The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Robert Ohmes - Banc of America Securities-Merrill Lynch - Analyst: Thanks, Robbie Ohmes, Banc of America, Merrill Lynch. Actually, hi, Eduardo, --.
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Robert Ohmes - Banc of America Securities-Merrill Lynch - Analyst: I just had one question, or maybe a clarification. I think it was during John Fleming's presentation, in talking about Project Impact, I think you said gross margin was flat, post-remodel and I was hoping that you could talk a little more about that. When I look at how cleaned up the stores are, and how much inventory you're taking out, I would think that shrink going down, and all sorts of positive things, would make the gross margin maybe go up. Is there a mix shift going on there? And then, sort of a follow up to that, is, post these remodels, is there any change in the timing of people shopping, et cetera? Is it changing when the stores are most productive and least productive, and has that made you have to change other things in the way you operate the stores?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Robert Ohmes - Banc of America Securities-Merrill Lynch - Analyst: Can you share that?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Robert Ohmes - Banc of America Securities-Merrill Lynch - Analyst: Just as these stores come out of Project Impact, are there changes in -- when the high volume periods are, and the low volume periods, now that you've freed up all this space.
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Bill Simon - Wal-Mart Stores Inc. - EVP, Chief Operating Officer, Walmart US
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Bill Simon - Wal-Mart Stores Inc. - EVP, Chief Operating Officer, Walmart US
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Robert Ohmes - Banc of America Securities-Merrill Lynch - Analyst: All right, thank you very much.
Question: Deborah Weinswig - Citigroup - Analyst: Eduardo, can you elaborate on the multi-format approach -- oh sorry. Thanks, Tom. Deborah Weinswig, with Citigroup. I was so excited about the question. Eduardo, can you now elaborate on what we're seeing with regards to the US, with some smaller format stores, I recently had the opportunity to see the new format in Bloomington, Minnesota, and then also as you mentioned, the Supermercado, and also, could we eventually see, like, the Todo Dia, et cetera, eventually coming to the US. But, ywhat's your thought process, how far are we along, and -- what's the evolution?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Greg Melich - Morgan Stanley - Analyst: Thanks, it's Greg Melich with Morgan Stanley. If we -- it's great to hear the productivity loop is still there. I guess, to take the other side of that, if you're investing in price, but you're still able to grow gross margin, and reduce shrink and mark down and Project Impact and everything you outlined, and we're going to leverage SG&A. Is there any reason that your margins won't go up 50 or 60 basis points, while still, you know, taking costs out and driving down prices for customers, just because of the fact that you're finally able to get the productivity and leverage the SG&A? What stops margin effectively from growing like that in the next few years?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Greg Melich - Morgan Stanley - Analyst: And if externally, or if you look at a guidepost, would be the way to measure that is that if you're still gaining traffic, then we know that we're giving enough back? Would that be the measure? And if traffic, for some reason, started to slip negative, that we'd need to press the accelerator on it more? Is that the way to think about it, or am I missing something?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Daniel Binder - Jefferies & Company - Analyst: Dan Binder, Jefferies. Just following up on that question. I guess maybe the -- another way of asking it, is there a diminishing return on price investment? So are we still being pretty thoughtful about where we're cutting price, and how much unit volume that's going to drive, and is there something incremental that is going to take another step down to drive those volumes. Then the second question was related to comps and expense leverage. What would you say that new level of comp is, to achieve expense leverage?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Daniel Binder - Jefferies & Company - Analyst: And then the comp level needed for leverage?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Daniel Binder - Jefferies & Company - Analyst: Okay.
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Bernard Sosnick - Gilford Securities - Analyst: Bernie Sosnick, Gilford Securities. Walmart US has been more innovative, just within the recent year, than at any time in the recent past, and it's been, in many aspects of the business. I'm wondering if you could touch on the financial services and the progress being made in healthcare and marketing to corporations?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Jane Thompson - Wal-Mart Stores Inc. - VP and SVP of Financial Services
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Bernard Sosnick - Gilford Securities - Analyst: Could you touch on the healthcare aspect?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Dr. John Agwunobi - Wal-Mart Stores Inc. - SVP and President of Professional Services Division
Question: Bernard Sosnick - Gilford Securities - Analyst: Thank you.
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Chuck Grom - JPMorgan Chase & Co. - Analyst: Thanks, Chuck Grom, JPMorgan. I think one of the 800 pound gorillas in the room, at least, particularly for the grocery stores, has been -- food deflation, and I guess I was surprised to see how much, I think the 6.5 last year actually helped out your comp. Just wanted to clarify, was that the impact to your comp, or was that overall food inflation to your business? And then, I guess more, for now, I guess for you to give a little bit of color. You spoke to how some of us have been writing about food deflation beginning to abate. Just wondering if you guys are actually starting to see that, and if you can give us a little bit of a sense for 3Q, 4Q, and into the next year, what you're expecting, so if we were to look at that chart over the next few quarters, what would it look like?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Neil Currie - UBS - Analyst: Thank you. Neil Currie from UBS. Thank you for taking the question. I just wanted to ask Dan's question in a slightly different way, which is, obviously you're doing very well in terms of traffic, you're price perception is accelerating, your traffic has never been better, and your grocery penetration is 90% among new customers. So from that perspective, Wal-Mart customers possibly couldn't really spend much more with you. But there's a seemingly, there's an issue with average ticket, because people are naturally consuming a bit less right now, so we would have expected the Wal-Mart of old to go in and just cut prices, because they didn't want to see a negative comp. But does the Wal-Mart of new, in the short term, because we've obviously had a great vision of your long-term strategy, do they still adopt that approach, or do they say now, ROI will win the day, and we don't want to waste returns on -- giving margin away. That way it's going to be very difficult to return in the short term. And do you, therefore, focus on more the win categories where you can actually get some traction?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Neil Currie - UBS - Analyst: I'm trying to get a sense of the incremental spend. I mean, you clearly are the price leader, in terms of your customers' perception. They think you're the cheapest place to shop anyway. So if you were to have a flattish to slightly negative comp, would you step that investment up even further, or just say, well, in the short term, it's going to happen, or, now and again it's going to happen, and focus on ROI?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Wayne Hood - BMO Capital Markets - Analyst: Yes, Wayne Hood with BMO Capital Markets. Just to finish on this discussion around price, I guess, I'm wondering how you get that message across against some of the regional chains that are taking their national brand in full print, and then offering their private label free. So how do you compete against some strong regionals that are pricing their product that way? And also, are we talking about returns on invested capital that are stepped changes for you, or 20 to 30 basis points, gradual improvements and returns on capital over the next few years? Thank you.
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Bill Simon - Wal-Mart Stores Inc. - EVP, Chief Operating Officer, Walmart US
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Question: Colin McGranahan - Sanford C. Bernstein & Co - Analyst: It's Colin McGranahan of Sanford Bernstein. Just switching gears and talking about the SG&A, opportunity in leverage, and to grow SG&A slower than the rate of sales growth. You know, an admirable goal, obviously something that Wal-Mart hasn't done for the last several years. And since you're not going to give us the comp leverage point, I thought maybe you could talk about how you would think SG&A per foot, might progress, and then what would drive that rate of growth slower than the sales growth per foot, or comp growth. Is it just the productivity loop and increased productivity? Is it a reduced investment in system spending going forward, relative to the last year or two? Is it just less cost increase on benefits, and how does that all wash out on kind of a per foot basis?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Bill Simon - Wal-Mart Stores Inc. - EVP, Chief Operating Officer, Walmart US
Question: Colin McGranahan - Sanford C. Bernstein & Co - Analyst: Okay, that's helpful. Now, second question, on the Project Impact lift of 125 to 150 basis points. Eduardo, I think that's similar to what you had talked about it was early this year, when you just had a small group of stores out, and then, I think later, it sounded like it was a little bit better than that. Can you talk about how the trend has gone in those stores, and what categories are really driving that increased average ticket?
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Question: Colin McGranahan - Sanford C. Bernstein & Co - Analyst: The second part was just the categories that are driving that ticket by category across the store.
Answer By: John Fleming - Wal-Mart Stores Inc. - EVP, Chief Merchandising Officer, Walmart US
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
Answer By: Eduardo Castro-Wright - Wal-Mart Stores Inc. - Vice Chairman
Answer By: Carol Schumacher - Wal-Mart Stores Inc. - VP, IR
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