Good morning, everyone, and thank you for joining us at Oppenheimer's 24th Annual Consumer Growth and E-commerce Conference. My name is Rupesh Parikh. I'm the Senior Food, Grocery, and Consumer Products Analyst here at Oppenheimer. I'm very excited to introduce our next presenting company, Walmart. Walmart remains a top pick for us, and we continue to see a strong outperformance case over the next 12-18 months, driven by share gains and the potential for margin expansion over time. Joining us today are President and CEO of Walmart U.S., John Furner, and Senior Director of Investor Relations, Kary Brunner. So thank you all for being here today. The format of today's session will be a fireside chat. We'll go through a number of questions that I prepared. So, John, I wanted to kick it off with a few, a couple of macro questions. So Walmart U.S. Continues to see strong top-line results and traffic. However, discretionary has remained relatively soft in recent quarters as consumers manage budgets in the face of multiple quarters of inflationary pressures and are potentially still lapping pandemic buying. So how would you describe the overall health of your consumer as we sit here today, and what are your expectations for the balance of the year? Hey, Rupesh. Well, first, thanks for having us, and thanks for the interest in the company. It was great to see you in person last week as well for our annual shareholders meeting and associated event. We are, I think, let me talk about the business, and I'll definitely address your question. No, we're seeing consistency amongst consumer groups over the last several quarters. We talked about that a few days ago. I think some of the factors that are weighing in are strong employment, another 272,000 job creation report last week. Wages have grown pretty significantly in a lot of sectors over the last few years, and wages at Walmart amongst our associate group has grown about 30% over the last five years. Certainly, there has been some inflation and put pressure on consumers. What we've really noticed, and this started in early 2022, was some conscious switching amongst products. You can see that pronounced subtly in the store, but based on what people are having delivered. Our flexibility, convenience, and other things that we have improved over the last few years have made a difference on our ability to serve more of our existing customers more often with more units and then meet some new customers as well, which is great. But as far as the mix inside the business when it comes to merchandise, over the last five years, really, really four and a half to five years, we've seen about a 2% shift from discretionary to non-discretionary. In other words, 2% more of our business is food and consumables than what it was before this period began. Fortunately, the business has grown. So both businesses are bigger. And then the only real shift I think we've seen in the last couple of quarters we talked about at the end of Q1 as we got into the month of May is more strength in apparel and more strength in home. And apparel is coming from both our new remodels, what we're calling Store of the Future, which is great to see the improvement there, and then expansion of assortment and first-party commerce and then marketplace have both helped our home and apparel businesses, which we think are key to be the center of what the customer is considering when they're buying a home or fashion basket. So those are categories that can help us in other ways. Great. Then there's been more noise in the market lately following announcements from multiple players on plans to lower prices. Overall, what is your team seeing on the competitive and promotional fronts here in the U.S.? And then how do you feel about your pricing position and price gaps today? Yeah, that's a great question. The market is definitely a bit more promotional than what it was a year ago, and last year was more than the year before. The first round of what we saw as more promotional was in 2022 to clear out inventory logs. In 2023, we stabilized a bit. And where I think we are when it comes to pricing, these inflationary cycles, which fortunately in the U.S. haven't happened all that often. If you really look back to the last time, it was quite a bit, quite a couple of decades ago where we saw any amount of inflation other than one or three. The cycles, when this began, we talked to a bunch of my colleagues who have managed businesses in Latin America and other parts of the world where inflation is more of a normal event and decided that we would actively engage and manage all three phases, which, the first phase on the rise up, it's a bit easier to hit your top line, but cost pressures are all over. In that phase for Walmart, being in the position to save money, help people save money to live better, we wanted to make sure we were going up last. Then we want to maintain our, we wanted to maintain our price gaps. It feels like we're in the third phase where there'll be more unit retail pressure across the market. So we're definitely seeing more promotions. We have over 7,000 rollbacks in our assortment, which is up about 45% over a year ago. And so during this third phase, what we're really focused on is unit growth. And if we see the opportunity to lower prices, we want to be the first down. So we wanted to be the last up. We want to be the first down. We'll manage margins. We'll invest in prices appropriately. We'll invest in experience and associates and then manage with this within the bottom line. But the 7,000 rollbacks are a great example of what's different this year versus last year. Then how are consumers actually responding to all the rollbacks that you have in stores? Is it a response to what you'd expect at this point? Maybe just some thoughts there. Yeah, I think it is. Consumers are very smart. They recognize value. In a lot of items, we see where we've taken 20% off the retail or in some cases less or more. We see up to 40% increases in units, and it's typically immediate. Items like French bread or some price investments we've made in produce have gone really well. Our private brand soft drinks we took from $1.42-$1.00, and those are all consumers responded appropriately. But I'd say, to be completely transparent, there is more participation as of late with both brands and things that we've invested in our own. For our merchants, they can invest in high-margin items and still grow units and mix categories up. That's a lever that the merchants have always had. But we are seeing more participation amongst suppliers as we try to get unit volumes up. But if you're in my meetings on Monday or Friday and hear us talk about this internally, we start with the number of customers and we start with units. Then we work our way to when you multiply it all out, your sales are what your sales are. Great. And then the last macro question I want to cover is just the food away from home channel versus food at home channel. So we've seen some signs of distress out there, especially the low-income consumer in the fast food channel. So has your team started to see any meaningful shifts towards more food at home consumption? And then how is Walmart thinking about potential opportunities here for the balance of the year? Yeah, I think we have, and I think we're positioned to continue to benefit should that continue. We're also positioned, though, that if that goes the other way, then we still have a lot of flexibility and channels we can deliver in. And when you look at our baskets by type of channel people shop in, we can see differences. And what we could see really about, it was really a year ago, we saw units start to accelerate in produce and proteins and the dairy category. And when you dig into what was accelerating, it's ingredients that would be used to cook at home, which is different than selling frozen food or packaged grocery, which, of course, we can do, and we can do great quality at a value. But when you see the ingredients selling, it tells you the intent. And then you go across the aisle and look at housewares, and you can start to see gadgets and utensils start to pick up. So the stores, it was good timing this year. We changed management incentives to help the stores have more opportunity from the store manager through the entire team to grow and benefit if they hit their top line and bottom line numbers. And then what I've seen, then what that leads to then in grocery is a lot of great cross-merchandising, whether it's salsa bowls in produce or cereal bowls in the cereal aisle, wine openers in the wine aisle. They're just doing a better job of bringing solutions together in front of customers. As the shift happens, then it's not only easier for people to see how to do this at home, but it helps our in-store operations and our online pickup delivery departments as well. Great. And then shifting gears just to market share. So Walmart has had significant success in scaling the mnichannel model in the U.S. and has continued gains here quarter after quarter. So how do you feel about the company's ability to retain a large portion of these new customers, including the higher-income cohort in the ecosystem versus the past? Well, I think my confidence comes from knowing the team of people I get to work with and hearing the things that they're working on and the speed they're moving, which could always be faster. I don't think we'll ever be to a point where we're saying we're going fast enough. But they've definitely picked up speed, alignment. So many of the conversations are just centered around customer problems without any sort of ownership of who caused it or who could have been better. They're just taking on problem after problem, and it's exciting to watch. And they do a really nice job projecting in each solution that they launch the type of revenue and cost improvement that they can see if it's executed well. And so that momentum is real. I say that because they meet in a room down about 50 feet from where I sit every day. They go through an update on where we are in terms of metrics or customers. That's exciting. What's different than any downturn that I've been a part of? And we can talk about whether this is a downturn or just it's just been stressful. It's hard to say. But in other downturns, we had less options in terms of ability to serve customers. We didn't have grocery pickup in any kind of way at all. And then it scaled over a few years, and now it is at scale. And our ability to lower costs when it's at scale and keep prices low is better than it was when it's scaling. Our delivery business is growing faster than our pickup business, which is still growing at a nice clip. And so more and more customers are taking deliveries at home. And then what we see is after the fourth delivery, especially for customers who shop stores and deliver, after the fourth delivery, we see the patterns change and more usage more frequently. And so we'll continue to focus on those things. We're currently expanding our catchment areas to include more homes. You know this talking point, Rupesh. We're within 10 miles of 90% of the population. We don't currently serve all those customers with delivery from stores, but we're expanding that again. So a large number of that. Then the last two that I think are different than last time is one is the marketplace. We didn't have a marketplace. So the expanded offering with brands, call it roughly 500 million items. And our ability to recall those when customers search for them is really important. The team is making a lot of improvements on understanding customers' intent and then getting the right items they search. We want to be as accurate as possible. Then the last one that I've been really proud of, the team really did the design work in 2021, but the new remodel program continues to go well. I love the way that apparel presents itself when you walk in. Apparel and home and pets really need to go together. If you do one and not the other two, then I don't think it's nearly as appealing to the customers when you combine it all together. But just the super centers that have gone through that transition are performing better. They look better. There are a couple of things in the capital cycle I'm excited about, like taking the tile out of the floors and improving bathrooms, break rooms, and other things that are not only great for customer associates, but more sustainable. Those are a few things. I know I listed a list there. There is a lot going on, but we're really excited about the results we're seeing in some of these innovative areas. Okay. So it sounds like some of the market share that you've gained could be sticky as we exit whatever you call a downturn or whatever situation we're in right now. Yeah, we think so. But we also know it's our job to earn it. And we could have all these capabilities, and if we don't execute well, the customer will find a better option. So it's great that we have what I believe is a good strategy. We're better positioned, but we wake up every day knowing that you have to execute really well today or it's going to hurt you tomorrow. And I know that because there are days where you may have a system outage on something, and I can see a dip in NPS the next week. Customers respond immediately. So we have to position well, but we have to execute each and every day. We're open every day of the year other than two. So we got to be really good all year long. Okay. Great. The commentary from your team has also been quite positive on the e-commerce profitability front. Can you share with us what your team has been seeing lately and the runway for improvement from here? Yeah. Yeah, John David mentioned an expectation, hope that we may be profitable within the next 1-2 years. Part of the point, the reason we want you to know that is we want you to know about the progress the team's making. I think that's important. The second is it's becoming more and more difficult to even manage two sets of P&Ls because the business has become so omni. So I think what'll happen is we'll get to a point where we can tell you you shouldn't worry about e-commerce profitability and the businesses are so blended together. We'd love for you to think about us in terms of the number of customers we serve, the units and dollars we sell. We manage all the lines in the middle. And they're becoming more and more dynamic. We talked about this at the investor conference last year. The three supply chains we had that were quite discrete are so blended together and even more becoming so that it's really almost it could become just a cost industry to manage two P&Ls. So at some point, I think we'll get through that. And I think that's coming sooner than later. The things that obviously are driving the improvements in the P&L, one is the top line. We've quadrupled our revenue the last five years in Walmart U.S. We've surpassed $100 billion globally this last year. So getting a business that is above fixed cost, you got to get to scale. Scale matters. And all the work the team did at Walmart from 2016 when we purchased Jet through just this last year and including this year have gotten us to scale, and that's really helpful. The benefit of the scale, which is unique to us, then is the supply chain network and networks that existed in addition to the 4,600 retail locations. So when you look at supply chain, the most efficient mile in the supply chain is from manufacturer to the DC, which we call the first mile. The middle mile, which then we manage even more actively from the DCs, the stores, and fulfillment centers, is still low cost. And then the really high-cost network is the last mile. So having these points of distribution where you can consolidate orders, shorten the last mile, combine that with revenues that you obtain from having a membership program or convenience fees that customers seem very willing to pay for because of the time, then the cost of delivery has fallen pretty precipitously. So when you put all that together, then the P&L looks much different. We just opened. Kary and I were just talking about it earlier. We just opened our fourth automated fulfillment center, so these really large centers that are the spokes of the network or the hubs of the network, I'm sorry. And having a significant amount of volume go through those. So the cost of picking is coming down. The density of routes has gone up. The density of last-mile delivery has improved. So therefore, the cost per unit continues to fall. And you put all that together, and then we see a much better path than what we did a few years ago. Great. And now shifting gears to alternative revenue streams. So over the past few quarters, Walmart has really scaled the marketplace offering with now more than 400 million SKUs. Recent commentary has been very positive in some of the more discretionary categories, including, as you mentioned earlier, home and apparel, even with pretty severe macro pandemic headwinds. So I have a few questions here. So first, what is your team doing to ensure the uniqueness of your marketplace offering versus other players? Yeah, great question. Well, let's say this way. If we had a choice, what would we want? We'd want a strong economy, not a weak one. But this is a really large economy and a really large industry, $3.5+ trillion in sales. And so a company like Walmart, if you step back and you say, "Well, then share of that number is probably low to mid-teens," that means we lose over 80% of the time. So I just look at it as things could be bigger or smaller, but there's still opportunity to grow and do more if you have the right assortment, if you have the right experience, if you have the right prices, and you build trust with customers. And that's really the basis of everyday low price is building trust with customers over time that they can depend on you. So when it comes to marketplace, really excited about some of the improvements in assortment in apparel. You mentioned that fashion has been our strongest growing business. Fashion helps in categories like beauty and pets. That's really the same consumer that's thinking about those holistically. Pets even more than it was five years ago. My dogs all have an interesting wardrobe that I would have probably not had as a child nor would my dogs have had. But that's what my daughters do. So this idea of having the fashion solution for the entire family, including our furry friends, is important. The second part of marketplace is the broader assortment, the more customers can access without having to go somewhere else. Having options that are flexible for delivery is great. And then the team has done a nice job of building for the customer transparency when their order is coming. And then the last thing I'd say is for the sellers, there are two things that are really emerging. One, it's been great to see the volume grow, so maybe we'll say that first. But the ability for Walmart to fulfill on behalf of the sellers helps the sellers with cost. It helps the customer knowing when the order is going to get there and takes speed or increases speed, takes delivery days off. So that helps conversion rates. And then they have the ability then through Walmart Connect to reach millions and millions of customers and grow their business. And in a few cases, we've seen marketplace sellers start with a single item in the marketplace, and now they're on the modular and 4,000 super centers. So just a really interesting growth opportunity for sellers from top to bottom. And then just from an assortment perspective, so 400 million+ SKUs today, where are we? Is there still a big runway from here on the assortment side, or are you guys happy with where you are currently? Yeah, I think there's probably going to be more runway and more growth in terms of the number of assortment, a number of items in the assortment. But really, the focus is being complete for customers. And so we're not targeting a certain number saying that's it when we hit it. I think that between customer demand, measuring customer demand, and then seller offering, that number will settle at something larger than what it is today. But these numbers, they can also you could have billions, but there may be multiple listings. So the quality of those is actually more important than the number. And then the second thing that's just super important is the quality of the content and the product display page. And that helps with SEO, SEM. It helps customers find what they need. So the team has done a really nice job with hundreds of millions of items of using Generative AI to compare the listings to all the things that may be known about the item and cleaning up the assortment, the product pages, which again is another aid to conversion. If a customer is on the site, they have a search, and we can either help them with discovery or be specific. The content's right. The ratings for reviews are accurate. All those things add up to the customer having the confidence to transact and convert into a sale. Great. And then the next area I want to cover is just media. So media has remained a bright spot for Walmart U.S. with Walmart Connect growing more than 25% in the latest quarter. So where are we on the advertising journey and then the bigger opportunities you see for Walmart U.S. here? Yeah, it's a great question and an exciting business. I'm really proud of the team that Seth Dallaire and Rich Lehrfeld, Ryan, others. They lead, and they're doing a really nice job. They're really thoughtful and considerate about what's the best experience that we can create for customers. We want to help our suppliers and our sellers connect. That's the name, Walmart Connect. We want to help them connect to groups of customers who are likely to buy. We want to help them with the return on ad spend. If we can do both of those things at the same time, I think it's a business that can continue to grow. We're careful, cautious, maybe a better word, to ensure that the site doesn't have more advertising than it needs to. That number is dynamic, and it changes based on the session and the experience a customer is looking for. So if it's using our search and Gen AI and search to ask, "How do I decorate for a seven-year-old's unicorn birthday party?" which you can do, when the results come back, there's more opportunity for discovery and advertising compared to a search where a customer is asking for a very specific item, like, "Show me a Vidalia onion." You need to be really specific. So the more specific they are, the more specific we'll be. But ultimately, we think we have an interesting opportunity to scale this. I think it'll track closer to the marketplace growth over time. Marketplace is growing faster than e-commerce. Ads is the advertising business is growing faster than e-commerce. So commerce is an indicator, but commerce does include items like private brand and things that won't have ad dollars attached. So the opportunity really becomes with the assortment, the search, discovery for customers that want to be inspired. Great. And the last area I wanted to cover in alternative revenue streams is just Walmart+. So I've been a member since you guys launched a few years ago. So in Q1, you guys indicated that it's continued to grow double digits. Are there any learnings you could share with us in terms of what you're seeing out of Walmart+? And then without giving away any secrets, how do you see the offer evolving over time from here? Sure. Sure. Well, I've been a member since the first day as well. I'm really, really pleased that the supply chain has gotten to be much more consistent than what it was as you'd remember, Pesh, at that time. Really tough time to operate. I'm glad we launched it. We've learned a lot. It is scaling. It is a very important part of the equation. Those all remain true. It is important for us that customers understand pricing in a very transparent way on merchandise. Discounting services is something we think can make sense within an everyday low-price structure. The membership doesn't buy you different prices, but what it does get you is, as you know, unlimited delivery, a streaming service, other items that we're trying along the way. The most important thing in Walmart + is to deliver the perfect order. So delivering what customers ordered, when they ordered it, whether it's today, tomorrow, two days, it doesn't matter. Getting them what they ordered when they ordered it is the largest affinity lever that we see to growing. So Plus members spend more, and they come back more frequently. No doubt about that. And then what we're seeing inside Walmart+ is convenience. More and more customers are choosing under three hours, sub-three hours for some type of delivery. And so in both delivery models, it's important that we're on time and we're exactly what we wanted. And the first four deliveries are the ones where opinions are really formed. Okay. Great. I'll have to wait for the future editions. Yeah. There's always more coming. Okay. That sounds good. But Carrie doesn't care. We're in the middle of the quarter, so. And then moving on to a few other areas that are topical in our investor conversation lately. So your general merchandise category remains in negative territory, but there appears to be underlying strength on the unit front and bright spots coming out of marketplace. Is it possible to see an inflection back to positive trends this year, or is there anything else that you can share with us in regards to how you think about the recovery in general merchandise from here? And then what are the green shoots you'd call out within your general merchandise categories? Yeah, great question. And you're right on all the lead-up. The units growth has been stronger, and that's what we focus on. Growing units is important, and we want to keep prices as low as possible. We want our merchants to think about pricing, starting with how low can I price, not how high can I price, what will the market bear, but rather how low can I price to move units. And we've seen low to mid-single-digit deflation in general merchandise now for some time. Our comps have been better at that, hence the unit growth. And if the team is telling me they're growing units and sales are negative because of mix or unit retails, then we'll work on mix. There are a number of things we can do to merchandise our way through mix in any economy. But retails are what they are. I wouldn't want to ever get in a situation where we think higher retails would be a great way to try to drive sales. We want to drive units with more customers. Over the last four or five years, about 2% more of our business is food and consumables than what it was. Fortunately, we grew over $100 billion. The size of the businesses have grown, including e-commerce scaling about 4x what it was five years ago. Those are a positive. What I feel great about is seeing some really decent growth in apparel online and marketplace and online in particular. The stores were really pleased with the remodel progress. We love the way they look, the brands that are in the stores. The stores are doing a great job of merchandising and taking care of the product and keeping standards up. We're going to continue to work hard on that. Then the other standout in general merchandise is home. Home had a harder year in 2022 and 2023. I think a lot of that was because so many people had been in their home so much, they stocked up and redecorated, and they had everything they needed for some time. Home's recovering nicely this year. I think of it like this, Rupesh. You're not going to win home without apparel. You're not going to win beauty without apparel being strong. I think pets, as we talked about, it's a category. They're all tied together. So when we do our store remodels and the way we merchandise the site, it's trying to think about the basket and the customer from side to side versus just the verticals of the department. So each of the teams have a role to play to get some growth in these areas. And then as far as your question, when we'll flip back, it's always hard to say. I stopped calling inflation numbers four years ago because I got them all wrong. Sometimes closer than we were wrong, but it is really hard to call. But if we stay in this period with prices coming down for some time, we're okay with that. We can make it work. We can mix it out. And we can do it in a way that we can help customers save money and live better. Okay. Great. I guess just on the deflation front, do you guys expect deflation in your practice to ease from here, especially with some of the laps from last year? Or just any thoughts on how that plays out within GM? Yeah. At GM, we had more deflation. Definitely had more deflation last year. So I think we're—I can't remember exactly. Maybe it was Q2 or so when we started to see things go negative. So we'll lap that at some point. And then you have within that, of course, categories that are up and down. Food remains slightly up. We exited the Q1 roughly flat to a year ago. So I think we're still—I get questions from people, "Is this the new normal? When is the new normal?" I think we're getting closer, but I still think we have some offsets from year prior that the whole industry is going to continue to be up against for another year or so. But things could change. And again, it's hard to call the future. So we watch units closely so we can buy a lot of our categories that we buy six and in some cases 12 months out. How to decide how much to buy is a really important question. And if you take the dollars and let that be the guiding point, and then retails change or cost change, then you can create inventory issues. So units by subcategory and by item are really important to forecasting it. And then you just roll it up, bottoms up, and you get to the quarter like we had last quarter. Great. That's helpful color. And then switching gears to inventory. So we've seen the best store conditions at Walmart U.S. across geography since we've been covering the company. So what do you attribute the improvement to? And what is your confidence in sustaining these healthy levels? And just overall, what are the opportunities that you still see from here on the inventory front? Yeah. Well, thank you for saying that. The team will be thrilled to hear that. They work really hard at it. And then they get up every day and want to do a great job. And so having people that have covered us like you for so long that can say that, I think it'll be a really nice compliment for them. There are a few things on inventory, starting with what do we think demand is. We have an intelligence product that's much better than what we've ever had in terms of being able to determine what we think demand will be by item, by zip code. We optimize it in a number of ways. The second is the inventory management team here in the home office have done a really good job using new technologies and understanding demand forecasting assortments. Our markdown discipline is another thing that's been really strong. You wouldn't want to go into a period where you get possible deflation with extra inventory because it puts pressure on your ability to take prices down because you have more markdowns than what you need. So the buying has been much closer. Then the stores, I think the change we made this January for the store managers and then last week with our hourly associates puts ownership back in their hands to merchandise their store. We'll never know the store at the market level, at the zip code level, the city level, the way a store manager does. We want them to have the flexibility, the tools, and participate in the upside. So we increased their incentive. It includes the entire P&L. So they're incented on sales growing and profit growing. We made them shareholders. So they're owners of the business. We said for years, "We want you to think like an owner and act like an owner." And they're owners. So we want them to be a part of. So it's all those things put together. Of course, we'll continue to watch and push and learn. We have a meeting every Friday where our entire field can bring up any feedback they want. And when there's something they bring up they need, then we have a team of people here who are ready to respond and serve them on behalf of our customers. It sounds like the manager and other wage investments, you guys are already seeing a return from those investments you've made earlier this year. Look, they're really smart people. They know their city. They know their community. They know the things they want. And when they have an incentive that's aligned to work on the whole P&L from top to bottom, what I've seen is they're asking great questions. They're pushing on the right things. I love having the ability to have the associate. I was just emailing an associate in Central Tennessee about checkouts last night. It's something that she thinks would make our store better that we're going to react to. Having the people closest to our customers telling us what they need to do is the place we want to be. And that's part of our culture. We want to protect and grow over the long term. Great. In the last two or three minutes, I want to cover your supply chain. So Walmart continues to make significant investments in automating the supply chain. I would love to hear about the benefits your team is already seeing. And how does your team see the savings and returns manifesting over the next few years? Yeah. I'll be quick since we got a couple of minutes. We exited the year about 1,400 stores served by automation. We'll roughly double that this year. So getting to scale. What's it mean in the DCs? More accuracy. It's more efficient. Our associates are able to upskill and get better jobs. You've met a few of those in the tours. But ultimately, we're delivering a much more accurate inventory product for the stores and for the fulfillment centers. So we know more and more with accuracy what we have and where it is. Great. Thank you. So thanks, John and Kary, for joining us today. Thank you. See you later. Thanks, everyone.