Greetings. Welcome to Walmart's Fiscal Year 2025 Second Quarter Earnings Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Steph Wissink, Senior Vice President of Investor Relations. Steph, you may now begin.

Thank you, welcome, everyone. We appreciate you joining us and your interest in Walmart. Joining me today from our home office in Bentonville are Walmart's CEO, Doug McMillon, and CFO, John David Rainey. Doug and John David will first share their views on the quarter and then we'll open up the line for your questions. During the question-and-answer portion, we will be joined by our segment CEOs, John Furner from Walmart U.S.; Kath McLay from Walmart International; and Chris Nicholas from Sam's Club. For additional detail on our results, including highlights by segment, please see our earnings release and accompanying presentation on our website. We will make every effort to answer as many of your questions as we can in the hour we have scheduled for this call. As a courtesy to others, please limit yourself to one question. Today's call is being recorded and management may make 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 filings with the SEC. Please review our press release and accompanying slide presentation for a cautionary statement regarding forward-looking statements, as well as our entire Safe Harbor and non-GAAP reconciliations on our website at stock.walmart.com. Doug, that concludes my intro. We're ready to begin.

Good morning and thanks for joining us. We had another good quarter with strong sales growth and even stronger profit growth, exceeding our expectations. The team not only drove our short-term results, but they also continued to drive change, setting the stage for our future. Their good work is resulting in our customers and members not only being able to save money on an increasingly broad assortment but also to save time. Convenience matters, and we're uniquely positioned to provide it. When I'm out in stores and clubs around the world or shopping on our app, I'm seeing the benefits of doing the basics well. Inventories are in good shape, merchandising is improving, and our associates are making good things happen. The strength we saw for the quarter was broad-based. Our business outside the U.S. continues to lift the total company in terms of sales and profit growth. Walmex’s had another strong quarter. And India Flipkart again delivered positive contribution margin and PhonePe continues to deliver amazing growth in total payment volume. In China, strong membership trends and Sam's Club continue to drive double-digit sales growth and about half of our sales there are digital. We continue to gain market share, including in general merchandise, and transaction counts and unit volume are up across markets. In the U.S., for both Walmart and Sam's Club, comp sales were fairly consistent throughout the quarter. Food continues to be strong, and it's encouraging to see improvements in general merchandise. Our U.S. health and wellness business in Walmart and Sam's Club, primarily due to sales of GLP-1 drugs, is contributing to our strong comp sales. So far, we aren't experiencing a weaker consumer overall. Around the world, our customers and members continue to want four things. They want value; they want a broad assortment of items and services; they want a convenient and enjoyable experience buying them; and they want to do business with a company they trust. These four things are constant. But the way we provide them is changing and changing fast. The results we're delivering are due to real progress across these dimensions. As it relates to value, we're lowering prices. For the quarter, both Walmart U.S. and Sam's Club U.S. were slightly deflationary overall. Walmart U.S. food prices were slightly inflated as we exit Q2, but down 30 basis points versus Q1. In Walmart U.S., we have more than 7,200 rollbacks across categories. Customers from all income levels are looking for value, and we have it. As it relates to assortment, our item and seller count continues to grow. Walmart U.S. marketplace sales grew 32% for the quarter. If you're a Walmart customer, you have so much to choose from. And if you're a seller, you're going to want to be on walmart.com. As it relates to the customer or member experience, e-commerce sales grew about 20% for each segment and 21% overall. Sometimes it's most convenient or enjoyable to visit one of our stores or Sam's Clubs. Sometimes it's more convenient to pick up an order, and sometimes it's more convenient to get it delivered. Our store and club businesses are growing. Pickup is growing faster than our in-store or club sales, and delivery is growing even faster than pickup. Delivery accuracy and speed continue to improve. Our e-commerce progress creates more optionality for our customers and fuels the growth of our newer businesses. Globally membership income grew 23%. Walmart Plus memberships were up double digits. And Sam's Club U.S. achieved a record high member count. Globally, advertising grew 26%, including 30% growth for Walmart Connect in the U.S. Advertising sales driven by marketplace sellers were up nearly 50%. As it relates to strengthening our business for the future, we continue to be pleased with the automation work happening in our supply chain and our progress with technology overall. We're finding tangible ways to leverage Generative AI to improve the customer, member, and associate experience. We're leveraging data and large language models from others and building our own. One example is that we've used generative AI to improve our product catalog. The quality of the data in our catalog affects nearly everything we do from helping customers find and buy what they're looking for, to how we store inventory in the network, to delivering orders. We've used multiple large language models to accurately create or improve over 850 million pieces of data in a catalog. Without the use of generative AI, this work would have required nearly 100 times the current headcount to complete in the same amount of time. And for associates picking online orders, showing them high-quality images of product packaging helps them quickly find what they're looking for. Customers and members are already enjoying AI-powered search on our app and site. And now they'll have even more help with a new shopping assistant that provides advice and ideas, answering questions like which TV is best for watching sports. Looking ahead, the assistant will be able to respond with more specific follow-up questions like how's the lighting in the room where you'll place the TV. Helping our sellers on our marketplace is also an area where we see opportunities to improve using generative AI. As we work to do all we can to help our sellers grow their businesses, we're testing a new experience to select U.S.-based sellers that allows them to ask us anything. We want our sellers focused on selling, so the more we can make it a seamless experience, the better. The new assistant will quickly summarize and provide the seller with succinct answers without them having to sort through long articles or other materials. The use cases for this technology are wide-ranging and affect nearly all parts of our business, and we'll continue to experiment and deploy AI and generative AI applications globally. We're anchored in the responsible use of AI, while also moving with speed and in an EDLC way to meet our future needs and scale these experiences. Today's Walmart is different. We are people-led and tech-powered. We put ourselves in a position where we can continue to grow because we're serving people however they want to be served. We can grow profit faster than sales while investing in our associates and lowering prices for customers and members. And we can grow ROI as we make the right capital investments and grow profitability. Before I close today, I'd like to welcome Bob Moritz as the newest member of Walmart's board of directors. Bob brings more than 38 years of global business experience, including as the global Chair of PricewaterhouseCoopers until his retirement in June of this year. Bob's experiences and skills are highly relevant to the oversight of Walmart's governance and strategy and we're excited to have him. As always, I'd like to thank our associates. They've delivered a great first half of the year and we're looking forward to a strong second half. With that, I'll turn it over to John David.

Thanks Doug. I want to start by thanking our team for delivering on a good quarter. We're pleased with our results and the continued progress we're making executing our strategy. Since we shared our financial outlook at our investor day in April of last year, on average we've increased our quarterly sales by more than 5% and our quarterly operating income by 9%. These financial results reflect that our value proposition extends beyond great prices into convenience. Our combination of price, trust, assortment, and experience has made us more relevant with our customers and members than ever before. Q2 sales, operating income, and EPS all exceeded the top end of our guided ranges. Second quarter total net sales growth was 4.9% on a constant currency basis, with all three operating segments outperforming our expectations, aided by strong global e-commerce growth of 21%. In Walmart U.S., comp sales growth of 4.2% was driven primarily by strong traffic and unit growth across both stores and digital channels. Customers continue to be discerning and choiceful, looking for value to maximize their budgets, while leaning into seasonal celebrations. The pace of sales was largely consistent by month during the quarter. Across categories, we're providing low prices and winning customer consideration, including in general merchandise, with Walmart U.S. comp sales growth in hard lines, home, and fashion. We're also seeing higher engagement across income cohorts, with upper income households continuing to account for the majority of gains, even while we grow sales and share among middle and lower income households. We're seeing private brand penetration continue to increase, and we're highly encouraged by customer uptake of our new food brand, Better Goods, and the early excitement surrounding the relaunch of our young adult fashion brand, No Boundaries. E-commerce sales in Walmart U.S. were up 22%, and weekly active customers increased 20%. In addition to the great progress we're making in our fulfillment centers, the close proximity of our stores to customers has also unlocked new capabilities and enabled faster delivery times. Store fulfilled delivery was up about 50% in Q2, with customers increasingly choosing and paying for delivery of their e-commerce orders in under one hour or under three hours. Our international business delivered constant currency sales growth of 8.3%, reflecting strength in Walmex, China, and Flipkart. Across markets, sales were strongest in food and consumables categories, and we’re encouraged that general merchandise growth has improved year-over-year. Our private brand penetration increased in multiple markets as customers continue to focus on value. In our Bodega and Walmart formats in Mexico, nearly half of customer orders included a private brand item in Q2. E-commerce sales in our international markets were up 18%. Customers are responding favorably to the increased convenience as we scale pick-up and delivery capabilities. In China, we increased e-commerce orders delivered within one hour by 28% to 59 million orders. In India, Flipkart grocery grew over 50%, while providing next day delivery in over 200 cities. And in Canada, our delivery pass members drove more than 40% of grocery delivery sales with order frequency significantly higher than that of non-members. Sam's Club U.S. comp sales ex-fuel increased 5.2%, including e-commerce growth of 22%. Digital engagement remains strong with Scan and Go penetration surpassing 30%. And with our increased convenience of our Just Go technology now operational in 325 clubs, over 50% of our members can exit without a check, improving member NPS by more than 800 basis points, compared to the clubs without this technology. The members-marked private brand continues to drive excitement as sales and digital penetration increase during the quarter. Sam’s is also growing membership across all income levels and with younger demographics, with Gen Z and Millennials constituting about half of new members in Q2, a positive signal about the future growth of the business. From a margin standpoint, consolidated gross margins expanded 43 basis points led by Walmart U.S. and international segments. We're focused on providing everyday low prices for our customers and members, and we're managing U.S. pricing aligned to competitive price gaps. Customers and members are responding to our value proposition. We're seeing continued sales growth, share gains, and higher gross margins. We're demonstrating that we're able to grow our business on a sustained basis in the absence of price inflation. Global e-commerce losses continue to narrow, most notably in our Walmart U.S. and Flipkart businesses. While improved business mix is helping, we're also encouraged by the progress in core e-commerce margins, due largely to another quarter of nearly 40% reduction in U.S. Net delivery cost per order. Flipkart's contribution margin also expanded significantly in the quarter. Scale and delivery density are key. As more customers are shopping with us more often across more categories, we're improving delivery density and transaction level margins. With improving business mix, we're continuing to reshape our profit composition as we scale growth drivers, such as advertising, membership, marketplace, fulfillment, and data analytics and insights. Our advertising businesses around the world continue to scale with global advertising up 26%. This was driven by another strong quarter from Walmart Connect in the U.S., which grew 30%. We're also pleased with the trends in our membership programs. In the U.S., Walmart Plus membership income grew double digits again this quarter. In Sam's Club U.S., reached another record high level for member counts and plus member penetration, resulting in 14.4% membership income growth. Within international, membership income in China from our Sam's Club business grew 26% as member count continues to increase. And in May, we opened our 48th club in China, and we welcomed around 50,000 people on opening day. For marketplace and Walmart fulfillment services, in the U.S., we've now seen more than 30% growth in each of the past four quarters, as we continued to increase seller counts on the platform by double digits. Growth from sellers using our Marketplace Fulfillment Services increased 800 basis points in Q2, surpassing 40% penetration. Sales in fashion, toys, hard lines, and home all grew more than 20%. Outside the U.S., we're seeing similar trends as we enhance our capabilities in product assortment. For example, Flipkart delivered double-digit top line growth and more than doubled the number of units that delivered same day. In Mexico, we grew marketplace items and sellers by around 60%. And in Chile, we launched cross-border trade, adding sellers from China and the U.S. to our local marketplace offering. Within data analytics and insights, Walmart Data Ventures continues to see strong results as clients value the insights we provide, bringing together consumer behavior with omnichannel sales and inventory trends across our platform. Our client base has increased nearly 200% versus last year as we launch new tools and enter new markets, including the expansion of our Walmart Luminate product in Mexico in May. We're also optimizing our business model to deliver greater efficiency. I've been encouraged by how our teams have renewed our longstanding everyday low cost operating mindset. Ideas are being implemented across the organization and they're beginning to yield tangible results. By leveraging our scale as a global enterprise, we're finding savings in supplies, transportation, storage, third-party service contracts, and various other expense categories. In other areas, we're maximizing the utilization of our assets and using tech to streamline our operational processes. Together, these efforts translate into meaningful savings. We're also making good progress on our supply chain transformation, and we're seeing the direct benefits to customer experience. In Walmart U.S., more than 45% of our e-commerce fulfillment center volume is now automated and we have about 1,800 stores receiving some level of freight from 15 of our regional distribution centers that are in varying stages of automation implementation. And as a result, our supply chain teams are processing more units through our DCs and FCs. While we're spending more on CapEx than we have historically, we're pleased with the returns from these investments, particularly the automation of our supply chain. We expect these investments to yield returns that will allow us to increase our return on invested capital each year. Importantly, our evolving business model with more diversified and durable sources of profit has provided the ability to fund investments in prices for our customers, wages and benefits for our associates, and leading-edge technologies to power our growth, all while delivering on our financial framework of operating income growing faster than sales. Wrapping up Q2 results, consolidated adjusted operating income grew 7.4% in constant currency, reflecting strong growth in sales, gross margins, and membership income, partially offset by expense deleverage across segments, largely related to increased marketing and higher variable pay expenses tied to our above-planned performance. Operating income also benefited from reduced e-commerce losses during the quarter. Adjusted EPS of $0.67 per share was above the upper end of our guidance of $0.62 to $0.65. Turning to guidance. For the first half of the year, we reported net sales growth of more than 5% and adjusted operating income growth of almost 10%. We are raising our full-year guidance to reflect strong first-half results. Looking at the second half of the year, we expect the business to achieve sales growth in line with our financial framework and for sustained structural improvements and incremental margins. This should result in operating income growing slightly faster than sales when looking at the second half in total. We now expect full-year FY ‘25 sales growth of 3.75% to 4.75% and operating income growth of 6.5 to 8% versus our prior guidance of growth of 3% to 4% and 4% to 6% respectively. Adjusted EPS is expected to be $2.35 to $2.43 versus prior guidance of $2.23 to $2.37. We're focused on executing on the things that we can control, focused on our business and serving our customers and members. But the economic and geopolitical backdrop that we operate in is perhaps more uncertain than normal, and we're not completely immune from the volatility that can result from this. While we have not seen any additional fraying of consumer health in our business, other economic data out there, as well as the state of affairs globally, would suggest that it's prudent to remain appropriately cautious with our outlook. Reflecting these considerations, our guidance is for growth in Q3 sales of 3.25% to 4.25% and operating income of 3% to 4.5% with EPS expected to be $0.51 to $0.52. There are two primary factors influencing Q3 operating income growth. First, as is the case in most years, the timing of festive events in our international segment has a bearing on sales and profits by quarter and can affect year-over-year comparability and growth rates. Second, the timing of planned expenses is more concentrated in Q3 versus Q4. In closing, with the results we've delivered through the first half, we're in a good position to achieve our financial goals for the year. Our business model is delivering strong momentum. E-commerce is sustaining its strong growth and pulling new value streams and profit pools along with it. Simply put, our value proposition is broader and more relevant to our customers and members than ever before. We appreciate your interest in Walmart and are now ready to take your questions.

Thank you. We’ll now conduct the question-and-answer session. Our first question is from the line of Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you so much for taking my question. Can you frame or quantify how you have factored in things like the election and other distracting events into your guidance for Q3 and Q4? If you haven't seen an impact from these distractions as of yet, whereas many others who are serving the consumer have, why would you experience an impact from that as you move through the rest of the year? Thank you very much.

Michael, this is John David. Good morning. Thanks for your question. The good thing about elections is they come along every four years and we have a lot of historical data with seeing the impact of that. As I noted in my prepared remarks, given the state of the economy, the election, and state of affairs globally, there's reason to be appropriately measured in our outlook for the back half of the year, but effectively nothing has changed for that period of time relative to what we thought at the beginning of the year. Our business is executing very well, we're gaining share. We're seeing that our value proposition is resonating with customers. We feel good about what we can control and the performance of the business. We'll continue to monitor what happens over the coming months and we think that we are positioned very well, irrespective of whether we're in a more recessionary or more expansionary type period and some of the volatility that may result from that.

Our next question is from the line of Oliver Chen with TD Cowen. Please proceed with your question.

Hi, thank you. In your remarks, you mentioned that you aren't experiencing a weaker consumer. What does your guidance assume in terms of your outlook on the consumer? Related to that is general merchandise. The flat performance was impressive, given the trends in what we're seeing? What do you see happening within that category and will that momentum continue? Does your guidance assume that stays flattish? Lastly, just on e-commerce, you continue to make really nice drives on the density and scale. What's ahead in terms of profitability drivers, and how much more room there is for delivery density? I imagine that can just get better and better. Thank you.

Oliver, I'll try to address each of those questions quickly. In terms of the outlook for the consumer, let me characterize this or give some context in the second quarter. Each of the months of the second quarter were relatively consistent. If you were to look at the pure comps for each month, July was actually slightly higher, but we think that that's largely a result of where the days of the week fell in the last month. We did not see a step down and our outlook for the back half of the year is really for more of a continuation of what we've seen. Even in the first couple of weeks of August here, things have been remarkably consistent. So I know everyone is looking for some piece of information that may indicate further weakness with our members and our customers, but we're not seeing it. We feel like we’re, as I mentioned in my prior response, measured in our outlook and positioned well. Regarding general merchandise, I'd like to make a couple of comments and maybe John or Doug wants to jump in, but we like what we're seeing in general merchandise. It's the first time in 11 quarters that we've seen a positive inflection there. I think some of this is not so much what's happening broadly in the economy, but specific to our business. If you take our marketplace business as an example, there are many categories that grew over 20% in the quarter. As we're expanding our assortment, we're more relevant to customers, and I think that's driving some of what we're seeing in general merchandise. Lastly, on e-commerce, I would say that it continues to have an outsized contribution to our results. If you look at the second quarter, and you were to parse out the various pieces of our business, for example, advertising, membership, fulfillment services, core e-commerce without the benefit of any of those was the single largest contributor to our year-over-year operating income improvement. So we really like the progress that we're making there.

Hey, good morning, Oliver. It's John. Thanks for the question. I'll just pick up a bit where John David left off. I'm really proud of the progress the teams made, Tom Ward and others who have done a great job with e-commerce. The 22% result is impressive and we're proud of it. The progress behind it, maybe we'll just start with customers. The thing that Doug mentioned in his earlier remarks about using Generative AI for the catalog has been a great enabler over the last few months. It's about 100 times more productive to use Generative AI versus having people work through each product display page. That's really important in the context of the marketplace where we've had so much expansion in terms of the number of sellers and the number of items in the assortment. For customers, more and more, we are really feeling like Walmart can sell you anything that you want to search for. And for the sellers that are coming on, it’s an exciting time because there is so much momentum in the business all around. The Generative AI product that we're using has helped us populate the attributes and the characteristics of hundreds of millions of items. That would have taken, as I said, a 100 times longer if we had tried to do that manually. So when we're trying to really understand the intent a customer has in each session when they're on the site or in the store, then we're able to match the catalog to their intent in a much more effective way, because the detail of each item and the product display pages has gotten so much better. So that's one example of using the latest technology that we can to try to improve customer experiences. Customers in many cases start shopping in the store. We know there's much more value when a customer shops both in the store and in their e-commerce. Lastly, when they join Walmart Plus, we see even more frequency. The last thing I would say is something that we said earlier about convenience. The number of customers who are enjoying the benefits of convenient on-demand deliveries has grown at a very high rate over the last few quarters and this last year. The flexibility that the team has been able to offer to customers—that's in-store, at the curb, delivery, or with Plus—has been really positive. We’ll continue to lean into these areas. The second thing, you mentioned density and frequency. We recently expanded our delivery catchments to include about another 15 million homes across the country. That’s a result of the density and the business that the team has built. All those factors combined are helping us with core e-commerce profitability improvement.

Yes, and hey, Oliver, it's Chris Nicholas here from Sam's Club. Just to build on that answer from a Sam's Club point of view, we’re very proud of our associates who have done a great job for our members and our results are reflecting that. If I think about how we've done that, digital engagement has been a really big part of it. Looking at the numbers, John David talked about some of them, e-commerce is up 22%. That's delivery from club, delivery from fulfillment centers, and that's pick up from club, and all three of those are resonating really well. Beyond e-commerce, we have seen digital engagement in club with our Scan and Go up 190 basis points. Our Just Go frictionless exit technology that John David talked about is really resonating. I think last time this went to print it was 325, we're now at 380 clubs. We feel really good about that. What that does is it drives a much deeper engagement with our members. They're spending more and they are more likely to renew, which we feel good about. It’s worth mentioning that the Sam's Club e-commerce business is profitable, and it's growing rapidly. We're feeling good about the mix, the offer, and it's beneficial across the membership base too.

Oliver, this is Doug. One of the questions we've received in the past was about e-commerce and its ability to drive impulse sales. People walk into stores and clubs and buy things that weren’t on their list when they came in—can you do that with e-commerce? One of the interesting things that's happening with Generative AI is that cross-category search is more effective. It serves up more general merchandise items and helps drive e-commerce profitability. So we're in a situation where we have the best e-commerce food offer, and new tools are helping us connect impulse items that are general merchandise, which helps improve both sales and profitability.

Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks for taking our question. Membership growth was noted as one of the drivers of operating income dollar growth during the quarter. There did seem to be an acceleration from Q1 to Q2, especially at Sam's Club. I wondered if there was something meaningful that had changed from a quarterly or sequential standpoint, and you flagged increased marketing as part of the reason that operating expenses deleveraged in the quarter. Did that have anything to do with some of the increased membership that we saw? Thank you.

Hey Kate, Chris Nicholas here from Sam's Club first and I'll just touch on the membership growth piece. We are seeing all-time high membership growth and all-time high Plus penetration too, so the health is really good and we're also seeing growth across all income cohorts and generations. One of the really exciting things we're seeing is that 50% of the growth we saw in the quarter was from Gen Z and Millennials. That's a really strong signal for the future. We're getting people early in their lives, and we see them continuing to be loyal. The reason it’s working is we're focusing on all parts of our value proposition. We’re concentrating on enhancing the core value proposition and deepening digital engagement, and Member’s Mark is doing really well too. You can see that in terms of transactions, our units were ahead of comps as well. What's positive for a membership model is that the more engagement you have, the more likely they are to renew. So there's good quality health in the Sam’s Club business driving more members and driving those renewal rates up.

Hey Kate, it's John. Good morning. Thanks for the question. Let me address the marketing question in addition to the comments Chris made about membership. Stepping back, what we opened the call with is we know what customers are interested in around the world, those four things we talked about: value, assortment, experience, and trust. While we focus on being a great value with everyday low prices, we’re driven by an everyday low cost culture to support these prices, so customers can always depend on us for the best value in their basket of goods. Recently, we’ve seen a rapid expansion in assortment. As assortment has expanded, our ability to show those items in a high-quality way has improved. We’ve talked about that for the last few quarters on calls like these. This increase in convenience alongside pick up and delivery happened to be the right time to be more aggressive with our marketing investment. So, late in the first quarter, we intentionally decided to increase our marketing investment to tell the story to our customers about everything we offer to them, leading to significant early positive signs in general merchandise.

We still have lots of room to improve, but the progress we've made on the e-commerce experience across businesses, across markets puts us in a position where we can play more offense and be more aggressive regarding marketing. Whether it's that or the capital investments in supply chain, what you're seeing is that we are taking the initiative.

Our next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Good morning and thanks for taking my question. I wanted to go back to the momentum you're seeing in the health and wellness category. Just want to get a sense of how you all are thinking about the sustainability of the strength that you're seeing there? Anything outside of GLP-1 that contributes to that momentum? And then just from a gross margin perspective, as you look at stronger growth in grocery and within health and wellness, how is the product mix impact on gross margins playing out versus how you thought about for the year?

Hey, Rupesh. It's John. I'll take that. Let me start with mix in general. In the quarters, we noted better results in general merchandise, which is, of course, helpful. We have strength in food and consumables, and as we mentioned, inflation was around flat as we exited the quarter. So we're growing the business with higher transaction counts and unit growth, which is encouraging. Our merchants have a lot of experience over the last few years and decades managing mix in any situation. Yes, there is growth in health and wellness led by GLP-1s, but there's also growth in the category like supplements that we're proud of. As we enter this time of year, people return to school and college, you can lean into categories like over-the-counter supplements, and we can do really well. However, if you step back and look at the business as a whole, inventory is down 2% across the company, which is a decrease on top of a decrease last year, and we're proud of our in-stock results. Our merchants have several levers they can use. First, of course, they want to provide great value to customers. We have 7,200 rollbacks. Our merchants can also mix across categories. In many instances, by taking a high-margin item and applying a rollback to it, you can shift sales to items within a category to enhance the overall performance, even when you have pressure in other areas. At this point, we're managing the margin and mix well. I don't have any concerns about our ability to do that. We'll continue to see growth, which might be uneven in certain instances, but we're in a solid position regarding inventory, in-stock levels, and being ready for customers to manage our mix.

Thank you. Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Good morning. Thanks, everyone. My question is on the spread between U.S. EBIT growth and U.S. comps or U.S. net sales. It looks like the first half of the year you're running 4-ish and change comps and you're doing EBIT growth of about 7% to 8%, so about a 3 to 4 point spread. My question is two-part. First, are there active decisions of reinvestment that we can do both reinvest and grow? How much reinvestment is happening? Second, that 3 to 4 point spread, is that representative of the business' run rate or is this still scaling and that spread should continue to widen going forward? Thank you.

Simeon, this is Doug. We are being thoughtful and deliberate about reinvestment. We start out thinking about the customer first. What's the level of price investment? Where are our gaps? As we've been saying for some time now, we're feeling comfortable with where our gaps are, and we'll continue to support those as needed. It's great to see prices come down. We are wired to help bring prices down, and we'll continue to work on getting more rollbacks to help customers and members save money. The second area we think about is our associates and where's our level of compensation. What investments need to be made there? You've seen a steady string of investments made in our associates, whether hourly or management. We also consider our shareholders continuously. It hasn’t gone unnoticed that our operating income percentage came down for several years as we made those investments, and it feels good to have turned the corner on that and have a healthy business mix, enabling us to pursue both paths concurrently. For both one-year operating plans and five-year visions, we’re in a season where we are deliberate about reinvesting in the business so that the momentum continues, and we don’t risk managing short-term gains at the expense of long-term growth.

Our next question is from the line of Christopher Horvers with J.P. Morgan. Please proceed with your question.

Thanks. Good morning, everybody. You talked about the U.S. e-commerce business turning profitable perhaps in the next one to two years after Q2. Is there any refinement to that time frame? In the first quarter, you indicated a total contribution of 300 million to 400 million in alternative profit pool growth seen in the first quarter. Is that improving? Can you talk about how that arc of improvement trends as we look out into the future? Thank you.

Christopher, this is Doug. I'll go first, and others can join in if they want. As it relates to e-commerce profitability, I've been emphasizing not to get too hung up on it for some time now. We have a business with many variables, and we're going to manage them all. There will be new businesses that we invest in that don’t yield short-term profits but will be profitable in the mid to long term. At some point, we will communicate that we've crossed a threshold and that e-commerce is profitable. We'll clarify whether that includes advertising or not. You heard John David mention earlier that we've seen great progress in core e-commerce during the quarter, focusing specifically on that, and I'm encouraged by it. However, with Walmart, I wouldn’t focus too much on one metric, whether it’s advertising income, membership income, or e-commerce profitability. Look at the overall omni system. We have a robust and thriving store and club business globally that is profitable. We make money in food, consumables, and general merchandise. And eventually, we will also profit from e-commerce. We are edging closer to that point.

I'll just add that we continue to see great progress in our newer businesses this quarter. If you look at advertising and membership, those two alone accounted for over 50% of our operating income growth. As Doug and others have pointed out, all these different components work together. We need to excel in the core in order for these newer elements to thrive, and we’re pleased with the faster growing, higher margin parts of our business that are reflected in our financials, which is a positive indicator of infused margins.

Can I just add that across our international business, there's a great deal of balance among our markets. We have markets where we are e-commerce profitable, and we have channels where we’re profitable as well. While we see a growing density with value and convenience plays, our fulfillment costs are declining. That’s helping our overall profile. The results we achieve internationally contribute positively to our omni-channel growth.

Our next question is from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Hi, good morning and congrats on the really strong results. I wanted to ask about the momentum in membership. You have done a lot to enhance the Walmart Plus business. What have you found to be working best, not only in attracting but also retaining members? Additionally, can you update us on the uptake of the Walmart Plus assist program and how you view the sustainability of that growth as we consider low-income consumers and their interest in convenience and value? Thank you.

Hey, Krisztina. Good morning. It's John here, happy to address your question. We’re proud of the progress we’ve made in Walmart Plus. The team is diligently focused on ensuring that the offer is tailored to be relevant to our customers all across the country. The core of the offer, of course, is delivery without cost from either fulfillment centers or stores. Our ability to attract people starts with the offer, and our ability to retain them hinges on how well we execute that proposition. We spend considerable time and energy assessing our metrics from the previous week, month, and quarter, then build roadmaps to eliminate friction that customers may experience. When we deliver what we refer to as a perfect order—which is an integral part of our overall customer experience score—the likelihood of repeat purchases and renewal increases significantly. We understand that we also have a membership program that should and will be relevant to customers at all income tiers. We have members delivering frequently who earn less than $50,000 a year, and we also have members delivering frequently who earn above $100,000. As I mentioned earlier, flexibility here is essential. Our customers have been transitioning from shopping strictly in stores to mixing in e-commerce. When they become Walmart Plus members and utilize on-demand delivery available to them in under three hours, we observe significant increases in spending and frequency. It’s about enhancing the entire shopping journey

Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your questions.

Thanks, good morning, and great results. On automation, where are we on that journey today, and how much of the benefits are we seeing in the P&L over the last couple of quarters versus what you expect to flow through over the next several years? Also, any early thoughts on back to school and back to college? Thank you.

Hey, Chuck, it’s John. I'll take that first part on automation and then talk briefly about back to school. As you know, we have a number of facilities and facility types around the country that we are automating in our supply chain. Our regional distribution network is primarily an ambient network. Progress is right where we planned it to be. We’re pleased with the progress our provider is making in this space. By the end of the year, we expect roughly 3,000 stores out of 4,600 to receive deliveries from automated facilities. So the progress is solid. The ability for a store to receive palletized loads organized by aisle is extremely beneficial. As we build more density in these centers, not only is it aisle-focused, but in many cases, it’s section-focused, making it easier for associates to stock and find inventory. The second kind of automation is perishables, which is a relatively new focus for us. We have about three facilities that are underway in this area. Lastly, our fulfillment center network is likely the most advanced, with the highest percentage of buildings that have been transitioned. We're satisfied with the accuracy and the efficiency improvements realized from this process. The variable cost per unit shows significant improvement in those centers. Regarding back to school, we’ve had a strong start these past few weeks. Many operators have visited stores nationwide to ensure that they’re well-prepared for back to school and back to college. About half our customers indicated they have a lot of shopping left to accomplish. We have over 2 million school supply lists uploaded on the site, so we have a lot of trading ahead it. It’s a solid start, but we need to continue executing well.

Thank you. Our next question is from the line of Corey Tarlowe with Jefferies. Please proceed with your question.

Great. Thank you, and good morning. Doug, a couple of quarters ago you mentioned that deflation could be a real possibility. In the prepared remarks today, I think for the quarter, both Walmart U.S. and Sam's Club, you mentioned, were slightly deflationary overall. What does this mean for the trajectory regarding pricing as we look ahead? What does it mean for your price gaps? Additionally, how do you think private label plays into this? We’ve seen the price gaps widen as well, and that continues to increase penetration within the business. How do you envision that adoption unfolding in the broader context of potential pricing deflation?

Yes, Corey. First, I want to emphasize that we want to sell brands. It’s vital for Walmart to offer brands and show value, so we hope our branded suppliers make the right moves with quality and pricing to meet our customers' expectations. I suspect that private brands will continue to grow, although we’d be open to a scenario where their percentage of total sales levels off for the reasons I previously mentioned. Our teams are advancing in private brand development regarding product quality and value. Looking ahead in terms of pricing, fresh food is behaving as expected, with supply and demand dynamics causing rapid adjustments in prices and conditions, whether in proteins or in fruits and vegetables. General merchandise appears to have declined overall. My belief is that it may not decrease significantly further, but it’s positive that prices are coming down and that rollbacks are coming into effect. For dry grocery, processed food consumables are where inflation has proven to be stickier. Last quarter, we did see slight inflation in food categories. I'm optimistic that our branded suppliers will invest in pricing strategies, and we are seeing that from some, while others have yet to decline costs fully. We're actively countering that, as we believe prices should decrease. Thus, I don't forecast that we'll observe significant deflation in our numbers moving forward. On the contrary, we may level off where we currently are with the mix reflecting as I’ve noted.

Thank you. Our next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Hey, thank you guys. Following the gross margin expansion in the first half, how are you thinking about gross margin in the second half? Which drivers of the first-half margin expansion will remain, which will fall off, and are there any new drivers of gross margin that we might see pop up in the second half? Additionally, what are your expectations for the competitive landscape in relation to what you’ve observed in recent months? Thanks.

Paul, this is John David. I will address the gross margin question, but I want to state up front: we are not raising prices; we are lowering prices. We do not want product margins to go up. When we discuss margin improvement in our company, we’re speaking of business mix and geography mix, not that we’re increasing product margins.

Adding to that, if you look at the drivers behind the gross margin improvement, as Doug pointed out, business mix is a major factor. We’ve also seen improvements recently, as I mentioned earlier, in core e-commerce losses. Within the core merchandise mix, we saw a bit of benefit from improved shrink levels during the quarter, which were comparable to last quarter’s levels due to higher levels last year. As Doug stated, our goal is to advocate for our customers. We are focused on producing everyday low prices and have no plans to achieve any margin performance by passing costs on to our customers and members in the form of higher prices.

I’d just like to add that we recorded a really strong operating income result in Q1. We had previously indicated that Q2 would moderate, which it did, but it was still a strong result. However, as I look across our international business, there's a significant impact from events. We expect to encounter BBD (Big Billion Days) in the back half, which will alter the profit profile during that period. Nevertheless, we remain optimistic and bullish about the outcomes we’re driving internationally; we just recognize that those major events can greatly influence the ratios across top-line and bottom-line figures.

Our next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.

Hi, good morning. Thanks for taking our question. You often talk about the share gains by income cohorts and how that’s primarily driven by upper-income households. Would you be willing to give more detail on comps by income cohorts? Many investors are curious if you are growing comps with low-income households or if a significant portion of comps is being driven by the upper-income segment. Could you tie in additional information regarding grocery spending and general merchandise by cohort? Is the upper-income cohort primarily driving improvements in general merchandise? Any clarification would be helpful.

Kelly, this is Doug. I'll address that question first, and if anyone has additional comments, they can join in. I don’t know that we can provide much more specific color on that. However, value is significant for everyone, regardless of whether they earn below or above $100,000 annually. We observe distinct behavior differences within lower-income tiers, including increased focus on entry-level pricing and different purchasing patterns at the end of the month; these are expected variables. Lower-income households still need us for general merchandise price points. Higher-income consumers tend to purchase more discretionary products and are open to paying more for convenience; we are providing both options. I think our future appears to involve a broader spread across income levels compared to our past, due to increased convenience offerings. Walmart Plus membership, delivery models, and our store renovations all contribute to this shift; these elements combined provide us an opportunity for continued growth among higher-income consumers, irrespective of the economic environment.

Thank you. The next question is from the line of Robbie Ohms at Bank of America. Please proceed with your question.

Oh, hey, thanks for squeezing me in. I'm curious about the kind of holiday Walmart is planning for this year in the U.S. and globally.

It's going to be great, Robbie. Everyone here is smiling and excited. You know, you guys are aware of the environment’s volatility and all the challenges we face. However, we're proud of our long history of successfully navigating surprises and uncertainties, especially in recent times. Early indications for back-to-school shopping have been promising. Typically, this reflects trends for the Halloween and Christmas seasons. We’ve made purchases and are planning to continue on the offensive. We expect a successful holiday season and look forward to serving our customers and members through all holidays around the world.

Thank you. At this time, we've reached the end of our question-and-answer session. And I'll turn the call over to Doug McMillon for closing remarks.

Yes, as always, thanks for your time and attention. We're feeling pretty good about where we are. We believe we're making real progress, not only saving people money but also expanding our assortment through both first and third parties, and importantly, saving people time. Regardless of income level, everyone wants to save time, and convenience is increasingly important; we're enhancing that aspect of our experience. The team's driving results right now with strong unit growth, market share growth, pricing improvements, and impressive inventory management. It’s great to see the return on investment (ROI) increase by 230 basis points in a quarter. While the team excels at driving short-term results, we’re also laying the foundation for the future. E-commerce growth is on the rise, including our marketplace business, which drives membership, advertising, fulfillment services—leading to this new business model. I’m also genuinely excited about the international outlook as we build for tomorrow. We have significant opportunities in the right markets, and this business incorporates global leverage and benefits. Kath and her team are actively helping us realize this potential across various markets. An 8% operating income growth for the quarter is commendable. We’re striving to manage the short-term effectively while simultaneously building for the long-term. I want to express my gratitude to the entire team. Thank you all.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.