Walmart [WMT] Conference call transcript for 2021 q1
2021-05-18 14:29:11
Fiscal: 2022 q1
Operator: Greetings. Welcome to Walmart's Fiscal 2022 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Dan Binder, Investor Relations.
Dan Binder: Thank you, Rob. Good morning and welcome to Walmart's first quarter fiscal 2022 earnings call. I'm joined by a few members of our executive team, including Doug McMillon, Walmart's President and CEO; Brett Biggs, Executive Vice President and Chief Financial Officer; and John Furner, President and CEO of Walmart US. In a few moments, Doug and Brett will provide you with an update on the business and discuss first quarter results. That will be followed by our question-and-answer session. Before I turn the call over to Doug, let me remind you that today's call is being recorded and will include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include but are not limited to the factors identified in our 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 statement and non-GAAP reconciliations on our website at stock.walmart.com. It is now my pleasure to turn the call over to Doug McMillon.
Doug McMillon: Good morning and thanks for joining today's call. Our results for the first quarter were strong. We're pleased with our sales momentum and adjusted EPS growth of 43% versus last year. We had strong performance in all three segments. As the pandemic continues, it's impacting the countries where we operate in different ways so our teams are adapting to overcome the challenges and deliver the strong results we're sharing today. We continue to be grateful to all of our associates for their dedication to serving others. 2021 brings it’s own unique challenges and uncertainty. But overall, my optimism is higher than it was at the beginning of the year for several reasons. In the US, economic stimulus is clearly having an impact, but we also see encouraging signs that our customers want to get out and shop. Our execution is improving despite the hurdles presented by the pandemic. The second half will likely have more uncertainty than a normal year, but we like our position. Our stores are getting stronger and our eCommerce capabilities are expanding as we continue to grow. Customers will decide how and when they want to shop and they will find us ready whether they want to shop in store, pick up an order or have it delivered. Key elements of our strategy are coming together nicely. We saw an acceleration of traffic in our stores, gained market share in grocery, improved in-stock levels and grew eCommerce sales globally by 43% in constant currency excluding recent divestitures. Global eCommerce penetration now represents over 12% of total company sales an increase of 340 basis points over last year.
Brett Biggs: Thanks, Doug. We're pleased with strong first quarter results and the continued momentum in the business, with both, strong sales and profit growth. While stimulus spending benefited results it's exciting to see the continued progress in our underlying business, as we execute on the fundamentals and progress with our omni strategy. Newer businesses within our ecosystem like advertising and fulfillment services are growing rapidly, helping margins and allowing us to continue to invest in other strategic priorities. Our unique assets, value proposition and financial strength put us in a great competitive position to win, keeping the customer at the center of all we do. As we expected we're growing grocery market share again in the U.S., compared to last year, according to Nielsen. Value and assortment will continue to resonate with customers, as does the convenience we provide with our omni shopping options. Now let's discuss Q1 results. As we've mentioned previously, the divestitures in the U.K., Japan and Argentina significantly affect year-over-year comparisons. We outlined the anticipated effect of divestitures on key financial metrics, when we provided guidance in February, so my comments today will focus on the underlying business excluding the effect of divestitures. Total constant currency revenue growth was strong, up 5.8% to more than $132 billion, with underlying business trends continuing to improve, while stimulus spending benefited U.S. sales even versus last year's consumer stock-up phase and initial stimulus.
Operator: Thank you. At this time, we will be conducting a question-and-answer session. Thank you, and our first question is from the line of Karen Short with Barclays. Please proceed with your question.
Karen Short: Hi. Thanks very much. I wanted to focus on grocery, because you've obviously mentioned that a couple of times this -- in this conference call and the presentation. But I guess what I'm wondering is, what is your approach to pricing, given the price gaps that we're seeing with conventional? And that combined with the fact that we're seeing unprecedented cost inflation? And I guess maybe asking it a little differently. With respect to your broader goals for 2021, how important is recapturing share in grocery?
John Furner: Hey. Good morning. This is John Furner. Thanks for the question. First, let me just start by saying a big thank you to our associates and our team around the country, who helped us deliver the quarter. And on the heels of such an interesting year last year, they've done a great job improving conditions both in store and online, and we're really proud of their performance in food. I'm glad to start with that question. Over the quarter, we've seen a lot of progress in food with our inventory, considering we started the quarter with a very large ice storm that affected supply chains; and then as we noted late in the quarter, performance that resulted in market share gains in food. There's a view of this that we showed back in February, which is our flywheel and the top of the flywheel is our food and consumable business and our supercenter business, which is really important to the customer journey. And over the last 12 months, -- specifically on your question on price, over the last 12 months we saw our price gaps improve versus the market and our merchants are working hard to ensure that that will continue. These market share gains that we saw in the latter part of the quarter are very encouraging, and it's great to see that we're positioned well when customers need to shift. When customers shifted last year to shopping online, we were able to perform at that time. And then, we've seen some shift back in the store in the quarter and the performance that's represented in the first quarter is a reflection of that. So, we feel good about the price gaps. These are the things that you always work on considering how many levers merchants have and everything going on in the market. But we feel good about our position in the market, and we'll continue to focus on share gains the rest of the year.
Karen Short: Thanks.
Operator: The next question is from the line of Paul Trussell with Deutsche Bank. Please proceed with your question.
Paul Trussell: Good morning and strong results. Just wanted to dig a little bit more on your updated guidance for the year, maybe if you can give a little bit of color as it relates to the improvement in your 2Q expectations. And then, just provide a little bit more context on how you're thinking about first half versus second half of the year.
Brett Biggs: Hey Paul, this is Brett. Good to hear from you. Yes, I mean, we -- as we got through the first quarter and we started understanding how strong the underlying business is. As John said, it started out a little challenging with the weather we had in February. But we saw the business strengthening as we went through the quarter. And certainly, some of that is going to be stimulus that we readily admit that. But you're seeing customers get back out again, because it feels like things are opening back up, particularly in certain parts of the country. So we felt like it was the right time to go ahead and update guidance different than we typically do given the strong performance. And then what we've seen in the early parts of the second quarter, we felt that we should go ahead and update guidance as we did. We haven't said anything really about the back half. We -- as I said in my comments, still a lot of uncertainties that are out there with headwinds, with tailwinds and they will play themselves out over the next several months. But I think all of us feel more confident than we did in February and felt like updating guidance was the right thing to do at this point.
Doug McMillon: Paul, this is Doug. I would just add that when we imagine back-to-school Halloween, Thanksgiving, Christmas and what families are going to want to do, we get really excited about the potential of that and are buying in a consistent way with how we're imagining it.
Paul Trussell: Thank you. And just a really quick follow-up. Just on the margins, just digging a little bit more in 1Q. Brett, could you talk a little bit more about what was the impact of the strategic wage and technology investments that you made?
Brett Biggs: Yeah. I mean, I'll talk -- I'll start with gross margin. I mean gross margins obviously were up significantly in the US about 140 basis points. You had really strong general merchandise sales this year, but you're comparing that against the quarter last year that was very heavily influenced by food and consumables. So you get that dynamic on gross margin. Certainly, the wage investments had an impact. I won't get into the specifics of that. It did cause us -- primarily cause us deleverage in the first quarter, but we knew that was coming. We're glad we did that and certainly ahead of the environment you're seeing right now, wage increases, tech investment increases as well. But it's offset by some other things from -- that we're leveraging across the company Paul. I still feel good about the overall expense discipline and focus that I see across the company. And as we said, when we get through this year with the increased wage investments going forward, I still feel good about our ability to leverage long-term.
Paul Trussell: Thank you. Best of luck.
Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Good morning, everyone. So I have maybe two part question, but I'll make it one question. First, you referred Doug and Brett in the transcript a lot of mentions of alternative profit streams or profit pools. Can you talk about your visibility around the business? And if these pools are giving you more confidence in sort of how you're managing the business, it gives you more I guess wherewithal to invest back into it? And then the second part of the question is Doug you mentioned the flywheel and you're investing in capacity ahead of growth. Any update on when there could be an inflection? Or is it rolling? Or does it start at some point in the next fiscal year where you're at a good place and maybe push a little bit harder on Walmart+? Thank you.
Doug McMillon: Yeah. Simeon, this is Doug. I'll go first. As it relates to alternative profit pools, John, can chime in here as well, but I'm excited about marketplace. I'm excited about what's happening with fulfillment services. Walmart Connect performance was good. We do have strong visibility into that. And you're starting to see it happen in Mexico too. And as we've said to you before, this is -- this strategy makes sense for us everywhere in our key markets. So the P&L is starting to change its shape, as we described in February even more than a year ago and that does give us some room.
John Furner: Good morning, Simeon, this is John and I'll just add on and say that we are excited about the three areas mentioned: Marketplace; WFS Walmart Fulfillment Services; and Connect like said earlier. Really optimistic about the results with Walmart Connect with triple digit growth. That platform is something that we've been working on for a while. And as we talked to you a few months ago, it helps connect buyers, sellers and suppliers in a way that's unique to Walmart. And optimistic about what we see there. On fulfillment services, it's great to see the team expanding capacity. We know we have seller demand. My team and I have spent a number of hours listening to sellers, talking to sellers and figuring out all the tools that we need to add. So this is important for their businesses as well. And then as we said in the quarter, we had 37% growth in eCommerce on top of a big number last year. We've basically doubled the business the last couple of years. So excited about all three of those. And they're clearly businesses that will help us with our flywheel going forward.
Doug McMillon: As it relates to capacity getting ahead of growth, it's starting to happen. The plan that we had for the year is being executed. And as you're in stores, you can see the stress that, some of our stores are under in terms of the volume going through for pickup and delivery orders. And in some stores we're expanding space, capital is going towards that. In some stores, we'll be putting in automation to really press the top end of this thing, where we know we're going to have that kind of demand. And the team is executing against that. And we continue Simeon to be excited about it. And we'll go as fast as we can go this year and do it well. And I think we'll learn a lot from it. And we're very confident that, that capacity is going to be needed.
Simeon Gutman: Thank you, best of luck.
Operator: Our next question is from the line of Bob Drbul with Guggenheim. Please proceed with your question.
Bob Drbul: Hi. Good morning. Just a couple of questions, I mean, largely around gross margin, and pricing and inflation. Just wondered, if you can talk a little bit about, what you're seeing, on the inflationary side different categories. And so you did mention balancing between customers and shareholders. Just sort of how you're approaching that? And sort of tying it together, when you look at the consumer, focused more on value versus convenience just wondered, if you could maybe give us a few examples on, where you think you're making progress around that value offering in this environment? Thanks.
John Furner: Yeah. Thanks for the question. This is John again. First, as we said, we're really pleased with the performance in food. And the team has just done a great job getting the entire supply chain back in stock, including stores. You've got changes in the stores, where we're shifting more of our stocking to overnight, so we can free up more capacity during the day for things like picking as Doug said, and do that in a way that's conducive to customer shopping, so, excited to make those changes. As far as price gaps, we've always had a principle here that, everyday low price is important. In the quarter, we had about 30% more rollbacks in stores than what we would have had a year ago. Some other things that are important are the mix, not only the mix in the entire box, but the mix within food, pleased with the share gains that happened in meat and produce and bakery. So even within the food categories the mix has been favorable to categories that tend to have better margins, which is enabling us to maintain price positions that we -- that, we've been running. And our gap expanded last year versus the market. We're pleased with the gap. We're proud of the gap. And we'll continue to use all the levers we can to maintain those kinds of price gaps. The merchants at Walmart, this year are even more prepared than years in the past, to be able to manage that because of the channels they mix. Our merchants across the business can manage the channels from stores to eCommerce first-party, eCommerce third-party. And then finally, with the additional revenue and profit streams we mentioned with Walmart Connect, marketplace and fulfillment services that will just help us going forward with mix to make sure that we have the right gap for customers. I do agree with you that, value is -- it could be more important than convenience last year, but value has been an important pillar of ours for a very long time.
Doug McMillon: This mentality that John described, related to rollbacks is important to underline. It applies in international it applies in Sam's Club as well. Bob, I'm reminded, of a conversation in the early '90s. As an assistant buyer in food my supervisor walked into the room with a few of us and said, "We're short on our profit number for the month. I need you all to find price reductions that you can put in place quickly bring them to me by the end of the day." And I thought I misheard him. How do you lower prices and increase profit? And that's the beauty of retail and of mix and these supercenters. And now with eCommerce and marketplace and fulfillment services and Walmart Connect, we've got all these levers to be able to find places to go upstream do things differently than other people are doing it. So to have 30% more rollbacks in place right now in Walmart U.S. for example positions us really well.
Bob Drbul: Thank you.
Operator: Our next question is coming from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Kate McShane: Hi. Thank you. Thanks for taking my question. I know that in-stocks, was an area that you mentioned during 2020 that was hard to manage, given the strong demand. Just wondered, currently are there any areas within your inventory of categories that are light or you're still working to build back? Thanks.
John Furner: Hey. Good morning and thanks for the question. Certainly, 2020 was a challenge, when it comes to inventory flow with all the phases, we went through from the stock-up phase to people moving into their home and then demand and supply chain challenges all across that were related to pandemic. Early in the quarter, I felt like we were making pretty good progress and then we had this ice storm where we had just a record number of locations closed for a few days which put some stress on the supply chain. And then as we got later into the quarter, certainly we see improvements in our food and consumable business compared to what they would have been a year ago. In general, general merchandise has been a bit mixed. It's better in many cases, but there are some pockets where we continue to chase demand things like adult bicycles, some of our categories in consumer electronics. We're monitoring things like delays at the ports and other factors in the supply chain. And we'll watch all those things closely to continue to react. But definitely some pockets in general merchandise that we're still chasing even as we speak today.
Kate McShane: Thank you.
Operator: Our next question is from the line of Peter Benedict with Baird. Please proceed with your question.
Peter Benedict: Hi. Good morning, guys. I just had a question on US eCommerce maybe for John. Just obviously, the pickup activity continues to scale. But just curious on the home delivery front maybe what you're pushing on there just any updates. And also your micro or market fulfillment center tests just curious kind of how you're approaching that. And just your thoughts on kind of the home delivery side of fulfillment of eCommerce? Thanks.
John Furner: Sure. Sure, Peter. Thanks for the question. In general, we have been working on capacity improvements and capacity growth when it comes to online pickup and delivery from stores. And that's something that we have been tackling for some time now. It accelerated last year and we managed things what we call things like slot utilization or available slots and we have more slots available for picking for scheduled orders than we've ever had. We also have more capacity to ship from store which leads to I think the second part of your question which is the in-home or the delivery at home. And I'd say a couple of things there. And number one, we are expanding our -- what we call our Walmart in-home services, which we just picked up another market and that's where we deliver food and other items from stores all the way into the home, including in the refrigerator. We have our market fulfillment centers that you asked about. We have several that are in construction. We expect to be launching those either late Q2 or early Q3. So we'll be able to talk about that more once those launch. And then finally, we are excited about our last mile business. We've been operating our first delivery vans that are Walmart-branded in a market here in Arkansas and we're learning a lot as we go forward. But we see lots of opportunities to serve customers whether it's in store, it's at their home or it's at the curb and they want to do pickup. We want to be extremely flexible and be able to serve customers any way they want. Last year there was such a shift of people that were wanting to have deliveries shifted at home from shopping in store. I think what we'll see more this year is a balance between the at-home deliveries, shopping in-store and pickup as people get back out. But as Brett alluded to earlier that's assuming that conditions of the pandemic continue to improve. And we'll be ready should there be change in either direction.
Operator: Our next question is coming from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thanks a lot for taking my question. Can you quantify two of the comments that you made in the script? One was from Brett who noted that the guidance increase was mostly due to stimulus-related spending. So how do you parse out the 1Q results and what you're expecting in 2Q of the impact from the stimulus? And two Doug noted that Walmart+ is an important driver overtime. So can you give us a sense for where that program stands today and how it should unfold from here? Thank you so much.
Brett Biggs: Hi, Michael. This is Brett. Good to hear from you. Yes, I mean, a couple of things I mentioned in various ways in the script is the underlying business feels good and we're more optimistic about that part of it. Certainly, stimulus benefited our results in the first quarter. But you can also get a sense of how we increased the second quarter. You know what the original guidance was and how we increased the guidance for that quarter. So that should give you a little bit of sense of how we're thinking about stimulus versus the underlying business. I can tell you though it is challenging to pick out exactly the impact of stimulus because of the types of categories that you see benefited by stimulus are also categories you see benefited by the economy opening up particularly on the general merchandise side. So it makes it a little more challenging to pick through that.
Doug McMillon: Michael, on membership inside Walmart, this is a new program for us. The number one driver of selling memberships is the grocery supercenter pickup and delivery. And as we said before capacity is our issue there. And as we said in February, our focus is on the quality of that experience not the quantity. We want some time to work on NPS. We want to build capacity. We are marketing the program and long-term it will be important to us. But we've gotten so many other things going on. With stores improving in traffic and eCommerce growing and marketplace and all that kind of stuff we just -- we don't think that Walmart+ should be the primary focus at the moment for us with all these other opportunities. So we'll keep growing it. At some point I'm sure, we'll share some more information with you guys about it. I know there's a request for that because of streaming services and how much people are talking about subscriptions and memberships these days. So that's – John, I don't know if you want to add anything, but that's how I feel about it right now.
John Furner: Yes. I completely agree. And the big thing that we're doing is creating capacity to be able to serve more and we have begun work on market fulfillment centers where we can use locations as hubs for other stores and spokes. We've got a lot of really encouraging supply chain work going on that would help us use the right algorithms to be able to pull inventory from all across the network and be able to serve people. So encouraging just in the last few months to see that not only the capacity has gone up, but eCommerce results have been strong, delivery from stores has been strong, delivery from fulfillment centers has been strong. So these capabilities we're putting in place will be a great foundation for this program as we move forward.
Doug McMillon: I think the digital relationship with customers is important and that takes various forms. We've seen with the app downloads for example and app popularity; and what happened last year in particular with pickup and delivery a really large expansion in the number of digital relationships, which helps us with data and helps us be a retailer of the future. Overall, we feel good about what's happening in those areas.
John Furner: Yes, those relationships, I believe will continue to grow because of things like the improvements in technology. We're working on improving the app and its core experience. Acquisitions like Zeekit and MeMD are also other ways that customers will be able to connect with Walmart effectively and we'll be able to help them with more and more in their life and take friction out make things simple for them.
Michael Lasser: Very helpful commentary. Thank you so much.
Operator: Our next question is from the line of Steph Wissink with Jefferies. Proceed with your question.
Steph Wissink : Thank you. Good morning, everyone. We had a question on general merchandise improvements. You've talked a lot about food, but I'd like to give you some time to talk about general merchandise. You've brought in new talent there. You've made some strategic tuck-in acquisitions and some strategic partnerships as well. So help us think about what we should be looking for in terms of progress on general merchandise? And maybe if you could tie that back to some of your initiatives around marketplace as well, what you're learning from your digital growth that might be driving some of your in-store decisions around general merchandise? Thank you.
John Furner: Sure. Let me take that one. This is John, again. We're really excited about the performance in general merchandise in the quarter. As you mentioned, we did make a number of changes with talent over the last year. Or the biggest change was last July when we pulled all of the channels together. And traditionally we had teams of people we called category specialists that were online and then we had buyers that were in-store. And we're referring to them all as merchants because the merchants now have the customer relationship across all channels. And the team has spent a lot of time thinking through and working on the right programs to determine what in our assortment goes in store, what's 1P and then what's 3P. And I'll give you an example. Just last week, I was in Minneapolis visiting one of our suppliers, Nordic Ware who makes cookware here in the United States. And we went through the number of items that they have in stores, what's doing well, what's going to improve? And then their entire catalog is available in the marketplace. And so our merchants were able to manage the assortment across channels and that gives them more levers to be able to serve the customer in a way that's frictionless and very clear. But in the quarter, we definitely saw some changes with the way customers shop, partly due to stimulus, but also just behavior changes. Brett talked about it earlier, categories like personal care, improving travel is starting to really kick back in. And when you look at all the categories that are selling at Walmart, you can tell a lot about what's going with customers across the country. So we definitely saw behaviors that are starting to reflect more opening up and getting back out and going to see people. Our health and wellness business has been extremely helpful in administering millions of vaccines in the quarter. And then with some of the changes even in the last week, we expect that some of these changes with the customer could continue, but we'll continue to watch that as the year moves on.
Operator: Thank you. Our next question is from the line of Edward Yruma with KeyBanc. Please proceed with your question.
Edward Yruma: Hey. Thanks for taking the question. Obviously, some very positive commentary on store traffic, I know you noticed -- or you noted that April saw an inflection. When you see that store traffic begin to really improve, are you seeing any other changes within the eComm business either pickup or delivery? And then as a follow-up, as that traffic improves are you seeing any favorable mix shifts? Thank you.
John Furner: For the traffic in store, the count of traffic, as we said, definitely changed in April, probably late March a bit. That's when we started to cycle some of the really big stock-up trips and what was happening last year where fewer trips and big consolidation, it did put a lot of strain and stress on inventory and things like paper goods and food and consumables. So this year would not -- as that shift began to occur and we saw the sheer numbers begin to reflect gains in the food categories. I think it was a combination of people getting back out in comparison to last year, but also some normalization in terms of frequency of food that's purchased, specifically within channels, strong growth between all three. As we said, in the US, the total comp was 6%, including eCommerce growth of 37%. And then eCommerce growth is a mix of, what's being shipped to people's homes from fulfillment centers or stores and inclusive of pickup. Finally, I'd just say that we continue to expand capacity in all channels. We're excited about the expansion of slots available for shopping in stores. We're excited about the amount of capacity we have in stores to ship to people's home. And then, we're continuing to work and invest in the supply chain to have more capacity going forward for pure first-party eCommerce.
Operator: Thank you. Our next question is from the line of Michael Baker with D.A. Davidson. Please proceed with your question.
Michael Baker: Thanks guys. Just two follow-ups, if I could. One, the 100 basis points or so gross margin improvement, can you sort of parse that out? And then, how much is coming just from the mix from general merchandise and how much is being supported by the strength in the alternative businesses, and if not, an exact quantification maybe directionally. And then the second question, just to follow-up on the comp guidance. So, first quarter was better than expected, second quarter guidance is up. Yet the full year comp, if I'm understanding it correctly, didn't change. So, should we read into something -- is that a decline in the back half? Or just too early to change it? Or – low-single-digits is a pretty wide range I suppose. It could be anywhere between 1% and 3% or 4%. So, what do we read into that not changing the full year guidance? Thank you.
Brett Biggs: Hey, this is Brett. I appreciate the question. Yes, I think on the -- I'll start with the second one on comp guidance. What you said about low-single-digits being a fairly wide range that is the case, it is a wide range. And it's -- when you look at the big numbers of Walmart US, it ends up at in a really wide range. So, I wouldn't read anything into that. We feel great about the first quarter and the second quarter started out pretty well as we've said. On gross margin, I'll say -- start. John you can come in. The biggest change of course, was the general merchandise sales strength that we're seeing this year versus the consumable strength that we saw last year in the first quarter. And also, when you start seeing strength in general merchandise, which we've had really over the last several quarters, you see fewer markdowns. There's a lot of add-on benefits that come from that for gross margin.
John Furner: Yes. Let me just add a bit on to the margin question. Certainly, there was strength in general merchandise in the quarter. We talked about the strength in food. And food was more balanced this year than what we would have seen last year. Last year, we were really heavy in dry grocery and stock-up items as the pandemic began. So, the strength and share gains that we saw in the first quarter in food, most specifically, meat produce, bakery and grocery, but leading in the fresh areas is certainly helpful. The third point I think I'd make is inventory positioning at the end of the quarter. Our inventory level is up, which is a good thing. Last year we had big stock-outs in grocery and in general merchandise, so I feel much better about our inventory position. Brett -- as Brett mentioned, our inventory is clean and we've been really disciplined about ensuring that we're clearing up end-of-season and seasonal. So, we feel great there. And then, the last thing I would say is, the drivers of eCommerce contributed to profit rates have been strong. Having merchants in the position of having all channels in their remit given the category and what the customer wants is helping with the drivers of eCommerce, which would include things like contributed profit rates, Walmart Connect, et cetera.
Michael Baker: Great. Thank you. I appreciate that color.
Operator: Thank you. Our next question is from the line of Kelly Bania with BMO Capital. Please proceed with your question.
Kelly Bania: Hi, good morning, and thanks for taking our questions. Also wanted to touch a little bit on general merchandise. So with -- in the U.S. so with low 20% growth. Just curious if you think you gained market share there. We were thinking maybe 26% market growth, which is rough estimate. But just curious how you're thinking about that, how you measure that? And also how your efforts with Walmart fulfillment services and third-party are maybe contributing to your general merchandise growth?
John Furner: This is John. Let me take your first question first. The share performance in general merchandise we think is about flat to last year and we manage it a month in arrear so our data is for February and March. So we feel good about the performance on through the first two-thirds of the quarter. Certainly saw as you said strength across general merchandise in the 20% range. So I think we're positioned well. Feel good about where the share is versus a year ago. Particularly excited about performances in categories like home and apparel in the quarter and the positioning we have going into the second quarter. Certainly some tightness in the supply chain as we mentioned earlier in select categories where we've had high demand and stresses in the supply chain. But we're watching that carefully and feel good about the improvements in in-stock all across the business including the fulfillment centers and stores. But again I think we're most encouraged by the demand and seeing things like travel and other things open up, and being able to be ready for customers is important as we move forward. And then the second part of your question on fulfillment services, we've got a number of capacity improvements that are coming online this year. So we're excited about the impact those will have not only on the top line and for the customer but also for our sellers. Our sellers are looking for more services and ability to ship and it's a great way to enable small businesses for growth. So as the year goes on, we'll see more and more capacity come online for our fulfillment service business.
Operator: Our next question is from the line of Scot Ciccarelli with RBC Capital Markets. Please proceed with your question.
Scot Ciccarelli: Good morning guys. My question is on the U.S. EBIT increase that you saw. I'm wondering, how much of that increase was attributable to what I would assume is a structurally more profitable eCommerce operation given the growth and scale you were able to garner last year? And related to that any updated color regarding the profitability run rate of eCommerce today?
John Furner: Good morning Scot, this is John. Specifically on your question on eComm, we feel good about the drivers of the eComm profitability, which is contributed profit rates and that would be gross margins less the cost of shipping. We also feel good about the alternative revenue streams that are included in eCommerce, which are things like the marketplace, fulfillment services. Like I said earlier, we're expanding capacity we know we have seller demand and we're really proud of the triple-digit growth in Walmart Connect. So all of those added together are helpful in the eCommerce P&L. On the breakout, we actually are not breaking out the difference in stores and eComm because it has just become so blurred as we transition to an omni business. We have our merchants that are overseeing all channels by category. Stores are acting as stores, they act as pickup centers and in some cases fulfillment centers. We have fulfillment centers acting as fulfillment centers which go direct to home. And at times they ship to a store so they got -- the inventory can be consolidated with an order and then put into our last mile network. So it's just not possible for us to break those out given how blurred the lines have come. But overall, I'd say the team are doing -- they're just doing a great job with the contributed profit rates and the mix within -- not only the mix within the business like general merchandise versus other things, but within categories they're doing a great job improving contributed profit rates.
Scot Ciccarelli: Very helpful. Thanks, Brett.
Operator: Our next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Chuck Grom: Hey, good morning and great quarter here. More of a macro question for me. When you look at the data and see how the consumer is allocated these most recent stimulus checks, I'm curious how they compare and contrast to what you saw in April and late December of this past year. Are they still spending the same amount? Or are we seeing more allocated to savings and therefore there's some pent-up demand that could get spent in the coming months?
Brett Biggs: Hey Chuck, this is Brett. Yes, I think we're seeing a little bit of both. I mean you're seeing customers definitely get out and spend again. Spending rates are good. Income rates are good. But savings rates are actually still almost at an all-time high which would lead you to believe that there is going to be some pent-up demand as we get to the back half of the year. So in a lot of ways the consumer balance sheet, unless you're in certain industries that were really impacted by COVID, the consumer balance sheet is about as strong as it's been. Now a lot of that's due to the stimulus the money that's gone into the economy that way. But in either case it would indicate there's some demand coming.
Operator: Our next question comes from the line of Robby Ohmes with Bank of America. Please proceed with your question.
Robby Ohmes: Hey, good morning guys. Doug, you mentioned the omnichannel health and wellness business. Can you remind us what that could ultimately look like? And maybe even what the current like pharmacy recovery, how that's playing out? I know you guys have been involved with vaccines and everything. Anything going on that's going to accelerate the omnichannel health care dream for you guys?
Doug McMillon: Yes. Robby I'll jump in first and then John can add. I think the pharmacy business has performed really well considering everything our pharmacists have been doing. It's been an incredible challenge to do everything that they've done since the pandemic started, including all of these vaccinations that they're doing. We did have to shut down our vision centers for a while. Optical though is back open and that's helped a lot. The ultimate destination does look like an omnichannel destination where we'd leverage those historical businesses together with new healthcare services and the digital front-end that John mentioned earlier and I mentioned in my remarks with MeMD. You can imagine a future where we'll be able to reach customers on their devices in their homes to help them think about their healthcare in terms of what they eat how much they move and then what types of health care services they need and where they get them. And so, I think you can see us building together those capabilities that would help people have access to care more of an outcomes-based healthcare system, great value, accessibility and serve a lot of people that need to be served and also end up with a really good business that fits together well with a large food retailer. And so we've just been working through that strategy executing the pieces. And if you look back at the CareZone acquisition, this latest acquisition of MeMD, you can see us adding some capabilities in addition to those that we're building on our own.
John Furner: Yeah and I would just add -- go ahead.
Robby Ohmes: I was just going to ask is this something that longer term fits in with Walmart+ as well?
Doug McMillon: We'll get back to you on that Robby.
John Furner: Robby, this is John. I just want to reiterate excitement for the idea of an omni-channel health care solution for customers and Walmart together. Our pharmacists and our pharmacies have performed very well in the last year given all the challenges they've faced. They've opened up curbside delivery, delivery to home. We've got central fill pharmacies now helping assist with cost and efficiency on the service suite that they offer. It's of course different by state, but the way our teams jumped in and found ways to help get the country vaccinated has been nothing short of amazing. I was in a store here locally last night and just seeing a number of people be able to walk up and get their vaccine is very encouraging. And then as Doug said, the market changed last year. We had opened a number of clinics and we continue to open clinics. We're excited about the prospect that clinics bring. And then a large part of health care shifted to digital last year and the entire industry embraced that. So this acquisition of MeMD to enable relationships with customers on their device, in their home and be able to execute service care with our pharmacies and clinics on the backside of that is a really exciting prospect and it's a big part of our flywheel going forward.
Operator: Thank you. At this time, we've reached the end of our question-and-answer session. And I'll turn the floor back to Doug for closing remarks.
Doug McMillon: Just want to close by saying thank you to all of you for following the company so closely. Hopefully, you can see that in addition to the US tailwind that we've got strength building in the company. As I mentioned, I was in a lot of stores during this last quarter and standards are improving, in-stock's improving against the challenges that obviously the pandemic brought. We've also got great momentum and strength in Sam's Club. International had a really good quarter one of the best quarters Brett we've had in a while in International. And the portfolio work that Judith and the team have been doing there is working. And the situation with the virus in India is tragic and we'll support not only our own folks, but the country as much as we can to try and get through that. And I'm sure there will be other hotspot cities and countries that we'll deal with in the coming weeks because this pandemic is not over. But pandemic aside, economic stimulus aside, our focus is on the input metrics, the underlying fundamentals, the capabilities that we're adding. And we see ourselves making real progress against those. The company has changed a lot and there's more change coming. And I'm grateful to the team and excited about the future. Thank you all.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
