapped up with solid results and then 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 2 year stat comp in the elite 9 years.
I just wanted to point out that the hurricanes last year obviously provide us with some tough compares in that category, and we were pleased with the momentum, despite that tough comparison, and particularly with fresh. As you also saw, 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. And Sam's Club, we saw reported strong comp store sales growth of 3.2% excluding fuel and 5.7% excluding fuel and tobacco. Sales 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 $7.85 to $4.85, which was raised from our previous guidance of $4.65 to $4.80. Just in terms of a reminder, I'd like to I'll remind you that we will report 4th quarter earnings on Tuesday, February 19, 2019. In addition, we have posted our year 2020 earnings releases, release dates on our IR website. So with that, I'm happy to open up the call to your questions.
Our first question today comes from Peter Benedict with Robert W. Baird. Please proceed with your question.
Maybe 2 questions. 1, Sam said 27 percent private brand penetration. I think that's, that was like 23 or so a year ago. So I'm curious. What's driving?
Which categories are driving the increased private brand penetration there? And 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.
Yes, sure. So, 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.
And then in terms of Walmart U. S, we don't break out private brands specifically, but it has been trending up, and that is not I think 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, etcetera. So with a nice trend there as well. Okay. Thanks Dan.
And then 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 and L? Whether it be revenue? Is there a, 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. You know, I think you heard from from Brett at the investment community meeting, you know, we, we're going to try and give you color over time on how it's doing high level, but for competitive reasons, we not providing a lot of disclosure on that piece of the business, but it was dilutive, as you can see in our operating margin. And it's about all I can say on it at this point. We did have, a great $1,000,000,000 day, you know, with strength, in mobile smartphones, record turnouts. So we were pleased with that event.
Our next question comes from the line of Karen Short with Barclays. Please proceed with your question.
So I just want to go to earnings guidance implied for the fourth quarter. So there's a lot of one times that we're in last year. So quarter and a lot of one times were in last year's 4th quarter. So I'm trying to back all of those out. But 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. And this again on an adjusted apples to apples basis. So I'm kind of backing into, like, 10 plus percent, 15% down year over year EBIT. Is that am am I kind of ballpark in that? And then I guess if that's the case, why would it why would it actually get worse in 3q 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, exception of Canada is a 1 month lag. So you have 44 days of Flipkart this quarter. The next quarter, obviously, had a full quarter card. So that would really be the only call out that I would make.
But again, I'm happy to get into the the line items, you know, post call.
Okay. And then so my second question just on Flipkart. So we're looking at what the gross margin deterioration was in international. I mean, you call out, obviously, you call out the fact that the deterioration was primarily a function of having Flipkart in the quarter, but as we look to 4Q, should we kind of take the run rate you had in 3Q and kind of adjust it for it only being a 44 day impact in 3Q as we think about 4Q gross margins?
Yes. So 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. Well, we didn't specifically break it out here in Q3. That guidance has not changed.
So you should expect sequentially you'll probably 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. Please proceed with your question.
Good morning, Dan and team. My first question on the U. S. EBIT last year, I think it was on the commentary. There was 150,000,000 call out of a negative impact to EBIT from hurricanes.
And so 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 actually shows it up and margin up. So I don't know how if there's a nuance the way we should be looking at it.
So 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, but we didn't quantify it this year. So it's really kind of hard for me to give you a perfect comparison, but, just no, there was definitely some noise in the number this year as well.
Okay. And then on a sales question. So grocery, you don't give us the exact comp, but you told us that the 2 year stack was the best, but we do know it moderated from, I think, mid single to low single. And your e com business did accelerate. It's up to 40 new growth is 43.
Bear
with me
on this inference, but is it fair to say that the non grocery part of your ecom business is accelerating. Is that a reasonable conclusion?
So we don't break that out specifically, but I, the color I would add is that the mid single that you saw in our last quarter versus the low single that you see in the documents today for grocery. There was some rounding. So I would just characterize this quarter is strong at the stronger end of low single. And on a 2 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. Please proceed with your questions.
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? And I was just wondering, may you little bit more color on the ticket growth? And then the second question that I have, there's some discussion on taking market share in key categories.
Just wondering you might be able to line up for us exactly what categories you feel like you're taking the most share, currently.
Yes. So 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. 1, online grocery continues to grow rapidly and that is a significantly higher ticket than the average. 2nd, e commerce also continues to grow rapidly and that is a higher ticket.
Then even if you look within the store, Fresh is higher ticket. That's been a leading comp category within grocery and then you saw some strength in areas like apparel, toys and automotive, so good general merchandise mix as well. So those are really, that would really sort of sum it up. Yes,
I mean, the follow-up is just in, so, and 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 the toy category and sort of how you feel like you're positioned over the next 60 days?
Yes, so for competitive reasons, we wouldn't get too detailed the market share data, but when we look at Nielsen and the MPD group, it is very clear that we are gaining share in multiple categories. Highlighted grocery a minute ago, that's been a trend.
You can
see where others are reporting grocery comps. Versus hours, in recent quarters. But, it's pretty broad based. Great.
You did. Thanks, Sharon.
The next question comes from the line of Paul Trussell with Deutsche Bank. Please proceed with your question.
Good morning. I wanted to just maybe get a better handle around the adjusted guidance. So 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 or any other kind of puts and takes you can help us out with on the adjusted
Yes, sure. So, there is nuance there, obviously. And, that was, we wanted to send a message, that we're feeling good about the business. And sheer point, if you were at 3, you would probably be at about a 2 comp in Q4. I just Hopefully, you took away from my comments earlier that we started the quarter strong.
We ended it we ended it strong, is momentum in the business. So there's a lot of sales still in front of us, but we feel good about the business right now. So we do want to make a slight change to the sales guidance and you saw we took the earnings up as well.
Got it. Got it. And on gross margins, There were some puts and takes there. You all were lapping the hurricane impact, but you did kind of speak to ongoing kind of 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?
Yes. So I had a chance to really look at the walk year over year and the three things that I called out explain all of it. I mean, it's it's really very straightforward. You get heavy price investment. As I think I probably described to you in the past, kind of like religion around here.
It's very consistent. It's very persistent. It's working. Customers responding. That productivity loop is working for us.
Transportation costs, no big surprises. That's been pressure throughout the year continues to be. And then 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 Melick with MoffettNathanson. Please proceed with your question.
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 roll out? Was that a majority of of the e comm growth?
Consistent with what we've said in the last quarter or so, it's been a significant contributor. But we have not broken that out specifically. But it is clearly contributing to that number in a big way.
Okay. So 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
I wouldn't characterize it that way.
It's
a significant contributor, but it's I wouldn't start to read into majority minority
Okay. And then, just on the, on tariffs, the I think 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 are what's on the list. Are you able to give us something similar?
And 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, if you could give us on that front?
Yes. So 2 thirds of our U. S. Purchases are made in the USA. We do have import and part of that is just because we have such a big and Consumable business, that's like mid-50s type mix.
And then the rest, the other third is coming from other countries besides China. We haven't broken that out specifically nor have we broke out specific level of impact that we would expect. But obviously, the world 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. But I think ultimately, it's a case by case situation. Situations where we'll be able to take cost out to offset. So it's not a, I couldn't describe it in a really simple form for you, but I think I want you to leave the call with is that we're going to be able to manage through it. And at the end of the day, when the consumer was 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. And then last as I could on Sam's, just wanted to get a sense as to the, you know, the the trend in profit being down despite, you know, pretty good comps. It could help us understand when we might get that inflection where a comp of 3 or better could actually mean operating profit was up.
Yes. So as you know, when John Furner, you know, started to head up that business, he made lot of strategic decisions to, different areas, one of which included price investment included making investments in the member proposition. This quarter was we had some timing issues with bonus accruals that were probably added a bit more pressure than we would have typically expected. But 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 6 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 and A side, was really a lot about wages severance, some bonus accrual timing.
That's great. So that's the 43 basis points of increase in OpEx the big chunk of that was the, was the higher incentive comp. So like And that seems like it was, I want to call it one off or unusual, but it seems like that was particularly heavy this quarter and we should expect something more normal there going forward.
That's the 3rd characterization. Yes.
The next question is from the line of Kelly Bania with BMO Capital. Please proceed with your question.
Hi, thanks for taking my question. Just wanted to ask a little bit about just prices. It seems like grocery inflation is pretty non existent at least the government data. And so 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. And as we think about next year as maybe there's some more pressure from the tariffs on some of the discretionary categories, is, I guess, do you think it's an advantage to kind of maybe balance the 2 where there's maybe not some pressure on the food and grocery categories, but maybe some more the other side?
And I guess just how you're thinking about that into 2019?
Yes. So 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 were some offsets. But 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.
So 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?
Yes, just as you kind of 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, but 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 into account that balance?
So we would not take prices up in food to offset cost pressures and a category hit by tariffs, if that's, if I understand your question correctly. So we're going to deal with those that are affected by the products that are affected by tariffs on a 1 by 1 base on a 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. And that's all I can really say at this point.
We will manage margins around it, though.
Okay. That's very helpful. And 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. And 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. But certainly, it has been a factor. I think certainly the driver shortage, the has been a bigger issue and the freight piece of it has been a problem too. That continues to persist. So for the time being, we're anticipating continue transportation cost pressure.
The next question is from the line of Oliver Chen with Cowen and Company. Please proceed with your question.
Hi, thank you. Regarding the upcoming holiday in Black Friday, just open ended, what are some of the features that you think are more most incremental this year versus last year. The checkout experience sounds very helpful. Will that be a material transaction driver? And then a question we're receiving from clients is just the opportunity for the possibility of a fulfilled by Walmart.
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.
Yes, so we had our press release how I think it was last week, on Black Friday. And so you'll find a lot of what we're doing there this year, versus last year. Obviously, toys are a big focus this year. So we've got a lot of new toys, both in store, online, is more space dedicated to it overall. The shopping period.
As you highlighted, you'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. So we feel really good about the position. And, I think we'll come out on the other side being winners.
So in terms of fulfilled by Walmart, we have nothing new to announce. Today. So I really couldn't comment on speculation.
Okay. And our last question is just the e comm growth was so robust this quarter. And your guidance for the full year is around 40%. Was there an opportunity to raise that? How are you thinking about quarter and what you just printed because of the momentum is on your side.
And we just feel like the the momentum is more likely to continue favorably? Thank you.
Yes, certainly, we've seen an ice accelerate now three quarters in a row and that e commerce growth rate that's been helped by online grocery, it's been helped by a lot of things that we've done on the 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. But if we had anything new in terms of, the guidance, we would have said so today. Okay.
And the dispensary is 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 an 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.
So 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, but we're pleased with the customer response on both. Thanks, Oliver.
And one follow-up question. Our next question today will be coming from the line of Edward Kelly with Wells Fargo. Please go ahead with your question, sir.
Hi. Good morning, guys.
Good morning.
I wanted to ask you about Click and Collect. Can you just talk about the impact Click and like this had on the on the grocery comp. I know e commerce overall added a 140 basis points. It 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 is incremental?
So 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. That's it's been additive. We haven't broken that out specifically, but we are confident that it's allowing us to gain share while it was existing customers, but also importantly gain new customers, but we haven't broken that out specifically, but we think it's 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 from online grocery to the grocery comp, is there any reason to think that it would be different than what e commerce is driving for the overall company?
Yeah. I think they're 2 different. That's 2, 2 different analyses, but I can comfortably say it's an online grocery is adding to both. But we've got grocery traffic in the stores as well. So it's not,
I don't think it's,
maybe the takeaway here is it's not cannibalizing us we think a lot of that business is new business.
Okay, perfect. And then, just as a follow-up on on Flipkart, Dan, I don't know to the extent that you can talk about, you know, the management changes happen there. Should we be concerned at all? Maybe any color on the strength of the bench within that business?
Yes. So 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. So we've made the appropriate, you know, we've made the appropriate changes and, outline that in 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. But we felt it was appropriate to make the changes we did.
The next question comes from the line of Edward Yruma with KeyBanc. Please proceed with your question.
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 comm, you know, changing minimum order sizes or how many of an item you need to purchase to get delivery. Are you, have you been able, do you think, to moderate the e comm drag in the face of what are accelerating results?
And then second, I think you guys are lapping in the fourth quarter, the removal of the co manager position 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 if the investor meeting that there's work to do on mix and, 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 skew count over time.
We talked about, you know, editing the skews online, I think, to the tune of $20,000,000, added $20,000,000 reduced And, so we're working towards a goal of improving the mix. And as I said, variable cost per unit is coming down. So that's good. So 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. But 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.
Next question comes from the line of Kate McShane with Citi. Please proceed with your questions.
These questions have been the same vein as the previous question, but with regards to the Walmart U. S. Store expenses, being able to leverage that, how much of that would you attribute to the year's comp acceleration versus your own cost control initiatives?
So what you heard from us about a month ago was that the cost culture at Walmart is back. Everything from 0 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 but that's not what we're planning for. Certainly, that's not what we're seeing in our business. But the things that we do control we are doing well, I would say. And I think there's more runway in front of us to go after a lot of other, 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 that's a long list.
And the one thing I'd add to that is that, you know, the stores, keep in mind that they're, you know, there was a wage rate increase at the beginning of this year. So they're delivering this amount of leverage, despite the fact that they had this incremental headwind So, great point of the team just continue to find new ways. A lot of that has to do with inventory management and effectiveness there, as well as, 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. And it's It's bidding, bidding us on the openings pipeline.
Okay, great. That's helpful. And I'm an unrelated 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. And I just wondered, is that how the competitive environment has been for some time?
And what is the thinking behind an eventual closing of that GAAP?
Well, price after good. I mean, we've been investing in price in Canada as well. And you see that in various markets around the world, where we're not only focused on, you know, omni channel integration, but also improvements. So I think when we mentioned price gaps, it's more it's to the benefit that, that we're pleased with where we are and seeing spend it similar to the U. S.
Thank you. The next question comes from the line of Christopher Horvers with JP Morgan. Please proceed with your question.
Thanks. Good morning, guys. So my first question is, is trying to diagnose the gross margin a little bit. So as you 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. So 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?
So 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.
That's very helpful. And then the Home Depot yesterday or the other day made some commentary about some bullish commentary about the upcoming tax refund season. I think they said that than like 60% of the benefit of tax reform is 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 could help think about it, that'd be great. Thanks very much.
Yes, 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, or not, we're not economists, so we're not trying to set an economic forecast here. But, we'd 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 customers, we would hope to get that share of it, our fair share of it.
Thank
you.
Our next question is from the line of Seth Sigman with Credit Suisse. Please proceed with your question.
Thanks. Hey, guys. Good morning. My first question around the inventory growth for Walmart U. S.
It 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 toys a big focus this year. But There's more to do. I think the level of improvement early on was significant 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, but 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.
And it's strong sales growth.
So the inventory management is still really effective.
Right. Understood. Okay. And then a follow-up question on the online growth of 43 percent 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 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?
And 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.
So your first analysis seems pretty sound. There are more stores with more online grocery. So, the contribution higher. Your second question in terms of the stores that have had it for a longer period of time continued 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.
Thank you. The next question is from the line of Charles Graham with Gordon Haskett. Please proceed with your questions.
Hey, thanks. Good morning, everybody. Just on the e commerce side of the business, Danny, in the script you guys talked about improving the margin profile. 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?
So the margin profile is function, obviously, of 2 things. 1, what you're selling and to how you distribute it. And 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 tale of the assortment that we're focused on as we add sellers to the base, Again, 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. And we like the direction, but there's more work to do, and we just haven't laid out a specific margin profile by quarter.
So I don't know if that helps at all, but there's a lot of work going on on both sides.
Okay, great. And then I apologize if the answer is already Dan, but I hopped on late. The the the flip part, solution here, is it still expected to be $0.25? And then my my second follow-up would be, the cadence of the comp and traffic throughout the third quarter? Thanks.
Yes. So $0.25 is the last guidance we gave you that hasn't changed today. So that's nothing more to really say there. In terms of the cadence of the quarter, mentioned earlier that we started the quarter strong with back to school, really wrapped up that season with solid results, as we progress through the quarter, had great fall seasonal sales right into Halloween. So really happy with the cadence.
The quarter overall.
Hey, good morning. Hi, good morning. Dan, how are you feeling on pricing relative to peers at fans just based on the ticket it would appear as though you maybe accelerated some of your investments in the quarter, while traffic seems relatively consistent on both the 1 and 2 year basis, but I guess I suppose maybe some of that was related to the shift from closed stores. So as we progress into calendar 2019, how should we be thinking of should we be thinking about that level of price investment going forward? And what are your kind of early reads from a return basis?
Yes. So the ticket is affected by many things, certainly some price investment, but I think the the lower sales of tobacco are affecting it. And we're also seeing more frequent trips with the scanning though. So no more traffic, but maybe a little bit lower ticket on each of those trips. So there's we haven't broken it out to the basis point, but those are some of the factors, that we're seeing.
Sorry, but just in terms of also the level in price investment, how would you guys feel terms of your price gaps today at Sam's versus competition?
Oh, yeah. So, well, yeah, we made price investments in different parts of the country, different categories, similar to Walmart, we wouldn't break that out. But it's something that we like the results from in terms of what we see with retention and membership trends and comps, etcetera, sales, yep. To answer your question.
Sorry, what was that?
That's work in progress.
It. Okay. And then my follow-up would be just in terms of China, you guys saw some solid improvement sequentially on really the overall 2 year as well as in traffic. So 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 economy that has seen some slowdown in, GDP and it's a very competitive market, obviously. But the dotcombusiness the flagship stores on jd.com are doing well. We're pleased with overall execution. I'm not sure I would say much more than that, but, moving in the right direction.
Thank you. The next question comes from the line of Robbie Ohmes with Bank of America Merrill Lynch. Please proceed with your question.
Hey, Dan. I had a
a follow-up question on the dotcom growth. So for the 4th quarter, last year going into the 4th quarter, you guys had amazing dotcom momentum. And then in the 4th quarter, e commerce only grew 23% in the U. S. And can you just remind us what happened last year and then how we think about that as a comparison this year or sort of what's different this year where you wouldn't see that kind of drop off because I think to get to the close to 40 for the year, it kind of has to be close to I think, for the fourth quarter.
So it would be kind of similar trends, but last year, the trends were kind of cut in half.
Yes. So last year, you highlighted that there were 2 primary issues. One of the bigger ones was the promotional position we took year over year. So we basically lap that, that our philosophy around that issue hasn't changed. So, the other issue was capacity.
We feel good about our capacity and our inventory position today. So I think we're in good shape. Keep in mind, Robbie, last year, we
left the debt acquisition as well.
Sequentially, that's what it's all done.
So we should think of it as an easy comparison, not a it's tougher to drive momentum in the 4th quarter
Well, if you break it apart, right? So we're not going to we've already lapped yet. So that's not that was part of the drop as Keri just highlighted. The other piece was a position on promotion, which hasn't changed. So that's not really an easy comparison either.
The only piece that you would maybe characterize as maybe being easy would be the the capacity issue, which I think we've addressed.
The next question comes from the line of Scott Mushkin with Wolfe Research. Please proceed with your question.
Thanks for taking my questions. So 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. And we certainly see competitors and consumables get more aggressive mainly. I just wanted to see what how we should look at the fourth quarter sort of, specifically on distribution and how able are you react if, if the environment gets more competitive or continues to be more competitive as Greg talked about?
So it varies by market. I think when I look at our forecast, while we don't break out margins and SG And A specifically, I think there's, as I mentioned earlier, there's been a very consistent approach to price investment. And, 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 and 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. And 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. So then 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 have, 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 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. But yes, no, I think we're executing to the plan and it's, as we expected. Thank you.
The next question will be coming from the line of Michael Lasser with UBS. Please proceed with your question.
If we trend out your e commerce growth on a 2 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% So, A, is that fair? And when you say you're going to be less promotional, is that alluding to the fact that you are requiring a $35 minimum hold purchased for free shipping whereas Amazon and Target are acquiring no minimum threshold for free shipping?
Yes. So 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 and we are growing the business. We're aggressive.
You can do the price comparisons. We're On a basket, we are lower than many of our competitors, on the basket, many of the big ones. And, 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-forty type growth in Q4, you can do that math, right? So it's fairly I think, clear at this point, how we think about Q4 growth in e Commerce.
I guess the reason why trying to understand the reason why it's going to be so much lower on a 2 year stack basis because you have anniversaried the Jet acquisition for the last three quarters. So that's going to be fully embedded in the 2 year stack. Is it also because a lot of your growth or some 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 4th quarter?
So grocery is a smaller percentage of sales. Of total, versus the other quarter, simply because it's the holiday quarter. And but 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. Please proceed with your question.
Good morning and thank you for taking my question as well. A lot of my questions have been answered, but you used to close the average wage per hour in the U. S. And obviously with a lot of the moving parts, and the wage increases. Can you can you disclose that number anymore with that averages in the
US? Yes.
I mean, the starting wage is, as you know, is $11 an hour and the average, I think, is 13.5 or somewhere around there in the U. S. Stores. And course, DCs would be higher than that.
Okay. Thank you. And my follow-up is relates to some of the pretty sophisticated applications you have in the stores are both in Walmart U. S. And in Sams.
When I'm in the stores and use Walmart Pay, I always ask the the people to register if people use it. And I get very, very rare usage of, of things like Walmart Pay. Can you talk about the usage of Walmart Pay and maybe even scamming Joe and Sam's and maybe what kind of increases you've seen in the penetration of the usage of those apps? So scanning go has been
a really popular add back actually at Sam's Club. I spoke a little bit to how we think it's impacting our traffic numbers ticket numbers, great response from customers on that. And So we're really pleased with the ramp up in skin and 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, bud, of increasing the level of convenience for our customer. And as they choose to shop with us, they have choice and how they do that. And so, as Dan mentioned, we're pleased with the Walmart pay trends and we would only expect that to grow.
I certainly hope so, Terry, because I really look forward when I'm in the stores and I'm in the stores fair amount. And I just don't see a reasonably decent usage of it. So
That's incredibly easy to use. So I think as customers, there continues to be more communications around it and signage and advertising and so forth. Yes, I think once you convert a customer to Walmart Pay, they really like it. It makes it very simple.
I think there's also 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, you know, adoption rates of lower pay.
Thank you very much.
The next question comes from the line of Joseph Feldman with Telsey Advisory Group. Please proceed with your question. Hey guys, thanks for taking me. I had a couple of quick ones. With Sam's Club, the traffic was up a lot.
And I know some of it maybe just be the transfer from the stores that were closed, but is there anything else driving that big 6.2% traffic number?
So the traffic, as I mentioned earlier, there's a lot of pieces that go into that, but, closed clubs obviously is significant this quarter until we lap that event. But we're also getting more frequent visits, with the Scan and Go, people just the behavior of the member changes that So that's that would probably be the other big callout that I would make.
And then one other one was with, you know, Sears going away or, you know, and and sort of, it may sound unrelated, but, like, even the wildfires, like 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 like the wildfire community? So kind of a 2 part question there.
No, I haven't seen anything specific on, on, as it relates to the fires, I mean, it's one small part of the country. We 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, but there's nothing specific that I would speak to you on that today. I think the, the other part of your question was around, Look, there's a lot of retailers out there that are struggling and, we pay less attention to what what they're doing a lot more on what we're doing and what we can control and 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, but, 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 with customers. So 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, Dave. Thanks, guys. Thank you. The next question is from the line of Scot Ciccarelli with RBC Capital Markets.
Please proceed with your question.
And earlier in the call, I think you mentioned some of the drivers here average ticket growth and you seem to highlight both e commerce penetration. As well as fresh. Are there any other big contributors to the average ticket you've experienced in the last few quarters? Or those 2 factors really that the lion's share?
We've seen some good general merchandise. Growth last quarter, as you recall, there were some seasonal benefits that we thought from, the way the weather broke and Certainly, this quarter, we've seen really good strength in the apparel business, the toy business, automotive. So these tend to be higher ticket categories and I think that mix of business has helped us as well.
And 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, but ticket as well because you're getting a higher ticket on e commerce. So, wouldn't necessarily try and break that out here today.
Our next question comes from the line of Ben Benvenu with Stephens. Please proceed with your question.
Hey, good morning everybody. I wanted to ask about the receivables how much of that decline year over year is being driven by Brazil? How much of it is sustainable as we lap over that? Expect receivable to begin growing again as we move out of 2019?
Certainly Brazil and Flipkart. Play a role in that as well as, FX. So 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. But there's nothing, when I look at the underlying numbers, there's nothing unusual or concerning.
Okay. And then, on the international inventory, for the last several quarters, you guys have grown up in growing inventory. I know lower rates in sales. You had partial contribution of sales from Flipkart this quarter. Is it reasonable to assume that with a full quarter's contribution in Flipkart sales, but that trend you've seen in the past should sustain inventory grind as lower rates of sales?
So yes, inventory, obviously being a snapshot in time relative to our sales would be,
a little bit
out of line or misaligned. So yes, the next quarter, you should start to see more normal trends, but we don't predict specifically forecast inventory levels for the business overall. Government international. It's safe to say that inventory is to focus around the globe. We've made good progress as a company So just leave that as a takeaway.
And FX has an impact on
that line as well.
Understood. Thanks.
The next question is from the line of Rupesh Barikh with Oppenheimer. Please proceed with your questions.
Good morning. Thanks for taking my questions. So on your free shipping thresholds, so clearly Amazon recently removed it for the holiday season, just curious how you guys feel about your the competitiveness of your offering in light of their options.
Sure. So 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. And then There wasn't commentary this quarter under Consumer Electronics category, so I was curious how that performed for the Walmart US segment.
We had broad based strength in general merchandise. I mean, electronics didn't pop up at the top of the list this quarter. But we did see strength in areas like mobile. For example, we're pleased with the TV business. We've certainly seen, we've moved with the market shifting towards larger screen sizes.
We've gotten better assorted in connected home. So we feel pretty good about the direction of that business, both from a merchandising perspective and sales perspective overall.
Yes, gaming had a good quarter as well. And we showed off some of the the new innovation we have there with the arcade games you might have seen in October when you're here. That amongst a number of other, new offerings are really driving that business, please, with that.
Thank you. Our final question today comes from the line of Mark Astrachan with Stifel. Please proceed with your question.
Yes, thanks and good morning everybody. I wanted to go back to traffic in the U. S. And trying to understand how it flowed through from a U. S.
Grocery standpoint. So the ticket was roughly constant in overall grocery comp was even at the high end of low single digits. Is it fair to assume there were some moderation in traffic sequentially in terms of contribution to comp?
Moderated largely because of the comparison to last year's hurricanes. We had hurricanes this quarter, but not is significant as last quarter last year. But overall, Overall, we are pleased with what we're seeing in the broader traffic trends. And if you look at the 2 year stacks on traffic over the last few quarters. Yeah, you can see really over the last actually 4 to 8 quarters, you can see a nice progression.
And I would say on a 2 year stack basis, there was nothing yes, we were pleased with what we saw.
Okay. And one last housekeeping question. So 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?
So we do have some lower interest rate debt, that helps And, we had, the Flipkart piece in there, I think there may have been is there any other factors I'm just trying to think?
These are the main ones. Yeah.
Thank you.
Thank you.
I'm looking forward back to management for closing remarks.
Great. Well, I appreciate the time. We went a little bit over. I just wanted to make sure we fit it out, 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 into the holiday season and, we were positioned to win. The RR team here at Walmart, along with our executives, I 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.