Walmart Inc.
Q1 2013 Earnings Call Transcript

Published: 16 May 2013

[Operator:]

Welcome to the Walmart Earnings Call for the first quarter of fiscal year 2014. The date of this call is May 16, 2013. This call is the property of Walmart Stores, Inc. and is intended for the use of Walmart shareholders and the investment community. It should not be reproduced in any way. [Operator instructions.] 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.

[Carol Schumacher:]

Hi, this is Carol Schumacher, vice president of investor relations for Walmart Stores, Inc. Thanks for joining us today for our our earnings call to review the first quarter of fiscal 2014. Our press release and full transcript of this call are is available on our website, www.stock.walmart.com. Mike Duke, president and CEO of Walmart Stores, Inc., will provide his thoughts about the quarter and some of his thoughts about his recent interactions with our customers. Jeff Davis, EVP of finance and treasurer, will cover the consolidated financial details. Then we’ll go to the operating segments

[Mike Duke:]

Thanks, Carol, and good morning everyone. Walmart grew first quarter diluted earnings per share 4.6% to $1.14. In a quarter marked by considerable headwinds to top line sales, we delivered solid EPS growth. Frankly, we had a more difficult quarter than expected when we announced our guidance in February. It’s important to note that Walmart U.S. continued to gain market share across several key categories. Sales were pressured primarily by delayed tax refunds, which caused customers to put off discretionary purchases. And though no one likes to talk about weather, it was a real factor across the United States. In fact, right here in Northwest Arkansas, we had the latest snowfall in the history of Arkansas reporting. I’m pleased that Bill and his team managed through these headwinds to deliver almost $67 billion in sales and leverage. This disciplined expense management allowed Walmart U.S. to deliver solid operating profit, despite the pressure on sales. I share Bill’s optimism about the remainder of the year and believe the underlying strength of the Walmart U.S. business will deliver positive comps next quarter. Now let me share some additional key metrics for the quarter. On a constant currency basis, consolidated net sales increased 1.8% to $114.2 billion, which excluded $1 billion from currency exchange rate fluctuations. Consolidated operating expenses as a percentage of sales were relatively flat, and we are committed to achieving leverage for the full year. We are proud that our U.S. operating segments leveraged operating expenses. We generated $6.5 billion of consolidated operating income, an increase of 1.1%. As you know, I like to visit customers in their local markets around the world. I recently traveled to stores throughout South America and the U.S. It’s gratifying to see how important EDLP is for our customers. Our mission is simple and focused

[Jeff Davis:]

Thank you, Mike. As you just heard, Walmart reported first quarter diluted earnings per share of $1.14 versus $1.09 last year. Recall last year end, we stated the company’s continued investment in ecommerce initiatives would negatively impact our fiscal 2014 diluted EPS by an incremental $0.09. Consequently, our first quarter results were unfavorably impacted by these initiatives by approximately $0.02. Consolidated net sales increased 1% to $113.4 billion. I would like to remind you that the first quarter of last year included an extra day due to leap year and added approximately 100 basis points to net sales. Separately, first quarter net sales included $200 million from an acquisition and were also impacted by $1 billion of currency exchange rate fluctuations. Therefore, on a constant currency basis, consolidated net sales would have increased 1.8% to $114.2 billion. With respect to comp sales for the quarter, total U.S. comp sales, without fuel, decreased 1.2%. Bill and Roz will provide more details in a minute. Membership and other income increased 1.6% compared to the first quarter last year. Please stay tuned to hear more from Roz regarding our recent advancements in club membership. Total revenue for the first quarter was $114.2 billion, a 1% increase over last year. This was on top of a strong 8.5% increase at this time last year. Gross profit increased 1.2%, primarily driven by supply chain productivity and merchandise mix within our U.S. business segments. The gross profit rate was relatively flat to last year. Now, turning to expenses, our operating expenses as a percentage of sales were 19.1%, which is relatively flat to last year. As you heard from Mike, our U.S. businesses leveraged operating expenses for the quarter. And you’ll hear more from Doug on the international team’s focus to reduce expenses for the remainder of the fiscal year. Now let’s take a closer look at corporate and support expenses. Corporate and support is comprised of core corporate, global ecommerce support, and global leverage services. Total corporate and support expenses increased approximately $200 million or 44.4%. Our core corporate expenses increased 37.2%, including $73 million in expenses related to FCPA matters, which was above our forecasted range of $40 to $45 million. Approximately $44 million of the expenses represent costs incurred for the ongoing inquiries and investigations, while $29 million covers costs regarding the global compliance review, program enhancements, and organizational changes. Excluding the FCPA matters, core corporate increased by approximately 14.6%. The remainder of the corporate and support growth is primarily associated with global leverage services. This increase is the result of investments to enhance enterprise information management, build global capabilities, and leverage scale. Though we will continue to invest in these areas, we expect these expenses to moderate for the remainder of the fiscal year. This leads us to consolidated operating income, which grew 1.1% to $6.5 billion, slightly ahead of sales growth. Net interest expense for the quarter decreased 0.9% to $530 million, as we continue to avail ourselves of low interest rate funding. And, consolidated net income attributable to Walmart increased 1.1% to $3.8 billion. Our effective tax rate for the first quarter of fiscal 2014 was 33.4%, essentially unchanged from the first quarter of last year. Full year guidance for fiscal 2014 effective tax rate continues to be between 32% and 33%. As a reminder, our tax rate may fluctuate from quarter to quarter. Now turning to our balance sheet, consolidated inventory increased 4.5%, primarily driven by our U.S. operations. You’ll hear more from the segment CEOs regarding the individual drivers of inventory growth. Payables as a percentage of inventory was 85.2%, which compares to 89.8% last year. This decrease was primarily the result of increased levels of inventory within our U.S. segments and the timing of disbursements. Our debt to total capitalization was 44.8% at the end of the quarter, compared to 44.2% last year. During the quarter, we generated $1.9 billion of free cash flow versus $3.1 billion last year. An increase in income tax payments due primarily to changes in federal bonus depreciation rules and an increase in capital expenditures contributed to the free cash flow decline. Moving on to returns, for the quarter, the company returned $1.6 billion to shareholders in dividends and repurchased approximately 30 million shares at a cost of $2.2 billion. As of April 30, we have approximately $1.5 billion remaining under our current $15 billion authorization. To wrap up, return on investment, or ROI, for the trailing 12 months ended April 30, 2013 was 17.8%, compared to 18.1% last year. This reduction was primarily the result of acquisitions and an increase in fixed assets within our base business. Now let’s turn it over to our operating segments. We’ll start with Walmart U.S. Bill?

[Bill Simon:]

Thank you, Jeff. When we last spoke to you in February, we shared that the first quarter had gotten off to a very slow start, essentially due to the delay in tax refund checks. When we provided flat comp guidance for the first quarter, we had expected, among other things, to recover a reasonable portion of these tax refunds and had also assumed that customers would follow historical spending patterns with these funds. This did not materialize as we had anticipated. Similar to what you’ve heard from companies in various industries that have reported earnings, top line revenue was challenged by a number of issues. These included a $9 billion reduction in IRS estimated tax refunds versus last year, and we cashed less in income tax refunds than the prior year. Additionally, the 2% increase in payroll taxes reduced inflation and some of the most unfavorable spring weather we’ve seen in recent years across much of the country impacted our business. While we don’t generally like talking about weather, it certainly had an impact. Weather sensitive departments like outdoor living, sporting goods, air movement and apparel were challenged, particularly from mid-March to mid-April, when weather was much less favorable than last year. However, there were bright spots. Where weather was fairly normal, in Florida for example, we had positive comps for the quarter. In addition, as we gave guidance last quarter, we expected an increase in the level of grocery inflation, but it did not materialize in a meaningful way. We experienced very modest inflation, much lower than last year, and in fact, we had some deflation in areas like dry grocery. We estimate that the factors discussed earlier affected our comp sales by as much as 200 basis points in the first quarter versus our expectations. Primarily driven by these factors, we ended the quarter with a lower comp than expected at a negative 1.4%, compared to a strong positive 2.6% comp last year. Traffic was down 1.8%, while ticket was up 0.4%. However, excluding the first two weeks of the quarter, comp sales were relatively flat and traffic improved. Despite sales being lower than expected, I’m really proud of the work done by all of our associates during the quarter. The team did an excellent job managing the business, taking care of our customers and bringing in a solid profit result, with operating income increasing 5.9%. We also continued to gain market share across several categories. According to the Nielsen Company, we gained 20 basis points of market share in the measured category of “food, consumables and health and wellness/OTC” during the 13 weeks ending April 27, 2013. As of now, we’re encouraged by the start of sales in the second quarter because we’ve seen more normalized weather and we’re getting past the main effects of the reduced tax refunds. Now let’s cover the financial details of the first quarter. Net sales were up $220 million, or 0.3%, to $66.6 billion. Last year’s leap day added approximately 100 basis points of net sales to first quarter fiscal ‘13. Gross profit increased 0.7% to $18.2 billion, with gross profit rate increasing 10 basis points from the previous year, partly driven by supply chain productivity and cost of goods savings initiatives. We continued to leverage these initiatives, targeting specific areas of our grocery business, providing savings to our customers in the first quarter. These actions, along with our ability to leverage expenses, enabled us to further strengthen our position as the price leader in the market. Our commitment to the productivity loop is a long-term, sustainable strategy. We will continue to be strategic about price investments, monitoring competitor price gaps, market share, and other data to ensure we maintain an appropriate balance between price investments and margin. Our strategy is based on an everyday low cost structure. For the quarter, the team did a good job managing expenses, contributing 32 basis points of expense leverage. Although a large part of the leverage was driven by a decline in incentive expense versus historically high levels last year, every part of the organization was focused on operating for less, from our distribution centers and transportation fleet, to each one of our stores. Together, we reduced expenses by 1.3% versus last year, driving a 5.9% increase in operating income. For the quarter, inventory was up 4.6%, driven partly by an expanded assortment in some merchandise areas, in addition to challenging weather, which created headwinds for some seasonal categories. We feel good about our current inventory position as the weather improves and customers get ready for summer. Before I discuss the performance of our merchandising areas, I’d like to spend some time covering a few things we’re doing from an operational perspective that helped drive our quarterly performance. Our logistics team continues to be a key contributor to our results by generating savings that benefit our leverage goals and gross margin. In the first quarter, the team continued to improve processes within our supply chain. This enabled us to transport 3.1% additional cases per mile driven, helping us to reduce the overall cost per case shipped versus last year. Our results in logistics, quarter after quarter, are proof that our strategy is sustainable. Within our stores, we continued to fine tune our technology investments, including self-service checkouts and work assignment tools, like MyGuide. These initiatives drove another quarter of solid gains in productivity, as our management teams work toward continuous improvement. We continued to expand our self-service checkouts in the first quarter, with about 38% more stores in service versus last year. In general, customer response has been positive, with utilization across the chain up over 300 basis points year over year. In the back rooms, projects like MyGuide and OneTouch also enabled improvements in stocker productivity by helping to facilitate the process of moving merchandise from the truck to the shelf and prioritizing work for our associates. In the first quarter, these initiatives contributed to an increase of over 3% in cases handled per work hour. We’re focused on driving productivity by implementing initiatives that make work simpler for our associates and enhance our customer experience. As you might expect from Walmart, there are a number of metrics we monitor to ensure strong operational execution, including customer line lengths, customer experience scores, and merchandise in-stock levels. While we always strive to improve, we’re pleased overall with our current performance against these metrics. Now let’s review the performance of the various merchandising areas. Grocery, which includes food and consumables, generated a low single-digit positive comp on relatively flat inflation, a much lower inflation rate than last year. In food, we’ve made great progress in the quality of our fresh departments, and I’m particularly excited about the momentum in the produce area. We’ve improved our process for handling and culling produce, allowing us to get the freshest assortment in front of our customers. In the first quarter, we started to see the positive results, evidenced by a mid single-digit positive comps in produce and market share gains for the 13 weeks ended on March 30, according to Nielsen. In consumables, we also continued to gain market share across most departments. And I’m particularly encouraged to see customers respond to our price investment strategy, evidenced by the Nielsen data that shows noticeably higher market share gains in areas where we invested in price in the first quarter. Overall, our performance in consumables was mostly driven by the “everyday need” categories. Health and wellness generated a low single-digit negative comp. While units were up, we experienced the largest brand-to-generic impact to date, coupled with an overall increase in generic versus brand sales. While our Rx business was pressured by the brand-to-generic impact, we continued to see strength in OTC, with solid comp sales and market share gains, according to Nielsen. Also noteworthy is our performance in the core, non-seasonal categories like vitamins, analgesics, and antacids, which delivered a mid single-digit positive comp for the quarter. Hard lines, which includes our seasonal business, posted a low single-digit negative comp. Weather significantly impacted sporting goods categories like fishing and camping in the first quarter, with non-weather impacted categories like stationery and crafts delivering positive comps. Stationery and crafts was driven by strong growth in needlecraft, paints, and other indoor categories. Our new assortment is resonating with the customer, evidenced by our gains in market share across several of our stationery categories for the three-month period ending April 6, according to The NPD Group. Comps in our seasonal business were also positive, driven by solid growth in Valentine’s Day and Easter, with strong results in gifts, décor and party ware. We continue to be a destination for the holidays, providing our customers with one-stop-shop solutions to stock up for the big events of the year. Entertainment, including toys, had a mid single-digit negative comp. Softer discretionary spending impacted entertainment and created even more significant headwinds for higher ticket electronics like TVs. On the other hand, our wireless business again delivered a double-digit positive comp, with Straight Talk sales hitting a record high in the first quarter. Let me remind you how we are reporting sales of wireless. Reporting convention calls for sales of Straight Talk and third-party gift cards such as iTunes and restaurant cards to be included in sales, net of the product cost. In other words, we only account for a commission on sales. We continued to make great strides for our customers in the wireless space, providing a broad selection of affordable solutions. According to NPD, Walmart became the number one retailer in handset unit share for the three months ending March 31, 2013. In toys, similar to the rest of the business, we experienced softness in outdoor categories like spring toys and bicycles, which was partly offset by strength in educational and preschool toys. Apparel reported a low single-digit negative comp for the quarter, mostly driven by soft demand for spring categories. I’m pleased with the work of the team in apparel and particularly encouraged by the performance of our basics offering, which delivered a low single-digit positive comp. Kids and accessories were also positive in the first quarter, benefitting from assortment improvements. We’ve made great progress in this area and will continue to focus on quality throughout the year to drive results. In home, pronounced softness in outdoor living impacted the performance, driving the business to a mid single-digit negative comp. Our results were significantly better in areas of the country less impacted by weather. In the Pacific division, for instance, outdoor living delivered a high single-digit positive comp in the first quarter. In indoor living categories, we continued to work on assortment, making national brands like Rachel Ray affordable for our customers and delivering a low single-digit positive comp in cooking and dining. Our customers are shopping our home aisles, evidenced by our gains in market share across the business, according to NPD. Other areas of the business where we’re gaining momentum are walmart.com and mobile. We continue to drive integration with our stores to deliver a seamless customer experience. In the first quarter, we continued to test the mobile self-checkout option “Scan and Go,” expanding it across more than 200 stores in 14 different regions. We’re encouraged by the early results, with the majority of “Scan & Go” customers using the feature multiple times. The team is constantly making improvements, and we’ll soon be testing digital coupons and gift cards with “Scan and Go”. We also announced we’ll be testing self-service lockers in select stores this summer. The goal of the program is to reduce the wait time for Site to Store orders, providing customers with an anywhere, anytime pickup solution. We’re also very excited about the opportunity to grow the Ship from Store program. You’ve heard us talk about the power of our physical footprint and how we plan to utilize our presence across the country as an additional asset in our fulfillment network. We’re pleased with the initial results and are currently shipping certain orders from 35 stores straight to customers’ homes. We expanded the pilot considerably in the first quarter and will continue to expand strategically throughout the rest of the year. Our e-commerce strategy complements a growing real estate portfolio. We’re in a unique position to serve our customers whenever and wherever they want to shop, integrating our walmart.com capabilities with an expanding presence of supercenters and small formats. In the first quarter, we added 38 new units and converted 8 units to supercenters through relocation or expansion. These 46 units added 3.6 million incremental square feet and included 1 discount store, 24 supercenters, and 21 small formats, most of which were Neighborhood Markets. Neighborhood Markets continued their positive performance, delivering a low single-digit positive comp, primarily driven by solid traffic gains. The vast majority of Neighborhood Markets include pharmacies, providing an additional convenience for our customers and driving traffic to the store. Our optimized assortment and convenient shopping experience is resonating with the customer, evidenced by our positive comps across most of the merchandising areas. Walmart Express also continues to generate strong results, delivering another quarter of double-digit positive comps. In the second quarter, we’ll begin testing various supply chain initiatives as part of the North Carolina density test, which will strengthen our understanding of supply chain strategies for smaller stores. During the second quarter, we’re planning to open between 60 and 65 new units, including new stores, expansions, and relocations. Our second quarter forecast represents about 4 million square feet of retail space, which will put us well on our way to deliver our previous guidance of 15 to 17 million square feet of retail growth in fiscal year ‘14. This year started with many challenges for our core customer. Nevertheless, I’m confident in our position and in the ability of our teams to execute. We believe that our strategy works under any economic environment and our underlying business remains strong. From an operational perspective, we will continue fueling the productivity loop, improving every aspect of our operation so we can leverage expenses, invest in price, and drive results. Our price investments will be supported by a solid marketing program that will communicate our strong price leadership. Throughout the rest of the year, we’ll continue expanding our local basket challenge campaign through TV and radio, covering 70% of our markets across the country. Most important, we’ll continue to run our business with our customers, our associates, and our communities in mind. Earlier this year, we announced our veterans’ initiative with the objective of hiring any honorably discharged veteran seeking employment within his or her first 12 months off active duty. On Memorial Day, we’ll be ready to launch the program, and we believe the vast majority of applicants will be placed within 30 days. May is off to a good start, with positive comps. We continue to feel good about the underlying business, as evidenced by first quarter results in areas less impacted by weather, as well as by our market share gains. We’ll continue to monitor the impact of the 2% payroll tax increase along with other factors, like fuel prices. Based on these factors, we forecast comp sales to increase in the range of flat to positive 2% for the 13-week period from April 27 through July 26, 2013. Now, I’ll turn it over to Doug for an international update. Doug?

[Doug McMillon:]

Thank you, Bill. I’d like to start the update on international by reminding you of our priorities

[Rosalind Brewer:]

Thanks, Doug. This year, Sam’s Club celebrates our 30-year anniversary. It’s been an exciting journey, ever since our first club opened in Midwest City, Oklahoma in 1983. I’d like to take a moment to thank all of our associates over the past 30 years who’ve delivered tremendous value to our members and made our business so successful. During the first quarter, we grew net sales, and comp sales were within guidance. We grew membership income by delivering superior value, responding to business member trends, and enhancing our membership offering. Combined with reduced operating expenses, we generated operating profits more than 7% ahead of last year. Comp sales, without fuel, were up 0.2% for the 13-week period, lapping a 5.3% comp sales increase last year. Comp traffic was up 1.3%, driven by our Advantage members, and ticket was down 1.1%, driven by Business members. Unfavorable weather this year created a headwind in our weather-sensitive categories. In geographies with more moderate weather, such as the west, members responded positively to our seasonal merchandise, indicating sales in these categories improve as the weather changes. Additionally, inflation continued to moderate from Q4, impacting our top line results, as inflation this quarter was approximately 50 basis points. Inflation ran between 250 and 300 basis points in the first quarter last year. Our Business member is an integral part of our business, and comp sales and traffic patterns continue to indicate that they remain pressured. Small business optimism remains at historically low levels as businesses adapt to higher payroll taxes and cautious consumers. In response, we’re focused on increasing awareness of the value Sam’s Club offers. We’re executing regional business expos and small business appreciation programs in May and June, in which our associates spend time working with members in their place of business. Despite these headwinds, I mentioned in the first quarter, we drove sales and profit growth. Net sales, including fuel, were $13.9 billion, up 0.1%. Fuel created a 40 basis point headwind to sales growth, as fuel prices were down 3.8% compared to last year. Gallons sold were up 1.3%. Gross profit rate was up 7 basis points. Operating expenses as a percentage of net sales improved slightly. Operating income increased 7.4% to $525 million. Fuel is an important component of our strategy to provide more value to our members. Volatility in fuel prices, however, can notably impact our financial results. The remainder of our discussion, therefore, will be focused on the core business and exclude fuel for comparative purposes. Net sales for the quarter were $12.2 billion, up 0.5% from last year. During the first quarter last year, we gained one additional day due to leap year, resulting in one less day this year. The addition of leap day last year provided a benefit of about 100 basis points. Our strongest divisional performance was in the West, with our strongest regional performance in the Mountain, Mid-Atlantic and Southwest regions. Now let’s move on to merchandising highlights for the quarter. Fresh comp sales were up low single-digits, with strength in dairy and produce. Members responded positively to our new pack-size innovation in certain frozen food items. These items contain smaller bags within the main pack, increasing convenience for our members. Grocery and beverage sales grew low single-digits, driven by growth in dry grocery, partially offset by declines in our beverage business, due to both weather and business member softness. Sales of consumables posted a low single-digit comp. With the support of our strategic price investments, we delivered low to mid single-digit unit growth in areas like paper and tabletop. Our baby category continues to be a strong source of growth, with market share according to Nielsen growing by 20 basis points for the 13-week period ending April 27, 2013. Technology and entertainment posted a negative low single-digit comp. Pressures in office electronics and media were partially offset by compelling value in wireless, which posted double-digit comp and unit growth. According to The NPD Group, we gained market share in TVs for the 13-week period ending April 27, 2013. Sales in apparel and home were down low single-digits. Home saw modest gains, driven by domestics and mattresses. Apparel was down due to seasonal merchandise, but our core basic apparel business posted mid single-digit comps, indicating strength in our underlying business. Jewelry, where we have strengthened our assortment and our price points, gained momentum throughout the quarter. Members responded very well to our improved selection of high quality diamonds. Health and wellness, including pharmacy, experienced low single-digit comps. Over-the-counter merchandise continues to grow, especially diet products. We filled more prescriptions, but sales declined as the industry shifts more to generics. The majority of our prescription business remains maintenance related, generating regular traffic to our health and wellness area. We continue to increase awareness of the services available at Sam’s Club, such as pharmacist-provided immunizations and health screening programs. During the quarter, we increased the number of health screenings by almost 30% over the same period last year. Sales of ancillary categories negatively affected the quarter due to a decline in tobacco sales, driven by softness from our convenience store members as they see increased competition from dollar stores. Moving to online, innovation and collaboration with our global ecommerce team resulted in double-digit sales growth for the quarter, driven by categories like portable electronics, baby, and mattresses. These categories were not only strong online, but also in our clubs, demonstrating that our members are finding great values no matter what channel they shop. Gross profit rate remained relatively flat, as continued strategic price investments were offset by a more favorable mix, due to softer sales in lower margin categories like tobacco and beverages. Strong membership growth is critical to remaining a healthy club business and we’re focused on innovative ways to reach new prospects. We collaborated with Living Social from March 4 through the 6th to reach new Sam’s Club members. The offer included a base membership, $20 gift card, and a merchandise package that included a variety of take-home meal solutions, all for $45, a total value of roughly $80. In just 48 hours, we had more than 157,000 people sign up for this offer, and we were pleased with the significant social media buzz and deal share volume generated. Net membership income grew 2.4%, driven by Advantage member growth, offsetting slight declines from Business members. Membership and other income was up 6.5% versus last year, because of improved contract terms relating to our profit sharing arrangement with our credit card provider. Operating expenses as a percentage of sales decreased by 12 basis points. A driver of this leverage was a decline in incentive expenses versus last year. Looking at the bottom line, first quarter operating income was $519 million, a 6.6% increase over last year. Inventory, including fuel, was up 6% year over year, as softer sales significantly affected our sell-through rate across several areas. Our management team is focused on actively slowing the rate of inventory growth to better align with the rate of sales. We continue to focus on creating member value by executing our real estate strategy, enhancing the membership offering, improving item merchandising, and offering members access anytime, anywhere. We are pleased with the performance of clubs opened within the last two to three years. During the quarter, we relocated one club in Texas City, which outperformed expectations. We plan to open 15 to 20 new and relocated clubs during the year, the majority of which we’ve scheduled for the third and fourth quarter. Now I’d like to provide more details on our overall membership strategy. We applied key learnings from the last months of our membership pilot in Texas to enhance the value of a Sam’s Club membership. The Texas pilot represents 12% of our total U.S. club base. As of yesterday, we increased our membership fee nationwide. The membership fee is now $45 for both Advantage and Business base memberships, reflecting a $5 and $10 increase, respectively. The fee for our Plus membership remains $100. This is our first increase since January 2006, and we do not expect a significant impact to renewal rates or new sign-ups. We will continue to offer additional value to our members while driving strong membership income in the coming years, as the full benefit of the fee increase will be recognized over the next 24 months. Our first Instant Savings book, which is available to all members from May 15 through June 9, includes over $3,500 in savings on nearly 100 items, both in-club and through samsclub.com. Additionally, Plus members will continue to receive exclusive offers automatically loaded onto their membership card, which will now include fresh and private label items. With the exception of the cash rewards program for Plus members, these changes are consistent with our Texas pilot. Initial response to cash rewards has been positive. We will continue testing this benefit in Texas throughout the year to gain a better understanding of the longer-term financial impact. You’re also going to see a change in our merchandise strategy throughout the year. In the past, we’ve had great success treating our clubs essentially the same, but we recognize our member base varies around the country. Moving forward, members will experience exciting merchandise, heightened by local brands, all displayed with a new level of visual excitement. We’re also adapting to serve our members who are shopping online and in our clubs. Members are using their mobile devices, before, during, and after their shopping experience. The Sam’s Club mobile app is giving our members personalized ecommerce and the ability to shop anywhere, anytime. Before visiting the clubs, members can build shopping lists and fill prescriptions. In the club, they can research merchandise information and compare costs. And alongside Walmart, we’re piloting the Scan & Go app, which will be in 150 clubs by mid-June. Technology clearly enhances our members’ shopping experience. The combination of our strategies positions us well for the second quarter, and we have a number of events to drive sales. We were pleased with the first two weeks’ start to the quarter. We expect comp club sales, without fuel, for the 13-week period from April 27 through July 26 to range between 1% and 3%. Last year, for the 13-week period, comp sales, excluding fuel, increased 4.2%. The core business at Sam’s Club is solid. We’re confident that the combination of new club growth, membership improvements, exciting and locally relevant merchandise, as well as e-commerce and digital opportunities, will drive momentum. We’re proud of what we have accomplished in the past 30 years and are confident that we are well positioned going forward. Now I’ll turn the program over to Charles for our wrap up and guidance. Charles?

[Charles Holley:]

Thanks, Roz. To wrap up, let me provide some perspective on the quarter. First, we feel good about many aspects of our company’s performance. We delivered 4.6% earnings per share growth in a tough sales environment. Both Walmart U.S. and Sam’s Club levered expenses and grew operating income faster than sales. We generated solid cash flows from operations. We grew our ecommerce sales more than 30% and grew market share in the U.K., Brazil, and China. We issued $5 billion of fixed income debt at record low rates on the strength of our balance sheet. And, in February of this year, we announced an 18% increase in our dividend. The first quarter also presented some challenges. As a company, our leverage ratio was relatively flat, and although we grew consolidated operating income faster than sales, the growth did not meet our expectations. Looking ahead, our financial priorities remain growth, leverage, and returns, and we usually talk about them in this order. But today, I’d like to start with a discussion on leverage. The company’s leverage in the first quarter was relatively flat, and the second quarter will be challenging as well. Our largest challenges are with International, as Doug spoke about, and our leverage services area, where we are investing in projects and programs that will save costs in the long run. Operating expense leverage is a critical piece of our business model, and we remain focused on delivering the five-year 100 basis point goal through fiscal 2017. Though expense leverage is not expected to be achieved equally across the quarters every year, we are committed to leveraging operating expenses for this year. Early investments to expand our leverage initiatives will initially have a short-term impact on expenses. However, these investments will benefit Walmart for the long term. Our leverage teams are focused on three key areas

[Operator:]

The forward-looking statements in this call that are intended to enjoy the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended, generally were identified by the use of the words or phrases “are committed,” “are piloting,” “are planning,” “expect,” “forecast,” “goal,” “going to see,” “guidance,” “is forecasted,” “may fluctuate,” “plan,” “will allow,” “will be,” “will benefit,” “will be placed,” “will be ready,” “will communicate,” “will conclude,” “will continue,” “will deliver,” “will demonstrate,” “will drive,” “will expand,” “will experience,” “will…have,” “will improve,” “will include,” “will operate,” “will put,” “will start,” “will strengthen” or a variation of one of those words or phrases in those statements, or by the use of words and phrases of similar import. Similarly, descriptions of Walmart’s objectives, plans, goals, targets, or expectations were forward-looking statements. The forward-looking statements in this call included statements relating to management’s forecasts and expectations for