Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wal - Mart de Mexico SAB de CV (WMMVF, Financial) reported a 6.4% total revenue growth in Q2 2024, with operating income up 6.8% and EBITDA growth of 7.7%.
- E-commerce GMV grew 19%, driven by on-demand and marketplace, maintaining leadership in omnichannel.
- The company launched two new initiatives, the Digital Connection Program and Walmart Luminate, aimed at increasing customer loyalty and providing better data analytics for suppliers.
- Same-store sales in Mexico grew 5.5%, with Walmart Express leading the growth among formats.
- New businesses like Bait and Walmart Connect showed strong performance, contributing positively to the P&L.
Negative Points
- Central America reported only a 2.6% same-store growth, with softer performance in Costa Rica due to deflation.
- SG&A expenses increased by 130 basis points as a percentage of sales, driven by labor costs, remodels, and utilities.
- Inventory levels grew 13.1% above sales growth, indicating potential inefficiencies in inventory management.
- The launch of the open-loop capabilities for financial solutions has been postponed to Q4 due to regulatory and development delays.
- The company faced challenges in certain categories during the hot sale event, such as TVs, toys, and video games, due to less disposable income from customers.
Q & A Highlights
Q: Can you explain what you mean by business simplification and the areas of opportunity for Walmex?
A: Simplification involves making our operations as simple and efficient as possible by using more technology and automation, and eliminating unnecessary processes. This will lead to a slimmer, faster, and more efficient operation, benefiting all aspects of the business. (Ignacio Caride, CEO)
Q: Which new businesses are you most optimistic about in the short term, and what do you expect going forward?
A: We are very happy with the growth of Bait, Walmart Connect, and our health memberships. The launch of Walmart Beneficios and Bodega Aurrera Beneficios will help us integrate the ecosystem and provide better insights into customer behavior, which will positively impact our P&L. (Ignacio Caride, CEO; Paulo Garcia, CFO)
Q: Can you elaborate on the performance by banner, particularly Walmart Express and Walmart Supercenter?
A: We are focused on improving the customer value proposition for each format. Walmart Express has shown growth due to improvements in assortment, fresh quality, and service. Walmart Supercenters are also focusing on breadth of assortment and service improvements. (Raul Quintana, COO)
Q: How do you see pricing and competitiveness evolving in the second half of the year?
A: We are maintaining our price gap and improving price perception through better management of our catalog, particularly in general merchandise. This allows us to remain competitive without sacrificing gross margin. (Paulo Garcia, CFO)
Q: How will the new Glass platform impact e-commerce growth, and are there plans for stronger marketing efforts?
A: The Glass platform, part of our migration to the Walmart Commerce Platform, will put us on par with US technology, improving usability and unlocking cross-border business opportunities. We have already seen positive early signs from its implementation. (Ignacio Caride, CEO; Raul Quintana, COO)
Q: Can you provide more details on the financial solutions initiatives, particularly the credit score system and open platform?
A: We are targeting Q4 for the initial release of open loop capabilities. The credit scoring system will be strengthened by data from our digital connection programs, allowing us to offer better financial solutions to our customers. (Ignacio Caride, CEO; Paulo Garcia, CFO)
Q: What are the drivers behind the margin expansion in Central America, and how sustainable is this trend?
A: Margin expansion was driven by supply chain efficiencies and price investments. We have plans to capture more volume, particularly in Costa Rica, and expect continued growth supported by price inflation and aggressive store openings. (Paulo Garcia, CFO)
Q: How do you plan to manage higher labor costs moving forward?
A: We are focusing on driving efficiencies and automation to offset labor cost increases. We will balance investments in growth with maintaining competitiveness and leveraging contributions from our ecosystem. (Paulo Garcia, CFO)
Q: What impact did the early payments of transfer payments have on Q2 same-store sales, and how are you managing inventory post-hot sale?
A: The early payments led to less disposable income for durable goods in Q2. We manage inventory by liquidating leftover stock and improving overall inventory management to reduce days on hand. (Raul Quintana, COO; Paulo Garcia, CFO)
Q: What is the long-term potential of the ad business, and how does it impact your margin outlook?
A: We see significant potential in our ad business, expecting it to fourfold in the next five years. This will contribute to our P&L and allow us to invest in pricing, tech, e-commerce, and new businesses, providing a competitive advantage. (Paulo Garcia, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
