Walmart Aktie

Okay. Thanks, everyone. So my name is Peter Keith, senior research analyst at Piper Sandler, covering consumer hardlines and broadlines. I'm very happy to have Walmart with us today and particularly excited for this discussion, which is going to focus on Walmart Marketplace. So with me on stage is Manish Joneja. He is SVP and Global Head of Marketplace and Fulfillment Services.

So, Manish, great to have you here. Thank you.

Thanks for having me.

So let's jump right in. One thing that really stood out to me, if we look at year-to-date results is the acceleration that Marketplace has seen. You've seen 50%-plus growth in Q1 and Q2, which was a pretty healthy acceleration from 2025. So what do you think about some of the key drivers to that acceleration?

Yes. So I'm going to address the small closed room, so I'll address all of you together. So when you think about our growth, there's no one particular thing that we changed. It's the fruition of everything we've been doing for the past few years. So when you look at marketplace or an e-commerce business, we look at the right assortment at the right price, at the right speed, that discoverable. So what we're investing in is focused on rather than vanity metrics like what are the right SKUs people are looking for in a particular market in a particular month, enabling sellers to price it right, so building tools and capabilities where they can set low bar and high bar and compete with others.

Third part of it becomes speed, which is critical. Think about same-day promises, next-day promises. Part of my business is also to run Walmart Fulfillment Services, where we have our next-gen FCs that we invest in, and we place sellers' inventory there. So in place that inventory that converts at 50% higher conversion rate overall. And when you add ads on top, that creates a discovery mechanism. So when that whole pipeline fires up, you see basically conversion happen to a whole different level. So that's what you're noticing is the growth coming in from like getting all those pipelines connected together and our investments paying off.

Okay. All right. Thinking about on a go-forward basis, obviously, you would see a good runway for growth. Do you think those types of things coming together can continue to drive this type of growth? Is there anything new that you're excited about that suppliers are starting to ramp up with?

Well, I feel like in a candy store, sometimes it's first inning right now. So we're getting our assortment, price, speed and discovery together as such. But when you look at our assortment, right, working back from customers, we still have gaps in assortment. So as we're getting more assortment, we're focused on getting the right assortment, placing them in the right node, so same-day, next-day delivery becomes critical to promise, putting them in stores, which we'll talk about in a second as well. But those -- that gap actually is really exciting because we're filling those gaps, getting the right brands, the right sellers, the right D2C companies that can buy.

So getting K-Beauty, for example, that's right now sitting in the back of the stores, or FCs, and my wife taught me a lot about those brands, which I forgot, but I think Medicube and others, right, that we get on board. So we've seen that materialize really fast. It's helping us connect with new customers. So I'll give you a good example, we got Nespresso. I think Dave talked about this recently. 40% of the people who bought that from us never bought coffee from us before. So we've seen our existing customers capitalize on this assortment that was never available. And we're seeing new customers come in for the new assortment that we are getting. We're seeing high penetration of higher-income households that are buying. Like my wife buys never knew -- I mean, we have our CMO, William White, who did this "Who Knew?" campaign. I think that was like a master stroke.

I loved that campaign.

Right? And my wife didn't know that we carry La Roche-Posay. So now she knows that and she's buying it from there. Never bought it before from Walmart. So we've seen that trend happen more and more as we increase more assortment.

The second part of this, when you think about growth is also international. So my role has changed to look at global marketplaces, which includes Canada and Mexico. Canadians and Mexicans want same thing, right assortment, right price, right speed, that discoverable. So we're starting to have the same playbook leveraging and that basically accelerate those markets. We open up dot-com for Canadians and Mexicans to buy U.S. assortment from our sellers now. So that's open.

And the last third part of that kind of equation becomes connecting to broader Walmart. And one of the best advantages that I've had building marketplaces that Walmart had invested in these foundation blocks for decades. We have one of the best supply chains ever in the world because we brought in goods from China and Vietnam. Now we can extend that platform to our sellers without significant investment. So they're piggybacking on the backbone that really exists. So connecting the dots between those and the stores is another factor for growth. So still the first innings.

Okay. That's exciting. Maybe I'll just take a step back and we'll just talk about the competition in the space. So it's -- competition is intense, and there is global competition. You've got a major competitor here in the U.S., obviously. They have a very large and somewhat mature marketplace. So why does Walmart need a marketplace? And sort of what's different about your opportunity versus others?

Yes. So it starts from customers backwards. We want to serve our customers what they want, need and love. That's a phrase I use in my team. It's not just about needs, it's also about what you want. So the example about the brand I took was a want, not a need, but our customers searching for these brands. So when we go backwards from that, what our sellers bring to the table is that assortment to the table in our fulfillment warehouses and with ads. That just allows our customers to be in Walmart and shop for different occasions.

So now when you come in for, let's say, grocery, you can also find Farmer's Dog right there that you can buy with it. You can also find these K-Beauty elements that didn't exist before. You can find Sneakers that my kids are crazy fan of Sneakers, they love soccer, I can find those goods that I could never find before. So the objective is to serve our customers what they want, need and love. And we don't have to carry every single SKU. We have to keep a promise to have it at the right speed and inform our sellers what price would look like and help them be discovered.

But when you create those -- that ecosystem together, that just basically drives conversion because our customers get more options, they retain. We see them spend more, spend more frequently and spend more in different SBUs like fashion, home, hardlines that never they thought about before.

In terms of differentiation, when you think about Marketplace brings this massive assortment overall that our customers are looking for. Combine that with the foundation I talked about for Walmart, where we have stores right now. We have FCs, next-gen FCs. We're helping them bring goods from source countries into the market. When you compound those, that just leads to a whole different multiplier in terms of their growth.

When sellers see that growth happen, they bring more assortment that customers want. Our customers buy more, it leads to more membership. So that creates a whole flywheel. That's a key differentiator versus anybody else in the market that nobody can replicate the 4,500 stores that we have in the market plus the assortment that we're getting in.

Yes. Okay. With the assortment, I think Walmart is obviously very well known for grocery and consumables. I guess does Marketplace over-index to general merchandise? Is that where you're seeing a lot of new brands show up that maybe Walmart hasn't traditionally offered?

Yes, it is. So marketplace is predominantly general merchandise. It doesn't mean that there's no food elements to it. There's international grocery shelf-stable grocery that we get. But it's a high mix of fashion, home, hardlines, electronics and toys. What that does is it creates a resonance with our customers when they come and look at, hey, I want to buy something from a store where these goods may not be available, we surface that with discovery. And that's where the ads element comes in as well as, as you guys know, when you bring a new item to any marketplace, there is something called a cold start challenge.

Like if you've been selling Tide Pods all your life, search might show you Tide Pods. Ads and our organic search teams helps us deconstruct that so the new items have a chance for sellers to go and sell, and they can inform their product behavior accordingly to redesign it.

Okay. Interesting. Maybe sticking on Gen Merch. So if we look at the overall results for Walmart, the general merchandise comp in the second quarter was up low single digit. Marketplace, you're saying is mostly Gen Merch, up 52%. How does the marketplace numbers impact that overall Gen Merch same-store sales?

Yes. I think same-store, we were talking about this recently as well that we need to do a better job educating how we look at the business, and how we run the business. Same-store comps are the right comps for traditional retail. You should always look at that. But we are working on how do we provide complementary metrics that tell you essentially that those stores are no longer just stores. They become fulfillment nodes. e-commerce, online pickup delivery grew 43% last quarter. It keeps on growing. People want to buy these items much faster.

And I think 95% of America is in 3 hours delivery range of stores, 60% is within sub-30 minutes. So stores are no longer traditional retail stores. They become nodes. They become an enabler for Marketplace and e-commerce both. So we need to do a better job of complementing the new metrics and how we obsess like every Monday, we sit with Dave, who is our CEO, and look at not just like a same-store comp, but overall how the business is performing. How are we thinking about bleeding basically between different businesses because you're right, Marketplace, we report on net sales, [ GMV ] is another metric we're looking at, how we're looking at growth for Gen Merch within it.

I expect Gen Merch to grow more and more with Marketplace, and that's going to get fulfilled more and more by our store nodes. So we'll start evolving to an unconventional retailer, if that's the right word, but it's more than retail.

Okay. All right. Maybe that's a great segue to the next question, which is with your store base. And we think of a lot of retailers that are trying to open up their own marketplace. It seems like it's a little bit separate. It's going to be drop ship from the supplier, and it's -- I guess, doesn't really have a lot of connectivity with stores. It feels like you guys are trying to drive this integrated experience where marketplace and stores can work in partnership. Maybe talk about how you're doing that and how that could be a competitive advantage.

Yes, that's something I'm super excited about. So as a customer, we do not want you to feel any difference between a first-party product or a third-party product. We don't want to feel a difference between FC fulfillment versus store fulfillment. Our stores are massive advantage. It's like throughout the U.S., not just U.S., Canada and Mexico as well. What we started now is when you buy some goods from a marketplace, typically, it goes through FC, might come same day, next day, 2 days, if it's a non-sort sofa, it might take 3 days, right?

What we have now started doing is we inform based on data insights, which region customers are looking for what in that particular node. And it started basically forward deploying inventory into the stores in the back. So when you have added milk or potatoes to your cart, like you said, you come in for grocery, now you can see third-party merchandise in there.

It's not every single item, but what might sell in Seattle in December is different than what might sell in Dallas in December, right? So we look back from those customer demographics and sales patterns to forward deploy inventory. What that does is OPD is a massive growth engine for us, the backbone for us. It just basically now allows sellers' inventory to be discovered as part of that and added to the same cart, and be [ at ] your door in sub-30 minutes or 3 hours depending on where you are.

And that's a major unlock, which I expect to keep on growing. We're ramping those things up essentially with our sellers, working with them over a long period of time, midterm, it's also monetizable opportunity. If you're in the shelf, it's one of the most valuable space, basically, right? So how to merge third party with one first party, that's a really important thing for us. What we've seen is we have suppliers who become sellers, new sellers who become suppliers.

A lot of brands come in with marketplace. They test out. They find the top 10 SKUs. We work with them to find out where to place them and we buy them. Or we have suppliers who say, "Hey, I have 100 SKUs with you, I have 10,000 more that are selling, and we bring them to marketplace." So you'll start seeing an osmosis between sellers and suppliers, which benefits our customers, benefits us as well.

Interesting. Okay. As you mentioned, deployed inventories, you're bringing some of that marketplace supplier inventory into stores. Is that offered on shelves? Or you're keeping that in backroom mostly for delivery purposes?

So right now in the backroom, we're starting with the backroom to place inventory there. Our sellers do want more space. They want to sell more, they want to offer. We -- the first question was like about growth, right? We have to make sure it's the right items. Every item is not the right item for every store and every month. So we have to work backwards from what's selling. So partnering with sellers and our insights team to place them starting in the backroom.

Okay. All right. That will be interesting to see how that evolves. A great element of the Walmart story is sort of this changing mix of business, and you have these higher-margin revenue streams, I guess, some people call the second P&L. So marketplace being one of them, advertising, supplier advertising and then -- and fulfillment services. So how does, I guess, marketplace fit into all of those? And maybe you could share some metrics around like supplier usage of advertising or fulfillment services.

So what we see is it's seller's inventory that comes into the ecosystem overall, right? So when we get this inventory, we start seeing our ecosystem connect together. So when you think of ads, right? John David Rainey, our CFO, a few quarters ago, I think he used a really good phrasing marketplace is a lynchpin for our second P&L growth. I would say it's the engine. So as we get more assortment and as we connect that with the right price, the right speed with our investments we talked about, right, and get them into WFS, which is -- I'll talk about that for a second, is we see 50% high conversion when an item is in WFS. A seller sees 15% lower cost when it's in WFS. So you're actually getting 1.5x sales at 15% better margin that you can invest back into your business or your customers. And those things connect together with ads, if an item is in WFS and they have ads on it, we see sometimes 5x GMV growth. So it becomes a force multiplier all together. That's our second P&L. So we do look at individual P&Ls all the time, but the ecosystem is marketplace. We get referral fee, WFS fulfillment services. It's ads on top of that. We are also looking at Data Ventures. That just created a whole different offering for a seller.

What we make sure is that the sellers have access to those tools, but also have margin that they can invest back into the ecosystem. And whenever we've dropped fees to test things out, we've seen them invest back into Walmart ecosystem. They pass the savings to customers. That comes out really well. So that's how these things play together.

That's interesting. The -- I guess on the advertising piece, that's been growing really nicely. You've made the VIZIO acquisition over a year ago now, right? 1.5 years ago, yes. Is there an education process for suppliers that are in marketplace to show like the full kind of top of funnel to bottom funnel capabilities that you guys have? Does that take some time? Or are suppliers ramping up quickly with advertising?

We are. So we've seen heavy penetration into advertising as well as WFS. So 50% of our sales came through Walmart Fulfillment Services. We've seen more and more sellers enroll into fulfillment services. As they do, we have our teams that work with these sellers to educate them about ads. It's more than ads actually. So influencers, affiliates, I think about creators. So we have a creator base that actually works with you. If I'm selling a dog product, I love dogs, I'm going to talk about dogs for a second. If I'm selling a dog product, you want the right creator and the influencer. You don't want like any influencer creator, right?

So we have a creative team in marketing that connects those dots. So what we're offering is like, "Hey, you might have a product that may not do well with SEM, but could do with affiliates." So we'll educate you on that. It's your decision, but we want to offer you options, you might want to deliver -- invest $100, you might want to invest $10,000. And how do you distribute that dollar into the right forum so that you have the right ROI for your item, specifically, not a generic item is really important. The more we educate people on this, the more they see growth, it just creates a flywheel where they come back and invest more.

And as they get new items, they also invest in creating new products. What we've seen is a lot of our sellers and suppliers have created dedicated products for the Walmart customers because what sells in Walmart might be different in a month than what sells in other places. So these guys are learning more about customers. They're seeing phenomenal growth in what they design for the customers because they're designed for you specifically versus generic customer.

Okay. And so you mentioned on advertising, I did want to also then ask about Walmart Fulfillment Services. The metric you said is a 50% higher conversion rate if an item is involved in WFS. Could you talk about what drives that? Is it just the speed of delivery. Is that appealing to consumers? And then is that attracting more suppliers into the WFS network?

Yes. So it's -- if you've been -- I've been a seller before, so I used to work in different places, but I was a seller in the middle as well. I used to sell on Walmart as well. So if you're a seller, you would know that fulfillment is a pain. It's not something you want to deal with, but you have to deal with it. It's complex, it's expensive.

The good thing is that Walmart has been doing this for decades, and we don't want to redesign things, just sort of piggyback on top of it. So we made next-gen investments. We've made store investments, right? But as a seller, now what you can do is you just tell us to pick up the product from 5 ports in China or Vietnam or India, we'll pick it up. We will deploy that inventory based on the heat map of the country. So if I can remake 5 nodes in the country, I can reach anybody same day, next day. So I basically place that inventory based on where the sales signals are coming from, so sellers trust with that.

Third part is, if you're a seller, you don't want your inventory tied if it's not selling at the velocity you expect to. So a lot of sellers sell on multiple marketplaces, and they have their own brands as well. We have some large brands that we are working with right now, and they're activated too. Now when you place your inventory into Walmart Fulfillment Services, it actually lets you not just fulfill Walmart orders, but we can fulfill partner like different marketplace orders and the D2C sites or Shopify. You can actually just fulfill your business through us. That gives you more confidence to fulfill those orders at a 15% lower cost while having the same speed that you are used to.

So when people do that, what we see is, if you search Walmart, you'll start seeing a Walmart membership badge. We want more members. They want -- they spend more. They spend more frequently. They spend across all of assortment that we have. As we do that, we see 50% conversion uplift at a lower cost, and they love that, right? And then we educate them on ads. Because now we have the items, replicated around the country at a lower cost. We got them from China or Vietnam or India, where they were or inbound it to U.S. Now we see multi-x growth. So that's the benefit of Walmart Fulfillment Services is piggybacking on the assets that we already have.

It's all about like if you build a LEGO car, right, like my foundation already exists. I'm putting two blocks on top, which is much faster than building the whole foundation.

Okay. That's a nice flywheel effect. Maybe building on foundation as another topic is the global opportunity. So that is part of your job title now. You have the infrastructure built on the U.S. How is easy is it to take the marketplace capabilities and then bring those to other countries, whether in North America or other parts of the world?

It is something we are focused on right now is, we'll call it leverage. It's the same playbook. We've solved the playbook in the U.S. and we keep on evolving it. Now what we're doing is extending that playbook and the platform, both to customers and sellers in Mexico and Canada and then Chile. Those are the markets that we're investing right now is -- if a seller comes into U.S. and you're listing an item, we don't want to say, "Welcome to Walmart U.S. Welcome to Walmart Canada. Welcome to Walmart Mexico." I want to say, "Welcome to Walmart." And you're done.

So we're now taking that ingress point of when a seller comes into the ecosystem. And if you have ever sold or bought internationally, there is real barriers and their perceive barriers. And a lot of sellers -- most sellers want to sell more. It's just that they don't have the knowledge to understand it's not that complex, we can simplify it for you. So now what we've done is that when a seller comes to U.S., they can expose their inventory internationally.

We can deploy those into our nodes near the borders, so we can do fast shipping out of that. And as they start selling as a seller, you don't have to kind of create a new product. You have the same product you can actually place. So as the demand comes, we see these sellers moving into the countries. So there's WFS in the U.S., in Canada, in Mexico and there's cross-border both. So I've seen sellers basically almost like osmosis like I'm going to place these SKUs into Mexico, these into Canada. And what we've done is we've exposed the U.S. inventory to Canadian and Mexican, like I said. So we open multiple doors for them, so they can test it.

So a lot of sellers know exactly what's going to sell. They want to move those items right away. Other sellers want to dip their feet in the water and see what really works. Same, lower cost, higher conversion, higher sales, and we see these sellers and big brands actually move into those different nodes.

Okay. Interesting. Maybe just wrap up this discussion, which -- thank you for today. It's very fascinating. But as we think about in 3 to 5 years from now, and marketplace has been successful, what looks different for Walmart within the marketplace context?

I think it's a question of when and how fast. We just recently held a seller summit in San Diego for U.S. sellers and before that in China for China sellers. And I've done this for 4 years now, the seller summit. And every single year we go back, the questions evolve. The first year was, "You have a marketplace?" Yes. "Okay. How do I sell in the marketplace? How do I get in WFS?"

Now the question becomes like, "Hey you have marketplaces, but what do I need to do to Canada and Mexico to sell more? Which items do I need to bring? Like how do I actually move these items into ads?" The question is all into, "How much more can I grow with you versus like how can I grow with you?" And those questions inform us and those sessions are like gold for us. We get feedback about what's working, what's not working, because we want to design the platform for them with them, and that's very distinctive versus a lot of other retailers or marketplaces that run this kind of business.

What I expect is as we grow, what we told sellers this time was like, hey, ask us how much more can you grow with us and hold us accountable and we'll deliver those goals. But also start building brands. So rather than from a seller's perspective, it's no longer about I want to sell one item. So I want to build a brand for myself. And those brands can travel now to other countries with us. It's not just U.S. They can basically create North America, Chile, South America basically connectors, right?

So how much we grow. For a customer, the boundaries between 1P and 3P will start eroding. So you wouldn't care about the first-part item, third-party item coming from an FC or what. You'll have a milk with La Roche-Posay coming in or Sneakers coming in the same basket in sub-30 minutes. And as we do that, the economics play out. We see it being a much more profitable business for sellers, for us and for our customers. That's really exciting.

Okay. Great. Well, we look forward to watching that progress. Thank you very much, Manish. I really appreciate your time and comments. It's a fascinating work you're doing with Marketplace.

Thank you. Thanks for having me. Appreciate it.

All right. Good afternoon, everyone. Thank you for joining us today. It's my pleasure to introduce Walmart. Today, we have with us Dave Guggina, President and CEO of Walmart U.S. Dave was appointed to his current role this past February and has been at Walmart since 2018. Dave, thanks so much for joining us today.

Pleasure to be here, Kate, and nice to be with everyone. Good to see you.

We wanted to start off with getting a lay of the land with the state of the consumer. How do you view the health of the consumer today across income cohorts? And what are your expectations for the consumer trends for the rest of the year?

I would say right now, the U.S. consumer is resilient. They're being very intentional with their dollars, and they're also looking for value. And that's why the Walmart value proposition is resonating today. We focus on low prices and we focus on convenience. And you can see the results of that focus just this past quarter, if you look at our share gains, I was reviewing them with the team just last week. And we saw gains really across the board. We saw gains in food, consumables, general merchandise. We saw gains across health and wellness.

And as we look towards the back half of the year, we expect to see a similar outcome across income cohorts. We expect to see share gains and unit gains.

Great. Walmart received about $2.9 billion in tariff refunds in the second quarter, which the company said is prioritizing for price investments. Can you maybe talk us through how you're approaching investing in price, whether that's the lowering the price of goods or serving as an offset to fuel headwinds? And what unit elasticity response have you seen?

So we did receive essentially all of the $2.9 billion in refunds in Q2. There's a small residual that will come in over the rest of the year. But we did exactly what we said we were going to do. We took those funds and we reinvested in price and experience. And with regards to price, Kate, there's really 2 ways that we utilize the funds. One is with rollbacks. So we had 11,200 rollbacks within the U.S. business. And another way is not taking price increases when we see the cost of goods come up, things like transportation and fuel costs, which have escalated.

And we did both of those things. And again, I would reference back to the share gains that I just mentioned. We saw some of the strongest share gains across the business that we've seen in years. And that's driven by the price investments that we made. So customers are absolutely responding to it.

Great. And as an EDLP retailer, how do you manage those price gaps? Or how do you view those price gaps and how they're positioned today?

Yes. So we compete with essentially everyone, we have 4,600 stores across the U.S. We compete with regional players, national players. So we keep a close eye on our price gaps. And right now, we feel really good about our price gaps. They are strong, and it is driven by the investments that we made. And now it's really our job to work with our suppliers and take those rollbacks that we're working and turn them into the everyday low price for our customers so that they can experience them moving into the back half of the year.

And can you maybe talk about how you manage this with inflation? Maybe can you discuss the level of inflation currently in your business and what your expectations are for the remainder of the year?

So if you look at inflation for the front half of the year, we were at roughly 1.4%. Food was closer to 1% and then general merchandise was closer to 2%. As we moved into Q3 and you saw the impact of the price investments, we saw that rate come down below 1%. But again, as we look forward, we anticipate the back half to look very similar to what we saw in the front half of the year. With regards to inflation.

We wanted to make sure we asked about health and wellness and Maximum Fair Pricing. So your health and wellness sales have been impacted this year by the new regulation related to pharmacy inflation or Maximum Fair Pricing. How should investors think about this headwind in the back half of the year and also into next year with another subset of drugs being impacted?

I think I want to start by just saying we have a fantastic health and wellness business, and it is very strong. It makes up about 10% of the U.S. business, and the majority of that is our pharmaceuticals business. Now MFP or Maximum Fair Pricing was applied to about 10 high-volume drugs. About 8 of those drugs either went generic or offered their prices beyond Medicaid to essentially all consumers. And that is a top line headwind. But again, the core is strong. We saw script growth grow year-over-year in Q2. We are seeing our profitability in this sector, double-digit improvements year-over-year. And this customer is incredibly important to our business. So I just want to unpack that just a little bit.

If you think about the average Walmart customer and the Walmart customer that also engages in health and wellness, the health and wellness customer spends about 3x more than the average Walmart customer. If they use Rx delivery, so we have lit up the same delivery capabilities that we have for general merchandise and for food for pharmaceuticals. So we can deliver to 96% of the U.S. population in 3 hours or less, 60% of the U.S. population in 30 minutes or less. So if you look at the Rx delivery customer, they spend almost 6x more than the average customer. We have seen this year same-day deliveries for pharmacies jump over 2x year-over-year. And for folks that are using pharmaceutical deliveries, we're seeing a 10x repeat rate, 10x improvement in repeat rate year-over-year. So this is an important part of our business.

When folks lean into it, they engage with more of the Walmart ecosystem and spend more with Walmart. So we're excited about health and wellness. We have a headwind, as you mentioned, that headwind will continue into next year as they have announced 15 additional drugs that will go on MFP, but the core business here is very strong.

Moving on to just omni sales growth. The U.S. e-commerce business continues to show strong momentum. Can you talk about the fundamental drivers of that strength and the sustainability of the growth?

Absolutely. We're proud of our e-commerce growth. We saw 24% growth this past quarter. That was our 10th consecutive quarter of 20%-plus growth. And if you think about the fundamentals that drive e-commerce, it's actually not all that different from the store side, too. There's 3 things we focus on. That's assortment, price and experience. From an assortment standpoint, customers want a broad selection of goods that they need, want and love. And an example of how we're bringing that to life in our e-commerce business is marketplace. But they also want goods and services. We have our pharmaceuticals business. We have our vision business. We have our auto care business. All of these have digital capabilities as well. We have our new service that we launched or announced earlier this year with quick service restaurant delivery, and we launched some additional partnerships just last week and this week.

So we're enhancing assortment. When it comes to price, it's just part of our DNA. We focus on operating at everyday low cost so that we can drive everyday low prices. And we're leaning into new capabilities like automation, physical AI to make our network more efficient so that we can reinvest into price and reinvest into experience, which is the third point that I was making. We are improving the digital experience on our website, on the app.

One way we're doing that is with our new Agentic agent, Sparky, which I'm sure we'll talk about Sparky here in a little bit. But we're also taking that broad assortment, and we're making it available to customers faster. We see about 70% of the deliveries that we bring to customers' homes delivered same day or faster. In our expedited delivery, express delivery, we saw a doubling in 30-minute or less delivery year-over-year. So all of these things are driving that core e-commerce business.

Other things I would note with e-com, is as the business grows, we become more efficient. We densify our first mile, our mid-mile, our last mile. We densify the volume moving through our stores, moving through our fulfillment centers that lowers our cost to operate. And then we have these 3 magical businesses that are helping reshape the P&L within e-commerce. That's our membership, which is incredibly important. That's our marketplace, which I've already mentioned, and that is our advertising business. And all 3 of those saw double-digit comps this past quarter and have a lot of momentum.

Great. You mentioned Sparky. So let's go to Agentic Commerce next, if that's okay. Obviously, Walmart has been investing in Agentic Commerce, including in its AI shopping assistant, which is called Sparky and through partnering with companies such as OpenAI and Google. Can you maybe map out the customer journey using these agents today? And how is Walmart positioning itself to capture more market share in Agentic Commerce?

Absolutely. There's really 2 things that I would highlight here, Kate. One is Sparky and we'll talk about Sparky a little bit. But then the second is AEO, Agentic Engine Optimization. So this room, I'm sure you all are very familiar with SEO, Search Engine Optimization. We've been doing that for decades. But we're entering into a new world, and I want to talk about that as well. So let's start with Sparky. Sparky is our Agentic agent. I don't have my phone on me, but if I did, I'd pull it up. If you go to the app, it's at the very bottom, and Sparky is smiling at you. And I would recommend take some time and engage with Sparky.

Sparky is becoming more and more capable as we move forward in time. Sparky can now help you check out. Sparky can help you take care of customer service. Sparky has tens of thousands of recipes. So if you need to build a meal, Sparky can help you build a meal. We launched a new capability with visual shopping with Sparky. So you can now take a photo and Sparky will help you shop depending on what your mission is with that photo. When customers utilize visualized visual shopping, we see the conversion rate jump by 57% versus text-based shopping. One of my coworkers had this great example that he did recently and shared with me. He went out to his backyard, and I guess he doesn't do a great job taking care of his grass.

So he takes a photo of his lawn and says, "I need some help." And Sparky, just with that context, was able to recommend seeds, lawn growth, fertilizer and help him solve that mission, build a basket of unique items that he may not even thought of to help solve that mission. And as a result of these enhancements, customers are responding. We've seen just quarter-over-quarter, weekly engagement with Sparky grow over 60%. And when customers engage with Sparky, their average order value jumps 40%. And that's because of what I just spoke to.

Maybe you are having friends over to grill for the summer. And you just say Sparky. I've got 8 folks coming over. I want to grill beef, I want potatoes and I want other things. I need food for 8 people. Well, Sparky can build that meal out for you. And then it can also ask, "Hey, do you need wood chips? Or did you know that Walmart recently added Traeger Grills to our marketplace assortment and our 1P assortment, right? And these are the types of additional context you get -- we get when customers engage with Sparky. And we're seeing that result in really positive results and how customers are responding. And then on Agentic Engine Optimization. So we partner with the frontier models. And what we see here, we're really happy with.

They are most often choosing to deep link out to us, meaning they send customers our way when they see applicable context. And when they do that, we're seeing fantastic conversion rates. So customers that are coming to us from OpenAI, from Gemini are converting at very high rates. And then what we're also seeing is that many of these customers are new to Walmart or returning to Walmart, which is fantastic. And then maybe most importantly, those new and returning customers have a very high organic repeat rate with Walmart.

So we're very excited about what we're doing with our agent and the capabilities that Sparky has and how it's reinventing shopping. But we're also excited about Agentic engine optimization. It's early in this space, but we're leaning in.

Great. I know a key tenet, obviously, that we just talked about before was value, but another key tenant is fulfillment and delivery speed. A key competitive advantage for you is the speed, which has been a driver of your consumer engagement along with membership and marketplace growth. So can you provide an overview of where you are in the build-out of the fulfillment business in the U.S. and what you'd want the next phase of growth to look like?

Absolutely. I felt like the last time we talked, I used this analogy, but I don't know if anyone plays baseball, I do not. But I'm going to use the baseball analogy. So I would say we're in the top of the fourth inning. We continue to make progress on reshaping our network. And how are we reshaping the network? Well, we're investing in a few things. One, we're investing in advanced robotics that we put across our supply chain, which is our fulfillment network engine. We're also investing in modernized software to make our supply chain more nimble, to make it more time definite, right item, right quantity, right location, right time. When we do that well, customers have better experiences. So we'll continue that build-out, and we've got a ways to go as we're in the top of the fourth, but we're seeing real results and real impact to the business. I think one way you see that coming to life is the point you made, our customer value proposition, specifically experience and speed.

As we build out our distribution capabilities and our fulfillment center capabilities, we can hold millions of items in our DC, release the right amount of units to our FCs. So you reduce your units per SKU, so you can have more SKUs, more unique assortment in FCs. That makes more items available for 2-day delivery, next-day delivery, same-day delivery and sub-same-day delivery. And then you mentioned the stores. We continue to invest in our stores, and they're interconnected to that supply chain. About 80% of our e-commerce deliveries flow through our stores, either generated directly from the forward deployed inventory or our parcels that are injected into the stores and then injected into our Spark last-mile delivery network or our van delivery network. And that is resulting in that stat I shared earlier of 70% of our orders being delivered same day or faster. We have almost 40% of all deliveries now today from our stores delivering fast, meaning delivered in hours or delivered in minutes. I had a friend who called me last week and said, I just ordered braces wax for my daughter and toothpaste. It came in 8 minutes.

They were just blown away, and I looked at the order and how that happens is we have a Spark shopper, and this is in Dallas. There was a Spark shopper in the store. Customer places the order, it's 2 units. So it doesn't take very long to pick. They're able to pick it, and they spent most of the trip driving, and they were able to deliver in 8 minutes. So when we communicate that we can reach 60% of the U.S. households in 30 minutes or less, what we're saying is about a pick time of 15 minutes and a drive time of 15 minutes. So if you shrink that pick time because it's a smaller order where we make it more efficient to pick in our stores with digital shelf labels, then you can deliver faster or you could deliver further at the same speed, and that's coming to life.

And I do think you have been messaging this to the consumer. You've had your Who Knew campaign. The speed of delivery has been a big focus, too. How are you balancing the marketing dollars today between conveying Walmart's value and assortment versus speed?

Good question, Kate. I would say, for a long time, Walmart has been known for value. And how people have defined value is price. But the truth is more and more customers are not only coming to us for low prices, they're coming to us to save money and time. I think we're redefining value. And you see that coming to life in our marketing. It's not really -- I wouldn't say it's one or the other. We try to show folks that they can have both. Low prices and convenience doesn't have to be an either/or choice. And you see a lot of competitors to get convenience, you have to pay fees, all kinds of fees.

I don't even know the names of all the fees because there are different that are added. We don't have those. We offer the same great prices in-store online, and we offer incredible scheduled delivery and express delivery options to our customers.

Great. Walmart, continues to see strength in membership with Walmart+ membership growing double digits in the second quarter. And we wondered if you could talk to us about what efforts are being made to continue to grow the membership there. And if there are any specific income cohorts that are driving the expansion in recent quarters?

Membership is incredibly important to us. As you noted, double-digit growth in membership continues. We're very excited about that. Really, what's driving that is the value proposition that we're building for members. We are making -- we are growing the in-demand assortment that's available to them. We can deliver it to them faster and faster at either no cost or lower fees for things like express delivery. We have capabilities, streaming capabilities. If you want to watch Landman on Paramount+ as a member, you get that benefit. We can give you discounts on gas. I would put our gas prices up against anyone in the U.S. right now if you are a member.

And even if you're not a member, they're incredibly great rates. So we're continuing to enhance those experience, which draw more members in and make it a stickier proposition. Maybe one other example I'd give is we have new member benefits for in-stores, things like at the money center, auto care center. And then a more recent one is photos. You can print photos. And this was a new experience for my daughter who's in middle school now because she only thinks of photos as digital photos and maybe some photos that are on our walls. But what we did is we're now giving 25 free prints to Walmart+ members.

You just walk into the store, you go to the photo booth, you plug your phone in, you select the photos you want to print and you print them off. It's a magical experience, and it's driving members to -- not only into our stores, but stickier, greater retention.

And then on the general merchandise side of the business, grocery obviously, has been consistently strong. Again, in your opening comments, you talked about market share, and you've seen market share gains, very strong market share gains in general merchandise. But what are you seeing when it comes to consumer behavior for purchasing general merchandise currently?

What I would say is customers are reaching deeper into the torso and tail assortment that we have available. So you likely saw our marketplace growth, 52% growth. The bulk of our marketplace growth is general merchandise. And it's also resulting in new income cohorts engaging with us in new and different ways. I think a great example is Nespresso. Nespresso was a brand that we wanted to bring into our ecosystem in both the first-party and third-party space, the 1P and marketplace. And they came in. And what we've seen is that many of the customers that engage with us and purchased Nespresso are higher income earners. We're also seeing that over 35% of those customers, almost 40% are new to buying coffee with Walmart. Folks, we have 150 million people that engage with us every single week.

But what's interesting is as we've expanded our assortment and brought in more in-demand brands, both in 1P and 3P, these customers who have engaged with us for decades are now engaging with us in new and different ways. And that comes to life in this new assortment. And I think that is exactly what we're seeing in GM.

And that dovetails really nicely into a couple of marketplace questions that we have for you. Just are there any categories that you're prioritizing for future expansion? I know apparel and home have been big focuses. And just how are you leveraging Walmart fulfillment services to drive higher marketplace conversion?

We're taking a broad reach with marketplace in terms of what we're targeting to drive 51% growth. It's really across the board. But there are areas where we're focused. I think beauty is a great example. We recently added a brand that we were targeting, again, both -- they were added to both 1P and 3P called Medicube. And not all that dissimilar to the Nespresso example, the -- about 50% of the customers that are engaging with Medicube, purchasing Medicube are new to the beauty space.

So it's just another example of how we're differentiating. I think also when I talk about our marketplace, you mentioned Walmart Fulfillment Services. This is an incredible offering. So sellers get access to those 150 million-plus customers that are engaging with us every week in an omnichannel way, both in stores and online, but they also have access to Walmart Fulfillment Services, which produces about 50% of the volume that we move through marketplace, about 50% of it moves through WFS.

WFS is also offered to these sellers at about a 15% discount to the price of competition in the market. And what that allows sellers to do is take those funds and reinvest in their business, reinvest into price so that they can show up on our marketplace in a stronger way and resonate with customers. And we see that come into life.

Turning now to advertising or just kind of kicking off some of these alternative revenue businesses here. Walmart Connect continues to deliver really strong growth as well. That was up 43% in the second quarter. How should we think about the overall impact of Retail Media on future growth? And what opportunities do you see around the expansion of retail media in stores?

We're very pleased with our Retail Media growth. We had over 40% growth, as you mentioned, this past quarter. And this is an incredibly profitable business. It has roughly 70% margins, which is fantastic to see. What I would also say about this business is that it has a symbiotic relationship to e-commerce. I mentioned 10 consecutive quarters of over 20% growth in e-commerce. As e-commerce grows with more marketplace assortment, more 1P assortment, these are more opportunities to engage with sellers and brands, and that will grow our advertising business.

Now there -- you talk about other revenue streams in this space. I think VIZIO is a great example. Our VIZIO and onn, which is powered by VIZIO unit growth year-over-year is over 150%. And the average customer in the U.S. keeps their TV for about 7 years. So this allows us to put more devices into customers' homes and engage with them in new and differentiated ways, through advertising, you can imagine maybe Sparky coming to life on your TV in a home in the future and helping you shop and navigate different applications on the TV.

And then we're also testing digital signs within our stores. We're in a number of stores. We'll be in over 200 by the end of the year. And that is allowing us to communicate to customers in new and differentiated ways inside the store as well. So we're excited about this space, and it absolutely is reshaping the Walmart U.S. P&L.

Great. And then speaking of P&L, U.S. e-commerce business turned profitable early last year with the key driver being all of these alternative revenue streams. Can you provide an update on the profitability profile of the e-commerce business today?

It's exciting to see that happen. We are now in our sixth quarter of e-commerce profitability, our most profitable e-commerce quarter ever was this past quarter. And what I would say is this is driven by the things that we're talking about. We're building a more efficient supply chain network with our investments in modernized software and technology. We can then take those funds and reinvest into experience, reinvest into the business, roll some of them through to the bottom line. So we couldn't be more happy with the trajectory that we're seeing in profitability. But I would also mention 2 other things we've talked about, and that's our marketplace and that's advertising, which is absolutely contributing to the profitability of e-commerce.

However, even if you strip out advertising, our e-commerce business was profitable in Q2. And I would just double down on the fact that some of these businesses, while large on the scale of just business in the U.S., they are relatively small compared to what the opportunity is. I'm thinking of things like marketplace. I'm thinking of things like advertising and membership. We have a long runway ahead of us in these spaces.

And then if we could maybe just conclude with some more recent thoughts about back-to-school and holiday, which are very big occasions for shopping. Just how are you approaching both this year, including any kind of like color on inventory or assortment? And do you anticipate any changes to your promotional strategy just given a continued consumer focus on value?

Yes. We're happy with how back-to-school has performed. We sell over 50% of the unit volume in the U.S. for back-to-school, pretty incredible, and we had great assortment. Pen+Gear had a 24-pack of cranes for $0.24, literally $0.01 a crayon. We had wide-ruled paper for $0.82. We just had great assortment at great value and fantastic convenience, and that resonated with customers. I would also call out back-to-college performed incredibly well.

It was obviously different folks who are setting up their dorm rooms or leaning into bed linens and microwaves and refrigerators. And what we saw is that they didn't want those things next day. They wanted them in hours and minutes, and we were able to deliver on that because this inventory is forward deployed in our stores and locally curated. Go to a college town, go to your local supercenter.

I went to Purdue. Purdue comes to life in the Lafayette supercenter and students can get that delivered to their dorm room. On holiday, we recently had our holiday meeting. I was in Denver about a month ago. It was a fantastic meeting. The team is ready. We're ready to drive everyday low cost so that we can reinvest in the price and experience. Our merchants came with innovation. They came with new items, and they came with sharp price points. So you asked about the consumer. The consumer wants to save money and the consumer wants to save time, and we're going to allow them to do both of those things.

Great. Thank you. We're at the point where we ask a couple of rapid-fire questions. We touched on 2 out of the 4, so I'm going to leave those out. The third question, I think we should focus on is just margins. Do you expect to see more margin headwinds or tailwinds in '27 versus '26?

We haven't rolled out guidance for next year. So what I would point us to is the reshaping of the P&L. We are growing our advertising business. We're growing our marketplace business. We're growing our membership business. And as we reshape that P&L, that allows us to handle any headwinds that may crop up as we look towards the future.

Great. And then we talked a lot about AI on the Agentic commerce side. But on the efficiency side, we were curious if you would expect a significant increase in efficiency as a result of AI in '27 versus '26.

Kate, what I would say there is that we are a people-led omnichannel retailer dedicated to saving people money so that they can live a better life. And we have been leaning into AI for quite some time. We've had physical AI in our supply chain for over 7 years. And you can see it reshaping our company, reshaping our customer value proposition. I spoke to some of those changes today. So do I expect that to happen -- continue to happen next year? Absolutely. Back-to-school is a great example. Back-to-school, we were able to use our ambient automation to build intelligently layered back-to-school pallets that went directly from the truck to the shelf in the seasonal area. It was a beautiful thing and the stores loved it.

Great. And just in our last couple of minutes, I'd like to leave the rest of the time to you for any closing remarks.

Maybe I would close with where I started. We're focused on enhancing our customer value proposition, assortment, price, experience. And if we do that well, that drives trust, and that drives frequency and makes us the first and the best place that our customers shop. And I'll say the same thing to this group that I said to my team at the holiday meeting and that I say to them in weekly meetings more recently. There is a great opportunity right now to go after market share, and that's exactly what we're doing. We're playing offense.

Great. Well, thank you for joining us today.

Yes. Thank you, Kate.

Thank you.

I think we're going to get started here. Good morning. My name is Kate McShane. I'm the hardlines, broadlines analyst at Goldman Sachs, and we are very happy to be at the Goldman Sachs Communacopia + Technology Conference. And it's my pleasure to introduce Walmart and moderate today's fireside chat.

So today, we have with us Ryan Mayward, Senior Vice President and General Manager of Walmart Connect U.S. Ryan joined Walmart in 2022, having previously served as Vice President of Ad Sales at Instacart and prior to that, as Sales Director at Amazon. Ryan, thank you for being with us today.

Thanks for having me.

I thought it might be useful just because, again, Walmart Connect, I feel like we're all kind of getting educated on what Walmart Connect does and its role at Walmart. But can you tell us a little bit about your current role and responsibilities at the business?

Of course, yes, happy to. So I joined the company about 4 years ago after a fairly long career in online advertising and a couple of stops between Amazon and Instacart. And I'm the General Manager of Walmart Connect, which means I run the business without product and technology, those roll up to global leaders. I started in sales at Walmart Connect and moved into the GM role about 8 or 9 months ago.

Great. How has your prior experience prepared you for the role that you have now? And what is your approach in growing this platform?

Yes. Well, it's funny. I started my career in this city 27 years ago. I just, sort of, piece that together this morning as I was thinking about our chat. And I've had a few experiences that really informed how I approach the business today. Many years ago, I worked at a company called Tacoda in the '05, '06 time frame that got bought by AOL. And that was an early behavioral targeting ad network, which really informed how I thought about from the early days before DSPs, before retail media, how I thought about using data to better address customers with ads, building personas and profiles and doing things like personalization.

Spent some time at NBCUniversal, where I really learned the TV business. Funny, I thought I left that behind me and then all the retailers decided -- or the largest retailers decided to get into the TV business. So I dusted off that knowledge and applied it here. And then joined Amazon in 2012, just as the ad business was getting started and ran their DSP business for about 9 years, and that's been extremely helpful in my experience here at Walmart, where we have a sizable off-site business, a lot of DSP partnerships.

And I think that retail media is maybe a label that is [indiscernible] describing the largest players in the retail space or the largest retailers that have advertising businesses, in part because of the growth of the offsite business that a couple of these retailers are included, which I'm sure we'll get into.

Yes. Yes. No, we're definitely going to talk about DSPs and TVs and a little bit later on. But just given that the business has changed a lot in these last few years, maybe could you talk specifically about the evolution of retail media at Walmart?

Of course. I'd say that over the last 3 or 4 years, we've really undertaken the publisher to platform evolution. When I started at the company, we very much behave like a premium publisher. We offered advertisers, a small number of large advertisers adjacency to the area and the app or the website where we were promoting holiday shopping moments like back-to-school or Halloween or holiday baking or Black Friday, Cyber Monday, selling the sponsorship offering and also had a nascent search business at the same time. Most of the business was managed service. That is to say, we did the work for the advertiser. And that's fine when you have a few hundred large brands that comprise most of your ad revenue.

But as the marketplace started to take shape and we saw an opportunity to work with thousands and tens of thousands of advertisers, we knew that was the opportunity to build the performance advertising machine, the easy-to-buy ad platform that delivers a clear measurable ROI and can scale, can accommodate any number of advertisers and is as easy to use for a small brand that might spend $1,000 a month as a large brand would want to spend $10 million a month, right? It works equally well and building out a performance advertising platform, self-service API-enabled, building an ecosystem of service providers around us is the mindset that's informed all of our decisions in the last couple of years. In terms of our -- how we approach our partnerships with social platforms, how we're entering the CTV space, it was really the basis for the rationale for the Vibe acquisition. And so this platform evolution is really where we're at now.

Great. And then with regards to just how competitive the retail space -- retail media space has become, can you maybe talk to us about how you think about acquiring the retail media dollars and what differentiates Walmart's advertising business from others?

Yes. I just think across the retail landscape, if we just look over the last 20 years of growth and evolution in the broader digital media business, what do we see? What are the characteristics that the largest ad platforms in the U.S. and really in the world outside of China have? They have effectively reached every customer in the country in which they operate. They invest heavily in earning more and more of those customers' attention. They are easy to buy. It's easy for a small advertiser to spend a small amount monthly as it is a big brand to spend hundreds of millions of dollars. And there's a clear ROI component. They can see what they're getting for their ad investment.

And I think that those qualities describe a couple of the retailers in the retail media space, one that's been around for a long time that have businesses over 15 years and us, and we're newer at this, we're about 6 years into our journey. And I think that's the reason why much of the retail budgets are consumed by 2 companies with one owning a disproportionate share of that revenue. I think that the rest of the retailers struggle with some aspect of that playbook, those qualities that the largest ad businesses have. Maybe they're a regional retailer and they struggle with reach or they're specialty retail and they struggle with engagement. They don't have frequency of purchase. Maybe they're running their business on third-party technology and they're not easy to buy or struggling with proof of performance.

I don't see this dynamic changing much in the near term. And I do think that as the top retailers in the world who have advertising businesses that look more like the large ad platforms expand their capabilities, the retail media terminology kind of becomes less and less applicable over time. And that's really describing where we are now and our plans for the future.

So historically, too, I think within the time line, you've seen a lot more engagement on the retail media platform from 1P and bigger advertisers. But in recent quarters, you've seen stronger engagement in advertising from the marketplace sellers. So we wondered if you could maybe again walk us through a little bit of the evolution of that, what you're offering to the marketplace sellers and how do you think about the relationship between marketplace and advertising?

Yes. The relationship is symbiotic. The more marketplace sellers, the bigger our marketplace becomes the larger our advertising business will be. The more sellers that we have, the more assortment, assuming they bring their full catalog, more assortment we have, the more assortment we have, the more customer attention, the more GMV we'll generate. And the more competition there will be for those customers' attention. And I think that, that competition will play out in 2 ways across the marketplace. Sellers will compete on retail fundamentals, having the lowest possible price, having the fastest shipping speed, having great ratings and reviews, great content on their item detail pages.

And the other way that they will compete is in advertising. And that will primarily show up in paid search. And so much of our growth has been driven by the emergence of marketplace over the last several years. And again, if we look at the shape of the revenue at the top ad platforms in the U.S., we see that, call it, 70-ish percent of, say, a Google or a Meta's business might be mid-market and SMB business. That's a very -- that's a great spot to be in because of the diversity of the advertisers that really insulates them from any sort of secular headwinds in any one industry like automotive or QSR or something like that. Marketplace is providing us with that diversity and helping us spread out the ad revenue across a much larger base of advertisers and help us grow in a more stable fashion.

One thing that you mentioned in the very beginning comments were just the opportunities in TV. And you've made 2 acquisitions. I think maybe we'll start backwards, if that's okay. We'll start with the Vibe acquisition first. So you just announced that you completed the acquisition of Vibe on August 4, and it's a self-service streaming TV advertising platform. How does this platform complement the business you just kind of walked through? And how do you expect the acquisition to impact your CTV?

Yes. We're excited about the Vibe acquisition. It closed just 6 or so weeks ago. If we look at the advertising channels that small businesses, particularly local small businesses had 25 years ago, it was the local variations of print and radio and TV. And then the search and social platforms came along and did a great job of rolling up that SMB demand, those dollars. We see an opportunity to bring the small advertiser, the local advertiser back into TV. I actually think that as TV has grown over the last 10 or so years, the barriers to entry about it actually gotten higher as the broadcasters focus more on larger and larger advertisers, knowing that they lost most of that small business share to the digital ad platforms.

And I think the DSPs that have facilitated the migration of budgets from linear to CTV have also focused on the large advertiser use case. We see a big opportunity in smaller advertisers. Vibe is great at that. What they've done is built a campaign management experience that would be familiar to a small advertiser that works with a search or social platform, easy campaign setup, goal-based orientation, automated optimization, clear measurement. And so we think that, that's a winning formula for bringing smaller advertisers back to TV. We see that their models, their optimization model in its own right is very strong.

We're excited to see what they can do when they train their optimization model on Walmart data. We're excited to introduce third-party sellers that have never bought CTV to Vibe. That will be incremental demand for them. And we're excited to aim Vibe's demand at VIZIO supply. Vibe had really started acquiring supply directly from broadcasters. More recently, they've gotten around to integrating with the devices themselves. They hadn't gotten to VIZIO just yet or they had right before the acquisition. And so we'll get that up and running and Vibe demand will run on VIZIO supply. That will be incremental demand for the VIZIO business. There's a lot of ways that Vibe plugs into Walmart Connect.

Yes. And so then, again, I wasn't sure if Vibe should come first or VIZIO, but that does dovetail into just backing into what VIZIO is and that acquisition that you made 1.5 years ago now. CTV, but just what are the capabilities? What milestones have you reached of that and what's still to come?

Well, from an advertising perspective, I think the first order of business after we closed the acquisition was enable Walmart audience targeting and measurement on VIZIO inventory. And so we did that last year. This year is the first full year we're offering that to Walmart Connect advertisers. The uptake has been really strong, particularly across big CPG advertisers who were not VIZIO's biggest advertisers before the acquisition. So we're happy with that. We're happy with the ROI that VIZIO inventory is delivering with our data as well as the ease of use or the ease of buying VIZIO inventory with Walmart data.

What we're really focused on right now is driving reach and TV reach equals revenue. And we're driving reach for VIZIO by sorting more VIZIO TVs, but also by putting the VIZIO Smart TV operating system on our private label TV, the onn. brand. And the combination of those things has made the VIZIO OS the #1 Smart TV operating system in the U.S. in the first half of this year. And so that's really going to help the big brands that we work with derive more value from VIZIO when they reach more and more U.S. households and then we can overlay Walmart data on that.

And then other partnerships that you've announced recently include Magnite, which you mentioned before, enabling Yahoo DSP advertisers to activate campaigns on the VIZIO inventory, your recent deal with Google, targeting Walmart shoppers on YouTube. So what was your thought process behind the partnering with the external DSPs? And again, I think this is all about evolution and what we can see over time. So what could that look like over time?

Yes. And I might separate the YouTube piece from the DSP/SSP work we did. I think that VIZIO has always been easy to buy Insofar as you could use any DSP to buy VIZIO inventory. The question is, how do we maintain VIZIO's ease of access while also making Walmart data available on VIZIO inventory? And we chose Magnite and Magnite is the ad server for VIZIO and it's the top SSP partner of theirs. We chose Magnite as sort of the central place where we will integrate Walmart Connect audiences and measurement capabilities. We'll have our data there. And so we can maintain control while also allowing Yahoo and soon DV360 to apply our data to VIZIO inventory.

Large advertisers have a lot of strong feelings about which DSP they want to use or should use to buy CTV. So we need to work with multiple large DSPs to maximize the VIZIO opportunity. So that rationalizes the work with Yahoo and Magnite. I think with YouTube, we want to be where Walmart customers are spending their time, where are they engaged across the Internet outside of a shopping environment. We've already established partnerships with Meta and TikTok. YouTube is a place that consumes a ton of online engagement.

So we've done a partnership with them where we're in a beta stage right now with advertisers. You can use Walmart data to target and measure campaigns on YouTube. And that's really about going out and finding Walmart customers where they're spending their time and allowing brands to do better targeting and measurement in those places, which is a much larger opportunity for us and solely focusing on monetizing owned and operated inventory.

I guess just as a follow-up question to that then. I mean, it's really just now if you're just in the beta stage, especially with the YouTube DSP, I mean, it's just about figuring that out over time?

Yes. It's about making the campaign management workflow self-service. So often when we'll launch a new partnership with a big ad platform like a Meta or TikTok or YouTube, it will be a managed service offering, a closed beta while we figure things out with the partner in terms of how to make it easy to buy in their self-service campaign interface. That's what we're doing with YouTube right now, which is why I'd characterize it as, like, a beta period.

One question that we do get a lot is about the AI impact and the effect of agentic commerce on Walmart's advertising business. And we wondered if you could maybe -- again, it's early, but where you kind of see things moving when it comes to advertising in the more agentic commerce world?

Yes. It is early and relatively small, but we're happy to partner with Google and OpenAI and enable the discovery of Walmart products in their agentic shopping interfaces. We're happy to acquire customers through those channels and drive discovery of our products. Maybe we're building relationships with new customers who ultimately check out through clearly a Walmart checkout experience. But it is small. And as those companies figure out how they want to drive more shopping volume and engage customers more deeply in a shopping journey, we're investing in our own shopping agent, which we call Sparky. And we're really happy with how customers -- Walmart customers are using Sparky. It's grown a lot. Our weekly active customers have doubled year-over-year. It's growing fast quarter-to-quarter, 60% growth quarter-to-quarter in terms of weekly active use of Sparky.

Customers are using Sparky for more considered purchases, maybe a party planning use case is a good way to describe it. We were chatting earlier, tailgating for college football, you might not know what you want to buy to host that party. You ask Sparky, you get Sparky a lot of information about the shopping occasion, which is gold for us in terms of delivering relevant results. And Sparky provides all the items you might need to host the tailgate party. And I think that's also what's driving the average order value in Sparky, which is 40% higher than non-Sparky shopping trips. So as the broader agentic shopping landscape evolves and takes shape, we're there, and we're investing heavily in our own agent.

And then how would you maybe, kind of, close the loop on that, like, how customers find come back to maybe walmart.com in an OpenAI or agentic commerce environment?

I think we're giving customers a lot of reasons to engage with us digitally, whether it's giving us their mobile phone numbers so we can text them a receipt when they do self-checkout or scheduling an appointment with our auto care center in the Walmart shopping app or walking into a Walmart store and opening up the app and using store mode to navigate the aisles or to pay with the credit card they've got on file with their app.

There are lots of reasons customers will have digital touch points with Walmart, and we're giving them more and more reasons and making those high utility reasons. And so we don't have any concerns about ongoing digital engagement and shopping with Walmart, even though our products, particularly for single-item shopping trips are out there in other agentic experiences.

And then maybe if we could walk back to something you said before just about measurement. Could you maybe talk a little bit about how Walmart is measuring the success of an ad campaign and how it differs between online versus maybe what you're doing in the stores?

Sure. Yes. I would say that the breadth and depth of our measurement capabilities gives us the luxury of going to an advertiser and starting with what is your core business goal? Is your business goal to acquire new customers for your brand to drive household penetration to reactivate customers who used to buy your brand that maybe switched to a competitor or maybe you want to build bigger baskets through meal solutions or a beauty regimen or home cleaning regimen. We have tactics that can drive those outcomes, and we have metrics that can measure whether those things are all happening. That puts us in a very strong position to offer a solution to a brand rather than sell ads and rely on, say, third-party measurement capabilities.

I think the core question that brands are asking is what is the incrementality of my investment in Walmart Connect? Are the ads causing sales that wouldn't have happened if I wasn't investing in advertising? And we answer that question, too. We have multiple ways of measuring sales lift for display and video and search. And that's particularly launching incrementality for search about a year ago has been hugely helpful in proving ROI to brands. I think the journey they're on next is how do they make sure that the signals they're seeing from our reporting show up in their own internal ROI models. They're evolving their media mix models. There are lots of companies out there that have AI in the name that are helping brands build more agile MMM. They don't have to do it once or twice a year.

And so we're also starting to plug into those to help brands understand that the results you're seeing from our reporting are also showing up in their own ROI model, which is really just about building trust and helping brands continue to grow on an already large base of ad spend.

And then we've talked a lot about the digital advertising online, but what about every opportunity that could be in the store? We know digital screens is part of it, but what else can you tell us about in advertising in store?

Yes. Well, what I didn't answer in your measurement question is in-store attribution. And I kind of forget about that because it all happens automatically. Online ads drive sales in our app and in our store, and we always measure both for every campaign. It's just built into the system. With in-store advertising, we do see a meaningful opportunity there to have more engaging screens throughout the store. We've been experimenting with screens around the perimeter of the store, the TV wall, deli and bakery screens. And those have been effective for food and for electronics or electronics-adjacent categories are really where we have the space and where we have a lot of traffic that we haven't taken advantage of with screens are in the aisles in the middle of the store.

And we're testing in certain stores now end-of-aisle screens that are inventory and price aware that will show sponsored messages to drive customers down those aisles, particularly in food and consumables. And so we're really excited about using the store and introducing new advertising surfaces that are additive to the customer experience and applying our attribution to in-store assets as well as ads that you see online.

Great. E-commerce profitability is also a big investor focus and Walmart U.S. continues to benefit from the strong e-commerce growth and the business turned profitable in the first quarter of 2025. Can you maybe talk about the interplay between the growth of e-commerce and advertising and how advertising has contributed to this better e-commerce profitability?

Yes. I would characterize it similar to how I talked about marketplace and that the relationship between the growth of e-commerce and the growth of advertising have a direct relationship or they're symbiotic in nature. And the more that we have or the more Walmart customers who are addressable online, the bigger our advertising business will be, the more e-commerce GMV, the more -- the faster our advertising business will grow as well. We have a great high-margin advertising business, over 70% margins compared to 5-ish percent for the core retail business. And this profitability is incremental to Walmart. I think some of the retailers out there are growing their advertising businesses through sort of a pocket shifting, giving a break in one sort of trade investment area in exchange for investment in ads. That's not something that we're favorable on, which we don't do that at all.

And so the profit from the business is purely incremental to Walmart. And we see a lot of headroom to grow this business. We have the opportunity to advertise in the Walmart shopping app. We have all these other surface areas across social and CTV that I mentioned. VIZIO has been a platform that's introduced us to advertisers that don't sell products at Walmart as has Vibe. So with Vibe, we have small advertisers that don't sell products at Walmart. And with VIZIO, we have big ones. We would call those non-endemic advertisers. That's a whole new addressable advertiser universe for us to work with.

And so I do think that there's a clear connection between e-com GMV growth and ads growth, but ads growth can also happen outside of the dynamics of our e-commerce business. And I think that's an important insight for understanding the long-term growth potential of Walmart Connect.

So the advertisers that don't sell at Walmart, we're at the very beginning stages, it sounds like. Could you maybe give a couple of examples of what that looked like?

Yes. Insurance, financial services, quick-serve restaurants, entertainment companies buying TV ads from VIZIO, local advertisers, a local car dealership, a local restaurant chain buying CTV ads from Vibe. We should acquire a third company that starts with the letter V. It tortures me up here. So those are a couple of examples where they're CTV-centric. Actually, before we bought VIZIO, we had launched non-endemic advertising at Walmart Connect. Brands that don't sell products from us could use Walmart data on the Walmart DSP, so running off-site.

And then also, we -- in the last year, 1.5 years, we've opened up ad placements in the Walmart shopping app where non-endemic advertisers can put their placements or their ads, rather. So think about like the post-checkout experience or when you're going to a Walmart for a pickup order and you're sitting in your car and you're looking at your app, there are ads there, which say like, hey, go check out McDonald's or Burger King, right, like contextually relevant ads that are for experiences outside the Walmart environment. Those are a few examples of how we've experimented with and grown non-endemics, but Vibe and VIZIO have been -- will be accelerants for that.

Great. Sam's Club is obviously part of Walmart. And with the recent rebranding of the member access platform to Sam's Club Connect, how are you thinking about the relationship between the advertising business of Walmart U.S., Walmart International and Sam's Club now over time when considering the growth of global brands?

Yes. Well, those are fairly early businesses, the international businesses and even Sam's. And when you're getting started and the advertising business lives in different segments around the company, you're left to your own devices to figure out how to do it. And Sam's and our international markets have taken different paths, use different third-party vendors. And so what we're doing today is the unsexy work of unifying each market and each retail business on a common ad tech stack so that everybody can take advantage of the features and functionality, the advertiser capabilities that we've built for advertisers in the U.S. So that's a big investment that's underway now. As that work comes to completion, it just means that those advertising businesses will take off. Their data will be used more effectively. Their placements and their apps will be used more effectively, and they'll have a longer growth runway.

I do think that there's also an opportunity to work with global brands. I've worked at companies before that had an international remit, and we had big brands that operated in every country in which we operated, and they wanted things like joint business plans that covered every market, common commercial benefits. And I think that there's an opportunity. We're not there yet. There's an opportunity to do that down the line, which is just another way of becoming a more strategic partner to big brands and deepening their relationship. So I think that the tech work we're doing now lays the foundation for growth in each market independent of the U.S., but also it will be enhanced with global relationships that might originate from the U.S. and then benefit each local market.

Great. And just in our last couple of minutes here, I mean, we've heard a lot of great stuff today. It still sounds like there's so much to come. But just over the next couple of years, what excites you most about Walmart's advertising business?

I think the size [Technical Difficulty] we are helping brands of all sizes, large and small in all industries grow, Walmart Connect will continue to grow. And we'll do that by engaging our customers in a shopping environment, in-store online, but also engaging Walmart customers, which is really another way of saying engaging U.S. consumers, but through the lens of what we know about what they shop for and buy from Walmart, engaging them in the places where they choose to spend time online, whether that's a social environment, whether it's watching TV, whether it's short-form video on their phone or in the living room. We are building out the capabilities to be in all those places. We are in all of those places at an early stage of maturity.

As those capabilities mature, our advertising business opportunity size will be much bigger than that, which is enabled by the retail business. And that will be -- that's really the foundation for many years of growth. And that's really what I'm excited about is we're really breaking out of the retail media mold and being an advertising business.

Great. Well, thank you so much for joining us today. Thank you.

Thank you. Appreciate it.

Greetings. Welcome to Walmart's Second Quarter Fiscal '27 Earnings Call. [Operator Instructions] I'll now turn the conference over to Steph Wissink, Senior Vice President, Investor Relations. Thank you, Steph. You may begin.

Welcome, everyone. Joining me today from our home office in Bentonville are CEO, John Furner; and CFO, John David Rainey. We'll begin with highlights of the previous quarter and our outlook for the year. Then we'll open the line for your questions. During the question-and-answer portion, we've invited Seth Dallaire, our Chief Growth Officer as well as segment leadership to join. Dave Guggina from Walmart U.S.; Chris Nicholas from Walmart International; and Latriece Watkins from Sam's Club U.S. So we can address as many of your questions as possible, please limit yourself to one question. For additional detail on our results, including highlights by segment, please see our earnings release and supplemental presentation on our website.

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 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.

That concludes my introduction. John, over to you.

Good morning, and thanks for joining us. I want to start by thanking our associates around the world. Their commitment to serving customers and members every day is what drives our business, and the results we delivered this quarter reflect their hard work. This is a good quarter for Walmart and shows once again that our strategy is proving out. We've been investing against it for years, and I'm even more bullish today as we see the pieces increasingly powering each other. A strong retail foundation alongside faster-growing businesses like marketplace, advertising and membership.

The math isn't simply one plus one equals two. The value comes from how these businesses work together with each one, strengthening the others and expanding what the company can do as a whole. And as these businesses scale, they become a more meaningful part of our mix and they're changing the shape of our business. We're accelerating growth and improving the overall economics of the company. The model is working, and we're confident in its power to drive durable long-term growth in shareholder value.

The underlying business continued to perform well in the quarter and was largely in line with our expectations, which assumed a slight moderation in sales growth from the first quarter. Overall, we continue to gain market share. We grew units and transactions and membership fee revenue was at an all-time high on growth of 17%.

We delivered another quarter of strong e-commerce growth up 23% globally, including the tenth consecutive quarter of growth over 20% for Walmart U.S. and we also expanded the reach of platform businesses like Walmart+

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in marketplace, the markets outside the United States, demonstrating how we're

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leveraging need for growth. And as we build and scale these capabilities across markets and begin to operate globally on the platforms we've built during the last few years of transformation, we're seeing the same dynamic. These businesses work together, deepen our relationship with customers and members and create additional opportunities for growth and stronger economics.

Our core retail business had another strong quarter with sales growth at the top end of our guidance, up 5% in constant currency. Comp sales for Walmart U.S. were 2.6% led by transactions and Sam's Clubs U.S. delivered comps of 4.4%. International was up 7.9%, led by China and India. For Walmart U.S., I feel good about how the underlying business is performing. The team delivered strong sales growth in categories like toys, pantry and fresh, and we continue to see growth from higher income households. Changes in regulation around maximum fare pricing for certain drugs negatively impacted comp sales by 125 basis points.

John David will share more about the makeup of the U.S. comp and talk to the additional color we provided in today's earnings presentation.

Turning to profits. Adjusted operating income grew 17.4% in constant currency. This includes the benefit from the receipt of tariff refunds in the quarter. And as we suggested on the last call, our intent was to deploy much of that back into price and that's what we're doing. Importantly, our underlying profit growth was where we thought it would be, excluding this benefit. Because of our strong top and bottom line growth, we're raising our guidance for the year.

Now let me take a moment to talk about specific drivers of our growth. First, everything we do starts with serving customers and members as an omnichannel retailer. Core to that is delivering value and maintaining price leadership. As we said coming out of Q1, customers tell us they're still filling some pressure, but it's clear customers are looking for value and convenience and they want things fast, and that's where Walmart shines. Having the best prices across a basket of goods helps us continue to build trust with our customers and members by helping them save money at a time when many households are carefully managing their budgets.

The Walmart U.S. team delivered more than 11,000 rollbacks during the quarter, up from 7,200 rollbacks at the end of the first quarter, demonstrating our commitment to price investment. We're investing heavily in price because customers need us to and because we believe it drives market share gains over time. Our price gaps to conventional grocers here in the U.S. are strong, and they continue to widen. The share gains received from this channel have persisted alongside the drug in dollar formats.

A second area I'd like to highlight is our ongoing strength in e-commerce. The sustained growth we've seen in e-commerce across the company over multiple years points to more than a digital success story. It even is that customers and members increasingly choose Walmart because they know we combine low prices across a broad assortment with speed and convenience. The mix of e-commerce for Walmart International is now 30% with strong growth again this quarter in China, India and Canada. Growth in Q2 was 19%.

Sam's Club U.S. grew e-commerce 26% with delivery from club up triple digits following the launch of our 1-hour delivery back in April. Walmart U.S. delivered growth of 24%, marketplace grew 52% and advertising was up 38%. We believe a factor in this growth is our ability to deliver with speed.

Customers and members around the world are getting super fast deliveries of baskets that include pharmacy, fresh, frozen, fashion and general merchandise, often in under 30 minutes. Fast delivery in the U.S. grew 48% for the quarter. Speed matters and we have a significant competitive advantage. Our physical footprint fulfillment infrastructure and local delivery capabilities allow us to move closer to customers while maintaining an attractive cost structure. We've now expanded sub 30-minute delivery into 38 markets here in the U.S., giving millions of additional customers access to faster fulfillment.

And speed isn't simply a fulfillment metric. It's an acquisition strategy. Customers who use fast delivery shop with us more frequently, they deepen engagement with us, and they're more likely to become Walmart+ members. The advances we're making in speed of delivery create another reason for customers to choose Walmart for more shopping occasions.

That's an important shift in how we think about growth. And as we become faster, we're not simply taking share within traditional retail categories. We're expanding the number of occasions where Walmart can serve customers like food delivery. In the past, customers may have thought about Walmart primarily for groceries and general merchandise. Today, we're expanding beyond that. Meal Solutions, prepared food partnerships like the one we announced with Subway, and faster fulfillment allow us to participate in a much broader share of everyday food spending. This is an exciting opportunity, and we're just getting started.

The third area I'd like to highlight is our platform strategy. We're building capabilities that are increasingly scalable across markets, marketplace, fulfillment services, membership, advertising and other commerce solutions are strengthening our business and they're improving the economics of the company. This quarter, we expanded our U.S. marketplace platform capabilities into both Mexico and Canada, and we launched Walmart+ in Canada.

Membership was also a highlight with double-digit growth for Walmart+ and strong growth for Sam's Club in the U.S., China and Mexico. We also gave a boost to our advertising business with the acquisition of Vibe. We believe Vibe expands our ability to help advertisers of all sizes reach customers through self-service tools while measuring results against real shopping behavior.

Combined with Walmart Connect and VIZIO, this further strengthens our platform and creates value for customers, sellers, suppliers and advertisers. These are important milestones because they demonstrate the value we're creating across the company. Rather than building entirely new capabilities market by market, we're increasingly able to build once, improve continuously and scale globally. That makes us faster and more efficient and allows customers in more markets to benefit from innovations developed anywhere across Walmart.

The fourth area is our supply chain. We've invested in automation, technology, fulfillment capacity and our physical network, and these investments are showing up in customer experience. They're allowing us to move inventory more efficiently, deliver faster, help with in-stock levels and support the growth of both our first-party and marketplace businesses. They also strengthened the economics of our omnichannel model. And as we improve density and utilization across our network, speed and profitability reinforce one another. And you can see how these advantages build on each other.

When we invest in our supply chain, it helps us get more products to our customers and members faster. When they get items faster, they shop with us more frequently, both online and in our stores. And as frequency increases, our suppliers and sellers want to be closer to the point of purchase, it's reinforcing.

Finally, let me talk about how AI is helping make Walmart faster, more convenient and personalized. We continue to take a people-led tech-powered approach. We're using AI to make our work easier and help our associates grow and be at their very best. We believe AI will improve nearly every part of our business by making shopping better and our associates work easier.

Sparky is a great example. The number of customers using Sparky is up 70% from last year, and the customers and members who use Sparky for shopping been 40% more per order than others who don't. Someone recently shared with me that they asked Sparky for a weekly meal plan of healthy foods with high protein options. Within a few seconds, Sparky shared recipes and meal kits with the ability to add all the ingredients they needed their basket with one click. Sparky recognized the ingredients they had recently purchased, both online and store, so they didn't buy something they already had. It's building trust.

When you step back, what encourages me the most is how these areas are increasingly connected

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I'll close my comments where I began. And that's by thanking our associates. The progress we're making is possible because of the way they serve customers and members each and every day, the way they embrace new technology and the way they continue to find better ways to operate. I'm excited about the momentum we have confident in the strategy we're executing and even more optimistic about the opportunities ahead.

With that, I'll turn it over to John David to walk through the quarter in more detail. John David?

I'll echo John's sentiments. We're pleased with the way our business is performing, especially during the more recent operating environment that's been marked by some near-term macro frost wins. Our business model is only getting stronger and more durable. And this gives us confidence to raise our sales and operating income growth guidance for the year. With the tariff refunds, there are some idiosyncrasies to this quarter's results. So I'll provide a deeper view of the impacts and discuss how we're thinking about these factors looking into the second half of the year.

First, I'll start with the financial and operational highlights. Enterprise net sales growth in constant currency of 5% was at the top end of our guidance of 4% to 5%, driven by growth in e-commerce, Sam's Club in China. This quarter demonstrates the benefits of our diversified portfolio of businesses across channels, formats and markets. Global e-commerce net sales grew 23%, continuing the strong momentum of the last several years. Sam's U.S. and our International segment were both accretive to enterprise sales growth. Sam's comps were driven by a 7% increase in transactions with solid growth in unit volumes.

International constant currency sales increased nearly 8% and led by 9.7% growth in China. Walmart U.S. net sales increased 3.5%, including a comp sales increase ex fuel of 2.6%, slightly below our initial expectation due to lower health and wellness sales that were impacted by a larger headwind from maximum fair pricing. I'll talk more about this in a minute.

Enterprise adjusted operating income on a constant currency basis increased over 17%, and adjusted EPS increased over 19%. This performance reflects the net benefit from the tariff refunds we received, partially offset by price investments in the quarter as well as improved incremental margins in our digital business with strength in high-margin commerce solutions.

Operating income growth included a net benefit of approximately 750 basis points related to tariff refunds received in Q2. Setting aside this benefit, underlying operating income growth was at the top end of our 7% to 10% guidance. Our outlook reflects the continued prioritization of the remaining tariff refunds in the customer experience and price investments in the second half. For this reason, I encourage you to consider Q2 and Q3 performance together to assess the underlying growth of the business.

I want to take a moment to further emphasize the positive progress we're making in our e-commerce businesses. Digital is driving our growth, customer spend and market share gains across all operating segments. As we deploy these digital capabilities outside the U.S., it allows us to move with speed from an operational perspective. From a financial perspective, this allows us to grow at a lower marginal cost.

Walmart U.S. e-commerce grew 24% in Q2, with over 40% sales growth in store-fulfilled deliveries, 20% growth in average weekly customers, and over 50% growth in marketplace sales. E-commerce growth was also strong at Sam's Club U.S., up 26% and our International segment up 19%, led by China, India and Canada. Sustained e-commerce momentum enables the growth of Commerce Solutions businesses, advertising, marketplace, data ventures and membership.

I'll start with global advertising, which increased 38% and driven by another strong quarter from Walmart Connect in the U.S. and Flipkart ads. Walmart U.S. advertising, including VIZIO, also increased 38%, led by strength in Walmart Connect which was up 43%. The momentum in marketplace and fulfillment services continued this quarter, with U.S. net sales up 52%. Nearly 50% of the Marketplace business flowed through Walmart fulfillment services in Q2, an increase of nearly 400 basis points versus last year. We're benefiting from a broader marketplace assortment that includes more of the key brands that customers want.

Walmart Data Ventures continues to drive meaningful growth. Users value the platform's enhanced decision intelligence capabilities, which uncovered shared growth opportunities across Walmart's formats and markets. We announced today that we're extending the Cintella platform to Sam's Club U.S. next year, addressing one of the top requests from our suppliers. Rounding out our profit mix drivers, membership income grew nearly 17% globally. Sam's Club U.S. membership increased nearly 6%. This was driven by steady growth in member counts and plus penetration. Sam's Club China hit new record highs in member counts, and we saw strong relative performance in our Sam's format in Mexico.

We're especially pleased with the continued strong double-digit growth in our U.S. Walmart+ program, resulting in the best first half of membership growth in its history. We are building what we believe can be the most essential membership program for consumers and excited for what's ahead. The thing that people sometimes overlook when reflecting on our membership program is the incrementality that we see on GMV. Our members spend approximately 4x more than nonmembers.

Turning to incremental margins. The profitability of our e-commerce business continues to improve. Our Walmart U.S. e-commerce business achieved double-digit incremental margins for the first half of the year. This was driven by continued strong ad and membership revenue, further densification of our delivery network, growth in fee-based fast deliveries, which represented an all-time high of 37% of store-fulfilled deliveries in the quarter. And lastly, the benefits of automation. 3,100 of our U.S. stores are now served with some level of automated freight, and we're processing over 50% of our e-commerce fulfillment volume through automated facilities.

Now I want to address a few areas in a little more detail. The first is the Walmart U.S. comp. To help understand the composition of our U.S. comp sales by merchandise category, we provided an additional disclosure in our supplemental slide deck, which is Slide 14. The chart on that slide shows Walmart U.S. comps, excluding the health and wellness category. Over the last 2.5 years, sales in our core categories have been extremely consistent, largely in the 3% to 4% range on a quarterly basis.

For outlier periods, such as last quarter, when looking at a 2-year average growth falls right into the middle of a similar 3% to 4% range. We expect core comps in a similar range in the second half. However, when looking at the Walmart U.S. total comps, including health and wellness during each of FY '25 and FY '26, we realized 100 basis points of a tailwind from sales of GLP-1 branded drugs.

In FY '27, the benefit from GLP-1 is expected to be roughly half that amount, as script count growth is more than offset by price mix headwinds. New in FY '27, we cited a 100 basis points headwind to total comp sales from deflation and brand to generic transfers under the first year of maximum fair price regulation. In Q2, this negative impact was closer to 125 basis points, and we've updated our estimate for FY '27 impact to be similar at 125 basis points.

Putting all this together, sales of core merchandise categories have been consistent. But at the total U.S. comp level, we've had nearly a 200 basis point net swing in comp sales growth from the trailing 2-year pace to this year, entirely tied to our health and wellness category. It's important to note that this unfavorable impact is to the top line only. We're pleased with the underlying performance and the profit contribution of our health and wellness business.

Next, I want to discuss in-store comps. They were down low single digits in Q2, consistent with the trend that began in late Q4 last year. This headwind is primarily driven by the negative impact from the health and wellness business, where the vast majority of the sales occur in store. The role of our stores has evolved as our model has changed. E-commerce sales now represent over 23% of our mix in Walmart U.S., which is double the level from just 5 years ago. The more omni we become, the more important our stores become not less important, more important.

Between in-store shopping and digital fulfillment, we have more unit volumes transacted through our stores than ever before as they are the last mile fulfillment nodes for 80% of our e-commerce orders and 100% of our fast deliveries. As e-commerce profit margins continue to improve, we're becoming increasingly agnostic about channel dynamics, while enabling customers to shop on their terms.

Next, I want to discuss the tariff refunds in a little more detail. As we shared with you in May, we were eligible for approximately $2.9 billion of tariff refunds, amounting to about 0.5% of annual U.S. net sales. To date, we received substantially all of these tariff refunds. As John mentioned, we've taken a disciplined approach to investing these funds back into customer experience and price leadership, prioritizing investment in grocery and general merchandise categories. Looking forward, our Q3 guidance reflects the continued impact of pricing actions taken in Q2 alongside continued prioritization of tariff refunds and the price investment. We would encourage you to look at our operating income growth for Q2 and Q3 together to assess the underlying performance of the business.

Now I'll turn to SG&A. We leveraged wages in Q2 as we continue to improve productivity through increased usage of tech tools by associates and stores and streamlined inventory flow enabled by supply chain automation. More than offsetting these benefits were higher depreciation related to CapEx and increased self-insurance cost.

Inventory at quarter end increased 6% in constant currency, slightly higher than total enterprise sales growth. The increase reflects cost inflation as well as higher inventory to support strategic initiatives in the U.S., including the optimization of inventory across fulfillment notes.

Turning to guidance. We have increased confidence in the long-term value drivers of our business. Our business is strong. E-commerce and related businesses offer compelling growth, and we are consistently generating strong incremental margins. We're raising our fiscal year sales guidance to 4% to 5% from 3.5% to 4.5% previously.

There are four assumptions worth highlighting. The first is this upward revision reflects the pass-through of first half performance, but also assumes slightly better second half sales versus our prior guide as price investments drive accelerated and sustained share gains. Price investments are an immediate benefit to customers but build value over time for the business.

Second, we're incorporating a larger headwind from maximum fare pricing within the Walmart U.S. business. Based on year-to-date experience, we now estimate the full year headwind to Walmart U.S. comp sales will be closer to 125 basis points.

Next, we expect Sam's Club U.S. in international to be growth accretive to the enterprise in both Q3 and Q4. Walmart U.S. sales growth is expected to improve in Q3 as the investment in customer value translates into stronger cells.

And lastly, the timing of Flipkart's big billion days will impact the cadence of Q3 and Q4 sales growth. This year, we expect a Q3 headwind of over 100 basis points sales growth as we lap last year's event. We expect that Q4 sales growth will benefit by a similar amount for this year's event. Overall, for the enterprise, we expect sales growth in Q3 to be between 3% and 3.75%.

Regarding operating income, we're raising our full year guidance to 7% to 8.5% versus 6% to 8% previously. We expect the financial impact for the tariff refund receipts and reinvestment will be largely contained within the current fiscal year with the objective of driving sustained customer benefits and share gains in the second half and into future years. Our guidance assumes that fuel costs persist at current rates. We now expect more than $2 billion of incremental fuel-related costs this year, above and beyond our original guidance assumptions. We also expect cost related to the acquisition and integration of Vibe to be an approximate 20 basis points headwind to OI growth.

Inclusive of planned investment of tariff refunds, Q3 operating income growth on a constant currency basis is expected to grow 2% to 4%. Notably, a large portion of the refunds were invested at the end of Q2. So the full quarter impact of these investments is more pronounced in Q3. When looking at Q2 and Q3 reported operating income together, growth would average approximately 10% per quarter. We're raising our full year EPS guidance to $2.80 to $2.87 from $2.75 to $2.85 previously. For Q3, we expect EPS of $0.62 to $0.64.

I want to be really clear on this point. We're at the midpoint of our year, and we're raising our full year guidance to reflect confidence in our ability to sustain growth and share gains. Importantly, we're raising in the face of more than $2 billion of incremental costs tied to higher fuel prices and arguably a softer consumer environment than in February when we introduced our initial outlook. As such, we feel it's prudent to remain cautious by only raising the guide modestly.

We now expect slightly higher CapEx for the year at approximately 4% of annual net sales. Even with this increase, we expect to generate double-digit growth in free cash flow this year.

In closing, our teams continue to focus on what we do best. Serving customers and members with everyday great value, exceptional convenience and speed, all while pushing our business model forward, diversifying our profit mix and leading in agentic experiences.

We're now happy to take your questions.

[Operator Instructions] And our first question is from the line of Kate McShane with Goldman Sachs.

We wanted to focus our question this morning on the tariff refunds and price investment. With your most recent incremental pricing investments, I know you mentioned you're expecting a slightly better second half as a result. But have you already started to see an acceleration in units? And just given the price investment is such a focus in the market, can you talk about vendor support versus how much Walmart is investing? And how do you sustain these lower prices and lap this investment in 2027?

Thank you. Thanks for the question. This is John. Let me just start by saying I'm really pleased with the quarter for Walmart. This is a good quarter, 5% in sales and strong operating income growth. We've been investing, as you know, in the last few years in the strategy to drive a very powerful omni business, and we're proud of the progress I've been a part of building the strategy for a year, and it's great to see it come together. We want to be really flexible for customers, whether they shop at the counter or at the curb or delivery to their home. .

Customers are looking for value and our team is executing that well. We had a good quarter in Walmart U.S., International and Sam's Club. And the result of that is we have seen share gains. And we're pleased with share gains across the business. There was an impact in pharmacies. We talked about from MFP. Putting that aside, the third -- or the second quarter, excuse me, for Walmart U.S. is the best second quarter we've had in the last 3 years. So we're proud of the performance.

And as all these pieces come together, whether it's marketplace, advertising, our membership businesses, it's important to recognize that these businesses work together, they're reinforcing and they further develop our ability to serve customers with value.

So on price specifically, as John David mentioned, we invested in price in the second quarter. We talked about at the end of the first quarter that customers are feeling some pressure. So we're proud of our investments. We're very thoughtful about those investments, the categories they went in, the timing of those investments. and we'll manage them across the two quarters. Our merchants have a lot of experience, delivering value, mixing out. They're doing this in a way that, as I said, resulted in share gains. We're really pleased with the share gains that we saw in the food categories, and those type of share gains tend to be durable over time.

So specifically, as we look forward, if you take the two quarters, you put those together, we're pleased with our forecast in terms of sales. We're pleased with the forecast in terms of operating income growth. You heard John David mentioned what those two are. And our purpose and mission is always to save people money and live better, and that's what we'll continue to focus on. And we'll do everything we can to keep prices as low as we can for customers throughout the rest of the year.

The next question is from the line of Simeon Gutman from Morgan Stanley.

So I guess I have two parts. The first is the lower-income consumer has faced pressures for the better part of several years. Is there anything different even about this environment with gas prices that you think has accumulated to weigh on them further? And then it's related to the prior question, and I think some of John David's prepared remarks, the elasticity function to some of these price investments and rollbacks I know you mentioned you see it immediate. Can you give us some context? And then is there traditionally a little bit of a lag where you start to see a more, I guess, more impactful response over the next, call it, 6 months?

Simeon, this is John David. Thanks for your question. We, no doubt, and it sort of states the obvious, of seeing some incremental pressure on the consumer relative to the beginning of the year with higher fuel prices. As you go through month by month in the last quarter, you can tell when fuel prices increase and got above $4, and perhaps there's a psychological impact to that, that there are choices that consumers are making. So June was a little more obvious as we look at the quarter in terms of customers making trade-offs. And it's why we have lean so heavily into lower prices. You're right, there is elasticity on these items that we roll out. We talked about 11,000 rollbacks. We're really proud of that. and how we're trying to be there for our customers and members during this period of time. But I think very importantly, in your question, there is a lag to this. There is a bit of a cumulative benefit that comes when you lower prices. And so you don't necessarily expect to have that offsetting benefit to the lower prices in the immediate period.

And so as you know, being very familiar with our business, we're not managing our business for one quarter. We're managing our business on a multiyear basis to play to win. We feel confident in our strategy and what we're doing here. And importantly, the market share gains that we've seen in these recent periods, they're durable. We're seeing that we're keeping those market share gains. And that's why I think we've been perhaps as bold as we have to continue to go after that.

And Simeon, with the rollbacks and the other investments, we exited the first quarter, as we mentioned earlier, at about 7,000 rollbacks. It's normally about 5%. At the end of the quarter, we had 11. And when you take rollbacks in consumable categories like food, you tend to see first a unit increase and we saw transactions and units grow in the quarter. And then that does create a temporary deflationary effect. But as the units grow over time, particularly in food, then the share gains come through. And we were really pleased with the recent share report in food, it's one of the strongest reports we've had in some time. So we're pleased with those. But again, we'll handle this thoughtfully. Our hope and intention always is that rollbacks can become permanent price increases wherever possible. We have the line of sight to those. And for any that we see that we aren't getting a return, and we'll manage them carefully. We want to be thoughtful about how we invest all of our funds and all the funds available. Ultimately, we're trying to reinforce the everyday low price model and save customers money.

The next question is from the line of Greg Melich with Evercore ISI.

I'd love to follow up on where you're seeing tariff rates going forward. Are the effective rates under the new sections coming in at higher or lower than AIBA? And then my follow-up is on the baseline into '27. Should we think about operating income still growing up to 2x sales as we see the traffic results from the price investment?

[Audio Gap] a benefit to our forecast. On operating income for 2027 and the outer years, look, we have a lot of confidence in our ability to continue to grow the bottom line at a much faster rate than we had the top line. But I don't want to miss the top line growth to do you have what is roughly $0.75 trillion of a revenue base and be able to grow at 4%, 5%, 6% a year, that's meaningful growth. What's notably different, though, is how profitable that growth is.

And so let's step back for a second and just think about the U.S. comp. U.S. comp is at 2.5%. I think the right way to think about that is really more 3.5% when you adjust for health and wellness. But just take at face value at 2.5% U.S. comp. We grew operating income 10% ex tariffs. That's 4x the level of revenue growth. We haven't done that level of profit growth relative to the U.S. comp in 2 decades. Our business is fundamentally changing.

If you look at the profit drivers of our business, almost half of the growth came from areas like membership, advertising marketplace. And we expect this to continue. In fact, I think there's line of sight to seeing improvement in incremental margins as we go forward. Right now, we're generating roughly double-digit, low double-digit incremental margins, but the growth drivers of our business are as intact as they ever have been.

The next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

I want to ask about the health and wellness category, and I appreciate all the detail you shared this morning. It's really been an outsized contributor to growth over the last few years and still seems to have a bright outlook. I was hoping you could speak to that multiyear outlook and maybe how to think about the impact of fair pricing, particularly as we look out over a couple of years here?

And Brad, as we mentioned, there definitely has been an impact in prior years. It was a tailwind, and it was a headwind in the quarter. That's on Slide 14 in the supplemental materials, so we need to provide the transparency we can. But we do not want to at all signal that we are unpleased with the health and business. Lower prices help over the long term. We have a legacy of lowering prices in pharmacy back to the $4 generics, which has been exciting. But I'm going to have Dave talk about the business overall. We're really energetic about not only the underlying performance of health and wellness, but health customers, pharmacy customers, they spend more. And I think there's some really important detail that Dave is going to add.

Absolutely, John. We feel very good about the underlying momentum in a health and wellness business. Prescription volumes continue to grow. We're gaining market share and customers are responding strongly to the convenience that we're building around pharmacy. I do want to highlight health and wellness, this customer cohort is incredibly important for us. When someone becomes a health and wellness customer, they spend on average, 3x more than the average Walmart customer. And when they begin using pharmacy delivery in addition to being a health and wellness customer, that almost doubles yet again. So we have a very unique opportunity to connect our pharmacy expertise, our digital capabilities and our local fulfillment network to make health care more convenient and accessible while deepening our relationship with these customers.

Our next question is from the line of Michael Lasser with UBS.

You articulated a lot of confidence that the Walmart U.S. comp is going to accelerate as the lagged impact from these price investments start to gain traction. So have you already started to see that? And b, if that does not happen, what are you thinking about in terms of incremental price investments from here in order to drive the top line as you move not only into the back half, but also into 2027, especially as the benefit of all these tax refunds

Michael, first, every little price is a philosophy that builds trust with customers, and we're proud to offer a value on a basket of goods that's predictable. It's consistent over time. So when we have the opportunity to lower prices, of course, that is always going to be our bias to do that, but we always need to balance our price investments relative to what we're seeing in the market and with the commitments we made on our forecast, including operating income over time. So we'll continue to work through those.

I do think it's also important to step back and just think about the business model in total. John David mentioned the growth in things like membership, advertising, data, fulfillment services, we built a much more durable and resilient model that gives us optionality over time. We're proud of our price gaps. Of course, we'll defend those. We're proud of the rollback count we have. The rollback count, as we mentioned, started really late July. July was a stronger month in the month of June. We're pleased with the way back to school and back to college have started. So we'll monitor over time, and we have a great merchant team that will, of course, mix out categories. And we'll look at these investments carefully one at a time, ultimately, want to do -- what we want to do is like what Dave said in pharmacy. We want to have a business that you can depend on whether you're shopping at the counter, you're shopping at the curb, you're shopping at home, and we want to provide the most flexibility we can for our customers.

Our next question is from the line of Chris Nardone with Bank of America.

Can you refresh us on the messaging around incremental margins coming out of your digital business given the momentum we're seeing there. And then as we think ahead to next year, how should we think about your plan to lap these rollbacks and price investments you are making today and still make sure you're driving consistent traffic to your stores?

Chris, I'll take that. Let me start with the second part of your question. Lapping 19% EPS growth next year will be a challenge. So again, like we're managing our business on an annual, if not a multiyear basis, but I feel really good about what's in store for the next year and the years to come. But on the incremental margins, which as I noted, kind of in my previous answer, I think that's a big part of the story for us. We just -- we continue to see these growth areas of our business that are driving more benefit to the bottom line. We've not really committed to any certain number around the incremental margins in our business. But if you look back over the last, call it, 6 quarters or so, generally, U.S. e-commerce incremental margins have been in that high single-digit to low double-digit range.

A couple of quarters ago, I was asked a question about the opportunity for that to improve. And over time, I think, I was maybe a little bit more guarded at that point. But -- when we see things like our advertising business, that continues to grow at a 40% clip on a much higher base that actually gives us confidence in the ability to maybe see incremental margins even go higher. And so like what do you have to believe to have incremental margins go higher? Well, advertising growth would need to outpace our e-commerce growth, and that's actually what we've been seeing and not by a small margin, by a large margin on a larger base.

And with the acquisition of Vibe, this gives us a new addressable market that we didn't have before in these small- and medium-sized merchants. And so we're very excited about the opportunity there. Advertising though, is just one aspect of what we're doing. I don't want to solely point to that as the only opportunity that we have here is we continue to add businesses that complement the diversified portfolio of offerings that we have today that generate these higher margins, it's very attractive to us. The key benefit of digital growth is being able to grow at a very low marginal cost.

John has talked a lot since he's come on about this platform approach that we're taking. We're doing all the same things that we're doing in the U.S. and our other markets around the world. Mexico is a really good example. We look at Mexico today, and it's the same playbook that we implemented in the U.S. 5 years ago. And we're super excited about some of the early progress that we're seeing there. So we think we have a tremendous opportunity to continue to change and see our margins drift up over time.

Last thing I'll say on this. Obviously, I have some passion around this point. But it's not just that our incremental margins are growing. They're growing at twice the rate of the overall margin of the business. And I think that shows sort of how the earnings complexion of our business and the durability of that growth that we have will play into the future. So very excited about it.

The next question is from the line of Christopher Horvers with JPMorgan.

So if you look at the category performance relative to 1Q and the Walmart U.S. business, grocery continue to grow that mid strong mid-single digits, well above the market, and it was GenMark has actually slowed. So could you help us think about how much of that slowdown in was stimulus-related versus gas prices affecting that lower-end consumer? And then if you look back over the past few years, you've seen a consumer that has shown up around events. And to what extent have you seen that the impact of back-to-school start to drive some lift in that Gen March business even considering where gas prices sit today?

Chris, why don't I start and then maybe hand it over to Dave for a little more color. I think no doubt, the first quarter benefited from the stimulus payments related to tax refunds. And we acknowledge that on the last call. It's tough to determine how much you ascribe to what's going on in your business versus the overall macro environment, but I think we definitely benefited some from that. And then as we go into the second quarter, we saw gas prices peak at higher prices than what we saw in the first quarter. I think all of that impacts the results. But again, when you look at the core business and the fact that our value proposition, I think, is as strong as ever. We feel really good about how we're performing and what the outlook is.

Back to school, back to college. Back-to-school for much of the country is about a week later this year. So it's probably a little early to conclude anything on that. But I will say that back to college has gone exceedingly well. Like we're really pleased with what we're seeing there. You asked about general merchandise categories like we have right now, like one of the brands that we're selling, private brand items, Wonder Nation for kids. It's the largest kids fashion brand in the U.S. today. So like we love our offering. We certainly recognize that the share gains that we're getting, notably from higher income consumers are in part because of the assortment that we have. And that was part of the reason that our inventory went up. The fact that we've got more elevated brands, more expensive merchandise that appeal to a broader cohort of customers is affecting our business and our results. Dave?

Yes, John David, what I would add is we're very pleased with the team's progress in general merchandise. We are seeing strength in style. We're seeing strength in trend. We're seeing strength in fashion and toys. In fashion, I'm really excited about some of our private brands, SCOOP free assembly. We're seeing triple-digit comps in those areas. When it comes to back to college, Decor outperformed across the back-to-college home business. Areas to call out would be candles, throws, rugs and lamps. Those all posted double-digit and triple-digit comps. And then when it comes to back-to-school, as John David mentioned, this is where we shine. Walmart sells roughly 50% of total industry school supplies from a unit standpoint over the season, and we're very pleased with where we are at this point in the year.

Customers are responding to just absolutely fantastic investments in price. We have a list of 14 key items that are priced less than what we saw in 2019. A great example is our Penn and gear cranes for $0.25 or our Penn and gear #2 pencils for $0.92. And those prices are resonating with customers, and we're seeing it in traffic, ticket and unit volume all growing.

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

So I also wanted to focus on the price investments from a return perspective, right? You noted 50% sequential increase in rollbacks, I believe, 11,000 items, which might be a new record for Walmart. So I wanted to ask if you could speak to the performance of the incremental rollbacks, the metrics on the payback period that determine whether an investment becomes permanent. And maybe just frame up for us just if you can, just how much of the current rollback portfolio is meeting those return thresholds?

Krisztina, throughout the year, we have stated that our intention would be to invest in price where possible and any refunds that we had, we would prioritize price investments. And that's what we did in the quarter. Categories like as an example, like the meat department. Prices have been higher, and we know that customers have needed relief. So we invested in ground beef and other areas that were really important to the customer. We'll watch those over the course of the time of rollback because the start date has an end date.

We'll watch the unit movement. We'll understand the effect on the category. Importantly, the result is we're seeing share gains and share gains are ultimately the way we would judge how we're doing relative to the other businesses that are out in the market.

In terms of the quantity, I don't know if it is the highest ever, but it is a high number. It's the highest second remember, at least in recent times. And it is a reflection of the work that the merchants have done. It's a reflection of where we're in the market. And it's a reflection of the funds that we had available to be able to invest in price. The timing of those were late in July, and they will continue into the second quarter. And that's why, as John David mentioned earlier, you should think of the second and third quarter together in terms of both sales and operating growth and we'll measure it appropriately.

We're not investing just for the sake of doing it. We're doing this because we think it has a lasting durable impact on the way customers perceive us. And what we're trying to do ultimately with every day to price in rollbacks drive trust. It's probably a bit too early to call how many of these will be permanent. We'll manage that, and we'll work with our suppliers to determine or that's possible.

Our next question is from the line of Bob Drbul with BTIG.

Just a couple of questions around, I think, inventory. Are there pockets of concern on your inventory levels at all? And you mentioned inflation impacting the inventory. Can you just also address like your inflationary expectations for the remainder of the year throughout the business?

Bob, generally, we've seen a pretty low inflationary environment throughout the year, between 1% and 2% in total. In the rollbacks, we think, can help over this quarter in the last few months. So generally not any big concerns right now on inflation. Fuel costs are probably the one thing that, of course, we're watching because of the magnitude of it. And hopefully, those can come down over time.

On inventory, it's something we watch really carefully. I've been in the company over 33 years, I've been a merchant and operator. and it can drive so many things from sales to markdowns, cash flow, as you know. When you step back and look at the categories, and I'm going to talk about Walmart U.S. just for a second, as that's the majority of our inventory, the merchandise areas are in good shape. We're up anywhere from 1% to 4%. We have some investments in forward deployment. Fuel costs are a bit higher, so that's inflated, and we have some manufacturing in the inventory.

But when you look at the categories, most are between 1 and 4. The only thing that's at that high end is consumables, which is fast moving. So as we sit here today, I don't have any big concerns about inventory. If anything, there were a couple of categories, I think, in June and July, where we were a bit light on inventory. We'll manage that, and we'll react appropriately based on what we're seeing from customers.

The next question is from the line of Kelly Bania with BMO.

Wanted to just circle back on the topic of tariff refunds. And curious just how you are communicating this to your customers and membership base. to ensure you're generating the ROI that you expect from these investments? And are you seeing others across the retail spectrum also reinvest those? Or do you expect them to also follow suit? And if you can also include just the thought process about kind of allocating those investments between grocery and general merchandise presumably generated on the general merchandise side, but it sounds like some going into the grocery side of the store. So just more details on the tariff refunds.

Kelly, we've invested across the business in the store today, store being the site and the physical store, you'll see a combination of rollbacks across food, general merchandise, consumables, fashion. There were some seasonal rollbacks. There are other items where there are ongoing replenishable items. So we always try to invest in a mix. We're not trying to take the investment and heavily weight it to a certain category. We know customers are looking for a variety of things across the basket. At a time like back-to-college and back-to-school, as you heard from Dave earlier, we think about decor and outfitting a dorm, then there's the school supplies, the school lunches. And so you'll see it throughout the store.

The signing in the store, we feel great about the stores are doing a really good job signing it. And then on our home page, you'll see at the top left, the first -- one of the first titles right there in the top is rollback some more. It's always present. So we'll continue to communicate value any way that we can. We're proud of the reductions and it's helpful for customers as we get into the back half.

Our next question is from the line of Paul Lejuez with Citigroup.

Just on the price investments, could you talk about how that's framing your comp assumptions from a traffic versus ticket perspective in the second half, sorry, if I missed that earlier. Also curious on the OpEx growth in the U.S. is up 7%. Were there any timing shifts that impacted that? Are the liability claims coming in a bit above what you thought? Just curious how we should think about that line item and how it will grow in the second half of the year?

Sure. Let me take the first part on the composition of the comp. It was positive to see -- it was great to see in the quarter that we grew in transactions. That's true at Walmart. That's true at Sam's Club. It's true in international. So we see customer traffic growing around the world. We also had positive unit growth. In both of those combined, that's really the two things we talked about on a weekly basis. We start every Monday around the world in markets with something we call our trade meeting, and we talk about customer sentiment and how many customers we were able to serve, how many new customers we met, the units that we grow. So we look at both of those.

When you make investments in categories like we did across all the SBUs, you tend to see faster sales in categories like general merchandise in terms of dollars in food and consumables. You take the prices down, the prices then are lower than they were. You see units grow and then over a few weeks or a few months, that's when you start to see the more lasting impact in food and consumables. Your shoppers don't necessarily buy more food because they see lower prices. But over time, what we're trying to do with rollbacks and low prices is build trust with customers. We want customers to know they can trust us for a low price on a basket of goods over time, deliver the way they want, whether it's at the curb, it's at the counter or it's at their home.

Yes. Paul, on SG&A, let me address that in a couple of parts. One of the bigger drivers was depreciation. Depreciation is related to the CapEx that we've had that's really been around supply chain automation and addressing speed. And look, we are really pleased with the results that we're seeing. Just in the current quarter, the number of units that we delivered in less than 30 minutes doubled from a year ago. 70% of all of our e-commerce orders are delivered same day or better. That doesn't come without the investments that we've made. So like we're really pleased there.

We did have some pressure on what we're calling some of the self-insurance items and the two categories that I would put in there are claims as you asked about, but also group health. And if you take the first half of the year, about 2/3 of the increase is from group health. And what's happening there, is our attrition has gone down quite appreciably in some cases. And by the way, this is a really good thing for our business. We want more seasoned, tenured associates serving our customers and members. But with attrition going down, the number of enrollees in that plan has increased. So given the size company we've seen a little bit of pressure there.

The last thing I'll say is, for any quarter to one to the next, sometimes you lean in a little bit more to investments in the business. And while I did not call that out in my prepared remarks, I think this quarter falls into that category where we felt like it was prudent to make some of those investments that hopefully benefit the back half of the year.

Our next question is from the line of Zhihan Ma with Bernstein.

I wanted to follow up on the Walmart U.S. brick-and-mortar comps. And I appreciate the comment that you were saying there's a bit of a pharmacy headwind in there. Also wondering if you're seeing any impact from higher gas prices and people may be driving less to stores and maybe the greater adoption of pharmacy delivery. Just trying to parse out how much of that is maybe some transitory impact versus a more structural shift in the tunnel.

So let me start with the first part on the stores. And I want to be really clear. Stores are an asset. They certainly have an impact in handing back the quarter because of pharmacy, which weighs heavily on the store comp. The majority of the business is in store. But we're really pleased also with the delivery of the business. But when you step back and you think about stores and their role in the omni business, they are an asset because they position inventory, they position associates within 10 miles of 95% of the country. So the things you've heard this morning about fast delivery, accuracy, flexibility, shopping in any way you want, they wouldn't come to life without our stores.

Now historically, if you go back a few years, we had a store channel, we had an e-com channel, they were independent. They were vertical. So you could look at where you sold the cost of each, we can measure profitability of each. But as we blended those together, what we're trying to do is say, think of us in terms of the top line, the bottom line, we'll manage the middle and we'll be flexible for customers any way we can. And then the way that these get categorized, it's really where you decide to pay.

If you pay on your phone for pickup, it's an e-commerce order, and it's not a store order, but the store does the work, the store fulfills it. A fast delivery under 30 minutes, what you're actually doing is you're paying on your phone and you're having someone go shop for you and bring it to you. The store is fulfilling that inventory. So just again, stepping back and thinking about stores, there is more volume going through stores today than there ever has been, and it's growing. As a former store manager a couple of decades ago, I'm just in awe of all the things that the stores are doing to serve customers. They have so many things going on. They're executing, they're flexible, and it is a really important part of the overall business.

We'll watch all the channels. We'll make sure the store experience is great. We're investing in new stores, we're investing in remodels and are investing to ensure that the stores are omni enabled so that they can be support and provide whatever we need for the e-commerce business.

The next question is from the line of Seth Sigman with Barclays.

I wanted to follow up on the Walmart U.S. comp. So when we look at the average ticket, it does seem like it's running a little bit below inflation now and that's been happening for the last couple of quarters. I realize a lot can contribute to ticket, but how is the composition of the basket changing? Are you seeing trade down? Are you seeing any big category mix shift? Are you seeing a shift to maybe smaller ticket items? Anything transitory? How would you sort of frame that?

We continue to see broad-based share gains across many categories. Our strategy is working, and therefore, we're gaining share. In grocery, sales increased mid-single digits with strong unit volume growth and continued market share gains, as I noted. Areas that I'd call out in that business. One, we use some of the investments, refunds that we got to invest into the grilling basket this summer, which fed 8 people for under $40 with 13 of those items priced 16% below last year. We're also offering incredible quality for great value with our Better Goods brand, which is now a $1 billion brand for us.

And then to go back-to-school. We're bringing food into that play as well, including a new back-to-school lunch basket with 10 high-protein lunches for under $2. So that's just an example of a space where we're gaining traffic. We're gaining ticket size and units are going up, and those investments are driving that momentum.

At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to management for closing remarks.

Yes. First, again, I want to thank our associates for the work they did in the quarter and the things they do for our customers every day, and I want to thank you for taking the time and interest in the company. And I'll just close where I started. This is a good quarter for Walmart. Sales were over 5%, operating income up 17.4% without the benefit of the refunds. It was another strong quarter. I feel great about the way we're positioned. We've been investing in a strategy that delivers an omni business model across markets. I'm really excited about the extension of platforms into the international businesses. There's a lot of progress the teams are moving with speed. And when you just step back and look at the business that we have and the business we're building, it's very durable. It's reliable. There are a lot of things that we can do, we couldn't do in years past. Another strong quarter in e-commerce, another strong quarter in marketplace, advertising. We're seeing more and more people choose Walmart+, and it's exciting to see Walmart+ launch in Canada.

So over time, I am more optimistic than I have been about the business model, and I look forward to continue to see all the pieces come together as we move forward. Thanks again for your time and interest in Walmart.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

So good morning, everyone. I want to thank you for joining our Sixth Annual Evercore Retail and Consumer Conference. Doing it the first time in our global headquarters here in New York. And it's my great pleasure to have with me Seth Dallaire, who is the Chief Growth Officer of Walmart.

Just stepped into that role. So I guess, Seth, you are the Chief Growth Officer, what does that mean? What do you actually do?

That's a great question. I get it frequently. Thank you for inviting me. What it means is that I look after a set of businesses that complement what we do in the more traditional retail world, and I'll explain what those are. So first, it starts with our third-party marketplace seller business. So that business is one where we work with sellers to bring more assortment to our e-com business in stores so that customers and members can find it and be introduced to general merchandise categories, fashion and beauty products, things that may be who knew Walmart had. Like that's an important part of our business in terms of building assortment for customers and helping our customers shop omni with us and introducing them to our digital and e-commerce businesses.

So that's one part of the business, and that extends over the Walmart enterprise. So each segment will work internationally with the marketplace sellers. And then the retail media businesses, Walmart Connect, Sam's Map, other advertising that sits within different countries where we have e-commerce offerings. That also now comes into the growth organization. The data ventures businesses, which create the data product called Scintilla that perhaps some of you are familiar with. Our suppliers subscribe to that information. That also is coming through the growth business, but now extending into Canada and Mexico and other international businesses. The membership businesses, Walmart Plus expanding those offers through not just the U.S., but we made an announcement that we'll be rebranding the Canadian membership offers to Walmart Plus last week. We'll be looking to do more of that type of work in the future.

And then lastly, the VIZIO business, which is the television manufacturing business that we completed the acquisition of last year, 1.5 years ago. And that business sits adjacent to the advertising businesses that we run them. So the -- I'm often asked like, why would Walmart buy a television company. And the reality is that we sell a lot of TVs at Walmart. And the television business is no longer the domain of the sort of buy it for wholesale, sell it for retail and keep the margin. The real television business is now post sale, and it's driven by technology and the operating systems that sit behind the glass on these devices. So that is an area of advertising, connected TV advertising that complements what we do with advertising products in our e-com businesses and stores. And we're excited about that.

I'd love to double click on that. So the advertising was about a $6 billion business for you guys, just to frame it. What's -- take us through the evolution of getting into advertising, and how VIZIO is now complementing that and accelerating it?

Sure. I've been at Walmart for just over 4.5 years. And I would say that when I joined the investments in the advertising space were -- we were making them, but there were certain technological features and capabilities that relative to other platforms that I had built were not the same, we're underdeveloped. And so when I came, I worked with the team to really define the opportunity and why advertising is so important and complementary to a retail business. That was the first sort of task. And then in doing so, once getting an agreement that, hey, this is an area we want to invest in, it's actually advertisements are good for our customers. They're good for our seller community. They help avail customers and members to new products or things that they didn't know were available for sale at Walmart, and they have a different margin profile than the traditional retail business, kind of everyone wins in that respect. We focused on building a platform that could grow that business and scale as the investments we are making in e-commerce were taking hold. So we're very tightly coupled with the e-com business. That business has been growing healthily. We've been making investments there. As that business grows and more customers and members come in and shop, they want to find more assortment through the marketplace. Those marketplace sellers want to advertise their products. That creates opportunity for us to serve customers and drive operating income. Similarly, the large advertisers, some of whom we've had on stage earlier today, they want to capture as much demand at the point of sale with our customers and members as possible. So they buy the products as well. So that discussion once we sort of got over that line with the leadership teams has been a huge accelerant for the business and the sort of leadership team on the whole now will say, well, this advertising business and retail media is a critical component to how we serve customers and members and also to the P&L.

How do you make sure that, that experience for the customer doesn't get cluttered or overloaded, right? You're going growing 40% and I think Walmart Connect, how do you drive the organization so that it doesn't get loaded up on the customer?

Well, we have an experimentation orientation in terms of that business where we will constantly run A/B tests to understand like what is the tolerance level for advertising or different types of ads or formats of ads. And the way that you respond to those ads or may be different than the way that I do. The different categories, some shopping for beauty category, maybe much -- you may be much more tolerant of advertising and perhaps video advertising than you would be of a category like Produce, for instance. So we have to experiment in order to understand customer response, and we can do that in a digital environment. Running those tests, the different A/B tests, I don't want to say that it's cheap, cheap, but it's easier for us to run one of those tests and get stats on a test and a resolve and give us confidence to then extend that experiment out to the entirety of our store than it is to do that same type of test in a physical environment. You can imagine where if we were setting up mods and features in different ways, it takes time. It takes a lot of labor costs to do it. And then doing it across 4,600 stores is a challenge. So the digital and e-commerce environment allows us to do a lot of experimentation to understand just what that threshold or boundary might be before you say, it's too many ads, I'm going to abandon my cart. In fact, what we find is that ads are accretive to the experience because it creates the opportunity for new brands or challenger brands to get time or attention from you while you're shopping in the category. And our customers enjoy the sort of serendipitous nature of finding new product. we've been talking quite a bit about advertising or about even around how agents or new surfaces that customers use to begin a shopping journey, how they impact or provide utility. And if you're going to continue to be served the same thing, the same shopping list, the same products that you've always bought in the past, that shopping experience might be pretty boring. So I like to be exposed to new products. I like to understand even in categories that I shop frequently that there may be new offers and new brands and new products or new price points. And advertising plays a critical role in that. In fact, it's very similar to merchandising.

Yes. So actually, maybe we'll pivot to another part of the growth area is membership. So Walmart Plus has been very successful. Sam's with its own membership model to start. I guess that's where the headlines are. But if we bring it in, how do -- I mean, I think you're probably 1/3 of Walmart's global EBIT is under your mandate. So what do we do to really bring that home into the part of the membership so that what they're learning the data and understanding that customer flows through to more loyalty, more traffic, more tie-in with those customers?

Yes. It's an important part of our business for all the reasons that you just mentioned. And -- but it's also complementary to, for instance, the marketplace business. If you are a new e-commerce customer for Walmart and maybe you're buying something that we're shipping to you from one of our fulfillment centers, you have to pay for the delivery most likely, depending on the cost of the item. And if you do that once or twice, then you don't want to pay for the -- continue to pay that delivery fee. So you may then decide, okay, if I'm finding the assortment that I want from Walmart, I want to have these items delivered. I love that convenience, then I'll try the membership. Now we know that once you're in trial, if we can deliver those items to you and meet your expectation around delivery speed, the likelihood that you become a paid member is high. When you become a paid member, we see this like it's predictable. The amount of spend and wallet share that you give to us increases. And as you use more benefits within the membership program, your renewal rates or the likelihood that you will renew increases as well. And so as we have cohorts of customers who only shop with us in store, we'll encourage them to try shopping with us in an omnichannel way, bring them into the e-commerce business as they come into the e-commerce business, we'll encourage them to become members. As they become members, we then encourage them, and we see that their visit frequency, purchase frequency and the average order value of those baskets increases in a way that looks very different than the buy-in store-only customer. So that membership piece is often. It has many benefits to our P&L. But we also get to serve these customers and members in a different way, too. And the assortment that we bring is really a critical component of that, and that's where the marketplace is so strategically important for us.

I want to get to the marketplace, but I want to double click on the membership for a second. So is membership is the connected tissue. It seems to me to put these things together. Is it a standalone P&L driver in its own right, when you factor in all the cost of delivery and to serve that member, or is it really just about connecting all these things together?

Well, we try to look at all of these components of the growth business as they -- it's complementary to other parts of Walmart. If we think ran them as purely independent types of businesses than it minimizes the sort of impact or complementary nature that we have across other parts of our business. That we need a strong e-com business in order to have a really compelling membership offer. We need to have a really strong e-com business to complement and meet our customers desire to shop however they want to shop, in store or on their phones. And my -- the businesses in the growth team, membership, marketplace, advertising, they all benefit from that -- those investments, both the experiences we bring to our customers and members in the stores and clubs as well as in the app. So I wouldn't say that any one that we look at independently of one another. They all complement and depend on one another.

So now to get it to the marketplace, so double-click on that a little bit. So we have Walmart Data Ventures, there's 3P. I guess, sort of frame where that is now in terms of the growth drivers that you're looking at. And then what's the real proof point to see if that works with companies that are looking to be on 3P? Or if you get vendors like what -- how do you actually win in 3P, I guess.

Well, it's early innings for our marketplace business for sure. And we're excited about the signal that we're getting for that business. And the -- we hear and see it in a couple of different ways. So one, we hear from marketplace sellers who, I would argue, are some of the most sophisticated digital marketers and e-commerce participants in the industry. We hear from them frequently that they want ease of setup with us. They want access to scale and Walmart customers across any channel in which we're serving them. And so we've made big investments in terms of technology to enable a seller to set up, bring their product to our product catalog, do it in a way that we can build that once and scale it globally. That's really been John Furner's mantras to build one -- scale platform once and then scale it globally. We're taking that same approach with the marketplace business. The output or measure where we would determine whether that's successful or not, is are we seeing the actual assortment come into our product catalog, we are. Do we hear -- when we do outreach with sellers across the globe? Are we hearing that they're finding our customers and selling more stuff? We hear that as well. So there's a lot of enthusiasm from that community because they see that we are serving a group of customers and members that our competition has not or we're able to do it in a way that is different than how they've done it or perhaps we're bringing something unique like physical point of sale to the equation. So across each one of those different dimensions, those sellers have told us, yes, keep going, give us more capability, we want more access to your customers so we can sell more stuff. We know they're in there and that they want to buy our products.

How important is Fulfillment by Walmart to sort of complement that growth in the 3P marketplace?

It's -- I mean, it's critically important. The -- we see a causal relationship between delivery speed and conversion. So that's why you see so much emphasis in our marketing materials and across the execution of our business around delivery speed. We have a unique position where our stores sit close to over 90% of U.S. households, we can get products to people quickly and like really fast. And you'll hear my peers like Walmart U.S. CEO, Dave Guggina and John Furner talk about delivery speed being a critical part of our offer for customers and members. We know that as you bring items closer to the customer and you shrink the amount of time it takes to deliver those items that the conversion rates on those items and the purchase frequency increase. So when we talk with the seller about bringing their product catalog into our store, it's not just about getting the catalog and making it available and shipping it to you in two weeks, that wouldn't be good enough. That item might sit. When we bring that item into one of our fulfillment centers, and we're delivering it to you same day or next day, we see the conversion rates go up. Our customers love that. So from a supply chain standpoint and just sort of how we're bringing fulfillment to the table, speed is what our customers want, and that fast fuels the frequency.

Interesting. So that's actually a great transition, I think, to the next thing I want to talk about, which is Walmart is talking a lot about global platforms. And under John's leadership, and you taking this role, I guess what I would say is how can you create value for Walmart by taking this global view of these platforms? And really, how do they work together? What sort of findings and learnings do you get and integrate through the business?

Yes, that's a great question. We are -- so I'll talk about Data ventures as a starting point. We built that business a couple of years ago from scratch, and building it from scratch affords you some flexibility in terms of -- you don't have a lot of technical debt behind the product. So we were successful bringing that forward. And we heard from our suppliers who's subscribing to that product that there was nothing like it in the other countries that they were working with us in. And when we're addressing a global enterprise on the supplier side, news travels about data quality. If there's something, there's a piece of data here that they're getting from the U.S. business, how do we get that from Mexico? How do we get it for Canada. And so when that request starts to come through to our teams for building a new product, we have a lot of freedom to go in there and set it up the same way. So same principle of building this product once and then scaling globally. We've done that now in Canada and Mexico with that Data Ventures with the Scintilla product. And we see a lot of runway for us to do that in other countries that we serve.

Similarly, with advertising, we -- now that all of the advertising businesses are rolling up through a single organization in the growth org, all of the capability that we've worked so hard to build for Walmart Connect, we can now start to bring similar capability to the Sam's business for advertising. And the reason why that's important is that we may be working with the Procter & Gambles of the world, for instance, in our U.S. stores for Walmart and the types of outputs or data signal and capability that we bring to them for advertising in the U.S. for Walmart may look different historically than what Sam's is offering because they built it on a platform. And so now we're looking at things and saying, okay, how do we provide the same attribution windows? How do we provide the same definitions of sales outcomes to Procter & Gamble, so that they can look across the Walmart Connect business and the Sam's Map business and say, okay, I'm no longer having to rationalize or compare two different apples and oranges in terms of these data definitions. So again, the same principle of building once scaling globally applies there in a way that will ultimately help our suppliers who are investing in these ad products, too.

I mean, those are some great examples of -- I guess you mentioned Canada bringing Walmart Plus there. What learnings have you found from around the world that you want to either import back to the U.S. or move into different markets?

Yes. It's not one-way traffic. We're looking out into the international markets and trying to understand, okay, are there things that are happening there that our U.S. businesses might benefit from? Are there things that are happening in Sam's that would benefit the Walmart U.S. business where we to start using that. So that -- I'm going pretty deep on that now with my peer, Chris Nicholas, who is the Walmart International CEO. So one observation, our customers -- some of our customers who live in Mexico want to shop the U.S. catalog or some of our customers who live in the U.S. want to shop the Mexico assortment. They want products that are local. So how do we enable that cross-border shopping. And that -- so we're building that capability now, where we're going to enable those customers that sit in those different markets to buy across border. That's a big learning for us where I think even 6 months ago, we may have sat here and said, Canada just wants Canada and Mexico just wants Mexico. When in reality, there are many communities here in the states that want to shop those Mexico products and vice versa, and we're going to enable that.

Fascinating. I'll bring up a whole other tariff discussion probably. So I won't even go there because I want to make sure we have time in this. I can't believe we've gotten through probably 15 minutes and haven't brought up AI yet. So let's talk about it a little bit. We've had -- we've heard people say that's going to disintermediate retail. It could take away the retail media business and advertising, I guess, advertisement, whether it's for Amazon or even yourselves. So I guess as your teams leverage AI to grow and scale your businesses, how important is it for you to scale fast versus go well as you implement AI.

Well, you want to do both. But I think scaling well, given my prioritization would be the first thing we would do before scaling fast. If you scale fast, but poorly, there's a whole bunch of tech debt you may assume or things you may have to unwind that in the interest of speed might not be helpful. Now you may want to run experiments that would allow you to move quickly and then give you signal quickly that you could decide thumbs up, comes down. But that to me is the part about doing it well. You need that to have some point of comparison or have a thesis about why you would want to move so quickly to begin with. If you're just moving for the sake of moving, then that might not be the best use of your energy or resources.

From a -- how that's applying to our approach with working with AI. We are leaning into engagements with most of the big names in terms of the hyperscalers. And the reason why that we're leaning in is because we need to be where our customers are. This is an important point for us in the sort of commercial behavior to understand how customers are going to use these different tools. So there's a lot to learn. And it's our belief that we're going to learn more and learn better by being in like involved as opposed to sitting on the sidelines and waiting. And that's been our approach, and we are learning a lot. And much of that application of the learning we can use in the environment of those agents. We've been public about how we've been partnering with some of those companies. Then also we get a lot of learning that we can apply to the building of our own agentic tools like Sparky. And some of those -- it's like the way that -- and observations that we have about our customers who are using those agentic tools within our own walls, is very interesting. And we've talked publicly about some of those things recently. On the earnings call, we shared some different usage benchmarks. But the -- I would say one of the most interesting things to me is the types of prompts that we get from customers in those agentic environments are quite different than what maybe historically we've seen. And that the language, there's a natural language, a query string of questions that may take on almost a research type of tone to them. An example that I gave earlier this morning, we may see a prompt around. I'm looking for a detergent for my child who has sensitive skin. Can you recommend something that's fragrance free? Now we can talk that here. That's not historically how people have searched for fragrance-free detergent. If that type of query string is now happening in a commercial environment, we need to be aware of that. If that's how our customers are coming to us to shop, and they're looking for a retrieval or an answer to that prompt that has value for them, and that's correct, then we need to orient ourselves around that. That's very different than fragrance-free detergent.

It's fascinating, I guess. So as you're in that, involved in that conversation very early with the consumer. What does this mean to the retail media network part of the flywheel. I mean if you're -- if the agents are filtering product choices, does that end up cannibalizing the opportunity in retail media?

We are in our own agentic tools. We've introduced some advertising placements there. It's something that we'll continue to experiment with. I would say that I have at my core belief that advertising is very similar to merchandising in the e-comm space. And that advertisements contextually in a retail environment provide a lot of value for customers. because they introduce you to new products, they introduce you to new brands, they introduce you to new price points. And without that type of introduction, in an environment where you're just looking at your phone, you're not standing in front of a line and ladder or shelf of items that are designed to attract your attention. I just -- I think that's a shopping experience is just not as interesting. So if you're -- we'll be careful to watch and customers, and how they're using these tools. But I would expect that advertising and retail media will have a role to play because it helps customers shop. It's not an interruptive experience, it's contextually relevant.

Where do you see AI, agentic AI creating the most leverage for the business? And where do you see human oversight as most needed to sort of make sure we don't go off the rails on this?

Yes. Well, in my business, there's a couple of places where the sort of human component or oversight is really important. We describe our business as being people-led tech powered and that holds true with how we're approaching some of these agentic capabilities, an example for you in marketplace. We could automate a ton of behaviors, and we have and capabilities to allow sellers to give us more information about their products and ingest them into our product catalog. But we need to have some human moderation over that ingestion so that we understand these are the types of things that we actually want in our product catalog. These are the types of products or pieces of information that maybe you didn't include that are important for us in terms of providing and making a great shopping experience for customers and members. So that's a side by side. They're better together than if we just allowed an agent to operate on that independently without any moderation, it may take us some place that's suboptimal for the retail experience.

I have to step back given your long experience in the business, which of your either competitors or partners do you think are doing the most interesting things with AI right now?

Besides Walmart?

Besides Walmart. Sorry, I'm forcing this on you. Sorry.

I mean, there's so much going on, and they are very distinct different strategies for engagement across -- even across the retail space. So that, to me, is fascinating, like why is one company behaving this way and another company is behaving another way. I certainly have my own theories about it. But the -- I would say that one thing I do think critically about is the approach that we bring or I would bring to Walmart and the team and how we're interacting and culture here is important. Walmart is a people-led business. What people are a feature of our business, not a bug. And when we show up in stores, our customers show up in stores, we are often this far away from them. We might be asking you about your day. You may be asking me for help to find an item. Those are experiences that I imagine. I'm highly confident they will continue in the future and the need for that type of human interaction and the experience that you have in the store as a customer or member will be heavily influenced by that interaction. And that's a different approach and -- I'll speak for myself in my experience where before joining Walmart, I had worked exclusively at technology companies. Some of which people, I would argue, are a bug, not a feature. And if you move towards that orientation so heavily, I think you have very different outcomes and experiences that you provide for a customer. The great privilege of mine is being able to be on the ground in supercenters, in clubs, regardless of country to see just how our associates interact with the communities that they serve. It's been a huge eye opener for someone who has worked at companies where the interaction with the customer is behind glass and you don't maybe ever see that person. And I take a great amount of pride in the experience our associates put in front of our customers every day, but I believe that the technology that's being developed right now, agentic or otherwise, can only make that experience better. It won't eliminate it.

All right. So with AI building baskets and actually becomes more properly agentic in shopping, I guess, where does Walmart need to sit? Do you need to be the customer-facing agent or more, if you will, agnostic, the infrastructure behind everyone else's agents or basically all of the above?

Yes.

Okay. That was easy.

Yes. I mean, we -- there's a couple of different ways that we engage with customers. And we talk about why we would work with third parties. And we need we need to be where our customers are. So there will be one way of engaging with a third party that may require us to work with them on product catalog ingestion. It may require us to work with them on payment mechanisms or baskets. That might be a very different approach that we would take to how we would use agentic tools in our supply chain or think the rails of the business that sits behind the supercenter or behind the club or behind the e-comm business. We have to be ready to work on all of those dimensions. If we ignore one of them for the sake of the other, then I just think -- I think we'll get out of balance.

Right. Well, look, growth can be expensive. We know that, and we're probably a lot of shareholders in the room here, and it's a retail consumer conference. So ultimately, people look for growth and returns. So I guess as Chief Growth Officer, how do you look at your role in driving that 4%-plus top line translate into hopefully 8% operating income growth over time?

Well, the businesses that the growth organization manages have obviously very different profit profile than the traditional retail business. The advertising business, data subscriptions, the technology of televisions, membership, marketplace they all offer a different profile than the more traditional P&L that you would see in the supercenter or a club. And all of them add to the customer experience. So I have a high degree of confidence that any investments or dials that we turn to make those businesses bigger and better are in service of the customer and member experience. They make them better. The fun thing about it is that we can grow really quickly as we make those investments because we still have a lot of room to run with our e-com business, for instance. You had mentioned like at what point do you have too many ads or not enough ads. We look at those measures across competitors and across our own experimentation. And I have a lot of belief that we can do more. And so it's fun to watch the progress there and the amount of growth that each one of these teams has been delivering, but it's very tightly coupled with other parts of the business. We then have the optionality. My teams exist to bring the optionality of investment of those funds across the rest of the business. So advertising operating income, membership income. All those things are then -- we have the optionality to apply them across other parts of the business. Could be investing in more supercenters, could be in remodels, could be in price investment. There's a whole bunch of ways that we can use the outputs and the success of the growth businesses to make the experience better for our customers. And that's in line with EDLP, EDLC principles that the business has been built on. So I'm very excited about the work that I get to do. I love the remit that I have now to sit across horizontally across these segments and international geographies to bring all the successful things that we've had in the U.S. to bear there. And then reciprocally learn from all the things that have been happening in these markets that could help improve our business here in the U.S.

So to keep it simple, $100 billion digital business at Walmart U.S. with a double-digit variable margin, it's probably given 40 bps of tailwind to profitability. How do you see the opportunity to do that sort of thing now is around the business now as Chief Growth Officer?

Well, I think one of the reasons why I was -- the role for the growth organization was elevated across the segments is because there's a recognition that we could make more investments in other parts of the business. So this -- the opportunities and things that we're building in the U.S. it could be a new advertising feature. It could be the TV business. How do you apply those things, or what opportunity do you see across these other companies or the companies that are in our portfolio in the different countries in which they operate? And that, to me, is exciting. And I would say that we're, again, it's early innings for us in that respect. So I look at those things with a sense of urgency to say, like, let's go. There's so much here that we can do, let's just start doing it. And that's what gets me up in the morning.

But from a return standpoint, it doesn't sound like with the hyperscalers like Amazon doing $200 billion of CapEx, like you don't need that. In fact, you almost wouldn't want it. I don't want to put words in your mouth, but like do you worry that like they're spending so many more multiples than you guys are on CapEx, which I think is around $30 billion.

Well, I would tell you that my orientation is around how we serve customers. I'm not following a competitor in terms of how we might orient our business that way. I mean, that's my answer to that. I don't -- I mean, what's the right answer is like how do we serve the customer the best way. What number is that? I don't know. I'm just focused on making sure that we make the customer member experience better. That's what my teams are designed to do.

That's where I'd like to go, I guess, last part of Walmart's mission is always delivering value for money. So people can save money and live better.

That's right.

You mentioned democratizing fashion. We saw that in the recent quarterly results, some acceleration there. And now the VIZIO that you mentioned before are having some pretty shocking price points that are quite low. Maybe how do you -- what's the vision of how -- what you're doing, Chief Growth Officer can really drive the Walmart mission forward?

The marketplace is important here because the -- when you look at our e-commerce business, I would -- and I can say this, I have an informed opinion about this. We do a great job with groceries, like with that stock-up trip, that fill-in trip mean these are complex orders to serve, 20 items in a basket, high order value, perishable items that we're bringing out of the store to our customers' homes, that's very difficult to do. We do it really well. And you see our business as being -- the numbers that are on the scoreboard reflect that as well as our membership business numbers as well. But there's a whole part of business in general merchandise. And you mentioned fashion, commercial or consumer electronics like TVs, there's home decor. There are areas of investment that our merchants have made on the 1P side to elevate those brand experiences, both in Sam's Club and at Walmart that are starting to show up. And then additionally, the marketplace allows us to bring assortment that we haven't had in the store or maybe our -- the Walmart customer who's been shopping with us, didn't know that we had, who knew that you had these items. The marketplace assortment allows us to expand and bring brands and products to them that maybe they hadn't shopped with us before. When they try it, they -- maybe they buy a home decor item that they shop. That's a new category for them with our business. That's important for us. And it does drive then, okay, a bigger relationship with the customer and the margin structure of that general merchandise business is quite different than the -- a grocery stock-up trip. So there are many benefits for us on the consumer side of availing them to a whole host of different products in categories that maybe they haven't shopped with us before, like general merchandise, home decor, fashion, but then the margin structure that's different because it's marketplace, it then we come into all of the seller services that we provide and the impact on the P&L there. So that's a big crank of the flywheel that, again, serves our customers and members well, but then also supports the investment thesis we put forward.

Well, Seth, I can keep going on forever, but that's a great way to end it. Really appreciate you coming and look forward to the next few...

Yes, thanks for the time today. Appreciate it.

Good afternoon, everyone, and thank you for joining us at Oppenheimer's 26th Ann 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. The company recently reported strong Q1 results and reaffirmed guidance. In particular, the Walmart U.S. segment delivered a 4% plus comp increase with broad-based momentum across categories. Walmart remains a top pick for us, and we expect management to continue driving industry-leading top and bottom line growth. So joining us today is Dave Guggina, the new President and CEO of Walmart U.S.

So Dave, you recently appointed to the Walmart U.S. CEO seat. So I thought maybe you can kick it off by talking a little bit about your journey at the company and how this influences your approach to leading the U.S. business.

So Dave, you recently appointed to the Walmart U.S. CEO seat. So I thought maybe you can kick it off by talking a little bit about your journey at the company and how this influences your approach to leading the U.S. business.

Absolutely. First off, great to be here and good to see everybody. Yes, I'll give a quick background on my career and time at Walmart. So before Walmart, I worked in manufacturing and in digital retail with roles leading logistics planning, operations, quality, I had customer-facing functions like customer service. And then since joining Walmart in 2018, I've had the opportunity to lead teams in product, in automation and innovation. I led our supply chain for a number of years. And last year, I led our e-commerce business before stepping into this role 4 months ago.

I would say that those experiences have shaped how I think about leadership myself. Whether you're running a fulfillment center or building technology or serving customers and a store online, it really comes down to helping customers get what they need, what they want and what they love, when and how they want it. I've also learned through the years the importance of having great associates, a fantastic team, the importance of execution and using technology for technology's sake, but to make work simpler for our teams as well as shopping easier for our customers.

And as I step into this role, my focus is on building upon Walmart's strengths and continuing to innovate and deliver value for value and convenience for the millions of customers and members that we serve every day, Rupesh.

Great. So we're going to spend the bulk of our time digging into the Walmart U.S. strategy. However, before I start, I want to touch on the macro backdrop. So the consumer environment clearly remains quite fluid out there, higher gas prices, geopolitical uncertainty, SNAP changes, et cetera. So how would you describe the overall health of your Walmart U.S. consumer as we sit here today? And then what are your expectations for the balance of the year?

Overall, the consumer, I would say, is relatively healthy. Customer spending with us continues to be strong. You mentioned U.S. comp sales and your opening of 4.1%. If you exclude maximum fair pricing, that would have been at 5.1%, and that's an acceleration from our prior 4 quarters. Our omnichannel strategy continues to resonate with customers across income levels, and that's driven by really three things: value, convenience and speed.

We delivered our best traffic growth in 6 quarters, and we continue to gain share across a broad base of categories, including general merchandise, which reached its highest share gains that we've seen in 5 years. Now I will note that there is variation in spending across household income groups with higher income customers continuing to spend with confidence while our lower income customers are feeling more pressured and making trade-offs, particularly in discretionary categories.

But the good news is, is that this is when Walmart shows up with our purpose to help people save money and live better lives. And our business model is really built for this environment. And when customers become more deliberate in their spending, they turn to Walmart to save not only money but time.

Great. That's helpful color. Now I'd like to shift to some more strategic questions. So maybe starting on e-commerce, where momentum has continued with U.S. e-commerce growth in excess of 20% for now nine consecutive quarters. So Dave, this is clearly an area where you obviously have a lot of experience given your prior role as Walmart's U.S. EVP and Chief E-commerce Officer. So what are the key drivers behind the top line strength? And then what is your team's confidence in actually sustaining that momentum?

Yes. Rupesh, our momentum is driven by a handful of things. First, we are broadening the assortment, the in-demand assortment that's available to our customers. We continue to lean into price and value as we always have and we're enhancing the experience for customers. And if you can do those three things right, you can build trust. And once you build trust, you can earn frequency from customers. And that really reflected in the results. E-commerce grew at 26% in Q1, representing roughly 25% of our segment sales. It was our fourth consecutive quarter of e-commerce growth above 25%.

And importantly, that growth is broad across the business. Store fulfilled delivery grew nearly 50%, our marketplace saw a growth of nearly 50% in advertising, which is really helped buoyed by both the former two grew by 36%. As for addressing your question on sustaining momentum, I really -- I want to emphasize we believe we're still in early innings in the e-commerce space. More customers are choosing Walmart for a combination of value, convenience and speed. And those advantages continue to strengthen in our business.

As I noted, value remains core to who we are. We had 7,200 rollbacks across the business in Q1. About half of those were in food, and we saw a strong growth in response to those investments. We are actively making it easier for customers to stretch their budgets through solutions like our meals ready-to-eat meals like our rotisserie chicken in 2 sides, which feeds a family of 4 for less than $10 to our summer grilling basket which helps families host a cookout for under $5 a person or if you need something to wear to that cook out, maybe you can try Free Assembly or Scoop for summer fashion, which is really resonating with our customers. So we see significant opportunity ahead across the business as we continue to strengthen our omnichannel experience and deepen customer membership engagement.

Great. That's great color. So stores obviously play a critical role as well in your omnichannel strategy for serving both in-store shoppers and for your faster delivery. So on the Q1 call, your team indicated that you're now able to serve 60% of U.S. households within 30 minutes and then also share some interesting tidbits on the drone side. So going forward, what are the bigger opportunities you see to continue bending the curve on speed, convenience and then also to drive faster penetration of your faster delivery options?

Yes. I want to start with our stores. Our stores are one of Walmart's greatest competitive advantages and really they are the foundation of our omnichannel strategy. About 90% of U.S. the U.S. households live within 10 miles of a Walmart, enabling us to reach 95% of households and less than 3 hours and 60% in less than 30 minutes. So we can deliver very quickly.

And as such, that has helped drive more than 50% growth in fast delivery sales in Q1. And what's exciting about this, Rupesh, in team is that the momentum continues, and we continue to get stronger in this space as we improve our core business. And here's a few ways that we're focused on improvement. One is batching. Another is chaining orders, improved routing. We're also focused on positioning more in-demand inventory closer to our customers through things like remodels, new fulfillment centers, new stores, better inventory management and better inventory flow.

And through all that, we're able to make more items available more customers faster, and that drives conversion up. But at the same time, these investments don't just buoy our digital business. These investments elevate the in-store experience, remodels elevate the in-store experience, stronger merchandising, like the fashion brands that I mentioned earlier or expanding services like our pharmacy services, Fresh, our new Auto Care capabilities.

Last year, we also opened or converted roughly 12 stores. And those locations are performing incredibly well. They're beating our expectations with higher digital penetration and stronger performance in spaces like beauty, fashion and baby. And that's why we believe our store network isn't just a competitive advantage today. It's one that really becomes more and more valuable over time as we make these investments and helps us deliver an even stronger combination of value, convenience and speed. So we're excited about the future here.

Okay. Great. So next area I want to touch on just agentic commerce. So I understand it's still early -- but your team has here some interesting data points on your AI shopping agent parking. So how are customers utilizing this today? And then where do you think this will go in the future?

I think what differentiates Sparky and maybe helps you get an idea of where we're going to go in the future is the combination of value of convenience and real-world execution and the scale of Walmart's in-store and online data connected with agentic commerce. So we connect AI-driven shopping directly to our omnichannel fulfillment network, and that includes our stores, our fulfillment centers, our forward-deployed inventory, all of the delivery capabilities with our Spark network, and we're seeing customers respond to those capabilities that I just mentioned.

We had our weekly active users increased by over 10% quarter-over-quarter. We saw from the beginning of Q1 to the end of Q1, Sparky attributed GMV increased by more than 150% and we saw that customers using Sparky continue to build bigger baskets. We had shared this previously, but we mentioned it again in Q1. We're seeing baskets that are roughly 35% larger than non-Sparky users.

What's also encouraging, I think speaks to your question of how are folks changing behavior is early on in Sparky's tenure with us. It's Sparky customers who are using it, we're really focused on what I would call spearfishing or looking for specific items, often general merchandise, they were looking for a particular item and they'd ask a lot of questions about that, I'm going to learn more about it. They are still doing that today.

But as we have rolled out capabilities like replenishment, meal planning, Sparky is now aware that you're in a store and could help you find items in the store. We're seeing customers now not only purchase general merchandise, but utilize it for both consumables and food. And that's helped units that are purchased through Sparky increased by over 4x year-over-year. So I do want to emphasize it is still very early in this space, but we're excited about the opportunity ahead of us and Sparky and the capabilities that we've introduced in our ecosystem. And even outside of our ecosystem through Sparky is resonating with customers.

And then with Sparky, have you guys done anything to drive usage through advertising or anything else? Or is it simply customers discover it through primarily the app when they're shopping at Walmart?

So today, customers can discover Sparky through our app. It's at the center, lower navigation panel from the app, but also Sparky helps us engage with customers in other large language models. So we have deep linking experiences in other large language models and our testing embedded experiences where Sparky comes to life within an app, someone else's large language model.

Okay. That makes sense. Shifting gears. So I wanted to dive deeper into some of your alternative revenue streams, starting with Walmart+. So membership fee revenue growth accelerated late this quarter with net adds reaching a new Q1 high. What do you attribute the acceleration to?

Yes. Great call. W+ continues to see strong momentum, and our goal is for it to become really an essential membership for households across the U.S. Members are telling us that they love free shipping, that they absolutely love our fast delivery that's 30 minutes or faster, 3 hours or faster from our stores, and they love the easy returns. What's probably most encouraging is the level of engagement that we continue to see when someone becomes a member.

Walmart+ members spend 4x more than nonmembers on with Walmart. We generate roughly 7x more e-commerce visits than nonmembers and roughly 2x more store visits than nonmembers. We're also seeing really strong growth in benefit usage, whether that's auto care benefits in-store, or our fuel savings, the $0.10 off at the pump, these are driving greater shopping frequency. And I also want to mention our “Who Knew?” campaign. It has really performed incredibly well. It's a really fun campaign, if you haven't had a chance to see it. In Q1, the “Who Knew?” campaign helped change perceptions, really influence perceptions around assortment, quality and delivery speed, all of those improved and our focused messaging, particularly around W+, express delivery and RX delivery drove 50% more paid memberships and delivery trials versus our average investments on those topics.

So overall, the value and convenience of membership is continuing to resonate. And we see that in double-digit membership growth as well as in the frequency metrics that I just made.

Okay. Great. Your team has also continued to improve the Walmart+ experience. I know you guys continue to add new perks. I saw the hotel perk. I think you guys doubled the cash back on booking hotels through Expedia. I know there's a big focus on perfect orders. So what opportunities remain to further improve the customer experience for Walmart+ members from here?

Rupesh, we're always listening to our customers and our members and looking for ways to improve the offering, and we'll continue to do that. That's an evergreen problem that we'll continue to solve. First and foremost, that means to continue to strengthen the core value proposition. We will continue to focus on broader assortment, broader in-demand assortment, price and value, convenience and better, more lovable experiences in-store and in the app. We still see significant runway to improve the everyday shopping experience for our members, whether in-store or online. So that focus will continue.

Beyond that, we're focused on adding services that make life easier for customers, whether that's streaming offerings like Paramount+ or Peacock, home services like furniture, assembly, TV installation or we announced last week that we are starting to do quick service restaurant delivery for subway. All of these things help customers not only save money, save time, but just simplify life. And I think it points to -- towards us leveraging our unique assets to solve more customer needs.

I mentioned QSR since we announced that last week, maybe I'll just give a little more color on that. I think this is a great example of us using our unique assets in ways that only we can. We announced last week that we're lighting up delivery for the roughly 1,200 subway locations within our stores. And we're seeing really strong customer response in the stores that we have lit up to date. They're not only reaching into grocery, but general merchandise and locations are seeing added sales by enabling them to sell not in the store but digitally.

And then I would just remind the group that we have over 3,000 restaurants in our stores, which will be the area that we are focused on for that capability for the time being.

Great. That's helpful. And then from a driver availability perspective, there's plenty of capacity out there with your Spark network to be for these deliveries.

Yes, our Spark network, just look at it one way to add that is to pull up the app and look at your scheduled delivery slots and whether or not fast delivery is available. And what you'll see across the country is that we have incredible availability. Fantastic availability. And that has been performing at high levels throughout the year, and we expect that to continue.

Okay. Great. I got to test it out. So Next, I want to discuss your marketplace efforts. So under your prior role as EVP and Chief E-commerce Officer for Walmart U.S., you played a big role in driving the growth and expansion of Walmart marketplace. And we saw, again, strong momentum in Q1, growth of nearly 50%. So what do you see as the bigger opportunities on the assortment front? Is it just about getting some of these larger brands? Or is it still about building out SKU coverage further in certain categories?

Yes. We are very encouraged by the momentum that we're seeing in the marketplace, which delivered its strongest growth in 10 quarters. But we -- I want to emphasize that we're still in early innings here, and we have an incredible amount of growth to come from our marketplace. I wouldn't say it's one or the other.

Our guiding principle here, Rupesh, is pretty simple. We need to have the brands and the items that customers want. We're focused on expanding assortment, we're focused on bringing on brands that really enhance customer perception and, in short, increase our SKU count. We've seen success across categories like electronics, toys, in beauty and in some cases, that some of these sellers started on marketplace, but they've earned a place in our stores. Some notable recent launches that I would call out our farmer stock recently launched on the marketplace.

Garmin recently launched on the marketplace. And then it's not just about brands that can bring SKUs. It's also getting adding sellers. So [ Vivara ] and Caraway our two large sellers that we've added recently that are going to bring in demand expanded assortment available to our customers. assortment matters because it drives engagement with customers and members, and we see significant runway ahead as we continue to strengthen the assortment offering in our marketplace and available on -- in particular, Walmart fulfillment services.

Great. And then on the seller side, how do you think about the runway in Walmart fulfillment services? Should we expect the momentum to continue as more and more vendors use these services over time?

Yes. I would say something very similar. We're just getting started with Walmart Fulfillment Services, and we are encouraged by the momentum in the space. They're obviously highly related. We just started expanding U.S. assortment into Mexico and Canada. We're excited about the potential there. Units shipped same day or next day through Walmart fulfillment services in the U.S. grew by approximately 150% in Q1. So you can see our network getting faster as we put more marketplace items in more fulfillment centers and stores. And we still have plenty of room to grow there.

I would call out that when someone joins WFS and have a 2-day or faster badge, we are seeing a lift of roughly 50% in conversion. So our sellers are seeing results when they join, and we have the inventory to deploy across the network. Logistics and transportation are, as you know, complex and WFS helps reduce that complexity for sellers in addition to simplifying their operations. WFS is also about 15% lower cost than industry average. And as we continue to attract more sellers, and help them fulfill more products through our network, it creates this really healthy ecosystem.

More selection drives faster delivery as we can deploy -- can deploy more of it across the network. That drives a better customer experience. That means more volume and more demand, which drives density, which helps us lower cost. And as we lower cost, we can reinvest in the whole thing turns once again. So we're feeling really bullish about this space. Rupesh.

Okay. Great. So now wrapping up the alternative revenue discussion with advertising. So Walmart Connect continues to show significant strength. It's up 44% in Q1 ex Vizio. So where would you say we are in the advertising journey here in the U.S.? What are the bigger opportunities from here to sustain the momentum?

Yes. We're very pleased with the momentum in advertising. But again, advertising is directly connected to our e-commerce and our marketplace business. And as marketplace expands, more sellers and brands come into our ecosystem and by integrating advertising capabilities directly into seller workflows and main self-service tools more accessible by this population. We're making it easier for brands of all sizes, big and small, to connect with Walmart customers.

Hence, you see the growth, the 44% growth that you mentioned. And you see this taking shape in customers reaching deeper into what I call our torso and tail assortment. So you've got our head of assortment. The fastest-moving items are perishable items, food that people consume, but then as you move into your torso and tail assortment, we've seen a 25% increase year-over-year in just the number of SKUs that we're selling in any given week.

And that -- everything I just spoke to really creates a really powerful flywheel. More assortment attracts more customers and members, which attracts more advertisers and then that drives greater engagement from our customers and therefore, monetization across the platform and really improves the economics of our business.

Great. So now I was hoping to touch on the recent comp momentum at Walmart U.S. So we've seen strong growth and share gains in grocery for some time now. More recently, we've seen significant success in general merchandise category where last quarter, your team had the highest level of share gains in 5 years. So what do you view as the key drivers behind the multi-quarter improvement in comps? And then how do you feel about the sustainability of the momentum?

Yes. We're very encouraged by the growth and momentum in general merchandise and the share gains that we're seeing, as you noted. I would say the drivers are really investments that we've made in store remodels, expanding the assortment. As I just noted, marketplace, all of these are paying off. Growth is really led by fashion, hard lines and double-digit growth as well in our private brands. We have added more than 300 in-demand GM brands over the past year.

Marketplace growth in GM exceeded 40% across home, apparel and hard lines and brands like Scoop, Free Assembly, Via continue to resonate with customers. I think one fun anecdote where this came to life. We had a fashion pop-up in SoHo earlier this year. and we saw sales in that fashion pop-up increase from the last event by more than 70%. So I think really, the bigger story here is that customers are increasingly seeing Walmart as a destination for both value and style. And we believe that there's a lot of runway ahead of us to continue the momentum there.

Great. So I'm going to switch gears to a couple of other topics. So on the supply chain, your team is doing a lot of work on the productivity front, leveraging technology and automation in a number of ways. So we've seen firsthand Walmart's U.S. effort in automated supply chain was down in Tampa, I think, a few years ago. What inning would you say you're in today with these efforts? And then how is that helping with inventory management?

I would say we're in -- for base if we're using baseball analogies, Rupesh, I'd say top of the fourth. We're increasingly seeing the benefits of our automation investments show up across the business. The rollout across our distribution, that's both perishable and ambient distribution centers, our fulfillment network. That remains on track. And these investments really drive improvements in capacity, more capacity for our business, improved accuracy and quality, speed, productivity and then they help reshape work for our associates, which helps us improve retention which helps us run a better business.

Today, about half of the e-commerce fulfillment center volume is moving through automated facilities, roughly 65% of our stores, a little over a few thousand received freight from automated distribution centers. I want to call out, though, we are starting to see sites complete their automation rollout. We'll have, by the end of the year. Distribution centers that are going to be sending -- these are ambient distribution centers, going to be sending fully palletized loads to our stores.

And just to remind the group what that means. We had floor loaded trailers historically, and our -- our associates would take hours to unload these trailers, moving to intelligently layered pallets allows us to unload that trailer in minutes. And these intelligently layered pallets, 70% of the time moved directly to the store floor and can immediately be stocked. And then we're testing some really interesting capabilities. You could theoretically put together a pallet that has all out-of-stocks, put that at the back of the trailer.

So it's the first one that comes out. We are testing for events like back-to-school holding the freight upstream and then releasing it at once. So you get your entire set for back-to-school in one load and you're able to set that immediately. So that is incredibly more efficient than what we have done historically. So in general, I think what's exciting about automation is it's a combination of automation, inventory visibility, helping us operate a better supply chain, helping us operate better stores and extract waste from our business and improve our costs and improve our economics.

Great. So in the last 5 minutes, I want to cover two last questions if we get through both of them. So I know your team is using AI and technology to drive productivity in many parts of the organization. So what areas or applications are you most excited about here on the AI front?

Yes. We're -- I would say, physical AI, everything I just talked about with automation utilizes physical AI. So we use AI algorithms to both put away retrieve inventory to build those intelligent layered pallets. We're excited about the agents that we're building that help our associates and our customers. Maybe I'll give you one example of each. On the customer side, we recently built a variant agent that really helps customers shop more intuitively online by grouping related items together. And then it continually learns and improves based on customer engagement and surfaces those -- the right variants coupled together on a product display page.

On the associate side, we have a fantastic tool that we started in supply chain and then have rolled out to stores. It's really is targeted at improving retention, uses a gradient boosting AI model takes in about 90 different attributes and helps managers know who to engage and what topics to engage them on.

So for example, Rupesh, if you're my manager, and I came late a couple of days in a row, and I'm not typically late and the model realizes that it may ask you, Rupesh, to have a conversation with Dave, and you may by having that conversation discover that there's been a change in my life, in my situation, and maybe I need to get on to a different schedule. And that tool is having a causal impact on retention, which is pretty incredible to see come to life. So those are just a few small examples.

That is fascinating. So to wrap up, recognizing only a few months in your new role, what growth opportunities excite you most at Walmart U.S.?

What I would say -- maybe I'd leave you with three things that excite me. First, the strategy is working and the momentum we're seeing is broad-based. Our investments in stores, e-commerce, marketplace, Walmart+ advertising and automation are paying off, and they continue to pay off.

Second, our ecosystem is getting stronger. So each capability we add strengthens our business, more assortment and faster delivery, drive engagement, engagement drives membership and advertising opportunities which improved profitability and engagement drives volume, which lowers our operating cost, which then allows us to reinvest in experience and price.

And then third, I would say that I'm excited about the runway that remains and the fact that it's so significant. We have the right team, we have the right strategy. And as I noted, we have a large business with plenty of opportunity ahead. So I appreciate your time, Rupesh.

Thank you. So I'd like to thank Dave and the Walmart team for joining us today. So thank you.

Greetings. Welcome to Walmart's First Quarter Fiscal '27 Earnings Call. [Operator Instructions]

I will now turn the conference over to Stephanie Wissink, Senior Vice President, Investor Relations. Thank you, Steph. You may begin.

Welcome, everyone. Joining me today from our home office in Bentonville, our CEO, John Furner; and CFO, John David Rainey. We'll begin with highlights of the previous quarter and our outlook for the year. Then we'll open the line for your questions. During the question-and-answer portion, we've invited Seth Dallaire, our Chief Growth Officer, as well as segment leadership to join Dave Guggina from Walmart U.S.; Chris Nicholas from Walmart International; and Latriece Watkins from Sam's Club U.S.

[Operator Instructions] For additional detail on our results, including highlights by segment. Please see our earnings release and supplemental presentation on our website.

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 the factors identified in our filings with the SEC. Please review our press release and 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.

That concludes my introduction. John, over to you.

Good morning, and thanks for joining us today. The team delivered strong sales growth for the quarter, and I want to thank our associates for the work they're doing. And getting into stores, clubs and our supply chain is one of the best parts of my job, whether that's here in the U.S. or places like China and India, where I got to spend time recently. Running an omnichannel business through great stores and clubs requires the best technology and people that embrace innovation while executing the basics every day. No matter where I'm in the world, I'm reminded that customers are more alike than not. They want value for their money, a broad assortment and great experiences, and I love how Walmart delivers across each of these.

When I look at the consumer, especially here in the U.S., they're telling us they're feeling some pressure, and they're looking to Walmart for value. We're continuing to invest in prices extending the rollbacks we started in the second half of last year, and we now have about 7,200 rollbacks in place. We're also finding ways to help families stretch their dollars as outdoor summer activities get underway. We recently launched a basket of grilling essentials that feeds 8 people at under $5 per person. Now when I look at the business overall, it's performing how we expect it to. We saw strong growth in eCommerce, including advertising and marketplace. We're gaining market share and growth in transactions and units is driving the top line. Transaction growth in the U.S. was the strongest we've seen in 6 quarters. So I feel great about the way we're executing our strategy.

John David will talk more in detail about our results for the quarter, including the impact of higher fuel costs on our operations, and we're pleased to reiterate our outlook for this year. So I'll spend the rest of my time this morning providing some context for how we think about our business.

The pace of change is accelerating, and we're moving more quickly to realize the benefits of the business model we've built. We're investing in areas that strengthen our competitive position, including pricing and wages and benefits for our associates. And we're doing this while driving long-term value for our shareholders. One way we're doing this is by taking an enterprise approach to platforms, scaling tech-powered businesses like advertising, marketplace and fulfillment services and membership alongside our core retail operations to drive growth at a lower marginal cost. We've seen the power of these businesses in the U.S., and that's reflected in our financial performance over the last few years. We're now taking these learnings and applying them in Canada and Mexico.

We're also becoming AI native. Using AI, we can now serve customer needs that previous technologies could not meet, from making shopping easier and more personalized to expanding the range of shopping occasions and interactions we have with our customers and members. And Sparky, our AI shopping agent is making this possible. Weekly active users are up over 100% just in the last quarter, and our investments in AI have increased Sparky intelligence and response quality by 40% this year. Sparky is becoming more useful by the day. You can now use Sparky in stores and automatically reorder items you have on repeat. Sparky even speak Spanish these days. And as we've mentioned before, customers using Sparky have an average order value that's about 35% higher than non-Sparky customers.

As a merchant, I'm really excited about the growth we see in our assortment. We're expanding choice for our customers and members by improving our first-party assortment, especially in areas of trend and fashion and we're growing our marketplace. We recently launched Marketplace cross-border into Canada and Mexico and we like the early results. This is a good example of the benefits we're seeing from building platforms and extending them across markets. We can broaden our assortment, bring on new sellers, and drive incremental profit without the proportional capital investment. And sales on our Marketplace in the U.S. grew almost 50% for the quarter. I like how we're partnering with sellers to help them grow their business with us and this isn't just about Marketplace. Through services like advertising and fulfillment, they're leveraging the tools we built to make their businesses even stronger. And now that we're expanding our reach to more countries, we're offering an even better proposition for them.

We're also getting faster and more reliable in how we fulfill orders. For the quarter, we delivered more than 3.5 billion units, same or next day globally. Investments in our supply chain and the application of AI are improving how we position inventory, make fulfillment decisions and serve customers and members in real time. Enterprise e-commerce sales grew 26% and within Walmart U.S., delivery grew 45%. More than 36% of all U.S. store-fulfilled deliveries in the quarter were delivered in less than 3 hours.

At Sam's Club U.S., delivery from club grew more than 90% and sales mix from eCommerce is now at an all-time high. And I'm so impressed by what the teams are doing to speed up delivery solutions in markets that are already high speed. In India, Flipkart now operates more than 800 micro fulfillment centers used for fast delivery, something we call Flipkart Minutes. And they're delivering items in less than 13 minutes on average. And the team in China delivered over 0.5 billion units in Q1 with about 75% of those arriving in under 1 hour. Our store and club network, more than 10,900 locations continues to be a key advantage. It serves as the physical infrastructure that enables speed at a cost structure that is both attractive and improving. As the economics continue to improve, speed becomes an engine of operating leverage, not just a better experience for customers and members.

And at the same time, we're making our operations more productive and efficient. Automation across our supply chain in the U.S. continues to scale. Approximately half of our e-commerce fulfillment center volume in Walmart U.S. is automated, and more than 60% of our stores are receiving some level of freight from automated distribution centers. And more than half of our regional distribution centers are in various stages of being retrofitted. As we deploy these capabilities, we're also upskilling associates and creating new opportunities as technology changes how work gets done. We're also strengthening our business mix by scaling higher-margin businesses or what we call commerce solutions. These are areas like advertising, membership and marketplace, which are becoming more meaningful contributors to our overall profitability. These businesses complement our omnichannel model and support more durable long-term value creation.

For the quarter, our advertising business grew more than 30% for each segment, including 36% for Walmart U.S. Membership fee revenue grew 17% for the enterprise, led by Walmart U.S. Together, these profit streams represented approximately 1/3 of operating income. Another way we're mixing up profits better is by improving the performance of general merchandise. This is a priority for us globally. Comps for GM were positive in the U.S. for the quarter. Fashion was a standout again. In International, growth in general merchandise outpaced that of food and consumables overall with help from successful Lunar New Year events.

With that, I'll close by saying our business is strong. We have momentum and a clear strategy. We'll continue to reinforce a unique value proposition by focusing on serving customers and members better while improving the economics of our business and positioning us for sustained long-term growth.

I'll hand the call over to John David.

Thanks, John. I'd like to start by thanking our associates for their continued focus on serving our customers and members. Our value proposition continues to resonate with customers, particularly as higher fuel prices are putting pressure on household budgets.

In the first quarter, we delivered constant currency sales growth of nearly 6%, exceeding the top end of our guidance range by 120 basis points and we continue to gain share across our business. Strong eCommerce momentum continued with 26% growth, highlighting the advantages of our omnichannel model as customers and members increasingly utilize our fast delivery capabilities from stores and clubs. Customers and members are also shopping deeper into our catalog as 3P marketplace sales growth in the U.S. reached the highest level in 2.5 years.

In addition, our advertising business had one of its best quarters growing 37% globally. First quarter adjusted operating income growth in constant currency of approximately 5% was in line with our guidance despite higher-than-anticipated fuel cost. We absorbed approximately $175 million or about 250 basis points of operating income growth from higher-than-planned fuel costs in our global distribution and fulfillment operations. We continue to play office despite the short-term pressure on profits. We're confident this was the right approach to reinforce customer trust and support share gains over the long term. We're always focused on providing low prices for customers. EDLP is core to who we are. That said, these are real impacts to cost of goods sold for us and our suppliers. And if the current elevated cost environment persist, we'd expect somewhat higher retail price inflation in Q2 and the second half of the year.

Importantly, we're reiterating our original full year guidance that we provided in February before the significant increases in fuel cost. We said at that time that we believe the first quarter operating income growth would be the lowest of any quarter and profitability would improve thereafter. We still believe that to be the case. Our long-term growth strategy is clear, and we continue to execute while also maintaining flexibility to take advantage of the short-term share gain opportunities as they emerge.

I'll now share some more detail on the quarter. Consolidated revenue in constant currency increased nearly $10 billion, led by Walmart U.S. comp sales, which were up 4.1% despite a 100 basis point headwind from maximum fare pricing legislation and pharmacy. Fashion performed very well, driven by assortment improvements and expanded third-party offerings, leading to the category's strongest share growth in 5 years. eCommerce sales were strong across each of our segments with delivery speed a key catalyst for growth around the world. We're accelerating by using our unique assets stores and clubs, DCs and FCs and last mile delivery networks to get orders to customers faster and more efficiently. In the U.S. sales utilizing store fulfilled delivery have more than doubled over the past 2 years. Over 36% of these orders were delivered in under 3 hours in Q1, an improvement of 800 basis points over the past 2 years and are under 1 hour and under 30-minute solutions are growing the fastest. We can now reach approximately 60% of the U.S. population in 30 minutes or less and customer satisfaction with our delivery offering reached record highs.

In China, eCommerce grew over 30% as we use our cloud network to make deliveries within minutes. Flipkart delivered orders in less than 13 minutes on average across more than 30 cities in India. And Sam's Club U.S. club fulfilled delivery sales grew more than 90% in Q1. We're also encouraged by the performance of our U.S. marketplace with nearly 50% net sales growth, aided by increased engagement with higher-income households. Marketplace is an area that we invested in last year and the momentum is building. General merchandise categories performed especially well as expanded assortment contributed to strong results in areas like patio and garden, sporting goods, furniture and toys. In addition, we're seeing incremental growth as we've accelerated the speed of delivery promise through our Walmart Fulfillment Services. Units shipped same day or next day through WFS grew nearly 150% in Q1.

Now we're deploying these global marketplace capabilities outside the U.S., including Walmex in Canada. We achieved these sales results while continuing to improve underlying e-commerce economics, most notably in the International segment, where our performance in our Asia businesses led to more than 10% operating income growth in the segment. We feel like we're just getting started and learning about what the future state of quick commerce and Marketplace could look like in the Americas. Enterprise business mix is also continuing to improve with strong growth in higher-margin areas like advertising and membership fees. Momentum in our advertising business continued in Q1, led by strength in Walmart U.S., which grew 36%. This performance reflected strong engagement with Marketplace sellers who grew their advertising spend by over 50% and saw a corresponding lift in sells.

We continue to enhance our toolkit for ad buyers, including AI features that help to dynamically adjust content mix to optimize campaign performance while expanding reach and surfaces with VIZIO's connected platform. Consolidated membership fee revenue increased over 17%, including strength in our Sam's Club format in select international markets. In the U.S. Walmart Plus membership fee revenue growth accelerated with net adds reaching a new Q1 high. This growth is encouraging as Walmart Plus members generally spend 4x more than nonmembers overall, with 7x more e-commerce visits each year. And in this period of elevated gas prices, members are tapping into their fuel savings benefits even more today, reinforcing the value of membership beyond free shipping.

Sam's Club U.S. membership revenue grew 5.6% as members gravitate toward our omnichannel capabilities and fuel savings. We're continuing to enhance the value and convenience of the membership. We launched Dynamic Express delivery, so members can get their favorite club items in under 1 hour. These types of ongoing investments in the member value proposition at Sam's supported the membership fee increase that became effective on May 1. Lastly, we're making progress on improving merchandise category mix, particularly in Walmart U.S. Q1 marked the first time in 18 quarters that merchandise mix contributed favorably to Walmart U.S. gross margin expansion of 29 basis points. This reflects broad-based improvement in general merchandise sales, with growth up mid-single digits for the quarter. In Q1, we saw the highest level of general merchandise share gains in 5 years.

We're continuing to lean into rollbacks and seasonal value programs to reinforce our price leadership, and we're seeing a strong response from customers through increased unit volumes. We have approximately 7,200 rollbacks across our assortment, which is up more than 20% versus last year.

Now I'll discuss guidance. While there are certainly pressures on the consumer, let me reiterate, our business is strong. We are executing on the important strategic initiatives that are critical to our future sales and earnings growth. Our delivery speed and capabilities continue to get faster and reach more customers and members, and our value proposition of low prices with convenience continues to resonate with customers and is the primary reason new customers shop with us.

We are reiterating our full year guidance of constant currency sales growth between 3.5% and 4.5%. Based on Q1 performance at 5.7% and our Q2 outlook of 4% to 5% growth, we expect full year sales growth to be toward the upper end of that initial range. For Q2 operating income in constant currency, we expect growth of 7% to 10%, and we're reiterating our full year guidance of 6% to 8% growth. For Q2, we expect EPS of $0.72 to $0.74 and full year EPS in the range of $2.75 to $2.85. Recall that we guide on a constant currency basis. If current exchange rates were to stay where they are right now, we would expect an approximate 90 basis point benefit to reported sales growth and an approximate 130 basis point benefit to operating income growth for Q2.

We'd also like to note that our guidance does not assume any impact from IEEPA tariff refunds. We felt it best to provide guidance that reflects our expectations for the underlying business, excluding any recovery of tariffs paid. We are participating in the process and we believe that the maximum refunds we may be eligible to receive as the importer of record represent less than 0.5% of our U.S. annual sales.

In closing, we're excited about the momentum in the business, which is an endorsement from our customers and members that we offer an increasingly compelling omnichannel value proposition rooted in our long-standing purpose to help people save money and live better. We continue to make measurable progress in reshaping our profit mix to reinforce customer and associate value while improving returns to shareholders and our full year financial framework to grow operating income faster than sales remains intact, and we look forward to sharing an update following Q2 that reflects continued progress on our strategic growth initiatives.

We're now ready to take your questions.

[Operator Instructions] And our first question is from the line of Simeon Gutman of Morgan Stanley.

It looks like your incremental margins both at the enterprise level and within Walmart U.S. eComm are consistent with the high single-digit and low double-digit ranges that you've delivered over the last couple of years. Also outside of fuel, what are the gating factors that can allow you to dial these up, the incrementals up? And what changes over time, especially if fuel stays elevated this year?

Simeon, thanks for the question. First, let me just say thanks again to our associates for delivering a great quarter. They've done a really nice job serving in the environment. And let me just start with on your question in particular, the strategy that we're operating under just continues to deliver. We're positioned well. We're serving customers well around the market. You heard the comments about speed and delivery, and we made some investments in the quarter in-stock and other things that are making the customer experience better.

As far as the business mix that you're asking about, it does start with our core business. If our core business is performing well and we're growing share like we did in the first quarter, then we have the opportunity to expand those businesses. And in particular, eCommerce growth of 26% around the world, Marketplace growth of nearly 50% in Walmart U.S. is a very important driver that allows for things like advertising and membership to continue the momentum that they've had. The team has made a lot of progress with Marketplace. In particular, in the quarter, we launched cross-border in a couple of countries in North America. We think that's exciting. And we're building a great seller proposition that I think is going to help us in the short run for serving customers and over the long run, continue to improve our business model overall.

Simeon, I'd just add that you're right on the numbers on the incremental margins. U.S. eCommerce incremental margins, in particular, were about 12% quarter. So we're really pleased with that. And what we're seeing across the entirety of our formats is the improvements that come from better speed. Speed just continues to be something that we see our customers are valuing as I noted in my prepared remarks, this was a bit of a milestone quarter and so far as 60% of U.S. households, we can now serve within 30 minutes.

And the importance of speed, the reason to highlight that is fast fuels frequency. When we see that we are able to deliver to customers in the time frames that they expect, we see a much greater engagement with our customers and why that's important to investors, is, with that increased engagement, it improves the utility of our membership programs. And as we noted in the prepared comments, 17.5% growth in our membership programs is really strong for the quarter. And so when you take categories like membership, categories like advertising, those 2 combined comprise roughly 1/3 of our earnings today. That's very different from Walmart of 10 years ago. And with that more sort of subscription-based recurring revenue stream that we have, it actually insulates us from some of the wins in the economy and things like higher fuel prices. So we think that we're positioned really well. We like where we are right now as we're going into the second quarter of the year. And again, the incremental margins in our business are strong.

And Simeon, I'll just add on the end of your question about fuel. We have a really experienced team in logistics. We have an experienced team in merchandising. And just a reminder that our merchants have a lot of levers to be able to navigate all sorts of environments. And I think, like John David said, we're positioned well to weather all environments, and we'll continue to do the right things in terms of investing in the best proposition for our customers throughout the quarter.

Our next question is from the line of Greg Melich with Evercore ISI.

I'd love to dive deeper into the traffic acceleration at Walmart U.S. and at Sam's Club. I guess the 3% at Walmart U.S. and 6% at Sam's. What can you do going forward to cone that momentum because it is such an inflection upwards. [ Due to ] length of it, how are you thinking about any potential tariff rebates as a way to maybe keep up that momentum versus potentially offset rising energy costs?

Traffic was a strong result in both the businesses, as you mentioned. And I'll just reiterate, it starts with merchandising, starts with everyday low prices. And we had a really strong quarter and general merchandise. I'm really proud of the work that the fashion team has done in Walmart U.S., another category that was a standout in the quarter was beauty. There have been a number of investments in the experience, both online and in stores that are making a difference. And then the third thing is the improvements. You heard about the improvements with Sparky. We can talk about those a bit throughout the call. But in eCommerce, in general, being able to deliver Walmart prices at an everyday low price value with over 7,000 rollbacks in as little as 30 minutes in so many markets is really helpful in terms of the way our customers are telling us they want to live their lives. So I'm excited about eCommerce. That was our ninth quarter in the U.S. of growth over 20% and the team continues to innovate and help make the experience go faster for customers.

Greg, on tariffs, we are availing ourselves of the process to get refunds. We would -- definitely [ buy ] us and try to prioritize price investment for that, given what we've seen both -- in terms of the pressure on consumers from fuel prices, but importantly as well as the retention and the share gains that we've had, we think the single best return that we can have on a $1 of capital right now is to invest in the customer and invest in price. So that's -- we talked about the number of rollbacks that we have right now. We'll continue to lean in and try to be there for our members and customers in this environment.

The next question is from the line of Kate McShane with Goldman Sachs.

With the launch of some of the alternative revenue platforms into Canada and Mexico, when can we expect to see a contribution to the enterprise margin as a result?

Kate. First, we're excited about platforms. We have built a number of capabilities in a variety of markets, not just the U.S., but a large number of these platforms have been put together in the U.S., and we're excited about the ability for those platforms to be able to transfer into markets around North America and at the right time in other markets. We have a saying we've been talking about a lot in the company, you build once and you scale globally. And we have a long history of our very best ideas coming from our associates. And when those ideas work, we transfer them quickly.

And we have a lot of momentum in Commerce Solutions, which includes our advertising business, membership and our data ventures businesses. And we think that those are set up well to be able to transfer around. So I'll let Chris add on to that for both the markets you asked about.

I think it's really fair to say that we're really excited about the idea that we can take the incredible businesses with strong foundations we've got today and make them better and everything that you've heard about, about building robust omnichannel ecosystems in the U.S. is true of what we see in the Americas in particular, but also everywhere. Build on scale globally, by the way, it does also mean that we'll find inspiration, everywhere else in the world and bring that inspiration back to the core of Walmart, too.

But we are starting to see early signs. So 27% eComm growth in international is really powerful. But I would throw 3 of the numbers out there. That's a 30% eCommerce penetration, and we saw 30% growth in membership and 30% growth in ads. So they're small numbers, but they're growing fast, and we feel really confident about the impact that's having on the customer value proposition.

The next question is from the line of Michael Lasser with UBS.

If we look at Walmart's financial performance over the last few quarters, there's been a series of one-off external headwinds that have stood in the way from the business making progress towards that goal of generating consistent double-digit operating income growth that was outlined at the Financial Community meeting [ of you ] some time ago. Now the outside world from here probably doesn't get any easier. So should we manage our expectations as outsiders that it's just going to be more difficult to achieve that double-digit operating income growth outcome in a world as dynamic as it is today? We understand that much of that is related to this new P&L, the alternative revenues that are generating. So maybe it would be helpful to understand where each of those principal revenue streams are today versus where you see their potential?

Michael, this is John David. Happy to address the question. To start with, I'll remind everyone what we shared at our Investor Day. We talked about a multiyear plan of growing the top line, roughly 4% and growing operating income faster than that. And we depicted that, I think, in a measured way on a graph that was roughly 4% to 8% operating income growth.

It is true that if you look at the incremental margins of the business, you can get to the double-digit range, and you saw that in the U.S. e-commerce business this quarter. I want to be really clear, like we are probably as excited about the potential of our business today than at any point in time in the last few years. So I don't think tamping or metering expectations is necessary. It so happens that tariffs last year and higher fuel prices this year are a couple of exogenous shocks that we need to navigate, and that's why we provide the range that we do. But when you look at the core earnings power of the business, the share gains that we're getting across all income cohorts and the growth that we're having in these higher-margin businesses like advertising, fulfillment services, marketplaces, we love the path that we're on. We continue to see acceleration in many of these.

I talked about in my prepared remarks, but if you just take like marketplace, advertising and fulfillment services, collectively as well as individually, those had their best quarter since I've been here. So I hope that validates the conviction that I have around this. But we're not immune. We're not bulletproof to some of these things that are happening in the economy. I mean, fuel prices certainly weren't where they are right now when we gave our guidance at the beginning of the first quarter, we still came in the upper half of the range that we provided on a currency neutral basis. So we're managing the business for the long term. I don't want to get too fixated on 1 quarter's results because I think that can suboptimize what we're doing overall. So we feel really good about the performance of the business.

The next question is from the line of Chris Nardone with Bank of America.

How should we think about the sustainability of the strong trends you're seeing in general merchandise and your assumptions around ticket dynamics as we move to the back half of the year? And then just tied to this, can you give us an update on how the advancements you're making with your marketplace expansion are intertwined with your focus on gaining share in this segment?

Chris, this is John David. I'll take the first part of that question on general merchandise, then kick it over to Seth to talk about marketplace. Look, I think there's a couple of dynamics that are worth noting in the first quarter. Tax refunds came in higher than what I think most people expected. And certainly, there's probably some macro benefit as those tax refunds come in. There might be some -- an upward lift on general merchandise. But I don't want to ascribe all of that to macro. Like some of what the team is doing is really great. Like we called out fashion as a category that saw outsized growth in the quarter.

And the benefit of that is fashion has a derivative benefit another style mile inspired categories like home decor, like beauty, where we continue to see great share gains and some of the best progress we've had in years. Much of this, like if you take beauty as a category, 75% of the growth in beauty came from new brands like La Roche-Posay and others. And so we're expanding our assortment. We're providing this -- provide an assortment that appeals to customers of all income levels. And so we like the progress in general merchandise, but I do want to acknowledge that there were probably some tailwinds in the quarter from higher tax refunds.

Seth, do you want to talk about marketplace?

Sure. And the marketplace business is exciting because we're building on the rails of all the speed investments in terms of delivery that we've had over the past few quarters. And I wouldn't say that, that is benefiting any one particular category, it benefits all of the categories in the marketplace. And as that assortment increases, and we're able to deliver those products more quickly to our customers and members, it drives visit frequency and purchase frequency, which is really important, both for our membership business, as John David mentioned, and it increases and attracts more advertising from those Marketplace sellers. As assortment increases, we drive more customers and members to our business that attracts more advertisers. And we've seen that actually in our third-party marketplace advertising revenues have increased 50% year-over-year. So we're really encouraged by that.

The next question is from the line of Christopher Horvers with JPMorgan.

So I want to dovetail a bit on the consumer side. How are you thinking about how the consumer behavior changed? John David, you talked about tax demand helping the first quarter, but now we're exiting that. Fuel prices are higher, that squeezes the lower end consumer. So can you talk about what are you seeing from a consumer perspective? Do you think that the top of the funnel is sort of bigger than the bottom of the funnel where the trade-in can offset any pressure on the low end?

And then on a related note, you mentioned inflation potentially picking up because of fuel prices. You also had a pretty big headwind here in the first quarter from egg deflation. So as that abates, do you think that the pricing environment on the grocery side, where it seems like it's becoming more competitive, sort of could mute out the inflation and cause some pressure from a margin perspective?

You bet, Chris, a lot to that. Let me try to tackle all of it. First, on the consumer, increasingly, it depends upon which consumer you're talking about. We see with our customers that the high income customer is spending with confidence into many categories, while the lower income consumer is more budget conscious and perhaps navigating financial distress.

And I'll give you an example, like we have a large fuel business, and we see that in the most recent period, the number of gallons that customers fill up with when they come to our fuel stations fell below 10 for the first time since 2022. That's an indication of stress. And so certainly, as you look at quarter-over-quarter incremental pressure, that's one of the areas that I would call out. On inflation, like-for-like inflation was a little more than 1% in the quarter. But through the quarter, obviously, we saw fuel prices go up. And as you think about a category like food, it's heavily dependent upon fertilizer. And nitrogen and phosphates are heavily dependent upon the Strait of Hormuz and the closure there. So I think it's possible that if fuel prices persist at this level, you may see some upward pressure on average unit retail prices.

Egg deflation for us, lastly, contributed probably to about almost 100 basis points of deflation in that like-for-like inflation number, meaning, it would have been higher. We'll begin lapping periods as we go through the year where eggs weren't as high. So you're right that, that could also put some upward pressure on the year-over-year inflation number that's printed.

The next question is from the line of Paul Lejuez with Citigroup.

Some competitors are talking about investing in price, trying to take back some market share. I'm curious if you're already seeing signs of that happening in terms of price competitiveness in the U.S. market. And I'd love to hear how you think about your price gaps? Where do you think they sit today and how willing you might be to use some of those gaps to defend market share? Also just as a quick second one, love to know your tariff assumptions, what rates you're building in for this year.

Chris, let me start with your first question. And -- Paul, sorry, rather, on there. Paul, let me talk about the first question. on pricing. This is a competitive market and has been for all the years that I've been in retail. This is my 33rd year at the company. And I can't remember a year where competitive pricing isn't always top of mind. This is an industry, particularly in food, where everyone is looking for value and has been for a really long time.

What the team has done, in particular, at both Sam's and Walmart U.S. in the last quarter, is they focused on where are the places that we want to provide the very best value we can and on top of that, an experience that puts the customer right in the driver's seat. We have an omnichannel strategy, which means we want to sell customers what they want, when they want, however they want it delivered, whether that's at the counter, that's at the curb, that's at their front door, the driveway or into the refrigerator. And in the quarter, the real standout is having over 7,000 rollbacks that are live and active across the business. And just to remind you, for the last few years, we have accelerated our rollback count in the 5,000 to 5,500 range. So this is an acceleration that's meaningful for customers, and it's a great value message for our customers.

And the last thing I'd say is we will continue to operate in an everyday low price strategy across our business. That builds trust over time. We want customers to be able to trust that they can have the very best value on a basket of goods each and every day when they choose to engage at Walmart. We have to earn their business every day. And in a period like this, we'll continue to focus on value to ensure that we have the best value, and we are proud of our price caps.

And follow on tariffs, for that matter, I'd say with respect to both tariffs and fuel, our merchants and then Latriece can correct me if I'm wrong, but we're generally assuming the same environment that we're in right now.

The next question is from the line of Oliver Chen with TD Cowen.

The momentum on Sparky has been impressive on the average order lift. What are you seeing in terms of the category or how that customer is shopping? Also as we think more broadly about being AI native, what are the key priorities? And how are you balancing this across the customer experience as well as the supply chain innovation you've had with AI?

Yes. John mentioned the growth with Sparky in his remarks, and that growth is really being fueled by expanding capabilities. Sparky is now live across both the app the web and in-store experiences. And we've added new capabilities like personalized replenishment, meal planning and more intelligent recommendations based on our inventory positioning, our prices and our delivery speed capabilities.

I think it's important to note that early in Sparky's life engagement was really centered more heavily on general merchandise discovery missions. But as we have expanded the capabilities around replenishment, meal planning and personalization, we're increasingly seeing customers use Sparky for everyday essentials like food and consumables. And as a result, units purchased through Sparky have grown more than 4x the previous quarter.

Our next question is from the line of Scot Ciccarelli with Truist Securities.

Earlier, you talked about how you now have delivery capabilities of 30 minutes or less to 60% of the U.S. population, correct me if I'm wrong, but I believe that's a pretty big increase. So 2 questions. One, can you help understand the total usage of 30 and 60 minutes deliveries, which I think are all fee generating. And then two, how should we think about the rollout pace of that capability?

Sales in fast delivery have grown more than 50% year-over-year in Q1, and that's really supported by customer adoption growth, which is in addition to average order value in this channel going up. At the same time, we're seeing stronger engagement across categories of fast delivery, including improving use of spend on general merchandise, which saw its highest share gains in 5 years.

I want to share one more fun anecdote on fast delivery. We hit our 1 millionth drone delivery in Q1 for the life of that program, with slightly over 40% of those drone deliveries being completed in Q1. So you can see how that is accelerating. And on average, these orders were airdropped to our customers homes in just minutes. We're live in 66 locations across 4 states, Texas, Georgia, North Carolina and Arkansas. And that means we have access to millions of customers.

And Scott, one of the things to remember, as you look at our portfolio around the world, having 11,000 retail locations with inventory for deploy is a really important enabler in the omni model being able to serve customers in real time requires you to be close, local to understand assortments and the investments we've made in data powered by AI so that we can make faster decisions and fulfill in the very best way possible on top of the supply chain investments that we've made over the last few years is all coming together.

I mentioned earlier in the call, the progress on automation, whether it's in fulfillment centers, the regional distribution centers, while we're proud of those, we're about halfway there. So we have more to do. We have more investments coming, but the speed at which these are coming online is much faster than it was a couple of years ago. So I'm really excited about the strategy and the way that we're positioned to be able to deliver to customers quickly all around the world.

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

I had a question on Marketplace. Obviously, the nice growth at 50%. So I was wondering if you could decompose that into what you're seeing with seller count, new expansion, AOV. And how should we think about the rollout pace for the balance of the year and just areas that you are particularly excited about to expand where you see the biggest opportunity.

In terms of the expansion, Chris mentioned the marketplace expansion or capabilities into some of our international markets. We're excited about that. And then we've seen momentum as we mentioned earlier with just overall marketplace revenues, but the revenues are really an output of the assortment increases. And the assortment increases are important because that's what's driving engagement with our customers and members. So it's really early days with the marketplace right now. While we've seen good momentum so far, and it's remarkable on the call here, we have a lot of room to run with Marketplace. And as we continue to bring in more assortment from sellers. And we deliver that -- those products from those sellers to our customers and members more quickly, it just cranks the flywheel, attracts more sellers and more product and that gives us confidence that the Marketplace is in a really good spot for continued growth momentum moving forward.

Seth, if I could add, I think one of the important points to mention when we talk about our marketplace too, is what's going on with Walmart Fulfillment Services. I noted in my prepared remarks, and I think it's worth underscoring we had 150% increase in same-day next-day units sold. And the more that those sellers can take advantage of our fulfillment services better for our business it is and the better for their business it is. And so it becomes a win-win. And that's really what you're seeing with some of the acceleration of this growth engine in our business.

Our next question is from the line of Seth Sigman with Barclays.

I wanted to ask about Health & Wellness. It did moderate in the quarter. I know there's a lot of noise in that category. What is happening in the underlying business? And then if you focus specifically on GLP-1, can you talk about the impact that's having now? What is your outlook for that? And I think there is some pricing pressure within GLP-1. Is that actually a good thing? Is that freeing up dollars for the consumer to spend in other categories? Just curious how you guys are seeing that play out.

Seth, let me take that at a high level, then I think Dave might want to share some comments on some of the progress that we're making in our pharmacy business. First, I think the most noteworthy thing is the enactment of maximum fair pricing legislation that was started in January has been about a 100 basis point headwind to our comps. And if you think about the Health & Wellness business, that is disproportionately in-stored. So as you think about the breakdown of eCommerce versus in-store, our in-store comps would actually be positive if not for that headwind. So overall, really, that obscures some of the real progress that we're making in that part of the business, and Dave will talk more about that.

Yes. Excluding the impact of MFP, the business would have grown mid- to high single digits for health and wellness. Importantly, the underlying business there remains incredibly strong. We're seeing prescription volumes grow. We continue gaining scripts -- the pharmacy delivery continues resonating with our customers, with roughly 20% of the deliveries, getting to our customers' doorsteps in under 3 hours in our Health & Wellness business. And we remain focused on delivering affordable, convenient health care solutions for customers while continuing to expand our digital health care capabilities.

Our next question is from the line of Bob Drbul with BTIG.

I was wondering if we could focus a bit on private brands, especially as it relates to the consumer. I think you called out general merchandise in Sam's -- I mean, I'm sorry, in Walmart up double digits. But can you talk about private brands in the grocery business and also what you're seeing in Sam's Club.

I'll start here and then some of the segment leaders may want to jump in. But I think it's important to note that when you look at private brand, it's very different, the composition in terms of what's happened in general merchandise versus food. Overall, private brand penetration was down about 40 basis points for us in the quarter. And the breakdown of that is food was down a little bit more than 100 and GM was up almost 200. The reason food is down is largely due to eggs. Eggs is a big private item for us. And so if not for that, you continue to see probably a greater penetration into private brand. But I don't know if Latriece or Dave, do you want to talk?

Sure, John David. Private Brands continue to be an important differentiator for Walmart, and we're seeing strong customer response across both the value that we're bringing and the elevated offerings that we brought to the market. Customers continue to engage with the trusted brands they know, like Great Value and Equate while the newer brands that the team has built, like bettergoods and freshness guarantee, help us attract new customers and particularly high income customers. And we're also excited about the recent refresh of great value. That brand's first major redesign in more than a decade, and that improves shelf presentation for in-store shoppers but also digital shoppers and really reinforces the quality and the value that customers expect from Walmart Private Brands.

Thanks, Dave. We are celebrating our second year of Member's Mark being our only private brand at Sam's Club and a key differentiator of that brand is it is co-created with our Member's Mark community. So you all may know that half of our Member growth is coming from millennial and Gen Z members, and they like participating with the brand. So they're helping us create and choose items in the brand that are really resonating with them.

An example would be Member's love this Member's Mark PK Sandwash Dress. They've chosen the colors, they have chosen the style of the dress and they're buying it with a lot of frequency. Second, in -- across the food business, our members told us that they wanted items that were made without. So in January, we were able to reach the goal of 100% of our Member's Mark food and beverage items or -- have made without label. We're proud of that. We're proud, one, because it's great for our members. And secondarily, because they ask for it, we're able to deliver it, and it's paying off with them renewing and new joins with us.

The next question is from the line of Chuck Grom from Gordon Haskett.

I think this is one of the first times in a while the product category mix has been a margin source for Walmart. Can you help us think about the opportunity set here? In other words, how much has this held back to us gross margins over the past few years because of the gains in Health & Wellness and grocery?

I'll attempt to tackle that, Chuck. We were really pleased with the progress in the quarter. And as I noted, I think this is certainly the first time since I've been at Walmart, and I believe 18 quarters since we've seen merchandise category mix be a tailwind to gross profit. And really, when you consider the other dynamics in the quarter, the increase in fuel prices obscured some of the progress that was there. So we're pleased about that.

Probably in the next quarter, we're not going to see the same type of -- or the same level of improvement that we saw in the first quarter, at least that's our expectation. As I noted, I think we certainly probably saw some benefit from tax refunds. But if you zoom out and you think about the path that we're on and some of the margin drivers over the business on a multiyear basis. We've talked about general merchandise being one of the big drivers. And a big vehicle for doing that is our Marketplace is we have more third-party assortment that's coming on to our marketplace, it gives us the opportunity to lean more heavily into general merchandise, which as you know very well, has a higher GP than food.

So I think this is a multiyear journey that we're on. We're excited about the progress in the first quarter, but not every quarter is going to be exactly like this. It's not directly up and to the right, but I think it gives you an indication of the path that we're on.

The next question is from the line of Corey Carlo with Jefferies.

Great. John David, I wanted to ask on the EBIT guide for the second quarter. It looks like the year-over-year growth is actually accelerating in Q2 versus Q1. And and that's in spite of incremental fuel headwinds, I would assume, being captured in the duration of the full quarter. So could you talk a little bit about how to think about kind of the second quarter operating income growth, especially dovetailing off of the comment you just made about merch margins not moving in the same magnitude as Q2 versus Q1 as well?

Sure. And this also, Corey, probably, in some ways, addresses Michael's earlier question. So glad to come back to this. So let's take our operating income guide, which is on a currency-neutral basis. We guide 7% to 10%. We noted 130 basis points of FX tailwind. So if you take the top end of that guide, you're really talking about an operating income growth on a reported basis of almost 11.5%, which by my estimation, is double digits. So I think that really shows like the acceleration in the business.

Now I want to be balanced and fair here. We're also lapping 2Q last year where we had higher claims expense. That's built into our base now, but there is a little bit of a tailwind there. But your assertion is correct in that do think when we look at our business, particularly the performance of these areas that were called out in the first quarter, we're seeing an acceleration through the year. You might remember on the last call, we talked about the first quarter being the most challenging from an operating income perspective. In a business of our size, there's always going to be little puts and takes that affect your year-over-year growth in financials. But we noted that we expect the second quarter and the second half of the year to accelerate. And you're seeing that, and particularly, we're keeping our guide in the face of what are hundreds of millions of dollars of pressure from higher fuel prices.

A final question will be from the line of Rupesh Parikh with Oppenheimer.

So just going back to higher gas prices. Just curious if you're seeing any behavioral shifts of no -- whether consumers are shopping maybe more online versus in-store? And on the merchandising front, whether you're seeing any shifts in consumer behavior, just given some of the pressures out there?

Rupesh, happy to take the question. It is interesting what you see, and there are little tweaks here and there. But I'll point to just gallons consumed as an example. Like in our Sam's business, and Latriece can correct me if I get these numbers slightly wrong, but in the month of May, our gallons are up 12%. If you look across the industry, they're down 5%, is that correct? So like that tells you that customers are coming to us looking for value. What's important to note about that is that a fuel member spends 1.6x more in the rest of the basket than a nonfuel member. And so it just shows the importance of engagement where -- and the importance of leaning in, in these periods where wallets are stretched to provide these price points for customers that they find attractive.

Thank you. At this time, I'll turn the floor back to Steph Wissink for closing comments.

Yes. Thanks, everyone, for your interest in the company. We really appreciate you taking the time to go through this morning, and we always appreciate your questions. I'll just close by saying we're really pleased with the strategy of the business, the way the business model is coming together. And most importantly, we're proud of our associates. We're proud of the way our associates are serving customers, they're innovating, they're coming up with great ideas. I've been in several markets just over the last couple of months around the world. And what I see consistently is a group of associates who are innovating. They're working on great brands, great packaging, great labels. The comments that you made, Latriece, about food. I've seen that in multiple countries around the world. And the team is really focused on merchandising.

When it comes to the business model, we are really pleased with the way that things are shaping up, mix in terms of merchandise and business mix are both accelerating and we think that over the short term and the long term, those will have a meaningful impact on the way we operate here at Walmart.

And then the last thing, the speed at which people are delivering, they're innovating, they're delivering product is impressive, having deliveries in international and Flipkart in particular, at 13 minutes is really impressive, 30 minutes or less in Walmart U.S. in 6 markets and expanding is a great place for us to continue to lean into and I'm really looking forward to seeing how the team delivers this quarter and beyond. We're excited about the business model. We're excited about our guidance, and we look forward to talking to you in a few months.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Good morning, everybody, and welcome to the lunch session of JPMorgan's 12th Annual Retail Roundup. It is our distinct pleasure to host it here inside JPMorgan's new global headquarters. And even I am even more delighted that I have Walmart's Chief Financial Officer and Executive Vice President, John David Rainey.

It's good to be here.

David, thank you for coming and spending some time with us.

Yes, it's good to be here. Thank you.

And the good news is, unlike last year where the end of today was liberation announcement, we've had, at least for a short period of time, some things to celebrate.

What a difference a year makes?

As I said before, I think like as long you just get the certainty of constant uncertainty, then you can operate in that. We don't expect anything else.

That's true. It feels like the environment that we've been operating under for a period of time.

So I always find it helpful to set the table, so to speak. So at the Analyst Day, a little over a year ago, the management team codified a bold plan that embedded continued share gains as the omnichannel flywheel turns with the acceleration -- accelerating margin expansion and accelerating cash flow generation over the planning horizon. A lot has happened since that moment, tariffs, a war, CEO change, complicated geopolitics. So it's an open mic question for you. Can you reflect back on how the financial plan is perhaps evolving given how much the environment has changed? And to what extent Walmart's core strategies have also evolved given how the environment has changed?

I'd be happy to. I'd start with, as we're sitting here in a period of uncertainty, as you kind of prefaced in your remarks, I feel like we are really well insulated from some of the whims of the economy. Like if we get into a period of time where there's higher oil prices or a more recessionary type of environment, I would argue Walmart is positioned as well as any company to actually do well in that type of environment. Wallets have been stretched. If they get stretched further, people are still going to look for value. They're still going to want to eat. Food is the largest thing that we sell.

And so I don't want to be dismissive of sort of the macro environment and some of the things that are in the news, but I feel like we're in a pretty good place right now. 3.5 years ago, 3 years ago, we had our Investor Day and our posture at that point in time moving forward was, I think, considerably different than what the last 5 years had looked like. And I think for some investors, it was like, well, show me story. And I feel like we've done a pretty good job of that over the last 3 years.

We've grown operating income faster than we have revenue. In fact, if you adjust for some one-off things like our claims expense last year, roughly twice the rate of growth and in the high single digits. And I think there's even more opportunity from there. And what's happened in our business is it has fundamentally changed over the last decade to where e-commerce is roughly 20% of our business today.

And what that allows us to do is participate in other profit streams like advertising, like fulfillment services, many of these other things that are growing much faster and have higher margins. And you've seen that translate into our P&L and the benefits there.

As I look forward over the next several years, I think I'm probably more excited than I was 3 years ago when we were making what was seemingly sort of a bold statement at the time because I think the opportunity is just as immense as it was at that point in time.

Excellent. I started covering retail stocks in 2003. I've watched a lot of legends right off into the sunset. And what Doug McMillan put in place is right up there with so many legends of retail and frankly, like on par with the turnaround story that Frank Blake executed at Home Depot. It took -- it's gone even broader. -- because he took Walmart down so many different paths that they weren't there before, but also had to fix the core business.

So as you think about -- as we look forward and think about John's leadership, can you talk about how perhaps he is different, how the strategy may be is different, how he executes maybe is different? And just a broad question on what does John bring to the table?

Sure. I'd be happy to. But if you'll allow me, I want to spend a moment just talking about Doug because I do agree, he was a titan of retail. In fact, I would say more than just retail. He was a titan within the business community and his legacy will be there forever at Walmart. It's amazing when you think about our 63-year history, how few CEOs that we've had.

And Doug took the helm for about a 12-year period, if my math is correct, and left a lasting impact on every single associate that ever interacted with him. He obviously was the architect of a lot of the improvements that we are realizing the benefits of today, the investment in price, investment in wages, the investment in technology, all took off underneath him. And I think that has positioned us to be successful for decades more because of that.

What's interesting about John is actually the consistency with Doug, but not only in terms of their strengths, but also how they lead. They're both very much servant leaders. And so from an investor perspective, what I would encourage you to think about is this is going to be very much a consistent strategy. This is not a pivot in any way.

And in fact, if you look at the parts of our business that have probably changed most appreciably over the last 5 or 6 years, it's things like advertising, membership, supply chain automation. John's fingerprints are all over those things. He was the architect of many of those things. So I think very much it will be a continuation of what you've seen over the last several years.

And we're all very excited to have John at the helm. John is -- he's not a newbie in our business. He's been there for 35 years. His retail knowledge is as strong or stronger than Doug's. And Doug would tell you the same thing. It's fascinating to walk a store club with him and the amount that you can learn just through that interaction and experience.

And I emphasize this point, Chris, because I think in a world of changing commerce where we talk about agentic commerce and things like that, the thing that is probably most underappreciated is the complexity of end-to-end retail. And so being really good retailers matters no matter what the channel is that someone is going to be buying something from one of our stores or e-commerce sites.

Awesome. So dovetailing back to your first response, there's a lot of cross currents right now. On one hand, you have tax refunds. On the other hand, you have a consumer that seemed to be more price elastic as '25 progress, especially low in the mid-end and now gas prices have surged. And historically, Walmart has been more sensitive to the ebbs and flows of gas prices. So can you just talk broadly about what you're seeing from the consumer side? Are you seeing the uncertainty and the stress having an impact? And to what extent do you think that tax stimulus is perhaps offsetting that?

Sure. I would start with the fact that I am probably more constructive on the consumer than what one would glean from reading the headlines of news publications. There's a lot of alarmest headlines and what the impact can be on the consumer. But the consumer continues to be very resilient.

And in fact, if I go back to our last earnings call and the outlook we provided on the quarter, we still feel like that's pretty much intact. I mean it's very consistent with what we expected at that point in time. There have been puts and takes. As an example, I think tax refunds has had a bigger benefit than what we imagined at that point in time when we gave guidance for the quarter.

Offsetting that, we did not expect to be at a war at that point in time and certainly didn't expect oil prices to get above $100 a barrel. I do -- like something I monitor closely is our look at our consumer health, our customers' health and members' health. And they're continuing to buy things. I think it's too early probably to provide a verdict on the impact of fuel prices because how high those go and how prolonged that is can certainly have an impact as you get into cost inputs like fertilizers and things like that, that can then bleed into food prices. So we'll keep an eye on that.

But at the same time, if you were to go back to the mid-2000s, and it's -- I was in the airline business in the mid-2000s. And when we had the oil shock there, as context, a $1 per barrel increase in the price per barrel of oil cost us $300 million a year. And this was a company that was basically making $3 billion.

And when it went up $50 over that period of time, the ability to manage that is pretty challenging. We're not impacted like that. Like certainly, the higher fuel prices and higher oil prices have an impact on us, but well within our ability to manage at this point in time. I think the thing that we're focused on is consumer health and what can happen there.

The last thing I'll say on this is if you do subscribe to some of these more doomsday scenarios around what can happen to oil prices, the oil got to $130 a barrel in the 2000s, inflation adjusted, that's about $200 a barrel now. And things like horizontal drilling and fracking, we're just taking off like that. I think we're in a much better position globally from a supply perspective to be a little more insulated from some of the shocks than maybe what we were at that point in time. So it remains to be seen, but we'll keep an eye on it.

So just to rephrase that response because it sounds like you talked to the top line as well as to the margins. So far, the consumer absorbed it. There are some puts and takes that have roughly offset. The question becomes how -- if prices stay this high for a longer period of time, then the risk is something could go to the downside.

Yes. I think there's a little bit of a tail to changes in consumer behavior. The example I gave in a meeting earlier this morning is my son lives in California and gas prices there are $6 a gallon. He drives a Jeep, pretty fuel inefficient vehicle. And he's beginning to complain about that and saying, maybe I need to get something that's more fuel efficient.

Those things take time before you see the types of changes in behavior. So I think we need to keep an eye on this. But again, I think the consumer has shown a resiliency and probably is a little healthier than what one would glean just from kind of reading publications.

Understood. And then just to clarify in terms of how does the -- how do energy costs and diesel and ocean freight and so forth? How does that impact the margin of your business? And is there a shorter-term answer versus potentially a longer term?

Yes. Well, there's a direct cost impact. We're one of the largest trucking operations in the world. And so we certainly are impacted by that as a direct cost input. There's obviously the impact as a cost input into food and grains and things like that. So we'll need to keep an eye on that.

But we've been able to manage what is in excess of $100 million headwind within the levers that we have in the quarter. And so I think we're probably a long ways before this bleeds into prices for us. But again, we'll have to see what happens. And we're wired to keep prices as low as possible as we can for our customers. And so we're going to continue to try to play offense and gain market share as we've done over the last year and be aggressive on price where we can.

Understood. One question that we get from investors is the strength of your e-commerce business, but concerns that retail stores alone were flattish since the third quarter and maybe slightly negative in the fourth quarter. Understanding you take the omnichannel view, but is there something to be concerned about? Is it something that you focus on from a management team perspective or perhaps there were some factors that we were just haven't been thinking about?

We've been asked that question a lot. It's obviously on people's minds. I don't want to be dismissive about flattish in-store comps. But I would actually describe myself as a little more agnostic about that because I think it is incomplete to just look at in-store in isolation. Because for us, we have 5,000 stores in the U.S., and those are fulfillment nodes, delivery nodes for our customers. That enables the e-commerce business that we have. It enables us to serve 95% of America in less than 3 hours.

And so the level of comps, like if they're down appreciably, certainly, that matters to our business. But I think you've got to look at the whole picture and look at what we're doing from an e-commerce perspective as well. E-commerce is roughly 20% of our business right now. And so it's a very meaningful and fast-growing part of our business. So we'll keep an eye on in-store comps. But again, I think that paints an incomplete picture when you just look at it in isolation.

Understood. You mentioned this earlier about the domestic pricing environment in terms of the grocery side of the business, potentially having some lag off of energy prices and fertilizer prices. But can you talk about more of the here and now? How are you seeing the pricing environment? There's been some changes at some of your peers on the management front. How do you think about your price gaps and the need to continue to push that lever?

Yes. I think the pricing environment right now is very rational. I like where we are competitively positioned there. As we talked about last year as a year ago sitting here on Liberation Day, we talked about playing offense and leaning into price and attempting to gain market share. We've seen that happen.

And importantly, that market share that has been gained, we're seeing a retention, a higher level of retention among those new customers than we ever had before. So we feel good about our price gaps. I think by some measures, they're at a wide point to where they've been historically. But this is an ever-moving game. This is something we'll need to continue to monitor.

But I think we're well equipped to be very competitive in this space. And it's also, as you know, very well, Chris, it's tough sometimes to generalize when you talk about price gaps. It can be different regionally. It can be different based upon certain competitors. And there are definitely opportunities that we're addressing and we'll continue to address as we look across the competitive landscape.

And then I guess, to what extent -- how long do energy prices have to stay here to start to see a translative impact into food in relation?

It's tough to give you an answer on that. It's -- the level of price increase and how prolonged that is influences that. What -- is there some expectation that it would come down at some point? We'll try to absorb the cost increases that we've experienced thus far to the extent that we can. But at some point, it is a cost input. And at some point, you'd likely see some impact on pricing. You see this with some of the airlines right now passing on fuel surcharges. And by the example I gave earlier, you can perhaps see why they're quick to act on that. But we're going to try to keep prices as low as we can as long as we can.

Understood. Can you step back and provide an update on the development of the marketplace and provide some perspective on its scale and growth trajectory? I know you've continued to contemplate internally disclosing GMV, but where do you think you are in terms of that flywheel? Is it still accelerating? And how has the reception from brands and third-party sellers changed over the past couple of years?

There's a lot to that question. So if I miss something, feel free to follow up. I'm really pleased with the progress of our marketplace business. It's growing from a total revenue perspective, it's growing roughly at a 20% rate. I feel really good about that. But I think just as importantly is the benefits that it's providing to our customers.

We see categories like home, hardlines, fashion that are all growing north of 30%. These are areas that we've been a little weaker in on a relative basis. We've talked about the need to grow our general merchandise assortment. This is a great opportunity to do that.

During the holiday period, I think we had 3x the number of sellers that we had versus a year before. And today, we've got roughly 0.5 billion SKUs on our marketplace. We want to continue to grow that, continue to provide broader assortment. And there are specific brands that we're targeting. There are about 300 brands that we think of as must-have on our platform. We're about halfway penetrated into that.

And probably 75 of those have happened in the last year. And there can be a bit of a halo effect with some of these brands as well. When you begin to add Apple products, then maybe another product follows on because of the perception that goes with that. And so this is a big initiative that we have as growing general merchandise is one of the major pillars of our strategy going forward. And so marketplace is the vehicle by which we'll do that.

So curious how the dialogue with the brands have changed and adding 75 this year, roughly halfway there to 300. What's -- to what extent are you slowing it yourself in terms of making sure you have the right experience for the consumer versus brands trying to figure out is walmart.com the right customer acquisition?

It's less because we're trying to pace it. There's a pipeline that exists in terms of doing this. And oftentimes, you start small, demonstrate that you can grow their share and that it's good for them and then you add on more to that. Sometimes you might start online and then based upon that experience online, then move to in-store. There are plenty of examples of doing that.

But I think just as hopefully, investors have realized that Walmart has changed a little bit in the last few years. Our vendors are as well. They're recognizing that if you want to be selling at a place that is acquiring new customers, growing share, Walmart is a property to do that, be it physical or digital. And it follows that advertisers are doing the same thing. Advertisers are going to chase the eyeballs. And as we're growing share, we have more affluent customers that are coming to our properties. That's where they want to advertise as well.

Yes. And as you think about that continuing to grow that 150 roughly to the 300, is there certain categories where you feel you're further along versus other categories where you're continuing to catch up, so to speak?

Broadly, I would say general merchandise is our focus. Without getting into subcategories, I think there's opportunity in all of those. I talked about some of the progress that we've made in fashion and home and hardlines, but baby apparel is another one where we've made good progress. So feel good about that, but there's still a lot of work to be done.

But I don't want to cast this as just something on our to-do list. We've actually made really good progress. So I'll give you an example. If you take fashion as a category, if I include first-party and third party, so including everything we're selling in our stores, fashion as a category has grown in the low teens percentage year-to-date for us.

People don't think of that as being a strength of Walmart, but that shows you 2 things, both the quality of the improvement in the assortment that we have as well as the broader assortment overall. The fact that we can be growing something high -- low double digits year-to-date, I think, is a really encouraging sign about how our business is changing.

And you talked about -- you characterized it on the fourth quarter call that 3P and fulfillment services are still in an investment year, so to speak, and that there was an expectation that this alternative profit pool was going to turn to profitability. What drives the inflection ultimately? Is it just simply the scale in the business? Or is there actually some sort of source of funds where your investment "recedes?"

I think scale is an important part of it, but also further penetration into Walmart fulfillment services. So to frame this, roughly half of our GMV that we sell on our marketplace is from sellers that are belling themselves of Walmart fulfillment services.

When you consider the delivery promise to a customer, the ability to deliver same day or next day. When someone avails themselves of our fulfillment services, we do a really good job there. When the seller is taking that action on their own, sometimes it might be 3 days, 4 days, 5 days. That's not as good of an experience for our customers. And so I think that fulfillment services for us, like if you're a seller, you're not actually using us properly unless you're using Walmart Fulfillment Services because of what we're doing there.

And I want to be really clear on this. Like there are parts of our business where maybe we're structurally disadvantaged or something like that, but fulfillment services is not one. We aspire to be the best in the world at fulfillment services. And so I continue to -- I'm encouraged to see that growth. And I think the economics around that will also inflect and help us with the overall profitability of marketplace.

Understood. Focusing more on the gen merch side of the U.S. business. Last year, despite tariff pressures, Walmart invested in price in gen merch, which is obviously a hallmark and a religion at the company to drive share in general merchandise. And it certainly paid off from a share perspective, particularly as the year progressed.

We're now at a really interesting moment post the Supreme Court decision as many of the specific heavily imported categories are coming in at a lower tariff rate, particularly some of the categories you've mentioned in the back half of the year versus the back half of '25. So my question is, how do you think about sort of the structural nature of the prices that are in the marketplace today?

It seems like just given how inventory turns and what seems like a pretty good consumer backdrop, there's not a risk that prices actually go down. But as you think about as the year progresses and you get the back-to-school and holiday again, what's your expectation in terms of the stance that you might take in some of those categories that do have lower tariff rates?

Where we can and where we think it makes sense for us from a P&L perspective, we'll certainly try to invest in price where we can. It is interesting what a difference a year makes as we were sitting here a year ago and had the prospect of who knows how large the tariffs over the forthcoming time period, but I think we've managed that pretty well. We paid billions of dollars in tariffs to the government. We've absorbed a lot of that. In some cases, we had to pass along that price increase to customers.

I know there's been a change in terms of what the tariff environment is right now versus a year ago, but I don't think we're in a period of time that I would describe as being highly certain of what it looks like after that. And so our posture is, I think, very similar to where it was a year ago on this. And in terms of like our buying activity, what we're assuming around the level of tariffs overall, I think it's very consistent with that.

But overall, from a basket of inflation perspective, food and consumables are kind of flattish, and we do see general merchandise has continued to be more inflationary and kind of the low to mid-single digits. But where we can, as we've done over the last year, we're going to try to be very competitive on price and absorb some of that if it makes sense for us so that we can continue to gain share.

Understood. And is there an upside opportunity to maybe talk about as you think about the ability to retain, hold price in the market, keep strong price gaps, but at the same time -- and drive share, but at the same time, take some of those billions of dollars that you paid back into the P&L?

Yes. Well, I think there's a balance to that. And sometimes you might let that fall to the bottom line. Other times, you might want to invest that if you think that the LTV around that decision is better that way. And I think our teams strike a good balance there.

We've been in a period of time where wallets have been a little more pressured, if you will. And so there's probably a greater need, particularly if you think about where fuel prices have been to make sure that the consumer is still able to spend. And the way that our merchants view this is how do we optimize the basket of items that they're buying. So we might absorb price increases or tariff increases in one area in order to allow them to buy more in a different area when we consider the basket of items that they buy. I think our teams have done a good job managing that. And I think the environment will be very consistent as we look out over the next coming quarters.

Understood. And then it seemed like just on the tariff refund question, I'm sure you've been asked about this, supposedly tariff refunds are going to start flowing to companies in June. How -- what are your expectations around the tariff refund process?

Yes. It would seem to be very complex and by extension, probably not something that's going to happen very quickly. We'll certainly avail ourselves of the opportunity that we have to get a refund. But when that happens remains to be seen. I'm not close enough to it to really have a good understanding of how quickly that can take place. There is a precedent for this back in the 2018, '19 time frame. And I think it was a pretty cumbersome process at that point in time.

But we effectively kind of absorbed this in our day-to-day business as we incurred these tariffs last year. And I think the reverse of that would be true right now. It would be recognized in earnings from an accounting perspective. So that is a P&L benefit if and when we should get that refund.

Understood. That's very helpful. The advertising revenue story has been incredible, how quickly it's grown, how quickly it's scaled. Can you talk about what has been driving your -- the growth of the ad business? How do you think about the trajectory of growth going forward? And why do advertisers select Walmart versus perhaps another option?

Sure. part of it is what I said earlier is we're gaining customers and customers from all income cohorts, advertisers are chasing the eyeballs, right? And for us, importantly, e-commerce is this newer part of our business that didn't exist to the extent that it does now historically. And so that's given us new options to -- or new opportunities to advertise to customers in very rich contextual ways that is actually, in many cases, improving the customer experience versus degradating it.

I think this will be like the growth that we've seen here and the benefit to our P&L will continue into the future. I'm really excited about the rolling out of our VIZIO acquisition. VIZIO gives us an ability to participate in the profit streams that exist from selling TVs on the software side where historically, we've only done that on the hardware side. And importantly, it allows us to do non-endemic advertising.

So instead of just advertising for a product that we sell, we can advertise for F-150 as you're streaming media on your TV. And this is yet another way that I think we can continue to prove -- improve the P&L through advertising. So I'm very excited about it. I know like there's discussion around will there be channel shift related to agentic commerce and some of that may be true, but it doesn't change my outlook on advertising.

As you're thinking about that non-endemic opportunity, I don't know if there's any quantitative you could provide or maybe like what inning are we in of serving F-150 ads? And was there any unique observations in terms of maybe what types of advertising -- non-endemic advertising that you're drawing in?

Well, we are doing a very small amount of that already. And so we're rolling this out, and we'll continue to do more. So if I were to say innings on nonendemic advertising, like we're probably in the first inning, a long ways to go there.

On advertising and just in general, though, I still would put us in what I would describe as early to mid-innings too. Like I think maybe a way to frame this is if you look at what maybe best-in-class is in terms of advertising dollars as a percent of GMV, that's easily twofold where we are today.

What's exciting to me is like we can get further penetrated into that as a percent of GMV. But at the same time, we're growing the addressable market, too, growing our GMV. So I think there's a big opportunity for us. And importantly, one of the changes that John made when he took over as CEO is to approach these growth areas of the business from more of a platform perspective.

So Seth Dallaire used to run part of these businesses for us in the U.S. He now has an enterprise remit. And so the same things that we're doing in the U.S., we can do in Mexico, we can do in Canada and other parts of the world, which are much further behind where the U.S. is right now. So there's a big opportunity.

So it's a great segue into agentic commerce, especially after your recent announcement of integrating Sparky with ChatGPT. So can you tell us more about that new feature? And more broadly, where are we in the agentic commerce journey? And how do you think it changes online shopping?

Yes.

There's a lot there.

Well, yes. So again, to stick with the baseball analogy, we're definitely -- I mean, we're maybe like first pitches the ball game here in terms of where we are here versus where it could go. But what I would want all of you to take away is we are not sitting back and letting this happen to us. We are helping to shape. We were one of the first to partner with some of the hyperscalers to help contribute to that outcome.

We also have Sparky, as you mentioned, which is our own agent. And the early returns on this are really, really encouraging. So roughly half of our app users today are engaging with our commerce agent, Sparky in some way. And of those customers that actually buy something through the Sparky experience, the basket size is 35% higher than what it otherwise would be.

So at this stage, at this early stage, I think that's really exciting for us. And these experiences are more contextual, they're richer. They're allowing us to better serve customers than we could without the search history and the relevance of all of that.

And so the way that I think about serving these customers today, it's done on a customer-by-customer basis. versus just serving a category of customers that buy cereal as an example, or buy size 8 tennis shoes. It's individualized to the customer basis based upon their preferences, their data, their search history, what they like.

And so I think it's a huge opportunity for us. Walmart -- people have talked about Walmart for years as having these rich data assets. But I don't know that, that has necessarily translated up to this point into the P&L benefits. We're going to be seeing that with what we're doing with agentic commerce.

I'm not sure if you know the answer to this question, but is there -- as you think about that basket build, like is it, well, I want to make carrot cake for Easter and you're selling the pan as well? Or like what's -- any sense on what -- how that 35%, what side of the business and category-wise that's coming?

Yes. It's coming in all categories. But if you would imagine an experience where you buy something and we have the context for why you are buying that. So if you're throwing a birthday party for your kid or whatever it is, that allows us to offer up other things that you might want to buy in tandem with that. So it's much richer than saying customers that bought this item also bought this item. We actually have that search experience and the context behind that query to know that if you bought this item, well, these are actually items that are specific to your use case. And so that's where we're seeing some of the early returns around this.

And taking the, I guess, more concerned view about agentic commerce, there's a big question on how the growth of advertising changes as agentic commerce -- direct agentic commerce becomes -- grows over time and engagement goes. So can you help us think about how you're trying to get ahead of that and how you think about the risk around the LLMs diminishing your ad revenue potential?

There are both puts and takes, I think, in this space. Will there be some channel shift where maybe we're disintermediated in some way and don't control the customer experience? Yes, I would expect that. I see it with my own behavior in some cases.

But at the same time, offsetting that, and we're seeing this already, is that is a channel for us to acquire customers as well. Very, very importantly for us is the experience that customers have when they're shopping at maybe one of the hyperscalers. And you can imagine a few variants of what that experience could be. It could be simply a dumb pipe where you've got sort of the checkout experience and not much more than that.

Second, you could have an experience where it pipes you back over to Walmart and there's friction from a customer perspective or it can be embedded where we actually have what is effectively our app within their experience, and we're controlling the actions, we're controlling the data. That's what we're doing. And so we still retain that touch and that contact with that customer. That's very important to us.

And importantly, when a customer does come to a Walmart property and they're using Sparky or just searching on our site, we get to participate in what the context of that query that they had at one of those hyperscalers. So we know that if you bought a sleeping bag that you were searching for a camping trip that you're going on. And so having that context allows us to serve up a richer experience when they are at our properties.

And so in terms of advertising dollars, yes, will you see some ad dollars shift, I would imagine so. But at the same point in time, if we have a richer context associated with that, it allows us to have even more tailored advertising, which might actually even increase the ROAS, the return on that advertising spend even more with that context.

Yes. Bigger basket and maybe more general merchandise, too.

Yes. Exactly.

Awesome. So just finishing up on the AI topic. You've talked about quantifiable benefits in the P&L from AI. Can you talk more specifically of where you expect those benefits to show up? And any quantification of how scale they could be?

I think we'll begin seeing some of those benefits this year. Will it be noticeable to investors? Probably not on the margin when you consider a revenue base of $700 billion, but we're already seeing some benefits, but still early on. Fundamentally, we should see higher conversion on some of the baskets related to this. And so when you have discovery taking place, and that's translating into people searching for items and conversion being higher, in some cases, appreciably higher, it just -- it's a better experience for customers, and it translates directly into P&L benefits for us.

Curious as you -- when you laid out that chart, which I can see in my mind, where margin expansion and cash flows, a beautiful chart that goes like this over the planning horizon. Were you contemplating AI as a margin benefit at that point? And if not, where is that changed?

So that was almost a year ago where we laid out that slide, and we were contemplating AI. I don't think we probably had the insights at that point in time that we have today. So I'm encouraged by this. I think this is additive to our business. Does it change like what we're going to share as an outlook right now? Probably not. I think it's also prudent to be measured on this. So there's probably still a lot that we don't know that we'll need to see play out. But overall, I think it creates a better shopping experience for customers, and that should translate into improvements in our P&L.

Understood. So coming to another significant alternative profit pool, let's talk about memberships. Starting with STAN. STAN, you recently announced a membership fee increase. Can you talk about the thought process behind that, given the broader world at large and what's going on with the consumer?

Well, it's been 4 years, almost 4 years since we had a price increase for our members. This $10 increase came after adding a considerable number of benefits to our members over that period of time, most notably what we've done in digital channels. And roughly 60% of our members engage with us digitally and that stands the reason that's a higher value attached to that consumer. We see more engagement with them, more shopping behavior.

But the progress that we've made in e-commerce there has been pretty astronomical over the last year. You followed this, Chris. And the ability to get free delivery from club and lowering the basket size for the -- what that qualifies for, I think, are really important improvements for our members, and they're responding, like you see it in member behavior. And so we felt like this was appropriate to do at this point in time. Decisions like this take months, if not quarters. It's not something that we just woke up couple of weeks ago and said, let's raise prices the next day. So this was in place for a while.

And then dovetailing to Walmart+, I think in our household, we have memberships feels like everywhere and subscriptions is absolutely everywhere as well. Where do you think Walmart+ fits into the broader array of memberships that it competes against? And how have your thoughts changed between this is a sort of grocery delivery business versus something broader?

Yes. What I'm about to say is maybe a little bit of a provocative statement, but I feel strongly about this. I think that Walmart+ should be the most essential membership of any membership program in America. When you consider our ability to deliver within 3 hours to provide pharmacy, general merchandise, fresh food in that window of time. I think there's a lot of opportunity here.

Now we need to continue to improve our part of that promise. We talked about 1-, 2-day delivery earlier. We know we have progress to make right there. But we are the only company that I know of that can deliver within the time -- the window that we provide all 3 of those categories to 95% of America today. So we maybe over time, add additional amenities to that program. I would expect to see continued tweaks there.

But I think we just -- we also need to get better at our fulfillment promise there. We still not all the time do the best job. I heard an example from an investor earlier this morning where we had an opportunity for improvement. But when you consider what we provide and the scale that we have and the ability to, in some cases, get something to you in as quick as 15 minutes, I think that we should be the most essential membership program in the United States.

Incredible. So coming back to the margin side of the story, Membership is profitable, advertising is profitable, 3P, WFS, data services. How do you think about the -- in that planning -- 5-year planning horizon, the profitability of the ones that aren't profitable and how they inflect over time?

Marketplace, we talked about, we'll continue to invest in that. Fulfillment services is contribution margin positive, but there's a considerable infrastructure behind that, that we have a ways to go before that's profitable. But really, the way that I think about this is not so much on the individual components.

But as it matters more to you when you look at our P&L, like what's happening right now, we've boasted about achieving profitability in the U.S. from an e-commerce perspective when you include advertising and fulfillment services and these other parts of our business. But an e-commerce transaction is still less profitable than someone going and taking something off one of our shelves than an in-store transaction.

Within our planning horizon, though, we expect that to change. We expect that we will get to a point where an e-commerce transaction fully loaded with the other benefits that I talked about will become more profitable than an in-store transaction. That's a monumental point in time for us because at this point in time, every incremental e-commerce transaction is still degradating our overall margin because of that -- the architecture of that right now. That's not always going to be the case.

And as we grow advertising in these other profit streams, as we densify our network, as we continue to have supply chain automation as we continue to see customers that take advantage of getting expedited delivery. 32% of 1/3 of our transactions today, someone might even have free delivery, and we'll offer them the opportunity to have that in an hour and they take advantage of that.

As all these things continue to grow and we scale, then I think we're going to see dramatic improvements in our P&L. And that is like the benefit of a digital ecosystem is the ability to scale at very attractive incremental margins. We're seeing that. We're seeing double-digit incremental margins in our e-commerce business today, and that's just going to change our P&L as we move forward.

Yes. And then as you think about the incremental margins of the overall business and how that's driven the acceleration in the operating profit dollar growth, how do they scale over time? And if we go back in time before Doug and sort of embarked on this investment cycle, you had a Walmart U.S. business that was 7% segment operating margin. Isn't there an opportunity to get back there? And what does that mean for the overall operating margin of the business?

Yes. I do think there's an opportunity to get back in that range. It won't be in the next year. I mean I don't want to overpromise here. But as we think about our planning horizon, we're certainly continuing to see margins go up and to the right. The structural advantages that we have around this are immense.

If you consider like if you're building a digital platform or creating a new app, the thing that you're probably most focused on is customer acquisition. That's the benefit that Walmart has. We have hundreds of millions of customers that are coming to our properties every single week, and we're scaling a platform that is allowing them to shop us in the way that they want to, the way that they shop at other retailers.

And so I think the benefits are going to continue to accrue to our P&L here. And again, a very attractive incremental margins, attractive marginal rates, low marginal cost that maybe we get back to a point within the not-too-distant future of margins at the overall level that we saw historically.

For the U.S. business.

For the U.S. business, yes.

And then how do you think about international growing some rapid growth businesses that are lower relative margin. Does that deter you getting that overall operating margin of the business back to 6%?

No, I don't think it does. Because at the same time, you have large businesses like if you take Flipkart today that are contribution margin positive but are losing money overall. It's the same story on scale and growth there. When you are able to grow at a low marginal cost and overcome some of the platform infrastructure costs there, that ultimately turns positive, which inflects our P&L as well.

I also think we have big opportunities both in Canada and Mexico to improve the margin structure there. We have a relatively low e-commerce penetration in each of those entities, certainly in Mexico. That's -- we're taking the same plan that we had in the U.S. and applying that to international entities, which give us a lot of opportunity. So I'm hesitant to say what the cap is on where our margins can go. But within our planning horizon, they continue to go up. We're not reaching this point to where you begin to see the curve bend for us.

Understood. Just wrapping it up and open my question. What gets you most excited? What -- as you think about all the things that we talked about and everything that we haven't talked about, what are you most excited about for the Walmart story?

AI is certainly, I think, a really exciting thing. That's advancing so quickly before our eyes. And I think our opportunity to lead there is a pretty precious opportunity. And so I'm excited about that. I would say second is I'm excited about how we can better serve our customers. Like when we look at what we call a perfect order today, we grade ourselves pretty hard in this category. There's a lot of opportunity for improvement.

And as we've seen, as we do make those improvements, they directly translate into P&L benefits with customers coming back, engaging more. I think there's improvements we can make in assortment, and we tend to focus on general merchandise. But I think food is a big opportunity. Like Walmart is not a place that you just come and get American Cheddar and Swiss cheese. You should get the broad assortment of everything that you want for whatever recipe that you're making tonight. So there are so many opportunities like that.

I think food is an enormous opportunity for us as we broaden our assortment there and being a foodie like it's something I'm passionate about. And so I think that we can better serve the customer in many, many ways to where we are just more relevant overall with the consumer in the future than we are today.

Excellent. John David, thank you so much for your time.

Thank you, Chris. Appreciate it.

Okay. Hello. Thank you. Welcome, everybody. I'm Simeon Gutman, Morgan Stanley's hardline, broadline food retail analyst. My pleasure to welcome Daniel Danker, EVP, AI Acceleration and Product Design from Walmart, most recently with Instacart as Chief Product Officer in Online Grocery. Thank you, Walmart, for being here third year in a row, and it probably took 3 years to be annointed as a tech company.

I recently -- one introduction for Daniel before we get into this, I was talking with Doug about 2 months ago as an outgoing conversation. We talked about some of his hardest decisions, and we asked -- I asked him about one of his best decisions. I didn't know Daniel yet, but he mentioned it was hiring Daniel as someone at the enterprise level who can help advance AI. So high expectations, sorry about that.

So starting with your role. It's new for Walmart. What drew you to Bentonville?

I mean it's pretty unusual to find a company that's as grounded, I think, as Walmart is, that's got really strong values, and it operates at such tremendous scale that it can serve so many customers. But a little bit more unusual to find a company like that, that also recognizes the role of technology the way it does. Doug often would talk about Walmart is people-led and tech powered. And those aren't just words. They matter a lot. And I think especially right now, it gives a lot of purpose to technology in a way that I think really matters. And I really wanted to be a part of it.

But it's easier said than done. To be truly tech powered, you need to invest in technology like a technology company. And I think Walmart has done that. Now the creation of this role is interesting because it reflects both the desire for growth and speed using technology that I think we can really make happen, but also a recognition that if we're going to make the most of what AI can enable that it needs to be a role that sits at the exec council level alongside our business teams and other global functions as well.

So it's been great to see the discussion of AI and the discussion of technology permeate all of our exec team meetings and the way that it has, and I think that makes its way throughout the whole organization.

This nuance between growth and cost efficiency, thinking about how AI can be applied. Is there one priority versus the other for you?

Of course, we're always going to focus on operating in the most efficient way we possibly can because we want to serve customers with the best prices we possibly can. That's always been the case. But I think it's actually easier to figure out how to drive efficiency than it is to think through growth because you only have to look at the things you're already doing and think about how you might do them a little bit more efficiently. I think growth is much more interesting as a vector here.

And in some ways, there are things we wanted to do for customers for many years that we did not have the technology to do them with. And all of a sudden, we have the technology now. And so I think that's a much more exciting way to go. And it's reflected in how we're prioritizing. We view AI as something that will enable us to move faster and drive more growth. And that's a big part of my focus.

Curious, just as an outsider, anything surprised you so far?

Yes, because when -- for many of us, I think we associate large company with bureaucracy and moving slowly. That was my biggest fear in joining. I knew that I was very strongly spiritually aligned to the values. I knew that I was very strongly spiritually aligned to the core customer value prop that we focus on. I was worried that the company would move slowly because it's big.

And I think what I've discovered is just how quickly Walmart executes. And I think in part, it's because of this constant retail-led way of -- this retail mindset of you have to win the customer every single day. And that competition is a core part of how the world works, and you win by serving the customer better than anyone else can.

And I think that has not only driven a good value to customers, it's also driven velocity inside of the company. So it moves really fast, and that's been both a relief and something that's very exciting to see.

Jumping in, is agentic e-commerce good or bad for Walmart and why?

I think it's good for a couple of reasons. I look like I hesitated when I said that. I think it's very good for a couple of reasons. One is there's a lot of things that people buy every single week. And AI and agentic commerce enables us to put those things on autopilot. So you don't really want to spend all your time thinking about how to fill the fridge or replenish the pantry or know that you're about to run out of laundry detergent, only to realize that the next time you do laundry and then you're scrambling.

We can put all of that on autopilot and AI enables us to do that. Agentic commerce enables us to do that. Those are the things that I call the chores. Even just saying the word chores invokes the right emotional reaction in all of us. It's not the bit you want to be spending your time on, and agentic commerce lets us put that on autopilot. I'd say the other thing that enables us to do is take all that time that we get back and focus it on much more personalized, much better product discovery than it has been possible in the past.

In a sense, if you think about it, the store does such a good job of creating this immersive panoramic experience where you're delighted in -- all the senses are delighted with thousands of items, very carefully and intentionally placed. And an online experience has always had this promise of better personalization, more attuned to your household and your individual needs, but the immersiveness was lacking. And all of a sudden, with AI, we get to upgrade the personalization and upgrade the entire shopping experience around it in ways that weren't possible with prior technologies.

So agentic commerce enables us to solve both of those, put the chores on repeat, automate them, make them not feel like chores anymore and then really draw customers into these additional shopping occasions that are far more interesting, far more nuanced, far more personalized. And that's a really big part of what I think we're going to talk about today because I think it's a really important part of what agentic commerce does.

One of our premises is that agentic actually expands the market for commerce. Do you agree with that?

I do. I do because you have to ask yourself, what are people buying today and how are they buying? And what is it that agentic commerce enables us to do that we couldn't do before? What kind of shopping occasion does it unlock that we couldn't unlock before. That's a really important starting point for the conversation because otherwise, all we're going to do is create a slightly different interface to the thing that we're already doing. That's not that interesting.

But no, agentic commerce is an expansive solution. Now it needs a little bit of definition. I think a lot of people equate agentic commerce with robotic commerce. This idea that you've somehow handed the wheel to a computer that will now shop on your behalf. And if we go back to the scenarios we just talked about, the chores part might actually go that way. You might just benefit from letting an agent do all that shopping for you.

By the way, that's new, but not that new. We've always had the ability for customers to put certain items on subscription or repeat order. And this is just a more sophisticated version of that. It's the next version of it, if you will. And I think that's good. But that's -- let's almost call that robotic commerce because agentic commerce just means that 1 AI agent and another AI agent might be working together to complete a task.

That doesn't mean that the computer has replaced the human in that. If anything, I think what we've seen is that we're, what, 30 years into e-commerce and people still love going to the store because people love shopping. That's what's really happening. People love shopping. And so I don't think they're in a hurry to try to let something else take over that experience because it's actually quite enjoyable to see options, to see what goes together, to choose something we love to do as humans.

I don't know that you need to choose the same butter for the eighth week in a row, maybe not. But if you're shopping for apparel, for beauty, for home, for -- I mean, countless categories, of course, you want to participate in that shopping experience. And I think when we say agentic commerce, it almost implies that those journeys become automatic. I don't see that future at all.

And so I almost would love for us, let's just do this. Let's start this right here, invent this new word of robotic commerce to distinguish it from what agentic commerce can do in how it serves people and how people engage with it. I think they're quite different.

I want to drill down on that and talk about disintermediation. I neglected to read a disclosure, so I'll read it real quick. Sorry for this.

This is what -- this is the moment to talk to.

Yes, exactly. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Thank you. So there's a lot of chatter on Wall Street, and I see headlines about incumbent retailers like Walmart being disintermediated. So traffic going somewhere other than your app, for example. How do you react to that?

Yes. Well, first of all, let's maybe break down how people shop online with Walmart. The traditional, by far, most common place that people go inside of our app, you all do it, it's the search box. The search box drives the vast majority of items that people are adding to the cart.

There's the second way of shopping with us that we've launched over the last year, which we call Sparky. And it is our shopping agent. It's not automatic. It's just a different way into the shopping journey. It lives at the bottom of the app. It's a conversational experience around shopping. So that's the second way to shop.

And then the third is what happens when you're using Sparky, but inside of ChatGPT or other LLMs that live outside of Walmart. And so one of the things that I spend a lot of time on is trying to understand what are people buying in each of these places. And when we look at what people are buying on our search box, it's food and consumables. They're doing their weekly grocery shop, top items, probably not going to surprise anybody here, bananas, Americans love bananas. Bananas, bread, milk, eggs, it's your weekly grocery shop. And that's what people are doing inside of search.

Inside of Sparky, kind of a bit of a fork in the road that we're seeing. One direction that people go with it is automating what I just described as the weekly shop. It's when Sparky pops up and says, I notice you tend to buy the same items every week. Do you want me to just add them to your cart? Or I noticed that you're about to run out of laundry detergent because you seem to replace it every 56 days and it's been 53 days. Do you want me to add laundry detergent? Okay. So that's automating the weekly shopping and the replenishment, to keeping the house stocked. And I think that's great if people want to automate that.

But the second track is discovery oriented. And it expands from that weekly shop into a whole bunch of new scenarios that I think are really interesting. And I think these are scenarios where through my eyes, I see growth. So I'll give you examples of some of the top items that show up there. Phone chargers, like I just need a charger that will work with this phone. Okay, cool. Easier to do in a conversational experience than in a search box. Tires, we sell a lot of tires because a lot of our supercenters have auto care centers.

And if you just think about what would you even type into a search box if you needed tires. Would you remember the size, the exact -- I wouldn't even know where to start. But in Sparky, you just say, I need tires and it says, what kind of car do you have? And you tell what kind of car you have and then say, do you want 1 tire or 4 tires? Do you need them today? Or can you wait until tomorrow? If you need them today, these are the ones that are in the supercenter right now. If you can wait until tomorrow, you have a few more choices.

Makes tons of sense for a conversational experience. But these are all very new shopping occasions and very additive to the grocery scenario that we just talked about. So that's search box versus Sparky, but they're both inside of our app. Then we recently launched Sparky inside of ChatGPT. And we started seeing patterns. We started noticing what are people buying there. And one version of this story could have gone the direction that they just buy the same things that they're buying inside of the Walmart app. But here's what we're learning.

So top 2 items that people are buying from Walmart on ChatGPT, vitamin supplements and protein supplements. And what I think of -- you're probably all thinking the same thing at this point, what was the prompt that led to those purchases. Do you want to say it? Feel free. It's not a prompt that starts from the place of commerce. It's a prompt that probably began with, I just started taking GLP-1s. What do I need to know? Something along those lines.

And of course, the response probably went down the path of, well, here's what you need to do with your sleeping routines. Here's how you need to change your exercise habits. Here's how you need to change your eating habits. But also you're probably going to need more protein. And eventually, that conversation led to something of a commerce experience. And that's where we stepped in. And that's where we were able to satisfy a need.

But that's also why these are additive experiences to what's happening in the app because they didn't necessarily start from a place of commerce, but we stepped in when it made sense to have a commerce journey around it. So I think they're very additive. They're very complementary to each other. It's why I see growth. And I think it's very interesting when you can follow the customer's lead when you design these experiences. And I think that's what we're able to do here.

In that third mode type where the user interacts inside of ChatGPT, isn't that disintermediation?

I see where you're going. I would argue it's intermediation, and I'll tell you why. Today, you're seeing the most rudimentary version of that experience. It's what's called native checkout. Customer enters a prompt into ChatGPT. It comes back with results that it knows our products that exist on Walmart. And then you can even buy those products literally without ever visiting Walmart in that journey.

But this is a very temporary moment in time. By this time next month, you will not see that experience anymore. What you will see is that the Sparky experience will travel directly into ChatGPT and Gemini and anybody else that we ever integrate with. And the way that works is that when you discover an item and ChatGPT or any of these LLMs has decided to surface an item in response to a query and that item is at Walmart. When a customer taps it, it will open up Sparky and Sparky will take over the shopping journey at that point. It's going to happen directly within ChatGPT.

And the customer will be able to do a number of things. First of all, they're logged in at that point. So by the way, that also means we know what else they've been adding to their cart throughout the week because people tend to add stuff to their cart throughout the week. So we'll bundle those into the same order. We'll know whether they're members so they can get great fees, great prices.

We'll also know if there's other items that maybe they should add to their cart alongside this item. So if you added protein supplements, there may be other things you need as well, and we can suggest those. By the way, they might not even finish the journey there. They might come back a day later and go to Walmart, the Walmart app and complete the purchase then. So it's all one and the same. It's very fluid between the two.

But the important bit here is that the Walmart experience lives inside of and travels into all these places where customers can shop. And in a sense, if you compare that to what exists today, it's a deep linking-oriented world. You go to a website, you do a search, it comes back with results, you click, it takes you out of that site into a completely different site.

What's the first thing you see when you land on those sites. Do you accept cookies? Unless you're shopping for cookies, that was not the right answer. But that's the kind of disjointed experience that we see today. All we're doing here when we talk about agent to agent is bringing our shopping agent into this other environment so that the journey is more connected. It's more integrated.

Intermediated?

It's more unified. You can pick up in one place and continue and not feel like you're being ripped out of that experience. That's all that is. I think it's a better shopping journey.

So you're building this model for us in agentic. I just want to paraphrase before we go to the next. So you're saying Walmart is going to coexist and name your LLM...

Exactly.

Whatever model, that agent will talk to Sparky. Sparky controls data and the user experience from that point and then consummate the transaction.

And it decides at that point, which items to show, what order to show them in. And it does that on a very personalized basis because it knows about each customer that's coming in. And in all likelihood, by the way, we know about those customers from before. We -- they've probably shopped our stores, and they've shopped us online. And so we can continue where they left off.

So Sparky, LLM, why does Sparky get prioritized? Why does Walmart win in that context?

It's a good question. In a sense, the customer is putting in a query and those LLMs are going to have a choice to make across a whole bunch of different retailers and a whole bunch of different items. And this is where it comes back to our customer value proposition. What we stand for and what customers rely on us for are several things. One, we have enormous assortment, 0.5 billion items available across our stores and our marketplace.

So we show up a lot because we have a lot of shopping occasions that we can satisfy. Second, price. We're known for a good price. And so you know you're going to get a good value when you shop on Walmart. And third, speed. So why is it that those things matter? Well, they matter to customers. And so they also matter to Walmart and they also matter to these LLMs because the LLMs have to serve the customers' need, they don't work if they only kind of serve it.

And so if they want customers to keep coming back, then they need to show products that reflect how customers would want to shop. And there's another component to that, that I just think is important that we don't forget. Even though selection, speed and price are very tangible ways to rank, trust is an incredibly important part of that journey. And it's something that Walmart has had at its core for decades.

And if you think about what happens when you're shopping online, you need to know that you're going to get the product you wanted. You need to know that if it shows up and it's got a certain price or whatnot, that's probably the right price. You need to be confident in that. You also need to know that if there's a problem, you can return it. You're not going to need to haggle at that point. So trust is a really big part of that end-to-end journey.

But it's on these merits that I think that we can expect that the LLMs are -- their incentives are aligned with the customers' incentives when they show Walmart. And it's why I think that we will show up quite a lot. And if you use ChatGPT today, you'll notice that we do show up quite a lot when you do enter queries. So I think we win on our merits.

We have to talk about ads. Before we get there, I want to just focus back traditional LLM talking with Sparky. Why does it create an accelerator for growth? Are there examples you can give? Earlier, I heard the marketplace example, which I think is pretty intriguing.

The exciting thing is that we have a lot of customers that come to us every single week to place grocery orders. Shopping with Walmart is already something that happens on repeat for millions and millions of households. In a sense, they've connected a Walmart-shaped pipe into their house. But what they put through that pipe, today online is first and foremost, food, consumables, those kinds of items.

What I think is exciting about this and why I view it through the lens of growth is that it's introducing us into shopping journeys and shopping occasions for very different items, for electronics, for beauty, for fashion, for home, for categories that go way beyond the categories that people traditionally shop us online every single week. And so we can insert ourselves into those conversations and serve a customer need that becomes very complementary to what we are already doing with those customers.

And it enabled those customers, by the way, to benefit a lot -- most of our orders come from members. And so they're getting more out of their membership in the process. But it really -- the reason I think that it's important that you evoked the word marketplace is because if a typical supercenter has between 150,000 and 180,000 items. In our marketplace, we have almost 0.5 billion items available for customers.

So these shopping occasions can get quite nuanced and quite specific. And in all likelihood, we're able to serve those needs through the marketplace in a way that customers just don't have as much motor memory around using us for it yet. But that's what I think is going to change.

Are you impressed by the bones of Walmart's marketplace?

I am pretty excited about it. It's also growing very, very quickly, both in terms of assortment and price and speed. So on all of those dimensions, which matter just as much in the marketplace as they matter with grocery delivery and online pickup and delivery is what we often call it, the marketplace is on a very fast pace to growing on all those dimensions, which I think is really, really cool.

So retail media, big dollars, big margin. I think we're -- we can have a fair debate around agentic, why Walmart can win, why it's going to grow the market. The debate that we fall short on is how advertising dollars fall through the funnel, what these models look like. So I leave it open-ended how this could all play out and how does it work in Walmart's favor?

You almost have to go back to what is it that we're charging advertisers for. When advertisers pay us, they're paying us because we can help them sell products and reach customers. And so even though we all have a little bit of a display ads component to our advertising business, fundamentally, we get paid when we generate sales. And we generate sales in many, many different ways, and we generate sales on many, many different surfaces.

So if you consider that from an ads perspective, the advertiser pays us for conversion, then what matters is that in all the places where we show up, we play a role in choosing the products that customers are going to see and determining the order in which they see them. And of course, when we do that, we have to be extremely respectful of what the customer is looking for. If we just showed products that where we had ads against those products, but we didn't show products that were particularly relevant to a customer's need in that moment, they wouldn't convert, wouldn't work for the customer, wouldn't work for the advertiser, wouldn't work for Walmart.

So it's -- the incentives are very aligned here. But if you consider that we're essentially being paid to drive sales in a very highly relevant way to customers, then that is something that travels neatly, whether it's happening inside of our app or whether it's happening inside of a Sparky experience that lives elsewhere, that shows up elsewhere. And so that's why we're pretty excited about what happens when we drive new shopping occasions because it gives us new opportunities, new moments against which to offer that value prop both to customers and to advertisers.

So if I go to an LLM, I have some occasion or some need and it prioritizes Walmart because of speed, price, assortment, trust, you won that. Once there's a handshake to Sparky, then you still control that advertising process, meaning you should still retain the advertising dollar and then see that growth. Is that a fair way to think about it?

The way to think about it is that inside of that window that shows up when Sparky comes up, we're still playing exactly the same role there in terms of choosing which items show up in what order, what are the complementary items to those? How do we build a full basket? How do we do that in a way that's informed by that customer's past engagement with us.

So it's just as personalized of as an experience, even inclusive of the things that they've purchased from us in stores and elsewhere. So all of that happens in the same way inside of a ChatGPT environment where Sparky shows up as it does when those customers are coming to our app.

So as long as we don't go to this robotic commerce world in which humans are just no longer making decisions but robots are, where there may be no advertising in place as long as that doesn't happen, which it doesn't sound like is your premise.

I think even in that world, there is a choice that is made around which items are surfaced to the foreground. It might just be that a human being isn't looking at them, but a computer is choosing. But even in that world, the choice of which product to show and in what order plays a big role.

So I fundamentally believe that customers will only use shopping agents, truly robotic shopping agents if they can count on those agents making similar decisions to the ones they would have made themselves. So I don't view them as fundamentally different from each other because the customer needs to be happy with the outcome no matter what. But even in that environment, there's still a choice to be made around which items show up and in what order. And it still factors the advertisers' needs in, in exactly the same way.

Yes. On that point, more philosophical, how do you know that customers actually want agents to shop for them? And is it a build it and they will come, reality?

I don't know but they do. I think that they do in some circumstances. Going back to our analogy of the chore, I think that customers definitely want to take chores away. Show of hands if you want to hold on every chore in your life, right? We got one hand. There's always one. But I don't think that's something customers actually want to -- they want to take the effort out of what they need to do every single week that's just on repeat, for sure.

And I think shopping agents, robotic shopping agents will play a role there. No question about it. How much of the rest of the shopping occasion do they want completely automated, truly hand the wheel off? I don't know. I think we need to learn. I don't think it's nearly as big of a portion of those shopping journeys as the headlines seem to imply right now.

And I think it's just because if you look at shopping behaviors, whether they were physical or digital, whether they were on-demand delivery or shipping based, et cetera, some things remain true, which is people seem to love shopping and they like to browse and they like the agency, weirdly, I use the word agency, which is not to say that they want to hand it off to an agent.

So I think that agents may help in the selection process. I think they may be able to do things like give you a hand with knowing what will look good in your house or what pieces of clothing go well together or how to treat a fever in a child that's 3 years old versus one that's 5 years old, that it might help in the discovery process.

Sparky is very excited to help with all of these things. But whether that results in truly hands off the wheel, I just don't think that it will in most cases. It's not reflective of the human behavior.

And it sounds like the Walmart agentic experience is about to change profoundly in the next few weeks. What is the time frame for when the consumer experience, broadly, will see what's agentic mean for them, meaning we don't know what -- in e-commerce, we didn't know how far it would go until we understood what the capabilities were, and it took time to build.

Yes, in a sense, the way we're approaching this is to add a lot of functionality into Sparky to see what sticks and what doesn't. Now we don't have to guess quite as much as this might imply because customers are going in and entering queries today into Sparky. And so we're pretty obsessively looking at those and realizing where are they interested in going next and which questions were we able to answer well and which ones weren't we able to answer well.

I think one interesting difference between the ChatGPTs and Geminis of the world and Sparky is that the LLMs seem to like to have a conversation, a prolonged conversation. At the end of every answer, they ask you whether there's more, whether they should make a graph, whether they should turn it into a PDF. We've all seen it, right?

Sparky is a little more goal-oriented because customers that come to Walmart are there to shop and customers that come to Sparky are trying to solve a problem. And so we just want to help you solve that problem as quickly as possible. So -- but we are learning in the process which things require more back and forth, which things are we able to do well, which things that we are not able to do super well. And we're plugging those holes. At the same time, we're also taking a crack at some things that we think would be magical for customers that they haven't even asked for yet because they couldn't have imagined that they would be possible.

I'll give you my favorite example right now is today, when we all shop for clothes online, we scroll through photos of other people wearing those clothes. It's a little weird. I don't think the next generation is going to believe us when we tell them that years ago, we used to scroll through other people wearing clothes. It will seem odd. But we didn't have the technology with which to fix this until just recently.

We didn't have the technology with which to show you all of those clothes on you. So you didn't have to do the mental gymnastics of imagining what they would look like on you. Now we do. So nobody is asking for that because I don't think it's in our consciousness to ask for it, but we're building those things.

And as we build them, we roll them out and people suddenly have a different experience, and it's an unexpected moment of delight. Today, it's a moment of delight. In 10 years, it will seem like it must have always been that way.

In that vein, maybe we'll close on other barriers. What are other biggest barriers to agentic commerce taking off?

Customers need to be taken on a journey to adopt new technology. And right now, there's this spike of new technology reaching customers. And I think at times, it's actually ahead of where they are in the adoption journey. And I think a little bit more care needs to be given to whether the technology is working well.

So one of the reasons that we're not just haphazardly rushing to launch as many new features as possible is because we want everything that we build to work well for customers. And there are some just core basic needs that we can still -- we're still just scratching the surface of, so it's a breadth versus depth thing, I think, a little bit.

And I want to make sure that as our team builds these new capabilities that we do a really good job that it serves all customers and that it's reliable. And so I think there's a little bit of just making sure we build with quality, not just rush AI things out the door. So that's the thing we think a lot about.

Okay. Well, on that note, we will close. Thank you very much for participating, Daniel. We learned a lot about agentic, advertising, retail media. Appreciate it.

Thank you.

Thank you.

I will now turn the conference over to Steph Wissink, Senior Vice President, Investor Relations. Thank you, Steph. You may begin.

Welcome, everyone. Joining me today from our home office in Bentonville are CEO, John Furner; and CFO, John David Rainey.

We'll begin with highlights of the fourth quarter and full year. Then we'll open the line for your questions. During the question-and-answer portion, we've invited segment leadership to join Dave Guggina from Walmart U.S.; Chris Nicholas from Walmart International; and Latriece Watkins from Sam's Club U.S. [Operator Instructions]

For additional detail on our results, including highlights by segment, please see our earnings release and supplemental presentation on our website.

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 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.

That concludes my introduction. John, over to you.

Good morning, everyone, and thanks for joining us. I'd like to start by saying thank you to our associates around the world in helping us deliver another year of strong growth. Across markets, our teams continue to demonstrate the power of our omnichannel model. Since the year began, I visited great stores and clubs in the U.S., Canada and Mexico. The automation of our supply chain is on track, we're gaining reshare and we have momentum in growth areas like marketplace, advertising and membership.

Looking at our results for the quarter, revenue was up 4.9% in constant currency, including growth in eCommerce of 24%. Adjusted operating income grew even faster at 10.5%. All 3 segments grew profits faster than sales for the quarter.

And we're doing a great job of managing inventory. That's so important in running our business day to day. We ended the quarter with inventory up 2.6% or about half the rate of sales growth.

Sales were strong across each segment of the business, and this includes sales of general merchandise, which grew on a global basis and was up low single digits for Walmart U.S., led by fashion. Fashion was a bright spot for us both in-store and online. Driving a healthier mix of sales growth in our business is important to the strategy overall, so I'm pleased with the trends we're seeing.

Across our customer base, spending continues to be resilient. In the U.S., we see the customers choiceful in their spending. Again, this quarter, the majority of our share gains came from households making more than $100,000. For households earning below $50,000, we continue to see that wallets are stretched. And in some cases, people are managing spending paycheck to paycheck. That said, even these households are emphasizing convenience nearly as much as price.

Stepping back, when I look at the enterprise today, it's a portfolio of businesses anchored in growth, especially our digital channels, with an emphasis on having inventory close to the customer to maximize our delivery speed. Our associates have made this vision a reality, and I couldn't be proud of them. They've been open to change, learn new skills, and they pushed us to keep the customer and the member at the center of everything we do.

Ultimately, what matters is how we show up for our customers and members. Did we serve their needs better today than we did yesterday? If so, we did our job. And how we approach getting better every day is what's important to me. We do that by living our purpose and values. That won't change. Our mission, to help people save money and live better, is as true today as it's ever been. It guides the strategy we've outlined, and that strategy is clear, and we're executing on it at a high level. And this includes the allocation of capital, which remains consistent with how we've described it as a percentage of sales. We look at capital spending through the lens of return on investment. Every dollar we spend has to compete for the highest return.

Walmart is widely known for value on a broad assortment of items and for being a company that people trust. And thanks to how we leverage our assets for a truly omnichannel experience, we're now known for ultrafast delivery times and providing convenience.

The investments we've made in technology and supply chain help us deliver items even faster. They're paying off. Here in the U.S., customers using Fast Delivery, and that's delivering under 3 hours, grew more than 60% for the year. We know that customers and members from around the world are more alike than they are different. They love great quality products, value for their money and, more often, they're turning to Walmart for speed of delivery on a broad assortment.

And being people-led and tech-powered helps our associates to find better ways to serve customers and members with our growing assortment, faster delivery speeds and experiences they love.

The way we're using technology and AI is helping us create great customer solutions, reduce friction, simplify decision-making and pinpoint where our inventory is, all while maintaining the trust we've earned from our customers and members.

And we aren't just embracing the tools that are changing the way people shop. We're creating them. We're enhancing our shopping assistance, like Sparky, and building new experiences with partners like OpenAI and Alphabet that are shaping the future of agentic commerce.

Looking more closely at Sparky, we're seeing good momentum. Customer engagement is up. And the customers who use Sparky have an average order value that's about 35% higher than non-Sparky customers. And I love how Sparky perfectly fits within our omnichannel strategy. It connects digital intent to fulfillment through forward deployed inventory and 1.5 million associates here in the U.S. When Sparky builds a basket, we execute it through fast delivery, pickup or in-store, turning AI engagement into immediate physical outcomes.

And as we expand Sparky across experiences like voice, in-store and through services, we expect continued acceleration in customer adoption and the impact on commerce.

We've started with Sparky here in the U.S., but we know that winning in a connected world means we need to deliver consistent experiences across markets. And to do that, we need to focus on technology platforms that are built for a global business. The idea of build once, scale globally makes us faster, lowers costs and ensures consistency. And we'll use AI to layer on top of existing platforms, getting better leverage out of the assets we already own. This platform-centric approach helps us scale innovation consistently and reduce capital intensity.

As I close, I'll say the pace of change in retail is accelerating. It's exciting. For Walmart, the future is fast, convenient and personalized. And I'm challenging our teams to move even faster as the opportunities with AI become broader and deeper.

I feel great about our future. Over the past several weeks, I've talked with associates in Mexico, Canada and across a number of cities here in the U.S., and I love what I'm seeing. The enthusiasm, the passion, the execution, all the things that make Walmart a great place to shop and a great place to build a career, they've been on display. And I can't wait to get out to more markets in the coming weeks.

I'm so grateful for the opportunity to lead a business that has momentum, built on a strong foundation and with a deeply experienced leadership team. And mostly, I'm excited about what's to come and the plans we have to grow the business as we look ahead.

And John David, I'll turn it over to you.

Thanks, John. I also want to thank all of our associates for helping us deliver these results. If there's one thing I want you to take away from this call, is that our teams are executing well and our business model is delivering strong growth and incremental profits, even in the context of the highly dynamic operating conditions we and the rest of the retail industry are experiencing.

We finished the year strong, with a quarter of broad-based share gains, continued e-commerce momentum and adjusted operating income growing at 10.5% in constant currency, which is over twice the rate of sales growth. The advantages of our omnichannel model and diversified profit streams are increasingly clear. For the full year, we grew the top line by approximately 5% in constant currency, adding $35 billion in revenue, with sales exceeding $700 billion for the first time. And we grew adjusted operating income 5.4%, even with a 300 basis point headwind from increased claims expenses and navigating a bumpy tariff environment. This was the third consecutive year that we grew profits at a faster rate than sales growth.

We're playing offense by reinforcing our customer and member value proposition, evolving our model and delivering on our financial framework. Our strategy is working and we're excited about the opportunities ahead.

For the fourth quarter, consolidated revenue in constant currency increased nearly 5%, with Walmart U.S. comp sales up 4.6%. eCommerce sales were strong across markets, with growth up 24%. We're using our unique assets, stores and clubs, DCs and [ SCs ] and last-mile delivery networks to get orders to customers faster and more efficiently, remove friction from the experience and accelerate our sales momentum.

In Walmart U.S., eCommerce sales grew 27%, with 35% of store-fulfilled orders delivered in under 3 hours. In China, eCommerce grew 28% and represented more than 50% of the sales mix in that market. Flipkart is delivering orders in less than 15 minutes across more than 30 cities in India. And Sam's Club U.S. doubled their growth in club-fulfilled delivery sales.

The increase in fourth quarter operating income was led by more than 26% growth in International, reflecting improved eCommerce economics as well as lapping last year's strategic investments and nearly 7% growth in Walmart U.S.

Several factors contributed to our operating profit growth. First, business mix. As eCommerce drives the majority of our sales growth, we're improving eCommerce economics with increased contributions from business mix, most notably in higher-margin areas like advertising and membership fees. Our advertising businesses globally increased 37%, including an acceleration in Walmart Connect in the U.S., up 41%. Importantly, we lapped the acquisition of Vizio in December, so their performance will now be in our base.

Consolidated membership income increased more than 15%, reflecting strength in Sam's Club in China, which grew over 35%. In the U.S., Walmart+ membership income was strong, up double digits, as our core offering as well as newer benefits like our One Pay Cash Rewards credit card continue to resonate with members. Sam's Club U.S. membership income grew more than 6% as members gravitate toward the omnichannel capabilities Sam's offers.

Notably, the combination of advertising income and membership fees represented nearly 1/3 of our operating income this quarter.

Second is inventory management. Inventory increased 2.6% in constant currency or approximately half the rate of sales growth for the full year. With our growing 3P marketplace, we can better balance owned and third-party assortment, minimize markdowns and improve our working capital.

Inventory efficiency is also enabled by the tech, AI and automation in our stores, clubs and supply chain. In Walmart U.S., approximately 60% of stores are receiving some freight from automated distribution centers, and approximately 50% of eCommerce fulfillment center volume is automated. This enables better visibility into what inventory we own and inventory we can access and also improve our labor productivity. With the proximity so close to customers, we're increasingly leveraging stores as digital fulfillment nodes to move inventory faster and more efficiently than ever before.

When you simplify our model, inventory and labor are our 2 largest costs. Technology-enabled productivity benefits are critical to our ability to grow our core omni business at lower marginal cost. We're extending these platform benefits from the Walmart U.S. to Sam's U.S., and we're at the early stages of deploying automation across our supply chain in select International markets.

And third, merchandise category mix. This is an exciting one to call out as it's been many years in the making, particularly in Walmart U.S. As we lean into lower prices through rollbacks in EDLP and grocery categories, we're helping customers unlock purchasing power for general merchandise. We worked hard to mitigate gross reinflation as tariff-related costs lifted prices across many categories. We're seeing share gains in GM, and in fashion, we've had several quarters in a row of mid-single-digit sales growth.

Importantly, the strategies that drove our results throughout FY '26 are consistent with what we expect to support our financial framework in FY '27. First, we have strong momentum across our businesses, most notably in digital. eCommerce sales grew nearly 25% this year and exceeded $150 billion for the first time, with Q4 representing 23% of sales mix. This is up 550 basis points from just 2 years ago. This sets us up uniquely well to serve customers however they want to shop with us, particularly as they adopt agentic commerce solutions.

Second, we've demonstrated the durability of our model, especially in complex operating conditions. We're realizing the benefits of our diversified, growth-oriented global portfolio. This has enabled us to grow underlying profits meaningfully faster than sales for each of the past 3 years. Our advertising businesses globally were up 46% this year to $6.4 billion, and membership fees exceeded $4.3 billion, and many of these initiatives are early in their maturity curve.

We have a combination of profit drivers, including automation-related inventory and labor productivity, favorable business mix and continued expense discipline to support continued investment and to drive faster operating income growth.

And third, to orient us to move faster at lower cost, we're now aligned globally to leverage common platforms in tech, AI and digital businesses. We believe this will result in our growth continuing to come at a much lower marginal cost than what it has historically.

Now I'll discuss guidance. Full year constant currency sales are expected to grow between 3.5% and 4.5%. And operating income is expected to grow between 6% and 8%, with EPS in the range of $2.75 to $2.85. Sales guidance reflects a continuation of underlying business drivers and share gains. It considers our efforts to mitigate food price inflation and the headwinds on sales growth from maximum fare pricing legislation on pharmacy. And we expect eCommerce will continue to be the primary driver of growth. with modest increases from store and club sales across the enterprise.

Operating income guidance reflects a higher level of confidence relative to prior year's original guidance, that we can deliver growth in the upper half of the range depicted in our framework. Our goal is to outperform this guidance, but we believe it's prudent to start the year with a level of conservatism given the backdrop is still somewhat unstable. We're assuming continued margin expansion driven by favorable business mix, automation benefits and productivity and less headwinds from merchandise category mix.

The business continues to generate strong cash flow, with operating cash flow of $42 billion and growth in free cash flow of 18% in FY '26. This provides flexibility to reinvest in the business while, at the same time, returning significant capital to shareholders. Given our confidence in the ability to continue to generate strong cash flows and consistency in our multiyear capital investment plans, our Board authorized a $30 billion share repurchase program, our largest to date.

For FY '27, we expect capital expenditure levels to be approximately 3.5% of sales. We're hitting the peak of annual spending levels on supply chain automation and store remodels. We're moving quickly on these projects as we see benefits to customer experience, business performance and financial returns from these investments. Investments in AI are incorporated into our assumptions for capital spend. And as you've seen from the announcements we've made, we're approaching AI development through partnerships. This lets tech companies do what they do best: develop innovative technology. And it provides us clarity to do what we do best: to translate the best of tech to retail experiences that create value for our customers and members in our enterprise.

In Q1, we expect constant currency growth in sales of 3.5% to 4.5% and operating income of 4% to 6%, with EPS of $0.63 to $0.65. Q1 operating income growth is expected to be lower than any other quarter in FY '27 due in part to timing of expenses and the year-over-year tariff impacts that started in last year's second quarter. Importantly, our first half results are expected to be in the range of our full year guide.

Recall also that we guide on a constant currency basis. If current exchange rates were to stay where they are now, we would expect an approximate 150 basis point benefit to reported sales growth and an approximate 200 basis point benefit to operating income growth in Q1. For the full year, we would expect an approximate 70 basis point benefit to sales and an approximate 120 basis point benefit to OI.

With that, we're ready to take your questions. Thank you.

[Operator Instructions] And our first question comes from the line of Simeon Gutman with Morgan Stanley.

I want to ask you, John, on agentic commerce. You mentioned it, and it's rapidly reshaping eCommerce as we speak. Realize a lot is still to be determined. I want to ask how you're thinking about, first, customer traffic flows and loyalty related to agentic; and second, advertising and monetization.

Simeon, thanks for the question. So first, I just want to say thanks for our associates for a great quarter. They've been executing at a very consistent level with a clear strategy that's omni. And as it relates to your question, agentic is definitely a part of the omni strategy. I mean our omni strategy, what we've been saying for a long time and building to, is the ability to deliver what customers want, when they want it and how they want it, and the flexibility that we've built on the backside of this, which includes our fulfillment centers, our distribution centers, our stores, forward deployed inventory, those are all parts of the solution to deliver.

What agentic is doing for us, and we can talk about this in a couple of ways, but I'll talk about Sparky first, with our own agentic agent. Sparky is going to be and is, and it's fastly becoming as it learns new skills, a way that we can understand customer intent better than we've been able to understand it before, generate solutions for them and then deliver with speed. You heard earlier that our fast delivery was up 60% year-on-year. Walmart is getting faster, Sam's Club is getting faster. We're able to scale these platforms to international markets. So our ability to understand consumer -- customer intent, generate them solutions and deliver quickly is really exciting.

From the quarter. what we saw is that customers who engage with Sparky, we saw an average order volume -- order value, I should say, about 35% higher than the customers who weren't using it. What's also exciting is we had a really high number of customers who are now engaging with Sparky quarter-over-quarter.

But a lot to come here. Agentic commerce is going to be great for our customers. It's also going to be great -- agentic AI will be great for our associates because it helps them focus on the things that are most important. And Dave, do you want to add anything on Sparky in the quarter?

Absolutely. Thanks, John. Simeon, as John noted, AI is increasingly embedded across Walmart. It's strengthening our operations, it's improving associate productivity and it's enhancing the customer experience. And that's really coming to life with Sparky. Sparky is essentially helping us evolve from traditional search to intent-driven commerce. And as John noted, we're seeing strong engagement. Roughly half of our app users have used Sparky. And when they use Sparky, it drives them to build bigger baskets. And John mentioned the 35% higher average order value. And what that's telling us is that it's helping customers convert with greater confidence.

And I want to note that it is still early in this space, and we're continuing to add capabilities, more personalization, deeper contextual understanding, we're building execution capabilities, and I'm excited about the future for Sparky.

And then for this group in particular, from an economic standpoint, better discovery and higher conversion translates into bigger baskets and greater frequency. So simply put, Sparky is helping customers find the things they need, they want and they love, and it's strengthening our digital unit economics as it scales.

So Simeon, on the second part of your question, you asked about advertising as well. We had a really good quarter advertising, up 37% around the world, while Walmart Connect in the United States was up 41%, which is a very strong quarter. So how this will work with agentic commerce, I think we're all learning as we go, and we'll figure that out. But what we do know, and this clearly happened in the quarter, is our ability to connect suppliers and sellers with a group of customers -- groups of customers who are interested in their products is working and our capability to do that is getting stronger.

Our next question is from the line of Michael Lasser with UBS.

Last year was obviously marked by a number of unanticipated costs that impacted Walmart's profitability, such as tariffs, the liability expense and others. How did you factor that there could be other unknowns into your outlook this year? What could those be? And if they do not occur, how would you frame or quantify the potential upside? And along those lines, how would you quantify the degree of reinvestment that you've embedded in your outlook for this year?

Michael, this is John David. I'll take that. Let me give a little bit of context to our full year guidance, which I think will speak to your question. If you rewind and you look back over the last 3 years prior to this one, we've increased our guidance, effectively increased our guidance if you adjust for the Vizio acquisition, each of those 3 years. And each of those years, we've outperformed that guidance. In some cases, with operating income by several hundred basis points. And in fact, if you were to adjust for claims being somewhat anomalous last year, we'd have the same performance in this most recent year.

So as we sit here 1 month into this new fiscal year, very much like in past years, we're taking a measured approach with the outlook. There's nothing that we've seen among consumer behavior or KPIs, macroeconomic KPIs, that would make us be any more cautious than what we have been. But I think it's prudent to be somewhat balanced. We are, I think, overall constructive on the economy, but there are certainly indicators out there, whether it be a hiring recession or maybe subdued consumer sentiment, student loan delinquencies, things like that, that would make you want to be more balanced as you sit here at this point in time.

And we've been very fortunate to be able to take a very long-term perspective with the way that we manage this business, to do things that are best for customers, and I would argue, that has translated into what's best for shareholders as well.

So said maybe slightly differently, we want to maintain maximum flexibility as we sit here at this point in the year. And it's no different than the posture that we took in prior years. So the guidance that we've given, which at the upper end of operating income is 8%, on a currency-neutral basis, over 9% if you -- on a reported basis, we're excited about it. Like we see the momentum in our business. Each year has gotten better than the last, and we've outperformed that. And we would certainly expect to do that this year as well. But I think given that we are as large as we are and so tied to consumer health and the economy, we want to maintain maximum flexibility and not get out ahead of ourselves at this point in the year.

Our next question is from the line of Greg Melich with Evercore ISI.

I wanted to get a little deeper into disinflation. I think it was up a little bit over 1% this quarter, and maybe that was down a little bit sequentially. Can you just help us understand in your guide, what you're expecting from inflation or particularly disinflation, especially with drug prices coming down?

Sure, Greg. This is John David again. I'm happy to take that. The most recent quarter, we had like-for-like inflation that was trending a little bit above 1%. That breaks down into food inflation being a little bit less than that, GM inflation being a little bit more than that. That's generally what our outlook is for the next quarter and the balance of the year.

There are some pressures, you mentioned. One, the maximum fare pricing legislation around drugs, we expect to contribute to about a 100 basis point headwind for the full year. Within the most recent quarter, having only 1 month of that is about 30 basis points. So the health and wellness business continues to do really well and have strong comps, but that's a headwind that it will face for the year.

Generally speaking, we would expect the price levels to somewhat be in the range that they are right now. We're excited about some of the commentaries that we've heard from suppliers focusing on lower prices, but that plays to our value proposition. Every day low prices is what we stand for. We've seen, as we've leaned into these lower prices that consumers have responded. And we've continued to gain share among all income demographics, I might point out, notably probably skewed more towards the higher income demographic. But we're going to continue to play offense.

The next question is from the line of Kate McShane with Goldman Sachs.

I wondered if you could focus on your outlook for gross margin for 2026. Can you maybe talk to what you're expecting to be the contribution from mix? And also, can you go into a little bit more detail about the inventory management [indiscernible]? Is it all from automation? Or are there other initiatives here? And how does this differ across the regions?

Kate, it's John. Let me start with inventory, and then I'll turn it over to John David, we'll talk about mix together. On inventory, I would say there are a number of factors that have helped us manage inventory the way we're managing. I'm really proud that the team, and this is a great team who dealt with a lot of uncertainty in the last 12 months and really the last few years, to manage inventory and have the rate of sales growth is an impressive number.

There are a number of technologies we're using to manage inventory more effectively today than we were in years past. Part of that is automation. We have a number of locations now that are receiving the majority of their goods from automated facilities. We have a couple of thousand that are getting some kind of automation, and we expect that to grow over the course of the year. We had a couple of our regional distribution centers, and I believe you've been in one of these before, that retired the old conveyor belt system that we ran on top of for about 20 years, and some of those buildings up to 30 years.

So the conversion is underway. We're really pleased with the capital investments and the returns we're getting on those in the supply chain. Those investments probably peak this year and next year. So automation is a part of it, but also in-store. Our associates are -- over 1 million associates just in the U.S. alone have handheld devices, and they're using computer vision to map our inventory to know what we have, to know exactly where it is and know how it's deployable. So that when a customer places an order, shops at the counter, wants pickup, the inventory we can believe confidently is there and it's available. So there's really a system from end to end that the entire team has been working on to get to the point where we are today.

The third thing I'd say is the team has done a really nice job managing seasonal inventory buys. Fashion has been stronger. Sell-throughs have been stronger. We've done a great job in the last few quarters with holiday. If anything, I'd say in the fourth quarter, we may have bought a bit light in certain categories. We had a strong quarter, as we mentioned, in general merchandise and fashion, but there were categories that, if you could rewind the tape, we probably would have bought even more aggressive. But the good thing about that as we enter this first quarter, we're clean, we have momentum. And so I think we're in a good spot in terms of mix. And I'll turn it to John David to talk about overall business mix.

Yes. Kate, let me -- before I talk about the coming year, I think it's important to talk about some of the improvement that we had in the fourth quarter. A lot of what John talked about in terms of the improvements we've made in our supply chain translate into improved operational benefits like fewer fresh throwaways, better inventory management, things like that, fewer markdowns. And so we saw a benefit of that in the fourth quarter. We'd expect a continued benefit of that going into the next year.

If I break down the P&L, generally speaking, we're expecting gross profit to improve next year. We're also expecting some leverage in SG&A. And I should pause here for a second, we leveraged in SG&A for the fourth -- this fourth quarter, and that's the first time in a while. We're excited about that because you all are starting to see some of the benefits of the supply chain automation and productivity benefits that we've been implementing for years, and that's translated into improved financial performance.

But to the heart of your question about business mix, we would continue to expect an improvement to gross profit related to business mix going into next year. As I noted in my prepared remarks, fully 1/3 of our profit in the most recent quarter was related to advertising and membership income. And so we're excited about that. We expect the continuation of those types of benefits. And you overlay on that the other parts of the business that we don't talk quite as much about, but fulfillment services, marketplace, which are all doing really well, it translates into the improved economics that we're expecting in the coming year.

Our next question is from the line of Christopher Horvers with JPMorgan.

So a follow-up question on that. Can you talk about the progression of marketplace growth and fulfillment services? How are you expecting the profitability of this alternate profit pool to progress from last year? And then as we look forward over the next couple of years? And then more of a near-term question, there's a lot of hope that the U.S. consumer will benefit from significant tax stimulus this year. Your stores tend to be on the leading edge because you see those consumers cashing those checks. Curious if you've seen anything so far in how those funds are being spent.

Chris, I'll start with that and others may want to jump in after my comments. Marketplace I would characterize as an area of ongoing investment. We haven't talked about when we expect that by itself to achieve profitability. This is something that, as you think about the 2 legs of growth or profitability, we want to lean a lot more into growth right now. We think that's what's best for our business.

If you just look at the most recent quarter, there are many categories, cook and dine, fashion, home decor, that all grew north of 40% on our marketplace. That's exactly what we want to see. And we don't want to overly fixate on one aspect of our of our ecosystem of services that we provide to try to achieve profitability there. So we think investment is the best opportunity there.

Walmart fulfillment services today has 52% of our sellers. Take advantage of that. And I've -- you've heard me say this before, Chris, but I think if you're selling on Walmart and not using Walmart fulfillment services, you're almost using us in the wrong way. It is too good of a service. We continue to see that penetration increase and continue to see the teams perform in that area for our sellers. So those will be a couple of areas that I think we'd highlight for the coming year.

As it pertains to the increase in tax refunds, we certainly have some of that in our guidance. We have to make assumptions about how much of that will be saved versus spent, and of what is spent, how much goes into the first quarter versus later quarters in the year. It remains to be seen. You are correct to suggest that we tend to be very levered to that, when we see those move up or down, it impacts our business. But we -- our guidance does assume an increase in tax refunds this year.

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

John and John David, eCommerce profitability has been really encouraging and impressive. What do you see ahead in terms of how the business model continues to evolve, and densification? And as we think more broadly about retail on the topic of personalization and moving from predictive to prescriptive with the aid of AI, what are your thoughts for what will happen with personalization, particularly as you see so much interaction with Sparky and have a lot of veracity volume and velocity of data?

Oliver, great question. John David was just alluding to many parts of what we've built to try to serve customers any way they want to be served, where they want to be served, how they want to served. And that's really the center of what we call the omni strategy. This would include our stores, our eCommerce business that's pure fulfillment. We have our stores that are delivering. We have a mix of all the above, and it's really all designed about channel flexibility. And what we've been saying for a few years is that channel flexibility has been, and again, in this quarter, has helped us meet new customers, serve new customers, grow with customers that we haven't been transacting with in the past. So it's really encouraging.

But all these pieces have to work together in order for this all to come to the point that we can have results like we had in the quarter. So the best way to say it is, if you look at Walmart on the top line and you look at Walmart on the bottom line, those are where I would encourage you to just hold us accountable because we have a great team here with a lot of experience that can manage the pieces in the middle, ultimately driving it faster delivery speeds and more intuitive experiences so that customers can trust us to be a great place for a great assortment and great prices, delivered the way that they want it to be delivered.

And what we're seeing with Sparky, and it's -- again, it's early days with agentic commerce being live in the site, but the quarter was really encouraging. We had a lot of growth from Q4 over Q3, a lot of engagement. Dave mentioned earlier about half of our customers did engage with Sparky. And when they do engage with Sparky, we see better order value. So we had a 27% growth rate in eCommerce in the fourth quarter, which is a big quarter for Walmart U.S., 24% globally. Sparky is only live in the U.S., but we have open an ambition that quickly we can expand these platforms into other markets, and I think that will be accretive in those markets.

But what Sparky can do is it can help understand really clearly what it is that you're trying to accomplish in your life, whether that's a birthday party or a camping trip or planning meals for the week or just planning dinner for this evening. And then we can generate you great, unique solutions real time if we need to. Or by knowing you a bit better than we did in the past, we can help suggest things to you that are more in line with your own personal preferences.

So all this put together, we believe, is a great way for customers to be able to trust that Walmart will save them time while shopping, save them time in the transaction, but also save them time and delivery. A large number of our orders now, we're really proud of, are now happening less than half an hour. We're averaging under an hour in our Express Delivery when customers choose that. And then as we mentioned earlier, for our express delivery, or total Fast Delivery, which under 3 hours, we grew 60% year-on-year.

So when you put it all together, we're confident in the strategy. We like the assets that we have in place. We'll continue to invest our capital in a disciplined way that provides returns but ultimately drives great customer experiences over the long term.

The next question is from the line of Kelly Bania with BMO Capital Markets.

Congrats to all the promotions across the segment leaders as well. Wanted to talk a little bit about advertising, $6.4 billion now. I was wondering if you could share with us just any color on what kind of growth you are planning for here. It's been very strong. Should we expect that to moderate a little bit? I know the U.S. really accelerated this quarter too, and maybe you can talk a little bit about what drove that. What are the types of advertisers or categories that are accelerating there? And where do you feel you're still kind of under-penetrated or over-penetrated and just trying to think about where that could go from here?

Kelly, this is John David. I'll make an attempt at that. In terms of what to expect on advertising, you are right in terms of what you're applying, that you get to a law of large numbers where it gets more challenging to enjoy those same growth rates. But in terms of overall progress that we're making with advertising, I really don't see that slowing down. Some of the areas that we've really expanded in are areas like our marketplace business, where we're seeing more of the growth come from that part of the business versus some of the first-party brands.

The other thing I'll point out is the Vizio acquisition. We saw triple-digit growth in advertising with our Vizio business in the quarter. We've talked a lot about this. This is exciting because it gives us yet another channel to market to our customers. And I feel like that's really just getting started. Obviously, the base there is not as large as the overall U.S. business, but has a whole lot of runway.

As we've talked about in the past, and I know you're very familiar with, Kelly, if you measure us advertising as a percent of like the addressable market or our GMV, we still have a long ways to go here to get in the neighborhood of some of the best-in-class competitors here. And so we feel like we can improve our own advertising capabilities while doing it on a growing base, which gives us a lot of runway into the future.

Kelly, you mentioned the team, and I'm really proud of the promotions here at Walmart, Dave Guggina, who spent a lot -- most of his career in eCommerce and logistics; Chris, in businesses all around the world; and Latriece Watkins, 27 years and majority of that in merchandising. They're going to do a great job and they have a lot of experience.

There was a structure change that we made in January, which is also really important, and I think that signals confidence that the capabilities we have built in the U.S. are exportable to other markets and we can work with our other markets to accelerate these platforms to grow. And so that change with Seth Dallaire included the marketplace, Vizio, advertisements, our data services and Walmart being moved from inside Walmart U.S. to an enterprise role where we can build once -- build these platforms once, scale them globally. So we're optimistic that what Seth has done here in the U.S. with his team can accelerate growth in other markets additionally.

So John David said, well, this is a big business that's growing, but our share is relatively low compared to what it could be in terms of the addressable market, and we are really excited about the opportunity for Seth and his team to work across the entire enterprise.

The next question comes from the line of Corey Tarlowe with Jefferies.

I wanted to ask about stores versus eCommerce and how you expect store comps to trend going forward and what the impact to margins will be as a result, given we know that the margins are better in stores versus eCommerce.

Corey, it's John, and David I will take this one together. As you step back and just think about the omni strategy, the role of stores, the role of the app and how they work together, it's just important to remember that stores are a huge part of the solution to deliver the customer experiences that the customers are looking for. Having inventory -- and I'll talk about the U.S. and globally just here in a second. Having the U.S. with 5,200 locations between Walmart and Sam's where inventory is forward deployed is really helpful. And that's great for a customer who wants to shop in a store, pick up at the curb or have delivery and do it in a very fast way. We have strength in international markets as well, places like China has had record deliveries from the clouds and Sam's Club for the season into the Chinese New Year. It's also true in other markets, in Mexico and Maxim Canada, where I visited in the last few months. So stores are a really important part of it.

Now how a customer wants to shop, that is completely up to the customer. It's pretty typical that you'd see in the holiday time frame people leaning on delivery more. We had really great experiences and great results in November with Thanksgiving. More and more customers chose to have their Thanksgiving meal delivered. And then this recent ice storm we had in the United States, we also saw a significant number of customers looking for delivery services much higher than the year before. So whether people are shopping at the counter, they're shopping at the curb, they're shopping in the store, we want to be there for all of them.

In terms of the mix and the impact to the P&L, getting to where we were last year with eCommerce moving to profitability, the growth of advertisement, the growth of the other services, we like the way our P&L set up in terms of providing mix over time. Again, we'll manage that really well. We have a great team of people who do that. So again, excited about the top line growth, excited that our operating income grew faster than our sales in all 3 segments. And I'm also very confident in the guidance that John David talked about.

So Dave, do you want to talk about remodels and investments in stores?

Absolutely. As John mentioned, we're focused on serving customers how, where and when they want to shop across stores, pickup and delivery. And our eCommerce growth of 27% is leveraging our physical footprint. So this is an interconnected system. So we are making further investments in our store network as a result in that physical footprint. Over the past 12 months, we've opened 12 new stores and we've remodeled 674 stores. Our investments in both of those areas are outperforming plan. And I think that just reinforces the strength in the omnichannel model.

The next question is from the line of Edward Kelly with Wells Fargo.

Just on progress in eCommerce again. I was hoping that you could maybe update us on current profitability and how you're thinking about 2026. And then it pertains -- as it pertains to all this, you mentioned pace of change accelerating, competition in eCom certainly seems to be intense. Can you maybe just touch on what Walmart needs to be vigilant on to sustain share momentum? And does this impact at all the near-term profit path for the business?

This is John David. I'll start with the eCom profitability. Ed, we've reached a point where we don't even really talk about this internally anymore. We've far surpassed the breakeven level. We were profitable in each of the 4 quarters in the U.S. segment, and the momentum is only upward from here.

We've been enjoying roughly double-digit incremental margins in eCommerce. We don't expect that to change. We feel really good about the plan going forward. And as you know, the nature of this business is you build a large digital platform and the marginal cost of growth is very low. You don't have to continue to build that platform to achieve the next percentage point of growth. And so we're enjoying the scale economics that come from a digital business. That's not going to change.

And getting to the second part of your question, we're seeing that that is resonating with our customer and member base. We continue to gain share. And I think a big part of that is convenience. It is the fact that we can serve 95% of America in 3 hours. There are very few people that can do that. And as John and Dave noted, in some cases less than 30 minutes.

But it's not just convenience. I'll point you to fashion as an example. Like we've had several consecutive quarters now of fashion growth in the mid-single digits. I'd argue fashion is not really a convenience item. It shows that our broader assortment is appealing to a much larger customer base. And they're coming to Walmart, in many cases, some of them for the first time, and they're enjoying an experience that makes them want to come back.

Yes, these platforms that we've put together, they work at Walmart U.S., they work in other businesses, Sam's Club is an example, obviously, a category -- or a channel that's focused on curation and quality. But Latriece, maybe comment on the experience your members are having with the delivery platform as we have scaled the platform for Walmart U.S. and Sam's.

Sure. Thank you, John. I am a merchant. So you know this is what I love. I love to talk about how we give members access to products, and you've said it, however they want to shop with us. So a couple of things are happening at Sam's Club. We are leveraging the platform that is what we've created as part of Walmart. And what we're seeing from members who choose to shop with us from home on our app is that 60% of our members can get delivery in 3 hours. So we're growing that. We won't stop there at the 60%. We are growing our ability to give members their items quickly.

For members who want to come in club, they love Scan & Go. So Scan & Go is a seamless way for members to get the items they want, get checked out, use our exit arches and have a frictionless experience, fast. So in the spirit of what members want and what they need, they want items and they want to get through our clubs quickly, and Scan & Go gives them the opportunity to do that, and delivery from club gives them the speed that they want.

The next question comes from the line of Chuck Grom with Gordon Haskett.

Good luck, John, as you embark here. Could you talk about the health of the U.S. consumer across income cohorts at this point in time? Any surprises this past holiday season? And looking ahead, when you look at the basket of GLP-1 users, how has their shopping behavior changed in terms of frequency and basket size? And I guess, how does that influence your planning of inventory in the coming quarters and years?

Chuck, in the earlier comments, we talked about the consumer in the U.S. We had a lot of growth with customers who are income bracket of $100,000 or above. And it's pretty consistent with the last few quarters in the way we've talked about it. So I don't think there's any big change. I think the way we describe our customers is very thoughtful. They're choiceful. And the lower income segment, $50,000 and below, we did see, of course, as we mentioned, some stress. In many cases, we see people living paycheck to paycheck.

In the fourth quarter specifically, there was some sales impact early on that was driven by benefits during the government shutdown, that affected Walmart U.S. and Sam's in the United States. For the most part, in Walmart U.S., that recovered as the quarter went on. There seems to be some impact to Sam's over time.

On the pharmacy business, the biggest change that would be notable would be the MFP pricing changes on branded drugs. The remaining categories have been pretty consistent over time, and we did provide some comments and guidance about what kind of impact we think that MFP will affect us by.

As far as categories around the store digitally and physically, we're always watching changes in subcategories, what's growing. Our team starts every Monday talking about customer experiences and unit growth in particular. So as we enter -- or potentially in a period where inflation is lower or higher, it doesn't really matter to us, we'll manage the commodities as they come through. We'll focus on the lowest prices we can focus on. We had 6,200 rollbacks in Walmart U.S. this quarter, up about 23% from a year ago. So we'll just continue to focus on low prices, but as categories shift, categories grow or they slow, our team will be very reactive in terms of being able to be ready for customers wherever they're looking.

Yes. And on GLP-1, I just -- some of the impacts that we see to our business are as you would expect. So as an example, we see that fresh is a big driver, one of the big things in baskets. The unique thing about fresh is that it's a basket driver. When someone buys fresh items, the baskets tend to be larger by a double-digit percentage. So when you take all of the puts and takes related to that, it's kind of a wash. It doesn't really -- isn't a big driver of our growth one way or the other. .

The next question comes from the line of Joe Feldman with Telsey Advisory Group.

Congrats to all the new business leaders, Actually, it's more for you guys. I was just curious, I know there's 3 of you, but your maybe brief thoughts as you take over your new role, what you guys see with fresh eyes as you kind of enter each of the divisions you've taken over?

Chris, do you want to start with international?

Yes, Joe. So I'm thrilled to be in International. It's kind of a homecoming for me because I started out in International when I joined. And if I think there's lots of words you could use to describe International, but if I was to choose one, it would be growth. I think growth in the top line, growth in the bottom line, there's so much opportunity globally. And as we think about all of the words we've used today, build once, scale globally, AI helping accelerate, a platform-centric approach, the ability to take the magic of the culture, great assets that we've got internationally and leverage platforms, gives us the opportunity to do something we haven't been able to do before.

It's Latriece. I am thrilled also a home coming to be back at Sam's Club. And what I've felt in the time there is the energy and the momentum of the business, both with our associates and with our members. So being in clubs with members and associates has been a thrill. We can see how they love items. We can see how they love to shop. And I'm excited about the opportunity to serve them the way they want to be served, with great merchandise at great value as fast as they want it either from our clubs or as they use the mechanisms we have in the club.

Thanks for the question, Joe. First, I want to take the opportunity to thank the Walmart U.S. associates in our stores, our supply chain, our home office for delivering a fantastic quarter. Walmart U.S. achieved 4.6% comp sales with profits growing faster than sales. As John mentioned earlier, I've spent the majority of my career in eCommerce and logistics. And one feeling I've had the last few weeks is I'm humbled. I'm humbled to learn from and serve 1.5 million associates across Walmart U.S., and I am energized by what I've seen in my first few weeks. I've been in stores in California, Texas, Florida, visited a distribution center in Florida that is delivering fully palletized loads to all of the over 120 stores that it serves.

And then last week, I was with the Walmart U.S. leadership team at the year beginning meeting. And what's clear to me is that we are operating from a position of strength, and the opportunity ahead of us is significant. We're investing with confidence in automation, new stores, remodels, our marketplace, membership, advertising. And all of this will strengthen the customer experience, it's going to drive productivity, it's going to improve our economics over time. And I am excited about the runway ahead.

The next question is from the line of Rupesh Parikh with Oppenheimer.

So I just wanted to go back to membership income. So we saw another quarter of strong double-digit membership income growth. So just curious, as you look towards this fiscal year, just overall confidence in sustaining momentum. And I recall last quarter, you guys were very happy with Walmart+, including some on the credit card side. So just curious, overall in Walmart+, whether any additional surprises as that program continues to ramp.

No surprises, Rupesh. In fact, I'm really pleased with the fourth quarter. John David mentioned the credit card offer, you asked about that. That's been strong, really pleased with the number of sign-ups. The usage rate of the benefits has been fantastic, one of the fastest-growing benefits, obviously, with free shipping is the express delivery and fast delivery services. That was up 60% year-on-year. And we just -- we are really excited about the proposition. Having Walmart+ with Seth Dallaire moved to an enterprise level, we see room to expand this into more markets than the United States, and we're working on those plans.

But overall, membership in Walmart has been strong. Sam's Club also had great results with membership in the quarter, and we see continued momentum there, which should include Sam's Club in the United States and Sam's Club in China. We talked about that earlier. So really strength across all these areas.

The other thing I'd say about membership is it does give us a chance to serve customers really frequently. And again, when you combine membership with the work we're doing with agentic commerce, whether that's with Sparky, our partnerships with Alphabet or OpenAI, it just gives us more ways to be able to understand the best way that our customers and our members want to be served.

Thank you. This now concludes our question-and-answer session. I'd like to turn the floor back over to John Furner for closing comments.

Yes. Thanks, everyone, for the time and the investment in time in Walmart today. It's great to have you on the call. I just want to close by saying we have a clear strategy, and that's an omni strategy. It's working in the United States and it's working around the world. We see a lot of opportunity to expand what we've built to serve customers better, both here in this country and around the world.

We have a great team. This is a really experienced leadership team. You heard from a number of those people today. And while they're new in their roles, I can tell you each and every one of them care about our associates, they care about our culture, they want to grow and they're really experienced at the things they do. So I have a lot of confidence in this team as we look ahead.

Our capital strategy, I'm also really pleased with the investments that we've made. We'll continue to remain disciplined on how we invest capital. John David said it earlier, every dollar, we'll compete for the best returns. That is true and will remain true.

And then finally, I just want to thank our associates all around the world, over 2 million people, who are working really hard each and every day to serve our customers. They are the ones that make all this happen. Our people really do make the difference. And I'm looking forward to a great year in getting out to the markets and meeting more of our people.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may now disconnect your lines at this time.

Good morning. Good 8:00 a.m. morning. I am Joe Teklits with ICR. Welcome to Day 2 of the ICR Conference. If you're on the webcast, welcome to the ICR conference. With us this morning for a keynote presentation or fireside chat is Daniel Danker, Executive Vice President of AI Acceleration, Product and Design. In his role, Daniel leads tech product development using AI, including integrated AI-based tools and solutions into Walmart's omni retail businesses to drive faster growth. He partners with the business to identify ways to grow using AI and generative AI-based technologies, leveraging strategic partnerships with leading tech companies, which we'll talk about. This includes customer and associate-facing solutions as well as AI products in the company's advertising, data and commerce businesses. Welcome.

Thank you. It's good to be here. It's nice to see you all.

Great. You were at CES last week, NRF over the weekend, ICR today.

It's been a busy week. Most weeks aren't like this.

Okay. Well, we appreciate you flying. It's one of those mornings where you woke up and you didn't know where you were probably.

It was indeed.

My first question is going to get to your background real quickly. We all tolerate -- a lot of us have kids at that college age going or leaving, and you tell them, it doesn't matter what you major in. You just go to school, study hard and you'll figure it out when you get out. So for Daniel, I'm curious how a Mass Comm major from Berkeley ends up running AI for Walmart? How did that happen?

It's a great question. Gosh, careers are not a straight line, are they? They're just quite nonlinear, and I had a whole bunch of experiences along the way that really I felt kind of prepared me for this role. But it's -- I grew up in the Bay Area near San Francisco. I think it runs in the water there. And I think we're all just absorbing all of the technology changes that are happening and kind of seeing those changes happen in real time. So I'm not sure that what I majored in, in college ended up having as much impact as perhaps the water I was drinking, but it really -- it's truly in the environment. And it's been a gift to see it all unfold.

Well, that's fantastic. And we had a list of questions, and we were standing in the room for -- backroom for 10 minutes talking about all the changes that have happened to you in the past week, and then [ Simeon Siebel ] walks in, and he starts asking some questions. So now our list of questions is basically on fire, and we're just going to wing it. But let's just start with, this is a consumer-oriented audience. It's not a tech audience, so we're going to keep this kind of at that level. At least we're going to do that for me. Start with just generative AI and agentic AI. We were talking about generative AI a year or 2 ago. Now we're talking mostly about agentic AI. Just -- and agentic commerce. Just define those for us and the differences in what they mean to you?

It's a good question because the definitions keep changing. I think that it's almost worth rewinding the clock just a quick moment. And you said it's a consumer-oriented audience, not a technical audience, but I think we should test those limits for just a moment here. For a long time, we've been talking about things like personalization. Familiar term. We've all talked about it. And that was always built on a technology called machine learning. And machine learning is just a fancy way of saying pattern matching. The computer notices certain patterns and it assumes that they'll repeat themselves. And that takes you pretty far. Like if you tend to buy the same milk every week, then when you search for milk, machine learning will recommend the same brand of milk and the same size and whatnot that you normally buy. So that's helpful, but it stops there at pattern recognition.

And so let's talk about some of the pitfalls of pattern recognition. The week after Thanksgiving, machine learning will recommend turkeys. Why? Because a whole bunch of people bought turkeys the week before. I kind of miss the moment, right? AI is different. AI actually interprets. It can form a level of understanding. So it's actually built on machine learning, but it forms a level of understanding. AI will recommend turkeys the week before Thanksgiving. AI will notice that you're buying milk and you probably also by the time you add the milk and the flour and the eggs, it's like you're probably making pancakes and it will recommend the other things you need to add. It understands quite a bit better. And that understanding is a step change in technology. And in my mind, it's a step change in the commerce experiences that we'll be able to deliver with that technology.

So that's AI. Now you took it a step further. You asked about a agentic. Agentic AI is -- just means taking that level of understanding and starting to take action on behalf of the customer. So you understand your customer so well that you might just be able to do certain things automatically, things like if we understand that our customers -- we understand them so well that we know that they're probably running out of laundry detergent, which by the way, is not as simple as it sounds, it's not just noticing how often they buy a laundry detergent, it's also recognizing that because they tend to buy a gallon of milk, they're probably in a 4-person household, so they're probably going through laundry detergent at a certain pace. And so we know the right moment to recommend that laundry detergent. Agentic AI will then just go ahead and send you the laundry detergent before you even run out of it. So that's the promise. We're on a journey toward it. We're not quite there yet, but we're moving fast. So I think it's coming.

Do you know that the customer wants it? I mean there's tech companies that push their technology. It runs through retailers. We all think it's great. Does the customer even want that, or they like the old-fashioned way of shopping?

It's a great question because I think that over the last year, year plus, we've all been playing with the technology to understand it better. So a lot of things have been built that won't necessarily work. A lot of things have been built that don't necessarily reflect exactly what the customer wants. I think -- I try to simplify these things. I think of us all as carpenters, and we've all been using screwdrivers and suddenly someone showed up with a drill. And the first thing everybody assumes is that the drill will make it so you can build things faster. And that's true. But it also means that you can build things bigger. There are things you couldn't build without power tools that you can with power tools. AI is a power tool for us.

Now for the last year or 2, we've been tinkering with it. We've been trying to understand this new drill and see what it's capable of. Didn't really know what we wanted to do with it yet, but we were kind of exploring. This is the year where tinkering becomes transformation. This is the year where we've built a level of mastery around that, and we'll start building things that deeply address customer problems. But I'll give you a few examples of customer problems. And let's just see in the room if you feel like these are relevant or not, an example of something that you can do with AI that you genuinely couldn't do before. So for 25 years, we've been using e-commerce, and we've been searching for clothes, and we've been scrolling through long lists of photos of other people wearing those clothes. Sound familiar?

And our -- we're doing all these mental gymnastics while we're scrolling to imagine ourselves wearing those clothes. AI will just show you wearing those clothes. You're not going to scroll through a list of other people wearing them, you'll scroll through lists of yourself wearing them. You might not even scroll through lists, you might take a picture of something in your closet and say what would go well with this? And it will just show you, and it will show you with yourself wearing it. And that, I think, is a simple example of something we would all want. And a simple example of something we can all understand would drive way more commerce and way better commerce than we've ever been able to do. But that's not a new idea, but we haven't had the drill. We didn't have the technology with which to do it, now we do.

What is that time frame? Like how big does that become, and how quickly does it happen? I'm sure there's no end goal, it's just going to be continuous, continuous, but is there a date where we're really going to be using everything you just described?

Well, if you go back and look at technology transformations, even though you get leapfrogs and step changes in the technology, you've probably noticed that the actual change happens gradually in a whole bunch of places. So every little step in the process changes and gets better. And you kind of don't notice it as it's happening. But if you look back a year or 2 later, you see a big change. That's what's going to happen here. It's not going to happen overnight. It's also not going to happen all at once. But I do think this is a year where we will be delivering transformative experiences in commerce.

So you will definitely look back a year from now and say, gosh, that's quite different than how I used to use Walmart. That's quite different than the expectations I used to bring when I opened an app.

And Walmart seems to be very much at the forefront of utilizing all of these technologies, right? Is there -- that's not table stakes, but at some point, if you do it, it's going to be table stakes for everyone else. Is there a risk to being too far out front?

The risk is that we build a few things that don't stick. I'd say there's a much bigger risk to not being out front. And that's why I like to use the analogy of the drill. Can you imagine if you hired a carpenter and they said -- they showed up with a bag full of screwdrivers and no drill? Like you think that's crazy, and you probably wouldn't hire them again. And I think that this is that step change, and we're going to lead because we think that it can do things for customers that we genuinely couldn't do before. Not every single thing we try is going to work, but the only way we'll get to the thing that works really well is by trying a lot of things along the way. And we're very lucky to be able to do that, and it's something that I really value about what we can build.

So on the other side of every risk is reward. And so is that first-mover advantage customer, acquisition tool? Is this something that's going to drive your business and kind of widen the gap between you and the competitors? Is that why you take the risk?

We're generally a little bit more simplistically just driven by our customers and what we're trying to achieve for them. We're really customer-obsessed in how we approach these conversations. And we start from a list of opportunities and customer problems that we're trying to resolve. By the way, when I say customer, I mean the broader customer. We're talking a lot about the consumer experience, but this applies equally to technology that evolves our supply chain and how we get goods to customers. It also involves technology that we're putting in the hands of associates that are in the store serving customers. And by empowering them with more AI tools, which we now do, they're able to serve customers in much, much better ways.

They now have access to a wealth of information about the products that are on the shelves, about what's coming, about where things are in the store, and they can help customers with all this information right at their fingertips. So the customer is a broad set of customer groups. And I think we -- I don't view it as a risk to experiment. I view a much bigger risk to not experimenting and not figuring out how we solve each part of the value chain there.

Right. Okay. Let's quickly talk about your partners, specifically OpenAI and ChatGPT, which you announced that partnership a few months ago. And then Gemini, which is Google, which you announced the Sunday, this weekend. Talk about kind of the differences. What's happened with OpenAI, and now why Gemini and what the differences of those 2 platforms will be?

Well, we view a big part of our role as finding customers wherever they are. And we need to reach our customers whether they came directly to us or whether they started their journey elsewhere. One of the big reasons for that is that folks tend to come directly to Walmart when they have what we often call commercial intent, meaning they want to buy something. They know they want to buy something. And so they come to us for that. But there are a lot of journeys that don't begin with commerce, but often end with commerce. One of my favorite examples of this is, if there's a wine stain that you're trying to get rid of or get out of your carpet, you're very likely to go to a product like ChatGPT or Gemini and say, how do I get this red wine out of my carpet? And you weren't thinking about buying anything in that moment, you were genuinely trying to get advice. But somewhere along that journey, ChatGPT or Gemini might say to you, there's this product for the thing you're -- the kind of carpet you have and the kind of stain you have, and you can press 1 button and end up shopping that on Walmart.

So these journeys that begin with something that doesn't look like shopping, but actually end with shopping. And we really want to be a part of those journeys as well. And so we view this as a huge growth opportunity because it enables us to reach customers in those moments too. So that's a big part of the why behind those partnerships.

Now it's very early days in terms of how those integrations work. And one of the things that we're really excited about in how -- what we announced this weekend with Google is that we're essentially having their AI agent, Gemini, partner with our AI agent to create a unified shopping journey. And that's a fancy way of saying that when a customer discovers something on Gemini, Gemini might recommend a new TV, a wine stain remover, et cetera, it calls up our agent and enables us to offer the customer a very familiar and personalized experience directly within Gemini. So almost imagine it like a window inside of Gemini that -- where our shopping agent kicks in and helps you complete that purchase.

Now why is that important? Well, very rarely do we find people buying 1 item. Quite often, you buy 1 thing and you're on ramp to buying a full basket of goods. And we're really good at that. Like we offer a tapestry of products that customers want. And so that's one element of it. Another element of it is that, for the most part, our customers aren't just customers, they're often members. And so they're getting great delivery fees and a great experience that's really attuned to them and has gotten to know them over many -- over quite some time. And so that member experience shows up directly within Gemini, which is pretty cool.

And then the last one, and this is almost mechanical, but I think it's actually quite reflective of how people shop. What we see is that people add things to their Walmart cart throughout the week. They don't necessarily check out right away, but they just -- you realize you've ran out of dishwasher pods, you go in and you add it to the list. And so the basket is built over quite a few days. What happens is that, that basket now automatically joins the item that you discovered on Gemini. And so when you order, you receive 1 box with all of those things together. And that might sound simple, but people really do have this kind of thing in the back of their minds constantly, how many additional boxes and orders am I generating with each move? And so having that discovery experience start inside of a Gemini context, but -- and fully inside of your Walmart relationship works really well for customers, and it's something we're really excited about.

So an important early path on this kind of integration figuring out how do these surfaces that happen off platform join up with all the goodness that we can offer to customers when they come straight to us.

Fantastic. OpenAI is -- that sounds like 2.0. That sounds like agentic commerce 2.0 if OpenAI was -- or ChatGPT was 1.0. Is ChatGPT going to leapfrog and go to 3.0? Or what are the next iterations of that? It seems like these 2 agents are competing against each other now in a way.

Yes. We view our role as working with both of them and others indeed to figure out how these journeys should work. And so I think you're going to see a constant evolution on all of these products. And maybe, over time, they diverge or maybe not, it's really hard to predict. We view our contribution to it as being this really important combination for customers of massive assortment at a great price predictably. Customers know. If it's coming from Walmart, and I know I'm going to get a good deal and at great speeds. And that breadth is really important and quite hard to find.

And when you imagine that you're operating in an environment like ChatGPT or Gemini, where you could be asking about anything at all. It's not like every journey will involve eggs. It's completely open ended what you'll discover. Having that huge assortment, plus speed, plus price is a really valuable combination for the customer. I think that's true, whether it's in Gemini, whether it's in ChatGPT and however those integrations evolve and those products evolve, I think that, that fundamental combination of assortment, speed and price reflects a really common need across all of them, and that's how we view it.

So in 1.0, I would go to ChatGPT, and they'd give me a few options where I could buy something if I was prompting them for the best pancake mix or whatever that would be. And then I would have to click through it and go to that retailer's website, like your website. 2.0, Gemini, it's all happening within Gemini, right? But it's still a Walmart interface within Gemini?

That's right.

Will there be a time when I just say, I want this, please send it to me, and I don't have to do anything else? It shows up at my door the next day.

I think these UI -- these user journeys are going to become simpler and simpler and simpler over time. And there are times when you -- when a product you discover is truly an on-ramp to other things. And there are times where you just like get it and be done. And we want to serve both of those needs.

How do they choose Walmart to fulfill that purchase versus all of your competitors? Who chooses that?

So it depends the environment that you're in. But if you are inside of ChatGPT or Gemini agent, of course, they have an algorithm that is determining what products they're going to show. But if you kind of go back to what would make for a successful algorithm versus an unsuccessful one, a successful algorithm is going to be one that serves the customer need. If you're going to let a computer start making decisions for you, it needs to make decisions that are similar to the ones you would have made yourself. And that's why I believe that the currency, the most important currency in an agentic shopping world is actually trust and affordability. I think without trust and affordability, it's very difficult for customers to hand the wheel to someone else and expect that the right thing will happen.

So it's perhaps more than just convenient. Those are really core to Walmart's values. It's been core to our brand and to our history and kind of how we view ourselves as serving customers. But I think those values are translating to an agentic shopping world in a way that maybe we wouldn't have even been able to anticipate, but kind of gets at a core human need. And so I have high confidence that we show up well in these agentic shopping experiences, even the ones that don't start on our own app because those core customer needs, they've been true as long as time and I think they will continue to be.

So I do want to ask about price, and you kind of went there, so I'm going to go there. For the customer, over time, what does this do for prices? Does that agent search for the lowest price, and this helps customers more easily find the lowest price? Or is that -- if that's what's important for the customer? Or maybe that's not important for the customer?

I think that's where you kind of hit it on the head there. I think that some customers are very value-oriented, and they are going to orient themselves toward the items that have the lowest prices. Some customers might be less price sensitive. By the way, more realistically, all customers are price aware on certain products and less price sensitive on other products. And this is why it all brings us full circle back to the beginning of this conversation around personalization. If you really truly are going to understand your customer, then you'll understand that they like to save money on paper towels, but that they like to splurge a little bit more on their produce or on other things. And that's been part of Walmart's assortment strategy for a long time, to be able to serve those customers regardless of where they are kind of on that thought process.

This is why it's important for us to be able to offer that assortment, but also match it with our understanding of that individual customer.

Okay. So that gets us to data, right? You have -- with your customer in your stores, on your website, you have a lot of customer data already. Gemini, ChatGPT doesn't have that data. So it doesn't know as a customer what I prefer. Are they relying on you for that data? Is there a partnership there? Are you willing to share that data? Or do they want you to come -- they want to come to you to fulfill everything and then you own that data?

OpenAI and Google will personalize based on the things that are done on their -- inside of their products. The experiences the customers have and the data that we build up on our own will -- on our own products and in our own stores indeed, stays within Walmart. And we do not share that with any other platform, with OpenAI or Google. There are some small bits of data that go back and forth in order to complete a transaction that you would -- can imagine you would need to know. You would expect Gemini to tell you, okay, your order is on the way now. So there are little bits of information that need to go back and forth for that. But even for that, we're extremely clear with the customer that they -- that some information will be going back and forth, and they have the option, they have to explicitly say yes before we move any data around. So we're pretty protective of that.

I'm going to stop going down this rabbit hole. We'll pivot to something else, but I wrote the word disintermediation down because I think that's on some investors and analysts' minds. Like are you -- 5 years from now, this turns out to be a positive? And how is that going to show up as a positive? Or is it disintermediation where that customer that used to go to walmart.com is now going to Gemini, and all of a sudden, you're losing a transaction here and there because of Gemini. How do you view that kind of risk reward?

I see this very clearly as a growth opportunity. But let me explain why. There's a few key components that make this a growth opportunity that we've been very intentional about, and which I think set us up really well to serve customers even as the environments shift. One, it goes back to that combination of assortment, price and speed. That combination means that Walmart shows up a lot inside of Gemini and ChatGPT because we offer such a complete package for customers. That doesn't just serve one need, but serves a whole bunch of needs.

Two, the approach of having their agents work together with our agent and creating an experience, a Walmart-powered experience that shows up directly inside of those environments means that we're orchestrating an intelligent handoff between the products so -- rather than being invisible on the customer's journey. So we're actually not receiving just orders, we're actually receiving customers who are in the midst of placing an order, and we can take those customers on a journey by offering additional products, connecting it with the rest of their cart, enabling them to benefit more from their memberships, et cetera. So that connection between the agents is extremely important.

And then finally, as I started with, this is not really about taking customers that come to us because they know they want to shop and giving them a different experience. This is about recognizing that there's so many shopping occasions that don't begin as a shopping occasion. And those are moments that we want to be able to serve, and this enables us to serve those moments better than we've been able to do before.

Great. I want to go down the income statement real quick because that's how this audience would think, right? We talked about the revenue opportunity. What happens to the gross margin "opportunity" if there is some sort of sharing between the agent and Walmart that maybe wasn't there before because customers are gravitating to using this tool more and more?

You feel this is a positive to -- are you sharing revenue now? Is this positive? Or is this a risk to margin?

Well, I mean, we've worked with other platforms for many years in order to show up in the moments where customers are searching for products, and we're not -- this isn't actually fundamentally different from a search ad or any other engagement where we work with partners and platforms that customers go to, to make sure that we show up when they have a need that we can serve. So in that sense, it's not fundamentally different, and it comes down to the same measurements that we would have done years ago in a more traditional search world, which is assessing whether this is incremental, whether this is causing us to -- are we super serving the customers that are already coming to us and it doesn't make much difference? Or are we reaching customers in moments that they wouldn't have necessarily thought to come to us? And that's the part that gets me most excited. And I think that's where it's going to go.

Back to the revenue part real quick. I do want to ask what are you finding right now is the kind of the highest use case? Is this being used for kind of high consideration product categories? Is there a differentiation in demographics of who's using these tools? What type of product consideration? Are you seeing any differences there and maybe where that's going?

Yes, it's a great question. I don't know yet on the demographics. It's a little early to know. But when it comes to what people are buying, this is pretty interesting. You could imagine that this would start with the things that people buy most frequently. That was one hypothesis. Maybe this will go that route. You could also imagine that this would go down the path of the things people buy, not as frequently, least frequently, but which require more exploration. And it has very much gone down that second path.

So in other words, when people want to buy their essentials, their weekly grocery shop, the things around that, they know how to do that. They have tried and true ways of doing that. They come straight to us. By the way, we're going to evolve those experiences quite a bit over time, which we can get to. But that's -- those are well understood journeys for customers. The part that's really exciting about this is that it's unlocking an ability to serve customers who aren't totally sure what they need. Maybe they're trying to shop for a TV that will fit. Maybe they don't know what kind -- how big of a TV to put on a wall of that size. Maybe they aren't sure if it will work with their gaming device or whatnot.

And so that kind of interrogation and conversation really takes a few back and forths before they know exactly what they want to buy. And so it's generating those kinds of orders. I think fashion is going to be another category where we're going to see a lot of change there because it is an area where there's a little bit more room for inspiration and a little bit more room for seeing yourself in it and seeing the user journey change quite a bit from trying to figure out what to put in a search box and then scrolling.

So we're going to see a lot of that. I think baby is going to be another category where we're going to see a lot of change. New parents, it's been a few years, it's been 4 years now, but I remember when my youngest daughter was born, and gosh, we had so many questions about what's the right thing to buy? How do you do this? How do you solve for this? They, for some reason, all happen at 2 in the morning when the baby is crying. And you have -- with one hand, you're trying to figure out how to solve this thing that you're unfamiliar with. Those are the kinds of journeys and customer experiences that I think are going to benefit most here.