We keep a close eye on our price gaps. And right now, we feel really good about our price gaps. They are strong, and it is driven by the investments that we made. Now it's really our job to work with our suppliers and take those rollbacks that we're working and turn them into the Every Day Low Price for our customers so that they can experience them moving into the back half of the year.
Can you maybe talk about how you manage this with inflation? Maybe can you discuss the level of inflation currently in your business and what your expectations are for the remainder of the year?
If you look at inflation for the front half of the year, we were at roughly 1.4%. Food was closer to 1%, and then general merchandise was closer to 2%. As we moved into Q3 and you saw the impact of the price investments, we saw that rate come down below 1%. Again, as we look forward, we anticipate the back half to look very similar to what we saw in the front half of the year with regards to inflation.
We wanted to make sure we asked about health and wellness and Maximum Fair Price. Your health and wellness sales have been impacted this year by the new regulation related to pharmacy inflation or Maximum Fair Pricing. How should investors think about this headwind in the back half of the year and also into next year with another subset of drugs being impacted?
I think I want to start by just saying we have a fantastic health and wellness business, and it is very strong. Makes up about 10% of the U.S. business, and the majority of that is our pharmaceuticals business. MFP or Maximum Fair Pricing was applied to about 10 high-volume drugs. About eight of those drugs either went generic or offered their prices beyond Medicaid to essentially all consumers, and that is a top-line headwind. But again, the core is strong. We saw script growth grow year-over-year in Q2. We are seeing our profitability in this sector, double-digit improvements year-over-year. And this customer is incredibly important to our business. I just want to unpack that just a little bit.
If you think about the average Walmart customer and the Walmart customer that also engages in health and wellness, the health and wellness customer spends about 3 x more than the average Walmart customer. If they use Pharmacy Delivery, so we have lit up the same delivery capabilities that we have for general merchandise and for food for pharmaceuticals. We can deliver to 96% of the U.S. population in three hours or less, 60% of the U.S. population in 30 minutes or less. If you look at the Pharmacy Delivery customer, they spend almost 6 x more than the average customer. We have seen this year same-day deliveries for pharmacies jump over 2x year-over-year. And for folks that are using pharmaceutical deliveries, we are seeing a 10 x repeat rate, 10 x improvement in repeat rate year-over-year.
This is an important part of our business. When folks lean into it, they engage with more of the Walmart ecosystem and spend more with Walmart. We are excited about health and wellness. We have a headwind, as you mentioned. That headwind will continue into next year as they have announced 15 additional drugs that will go on MFP. But the core business here is very strong.
Moving on to just omni-sales growth. The U.S. e-commerce business continues to show strong momentum. Can you talk about the fundamental drivers of that strength and the sustainability of the growth?
Absolutely. We're proud of our e-commerce growth. We saw 24% growth this past quarter. That was our tenth consecutive quarter of 20+% growth. If you think about the fundamentals that drive e-commerce, it's actually not all that different from the store side too. There's three things we focus on. That's assortment, price, and experience. From an assortment standpoint, customers want a broad selection of goods that they need, want, and love. An example of how we're bringing that to life in our e-commerce business is Walmart Marketplace. They also want goods and services. We have our pharmaceuticals business. We have our vision business. We have our Auto Care Center business. All of these have digital capabilities as well. We have our new service that we launched or announced earlier this year with quick service restaurant delivery, and we launched some additional partnerships just last week and this week.
We're enhancing assortment. When it comes to price, it's just part of our DNA. We focus on operating at Everyday Low Cost so that we can drive Every Day Low Prices. We're leaning into new capabilities like automation, Physical AI, to make our network more efficient so that we can reinvest in the price and reinvest into experience, which is the third point that I was making. We are improving the digital experience on our website, on the app. One way we're doing that is with our new agentic agent, Sparky, which I'm sure we'll talk about Sparky here in a little bit. We're also taking that broad assortment and we're making it available to customers faster. We see about 70% of the deliveries that we bring to customers' homes delivered same day or faster.
In our expedited delivery, express delivery, we saw a doubling in 30-minute or less delivery year-over-year. All of these things are driving that core e-commerce business. Other things I would note with e-com is as the business grows, we become more efficient. We densify our first mile, our mid-mile, our last mile. We densify the volume moving through our stores, moving through our Fulfillment Centers. That lowers our cost to operate. Then we have these three magical businesses that are helping reshape the P&L within e-commerce. That's our membership, which is incredibly important. That's our Walmart Marketplace, which I've already mentioned, and that is our advertising business. All three of those saw double-digit comps this past quarter and have a lot of momentum.
Great. You mentioned Sparky, so let's go to agentic commerce next, if that's okay. Obviously, Walmart's been investing in agentic commerce, including in its AI shopping assistant, which is called Sparky, and through partnering with companies such as OpenAI and Google. Can you maybe map out the customer journey using these agents today, and how is Walmart positioning itself to capture more market share in Agentic Engine Optimization?
Absolutely. There's really two things that I would highlight here, Kate. One is Sparky, and we'll talk about Sparky a little bit, but the second is AEO, Agentic Engine Optimization. This room, I'm sure you all are very familiar with SEO, Search Engine Optimization. We've been doing that for decades, but we're entering into a new world. I want to talk about that as well. Let's start with Sparky. Sparky is our agentic agent. I don't have my phone on me, but if I did, I'd pull it up. If you go to the app, it's at the very bottom, and Sparky is smiling at you. I would recommend take some time and engage with Sparky. Sparky is becoming more and more capable as we move forward in time. Sparky can now help you check out. Sparky can help you take care of customer service.
Sparky has tens of thousands of recipes, so if you need to build a meal, Sparky can help you build a meal. We launched a new capability with visual shopping with Sparky, so you can now take a photo and Sparky will help you shop depending on what your mission is with that photo. When customers utilize visual shopping, we see the conversion rate jump by 57% versus text-based shopping. One of my coworkers had this great example that he did recently and shared with me. He went out to his backyard, and I guess he doesn't do a great job taking care of his grass.
He takes a photo of his lawn and says, "I need some help." Sparky, just with that context, was able to recommend seeds, lawn growth fertilizer, and help him solve that mission, build a basket of unique items that he may not even thought of to help solve that mission. As a result of these enhancements, customers are responding. We've seen just quarter-over-quarter weekly engagement with Sparky grow over 60%. When customers engage with Sparky, their average order value jumps 40%. That's because of what I just spoke to. Maybe you are having friends over to grill for the summer, and you just say, "Sparky, I've got eight folks coming over. I want to grill beef, I want potatoes, and I want other things. I need food for eight people." Sparky can build that meal out for you.
It can also ask, "Hey, do you need wood chips?" Or "Did you know that Walmart recently added Traeger grills to our Marketplace assortment and our 1P assortment?" These are the types of additional context we get when customers engage with Sparky. We're seeing that result in really positive results in how customers are responding. Then on Agentic Engine Optimization. We partner with the frontier models. What we see here, we're really happy with. They are most often choosing to deep link out to us, meaning they send customers our way when they see applicable context. When they do that, we're seeing fantastic conversion rates. Customers that are coming to us from OpenAI, from Gemini, are converting at very high rates.
And then what we are also seeing is that many of these customers are new to Walmart or returning to Walmart, which is fantastic. Then maybe most importantly, those new and returning customers have a very high organic repeat rate with Walmart. So we are very excited about what we are doing with our agent, and the capabilities that Sparky has, and how it is reinventing shopping. But we are also excited about Agentic Engine Optimization. It is early in this space, but we are leaning in.
Great. I know a key tenet obviously that we just talked about before was value, but another key tenet is fulfillment and delivery speed.
Hmm.
A key competitive advantage for you is the speed, which has been a driver of your consumer engagement along with membership and Marketplace growth. So can you provide an overview of where you are in the build-out of the fulfillment business in the U.S. and what you would want the next phase of growth to look like?
Absolutely. I felt like the last time we talked, I used this analogy.
Hmm.
I do not. I am going to use a baseball analogy. I would say we are in the top of the fourth inning.
Hmm.
We continue to make progress on reshaping our network. How are we reshaping the network? We are investing in a few things. One, we are investing in advanced robotics that we put across our supply chain, which is our fulfillment network engine. We are also investing in modernized software to make our supply chain more nimble, to make it more time definite, right item, right quantity, right location, right time. When we do that well, customers have better experiences. We will continue that build-out. We have a ways to go as we are in the top of the fourth, but we are seeing real results and real impact to the business. I think one way you see that coming to life is the point you made, our customer value proposition, specifically experience and speed.
As we build out our distribution capabilities and our fulfillment center capabilities, we can hold millions of items in our DC, release the right amount of units to our FCs, so you reduce your units per SKU, so you can have more SKUs, more unique assortment in FCs. That makes more items available for two-day delivery, next-day delivery, same-day delivery, and sub-same-day delivery. You mentioned the stores. We continue to invest in our stores, and they are interconnected to that supply chain. About 80% of our e-commerce deliveries flow through our stores, either generated directly from the forward-deployed inventory or our parcels that are injected into the stores and then injected into our Spark last mile delivery network or our van delivery network. That is resulting in that stat I shared earlier of 70% of our orders being delivered same-day or faster.
We have almost 40% of all deliveries now today from our stores delivering fast, meaning delivered in hours or delivered in minutes. I had a friend who called me last week and said, "I just ordered braces wax for my daughter and toothpaste. It came in eight minutes." They were just blown away. I looked at the order, and how that happens is we have a Spark Shopper, and this was in Dallas. There was a Spark Shopper in the store. Customer places the order. It is two units, so it does not take very long to pick. They are able to pick it, and they spent most of the trip driving, and they were able to deliver in eight minutes.
When we communicate that we can reach 60% of the U.S. households in 30 minutes or less, what we're saying is about a pick time of 15 minutes and a drive time of 15 minutes. If you shrink that pick time because it's a smaller order, or we make it more efficient to pick in our stores with digital shelf labels, then you can deliver faster, or you can deliver further at the same speed, and that's coming to life.
I do think you have been messaging this to the consumer. You've had your Walmart. Who Knew? campaign.
Yeah.
The speed of delivery has been a big focus, too. How are you balancing the marketing dollars today between conveying Walmart's value and assortment versus speed?
Good question, Kate. I would say for a long time, Walmart has been known for value, and how people have defined value is price. But the truth is, more and more customers are not only coming to us for low prices, they're coming to us to save money and time. I think we're redefining value, and you see that coming to life in our marketing.
It's not really, I wouldn't say it's one or the other. We try to show folks that they can have both. Low prices and convenience doesn't have to be an either/or choice. And you see a lot of competitors, to get convenience, you have to pay fees, all kinds of fees. I don't even know the names of all the fees because there are, different
So many.
So many that are added. We don't have those. We offer the same great prices in store online. And we offer incredible scheduled delivery and express delivery options to our customers.
Great. Walmart continues to see strength in membership with Walmart+ Membership growing double digits in the second quarter, and we wondered if you could talk to us about what efforts are being made to continue to grow the membership there, and if there are any specific income cohorts that are driving the expansion in recent quarters.
Membership is incredibly important to us. As you noted, double-digit growth in membership continues. We are very excited about that. Really what is driving that is the value proposition that we are building for members. We are growing the in-demand assortment that is available to them. We can deliver it to them faster and faster at either no cost or lower fees for things like express delivery. We have streaming capabilities. You want to watch "Landman" on Paramount+. As a member, you get that benefit. We can give you discounts on gas. I would put our gas prices up against anyone in the U.S. right now if you are a member. Even if you are not a member, they are incredibly great rates. We are continuing to enhance those experience, which draw more members in and make it a stickier proposition.
Maybe one other example I would give is we have new member benefits for in-stores, things like at the Money Center, Auto Care Center. A more recent one is photos. You can print photos. This was a new experience for my daughter, who is in middle school now, because she only thinks of photos as digital photos and maybe some photos that are on our walls. What we did is we are now giving 25 free prints to Walmart+ members. You just walk into the store, you go to the photo booth, you plug your phone in, you select the photos you want to print, and you print them off. It is a magical experience, and it is driving members not only into our stores, but stickier, greater retention.
On the general merchandise side of the business, grocery obviously has been consistently strong. Again, in your opening comments, you talked about market share, and you have seen very strong market share gains in general merchandise. What are you seeing when it comes to consumer behavior for purchasing general merchandise currently?
What I would say is customers are reaching deeper into the torso and tail assortment that we have available. You likely saw our Marketplace growth, 52% growth. The bulk of our Marketplace growth is general merchandise.
It is also resulting in new income cohorts engaging with us in new and different ways. I think a great example is Nespresso. Nespresso was a brand that we wanted to bring into our ecosystem in both the First-Party and Third-Party space, the 1P and Walmart Marketplace, and they came in. What we have seen is that many of the customers that engage with us and purchase Nespresso are higher income earners. We are also seeing that over 35% of those customers, almost 40%, are new to buying coffee with Walmart.
Folks, we have 150 million people that engage with us every single week, but what is interesting is as we have expanded our assortment and brought in more in-demand brands, both in 1P and 3P, these customers who have engaged with us for decades are now engaging with us in new and different ways, and that comes to life in this new assortment. I think that is exactly what we are seeing in GM.
That dovetails really nicely into a couple of Walmart Marketplace questions.
Great.
We have for you. Are there any categories that you are prioritizing for future expansion? I know apparel and home have been big focuses.
Hmm.
How are you leveraging Walmart Fulfillment Services to drive higher Marketplace conversion?
We are taking a broad reach with Marketplace in terms of what we are targeting to drive 51% growth. It is really across the board, but there are areas where we are focused. I think beauty is a great example.
We recently added a brand that we were targeting. Again, they were added to both 1P and 3P, called Medicube. Not all that dissimilar to the Nespresso example, about 50% of the customers that are engaging with Medicube, purchasing Medicube, are new to the beauty space. So it is just another example of how we are differentiating. I think also when I talk about our Marketplace, you mentioned Walmart Fulfillment Services. This is an incredible offering. So sellers get access to those 150+ million customers that are engaging with us every week in an omni-channel way, both in stores and online. But they also have access to Walmart Fulfillment Services, which produces about 50% of the volume that we move through Marketplace. About 50% of it moves through WFS. WFS is also offered to these sellers at about a 15% discount to the price of competition in the market.
What that allows sellers to do is take those funds and reinvest in their business, reinvest into price so that they can show up on our Marketplace in a stronger way and resonate with customers, and we see that come into life.
Turning now to advertising, we are just kind of ticking off some of these-
Yeah. Yeah.
-alternative revenue businesses here. Walmart Connect continues to deliver really strong growth as well. That was up 43% in the second quarter. How should we think about the overall impact of retail media on future growth, and what opportunities do you see around the expansion of retail media in stores?
We are very pleased with our retail media growth. We had over 40% growth, as you mentioned, this past quarter. This is an incredibly profitable business. It has roughly 70% margins, which is fantastic to see. What I would also say about this business is that it has a symbiotic relationship to e-commerce. I mentioned 10 consecutive quarters of over 20% growth in e-commerce. As e-commerce grows with more Marketplace assortment, more 1P assortment, these are more opportunities to engage with sellers and brands, and that will grow our advertising business. Talking about other revenue streams in this space, I think Vizio is a great example. Our Vizio and onn, which is powered by Vizio unit growth, year-over-year is over 150%. The average customer in the U.S. keeps their TV for about seven years.
This allows us to put more devices into customers' homes and engage with them in new and differentiated ways. Through advertising, you can imagine maybe Sparky coming to life on your TV in the home in the future and helping you shop and navigate different applications on the TV. Then we are also testing digital signs within our stores. We are in a number of stores. We will be in over 200 by the end of the year, and that is allowing us to communicate to customers in new and differentiated ways inside the store as well. We are excited about this space, and it absolutely is reshaping the Walmart U.S. P&L.
Great. Then speaking of P&L, U.S. e-commerce business turned profitable early last year with a key driver being all of these alternative revenue streams. Can you provide an update on the profitability profile of the e-commerce business today?
It is exciting to see that happen. We are now in our sixth quarter of e-commerce profitability. Our most profitable e-commerce quarter ever was this past quarter. What I would say is this is driven by the things that we are talking about. We are building a more efficient supply chain network with our investments in modernized software and technology. We can then take those funds and reinvest into experience, reinvest into the business, roll some of them through to the bottom line. We could not be more happy with the trajectory that we are seeing in profitability. But I would also mention two other things we have talked about, and that is our Marketplace and that is advertising, which is absolutely contributing to the profitability of e-commerce. However, even if you strip out advertising, our e-commerce business was profitable in Q2.
I would just double down on the fact that some of these businesses, while large on the scale of just business in the U.S., they are relatively small compared to what the opportunity is. I am thinking of things like Marketplace, I am thinking of things like advertising and membership. We have a long runway ahead of us in these spaces.
And then, if we can maybe just conclude with some more recent thoughts about back to school and holiday.
Yeah.
Which are very big occasions for shopping. Just how are you approaching both this year, including any kind of color on inventory or assortment, and do you anticipate any changes to your promotional strategy, just given a continued consumer focus on value?
Yeah. We are happy with how back to school has performed. We sell over 50% of the unit volume in the U.S. for back to school. Pretty incredible. We had great assortment. Pen+Gear had a 24-pack of crayons for $0.24, literally a penny a crayon. We had wide rule paper for $0.82. We just had great assortment, had great value, and fantastic convenience, and that resonated with customers. I would also call out back to college performed incredibly well. It was obviously different. Folks who are setting up their dorm rooms are leaning into bed linens and microwaves and refrigerators. What we saw is that they did not want those things next day. They wanted them in hours and minutes, and we were able to deliver on that because this inventory is forward deployed in our stores and locally curated.
Go to a college town, go to your local Supercenter. I went to Purdue. Purdue comes to life in the Lafayette Supercenter, and students can get that delivered to their dorm room. On holiday, we recently had our holiday meeting. I was in Denver about a month ago. It was a fantastic meeting. The team is ready. We are ready to drive Everyday Low Cost so that we can reinvest in the price and experience. Our merchants came with innovation, they came with new items, and they came with sharp price points. You asked about the consumer. The consumer wants to save money, and the consumer wants to save time, and we are going to allow them to do both of those things.
Great. Thank you. We're at the point where we ask a couple of rapid-fire questions.
Okay.
We've touched on two out of the four, so I'm going to-
Okay.
-leave those out. The third question I think we should focus on is just margins. Do you expect to see more margin headwinds or tailwinds in 2027 versus 2026?
We haven't rolled out guidance for next year, so what I would point us to is the reshaping of the P&L.
Hmm.
We are growing our advertising business. We are growing our Marketplace business. We are growing our membership business. As we reshape that P&L, that allows us to handle any headwinds that may crop up as we look towards the future.
Right. We talked a lot about AI on the agentic commerce side. On the efficiency side, we were curious if you would expect a significant increase in efficiency as a result of AI in 2027 versus 2026.
Kate, what I would say there is that we are a people-led, omnichannel retailer dedicated to saving people money so that they can live a better life. We have been leaning into AI for quite some time. We have had physical AI in our supply chain for over seven years, and you can see it reshaping our company, reshaping our customer value proposition. I spoke to some of those changes today. Do I expect that to continue to happen next year? Absolutely. Back to school is a great example. Back to school, we were able to use our ambient automation to build intelligently layered back-to-school pallets that went directly from the truck to the shelf in the seasonal area. It was a beautiful thing, and the stores loved it.
Great. Just in our last couple of minutes, I would like to leave the rest of the time to you for any closing remarks.
Maybe I would close with where I started. We are focused on enhancing our customer value proposition, assortment, price, experience. If we do that well, that drives trust and that drives frequency and makes us the first and the best place that our customers shop. I will say the same thing to this group that I said to my team at the holiday meeting and that I say to them in weekly meetings more recently. There is a great opportunity right now to go after market share, and that is exactly what we are doing. We are playing offense.
Great. Well, thank you for joining us today.
Yeah. Thank you, Kate. Thank you.