Walmart Inc.
Q2 2015 Earnings Call Transcript

Published: 15 Aug 2014

[Carol Schumacher:]

Hi, this is Carol Schumacher, Vice President of Investor Relations for Wal-Mart Stores, Inc. Thanks for joining us today for our earnings call to review the second quarter of fiscal year 2015. The date of this call is August 14, 2014. This call is the property of Wal-Mart Stores, Inc. and is intended for the use of Wal-Mart shareholders and the investment community. It should not be reproduced in any way. (Playback Navigation Instructions) This call contains statements that Wal-Mart 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 a transcript are available on our corporate website – stock.walmart.com. Additionally, a supplemental slide deck that summarizes our key financial results should be used with this call. That presentation appears at the end of this transcript. We believe that 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 financial reporting. As a reminder, in Wal-Mart International, we provide results and commentary on primarily our five largest markets, all of which had revenue in excess of $10 billion in fiscal 2014. For fiscal 2015, we utilize a 52-week comp reporting calendar, with our Q2 reporting period from May 3rd, 2014 through August 1st, 2014. A week-by-week comp reporting calendar is available under the comp sales link on the investor portion of our website. For information regarding terms used in today’s release, including EPS, constant currency, gross profit and gross profit rate also refer to our website. Throughout the discussion of our e-commerce performance, we are referring to our results on a constant currency basis. As I mentioned last quarter, the net gain from the sale of our Vips restaurant business in Mexico has been recorded in this second quarter’s discontinued operations. Note that certain reclassifications have been made to Q2’s results. Due to the results from discontinued operations, EPS for Q2 last year is now $1.23, not the $1.24 presented in last year’s release. These reclassifications did not impact consolidated net income. There will be no EPS impact for Q3 and Q4. Please mark your calendar for our annual meeting for the investment community, and we look forward to seeing many of you at the meeting. We will kick off with dinner with management the evening of Tuesday, October 14 in Northwest Arkansas. The meeting will run through approximately 3 p.m. Central Time on Wednesday, October 15. So, now let’s get down to our agenda for today’s call. Doug McMillon, President and CEO of Wal-Mart Stores, Inc., will cover our key results and provide an overall assessment of our business. Claire Babineaux-Fontenot, EVP and Treasurer, will cover the financial details for the quarter. Then, we’ll cover our results. Greg Foran, who took over this week as President and CEO of Wal-Mart U.S., will kick things off. He’ll be followed by Dave Cheesewright, President and CEO of Wal-Mart International, who’s traveling and calling in for today’s call. And, Roz Brewer, President and CEO of Sam’s Club. Neil Ashe, President and CEO of Global eCommerce, will update you on the progress we’ve made on our e-commerce businesses around the world. And, Charles Holley, Wal-Mart’s CFO, will wrap up with a focus on our guidance for the full year and the third quarter. Now, I’m pleased to introduce our CEO, Doug McMillon, to kick off our call. Doug?

[Doug McMillon:]

Thank you, everyone, for joining us today. I’m pleased that Wal-Mart delivered solid earnings per share of $1.21, well within our guidance range, and that our consolidated net sales increased more than $3.2 billion over last year to $119.3 billion. As I look at our second quarter results in the context of our overall strategy, we’re encouraged by the performance of our small format stores and e-commerce, areas where we’re investing significantly this year. But, we wanted to see stronger comps overall in Wal-Mart U.S. and Sam’s Club. Stronger sales in the U.S. businesses would’ve helped our profit performance in the quarter. We can get better operationally and we will. In an environment where customers have so many choices about where to shop and how to buy, and many of them are feeling pressure on their budgets, we have to be at our best. That’s why it’s so important for us to deliver a compelling customer proposition of low prices and quality service for every transaction. For many years, we’ve stressed that we run this business one store at a time, and that’s still true today. So, we’re investing in our stores during the rest of this year to deliver positive comp sales through operational excellence. Now, let me review the second quarter results. Wal-Mart International turned in a very solid performance, with operating income up over 9% on a constant currency basis. I’m pleased with the work that Dave and his team have done to manage expenses, improve profitability and drive sales. On a constant currency basis, net sales rose more than 5%, and comp sales were positive in all but one international market. I’m especially encouraged by the healthy sales improvements in some of our largest markets. Our Wal-Mart U.S. business added approximately $1.9 billion in net sales and delivered a flat comp. I’m encouraged that we’re gaining traction on our goal to have a positive comp by year end, but I’m not satisfied. Customers are responding to Neighborhood Markets, which delivered approximately 5.6% comps in the quarter. Operating income was pressured by investments in additional associate hours and by higher healthcare costs. We’ll keep working during the back half of this year to get the combination of price investments and store associate hours right to deliver improved comp sales and serve our customers in a way that exceeds their expectations here in the U.S. Last month, we named Greg Foran the new CEO of Wal-Mart U.S. I’ve worked closely with Greg for the past few years, and his depth of retail knowledge will serve our customers and associates well. As our company evolves, we’re focused on delivering a customer-driven retail offering that drives sales. Greg is the best person to execute this strategy in the U.S., and I am thrilled to have him leading this effort. I also want to thank Bill for his years of service to Wal-Mart. His passion for our mission, dedication to our associates and our customers, and innovative thinking pushed us forward. From his vision of lowering the cost of prescription drugs to the progress we’ve made with our small formats, Bill had a meaningful impact on our company for which we are grateful. Sam’s Club delivered a flat comp this quarter, with net sales lower than expected. Operating income was lower than last year, due to the anticipated investment in Plus member Cash Rewards. I’m encouraged by the solid growth in membership income this quarter, but I’d like to see a positive comp. During a recent visit to a Sam’s Club in Omaha, Nebraska, it was great to see associates energized about the club’s back-to-college merchandise. They were eager to show the treasure hunt of on-trend color in home and apparel. They also helped members find the electronics and small appliances to accessorize a student’s apartment. We’re taking the right steps at Sam’s Club to improve sales, with new merchandise offerings and localized assortment. We expect that our investment in new membership enhancements, such as Cash Rewards, will increase the membership line. Roz will cover how these programs will impact our profit comparisons over the next year. You’ll hear more details from Neil in a few minutes, but there are some exciting things happening in e-commerce and mobile. I’m really pleased that sales continued to be robust, growing approximately 24% this quarter. We saw double-digit e-commerce growth from our four most important markets

[Claire Babineaux-Fontenot:]

Thank you, Doug. I’ll take a few minutes today to provide commentary on the company’s second quarter consolidated financial results, along with certain other items. Further details are available for your reference in the presentation on slides 2, 3 and 4. First, the dollar growth in consolidated net sales exceeded $3.2 billion during the quarter

[Greg Foran:]

Thank you, Claire. Let me begin by saying how honored and excited I am to lead the Wal-Mart U.S. business. I’ve learned a great deal in 35 years as a retailer and look forward to learning more about the U.S. market and from our leadership team, our customers, and our 1.2 million U.S. associates. Now, let’s talk results. Q2 comp sales performance came in as expected. However, our operating income results fell short of expectations, due in part to investments in wages, as well as healthcare expenses, which were above last year’s levels and above our initial expectations. Let me provide some additional detail. In Q2, net sales for Wal-Mart U.S. grew $1.9 billion. For the 13-week period ended August 1st, we delivered a flat sales comp; and this was despite a SNAP-related headwind of about 70 basis points. Ticket was up 1.1%, while traffic was down 1.1%, a 30 basis point improvement over Q1. Our e-commerce business, including store-fulfilled sales, delivered double-digit sales growth and contributed approximately 30 basis points to the total Wal-Mart U.S. comp sales growth. Our comp sales results reflect mixed performances across the business. While food was flat, health & wellness delivered positive comps. Overall grocery was aided by price investments and continued inflation. However, deflation in consumables and industry softness in entertainment created an offsetting comp headwind. Overall, I’m encouraged by our solid performance during seasonal events, especially during the Fourth of July holiday. I’m also pleased with the consistent strength in Neighborhood Markets and continued market share gains. In the key category of ‘food, consumables, & OTC,’ we gained 37 basis points of market share for the 13 weeks ended July 19th, according to The Nielsen Company. For gross profit, we continued to invest in price, particularly in the categories of meat and health & wellness. That investment, blended with sales mix, resulted in a gross margin decline of 7 basis points versus last year. From an operating expense perspective, the most notable headwind came from healthcare costs, which led to a 32 basis point decline in expense leverage. Healthcare costs increased approximately $180 million versus last year and were well above our initial estimates. As we’ve mentioned previously, the primary drivers of expense growth were increased associate enrollment and cost inflation. While enrollment was higher than anticipated, we’re pleased our associates and their families continue to take advantage of our affordable healthcare opportunities. Near term, we expect continued pressure from health care and anticipate over $500 million in year-over-year expense growth for this fiscal year. During the quarter, we also allocated additional associate hours to specific areas of the store, such as front end, deli, bakery, and overnight stocking to improve overall customer service. We also sustained incremental labor expenses related to major department re-lays in entertainment and sporting goods. In total, salaries and wages were up more than $200 million compared to last year. The combination of gross margin investment and expense deleverage resulted in an operating income decrease of 2.4% for Q2. We expect operating income to remain challenged for the balance of this fiscal year, given the increased healthcare costs and our commitment to price investment and customer service. Now, let me cover the performance of our formats. During the quarter, we opened 35 supercenters, including 24 new units and 11 conversions through relocation or expansion. We plan to open, relocate, or expand about 115 supercenters for the fiscal year. In Q2, our supercenter fleet had a comp decline of approximately 30 basis points. We recognize the need to improve the performance and standards of this format to meet customers’ expectations, and I’ll discuss more about our strategic priorities in my closing remarks. Neighborhood Markets continued to perform well and delivered an approximate 5.6% sales comp for the 13-week period. Sales were particularly strong in pharmacy, produce, meat, and adult beverages. Comp store traffic grew 4.1%. During Q2, we opened 22 Neighborhood Markets and remain on track to deliver 180 to 200 new units for the year. Additionally, we continue to learn from our Wal-Mart Express format test and have seen continued solid comp sales performance. We’ll continue to roll out this phase of our test, with approximately 90 stores expected to open this fiscal year. As a reminder, the majority of Neighborhood Market and Wal-Mart Express units are planned to open in late Q4. We expect this will create operating income headwinds from pre-opening expenses. We also expect higher inventory balances for the back half of the year related to these openings. Across our network, inventory was up 5% at the end of Q2. Over half the increase was attributed to new store growth, while the remainder was due in part to inflation and carrying incremental inventory from recent department re-lays and modular updates. Better inventory management will be a key focus point of mine. Now, I’ll review the performance of our merchandise areas. In grocery, overall inflation accelerated around 60 basis points from Q1 to approximately 1.8% in Q2. Food delivered a relatively flat comp, driven by price investments in targeted categories and regions, solid performance during key seasonal events, and inflation, which was particularly strong in deli, dairy, produce, meat and seafood. However, we continued to face SNAP-related headwinds of approximately 1.6% to food, which we will cycle in November. Looking ahead, we’re continuing to adapt to changing customer needs and will launch our opening price point private label, Price First, nationwide in late Q3. With regards to the consumables business, modest deflation and industry softness led to a low single-digit negative sales comp. Health & wellness maintained its strong performance from the first quarter, improving comp sales growth approximately 1.8% from Q1. Pharmacy prescriptions delivered a high single-digit positive comp, due to strong script count growth and double-digit% inflation in branded drugs. Script count growth was fueled by new contracts in Medicare and expanded Medicaid coverage. Over-the-counter merchandise also performed well, reporting a low single-digit positive comp driven by a sustained allergy season. With respect to health services, we opened 4 health clinics as part of a new test concept. These innovative primary care clinics offer customers affordable healthcare services, including $4 basic checkups for our associates. We expect to have about a dozen clinics open by the end of the fiscal year. Our general merchandise business remains impacted by persistent industry softness, particularly in entertainment, where we had an overall double-digit negative sales comp across online and stores. The team is working to mitigate these headwinds. They recently introduced a used video game offering that complements our existing trade-in program. We also re-laid the entertainment department, placing more focus on growth categories and product innovation. In the short term, the significant scope of the re-lay created a temporary business interruption that impacted Q2 results. However, we’re confident this investment is right for the customer and will benefit sales in the back half of this fiscal year. In wireless, we’ve experienced recent comp declines due to a lack of innovation in phone technology and our delay in system upgrades needed to process new carrier installment plans. We’re working diligently to resolve this matter. Our re-lay and wireless impacts overshadowed several favorable results in Q2, including TV comp sales, which were up low single-digits, and VUDU, which was up double digits. Also, toys delivered a low single-digit positive comp due to strength in movie-based merchandise and sports play. In hardlines, we reported a low single-digit negative comp. While our online business continued to deliver strong double-digit sales growth, our retail stores’ comp sales were down due largely to lapping last year’s strong sporting goods performance. With respect to back-to-school, we’re pleased with our early performance and the response to our in-store teacher appreciation promotion. This program provided a 10% discount on school supplies. In our softlines business, I’m encouraged by the overall performance of national brands and the growth of our softlines e-commerce business. Apparel delivered a low single-digit positive comp. This was driven by national brands and new offerings that are resonating with our customer. For example, national brands, such as Russell Athletic and Avia, drove strong performance in active wear. In addition, customers responded positively to new items and improved value in our ladies assortment. Shoes benefitted from broad assortment, including items at strong rollback prices in seasonal categories and national brands. Our home business had a relatively flat comp driven by strength in e-commerce and national brands such as Farberware, Shark, and Keurig. This was offset by outdoor living, where we lapped a high single-digit positive comp from last year. From an e-commerce perspective, we’re continuing to expand our dotcom fulfillment network and recently announced plans for our third fully dedicated e-commerce fulfillment center. This e-DC will open early in 2015 and be located near Indianapolis. Additionally, last week, we rolled out Savings Catcher nationwide, which leverages our data analytics capabilities to automatically match competitors’ ads and strengthen customers’ confidence that they are receiving the lowest advertised price on like items. Let me shift gears for a minute and discuss our U.S. manufacturing initiative. Bill took me through the terrific work accomplished thus far. I’m excited about the project and remain dedicated to our 10-year, $250 billion commitment. On July 8th, we hosted a Made in the USA open call, facilitating over 800 meetings with more than 500 suppliers. Suppliers heard from senior leadership and participated in an education series related to doing business with Wal-Mart. The results of the event were outstanding, with over two-thirds of our supplier meetings resulting in an immediate decision to purchase products, or to consider them for future buys. Later today, I’ll be meeting with even more suppliers in Denver following our Wal-Mart U.S. holiday meeting to build on the work so many people have already done in our Made in the USA program. Now as we end the Wal-Mart U.S. portion of the call, I would like to speak briefly about my assessment of the business and priorities. Wal-Mart U.S. is a great business, with a deep and rich heritage in serving our customers with a smile, in clean, tidy, well-merchandised stores, with terrific low prices and value. A cornerstone of our success has been our wonderful associates, from our stores to our DCs, our Home Office and e-commerce facilities. They still are. At the core are the Wal-Mart stores, and my initial efforts will focus on the core. We will deliver against these key customer requirements

[David Cheesewright:]

Thank you, Greg. We appreciate all of the contributions you have made to our International businesses, and we are confident the Wal-Mart U.S. segment is in great hands. Every day, our associates continue to execute our key strategic initiatives. I’m pleased to say that in the second quarter we delivered solid sales and profit growth, gaining market share in the majority of our markets. As I visit the markets, I see that customers are busier and changing more rapidly than ever before. Busy customers are telling us how they want to shop, and that they want us to do two things

[Rosalind Brewer:]

Thank you, Dave. Performance at Sam’s Club improved this quarter, with approximately 50 basis points of comp acceleration versus Q1. Our business is foundationally solid and over the past year, we’ve been transforming Sam’s Club, with new membership enhancements, elevated merchandise, increased multichannel access, and a heightened use of data and analytics. There is still work to do, but we remain confident that these efforts will serve as a catalyst for our business, increasing the long-term value of being a member. Our top priority at Sam’s Club remains growth – growing our member base and growing sales. While our top line sales growth of 1.7%, without fuel, was modest, membership income grew 11.9% in the second quarter, with Plus member renewals a primary driver. This growth is more impressive considering we have now lapped the fee increase initiated last year in May. As I mentioned earlier, we’re taking steps to increase the value of membership. This includes our investment in two new membership enhancements, Plus member Cash Rewards and Sam’s Club cash-back MasterCard, both launched a little over a month ago. This new MasterCard comes with chip-enabled technology, making the card more difficult to duplicate and providing additional security from fraudulent activity for our members. It’s still early days, but member response has been positive. But, what I’m most proud of is how the associates have rallied behind these programs by building relationships with members and communicating the combined value of both programs. As Doug indicated, these investments help lay the groundwork for future comp sales growth; however, they also pose an operating profit headwind over the next 12 months. The impact of recent investments, such as Plus member Cash Rewards, can be seen in our financial results, reducing both our gross profit rate and operating income. Further, we expect that this headwind may accelerate in the coming quarters as our Plus penetration grows. Now, a few thoughts on our performance during the second quarter. When we spoke last, I shared that Q1 got off to a slow start, as members were hindered by poor weather, and our clubs were impacted by higher utility costs. Our lower income Savings members were most impacted, and traffic slowed across the country. In Q2, however, Savings member traffic improved, progressing towards more historical levels of low single-digit positives. Their growth helped support the 50 basis point comp improvement that I mentioned earlier. The Business member remains pressured, delivering negative comp growth this quarter. Overall, comp traffic growth of 0.3% was offset by a comp ticket decline of 0.3%, netting out to a flat comp for the 13-week period. So, let me walk you through the financial results, excluding fuel. For results with fuel, please reference the supplemental presentation. Net sales grew 1.7% to $13.0 billion. Operating income declined this quarter by 10.2% to $466 million, due to a decrease in gross profit rate and an increase in operating expenses. Operating income, with fuel, declined 4.6%. Our gross profit rate declined 50 basis points this quarter, with 23 basis points of the decline attributable to our investment in Cash Rewards. We planned and prepared for this cost; however, the additional rate pressures from mix and price investments intensified the decline. Operating expenses grew faster than sales this quarter by 18 basis points. Several factors contributed to our inability to leverage, including higher healthcare benefits costs versus last year and increased real estate expenses associated with opening 5 new clubs this quarter, versus 1 new club during this time a year ago. Membership and other income grew 10.5%, driven by upgrades and Plus renewals. Late in the quarter, we launched a social media initiative to drive new membership growth. We had almost 130,000 people respond to the offer, which ran from July 21 to August 1. While the majority of the offer redemptions will cross into the third quarter, we have been pleased by the number of new members who have already come into the club to officially activate their memberships. Inventory management remains a priority for us, with inventory increasing 4.7% this quarter. Builds for new clubs and an earlier set for fall seasonal merchandise contributed to the growth. Now on to our merchandising results. Our buyers have been working hard to elevate our merchandise assortment, procuring new items at incredible values for our members. We’ve seen good results in areas of the business where we have introduced these new items, such as “healthy-for-you” snacks and apparel. Some of our core categories like tobacco, wireless, and candy, however, remain pressured. Fresh / freezer / cooler delivered a positive low single-digit comp, led by solid performance in dairy, fresh meat, and cooler areas. A competitive pricing position and successful 4th of July holiday weekend boosted our fresh meat comp, as members responded to our high-quality assortment of steak, ground beef, and chicken. We continue to see inflation in dairy; however, unit growth was minimally impacted. Grocery and beverage posted a negative low single-digit comp. The snacks category continues to perform well, driven by “healthy-for-you” indulgences within nuts, trail mixes, chips and popcorn. We are pleased with our recent efforts to assort clubs based on member preferences within wine and spirits, representing over 100 basis point improvement in comp performance over the prior quarter. The growth was tempered by declines in candy and beverages, which were hindered by the deceleration in Business member traffic. Ancillary, which includes tobacco, declined low single-digits. Tobacco comp sales decelerated, despite a May price increase, with units down mid-single digits. Health and wellness delivered a positive low single-digit comp. The overall category was lifted by the high single-digit comp in pharmacy, as investments in member value and awareness over the past several quarters continue to drive growth. Within optical, an increased focus on opportunistic buys resulted in a strong assortment of new “fashion sun wear” items – all at a great value for our members. Over-the-counter is a focus area, as we continue to lap extremely strong prior year performance in diet and nutrition items. We have recently introduced several new items in OTC, including new nutrition bars for our health-conscious members, and initial results are promising. Some of the consumable categories, such as pets and laundry, struggled this quarter, as we continue the transition to newness. This transition period resulted in a negative low single-digit consumables comp. However, our long-term focus on higher quality, better pack-size value and newness continues to accelerate results in the disposable tabletop and paper goods categories, leading to double-digit share gains over the 52-weeks ended July 19, as measured by The Nielsen Company. While still a negative high single-digit comp overall, we are beginning to see comp improvement within our technology and entertainment subcategories. Our merchants have been surrounding core items, like TVs, with new and exciting tech items, and the results are beginning to show. For example, we’ve added new SKUs within the portable audio category, which had a positive effect on the quarter. We’ve seen comp declines in wireless, as system upgrade delays have affected our ability to provide new carrier installment plans. Home, apparel, and hardlines reported a positive mid-single-digit comp this quarter, led by a strong double-digit comp in kitchen electrics and a high single-digit comp in mattresses. You may recall that mattresses struggled last quarter, underperforming in areas of the country most impacted by weather. Our merchants worked hard to change their approach this quarter, adding a new king size SKU to our assortment with a strong price-point. Member response was clearly positive! Apparel and jewelry continued their exceptionally strong track record – delivering their fifth straight quarter of positive comps. Samsclub.com delivered another solid quarter, contributing approximately 30 basis points to the total segment comp. Double-digit sales growth was seen in both direct-to-home and Click ‘n’ Pull formats, and conversion rates improved across all access points. This quarter, we re-launched all four mobile platforms, providing easier access and simplified shopping for our members. This includes a completely new iPhone app launched in June, with features that allow Plus members to check their Cash Rewards balance on-the-go. Based on member insights, the mobile team is now releasing new enhancements and updates every 4-6 weeks to ensure the best possible experience. Speaking of experience, our operations team recently launched a new in-club initiative to provide “legendary member service.” At Sam’s Club, our members have a higher expectation of service because they pay to shop our clubs. The “legendary member service” concept is simple – we want to ensure that our members are engaged and have a memorable shopping experience with us. We continue to be optimistic about the future of Sam’s Club, knowing that we have laid the groundwork for success. We expect comp sales to be slightly positive for the 13-week period ending October 31. This compares to a 1.1% comp increase last year. Just one week ago, we hosted our annual holiday meeting with our field management teams here in Bentonville, Arkansas. Let me tell you, the teams left feeling energized and ready to serve our members. At every level of the organization, we’re laser-focused on 3 key priorities

[Neil Ashe:]

Thanks, Roz. Our e-commerce businesses made significant progress on our strategies and delivered a number of customer-focused enhancements in our core markets. Globally, e-commerce sales grew approximately 24% in the second quarter. I’m excited about the capabilities we’ve delivered and how we are integrating the digital and physical worlds to offer customers easier and more convenient ways to shop. We’re working closely with the operating segments around the world to make all of this happen. Looking at Wal-Mart U.S., we saw double-digit sales growth, and we continued to outpace the e-commerce market overall. The major highlight was that we started to roll out a new Wal-Mart.com site experience. To the consumer, it’s simpler, it’s faster and it’s easier shopping experience. But, it also represents a major technical feat that involves a top-to-bottom rebuild of our entire global technology platform. I’m also really excited about the rollout of Savings Catcher. It’s a perfect demonstration of how we are integrating digital and physical experiences to do the work for our customers, and it reinforces their trust in Wal-Mart’s low prices. The Sam’s team is moving aggressively on enhancing the digital and physical experience for members. The new iPad app is getting rave reviews from the members, going from 3.7 stars to 4.5 stars in the app store. We’re also seeing great momentum in the office category and with the Click ‘n’ Pull program that allows members to order online and pick up in a club. We had double-digit sales growth in Brazil, in Mexico and Chile, and triple-digit growth in Canada and Argentina. Of course, we saw a lot of TV sales leading up to the World Cup, but the pleasant surprise was the sales lift in games as a result of good demand for consoles. In China, Yihaodian delivered high double-digit growth rates in sales for the quarter, and its focus continues to be on the quality of the customer experience. To support these efforts, we completed 40 projects in the quarter, including Customized Message Services for customer support. And, our customer satisfaction reached a new high of 97.7%. Yihaodian’s marketplace business 1Mall also more than doubled. In addition to the successes in each market, we’re seeing great progress on building out a world-class e-commerce organization and delivering on our strategic initiatives. On the talent side, we continued to strengthen our Global eCommerce leadership team. Fernando Madeira, who was our President of Latin America eCommerce, became President and Chief Executive Officer of Wal-Mart.com, with responsibility for the U.S., Latin America and further growth of Wal-Mart.com. We also created a new Chief Operating Officer role for Global eCommerce and are thrilled that Michael Bender, formerly president of the West for Wal-Mart U.S., is now in this role. He will drive operational excellence as we scale our e-commerce businesses and will oversee the expansion of our next-generation fulfillment networks. With these additions and others, I feel great about the depth and breadth of experience at the leadership level, as well as throughout our organization. We’ve continued to have great success in hiring some of the best technologists in Silicon Valley and around the world. And, we supplemented our hiring with small, targeted acquisitions, including Adchemy, Stylr and Luvocracy this past quarter. Our talent density is helping us deliver best-in-class technology. We’ve talked about our global technology platform and how it is a top-to-bottom rebuild of everything that powers our e-commerce sites and businesses around the world. We’ve been delivering a lot of elements of the tech platform this year, but most of those have been technology that customers don’t see, sitting under the hood. What they will now start to see is a new site experience for Wal-Mart.com in the U.S. We previewed the site at a mom blogger day at our Sunnyvale office, and they loved it. One of them, Leticia, was saying how visually appealing the site looked and how much easier it was to find products. Input from customers helped us design the site and will help us continue to make it even better. The tech platform gives us much greater speed and flexibility. Changes to the site can be made in minutes versus days, so we can innovate, test, iterate and deploy new capabilities in real time. The site has much more personalization, and each customer’s experience is always changing with fresh content that helps them discover new items. We’ve built our own personalization engine to customize the experience. Customers now receive relevant options and recommendations, while they are on the site, and via email and text messages. And, given that more 30 than half of traffic to Wal-Mart.com is coming from mobile devices, we designed the site to adapt to any size device, particularly tablets. In addition to the new global technology platform, we’ve been focused on building our next-generation fulfillment networks around the world to deliver orders faster and more efficiently. We have a new large-scale fulfillment center under construction in Indiana, which will complement those we’ve opened in Texas and Pennsylvania in the past 12 months. We also enabled 20 more stores to fulfill online orders during the quarter, and 20% of units ordered on Wal-Mart.com are now shipped from stores. Our algorithms are helping to determine the optimal shipping point, whether from an online fulfillment center, a store DC or a store. And, in Brazil, we opened a new fulfillment center in Cajamar that is now fully operational. We will announce additional fulfillment centers around the world over the coming months. We’re excited about the progress we’re making on our strategic goals, and our investments are delivering for Wal-Mart’s customers. We are pleased that we are growing faster than the market. And, this growth is coming during a time that we are rebuilding almost every aspect of our e-commerce businesses – building out our team, new global tech platform and next generation fulfillment networks. We expect to see fluctuations as we go through this work, and we’re keeping our eye on the long-term. We started the year with a goal of 30% full-year sales growth. We’re expecting that growth to be in the mid-20s. And, we expect higher growth in our third-party marketplace businesses. The opportunity for e-commerce is clear and we are stepping up our investment in our e-commerce businesses for the rest of the year. I will now turn it over to Charles for guidance. Charles?

[Charles Holley:]

Thanks, Neil. We are now half-way through this fiscal year, and while we have some challenges, we are encouraged by several aspects of our business. Let me cover those examples. During the quarter