Greetings, and welcome to Walmart's fiscal year 2018 4th quarter earnings release. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Steve Schmidt with Investor Relations.
Please go ahead.
Thanks, Rob. Good morning, everyone, and thank you for joining us today to discuss Walmart's fourth quarter fiscal year 2018 results. Joining us on today's call are Walmart President and CEO, Doug McMillan and CFO, Brett Biggs. Doug and Brett will have some opening remarks in a minute, and then we'll take your questions. We'll do our best to get to as many of you as possible.
We're excited to be hosting this call today. You may have seen in our press release announcing this call that we've made a process change to have a live earnings call with executives in conjunction with our fourth quarter results going forward. It feels appropriate that we share our thoughts as we wrap up 1 year and begin another. Also, this timing is well spaced from our June October meetings. We've planned to follow our typical earnings release process for other quarters during our fiscal year.
Now, before I turn the call over to Doug, let me remind you that today's call is being recorded and will include forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include, but are not limited to, the factors identified in our earnings release and in our filings with the SEC. Please review our entire safe harbor statement and non GAAP reconciliations on our website at stock.walmart.com. And with that, it's my pleasure to turn the call over to Doug McMillan.
Good morning, and thank you for joining us today. We just completed an exciting year with solid 4th quarter results. And continued momentum in the business. On a constant currency basis, total revenue grew approximately 3% both in the quarter and for the full year. We reached more
than $500,000,000 in revenue for the fiscal 2018 for the first time as a company. For the quarter, Walmart US delivered strong comp sales growth of 2.6% due primarily to improved comp traffic growth in stores of 1.6%. Stream was broad based across merchandise categories, formats, and regions, and holiday sales were solid. In addition, comp store inventory declined again for the 11th consecutive quarter. So we're well positioned as we begin the year.
Sam's Club comps improved to 2.4% and an international 9 of 11 markets posted positive comp sales. So overall, we were pleased with Walmart US E Commerce sales growth in the 4th quarter was 23%, down from 50% in the 3rd quarter. The majority of this slowdown was expected as we fully lapped the Jet acquisition as well as created a healthier long term foundation for holiday. A smaller portion of the slowdown was unexpected as we experienced some operational challenges that negatively impacted growth. Overall, we finished the year with ecommerce sales growth of more than 40%.
So we feel better about the year than the quarter. Looking ahead, we expect ecommerce growth to increase from the fourth quarter level as we enter the new year with about 40% growth for the year. We're confident in our strategy to transform the company, and we continue to be guided by 4 key objectives. Make every day easier for busy families, change how we work, deliver results, and operate with discipline, and be the most trusted retailer. We're accelerating innovation in the business to make shopping faster and easier for our customers.
Creativity, decisiveness, and speed our priorities. We made good progress this past year to save busy families time and money, and we'll do more. By becoming stronger at mobile and leveraging digital capabilities, we improved in store experiences, including our pharmacy and money services areas. We enabled easy reorder online. We're making the checkout experience easier with Scan and Go and also digitizing the returns process.
We made acquisitions to improve our online assortment, and we're partnering with others like Google and JD in new ways. We're expanding online grocery in the US and around the world and broadening our delivery capabilities in the US, China, and other international markets. It's really all about providing more convenience for customers. Customers that shop across all channels are important to us. As we said in October, US customers that shop us in store and online spend nearly twice as much as customers that only shop with us in stores.
Their loyalty to Walmart strengthens overall. Online grocery customers are a great example as they spend more with us in total once they start using the service. So we'll lean in this year by nearly doubling the number of online grocery locations in the US. We're also becoming more efficient by changing the way we work. Including leveraging technology to equip and empower our associates to be successful.
They now have better information, tools and training. Finally, we're always striving to earn and maintain trust. We're focused on not only helping our customers save money and live better, but also on creating shared value for our business and the communities we serve. In his remarks, Brett will go over This will include an overview of the benefits of tax reform and the strategic choices we're making to further strengthen our business. Tax Reform gives us the opportunity to accelerate plans for the US.
You may have seen our announcement last month about investing some of the proceeds and better wages and benefits for more than a 1,000,000 US hourly associates. We also continue to States. Now let's get into more details for the segments, and I'll start with Walmart US. We had a strong year of top line growth, and we're seeing signs that the productivity loop is turning And our stores were making shopping easier and equipping associates to serve customers more efficiently. In the fourth quarter, we took steps to restructure our store leadership teams, and corporate support areas to be more nimble.
We're becoming more efficient and it's contributing to the expense leverage that physical stores have delivered all year. Beginning this week, we increased the US starting hourly wage rate to $11. We're also proud to announce adoption benefits associates that went into effect earlier this month in addition to expanded pay parental leave for all associates that will take effect in March. Investing in our associates will help us attract and retain talent in the future. In addition, we've invested in nearly 200 training academy that have further developed retail skills of more than 250,000 associates.
So our stores are executing better. We're innovating more. We're lowering prices and customers are responding with higher sales and traffic. As I mentioned earlier, this has also been a year of good progress in ecommerce. We launched free 2 day shipping on walmart.com and customers to con continue to love online grocery pickup.
We're expanding our tests of same day and next day delivery and our walmart.com assortment has grown to nearly 75,000,000 SKUs. Acquisitions like to our shopping experience. With more brands customers want. Check.com complements walmart.com nicely. Walmart.com, including online grocery, is and has been the key driver of our e commerce growth, and that will continue.
The Jet Brand Overindex with higher income urban millennial customers when we made the acquisition, and we intend to build on that strength going forward. The cost to acquire a new customer on a nationwide basis is cheaper with the Walmart brand. So we've been investing more in walmart.com on a national basis and reducing marketing investment in Jet except in certain urban markets. Due to this change, Jet will not grow as quickly as it did in early days but it will be well positioned where we've chosen to focus the brand. We'll continue to evaluate ourselves on the total USC Commerce growth number.
Moving to Sam's Club. You'll remember that we made a decision to close 63 Sam's Club locations in the US. We've talked about transforming the Sam's business and part of this transformation means managing the club portfolio to include clubs that are both financially viable and that fit within the strategic framework for the future. Closing stores and clubs is difficult. It's obviously difficult for impacted associates, and there is never a good time to do it.
John and the Sam's team are working to place as many of them as possible at nearby locations. These closures will help us run a healthier business. We also took additional steps recently to align resources around We enhanced the value of the Plus membership with a free shipping proposition. We also made the decision to remove tobacco from certain clubs. In addition, Sam's Club changed its merchandising structure to encourage more expertise and continuity in buying roles.
The strategy continues to come to life, and we're already seeing progress. Our international team continues to deliver consistently solid results While Walmex led the way this year, our good performance was broad based. In fact, 10 of our eleven markets posted positive comp sales for the year and 5 of those markets grew comp sales by more than 5%. To give a little more detail, Walmex comp store sales increased 6% this year, and we're really proud of how ads. As we mentioned at our October investment community meeting, there's more work to be done on the portfolio.
We've set priorities focused hard on our North American core and key growth markets, including China and India. During the fourth quarter, we made the decision to wind down the Brazil first party commerce business. We always want our resources aimed at winning in the most strategic places. So overall, the international segment continues to make steady progress as we find new ways to serve customers more effectively through stores and e Commerce. In conclusion, We have a plan that leverages our unique assets and strengths to benefit customers and shareholders.
It's resulting in momentum. We're being disciplined about costs and capital. And we're acting faster as a company, but are pushing to increase our speed. Thank you for your interest in Walmart.
Brett, you
want to pick it up there.
Alright. Thanks, Doug. Good morning, everyone. We're pleased with the company's performance during the fourth quarter and for the full year. We've made progress on several fronts, and we have good momentum across the business as enter the new fiscal year.
Adjusted EPS for the quarter was $1.33 $4.42 for the fiscal year. GAAP EPS 73¢ for the 4th quarter $3.28 for the fiscal year was negatively impacted by a number of discrete items totaling $0.60 1.14 respectively. Most of these items position the business for more efficient growth going forward, including closing 63 Sam's Club's locations, to create a more viable fleet and healthier business. In addition, we discontinued real estate projects in the US, following our decision to open fear stores and clubs, with greater emphasis on comp sales and ecommerce growth. We also completed our 3rd bond tender of the year to take advantage of more favorable interest rates.
A full reconciliation of GAAP EPS to adjusted EPS is included in today's earnings release. During the quarter, we had additional EPS headwind related to some smaller unplanned items and expenses we incurred as we pulled forward initiatives in order to take advantage of a higher These are only partially offset by slightly more favorable currency exchange rates. Before we get to the results, I'd like to highlight some accomplishments for the full year. Total revenue surpassed $500,000,000,000 for the first time and increased $15,100,000,000 or 3.1% constant currency. Walmart US comp sales grew 2.1%, the highest growth rate since fiscal 2009, led by traffic growth of 1.4%.
Walmart US E Commerce sales grew 44 percent reaching $11,500,000,000. We made good progress on expenses, especially in Walmart US Stores And International. Without the discrete items mentioned in arriving at adjusted EPS, we would have leveraged expenses. Adjusted EPS increased 2%. Operating cash flow was $28,300,000,000.
The company returned $14,400,000,000 to shareholders through dividends and share repurchases and strong working capital improvements continued. Let's move on to the quarter. We delivered a solid quarter to finish out the year as constant currency revenue grew 3.1 percent to $135,100,000,000. Com sales were positive in all three segments with growth of 2.6% and 2.4% at Walmart US and Sam's Club, respectively. On a 2 year stack basis, comp sales accelerated for the 3rd consecutive quarter for both of these segments at 4.4% and 4.8%, respectively.
Even more encouraging is that these results are driven by strong in store traffic. International grew net sales 2.8 percent in constant currency led by strength at Walmex. Consolidated gross profit margin declined 61 basis points. Approximately 2 thirds of the decline was driven by price investments in certain markets and the mix effect from our growing e commerce business. The remaining 1 third was driven by Sam's Club inventory markdowns associated with closures, and other international items, including the wind down of our Brazil 1st party ecommerce business.
Looking ahead to fiscal 2019 will continue to make investments that will pressure the rates some, but not to the extent of this quarter. Similar to our full year results, SG and A and operating income were significantly impacted by charges for discrete items. Excluding these items, we would have leveraged expenses in the quarter, and operating income would have decreased less than 1%. Let's move on to US E Commerce. As Doug mentioned, the slowdown in growth during the quarter was a bit more than we planned.
Looking ahead, growth to increase from the q 4 level as we enter the new year with about 40% growth for the year. Now let's discuss the results for each operating segment during the quarter, beginning with Walmart US. The US team continued to produce strong top line growth. Customers are responding well to our everyday low prices and the convenience we're providing through a variety initiatives. All store formats had positive comps, and we saw strength in key categories with increased customer traffic and units.
During the fourth quarter, comp sales increased 2.6%, led by traffic growth of 1.6%. Comp sales performance on a 2 year stack was the best in 8 years and ecommerce contributed approximately 60 basis points to the segment. Gross margin rate declined 50 basis points in the quarter Also, the team leveraged operating expenses slightly even when considering adjustments for discrete items in both current and prior year periods. Overall, we like the momentum we see in Walmart US. Our strategy is working and customers are responding.
International had another solid quarter. The teams around the world have done a nice job of delivering top line growth through a focus on price as well as strength and fresh and private brands. Growth was broad based across the markets, and results at Walmex were particularly strong. Overall, net sales in constant currency increased 2.8% and grew 6.7 percent on a reported basis. Changes in currency rates benefited net sales by approximately $1,200,000,000.
It's also important to note that divestitures of the Haddian and suburbia created a headwind to sales of about $400,000,000 when compared to last year. From a profitability standpoint, 4th quarter operating income decreased 16.1% in constant currency and 10.9% on a reported basis. As detailed in this morning's release, restructuring and impairment charges in certain markets negatively impacted operating income. Without these items, operating income would have increased year over year. And we feel good about the year ahead.
Sands delivered solid top line results. Comp sales without fuel increased 2.4% led by traffic increase of 4.3%. Tobacco negatively impacted comp sales by 120 basis points. Ecommerce growth was solid and contributed 80 basis points to the comp. Also in the e commerce space, the team recently announced a free shipping offer from sam'sclub.com for plus members.
The is moving quickly and making decisions that we believe will benefit our members and the business over time. I'll close today with guidance. As always, we have a number of assumptions in our guidance, including that economic conditions and the tax and regulatory landscape and our largest markets remain generally consistent. You'll recall that we issued fiscal year 2019 guidance last October at our meeting for the investment community. Since that time, we made some decisions and assessed other potential opportunities to accelerate investments, particularly primarily as a result of tax reform.
Let me start with our expectations related to tax reform. Our estimates are based on available information and our current analysis regarding the application of the new law. We expect our effective tax rate for fiscal 2019 to be 24% to 26% compared with our previous guidance prior to tax reform of 32.5 percent. Our global blended rate is higher than the new new US federal rate due to state taxes and taxes we pay outside of the US. In terms of cash flow, in addition to the income statement benefit from a lower US tax rate, we expect an additional cash tax benefit due primarily to accelerated depreciation.
Including all aspects of tax reform, we currently expect a cash benefit of around $2,000,000,000 for the year. Additionally, we are reviewing our cash positions overseas in light of the new law but have not made any decisions regarding potential repatriation. Our priorities for capital allocation remain unchanged. We'll focus first on investing in our business and other growth initiatives. We also remain committed to our dividend as evidenced by the increase we announced today, and we announced a $20,000,000,000 share repurchase program back in October.
We've consistently talked about investing in the business for the long term while balancing near term results. As tax reform has taken shape, we took the opportunity to step back and assess various aspects of the business, including potential investments. We will continue to be aggressive, but thoughtful to ensure we win long term. We recently announced some additional investments related to increased wages, training and benefits for our associates in the US. In addition to that, we'll look to accelerate investments in our customer through lower prices, and we'll make investments in technology, supply chain, and e Commerce to better position the company for the future.
We'll also continue to prioritize winning with customers in our grocery and fresh business, ensuring we make shopping with us simple and at a great value. At the October meeting, Doug talked about some decisions we had in the queue, but it was too early to comment further at that time. During the quarter, we took several actions, including a wind down of the 1st party ecommerce business in Brazil, the closure of 63 Sam's Club locations in the US, and the decision to remove tobacco from certain locations at Sam's. These decisions impact the guidance we gave in October, particularly in regards to total sales growth, So I'll quantify the impacts and compare back to the October guidance. Let's first talk about Brazilian Commerce.
We expect a headwind to sales of approximately $500,000,000 related to the wind down of the 1st party portion of the business. In terms of profit, the benefit of fewer operating losses large will be largely offset by one time costs associated with the wind down. As for sands, we anticipate a negative impact to sales, of about $6,300,000,000 related to the decisions to close clubs and remove tobacco from certain locations. Additionally, recall that we sold our suburbia business in Mexico in the second quarter of last year, and this will create a headwind in the first quarter of this year. The combined top line impact of these items will negatively impact consolidated net sales growth by about 140 basis points, And as a result, we now expect net sales growth to range between 1.5% 2% in constant currency.
Adjusting for these changes, this growth compares the guidance of at or above 3% that we provided in October. As per comp sales, we expect growth at Walmart US of at least 2% Sam's Club comps, excluding fuel and tobacco, should range between 3% 4% and flat to negative 1% when including the impact of reduced tobacco sales. We expect international total net sales growth to be around 3% in constant currency. Our October guidance fiscal 2019 also included expectations for expense leverage, relatively steady operating income margin, and EPS growth of around 5%. The incremental investments mentioned earlier will pressure operating expenses more than anticipated in October.
On a consolidated basis, we still expect to slightly leverage expenses, but not to the extent we'd originally planned. Excluding the impact of the reduction in Sam's Club sales, leverage would be stronger. Overall cost management is continuing to improve across the business, and we remain pleased with the progress. As for operating margin, we by consolidated operating income as a percentage of net sales to be approximately 4.3% to 4.4% in constant currency, resulting in a low single digit percentage decrease in operating income versus operating income this past year adjusted for the discrete items. Considering all of these items, we expect full year EPS to be in a range of $4.75 $5, an increase of 7% to 13% compared with adjusted EPS of $4.42 in fiscal 2018.
This range this range represents an increase from the guidance given in October. Additional guidance is included in the materials we issued this morning, so please reference these documents as you analyze our outlook. Going forward, we're moving to an annual guidance framework with quarterly updates as warranted. We considered a number of factors when making this decision, including management's long term view of the business, the transformation of the business, the investment time horizon of many of our shareholders and the uncertainty of the timing of investments during the year. There could be fluctuations within the quarters but we believe EPS growth will be relatively consistent across the year.
We look forward to updating you on our progress throughout the year. So with that, I'll close by saying thank you to our shareholders for your support at Walmart. And now I'd be happy with along with Doug to take your questions.
Thank you. Thank you. And our first question comes from the line of Simeon Gutman Morgan Stanley. Please proceed with your questions.
Thanks. Good morning guys and thanks for doing the call. My first question is on the e comm growth in the fourth quarter relative to next year. You mentioned some operational issues. Can you elaborate and then talk about what gives you confidence that the e comm run rate will accelerate heading into next year?
Hi, Simeon. This is Doug. I'm happy to elaborate a bit more. First of all, I would say that as we tried to communicate in our remarks, most of that was expected and planned. As we came around the fourth quarter, looked at what we did last year, promotionally, realized we're lapping Jet for some time now, we've expected a lower growth rate.
The minority of the miss that was more operational in nature that we're referring to is related to the fact that during the seasonal spikes, seasonal inventory, I think electronics, toys, gifts, things like that. Came into our fulfillment centers, and there was enough cube that it harmed our basic in stock on more everyday items. And our, our basic in stock for e commerce effort as a result. So we're learning how to deal with higher volumes and, learning how to deal with a higher peak than what we had previously. But, again, that was the the minority of the issue.
Most of this was planned in inter numbers.
And, Simeon, just to remind, this is Brad's reminder. We've guided to 11 and a half 1,000,000,000 of revenue from Walmart US E Commerce, and that's just about where we came in for the year.
Okay. And then if I can ask my follow-up, Brett, you mentioned, you were doing the comparison with pre and post October guidance. So I think at that point, EBIT was supposed to be up maybe low single digits and now it's going to be down a little bit. Can you just tell it if the entirety of that change is tax reform spending or is any part of it reflective of, you know, at what higher costs in the business in some form or another?
Yes. I mean, I still I still remain, I feel good about the the cost management and the business, and we're we're making progress there. When we've when we've given guidance, back in October, we talked about an operating income range that would be similar to where we we had kind of been. So as we step back and we looked at everything, decided to make these investments that we we talked about, and that's all included in the guidance. The guidance is there today.
And so it's that one's a little bit tougher to compare pre and post. But when you look at the the investments that we're making, that is the difference, but I feel good about the overall cost management side of the business.
Thanks, Simeon. Rob, next question, please.
Our next question comes from the line of Robbie Ohmes with Bank of America Merrill Lynch.
Hey, Robbie.
Hey, so, a follow-up on Simeon's just, and then on gross margin. So, I just, wanted to get clarity on the e commerce growth outlook. So the first question is just, where the the confidence in the e commerce growth going back to roughly 40%. Are you seeing that already in the first quarter? And sort of what is the difference, to get back to the 40% versus the 4th quarter?
And then could you tie that into the gross margin outlook you gave maybe some, thoughts on where you might be investing in price. And also, I think the guidance spread was that, gross margin rate would be down, less in fiscal 2019. So if e commerce is going to reaccelerate sort of 40% type growth rate, why wouldn't we see more pressure on gross margin?
Thanks, Robbie. This is Doug. I'll start with ecom question, Brett can elaborate on on it too if you would like to. We're not expecting the first quarter to go all the way to 40. We think it'll it'll start to ramp up from the fourth quarter to approximately 40 for the year.
We're going to continue expanding our e commerce business as it relates to food online groceries ramping up. As we've said, we're we're gonna almost double the number of locations that do online grocery. That'll drive ecommerce growth, to a certain level. And then on top of that, we've got the activity plan for both walmart.com and Jet. So we've got an investment plan there.
We have an assortment plan and other innovations, as you saw last year, that'll be occurring as we go through the year. So we think by the time we get to the end of the year and look back at the number for the total year, it'll be approximately 40.
Yeah, Robbie. I'll I'll comment more on gross margin. As we've talked about before, there's a number of things that that impact gross margin price shrink, transportation expenses, all of that go into that. And so as we've said before, it's tough to look at gross margin quarter to quarter. I think you have to look at it on a longer base.
And what I'd said in my comments is that we expect the next year's decrease won't be what we saw in the fourth quarter. And if you look at where we've guided operating income and we and the comment we've made about slightly leveraging expenses, you can kind of back into what bit of what we're expecting from a gross margin perspective. So we do take into consideration the mix of the business. We'll continue to be aggressive, but thoughtful on pricing where we invest, how we invest, both in stores and e Commerce, but we'll be thoughtful about those investments.
Robbie. Rob, next question please.
The next question is from the line of Karen Short with Barclays.
Hi, thanks. Just to clear, I have 2 clarifications and then a bigger picture question. So on the gross margin, the comment that you expect next year is decreased. It won't be where you were in the 4th quarter. Is that including or excluding Sam?
So is that the 61 basis points or around 40?
That's all in next year as far as gross margin rate.
Okay. And then I know you kind of said that you're comments on earnings growth will be the cadence growth rate will be similar throughout the year. Is that fair to say for U. S. Comps, you don't really expect a lot of volatility throughout the year?
Yeah. I don't expect a lot of volatility throughout the year. Overall, for the year, we expect it to be 2% or higher. But I don't expect a lot of volatility during the year, Karen.
Okay. And then I guess I wanted to just turn to the color in terms of acquiring customers on walmart.comversusdebt.com. Is it, I guess, is it fair to say then since you're switching to, I guess, a lower cost customer to look to acquire, is it fair to say that e commerce losses have kind of bottomed Is it still consistent with what you previously said that e commerce losses have bottomed in 2018? And then I guess bigger picture, is there any color on debt? Like, do you feel as good as you have always felt in terms of the prospects for Jet, and and this is just pure math.
It just makes more sense to go after the walmart.com customer.
Yes, Karen, this is Doug. Great questions. I think as we look at this year, we're trying to preserve flexibility as we go through the year to decide what level of investment we wanna make in e commerce as we go month to month and quarter to quarter. It's possible we may choose to lose a little more in e commerce this year than we did last year. But generally speaking, we think it'd be about the same level of losses.
Our visibility into picking costs, shipping costs, margin rates, the cost to acquire a customer, and how the different cohorts are behaving as we make the marketing investments is really improving, and I'm excited about all the levers that are there. And and we're we, again, are trying to preserve some flexibility to make choices as we go through As it relates to to the brands, you know, Walmart is just a really well known brand for value throughout the country and when you get into Oklahoma and Texas in the middle of the country, it just makes a lot of sense to invest in that brand rather than investing a higher incremental dollar to introduce a brand that's less familiar. Now on the other hand, if you take the the New York Metropolitan area as one example, not the only one, the Jet brand is really well known, has a lot of traction, has appeal as we mentioned earlier to urban millennial, higher income customers. So It's really just a positioning choice, and that choice was made before we made the acquisition. I think we wanted to leave our minds open as we acquired yet to make the best choices about how we use the brand and where we position it.
But our thoughts before we bought it, it basically become confirmed that Jet plays a great role reaching parts of the country and selling in some cases some brands that are not ready to to sell on walmart.com. So I think what you'll see is Jed will go through a period, of adjustment and then it'll start to grow again in the future, but focused on specific markets and opportunities, whereas Walmart will be the broad based big part of the business and growing it will priority.
Thanks, Karen. Rob, next question, please. And and if I could just ask, we're limited to just one question, just to get through as many as we can, please. Thanks.
Thank you. Your next question comes from Oliver Chen with Cowen and Company.
Hi, thank you. Regarding e Commerce and the road ahead, what are your thoughts on profitability in the Smart Basket and pricing and how you're thinking about grocery pickup as well as supply chain in the context of bricks plus clicks. And would love your thoughts on e commerce M and A and non correlated assets as you've been quite creative about thinking about how to build this business over time? Thank you.
Yeah. Let's let's break it into pieces. This is Doug. I'll try to do so quickly. You look at this business, look at it for the quarter or for the year.
I think the first thing to always remember is we've got this really big and now strong business in Our comp traffic's up. We're in a really strong foundation there, playing more offense than before. So the big part of the company is is in good shape and foundationally strong. Now we've got Sams to a point where it's starting to get repositioned. We'll see more traction and improvement in that part of our business.
Internationally, the big businesses of Walmex, Canada, and even the UK, which is a big part of international business, has been stronger lately. So kind of those big platforms are there and and stronger, and and I wouldn't want us to spend this whole call talking about a smaller part of the business, although it's you know, vital strategic importance. So now let's click e commerce in the US specifically, and and don't forget we've got food e commerce opportunities around the world, but let's focus just on the US for a second. We've got this tremendous advantage of having the stores and the supply chain that put us within 90% of of, US customers within ten miles. So you can build on that to build a strong food, e commerce business, and that's what we're doing.
Learning how to pick in store enables online grocery, learning how to pick in enables delivery, which will continue to expand and learn more about as we go through the year. Now let's click to the part of the ecommerce business that doesn't come out of our stores That's where you get into ecommerce fulfillment centers, the opportunity to leverage smart card to build an ecommerce basket, not just selling eaches, like selling a television at cost, for Cyber Monday. It's not all that exciting as it relates to being a way to to make money, but driving baskets on e commerce is So you'll start to see smart card functionality move over to Walmart. You'll see us continue to make assortment improvements to bring in new brands. People are increasingly open to not only the the Jeff brand, but the Walmart brand.
So as that happens, your mix starts change and you're selling a basket and a more profitable basket. To do that, there are times when an acquisition makes sense. Because it accelerates the improvement that you can make in your assortment. It might take us longer for example, to do it organically. There's so many suppliers and so many brands to acquire to get on the platform.
So some of the acquisitions we've made have been specifically aimed at assortment, and I would expect that some of that will continue.
Thanks, Oliver. Rob, next question please.
Next question is from Chris Horvers with JP Morgan.
Thanks. Good morning. A follow-up question on gross margin. So can you talk about the 60 basis point decline in the U. S.
Where was that relative to your expectations going into the quarter? And then what aspects of those buckets moderate as you look to the upcoming year such that the gross margin, degradation improves. Thank you.
Yeah, Chris. This is Brett. As we as we mentioned earlier, so the 60 basis points you mentioned was total company, and there was about a third of that that was related to the Sam's Club closures as well as the Brazilian commerce shutdown and a couple of other things inside of international. So it was about a third of that was was one time type items. In the US, again, there's just so many things that go into margin in a quarter, pricing shrink.
Transportation costs. And so quarter to quarter, gross margin is is challenging to look at and try to compare it on a quarter to quarter basis. We're gonna continue to invest in price. We've been investing in price. As you know, we always invest in price, but we've been investing in price over the last couple of years.
And so we're now 2 years into that. So there's just different pieces of it. I don't wanna get into specific pieces from a competitive standpoint that we feel confident that the gross margin decrease that we will see next year will be less than what we've seen in the fourth quarter.
Chris, this is Doug. I just add that think we're getting better at managing our price investment, considering all the other investments that we're making. So you know, Brett and I and the management team are watching ecommerce growth rates, ecommerce profitability, store, traffic counts and making decisions in a relatively fast cycle on how much price to invest and where to invest it, and we're monitoring what happens when we do that. So we're just gonna, you know, calibrate this thing as we go through the year. It's one of our big levers.
And, you know, we're excited about the fact that the investments we've made in the past are, driving traffic and starting to get this productivity loop moving, which is ultimately what we're after. And one of the metrics that I get excited about and have been for some some time now because the team's doing such a good job is inventory, you know, for us to be down in comp store inventory again for the 11th consecutive quarter, while shelf in stocks going up is is awesome and remarkable. And the cash flow benefits and the other benefits are flowing through to, to the overall business. So, you know, on on price, we're, we're being thoughtful. We're being strategic, and we'll manage margins just like we do the other parts of the P and L a quarter at a time balancing short term and long term.
Thanks, Chris. Rob, next question, please.
Your next question is from the line of Michael Lasser with UBS. Good
morning. Thanks a lot for taking my question. Several years ago, Walmart was ahead of the curve investing in, its stores e come in price and you really saw the gains in terms of market share and your outperformance relative to a lot of other retailers. That would seem like some of those share gains may be slowing a bit. So do you think you're seeing diminishing returns on your investments and you'll have to make even greater investments in order to outperform at the rate that you had been versus others?
No. Michael, this is Doug. That's not my perception, and the data doesn't support that. When you look at our share numbers, we feel really good about them. And, not only the dollar share numbers, but also units.
I'm specifically thinking of the US business in my comment, but the tonnage moving through our stores is increasing And, I don't feel a trend shift there.
Thanks, Michael. Rob, next question, please.
Next question is from the line of Scott Mushkin with Wolfe Research.
Question. And, before I ask you, I concur our data does show you guys continue to gain a lot of market share, particularly in food. But that's kind of where I want to go with my question. If we fast forward guys 5 years from now and we see a substantial, I think about percent of 67% of your sales are either pharmacy or food. And, a good portion of that becomes click and collect or even maybe delivered to the home.
How should we think about Walmart's profitability? And have you guys done a lot of thinking on that?
Yeah. Why don't we both comment? You can go first, Matthew.
Yeah. I think it's Mike, I mean, Scott, as Doug was saying, we do spend a lot of time as a management team thinking ahead obviously, next quarter, next year, 3 years out, 5 years out, and how we manage all the pieces of our portfolio. That includes our national portfolio, Sam's Club, e Commerce, Walmart and and thinking about how we will manage as this business changes. We know it changes. The customer's changing.
We're gonna stay out in front of the customer And the great thing about our business is we have so many different ways to do that, and we and the the diversity of our portfolio gives us more options in which to do that. And I think we sit back and we say we know where we wanna be 5 years from now, 10 years from now, there's a lot of different ways to get to that. Versus just one direct path. And so there's there's different things that we can do to manage that over time.
I think the only thing I would add is that we're learning kind of the activity based cost aspects of different paths. And I think over time, if we could, and I think smart card causes us to believe we might be able to we'd like to bring the customers into this conversation and help them understand through our pricing and our communication that if you wanna buy a single can of corn for under a dollar, there's not gonna be a better, more efficient path to you than the supercenter visit. As the shape of a basket changes, food and non food, and it goes up. And remember, Jet had a much higher units per order and still has a much higher units per order, then the Walmart brand does, you can start to change the economics of ecommerce to be profitable with a unit per order that looks more like 7 than 2, and a blended basket of margin that helps you drive basket economics rather than each is. So part of what we're trying to build with e Commerce, and I think you can see it frankly in the fourth quarter choices that we made around pricing, on each is that we're really focused on building a basket business because that's a big key to profitability.
Thanks, Scott. Rob, next question, please.
Your next question is from Matt Vassler with Goldman Sachs.
Thanks a lot. Good morning.
I think I have a different way of asking the e commerce and profitability question. Understanding that this is a year in which you're probably making some investments that you may not have made because of tax reform. Is there anything that you learned, since you spoke with us back in October that suggests it would be more expensive due to market condition to get to 40% annual e commerce growth than you had previously thought?
No. I don't think so. Matt, my head, when you asked the question, started dividing it into food and non food, There's nothing new on food. I I think if you go back and listen to or watch our October analyst presentation where we walk through the strategy for food, all that, even more convicted still holds. On the non food side, you know, we're building a business.
It's non food e commerce is has not been our historic competency over the last few decades in the history of the company. And so we're learning something new.
We're
trying to build an assortment that enables a margin ultimately, and that's got, components to it like attracting brands, being able to execute, from a fulfillment point of view during, during a busy season. We've got some exciting things coming out with site redesign and other things this spring, I think that'll help us make more progress in that area. So I don't think it's that we've learned something new. I think it's a question of PACE and are the operational improvements and merchandising improvements happening? And are you are you investing marketing to kind of coincide with those improvements sense.
The next question comes from the line of Kate McShane with Citi.
Hi, thank you for taking my question. Just to drill down a little bit more on some of the questions that have been asked. I think apparel has been highlighted by several media outlets over the weekend. Can you walk us through what the overall apparel strategy is in store? And online and how you're balancing national brands with private label?
Sure. I'm excited about later this week, I'm headed down to Houston because we've got all of our store managers there, and these new apparel brands that have been mentioned in the media are on the sales floor. And I hear they look great. We're focused on improving quality, still managing good, better, and best, protecting opening price points, which we do such a great job of. Reducing our SKU counts in apparel to improve our presentation.
And we have some new fixturing in some stores that we're expanding on this year so that so that everything fits together. The quality of the product, the value of the product, the brand presentation of it, the ability to present it well because you have for your SKUs, and then a presentation in terms of stream that enables that to look fresh and new. We've got a big apparel business that has been growing, but we have even more opportunity to grow it in store. And then online, there are numerous opportunities for us to build private brands, leverage the DMVBs of the world like Bonobos and ModCloth and, and maybe more in the future, and attract other brands to both Walmart and Jet that'll help us drive our apparel business and manage the mix. So apparel's a a pretty big focus at the moment.
Thanks, Kate. And next question please.
Next question is from the line of Dan Binder with Jefferies.
Hi, thanks. You've talked about accelerating certain investments. I'm just curious if you could be a little bit more specific on what those are and whether or not there'll be any lumpiness by quarter that we should consider. I know you're giving annual guidance, but just want to make sure we we consider the quarters as well.
Yeah. Dan, this is this is Brett. The investments that we're gonna make are gonna continue to to change how we work as a company, help us continue to stay ahead of the customer, and those are gonna be in the areas of technology. They're gonna be in the areas of supply chain, pricing. And you can imagine for competitive reasons, we're not gonna get into a lot of that that we plan to do.
We'll be talking about those as we go throughout the year. We mentioned we think EPS growth will be pretty consistent throughout throughout the year quarter by quarter, there could be a quarter or 2 where we make an investment, that's different than the other quarters And if that's the case, we would talk about that when we when we release earnings. But right now, I don't anticipate major changes quarter to quarter.
Thanks, Dan. Rob, next question please.
Next question comes from the line of Paul Trussell with Deutsche Bank.
Good morning and also thank you for doing this call. Just wanted to circle back on margins The guidance for 4.3to4.4 for the year, obviously, a lot of moving parts and some acceleration in investments. So just want to confirm that your thought process is that there's an ability to find further leverage, over time and expand from those levels. As we look forward. And also more specifically, for the current quarter, if you can just touch a little bit more detail regarding the transportation cost, impact that you that you saw and what your expectations are on that particular line item going forward.
Sure. Paul, I appreciate it. Start with the the operating income question. We're only giving guidance for this this year coming forward. We did we did leverage expenses Excluding the street items for the year, leverage got better as we went throughout the year.
So I am I am optimistic about the expense, leverage that we're seeing in the business, particularly in international and Walmart US stores. And and I expect that that we'll continue to see that progress. So that gives us we've always talked about that being better with expenses gives us more flexibility and more ways in which to hit the P and L that we would like to and do what we wanna do for our customers. So that's the only guidance we're gonna give is will be this this year on operating income. On transportation costs, those vary from quarter to quarter.
As you know, gas prices, fuel prices have gone up a little bit, in this last quarter. I think we're at maybe $0.30 versus last year roughly So that has a bearing on what we, you know, what we do year to year quarter to quarter, but that was the main, main mention of that in the fourth quarter.
Next question is from the line of Ben Benevue with Stephens.
Hi, thanks.
Good morning. Thanks for taking my question. Could you talk about the work capital opportunities that you see for FY 2019. Obviously, you've done a great job in inventory in the U. S.
Can working capital continue to be a source cash for Walmart, or have you harvested all the opportunity that you can?
Thanks, Ben. Yeah, there's always more opportunity. If Greg Forum were sitting here, he would talk about as he goes into store by store, he still sees opportunity for us to be better, to be more efficient, You know, some of the technology that we've talked about in investments will continue to lead, to easier ways for our associates to move goods, stop goods, So all of that all of that helps and and all of that, all that matters. I don't think there's ever an end to what we can do on working capital. In the last 2 years have been, to be fair, been pretty impressive the last couple of years and particularly, payables and the inventory side.
So I think there's more more room to go won't quantify what I think that could be, but I do believe working capital can continue to be a source of cash for Walmart going forward.
Thanks, Ben. Rob, next question, please.
Your next question comes from the line of Peter Benedict with Robert Baird.
Hey, guys. You've shown signs of being willing to rationalize the asset base here more recently, but obviously continue to invest in e commerce. So How do you see the ROIC profile evolving over the next few years?
And just
curious how important stabilizing that metric is to you as you guys think about your floater priorities? Thanks.
Yeah. Great question. And and, Peter, as you know, we've talked a lot about about ROI. It's important to us. Re returns are important along with a number of other metrics that we've mentioned this morning.
If you were to pull that to discrete items, ROI would in a much better place in this last year. And we've seen improvements, in our asset base and rationalizing that operating income being where it where it is Returns short term, long term, are really important for the company. We are gonna make sure that we win long term. And as we've said before, there may times and year to years where that has an impact on ROI that is is different than we would want on a long term basis. But we will make those decisions when we need to do that, but returns are very important for us.
And we talk about it a lot as a management team, as you would imagine.
Thanks, Peter. Rob, next question, please.
Next question is from the line of Bob Drbul with Guggenheim Securities.
Hi guys. Good morning. Two quick questions. The first one is, did you give a number on inflation and sort of the trends that you're seeing on especially on the food inflation. And then the other one is on fulfillment centers, you're converting I think it's 10 of the Sam's clubs in the fulfillment centers.
Can you just give us an idea where you think you are with your ability on the fulfillment center? Proposition in the business?
Yes, Bob on inflation, we didn't see a meaningful impact in the quarter. And going forward, probably modest impact, slight impact next year, but nothing nothing meaningful, really, next year.
And on the fulfillment side, I would say we're in pretty good shape in terms of square footage and where it's placed. We had the 6 fulfillment centers Walmart, the 3 we picked up from Jed and Mark and the team are are learning how to mirror inventory in certain places to prove customer service levels into lower costs. So that that's underway, but the physical plant is in pretty good shape, generally. It's gonna be fun to watch what happens with the Sam's Club efforts here, or if we're gonna take Memphis as a place to to learn, and basically use the same facility, same steel that we use when members shopped in the club and, and pick from those. That's gonna help us with speed.
It's gonna help us reduce transportation costs. And once we have the wrinkles ironed out there, we'll we'll use more facilities over time. Generally speaking, I think we're in pretty good shape. Over the years, looking ahead as we grow the business, we may open a fulfillment center here and there, but That's where we stand today.
Thanks, Bob. Rob, next question please.
Next question is from the line of Greg Melick with MoffettNathanson.
Hi, thanks. I wanted to tie it back a little into the reinvestment of the, the tax benefits think you guys have invested about $750,000,000 in labor that was announced about a month ago. When you think about the magnitude that would go back into price. Should we think about it being similar to what was an SG and A, or how would we even frame that? And and that you can answer it to this year or even over the couple of years?
Thanks.
Yes, Greg. As I said earlier, we're not going to get into a lot of detail about how we're going to invest. The wage amount you you mentioned, about $400,000,000 of that was the one time bonus. The other part would be would be going forward into next year with the the increase in the start rate. And I'll, you know, I'll say what I I said before, which is we're going to be thoughtful about these investments.
And we have a lot of levers that we can use to satisfy that customer, and we're gonna be thoughtful about which levers we pull.
Thanks, Greg. Rob, next question, please.
Next question is from the line of Edward Kelly with Wells Fargo.
Yeah. Hi. Good morning. I'd just like to talk about, or ask about investment in grocery at this point. Just in terms of price investment, how you're thinking about the returns that you're getting on that investment, how you balance that against, investing in a digital experience for the customer.
I would think that at this point, you're getting to an area given your price perception and competitive in marketplace that maybe digital is the better return. And then you did mention grocery delivery. Could you just give us an update on where you stand at point?
Sure. As you think about price investments in store, think about grocery consumables and the fact that across the store, there are some items windshield washer fluid in the automotive department, tennis balls and sporting that are high turn price sensitive items to a degree. And when we think about the price investments in the store, we're not singularly focused on dry grocery we're thinking about this in a broad way. The supercenter assortment is a big advantage, and we wanna deliver low prices across the store, which also helps us drive traffic to the store and manage margins across the entire store. So evaluate the price investment through that lens rather than just grocery And the returns we're seeing there are attractive.
You can see it in the store traffic and, and, we're, we're gonna continue our strategy as it relates to those. We're not cutting short ecommerce investments. I think part of what we're doing now is just letting the business mature and learning how to become stronger operationally in ecommerce. There may be a point this year in looking ahead where we want to be even more aggressive on e commerce marketing if we feel like that those operational improvements are on the right path We kinda watch that, you know, very, continuously, basically. As it relates to grocery delivery, you know, we've had this small pilot going on where their own associate and we'll continue to play around with that and learn what works there.
But the expansion will happen through a variety of platforms. We'll use depending on the spot in the country, different providers to get the product to the customer, and we'll be keeping an eye on NPS scores in particular. Our online grocery business has a really high net promoter score, and we want to, as we start to grow delivery capabilities, ensure that the customer experience is as good through delivery as it is for pickup. So we've got some things to learn there, and it'll happen at a pace based on the customer experience.
Thanks, Ed. Rob, we, we have time for one question. I know there's others having calls this morning. We want to be respectful of. So one more question, please.
Yes. That final question comes from Chuck Grom with Gordon Haskett.
Hi, thanks. Good morning. Doug, from a capital allocation standpoint, could you discuss a little bit about closing, the 63¢ stores earlier And then, should we expect to see continued closings, both in the U. S. And international?
And then for Brett, on the digital side, could you, could you shed some light on the growth between 1P and 3P, for the e comm business? Thanks.
Sure. I'll take capital allocation first. So if you go back a couple of years, you'll remember that we closed quite a few stores around the world, including the a 100 Samad Samad Express stores in Walmart US, the smaller stores that we've been testing as a as a pilot as a format, we we discontinued those and closed those. At that moment, Tom, we had been through all of the 11,600 plus units around the world sitting through real estate meeting bread country by country and making choices about the portfolio. So we did a lot of that cleanup We didn't do Sam's Club at the time.
We were still working through a number of things, pacing things out, trying to put them in the right sequence. So the way I was thinking of it is make sure that the U S. Store business is strong. What do we need to make that work? That's where we make wage investments, price investments, and cleaned up the portfolio.
We've been focused on focusing on building an e commerce business. That's still underway, obviously. And then now we've turned our attention to Sam's Club. We've got a strategy we believe in, a leader team we're excited about, and we're investing in that business to drive comps up there. So it's just been a sequencing.
And the bottom line is we've been through the portfolio I can't tell you there'll never be more closings, you know, a store here and there, I think, makes sense, but we've been through the majority
of that big work for now, anyway. Check on your question of 1p3p. Obviously, 1st part third party, they're both important to us. We wanna satisfy that customer needs. Sometimes it's better done first party, sometimes it's better done through 3rd party.
As you know, we have about 75,000,000 SKUs now in our marketplace site, and it's another one of those levers that we talked about that was talking about earlier that that we have in order to to determine how we best fulfill that that customer need in a way that makes sense for both top line and bottom line.
Well, thanks guys. We certainly appreciate you joining our call today. And, have a great day.
Thank you all.
Thank you.
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