Walmart Inc (WMT) — Q4 2015 Earnings Call Transcript

Hello, this is Carol Schumacher, Vice President of Global Investor Relations for Wal-Mart Stores, Inc. Thanks for joining us today. The date of this call is February 19, 2015. 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. Before we get underway, we apologize for the delay in this morning’s release. We normally release our earnings at 6:00 AM Central Time, or 7:00 AM Eastern. However, because we wanted to share some exciting news about our U.S. associates with them first, we delayed the release until now. So, this morning, we have several pieces of news to share with you. First, we have details on the fourth quarter and the full-year results for fiscal year 2015. Second, as we normally do, we provide guidance for the full year and the first quarter of fiscal 2016. Third, we’re announcing a new wage structure for hourly associates in Walmart U.S. stores and Sam’s Clubs. This new initiative, including training and educational programs, will affect current and future hourly associates in the United States. And last, we’re announcing our annual dividend for fiscal year 2016. You’ll hear more from Doug and our leaders about each of these items. All materials related to these announcements are available on our corporate website, stock.walmart.com. For earnings, please review together the earnings press release, the transcript of this call, and the accompanying slide presentation. Unit count data, which is updated monthly, is posted separately on the investors’ portion of the website, under financial reporting. As indicated last quarter, it’s important to note the definition of a Neighborhood Market. Traditional Neighborhood Markets are grocery stores that average 42,000 square feet. The smaller Neighborhood Markets range in size from 12,000 to 16,000 square feet and are still part of a test concept not included in comp sales. As a reminder, for fiscal 2015, which ended January 31, 2015, we utilized a 52-week comp reporting calendar. In Q4 we reported a 13-week comp versus a 14-week comp period reported last year. Our Q4 reporting period began on November 1, 2014, and ran through January 30, 2015. Consistent with industry practice, we did not adjust the reported fiscal 2015 comps. Comps were based upon 13-week and 52-week periods, respectively, compared with 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 investors’ portion of our website. Now recall that last fiscal year’s earnings per share were impacted by $0.26 of discrete items. This year, earnings per share were also impacted by $0.08 of discrete items. Additional information regarding underlying EPS and other terms used in today’s release including constant currency, gross profit, and gross profit rate, is available on our website. Let’s get on with today’s call. Doug McMillon, President and CEO of Wal-Mart Stores, Inc., will cover key results, an analysis of our successes and challenges, and the news about our wage structure changes and training programs. Claire Babineaux-Fontenot, EVP and Treasurer, will provide context for the financial details not included in the accompanying slide presentation. Then we’ll cover the three operating segments, Greg Foran, President and CEO of Walmart U.S.; followed by Dave Cheesewright, President and CEO of Walmart International; and Rosalind Brewer, President and Chief Executive Officer of Sam’s Club; Neil Ashe, president and CEO of Global eCommerce, is joining the call this quarter to provide an analysis of how we did for the year, along with insights on our strategic investments for fiscal year 2016; and, Charles Holley, Walmart CFO, will wrap up with an analysis of fiscal year 2015 and guidance for fiscal year 2016. Now, I’m pleased to introduce our CEO, Doug McMillon, to share some exciting news with you today. Doug?

Thanks, Carol, and good morning, everyone. Overall, we had a good fourth quarter to close out our fiscal year, with underlying earnings per share of $1.61. Walmart U.S. delivered better than expected comp sales. Sam’s Club had its best performance of the year, and Walmart International had solid sales and profitability. The dedication of our associates around the world to serve customers was evident again in this busy fourth quarter. Now clearly, our sales benefited from customers having more spending power due to lower gas prices in most of our large markets. In addition, product inflation and more favorable weather were a tailwind to U.S. comp sales. But, like many other global companies, we faced significant headwinds from currency exchange fluctuations. So, I’m pleased that we delivered fiscal year revenue of nearly $486 billion, but we’re not satisfied. We have work to do to grow the business. We know what customers want from a shopping experience and we’re investing strategically to exceed their expectations. Our priority is to run great stores, clubs, and e-commerce everywhere we operate. And we’ll continue integrating our stores with our e-commerce and mobile commerce business. One of our most important priorities this year is improving the customer experience. Today, we announced a bold new initiative on pay and training to invest in our U.S. store and club hourly associates. For several months, our leadership teams have been developing and testing new ideas to reward associates for their service to our customers and give them clearer pathways for opportunity. We’re pursuing a comprehensive approach to our hiring, training, compensation, scheduling programs, and store management structure that is sustainable over the long term. Approximately 500,000 full-time and part-time associates at Walmart U.S. stores and Sam’s Clubs will receive pay raises in the first half of the current fiscal year. Current and future associates will benefit from this initiative, which ensures that Walmart hourly associates earn at least $1.75 above today’s federal minimum wage, or $9 per hour, in April. The following year, by February 1, 2016, current associates will earn at least $10 per hour. We’re also realigning our store operational structure to give associates a closer relationship with their supervisors. Associates will have more ownership over their schedules. In addition, we’ll provide them with more resources and training to enable merit-based career advancement and higher levels of pay. Of course, for a number of years, associates have had the opportunity for competitive healthcare and 401(k) benefits, as well as access to bonus incentive opportunities, discounts, and educational programs. These programs will continue to be available to current and future associates. We’re also launching an innovative program for future associates that will allow them to join Walmart at $9 per hour or more, receive skills-based training for six months, and then be guaranteed at least $10 per hour upon successful completion of that program. Sam Walton used to say that our people make the difference. I share the same philosophy. Overall, these are strategic investments in our people to reignite the sense of ownership they have in our stores. As a result, we firmly believe that our customers will benefit from a better store experience, which can drive higher sales and returns for our shareholders over time. Walmart has represented a ladder of opportunity since we started the business and we want to make sure that’s the case going forward everywhere we operate, including here in the United States. Globally, we have ongoing efforts in place to review our associates’ compensation on a yearly basis in each of our markets. For example, in China, we recently launched the compensation structure for stores and clubs; and in this year, we are launching a new compensation structure for our distribution center associates to improve the overall competitiveness of our practices. Later this year, Walmart Mexico will launch training programs to give the associates more ownership and accountability so they can react faster to customers’ needs. Included in today’s announcement, Walmart and the Walmart Foundation also committed to $100 million over five years to help increase the economic mobility for entry-level workers by focusing on initiatives to better train and advance workers in the retail and other service industries throughout the United States. As we look at our business through the lens of the customer, our enterprise strategy is helping us define where our additional investments are focused. While we’re concentrating on running a good business today, we’re also clear on how we should position it for the future. Value matters to everyone, regardless of household income level, and digital access creates even more price transparency. Being the low-price leader has been a part of our customer proposition and it will continue to be a priority in the future. We’re also evaluating our assortment and our approach to service, both in stores and online, to be relevant for today’s customer. And, we’re testing various access points to provide convenience and allow customers to shop on their terms. This past quarter, we initiated a number of work streams that will deliver on these key initiatives. I’m excited about what we’ll accomplish over this next year as we drive our enterprise strategy. Now, let’s review Walmart’s financial results in more detail. Walmart U.S. improved its sales and operating income trends each consecutive quarter during fiscal 2015. Fourth-quarter comp sales were the strongest in more than two years, with positive traffic for the first time in nine quarters. Our Neighborhood Markets have continued to deliver strong comps. Our emphasis remains on the quality of the stores that we open, not the quantity. I’m pleased with the strategy that Greg and his team are executing to raise the standard of customer experience in the U.S. business. They’re taking steps to enhance store operations on various fronts, including inventory management, checkout, and in-stock. For the holidays, Walmart U.S. implemented a Checkout Promise to keep more registers open during peak periods, and customer response has been positive enough that this has continued into the first quarter. I’m encouraged by the focus of the leadership team, and I look forward to seeing more progress in our stores this year toward a better experience for our customers. Walmart International produced solid constant currency sales and operating income growth this year. Dave and his team have done a good job weathering a tough macro environment. Canada’s sales gained momentum in the back half. In China, we made progress in store operations and in e-commerce. We continue to earn customers’ trust with our commitments to food safety. There’s so much potential for this market and we’re taking the right steps to solidify a foundation for long-term growth. The UK market remains very competitive, and Asda is committed to its £5 billion five-year investment to lower prices for customers. We’re making progress in Mexico. There’s still work to do in Brazil. Sam’s Club had a solid year, with membership income up over 10%. Comp sales, without fuel, continued to improve throughout the year. And operating income, with fuel, grew at a greater rate than sales. Roz and the team made good progress on the ongoing merchandise transformation, embedding new, on-trend and exciting merchandise into the clubs and online. Members are responding by driving sales in these categories. Members are also pleased with the new, innovative services that were launched this year to increase the value of a Sam’s Club membership. You’ll hear more from Neil shortly about the strides that we’re making in our e-commerce customer experience, assortment, and supply chain. We’re leveraging technology to strengthen our e-commerce and mobile capabilities, and integrating these digital assets with our more than 11,000 stores globally. Overall e-commerce sales grew approximately 22% in fiscal year 2015; solid, but not quite as strong as we wanted. We’re striving to balance sales growth and profitability. We’re being thoughtful with our investments, ensuring we have the infrastructure in place to build this business for the long term. I’m excited about the possibilities that are in front of us. One of the headlines in e-commerce is the tremendous growth from mobile devices. In fact, nearly 70% of walmart.com traffic in the U.S. came via mobile during the recent holiday period. Customers who previously shopped using their laptops are now using their phones and tablets. And this isn’t just a U.S. trend; for example, traffic from the mobile app in Brazil nearly tripled on the Black Friday holiday. Around the world, we’re well-positioned to create a strong mobile experience for customers this year and beyond. As I reflect back on my first year as CEO, I’m proud of the accomplishments of our associates and leadership team. It’s been a period of change for the 2.2 million associates that make up the Walmart team, but it’s been inspiring to see our associates rally around our company’s purpose. Last week, more than 5,000 members of our U.S. store leadership gathered for our annual year-beginning meeting. I heard directly from our store managers how we could help them run better stores. Similar meetings are occurring around the world. Regardless of our responsibility, we’re in this together. Each of us has a role to play in making our customers’ shopping experience a great one. Our secret to success continues to be that we’re all working together. We made a lot of progress on bringing strategic clarity and reinvigorating our commitment to run better businesses today. Retail is changing so quickly that we must move with greater urgency to stay out in front. I like the passion that I’m seeing from our leadership team as they work together to shape and deliver our enterprise strategy. We’re thinking differently about retail and the world. This drives our approach to global responsibility in areas like environmental sustainability, women’s economic empowerment, and offering healthy food choices. It’s important work and it matters to our customers and shareholders. We remain steadfast in our commitment to compliance, ethics, and doing the right thing. I’m pleased with the technology enhancements we’ve made to strengthen these organizations. As I close my remarks, let me reiterate that I’m proud of what we accomplished this past year, but I’m more excited about what lies ahead. The deliberate strategic choices that we’re making around investments in our associates and e-commerce capabilities will improve the customer experience. And, we believe that shareholders will also benefit from these investments in the future.

Thanks, Doug. Today, I’ll highlight some items in the company’s consolidated financial statements. Further details are available in the accompanying presentation posted today with this transcript. Before I begin, let me remind you that last year, the company’s fourth quarter and fiscal 2014 diluted earnings per share from continuing operations attributable to Walmart EPS were negatively impacted by certain discrete items totaling $0.26. The company’s fourth quarter and fiscal 2015 EPS were negatively impacted by discrete items totaling $0.08. A wage and hour litigation matter previously disclosed resulted in a charge of $0.05 per share, and store closures in Japan resulted in a charge of $0.03 per share. A reconciliation of the company’s underlying EPS is included in our earnings press release issued prior to the call. In the fourth quarter of fiscal 2015, underlying EPS was $1.61, compared to last year’s underlying EPS of $1.60. Reported EPS was $1.53, compared to last year’s EPS of $1.34. As you can see on Slide 2, total revenue for the fourth quarter was $131.6 billion. Consolidated net sales increased $1.9 billion or 1.4%, and membership and other income declined 0.5%. Recall that during the fourth quarter of last year, membership and other income was positively impacted by a $24 million gain from the sale of certain U.S. real estate assets. Total revenue for the year grew to $485.7 billion, as consolidated net sales increased $9.2 billion, or 1.9%, and membership and other income grew 6.3%. Consolidated operating expenses increased 0.5% for the quarter, and 2.3% for the full year. It is important to remember that operating expenses were negatively impacted in the fourth quarter and for the full year by the discrete items I mentioned earlier. Additionally, FCPA and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA and compliance-related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA and compliance-related costs were $282 million. The company’s consolidated operating income increased 8.2% during the fourth quarter. Last year’s fourth-quarter operating income was negatively impacted by the discrete items I mentioned earlier. Fiscal year 2015 operating income increased 1%. Net interest expense increased 5.8% for the quarter and 6% for the year. The increase for each period was primarily driven by a higher weighted average interest rate on net borrowings. From a balance sheet perspective, consolidated inventory increased 0.6%. Later in today’s call, you’ll hear more about inventory from our segment leaders. Payables as a percentage of inventory were 85.1%, which compares to 83.4% last year, due primarily to the timing of payments. Improving inventory leverage is important and we are seeing progress as the company continues to focus on this priority. We ended the year with capital expenditures of $12.2 billion, slightly below our range of $12.5 billion to $13 billion. For the year, the company added approximately 33 million retail square feet through 511 net new expanded and relocated units. This was in line with the updated guidance we shared in October. Finally, let’s address returns. ROI for the trailing 12 months ended January 31, 2015, was 16.9%, relatively flat compared to 17% for the prior comparable period. The slight change in ROI was primarily due to continued investments in store growth and e-commerce initiatives, offset by currency exchange rate fluctuations. For the full year, the company returned $7.2 billion to shareholders through dividends and share repurchases. And, we ended the year with free cash flow of $16.4 billion, compared to $10.1 billion last year. Now, I’ll now turn the call over to Greg.

Thank you, Claire. When I joined the Walmart U.S. team six months ago, we laid out specific objectives for the second half of fiscal 2015. We knew we needed to become better store managers, to fix some of the basics in our stores. We spent the last several months focusing on core fundamentals such as inventory, merchandise returns, shrink, markdowns, and wage management. By focusing on these urgent agenda items and using the tailwinds we’ve seen from an improving economy, we drove positive momentum in our business. We achieved what we set out to do in the short-term, but we’re not satisfied and recognize that we have more work to do to accomplish our longer-term goals. Before discussing our results, I want to provide more detail on the exciting announcement we made this morning regarding associate pay and store structure. As Doug mentioned, we believe our people make the difference and we’re committed to this philosophy. At Walmart, we already provide an opportunity for jobs to become careers in retail. We want to continue to improve that opportunity and to provide it to more associates. The changes we are making are based on our core principles and will make Walmart a better place to work and shop. First, we believe associates equally value their hourly rate and hours worked. We’re happy to announce improvements to both aspects of associates’ earnings opportunity. Current and future associates will benefit from this initiative, which ensures that Walmart hourly associates earn at least $1.75 above today’s federal minimum wage or $9 per hour in April. And current associates will earn $10 per hour or higher by next February. Additionally, we are piloting a scheduling system that will create stability for associates who want predictable hours and the flexibility for those who prefer to select additional shifts to meet customers’ needs each week. Starting in 2016, we will be one of the first retailers to offer some associates fixed hours each week. Next, we are realigning our store operational structure, adding back department managers to give associates a closer relationship with their supervisors to help improve communication, direction, and recognition. And finally, we are making new commitments to train associates. They will engage in interactive learning programs to build skills, demonstrate proficiency, and be rewarded for their efforts through pay raises and promotions into areas of greater responsibility. We will also offer opportunities to pursue further education, including a high school diploma or GED program, access to language training, and free or low-cost college credits to reduce the time and cost of a college education. I want to say thank you to all our 1.2 million Walmart U.S. associates. Together, we’re a part of something bigger than ourselves and bigger than our company. What we do at Walmart extends beyond our stores to our own communities and across this country. I’m thankful to be a part of this organization. Now, let’s move to this quarter’s performance. Net sales grew $3.1 billion or 4.1% versus last year. For the 13-week period ended January 30, comparable store sales were up 1.5%, which exceeded our guidance. This represents an approximate 100 basis point improvement over Q3 and was largely driven by a 1.4% improvement in traffic. This quarter marks the first positive traffic comp since Q3 of fiscal year 2013, as customers saw increased purchasing power from lower gas prices. We also lapped the SNAP reductions and unfavorable weather seen last year. E-commerce contributed approximately 30 basis points to our comp performance. During the six-week holiday season, we experienced overall comp sales growth. We saw increased traffic to the store, aided by our broadcast and digital Holiday Hub marketing campaign. Strong sales of seasonal merchandise and toys, along with key brands and gifts in apparel and home, offset industry declines in entertainment. Customers also continued to refine how they prepared for the holidays, shopping earlier in November for holiday deals, and looking for last-minute gift ideas all the way through Christmas Eve. We were ready when and where our customers needed us, completing almost 1 billion total transactions over the holiday season, including our largest online day ever on Cyber Monday. Looking across the entire fourth quarter, our growth in comp sales was attributable to several key areas of the business. First, we remained pleased by our apparel and home businesses, which brought value to the customers through strong national brands, consistent quality across price points, and relevant products at the right time of the season. Second, our health and wellness business, including optical, remained strong, with growth in script counts from higher penetration in Medicare and Medicaid plans, branded drug inflation, and a strengthening over-the-counter business. Third, while our grocery performance was assisted primarily by inflation and lapping last year’s SNAP reductions, we also saw progress from urgent agenda items, including a focus on adding days of freshness in produce. We still have a long way to go to improve our fresh business and remain focused on this goal. And finally, we saw strong performance from our Neighborhood Market format. While all formats experienced positive sales comps, our traditional Neighborhood Markets continue to outperform Walmart supercenters and discount stores, providing customers with the products and services they desire at locations that are convenient to them. Our traditional Neighborhood Markets delivered approximately 7.7% comp for the quarter. Yet, while we saw positive momentum in these categories, we remained challenged in others. Specifically, declines in our entertainment business persisted, as we faced industry contraction and deflation across many categories. Lapping last year’s gaming console releases, along with fewer video game titles available for new consoles and shifts from physical to digital media in movies and books, drove high single-digit negative comps in this area. Additionally, although we launched wireless installment plans in November, we’re still ramping up this service as we reacquaint customers with our ability to serve them in this category. Finally, softness in electronics also impacted our online business particularly in the Ship to Home channel. In e-commerce, we remained thoughtful about growth, striving to produce sustainable results through digital and physical access. Our focus on serving customers led to strong performance in Pick Up Today and Ship from Store capabilities, particularly during the holiday season. However, we recognize the significant opportunity we have to grow this area of our business, as customers continue to reshape their shopping behaviors. Now, for the remainder of our financial results. In the fourth quarter, gross profit rate was relatively flat. Operating expenses increased 5.6%, driven primarily by changes in estimates associated with our incentive accrual versus last year. Additionally, we intensified our focus on improving customer experience in our stores. While these actions increased costs, we believe it was the right decision for the customer. In fact, our Checkout Promise program drove customer experience satisfaction scores to their highest level during the holiday season. Due to the success of this program, we are implementing it more broadly in fiscal 2016. Overall, operating income declined approximately 60 basis points for the quarter. Inventory growth moderated from prior quarters, growing 3.9% and less than the rate of sales in Q4. This growth was primarily related to the significant number of new store openings in the quarter. In fact, we opened 178 stores in this quarter alone, including 10 Supercenters and 168 traditional and small-format Neighborhood Markets. Comp store inventory improved in this quarter, driven by strong holiday sell-through and better aligned seasonal markdowns in apparel. Inventory management is a key element to customer experience, and whilst we have room for improvement, we are also making progress to better manage working capital. Now, let me cover our full-year financial performance. For the year, net sales increased 3.1%, or $8.6 billion, to $288 billion. Comp sales improved 0.5% for the 52-week period ended January 30, while operating income declined 2.1% to $21.3 billion. Gross profit improved 2.6% for the year, with a 12 basis point decline in gross profit rate. This was primarily driven by price investments in meat and preferred Medicare prescription plans. Expenses were up 4.3%, deleveraging 24 basis points for the year, and driven primarily by increased healthcare costs from higher enrollment rates and medical cost inflation. Expenses were further deleveraged by the initial ramp up of 17 new medical Care Clinics, increased utility expenses from cold weather early in the year, and higher rates throughout the year, and declining rates in recyclable materials, such as cardboard. Recall that we get a financial benefit from recycled materials. Moving to real estate, we opened 353 net new stores, including relocations and expansions, and added almost 21 million retail square feet. A year ago we started to accelerate our Neighborhood Market format. This fiscal year, we opened 165 traditional format Neighborhood Markets and 68 smaller Neighborhood Markets. By continuing to drive this format, we are able to offer customers easy and convenient access to fresh foods, pharmacy, and services at Walmart’s everyday low price guarantee. Supercenters remain the driver of our sales and growth in retail square footage. Customers continue to rely heavily on this format for their broader shopping needs. This year, we opened an additional 119 supercenters, including conversions and relocations. In FY16, we expect to open approximately 60 to 70 supercenters, including relocations and expansions. Additionally, we’ll open an estimated 180 to 200 Neighborhood Markets, including 10 to 15 smaller-format locations, as we complete our openings of this test program. We’ll continue to monitor the progress of these test locations before making any further commitments to this format. We expect to add approximately 15 to 16 million retail square feet this year. Digital access is important to our customers now more than ever. They expect a seamless interaction, whether it’s in the store or online. We see many opportunities at Walmart to evolve with the customer in their digital and physical experiences. For example, this year we developed a collaborative approach to the holiday season in toys with our store and walmart.com teams working closely together to ensure our customers had the same experience with Walmart no matter where or when they shopped. We’ve been investing in expanding capabilities to allow customers to shop on their own terms and are moving sensibly towards this integration of digital and physical. This includes offering customers a variety of ways to interact with our brand, including picking up their walmart.com orders at their local store, providing reminders and refill capabilities through our pharmacy app, and our latest test concept, Walmart Grocery. This year, we expanded grocery delivery and pickup tests to include the entire Denver market and launched Walmart Grocery Pickup here in Northwest Arkansas this past October. And just last week, we announced the expansion of Walmart Grocery online to select locations in the Phoenix, Arizona, and Huntsville, Alabama markets. We have an advantage at Walmart, by combining our store and distribution network with our e-commerce capabilities to allow customers to interact with our brand in the ways that are most convenient for them, whether it’s in a store, online, or on our mobile app, we are focused on providing the best solutions for customers. The upcoming fiscal year will be a time of change and further improvement to the business. Our focus on inventory management, in-stock levels, and customer service is just the beginning. Recently, we made changes within our management team. These changes have allowed me to get closer to our merchandising teams, and the new leadership brings with them fresh ideas and an invigorating spirit. We’ve also just wrapped up our year-beginning meeting, which is a time to gather our store managers, to thank them for their hard work in the prior year and to discuss the focus areas for the upcoming year. The meeting was energizing, and our store managers left excited for a fresh start to become better store managers, focusing on item merchandising, and providing great service to the customer. We’ll continue on the path towards hiring 100,000 veterans by 2018. We set this goal just under two years ago, and we are proud to say that we’ve already hired almost 80,000 veterans through this program. Furthermore, over 6,000 have been promoted to roles of greater responsibility since joining the Walmart team. But fiscal 2016 will not be without its challenges. Our bottom line will continue to be pressured primarily from the significant investments in associates that I covered earlier. In addition, we will see an impact from the changing mix within merchandise categories, store formats, and retail channels, and the investments in digital and physical integration. While we expect to offset some of these headwinds by executing and delivering on our urgent agenda items and other initiatives, we know these investments are necessary to position ourselves to meet the rapidly changing needs of the customer. We may see risk to import merchandise flows related to the upcoming spring and Easter seasons due to ongoing port congestion. We’ll continue to take the appropriate steps using our diversified supply chain network to reduce the impact for our customers. In the first quarter, we expect a continuation of lower gas prices to provide a tailwind to our business. This could be somewhat offset by a shorter selling season, with Easter coming earlier than last year, as well as potential impact from port congestion. For the 13-week period ending May 1, we anticipate a comp sales increase of 1% to 2%. Last year’s 13-week comp ended May 2, 2014, was down 8 basis points.

Thank you, Greg. I’m pleased with our performance in International, as we’ve remained committed to the strategic priorities I outlined a year ago. We’ve been able to produce solid results and operating income growth, despite operating in a very challenging, competitive retail environment. As one of our key priorities, we continue to accelerate our eCommerce business by offering multiple ways for our customers to shop, whether in stores, online, pickup or mobile, we aim to give our customers the ability to shop in whichever way they want. We’ve also made progress in building a platform for sustainable growth in China, and have experienced success in improving our overall price perception, as well as the quality of our fresh offering. We also continue to make progress on our commitment of actively managing our existing portfolio. You’ve seen us make strategic decisions such as closing underperforming stores and divesting non-core parts of our business in order to strengthen our foundation. Our markets remain focused on key strategic priorities, and I’m optimistic about our position going into the New Year. Now for our financial results. In the fourth quarter, net sales grew 3% on a constant currency basis. However, with the U.S. dollar at historic highs, we faced significant currency headwinds of $2.6 billion, resulting in a 3.9% sales decline on a reported basis. Of our five largest countries, Mexico, Canada, and Brazil delivered positive comp sales for the quarter. Comps declined in both the UK and China due primarily to food deflation and intense competition in the UK, and government austerity measures and deflation in key categories in China. Comp sales growth was strong in all other markets as well. As Claire mentioned, there were certain discrete items disclosed in the previous year, which have a significant impact on our year-over-year operating income comparison. For the financial year ending 2015, our fourth-quarter results were negatively impacted by Japan store closure costs of $148 million. Overall, operating income increased 79.6% on a constant currency basis and 66.4% on a reported basis. Excluding the previous and current years discrete items, we grew operating income on a constant currency basis by 14.2%. For the full year, sales grew 3.6% on a constant currency basis, while the strong U.S. dollar resulted in a full-year sales decline of 0.3% on a reported basis, reflecting over a $5 billion currency impact. Full-year operating income grew 24.1% on a constant currency basis and 19.8% on a reported basis. Excluding the items mentioned above, operating income grew 9.3% on a constant currency basis, outpacing full-year sales growth. We made progress in reducing inventory levels during the quarter and dropped the growth rate over 250 basis points versus the previous quarter to a 4.6% growth on a constant currency basis. We had positive momentum on inventory management heading into the New Year. Now, let’s discuss individual results for our largest markets. Comp sales and growth rates are presented on a constant currency basis only. In all countries except Brazil and China, results are inclusive of e-commerce. Slides 8 and 9 of the presentation summarize financial details. The UK market remained very competitive during the quarter with grocery inflation falling to a record low of negative 0.9% over the 12 weeks ended January 4, according to Kantar. Total market growth of 0.6% was a slight improvement over the previous quarter, boosted by Christmas sales and increased discretionary spending from lower fuel prices. However, overall market trends remain relatively weak. According to Kantar, Asda, along with the other big grocers, lost share to hard discounters for the quarter. UK sales declined 1.7% and comp sales declined 2.5%, excluding fuel. Several competitors held a Black Friday event for the first time and others continued intense vouchering, which led to increased competition versus a year ago. Asda online sales remained strong, while George Home continued to register double-digit growth. Despite the top line pressures, Asda was able to grow income ahead of sales. Now turning to Canada, which had a very solid fourth-quarter performance. Sales grew 4.1%, with comp sales increasing 1.8%, marking this the third consecutive quarter of positive comps. Price investments and increased consumer spending contributed to improved trends in sales. We reported strong comp sales in food, health and wellness, and consumables. While general merchandise and apparel sales improved versus prior quarter results, they were still below the rate of growth in the market. Our fresh business also continues to accelerate, resulting in the highest comp sales for the year in quarter four. Canada had a strong holiday season overall with the online business up 38.5%. Walmart Canada grew 43 basis points of market share in food, consumables, and health and wellness combined, as reported by Nielsen for the 12-week period ending January 24. Canada completed a restructuring in the quarter to simplify home office operations. This, along with continued investments in e-commerce and pricing resulted in a decline in operating income. Overall, we are pleased with the positive sales trend we’ve seen in our Canadian operations, and we expect the momentum to continue. Next we’ll discuss Walmex, which released their quarterly results on February 17. Please note the Walmex release is under IFRS and the results here are under U.S. GAAP; thus some numbers will differ. Consolidated Walmex sales grew 3.4%, with positive comp sales in both Mexico and Central America. Walmex leveraged expenses for the quarter and grew operating income faster than sales. Mexico sales increased 3%, and the comp sales were up 0.1% for the quarter. According to ANTAD, the entire market experienced slower comp growth in the fourth quarter of 0.7% in self-service. Walmart Mexico comps, excluding Sam’s Club, exceeded the market by 80 basis points. Performance was especially strong in our small format, Bodega Aurrera Express, which outperformed the market by 750 basis points. Sam’s Club growth lagged the market by approximately 330 basis points. However, we are encouraged by the improving top line trends at Sam’s, as December comp sales were the strongest of the year. Sam’s Club remains a focus area and we will continue to accelerate initiatives to improve the business. Next, let’s talk about Brazil. Brazil continued sales momentum in Q4, growing net sales and comp sales by 3.1%. Holiday sales were driven by strong performances in both food and consumables. Strategic and targeted pricing resulted in margin favorability for the quarter. Management also continued to drive labor productivity and control expenses. While we are seeing some positive results, there is still work to be done in our turnaround plan. Moving to China. Ongoing headwinds from government austerity measures, reduction in gift card sales, and continued deflation in key categories continue to pose challenges in the market. Walmart China’s Q4 net sales declined 0.7% and comp sales declined 2.3%, partially due to Chinese New Year falling nearly three weeks later than last year. We increased market share in the hypermarket category for the eighth consecutive quarter according to Nielsen for the period ended December 31. We expect market headwinds to continue in the New Year, but we are confident that we will continue to accelerate growth in this important market. Over the year, China has made great progress in strengthening the core business. Our portfolio is now more focused and stronger with the opening of 24 new hypermarket stores and one additional Sam’s Club, in addition to completing the store closure program announced last year. The distribution center expansion project and the centralization of deliveries to DCs were finalized within the quarter, resulting in a distribution network for fresh that provides coverage for all of our stores in China for the first time. These initiatives drive efficiency, reduce costs, and shorten the lead time to get products on the shelf. Having control over our own distribution network allows us to better monitor the quality and the safety of our products. Additionally, the We Operate for Less and the We Buy for Less programs in China have saved over $150 million over the course of the year.

In this quarter, e-commerce sales for our international operations also saw growth. What excites me most is the progress we’ve made in building out our ability to serve customers across digital and physical. We’re investing in four areas; our global technology platform, our next-generation fulfillment network, our talent, and on integrating digital and physical. Starting with our global technology platform, I refer to this as the operating system for commerce, because it is the foundation for serving customers digitally, enabling the integration of digital and physical commerce. Building and deploying a new platform is one of the most challenging projects for an e-commerce business, particularly at our scale. We launched most key elements of our site and mobile shopping experience on the new platform before the holiday on walmart.com in the U.S. Despite all of our testing, with the sheer complexity of a complete platform rebuild, there is nothing like the real thing on the busiest day of the year. Pangaea hummed along all day, serving our customers at record volume. While we were glued to our screens watching performance, a mom in Dallas was glued to her screen on walmart.com crossing items off her holiday shopping list. She was most likely shopping on a tablet, and she was browsing pages about 30% faster, thanks to Pangaea. She was seeing a personalized shopping experience with a lot more recommendations for items that her kids might like. Hers was among a record number of orders. It was the first major test of our next-generation fulfillment network, which combined our first large scale center in Texas with our existing fulfillment centers, distribution centers, and stores to ship a record number of walmart.com orders. Our team in Texas shipped twice as many orders as last year. Starting in the second quarter, we have four more of these large-scale fulfillment centers coming online. While there will be some ramp-up time, they will significantly expand our fulfillment capacity and efficiency in the coming years.

Thanks, Neil. I’ll wrap up today’s discussion by providing some thoughts on the company’s performance. For the year, we delivered $486 billion in revenue. E-commerce sales grew approximately 22% to more than $12 billion. We delivered fourth-quarter underlying earnings per share of $1.61 and reported earnings per share of $1.53. Recall that our fourth-quarter guidance of $1.46 to $1.56 included the discrete item of the Japan restructure, which was approximately $0.03 per share. Walmart U.S. generated a very solid 1.5% comp in the fourth quarter. Although the strong U.S. dollar caused a negative impact of over $5 billion on revenue, Walmart International delivered very good sales growth of nearly 4% on a constant currency basis for the year. And, Sam’s Club continued to drive membership income again this year, with growth of over 10%. Now, on the other hand, as I just mentioned, currency negatively impacted revenue by more than $5 billion. Although not as high as we anticipated, healthcare expenses were a headwind for Walmart U.S. during the year. And our reported earnings per share were negatively impacted by $0.08, due to the discrete items that Claire mentioned earlier. Before turning our attention to guidance for the first quarter and for fiscal year 2016, I would like to remind you that our outlook for the future is based on the enterprise strategy we discussed at our October investor conference. Our clear focus on driving sales through price, assortment, access, and experience will continue to guide the investments we make to better serve our customers. Our guidance today assumes several important factors, including the economic conditions in several of our largest markets and currency exchange rates remaining at current levels. In October, we forecasted a 2% to 4% net sales increase for this new fiscal year. However, as a result of where currency rates are today, we expect a currency headwind of approximately $10 billion on net sales. Our new forecast for fiscal year 2016 net sales growth is between 1% and 2%. Our capital expenditure guidance of $11.6 billion to $12.9 billion, and our total net retail square footage growth of 26 million to 30 million square feet remain unchanged. Also in October, we shared that our capital expenditure range reflects that we will grow through a smaller number of large supercenters in the U.S. And as previously announced, we are dedicating capital related to our digital and e-commerce businesses of $1.2 billion to $1.5 billion. In fiscal 2016, we expect our FCPA-related expenses to range between $160 million and $180 million. Recall that these are included in our corporate and support expenses. Our incremental investment in our Global eCommerce business in fiscal 2015 was approximately $0.08 per share, above the $0.05 to $0.07 per share we shared with you in November. We plan to step up our incremental investment again in fiscal 2016 for our e-commerce activities around the world. This investment is expected to range between $0.06 and $0.09 per share over fiscal 2015. As I indicated at the October investor conference, the heaviest investment in e-commerce will come over the next 18 to 24 months, as we further integrate the shopping experience, appealing to our customer’s desire for convenience, access, and assortment. We then expect to see operating losses start to moderate at the end of that period. We continue to seek the right balance between sales growth and profitability for e-commerce. Doug shared the news about our people initiatives within our U.S. businesses, including a wage restructuring and training opportunities to help associates earn higher pay and advance their careers. These strategic investments, which will cost approximately $1 billion this year, are designed to benefit our customers and our businesses through a better store and club experience. However, they will impact our earnings per share this fiscal year. In the first quarter, we expect these investments to negatively impact earnings per share by approximately $0.02. The full-year earnings per share impact is expected to be approximately $0.20. In addition to the impact from these two significant investments, operating income, like sales, will also be pressured by currency exchange rates. Our earnings per share guidance is based on a fiscal 2016 estimated tax rate ranging between 32% and 34%. Our tax rate will fluctuate from quarter to quarter and may be impacted by a number of factors including changes in our assessment of certain tax contingencies, valuation allowances, changes in law, outcomes of administrative audits, the impacts of discrete items, and the mix of earnings among our U.S. and international operations. In any given quarter, our effective tax rate could be higher or lower than the full-year range. As we have seen in the past, we expect our first-quarter tax rate for fiscal 2016 to be the highest of the four quarters. Taking all of this into account, we expect first-quarter fiscal year 2016 earnings per share to range between $0.95 and $1.10. This compares to $1.10 last year. We expect full-year earnings per share to range between $4.70 and $5.05. This compares to reported earnings per share of $4.99 in fiscal 2015, which included the discrete items we’ve discussed.