Walmart Inc (WMT) — Q1 2015 Earnings Call Transcript

Hi, this is Carol Schumacher, vice president of global investor relations for Wal-Mart Stores, Inc. Thanks for joining us today for our earnings call to review the first quarter of fiscal 2015. The date of this call is May 15, 2014. This call is the property of Wal-Mart Stores, Inc. and is intended for the use of Walmart shareholders and the investment community. It should not be reproduced in any way. This call will contain statements that Walmart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. Please note that a cautionary statement regarding the forward-looking statements will be made following Charles Holley’s remarks in this call. Our press release and transcript are available on our corporate website – stock.walmart.com. Additionally, starting this quarter, we’ve added a supplemental slide deck that summarizes our key financial results, which is a part of and should be viewed and used in conjunction with this call. That presentation appears at the end of the transcript of this call. We believe this deck provides a more streamlined approach to reviewing our financial performance and prior year comparisons. Unit count data, which is updated monthly, is posted separately on the investors’ portion of the website, under the section called financial reporting. One additional item I would like to highlight is that beginning this quarter we will provide results and commentary primarily on our five largest international markets, all of which had revenue in excess of $10 billion in fiscal 2014. As a reminder, for fiscal 2015, we utilize a 52-week comp reporting calendar. For this year, quarter-to-date and year-to-date comps will be based on 13- and 52-week periods, respectively, compared with the 14-week and 53-week periods that we reported in fiscal 2014. We posted a week-by-week comp reporting calendar under the comp sales link on the investor portion of our website. Our Q1 reporting period ran from Feb. 1 through May 2, 2014, so our reported comp results this year are one week later than last year. Beginning this fiscal year for Walmart U.S., we will report comp sales performance based on how we currently manage the merchandise areas, rather than the six categories we have previously described. The five merchandise categories now are: Grocery, which includes food and consumables, so there’s no change to this category; Health & wellness, which includes prescriptions, OTC and optical; General merchandise, which includes entertainment, hardlines and seasonal. For additional detail on these areas, please see the descriptions noted in our 10K. Apparel – no change, and last, Home – no change. For information regarding terms used in today’s release including EPS, constant currency, gross profit and gross profit rate, please refer to our website. The sale of our Vips restaurant business in Mexico closed on May 9, and the Vips operating results continue to be presented as discontinued operations for the first quarter. The net gain will be recorded in discontinued operations in Q2. Note that certain reclassifications have been made to previous fiscal year amounts and balances to conform to the presentation in the current fiscal year. These reclassifications did not impact consolidated operating income or net income. Please mark your calendar. Our Annual Meeting of Shareholders will be held on Friday, June 6 on the University of Arkansas campus in Fayetteville. The meeting starts promptly at 7:00 a.m. CDT and is also available via webcast through our website, stock.walmart.com, or via Walmart’s free investor relations app. We look forward to seeing many of you at the meeting. And, on October 14 and 15, we will hold our annual meeting for the investment community in Northwest Arkansas. So, now let’s get on to the agenda for today’s call. Doug McMillon, president and CEO of Wal-Mart Stores, Inc. will cover key results and provide an overall assessment of our business. Claire Babineaux-Fontenot, EVP of finance and treasurer, will cover the financial details for the quarter. Then, we’ll cover the operating segments: Bill Simon, president and CEO of Walmart U.S., followed by Dave Cheesewright, president and CEO of Walmart International. Rosalind Brewer, president and CEO of Sam’s Club, will follow Dave. And then, Charles Holley, Walmart’s CFO, will wrap up with his perspective on our financial performance, and as always, he’ll cover guidance. Now, I’m pleased to introduce our CEO, Doug McMillon, to kick off our call. Doug?

Thanks, Carol, and good morning everyone. Walmart’s first quarter consolidated net sales increased to more than $850 million or 0.8% over last year. Like other retailers in the United States, the unseasonably cold and disruptive winter weather negatively impacted our U.S. sales and drove operating expenses higher than expected for the company. This, coupled with the higher than anticipated tax rate, resulted in earnings per share of $1.10. Our underlying business is solid, and I’m confident in the company’s long-term strategies. We’re making progress on building a more customer-centric organization, with a foundation of everyday low prices. We’re investing in technology and our multi-format portfolio to bring Walmart’s value proposition to many more customers around the world. We have a tremendous opportunity to win with the integration of digital and physical retail, as customers have the resources from us to shop on their terms. Walmart U.S. added approximately $1.3 billion in net sales compared to last year. We delivered on our comp guidance despite the impact from severe weather several times during the quarter. Our sales increased during the back half of the quarter. Neighborhood Markets delivered approximately a 5% comp. This strong and consistent performance is exciting, as we accelerate their rollout this year to complement our core supercenter fleet. Of course, we always have room for improvement. We continue to focus on our execution, both in-store and online, to provide customers with the merchandise and the shopping experience they desire. Sam’s Club had a tough quarter, with lower sales than anticipated. Membership income increased, driven primarily by last year’s fee increase. I’m encouraged by the work underway to elevate the merchandise assortment to highlight newness and drive sales. We’re also launching new services next month to make a Sam’s Club membership more rewarding. A bright spot this quarter was the performance of Walmart International. Net sales increased 3.4% on a constant currency basis. I’m optimistic because of the improved sales trends, and the progress we continue to make on operational efficiencies. I was really pleased with our International segment’s more than 5% growth in constant currency operating income this quarter. As we focus on customer relevance, I’m excited about the progress that we’re making on our e-commerce initiatives. We will create transformative growth through these capabilities. Our investments are focused on improving customer experience and fulfillment capacity to provide the options that customers expect. While I was in the U.K. last month, I saw how we’re innovating to win the integration of digital and physical retail. Our team in the U.K. continues to expand convenient access to the merchandise customers want – from multiple pick-up points to grocery home delivery. Shortly after I returned from the U.K., I flew to Denver to see our "Walmart to Go" grocery delivery and pick-up operations. It’s really impressive how our e-commerce and store teams are collaborating to deliver for our customers in ways they want to be served. We’re sharing global best practices across our markets to serve customers more effectively. There are a lot of good things happening in e-commerce across the globe. In the first quarter, we grew sales approximately 27%. We’re seeing double-digit sales growth from nearly all of our e-commerce and mobile commerce businesses around the world. Brazil e-commerce and Yihaodian in China continue to experience strong demand. I just returned from China on Friday and was excited to see our Yihaodian team and see some of the new ideas they’re working on. We’re also making great progress on our global technology platform, Pangaea, and we’re confident that customers will appreciate the streamlined functionality it will provide when we begin its rollout later this year. The lines between digital and physical retail have blurred and this is all ultimately about meeting and then exceeding customer expectations. At Walmart, we welcome the opportunity to lead on sustainability, but we believe that all retailers, regardless of platform or presence, have a responsibility to invest in this area. Last month, we hosted our first Sustainable Product Expo, bringing together many of the key thought leaders on this topic. And, it was an honor to join the CEOs from a number of our key supplier partners in committing to promote initiatives that advance sustainable agriculture and ramp up recycling programs in U.S. cities. On June 6, we’ll hold our Annual Shareholders’ Meeting, and it’s great to hear from our shareholders. I also look forward to seeing so many of our associates who come from our markets around the world. I appreciate their dedication to our purpose, and I’m inspired by their commitment to save our customers money and time. That’s why we’re investing to enable and empower our associates with the skills necessary to compete and providing them with the opportunity of a career with upward mobility. Looking ahead, we continue to concentrate on driving growth across the enterprise. We’re laser-focused on delivering improved comp sales by sharpening our merchandising efforts, price leadership and service. Capital efficiency continues to be a priority, as we invest in our store fleet and our global supply chain. Also, as you’ve seen with our 12 e-commerce acquisitions over the last 3 years, we intend to be aggressive in adding e-commerce and mobile commerce capabilities, such as the purchase of Adchemy earlier this month. As we view our business through the eyes of our customers, we’re working to deliver a relevant, personalized and seamless customer experience across all channels to further grow sales. Now, I’ll turn it over to Claire for more financial details. Claire?

Thank you, Doug. Today, I’d like to highlight items affecting the company’s consolidated financial results for the first quarter and provide a bit of color around certain other items. Additional details from a consolidated perspective are available for reference in the accompanying presentation on slides 2, 3 and 4. Severe weather in our U.S. businesses negatively impacted EPS by approximately $0.03. Additionally, the company’s effective tax rate for the quarter was higher than anticipated in the full-year guidance we provided on February 20. We continue to believe our full-year tax rate will range between 32% and 34%. We may experience quarterly fluctuations in our effective tax rate, as it may be impacted by a number of factors. The impact of currency fluctuations continued to weigh on our results, negatively impacting net sales by $1.6 billion. As you can see on slide 2, consolidated net sales increased more than $850 million, or 0.8%. Excluding the currency impact, net sales would have increased 2.1%. Let’s move on to operating expenses. Corporate and support expenses, which include core corporate, global e-commerce support and global leverage services, increased 12.4%. As we take a closer look at the components, core corporate expenses increased 5.4%. FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these expenses represented costs incurred for the ongoing inquiries and investigations, and approximately $19 million was related to our global compliance program and organizational enhancements. The growth in e-commerce support was driven by our investments to help expand our global technology platform to deliver an unparalleled customer experience. Our leverage services area includes investments we are making in technology, such as back office capabilities and risk and compliance management. In addition, we continue to invest in SAP to support our core operating segments, including productivity initiatives. Net interest expense increased 7.2%. The strength of our balance sheet continues to be a competitive advantage. We took the opportunity to participate in the historically low interest rate environment, issuing $4.6 billion in new debt during the quarter. We anticipate that our net interest expense will be higher for the full year than last fiscal year. Consolidated inventory increased 5%. The timing of Easter from the first quarter of last year to the second quarter of this year impacted inventory balances in many of our non-U.S. markets. You will hear more about inventory from each of our operating segments. Payables as a percentage of inventory were 80.2%, which compares to 85.2% last year, due to the timing of payments and higher inventory balances, including the timing of Easter. Improving inventory leverage is important, and each of our operating segments is focused on this priority. Return on investment for the trailing 12 months ended April 30, 2014 was 16.7%, compared to 17.8% last year. ROI was impacted by a decrease in operating income, as well as investments in fixed assets. The increase in free cash flow is primarily due to timing of income tax payments and lower capital expenditure for the quarter. The last item I’ll leave you with today is related to share repurchases. In the first quarter, the company repurchased approximately 8 million shares for $626 million. Market conditions, general business trends and a focus on maintaining our AA credit rating, among other factors, influence our share repurchase activity. As we examine the level of share repurchases for the first quarter, it’s important to remember that in addition to our normal activity, the company also spent approximately $1.5 billion to purchase substantially all of the remaining outstanding shares of Walmart Chile. Now, I’ll turn the call over to Bill. Bill?

Thank you, Claire. For the first quarter, we added approximately $1.3 billion in net sales, with relatively flat comp sales. As we indicated in February, we realized negative comp sales during the first two weeks of the fiscal year from severe winter storms. A solid start to the spring season and a strong Easter holiday drove positive comps over the remaining 11 weeks of the quarter; that’s despite additional severe weather and about 50 basis points of continued SNAP-related headwind. Weather impacted Q1 comp sales by approximately 20 basis points. Overall, our comp sales were down 8 basis points, in line with our guidance. I’m encouraged by the sales momentum in the back half of the quarter and with approximately 30 basis points of improvement in our comp versus Q4. I’m also pleased we gained 23 basis points in market share across the key categories of “food, consumables & OTC” for the 13 weeks ended April 26, 2014, according to The Nielsen Company. The entire team was focused on driving sales, launching multiple innovative initiatives that position us well in the second quarter and for the remainder of the year. Profit was challenging, down 4.3% versus last year. Severe weather-related profit impacts accounted for approximately $120 million in headwind versus last year. Additionally, health care expenses increased at double-digit growth rates, or more than $110 million, primarily from increased enrollment and medical cost inflation. We realized unanticipated double-digit percent growth in our maintenance and utilities expenses, associated with snow removal and higher utility rates and usage. Severe weather also created disruptions across our supply chain, causing freight backlog across much of the country. To keep our stores well stocked, we incurred incremental expenses for third-party transportation services and overtime wages. And, of course, we also continued to invest in price, resulting in a net 17 basis point decline in gross profit rate. Q1 inventory grew at 5.3%, primarily from new store growth and slower sales in weather-related categories such as outdoor living. We continue to monitor our inventory levels and to position ourselves well for the summer and the rest of the year. Now, let me cover the performance of our Neighborhood Markets and supercenters. Neighborhood Markets continue to perform well, delivering approximately a 5% comp sales increase for the quarter, driven by a nearly 4% increase in comp store traffic. We’re seeing strength across the box, particularly in produce, meat, adult beverages, and pharmacy. Our Neighborhood Market fleet performed consistently well through the entire quarter, including throughout the periods of inclement weather. In fact, April marks the 46th consecutive month of positive comps for the format, further validating our strategy to accelerate the unit growth. Neighborhood Markets delivered solid comp sales performance regardless of the age of the store. In October, we communicated that 90% of our supercenter fleet was performing well. In Q1, these stores delivered a positive comp and improved over Q4 last year. For the remaining stores that require special attention, we’ve developed unique, store-specific action plans and we’re investing in leadership and additional staffing. Early indications show improvement in key metrics, with comp sales for this group up more than 200 basis points from Q3 of last year, and customer experience scores also showing consistent improvement. While we’re encouraged with the early results, we anticipate this will be an ongoing work in progress. As we enter the third phase of our Walmart Express store test, we’re exploring tethering this format to our larger supercenters. In this test, customers will be able to order supercenter merchandise at a rural Express store and receive it on the same day. On May 2, we opened the first fully tethered Walmart Express store in North Carolina. Customers are buying products, such as bicycles and swimming pools, which they can’t traditionally get inside a 10,000-square foot box. During the quarter, we opened 13 Neighborhood Markets and 25 supercenters, including 16 new and 9 conversions. We’re on track to deliver about 115 supercenters, between 180 and 200 Neighborhood Markets and 90 to 100 Walmart Express stores this fiscal year. We believe we’re headed in the right direction. The team is diligently focused on improving sales by introducing increased innovation across the box. Just in the first quarter alone, we brought everyday low prices to the money transfer industry through our unique Walmart-2-Walmart service. We also rolled out Wild Oats, a new line of organic food products in nearly half of our stores. We launched a video game trade-in program. We expanded our Savings Catcher pilot to seven markets, and we introduced an online Walmart auto insurance comparison service. And finally, beginning Sunday, May 18, we will re-launch our Great Gas Rollback program. Now, I’d like to review the performance of the various merchandising areas. In grocery, we’ve seen a trend improvement despite approximately 90 basis points of headwind from the reduction in SNAP benefits. Overall grocery inflation is tracking at approximately 120 basis points. While our consumables business had a low single-digit negative comp, partly due to modest price deflation and overall industry softness, our food business delivered a positive comp. We’re seeing the strongest results in areas such as meat, produce and dairy, where we’re investing to keep our prices low for customers despite pressure from cost inflation. Additionally, food delivered strong Easter results, with double-digit sales growth in Easter candy and strength across other categories such as meat and eggs. Health & wellness improved more than 150 basis points versus Q4, led by our pharmacy business. Prescriptions delivered a mid-single-digit positive comp, driven by branded drug inflation and a strong increase in script counts. Script counts benefitted from new contracts in our Medicare business. Over-the-counter also improved, as a soft cough, cold, and flu season transitioned to robust allergy season. Overall, general merchandise remained soft, primarily from weather impacts and declining industry dynamics, particularly in entertainment. Our Easter seasonal business delivered high single-digit positive sales growth. However, it was not enough to offset softness within hardlines and entertainment, which had negative comp sales. In hardlines, inclement weather affected sporting goods and seasonal hardware, while entertainment continued to face challenges related to deflation. Despite industry deflation, we’re encouraged by the early results of our new video game trade-in program, and we continue to focus on revitalizing our entertainment area. In the second quarter, we will re-lay our entertainment department, allocating more space and prominence to growth categories, while improving category adjacencies. Apparel continues to perform well, driven by a strong Easter and national brands. We’re really pleased with active wear, and how it performed throughout the quarter with a double-digit comp, driven by our Danskin Now and Russell Athletic offering. Our shoe and children’s apparel business also had positive comps, benefitting from a solid performance from national brands such as Avia, Child of Mine by Carter’s, and Garanimals. Similar to apparel, home benefited from strong performance in national brands, such as Rachel Ray, Farberware, Magic Bullet, Keurig, and a broad assortment of basics. However, inclement weather drove softness in outdoor living, which includes patio furniture and live plants. Our stores are set and we’re well prepared to meet customer demand as the weather improves. Overall, I’m excited about the progress we’ve made in both home and apparel. The team continues to enhance our assortment and expand strong, national brands to deliver value across categories. Our e-commerce business delivered double-digit sales growth and contributed approximately 30 basis points to total Walmart U.S. comp sales. Approximately two-thirds came from the walmart.com fulfilled sales and the remainder from store fulfilled orders. We saw particular strength in home, hardlines, toys & seasonal, and apparel, which was somewhat offset by softer results in electronics. Overall, we’re continuing to increase our capabilities in this area. To further integrate our digital platform with our store fleet, we’ve recently rolled out an e-receipts program. The initiative makes it easier for our customers to keep track of their purchases and, when combined with the Savings Catcher program, will provide an opportunity for our customers to save even more. We also recently updated our mobile pharmacy app, and we’re seeing strong customer response with usage across the country. We’re encouraged by the early results of our Denver grocery delivery and pick-up test, which has multiple pick-up points across 34 stores. Early sales are beating expectations and have already exceeded those of our San Francisco-San Jose pilot, which rolled out in calendar year 2011. We continued to gain momentum during Q1 in our U.S. Manufacturing initiative. To date, over 65 leading research institutions have applied for funding from our $10 million U.S. Manufacturing Innovation Fund. We expect the first awards to be issued by the end of calendar year 2014. Additionally, we announced that we will hold an “Open Call” event in Bentonville on July 8. Current and potential suppliers can present items made in the USA to Walmart, walmart.com, and Sam’s Club merchants. Registration is now open, and we’re already seeing a tremendous response. We expect to find great new items we can offer our customers this holiday season and beyond. We have solid business fundamentals and anticipate our recently launched initiatives and continued price investment will resonate with the customer. However, given the challenging retail environment, we expect comp sales to remain relatively flat for the 13-week period from May 3 through August 1, 2014. Now, I’ll turn it over to Dave for an International update. Dave?

Thank you, Bill. Overall, I’m pleased with our first quarter performance. In a tough global economy, our teams achieved solid sales and profit growth by focusing on expanding price leadership and providing excellent customer service. We are committed to managing our businesses effectively. I’m encouraged by the progress we’re making on our strategic priorities, though there is still much work ahead. During my visits to our markets, I’ve been particularly impressed with our associates' caliber. Their passion and commitment to our purpose of saving people money so they can live better is evident everywhere we operate. We continue to invest in expanding price leadership in key markets. For instance, in Mexico, Superama reduced prices on over 5,000 items and introduced a quality guarantee. In Brazil, our new advertising campaign launched in February communicates our mission of saving people money more effectively to customers in the country. These value-themed ads feature real customer experiences and unique appearances in TV shows, including Brazil’s national soccer coach. To maintain pricing momentum globally, we are collaborating with third-party analysts like The Nielsen Company to establish consistent market share reporting. Enhanced access to timely data allows us to respond quicker in maintaining price leadership and sustaining customer trust. Being the low-cost operator in every market is fundamental to our business model. Our “We Operate for Less” programs in China and Brazil help offset wage inflation there. In the U.K., we further implemented the hybrid checkout system, which has expedited the checkout process, with self-checkout now accounting for over half of all U.K. transactions. We fulfilled our commitment to improve operational returns, with operating income growing 5.3% in constant currency, surpassing our sales growth of 3.4%. Similarly, on a reported basis, operating income growth exceeded sales. We are continuing to innovate and expand our global e-commerce business while integrating digital and physical strategies. I'll provide more details on this later. I am also excited about our recent leadership changes. Our strong talent pool enables us to attract and develop leaders globally, positioning us to excel in our markets. Scott Price will transition from being CEO of Asia to our corporate support team, overseeing strategy, real estate, mergers and acquisitions, along with International leverage. This depth in International operations allows us to promote Greg Foran to head our Asia business, which is crucial for our growth. Sean Clarke will take over from Greg, leading our China operations. Sean brings extensive experience from various roles in finance and operations across multiple countries. At Massmart, Kuseni Dlamini has been appointed as our new non-executive Chairman of the Board for Sub-Saharan Africa. Kuseni is a strong leader with valuable experience in emerging markets. Additionally, Guy Hayward has been elevated to President and CEO for our African business. Guy possesses extensive retail and financial experience and has played a key role in Massmart’s success. Now, let’s review our first quarter results. As mentioned before, I’m glad to report that we grew operating income faster than sales, both on a reported and constant currency basis. However, we did not leverage expenses this quarter, mainly due to sales challenges in some markets and the timing of Chinese New Year and Easter. We’ve summarized our results in the usual manner—on both reported and constant currency bases. In all countries except Brazil and China, our results include e-commerce, while for Brazil and China we discuss stores and e-commerce separately. In our five largest countries, Brazil showed positive comparable sales for the quarter. With the one-month delay in reporting for all countries except Canada, the timing of Easter affected comparable sales in places like the U.K. and Mexico. Though we haven’t detailed other markets on the slides, I would like to mention Japan's strong performance this quarter. On a relative basis, we were somewhat encouraged by market share performance in our largest markets. Based on the latest available data, we gained share in Canada and Mexico but lost market share in Brazil and China, where we closed stores. Share in the U.K. decreased slightly, though we gained compared to our largest competitors. More specifics will follow as we cover each country. On a reported basis, inventory grew faster than sales at 3.4%, or 10% on a constant currency basis, largely due to increased inventory levels ahead of a later Easter selling period. Nevertheless, we need to improve inventory management in some markets. Key financial details are summarized on slides 7 and 8, and I will now discuss performance insights for our five largest markets, all on a constant currency basis. In the U.K., our net sales and comparable sales declined for the quarter. Despite this difficult market backdrop, first-quarter growth relative to the market improved compared to last year, and Asda outperformed its three major competitors in the 12 weeks ending March 30, according to Kantar. Even with a sales decline, operating income grew 6%, benefiting from stronger gross margin due to merchandising changes related to Easter. Our strategy in the U.K. focuses on price investment to support our core mission of providing value. We sold over 15 million “price-locked” essential food items each week in the quarter. We introduced a new George homewares range, and early sales exceeded expectations. The expansion of Click & Collect has increased our online grocery market share to a new high of 19.2% for the period ending March 30, according to Kantar, with e-commerce sales growing over 19.0% compared to last year. Overall, our U.K. operations remain strong and innovative, and we are optimistic about competing effectively in this market. In Canada, Walmart saw increased net sales, although comparable sales declined due to extremely cold weather affecting retail sales, especially seasonal categories. Health and wellness sales were impacted by lower generic prescription reimbursement rates and higher generic usage. Food and consumables recorded the strongest sales, and we gained market share, according to Nielsen. Our continued price investment has widened the price gap between us and our competitors, and online sales also grew impressively by 134%. Now let’s move on to our Latin American markets. This summary includes consolidated results for Mexico and Central America on a U.S. GAAP basis. Walmex reported first quarter results on April 22 under IFRS, which may differ from some numbers included here. Our Walmex results do not account for the Vips sale recorded in discontinued operations. We received regulatory approval for that transaction and closed the deal on May 9. In the first quarter, Walmex's consolidated net sales increased by 1.5%, affected by the Easter calendar shift. Operating income rose by 0.8%, primarily due to expense deleverage linked to the Easter timing and softer sales. Mexico's self-service sector, including Sam's Club, outperformed the market by 60 basis points, driven by aggressive price investments across Bodega Aurrera, Superama, and Walmart Supercenter formats, resulting in sales growth 400 basis points ahead of the market. Our smaller formats like Bodega Aurrera Express and stand-alone pharmacies achieved substantial double-digit growth, outpacing their market peers in food and consumables. However, Sam's Club, which makes up around 26% of our Mexico revenue, continues to underperform our expectations. The team is focused on revitalizing its value proposition through exciting offerings for our Advantage members and additional services for business members, alongside leveraging best practices from our U.S. operations. We remain confident in our long-term strategy, although we anticipate short-term challenges for Sam's Club. Additionally, we continue to invest in and expand Walmex's e-commerce operations, with new general merchandise categories now offered online. Superama's online grocery delivery is still growing, allowing customers to access services via computers, smartphones, and tablets. The Walmex team is dedicated to driving improvement, especially in Sam's performance. Moving on to Brazil, I was recently there and witnessed firsthand the team’s dedication to stabilizing the business. We are implementing several initiatives for a stronger foundation, including investments in price leadership and productivity improvements. These initiatives span both our retail and wholesale formats, and we are encouraged by improved trends in food and consumables. We expect that as we continue to progress, we will see similar advancements in general merchandise and will be able to drive sales growth. The retail market in Brazil is slowing in tandem with the economy, but despite this and the Easter calendar shift, first-quarter net sales and comparable sales increased, and we managed to leverage expenses. Operating income decreased as planned due to investments in key initiatives and pricing. We are optimistic about the improvements we are starting to see in Brazil, having strengthened our talent base in critical areas over the past year, such as operations, finance, compliance, human resources, and merchandising. Now, turning to Asia, Walmart China experienced a 2.5% decline in comparable sales. This year, Chinese New Year occurred slightly earlier than last year, leading to increased pre-holiday spending in the previous quarter. Excluding this calendar effect, comparable sales would have remained flat from last year. Sales in China encountered significant challenges from government austerity measures, which have curtailed gift card sales, alongside price declines in key categories like edible oil, liquor, and infant formula. Our ongoing business transformation program has continued to improve margins and reduce expenses, allowing us to invest in further price cuts for our customers, leading to a 26.2% increase in operating income for the quarter. In Japan, we had a strong first quarter, achieving growth in both net sales and comparable sales. Growth was supported by pre-buying ahead of a consumption tax increase that took effect on April 1. Walmart Japan gained market share in the first quarter, and the business has performed well even after the tax increase, with higher sales and expense control contributing to 111 basis points of leverage and solid operating income growth. Overall, there are encouraging signs in our key markets, and we are committed to sustaining this progress. To briefly recap our e-commerce results, we believe our e-commerce operations are among the most dynamic globally, and we had another strong quarter. We further expanded Asda's Click & Collect program across over 300 stores, introducing a first-to-market initiative for same-day pickup in 89 locations, with plans to extend this to all stores by year-end. We are pleased with our first-quarter results in China and Brazil, with robust comparable growth in our e-commerce segment in China. Site traffic at Yihaodian increased significantly, and average order size also grew, now offering over three million items across food and general merchandise. Yihaodian achieved over one million liters of imported milk sold in a single day, setting a Guinness record for online milk sales. This success showcases our ability to utilize Walmart’s supply chain effectively. Our mobile growth is remarkable, nearly matching last year’s overall mobile sales total in just this quarter. In Brazil, e-commerce sales outpaced the overall market growth, driven by record traffic buoyed by new affiliate agreements. Our Consumer Day in March resulted in sales nearly three times greater than a typical day, with particularly strong demand for technology items. As a global company, we have a responsibility to lead in compliance, social, and environmental matters. We've made significant investments in compliance over the past year by improving processes, enhancing associate training, and strengthening organizational leadership. I take pride in the positive contributions our teams make to local communities, such as Walmart Chile's response to help earthquake and wildfire victims in northern and central Chile by supplying essential items. In summary, we are executing our strategy of operating in strong businesses effectively. Globally, we are focusing on expanding price leadership, establishing sustainable growth in China, revitalizing Brazil, rejuvenating Mexico, accelerating e-commerce growth, remaining the lowest-cost operator, and building trust in every market we serve. We see positive momentum in our markets and stay optimistic about our future. We possess the talent, strategy, and commitment to achieve our goals, and I look forward to sharing progress updates in the upcoming quarters. Now, I’ll pass it to Roz for an update on Sam’s.

Thanks, Dave. The fiscal year started with several challenges for our core member, resulting in one of our more difficult quarters. The combination of severe weather and the reduction of public assistance represented an approximate 90 basis point impact to comp sales. In addition, Q1 was marked by a rapid acceleration in inflation, as cost inflation was approximately 160 basis points, compared to 30 basis points in Q4. Despite our efforts to combat these challenges, sales did not materialize as expected. Net sales grew 0.5%, without fuel, to $12.2 billion. Operating income declined 1.4% to $477 million. Our comp for the 13-week period ending May 2, excluding fuel, declined 0.5%, comprised of both decreases in traffic and ticket. In recent quarters, our Savings member traffic has helped to offset the softness in our Business member segment. This quarter we saw positive, yet lower Savings member traffic, coupled with slower ticket acceleration – primarily in our lower to middle income members. Business member traffic and ticket remained soft. Over the past year, our merchants have been elevating the value and uniqueness of our merchandise assortment. We’re seeing positive results in areas where we’ve introduced newness. These areas of growth mirror current member trends around “fresh, fast and fit.” Let me give you some examples. Within “fit”, our new assortment of snacking options, which includes exclusive “better for you” choices, is helping to drive double-digit unit growth. Also, our on-trend “athleisure” active wear helped deliver a double-digit positive comp in ladies apparel. We’ve also enhanced our private label offering by introducing new, high-quality items and consolidating the existing assortment into three main labels: Member’s Mark, Daily Chef and Simply Right. The recent investments are being recognized. For example, Member’s Mark Ultimate Clean laundry detergent received top rankings from a leading external rating agency. While our category level merchandising results this quarter were mixed, we remain confident in our strategy to deliver more newness, more often. We are monitoring our inventory levels, which grew 7.6%, driven in part by softer sales and build-ups for new items in categories such as home and health and wellness. Within fresh, freezer and cooler, cost inflation in meat and dairy outpaced retail inflation, pressuring units and leading to a low single-digit positive comp. The late arrival of spring, along with the increased cost of beef and pork, influenced the early grilling season – an area where we have historically been strong. Within produce, hard freezes caused citrus availability issues, which were partially offset by strong strawberry and watermelon crops. Dry grocery and beverage struggled this quarter, as the decreases in total box traffic contributed to the low single-digit negative comp. While our new sweet and salty snack offering performed well, it was not enough to offset unit declines in larger categories like beverages. Ancillary categories had a negative impact on the quarter, due to sales declines in tobacco and tires. There were fewer promotional events in a leading tire brand compared to last year. Health and wellness delivered a low single-digit positive comp. Member awareness and usage of our pharmacy continues to grow, contributing to a high single-digit positive comp. Over-the-counter however, pressured the entire category, as we lapped strong prior year performance in diet and nutrition items. During the transition to newness, we’ve experienced slight declines in consumables, recording a low single-digit negative comp. Our merchants are actively looking for ways to differentiate, particularly in pet supplies and home care, moving to products with even greater value. Within technology and entertainment, supplier inventory issues caused disruption within TVs and tablets, contributing to a high single-digit negative comp. In addition, wireless was pressured by shifting industry dynamics, as carriers change the structure of their contract terms. With Walmart’s acquisition of the assets comprising Simplexity LLC’s wireless activation platform earlier this month, we will be able to more efficiently support wireless activations for our members. We expect the benefits of this acquisition to materialize for both the Sam’s Club and Walmart U.S. businesses in the coming quarters. Home, apparel, and hardlines reported a low single-digit positive comp. While this is a slight deceleration from prior quarters, we remain pleased with our elevated assortment in this space. In seasonal hardware and gardening, new, high-quality items resonated extremely well with members. Our growth was tempered by mattresses, which underperformed in geographic areas most impacted by weather, resulting in unit declines year-over-year. Samsclub.com delivered another quarter of strong sales growth, contributing approximately 20 basis points to the total Sam’s Club comp. One of the contributors to this growth was Click‘n’Pull, a free service that lets members place their orders online or by fax and pick them up the next morning. We’re revamping Click‘n’Pull to further increase convenience for our members, particularly those with micro-businesses. We’ve also begun testing “My Subscriptions”, a pilot service that allows members to order items like diapers online, with discounted shipping rates. Investments such as these demonstrate our commitment to the integration of “bricks and clicks” and represent an opportunity to appeal to more tech-savvy members. Now back to the reported financials, excluding fuel. For our financial results including fuel, please reference the supplemental presentation. Gross profit rate declined 29 basis points due to shifts in merchandise mix and rising commodity costs. The combination of increased labor costs and weather-related utility costs contributed to a modest deleverage of 3 basis points. You may recall that last quarter, our expenses were negatively impacted by a field organization restructure. We were able to place a larger number of affected associates in open roles within Sam’s Club or the larger Walmart organization than we had originally anticipated. Because of this, our severance-related costs were less than our Q4 accrual, benefitting operating expenses by 7 basis points. Our operational performance continues to exceed members’ expectations. According to the 2014 Temkin Experience Ratings, Sam’s Club received the top ranking for best customer experience in retail. This is the third consecutive year Sam’s Club has been recognized. Membership and other income remains a bright spot, growing 10.5%. Membership income by itself grew 10.9%, due primarily to the fee increase taken a year ago. In addition, Plus member upgrades and Plus member renewals performed well. In regards to Plus member growth, the South Central region has outperformed the rest of the country over the past year, due to the Plus member cash rewards pilot launched in fiscal 13. Weather-related traffic trends affected sign-ups and renewals, which were soft this quarter. You may recall that we had a very successful social media event during this time last year. The members acquired through this campaign are now beginning to renew their memberships, and recent renewal rates are exceeding internal expectations. As I close, I want to emphasize our confidence in the merchandising and membership enhancements we’ve made over the past year – including the transformation of our merchandise assortment and the launch of our Instant Savings book, which was ranked the #1 member benefit in fiscal year 14. With the intention of growing our member base, both through acquisition and retention, I’m excited to announce the national rollout of Sam’s Club Plus Member Cash Rewards, which goes into effect on June 12, 2014. This new benefit provides $10 for every $500 spent on qualifying purchases. All members will continue to receive Instant Savings offers; however, the benefit of Cash Rewards will be exclusively for Plus members. Coupled with the right merchandise and an exceptional experience, we believe Cash Rewards will further differentiate us from mass retailers and help bring us to parity within the club channel. Furthermore, we will launch a new cash-back credit card with MasterCard on June 23, 2014, offering cardholders the opportunity to earn 5% cash back on gas, 3% back on travel and dining, and 1% on everything else. This simple, industry-leading program rewards members for everyday spend, making it even more valuable to be a Sam’s Club member. We expect that investments like these will create a clear path for sustainable sales and member growth for the long term, but these investments, along with continued gross profit rate pressure, will be an operating profit headwind for the near term. We expect flat comp sales growth for the 13-week period ending August 1. This compares to a comp increase of 1.7% last year. Now, let me pass the mic over to Charles for our close.

Thank you, Roz. I would like to conclude today's discussion by sharing some insights on the quarter. First, we are pleased with several elements of our business. We achieved over $850 million in consolidated net sales, even with a $1.6 billion negative impact from foreign currency. Our earnings per share were within our guidance, though at the lower end. This was influenced by severe weather and a higher effective tax rate than we had expected. Walmart U.S. comp sales results were in line with our guidance. We saw strong net sales growth in four out of our five main international markets, and e-commerce sales increased by about 27% globally. Looking ahead, our teams are focused on boosting comp sales and advancing our other growth initiatives. We remain dedicated to expanding our store base, with net square footage rising to 1.1 billion square feet at the end of the first quarter, an increase of 4 million square feet from the end of fiscal 2014. While the increase represents just a 0.4% growth due to our size, it is still a significant addition. We are very enthusiastic about our e-commerce businesses and the rapid growth in this area. We are making strides through site enhancements, improved search capabilities, and fulfillment options, which we anticipate will continue. During the quarter, we opened two dedicated e-commerce fulfillment centers—one in Pennsylvania and another in Brazil. We will also keep making strategic acquisitions to enhance our technology, talent, and capabilities. Over the past three years, we have acquired 12 companies that are now driving the innovative work of our e-commerce teams. Our recent acquisition of Adchemy is a great example of how we are adding talent to Walmart Labs and strengthening our capabilities in areas like semantic search, data analytics, and web marketing. Our investments aim to attract e-commerce customers, as well as help them navigate and shop at our physical stores. With nearly 11,000 stores, over 2.2 million associates globally, and a growing number of skilled engineers in Silicon Valley, we believe we are well-positioned to offer a top-tier e-commerce experience. Although we were unable to leverage our expenses this quarter, we remain focused on maintaining everyday low cost across our operations, allowing us to continue investing in prices. Our working capital change, particularly in inventory and accounts payable, was negative, partly due to a shift in the timing of Easter within our International segment. We recognize there's still work to improve our working capital performance moving forward and this will be a key focus for the next few quarters. As you know, we prioritize our capital, with the first focus on organic growth. Last quarter, we raised our capital allocation plan for Walmart U.S. by $600 million to support our faster rollout of additional Neighborhood Markets and Walmart Express. Small stores still present a significant growth opportunity in several markets, including the U.S., Mexico, and the U.K. Expect to see heavier capital expenditures in the latter half of the fiscal year. Our second priority is for strategic acquisitions. We continually assess acquisition opportunities that will enhance our retail platform, support operations, or strengthen our e-commerce capabilities. Finally, our remaining cash flows are directed towards shareholder returns through dividends and share repurchases. As highlighted earlier by Claire, we utilized $1.5 billion to acquire the remaining outstanding shares of our Chilean operations, impacting our share repurchase figures for this quarter. We remain dedicated to delivering value to our shareholders and will be opportunistic with share repurchases throughout the year. Now, regarding our guidance, we forecast second quarter fiscal 2015 diluted earnings per share from continuing operations to be between $1.15 and $1.25, assuming current currency exchange rates remain constant. It's worth noting that our fiscal 2015 earnings per share guidance incorporates an incremental investment of $0.02 to $0.04 per share in e-commerce initiatives. We are beginning to address expenses related to FCPA matters this quarter and expect these expenses to be between $200 million and $240 million for the fiscal year. Additionally, some key points for our second quarter guidance include: first, we incurred over $100 million in costs from higher benefit enrollment and utilization by our U.S. associates, alongside cost inflation. While associate enrollment can vary, we anticipate these costs will be more than $300 million for the year. Second, we will not see reductions in SNAP until the end of the third quarter for our U.S. operations, and we will keep investing in prices for our customers and members. Third, we are expecting continued headwinds from increased investments in the Sam’s Club cash rewards program and the cash-back credit card launching in June. Lastly, we expect our fiscal 2015 effective tax rate to be between 32% and 34%, with the second quarter rate at the higher end of this range. Keep in mind that our rate usually stabilizes towards the end of the fiscal year. Despite these challenges, we remain cautiously optimistic about the second quarter and the rest of the year. Thank you for your interest in Walmart. Have a great day!