Good morning, and thank you for joining us to review Walmart's 2nd quarter fiscal 2017 results. This is Steve Schmidt, Vice President of Investor Relations at Walmart Stores Inc. The date of this call is August 18, 2016. On today's call, you will hear from Doug McMillan, President and CEO and Brett Biggs, CFO. This call contains statements that Walmart believes are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended and that are intended to enjoy the protection of the Safe Harbor for forward looking information provided by that act.
A cautionary statement regarding forward looking statements is at the end of this call. As a reminder, our earnings materials include the press release, transcript and accompanying slide presentation, which are intended to be used together. All of this information, along with our store counts, square footage, Earnings infographic and other materials are available on the Investor portion of our corporate website, stock. Walmart.com. For fiscal year 2017, we utilized a 52 week comp reporting calendar.
Our Q2 reporting period ran from Saturday, April 30 through Friday, July 29 this year. And as previously announced, Our annual meeting for the investment community will be in Bentonville, Arkansas on October 5 6. We plan on having facility tours on 5th with our meeting taking place on the 6th. We look forward to seeing you here. Now, I'd like to turn it over to Walmart's CEO, Mr.
Doug McMillan. Thanks, Steve, and good
morning, everyone. Thank you for joining us to hear more about our 2nd quarter results. We had a strong quarter with adjusted earnings per share of $1.07 Excluding the $2,700,000,000 currency impact, we delivered total revenue of 123 point dollars 6,000,000,000 an increase of 2.8% over last year. We exceeded our Walmart U. S.
Comp sales guidance this quarter with Walmart U. S. Delivering comp sales of 1.6%, driven by a traffic increase of 1.2%. This was our 8th consecutive quarter of positive comp sales and our 7th consecutive quarter of positive traffic. I'm encouraged by what I'm seeing when I visit stores and pleased with how Greg Foran, our leadership team and our associates are executing our plan to win.
Our customer satisfaction scores continue to improve and the team did a great job of managing the flow of inventory again this quarter. Comp store inventory was down 6.5% and in stock levels are up. We're also showing progress in e commerce. On a constant currency basis, GMV and e commerce sales increased 13% and 11.8%, respectively. The U.
S. Results were stronger than those in our key international markets. This was primarily due to growth in our marketplace offering in the U. S, The continued rollout of online grocery and growth of pickup in our stores and clubs. We continue to see proof that our customers enjoy a seamless shopping Experience.
The distinctions that we talk about today between stores, apps, pickup, delivery and sites are continuing to blur into the background for customers. For them, it's just Walmart. We built a solid foundation in e commerce under the leadership of Neil Ash. During Neil's tenure, we more than doubled our e commerce GMV, became the 2nd most traffic e commerce site in the U. S, replatformed walmart.com, opened a national fulfillment center network and most importantly became known as a great place to work for talented technologists an e commerce professionals in Silicon Valley.
Neil also led our discussions with JD. Neil will be with Walmart through the end of our fiscal year working on our e Commerce Strategies in several international markets. I'd like to thank him for his significant contributions to our company. Building on this solid foundation, we made some strategic decisions to position ourselves for the future in the priority markets of the U. S.
And China, Including the announcement last week to acquire jet.com. Operatingwalmart.comandjet.com will allow us to reach even more customers and drive higher level of growth more quickly. One of the things we like about the technology they've developed is that it rewards customers in real time with savings on a basket of goods and puts them more in charge of the price they pay. This empowers customers in a way that is true to the spirit of Walmart. When customers build a basket of goods online rather than ordering 1 item at a time, shipping economics are in their favor and ours.
Walmart's advantage has always been in providing the lowest prices on a basket and Jet has created a unique way to deliver the lowest cost basket online. It's important to remember that customers won't see changes immediately as we await government approval and the necessary tech platform changes, which will take time. Once the acquisition is complete, we look forward to welcoming Mark Lawrie, current President and CEO of jet.com. He will join Walmart as our new President and CEO of E Commerce reporting to me. He'll be responsible for both the Walmart and Jet brands in the U.
S. Mark is a passionate merchant and innovative thinker who will definitely add value to our business. I look forward to working with him. In China, our recent announced Transaction with and investment in jd.com improves our position there. JD's significant presence online, where Walmart and Sam's Club will feature prominently, affords us the opportunity to extend the reach of our brands to millions of new customers.
I made a couple of visits to JD's delivery and pickup points in Shanghai when I was last in China and I'm excited about the potential it creates for our customers there. Richard Liu, CEO of jd.com is a talented e commerce merchant and we look forward to our collaborations going forward. Additionally, we made advancements in the U. S. And our key priorities to build digital relationships with customers, Scale the assortment and expand online grocery.
As of June, we've rolled out Walmart Pay nationwide to all stores. Customers tell us they love the convenience of this unique service and we found that a majority of transactions come from repeat users. If you haven't tried Walmart Pay, please do and share your feedback. Customers also continue to enjoy our online grocery pickup service and give it high marks. We added grocery pickup to 30 more markets this quarter, bringing our total to more than 60 markets and nearly 400 locations.
It's gratifying to see how much this service helps our customers save time. Next, we're growing our marketplace offering at a strong pace. Since the beginning of the year, we've added about 7,000,000 new items to the assortment and today offer approximately 15,000,000 SKUs. Walmart International delivered another solid performance in the 2nd quarter. 9 of our 11 markets posted positive comp sales and 6 of those grew comp sales by more than 4%.
Walmex continued to lead the way and I'm pleased with the fact that the momentum in the business is broad based across all formats and countries. In China, in addition to expanding our reach through the strategic alliance with jd.com, We continue to grow our base of stores and clubs. In fact, we continue to gain market share in the hypermarket channel. China remains a strategic focus for us as it represents the largest retail growth opportunity globally. In the UK, the competitive environment and food deflation continued to challenge the market, significantly impacting traffic and comp sales.
Our strategy to turn things around is focused on improving the retail basics. We are simplifying and strengthening our offering Through improved availability and assortment discipline, reducing costs and driving sales through strategic price investments. While our turnaround will take time, I'm confident in the new leadership team there and want to assure you we're addressing this with urgency. At Sam's Club, comp sales for the period were slightly above our expectations. Membership performance was the highlight and there is Quite a bit of innovation underway at Sam's related to the member experience.
Earlier this year, we launched a test of Scan and Go, a mobile checkout and payment solution, which lets members skip the checkout line. We're pleased with the adoption of this service and we expect to roll this out nationwide later this year. We also saw strong growth in the quarter from both club pickup and direct to home e commerce. The new platform we are using Prospect for new members and better manage their accounts will help us deliver on our priority of growing membership. These innovations are making it easy for members to shop and save time.
Finally, I've enjoyed my time this week with more than 5,000 store leaders and merchants with U. S. Team at our annual holiday meeting in Denver. We've got a great plan for the busiest time of the year and the mood at the meeting was deservedly upbeat. I'd like to thank our store managers and all of our associates for the job they're doing.
In summary, I'm pleased with the momentum in the business. We have a plan and we're executing against it and customers are responding favorably. Now I'll turn
it over to Brett. Thanks, Doug, and good morning, everyone. We're halfway through the year and we continue to be pleased with the momentum we're seeing across many parts of the business. We're executing against our strategic priorities, focusing on the customer and improving core retail fundamentals around the world. In addition to delivering solid second quarter results, which I'll talk about in a minute, we continue to make decisions that focus the business for long term success.
Just in the past few weeks, we furthered our strategy in e commerce through the alliance with jd.com and the planned acquisition of jet.com. In addition, we've agreed to divest our suburbia apparel business in Mexico, allowing for additional focus on our core business in that market. Each of these decisions aligns with our strategy and demonstrates our commitment to thoughtfully allocating capital against our long term strategy. Now let's get to the results. 2nd quarter adjusted EPS was 1 point High end of our guidance range, while reported EPS was $1.21 Adjusted EPS excludes a non cash gain of $0.14 net of tax from the sale of Yaohuian in China to jd.com.
We anticipate the gain for the full year will be $0.16 per share, which is within the original guidance range when we announced the transaction. From a revenue perspective, we had another solid quarter. Excluding the $2,700,000,000 currency impact, total revenue increased 2.8 percent to $123,600,000,000 While on a reported basis, total revenue was $120,900,000,000 On a constant currency basis, we added net sales of $2,800,000,000 in the quarter and $7,200,000,000 in the 1st 6 months of the fiscal year. Walmart U. S.
Delivered a very solid comp sales increase of 1.6% driven by a 1.2% increase in traffic. It's now been 2 full years that Walmart U. S. Has delivered positive comp sales. In fact, on a 2 year stack basis, comp sales increased 3.1%.
As Doug mentioned earlier, we made progress in e commerce with GMV and sales, growing 13% and 11.8%, respectively. The U. S. Results were stronger than the international results And globally, we continue to make headway on expanding our assortment and enhancing the shopping experience for our customers. Whether it's through online grocery, Walmart Pay or broadening our reach in China through the alliance of jd.com, we're making it easier for customers to access Products, when and how they want.
Now with the agreement to acquire jet.com, we're building on our e commerce foundation and creating an opportunity to accelerate e commerce even further. Consolidated gross profit margin increased 53 basis points driven by improvements in all three operating segments. From an expense standpoint, as anticipated, total SG and A increased compared to the Q2 of last year, primarily due to our previously announced investments pulling technology for this fiscal year. That being said, our teams across the globe remain focused on managing expenses. In addition to solid operating results, disciplined working capital management and the timing of payments allowed us to generate $10,300,000,000 of free cash flow in first half of the year, which compares to $5,100,000,000 in the first half of last year.
Continuing to provide returns to shareholders in the form of dividends and share repurchases is a priority for us and we're fortunate to have such a strong business model that generates substantial distributable cash even after we've invested thoughtfully into the business. During the quarter, we paid approximately $1,600,000,000 in dividends and repurchased 30,300,000 shares for approximately $2,100,000,000 As of the end of the second quarter, we have utilized approximately $7,300,000,000 of our current $20,000,000,000 share repurchase authorization. With that, let's discuss the results of each of our operating segments starting with Walmart U. S. We continue to see steady improvement in the Walmart U.
S. Business as customers respond favorably to the changes we're making in our stores and e commerce offer. Net sales were up 3.1 percent or $2,300,000,000 and comp sales rose 1.6% with a 1.2% increase in customer traffic. We believe a contributing factor to the results is our consistent improvement in customer experience. Customer surveys indicate We're making good progress in providing a better shopping experience with cleaner stores, faster checkout and friendlier service.
We've also broadened our e commerce assortment, strengthened our mobile capabilities and expanded online grocery to more than 60 markets and nearly 400 locations. While there is still a lot of work to do in executing our multi year plan, we're encouraged by the results we're seeing. E commerce contributed approximately 40 basis points to the segment comp and all of our formats had positive comp sales, including neighborhood markets, which delivered approximately a 6 point 5% comp sales growth in the period. Although difficult to quantify, we know overall sales included some tailwinds from external factors such as continued low gas prices and in seasonably warm weather across much of the country. However, we also experienced sales headwinds from continued market deflation in food, which negatively impacted our food comp by around 100 basis points and our 2nd quarter total segment comp by a similar amount as what we faced in the Q1.
The grocery business showed improvement from the Q1 with positive comp sales and traffic despite the ongoing deflationary impacts in food. In addition, both general merchandise and health and wellness delivered solid sales growth with strength in home, toys, sporting goods and OTC. The back to school shopping season is in full swing and we aim to be the destination of choice with low prices on a great assortment of products for parents and students preparing for the new school year. In the Q2, we continued to implement a multiyear strategy of incremental price investment in the U. S.
Business. It's still early days for this initiative, but we are pleased with the initial results. We're committed to providing everyday low prices using data and analytics to better serve our customers both through stores and e commerce. Gross margin increased 33 basis points in the quarter. Improved margin rates in food and consumables were a contributing factor.
In addition, we had improvement in our cost of goods due to savings in procuring merchandise, lower Price Investments. Operating expenses increased 8.3% over last year due primarily to the previously announced associate wage rate increases and investments We remain focused on managing expenses with an EDLC mindset while elevating the shopping environment for customers. Overall, the SG and A increase was partially offset by improved gross margins resulting in an operating income decline of 6.2%. We're also encouraged by the progress on inventory management with inventory declining about 2.9% in the Q2 versus last year, including a 6.5% decline in comp stores. By cleaning up our store back rooms, leveraging technology and changing certain processes, We're improving product availability and enabling associates to be on the sales floor serving customers in a more effective way.
Turning to the Q3, for the 13 week period ending October 28, 2016, we expect a comp sales increase in the range of 1% to 1.5 As a reminder, comp sales for last year's comparable period were 1.5%. Now let's move to Walmart International. Walmart International delivered another solid performance in the 2nd quarter. 9 of 11 markets posted positive comp sales 6 of those markets grew comp sales by more than 4%. The rate of sales growth in several markets slowed versus our Q1 results impacted by Leap Day in the Q1 and the Easter holiday shift between 1st and second quarters in most markets due to the 1 month reporting lag.
Walmex continues to produce strong sales results across all formats, while the U. K. Environment remains challenging. The international team remains focused and continues to execute on key strategic priorities to actively manage the existing portfolio, Deliver balanced growth, be the lowest cost operator and build strong foundations in talent, trust and technology. We continue to be aggressive in managing the portfolio, announcing last week the agreement to sell our suburbia apparel business in Mexico.
In addition, our recently announced strategic alliance with jd.com in China aligns with our growth strategy in this key market By better integrating our digital and physical retail operations, we also continue to execute aggressive cost reduction programs in the U. K. And Canada and our expanding cost analytics programs into other markets like Mexico and China. We also announced market CEO moves this quarter in China, the UK and Canada. We are confident these moves position us well for driving improved performance in each of these markets and demonstrate the depth of our talent globally.
With that, let's discuss International's overall results. Net sales grew 2.2% on a constant currency basis, while reported net sales declined 6.6% due to a $2,700,000,000 currency headwind. From a profitability standpoint, operating income increased 47.5% on a constant currency basis and 35.2% on a reported basis. This increase includes the gain from the Selby Houdian in China to jd.com. Excluding the impact from this gain, operating income increased 3.1% on a constant currency basis, which slightly outpaced sales growth.
On a reported basis, excluding the gain, operating income decreased 6.7%. The accompanying financial presentation includes detailed information on our 5 major markets. However, I'd like to provide some highlights on each one. As a reminder, in all countries except Brazil and China, our financial results are inclusive of our e commerce performance. Walmex continues to lead the way delivering strong results.
Keep in mind, Walmex releases results under IFRS and the results discussed here are under U. S. GAAP. Therefore, some numbers may differ. The positive momentum in the business continued across all formats, divisions and countries.
Comp sales for Walmex increased 7.3% in the quarter, significantly outpacing the rest of the self-service market. Excluding the gain from the sale of our bank operations in Mexico last year, operating income would have increased faster than sales. In Canada, despite increased promotional activity by competitors throughout the quarter, comp sales increased 1.1%. Comp sales have now been positive for 9 consecutive quarters. And according to Nielsen, we continue to gain market share in food and consumables in Health and Wellness.
Our cost analytics program made good progress helping drive down cost of goods allowing us to invest in price. Excluding the gain from the sale of certain properties in Canada last year, operating income increased faster than sales. Additionally, we continue to decrease inventory levels and improve efficiency from a store and labor perspective. In the UK, Fierce competition in food deflation continue to challenge the market, significantly impacting traffic and comp sales trends. During the quarter, comp sales excluding fuel decreased 7.5%.
Our strategy remains focused on improving retail basics, Simplifying and strengthening the offer through improved availability and assortment discipline, reducing costs through our cost analytics program and driving sales through strategic price investments where we remain committed to the previously announced 5 year 1,500,000,000 pound price investment. In China, despite negative comp sales of 0.5% this quarter, our business continues to grow as we expand our footprint throughout the country and we continue to gain market share in the hypermarket channel. We operate for less initiatives, have delivered results and we're able to leverage expenses. Our recently announced alliance with jd.com enables us to better serve consumers through a powerful combination of e commerce and retail. Jd.com, the leading online direct sales company and the country's largest Internet business by revenue has a complimentary offering allowing us to deliver compelling new experiences that can reach significantly more customers.
We are optimistic about our future in China. In Brazil, despite the ongoing economic recession, we delivered comp sales growth of 4.7%. Our wholesale format continues to perform well and delivered strong growth again this quarter. In addition, we completed our store systems integration, which allows all banners to operate under a single financial system. This will provide better visibility to business outcomes, improved alignment of marketing efforts and further enhance our compliance programs.
Overall, we're pleased with another solid performance from our international business in the quarter. Now let's turn to Sam's Club. Net sales without fuel grew by 0.4%. Membership income increased 2.9% as plus member counts increased and Plus member penetration is near all time highs. Comp sales excluding fuel increased 0.6%, which is slightly above our guidance.
Market deflation, especially in food, continued to be a headwind and negatively impacted comp sales by approximately 100 basis points versus the Q2 of last year. We're pleased with how e commerce performed as both direct to home and club pickup had strong growth. Sam's also continues to make progress on being a leader in the digital space. Our members tell us they really appreciate the convenience that innovations like Scan and Go bring to their lives. This new checkout and payment solution lets members complete the shopping experience using their own mobile device.
Turning to the Q3 for the 13 week period ending October 28, 2016, we expect comp sales without fuel to be slightly positive. As a reminder, comp sales for last year's comparable period increased 0.4%. With that, let's wrap things up. There's always more work to do, but we're pleased with the first half performance. These results combined with our outlook for the balance of the year Give us confidence in raising our full year adjusted EPS guidance to a range of $4.15 to $4.35 which includes a range of $0.90 to $1 in the Q3.
This compares to previous guidance of $4 to $4.30 for the full year. As a reminder, the adjusted guidance excludes the $0.14 net of tax non cash gain from the sale of you Houding in China to jd.com. In addition, this guidance includes an estimated diluted EPS impact of approximately $0.05 primarily in the 4th quarter as a result of Expected operating losses and one time transaction expenses related to the planned acquisition of jet.com, assuming the transaction is closed near the beginning of Q4 of FY 2017. Keep in mind that this updated guidance assumes currency Change rates remain at current levels and that our full year effective tax rate is expected to be at the low end of our previously stated range of 31.5% to 33.5%. In closing, we continue to be pleased with momentum we are seeing across many parts of the business.
We're executing against our strategic priorities and continue to focus on the customer. It's an exciting time at Walmart and we are proud of the progress we're making. Thank you for joining our call today and we look forward to seeing many of you here in Arkansas at our annual meeting for the investment community on October 5th 6th.