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Item 2. Management’s Discussion and Analysis

2023-09-01 compared with 2023-06-02 · 122 added, 100 removed, 277 unchanged (44% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion, which presents Walmart Inc.'s ("Walmart," the "Company," "our," or "we") results for periods occurring in the fiscal year ending January 31, 2024 ("fiscal 2024") and the fiscal year ended January 31, 2023 ("fiscal 2023"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three months ended April 30, 2023, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Condensed Consolidated Financial Statements as of and for the year ended January 31, 2023, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended January 31, 2023.

This discussion, which presents Walmart Inc.'s ("Walmart," the "Company," "our," or "we") results for periods occurring in the fiscal year ending January 31, 2024 ("fiscal 2024") and the fiscal year ended January 31, 2023 ("fiscal 2023"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three and six months ended July 31, 2023, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended January 31, 2023, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended January 31, 2023.

We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes.

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We operate in the highly competitive omni-channel retail industry in all of the markets we serve.

We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses.

We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses and companies that offer services in digital advertising, fulfillment and delivery services, health and wellness, and financial services.

Many of these competitors are national, regional or international chains or have a national or international omni-channel or eCommerce presence.

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retail market where there is a single currency, one inflationary market and generally consistent store and club formats from year to year.

Calendar comparable sales, as well as the impact of fuel, for the three months ended April 30, 2023 and 2022, were as follows:

Three Months Ended April 30,

Calendar comparable sales, as well as the impact of fuel, for the three and six months ended July 31, 2023 and 2022, were as follows:

Three Months Ended July 31, Six Months Ended July 31,

2023 2022 2023 2022 2023 2022 2023 2022

With Fuel Fuel Impact

With Fuel Fuel Impact With Fuel Fuel Impact

5.9 % 7.0 % (0.3) % 0.6 % 6.7 % 5.5 % (0.3) % 0.5 %

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4.9 % 8.7 % (1.2) % 1.9 % 5.9 % 7.4 % (1.0) % 1.7 %

Comparable sales in the U.S., including fuel, increased 7.1% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

Comparable sales in the U.S., including fuel, increased 4.9% and 5.9% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The Walmart U.S.

segment had comparable sales growth of 7.5% for the three months ended April 30, 2023, driven by growth in average ticket, including strong food sales and higher inflation impacts in certain merchandise categories, as well as growth in transactions.

segment had comparable sales growth of 5.9% and 6.7% for the three and six months ended July 31, 2023, respectively, driven by growth in average ticket, including strong sales in grocery and health and wellness, as well as elevated inflation impacts in certain merchandise categories, combined with growth in transactions.

The increases were partially offset by a modest decrease in general merchandise sales.

The Walmart U.S.

segment's eCommerce sales positively contributed approximately 2.6% for the three months ended April 30, 2023, which was primarily driven by store pickup and delivery.

Comparable sales at the Sam's Club segment increased 4.6% for the three months ended April 30, 2023.

Growth in comparable sales benefited from growth in average ticket and transactions and included higher inflation impacts in certain merchandise categories.

The Sam's Club segment's eCommerce sales positively contributed approximately 1.5% to comparable sales for the three months ended April 30, 2023, which was primarily driven by Curbside Pickup and Ship to Home.

segment's eCommerce sales positively contributed approximately 2.5% and 2.6% to comparable sales for the three and six months ended July 31, 2023, respectively, which was primarily driven by store pickup and delivery.

Comparable sales at the Sam's Club segment decreased 0.2% and increased 2.1% for the three and six months ended July 31, 2023, respectively.

The decrease in comparable sales for the three months ended July 31, 2023 was primarily due to lower fuel sales from deflation in this category, offset by growth in merchandise sales, which benefited from growth in transactions and average ticket and included elevated inflation impacts on certain merchandise categories.

Growth in comparable sales for the six months ended July 31, 2023 benefited from growth in average ticket and transactions and included elevated inflation impacts in certain merchandise categories, partially offset by lower fuel sales due to deflation in this category.

The Sam's Club segment's eCommerce sales positively contributed approximately 1.8% and 1.7% to comparable sales for the three and six months ended July 31, 2023, respectively, which was primarily driven by Curbside Pickup and Ship to Home.

Our objective of prioritizing margin focuses on growth with a focus on incremental margin accretion through a combination of productivity improvements as well as category and business mix.

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Our objective is to achieve operating income leverage, which we define as growing operating income at a faster rate than net sales.

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(Amounts in millions) 2023 2022 2023 2022

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Operating income as a percentage of net sales 4.6 % 4.5 % 4.4 % 4.2 %

Gross profit as a percentage of net sales ("gross profit rate") decreased 18 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The decrease was primarily due to mix of sales globally, partially offset by the lapping of higher supply chain costs incurred in the previous year.

Operating expenses as a percentage of net sales decreased 58 basis points for the three months ended April 30, 2023.

The decrease was driven by higher sales in each of our segments as well as operating discipline.

Operating income as a percentage of net sales increased 34 basis points for the three months ended April 30, 2023, due to the factors described above.

Gross profit as a percentage of net sales ("gross profit rate") increased 50 and 17 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases were primarily due to the lapping of higher markdowns and supply chain costs incurred in the previous year and managing prices to reflect elevated cost inflation, partially offset by product mix shifts into lower margin categories globally.

Operating expenses as a percentage of net sales increased 33 and decreased 10 basis points for the three and six months ended July 31, 2023, respectively.

The increase for the three months ended July 31, 2023 was primarily due to higher variable pay, technology and remodel costs in the U.S.

and an incremental expense related to the opioid settlement, partially offset by strong fixed cost leverage in most of our international markets.

The decrease for the six months ended July 31, 2023 was driven by higher sales in each of our segments as well as operating discipline.

Operating income as a percentage of net sales increased 3 and 18 basis points for the three and six months ended July 31, 2023, respectively, due to the factors described above.

As we execute our strategic priorities, focusing on high return investments that drive operating leverage, we believe our return on capital will improve over time.

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Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts.

ROA was 4.5% and 5.5% for the trailing twelve months ended April 30, 2023 and 2022, respectively.

The decrease in ROA was primarily due to the decrease in net income, which was driven by lower operating income, partially offset by lapping debt extinguishment charges.

ROI was 12.7% and 13.9% for the trailing twelve months ended April 30, 2023 and 2022, respectively.

The decrease in ROI was primarily due to the decrease in operating income which included opioid legal charges and reorganization and restructuring charges recorded during the second half of fiscal 2023.

ROA was 5.6% and 5.8% for the trailing twelve months ended July 31, 2023 and 2022, respectively.

The decrease in ROA was primarily due to the increase in average total assets driven by higher purchases of property and equipment.

ROI was 12.8% and 13.8% for the trailing twelve months ended July 31, 2023 and 2022, respectively.

The decrease in ROI was the result of a decrease in operating income primarily due to opioid legal charges and reorganization and restructuring charges recorded in Q3 and Q4 of fiscal 2023 respectively, as well as an increase in average invested capital primarily due to higher purchases of property and equipment.

We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the trailing 12 months divided by average invested capital during that period.

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The calculation of ROA and ROI, along with a reconciliation of ROI to the calculation of ROA, the most comparable GAAP financial measure, is as follows:

For the Trailing Twelve Months Ending April 30,

For the Trailing Twelve Months Ending July 31,

(Amounts in millions) 2023 2022

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(1) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2.

As of April 30,

As of July 31,

2023 2022 2021

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The following table provides additional detail:

(Amounts in millions) Three Months Ended April 30,

(Amounts in millions) Six Months Ended July 31,

Allocation of Capital Expenditures 2023 2022

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See Liquidity and Capital Resources for discussions of GAAP metrics including net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities.

We define free cash flow as net cash provided by or used in operating activities in a period minus payments for property and equipment made in that period.

Net cash provided by operating activities was $4.6 billion for the three months ended April 30, 2023, which represents an increase of $8.4 billion when compared to the same period in the prior year.

We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period.

Net cash provided by operating activities was $18.2 billion for the six months ended July 31, 2023, which represents an increase of $9.0 billion when compared to the same period in the prior year.

The increase is primarily due to moderated levels of inventory purchases and timing of certain payments.

Free cash flow for the three months ended April 30, 2023 was $0.2 billion, which represents an increase of $7.5 billion when compared to the same period in the prior year.

Free cash flow for the six months ended July 31, 2023 was $9.0 billion, which represents an increase of $7.2 billion when compared to the same period in the prior year.

The increase in free cash flow is due to the increase in operating cash flows described above, partially offset by an increase of $1.7 billion in capital expenditures to support our investment strategy.

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As a result, the method used by management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.

Three Months Ended April 30,

The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash used in financing activities.

Six Months Ended July 31,

(Amounts in millions) 2023 2022

Net cash provided by (used in) operating activities $ 4,633 $ (3,758)

Net cash provided by operating activities $ 18,201 $ 9,240

Payments for property and equipment (9,216) (7,492)

Free cash flow $ 8,985 $ 1,748

Net cash used in investing activities (1)

$ (9,909) $ (8,584)

Net cash used in financing activities (3,309) (1,400)

(1) "Net Cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

Results of Operations

Consolidated Results of Operations

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(Amounts in millions, except unit counts) 2023 2022 2023 2022

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Retail square feet at period end 1,050 1,057 1,050 1,057

Our total revenues, which are mostly comprised of net sales but also include membership and other income, increased $10.7 billion or 7.6% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increases in revenues were primarily due to strong positive comparable sales for the Walmart U.S.

and Sam's Club segments which were driven by growth in average ticket, including strong food sales and higher inflation impacts in certain merchandise categories, as well as growth in transactions, along with positive comparable sales in most of our international markets.

Net sales were negatively impacted by $0.2 billion of fluctuations in currency exchange rates for the three months ended April 30, 2023.

Gross profit rate decreased 18 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The decrease was primarily due to mix of sales globally, partially offset by the lapping of higher supply chain costs incurred in the previous year.

Operating expenses as a percentage of net sales decreased 58 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The decrease was driven by higher sales in each of our segments as well as operating discipline.

Our total revenues, which are mostly comprised of net sales but also include membership and other income, increased $8.8 billion or 5.7% and $19.5 billion or 6.6% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increase in revenue for the three months ended July 31, 2023 was primarily due to strong positive comparable sales for the Walmart U.S.

segment, which were driven by growth in average ticket, including strong sales in grocery and health and wellness, as well as elevated inflation impacts in certain merchandise categories, combined with growth in transactions.

Additionally, most of our international markets had positive comparable sales.

Net sales were positively impacted by $0.6 billion of fluctuations in currency exchange rates and negatively impacted by a decrease in fuel sales of $1.0 billion in the Sam's Club segment primarily due to deflation in this category.

The increase in revenue for the six months ended July 31, 2023 was primarily due to strong positive comparable sales for the Walmart U.S.

and Sam's Club segments, which were driven by growth in average ticket, including strong sales in grocery and health and wellness, as well as elevated inflation impacts in certain merchandise categories, combined with growth in transactions.

Additionally, most of our international markets had positive comparable sales.

Net sales were positively impacted by $0.3 billion of fluctuations in currency exchange rates and negatively impacted by a decrease in fuel sales of $1.4 billion in the Sam's Club segment primarily due to deflation in this category.

Gross profit rate increased 50 and 17 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

Operating expenses as a percentage of net sales increased 33 and decreased 10 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increase for the three months ended July 31, 2023 was primarily due to higher variable pay, technology and remodel costs in the U.S.

and an incremental expense related to the opioid settlement, partially offset by strong fixed cost leverage in most of our international markets.

The decrease for the six months ended July 31, 2023 was driven by higher sales in each of our segments as well as operating discipline.

Other gains and losses consist of certain non-operating items, such as the change in the fair value of our investments and gains or losses on business dispositions, which by their nature can fluctuate from period to period.

The net increase of $1.0 billion in other losses for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year, was primarily due to an increase in net losses from changes in the fair value of our equity and other investments driven by decreases in their underlying stock prices.

Our effective income tax rate was 29.5% for the three months ended April 30, 2023, compared to 27.5% for the same period in the previous fiscal year.

The increase in effective tax rate is primarily due to the tax impact on changes in fair value of our investments.

The net increases of $3.7 billion and $2.7 billion in other gains for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year, were primarily due to increases in net gains from changes in the fair value of our equity and other investments driven by net increases in their underlying stock prices.

Our effective income tax rate was 24.9% and 25.8% for the three and six months ended July 31, 2023, respectively, compared to 22.5% and 24.0% for the same periods in the previous fiscal year.

The increase in the effective tax rate was primarily due to a fiscal 2023 non-recurring rate benefit from the gain recognized on the sale of our remaining equity method investment in Brazil, which provided minimal realizable tax expense, and a discrete benefit for the three and six months ended July 31, 2022, partially offset by the tax impact on changes in fair value of our investments.

Our effective income tax rate may fluctuate from quarter to quarter as a result of factors including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix and size of earnings among our U.S.

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statutory rate.

As a result of the factors discussed above, consolidated net income decreased $0.2 billion for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

Additionally, net income attributable to noncontrolling interest increased $0.2 billion, which included stronger results from our Walmex operations.

Accordingly, diluted net income per common share attributable to Walmart was $0.62 for the three months ended April 30, 2023, which represents a decline of $0.12 when compared to the same period in the previous fiscal year.

Three Months Ended April 30,

As a result of the factors discussed above, consolidated net income increased $2.9 billion and $2.7 billion for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

Additionally, net income attributable to noncontrolling interest increased $0.2 billion and $0.3 billion for the three and six months ended July 31, 2023, respectively, which included stronger results from our Walmex operations.

Accordingly, diluted net income per common share attributable to Walmart was $2.92 and $3.54 for the three and six months ended July 31, 2023, respectively, which represents respective increases of $1.04 and $0.93 when compared to the same periods in the previous fiscal year.

Three Months Ended July 31, Six Months Ended July 31,

(Amounts in millions, except unit counts) 2023 2022 2023 2022

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Net sales for the Walmart U.S.

segment increased $7.0 billion or 7.2% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increase was due to comparable sales of 7.5% for the three months ended April 30, 2023, driven by growth in average ticket, including strong food sales and higher inflation impacts in certain merchandise categories, as well as growth in transactions.

segment increased $5.7 billion or 5.4% and $12.7 billion or 6.3% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases were due to comparable sales of 5.9% and 6.7% for the three and six months ended July 31, 2023, respectively, driven by growth in average ticket, including strong sales in grocery and health and wellness, as well as elevated inflation impacts in certain merchandise categories, combined with growth in transactions.

The increases were partially offset by a modest decrease in general merchandise sales.

The Walmart U.S.

segment's eCommerce sales positively contributed approximately 2.6% three months ended April 30, 2023, which was primarily driven by store pickup and delivery.

Gross profit rate decreased 41 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year, primarily driven by product mix shifts into lower margin categories, partially offset by the lapping of higher supply chain costs incurred in the previous year.

Operating expenses as a percentage of net sales decreased 65 basis points for three months ended April 30, 2023, when compared to the same period in the previous fiscal year, primarily driven by strong sales growth and the lapping of increased COVID-19 related wage costs in the previous year, partially offset by increased investments in wages.

As a result of the factors discussed above, operating income increased $0.5 billion for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

Gross profit rate increased 40 and 2 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases were primarily driven by the lapping of higher markdowns and supply chain costs incurred in the previous year and managing prices to reflect elevated cost inflation, partially offset by product mix shifts into lower margin categories.

Operating expenses as a percentage of net sales increased 28 basis points and decreased 16 basis points for three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increase for the three months ended July 31, 2023 was primarily due to higher variable pay, elevated technology spend and higher costs related to store remodels.

The decrease for the six months ended July 31, 2023 was primarily due to strong sales growth, partially offset by higher variable pay.

As a result of the factors discussed above, operating income increased $0.4 billion and $1.0 billion for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

Walmart International Segment

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(Amounts in millions, except unit counts) 2023 2022 2023 2022

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Retail square feet at period end 271 274 271 274

Net sales for the Walmart International segment increased $2.8 billion or 12.0% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increase was primarily due to positive comparable sales in most of our international markets.

These increases were partially offset by negative fluctuations in currency exchange rates of $0.2 billion.

Gross profit rate increased 12 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year, primarily due to the lapping of higher markdowns from slower sales growth in the previous year, partially offset by ongoing format and channel mix shifts.

Operating expenses as a percentage of net sales decreased 111 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year, primarily due to strong sales and operating efficiencies in most of our markets.

As a result of the factors discussed above, operating income increased $0.4 billion for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

Net sales for the Walmart International segment increased $3.2 billion or 13.3% and $6.1 billion or 12.7% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases were primarily due to positive comparable sales in most of our international markets, including eCommerce growth, and positive fluctuations in currency exchange rates of $0.6 billion and $0.3 billion for the three and six months ended July 31, 2023, respectively.

Gross profit rate decreased 37 and 12 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year, primarily due to ongoing format and channel mix shifts and category mix shifts to food and consumables.

Operating expenses as a percentage of net sales decreased 129 and 120 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year, primarily due to strong sales, format mix shifts and operating efficiencies in most of our markets.

As a result of the factors discussed above, as well as lapping a benefit in membership and other income related to an insurance settlement for Walmart Chile, operating income increased $0.1 billion and $0.5 billion for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

Sam's Club Segment

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(Amounts in millions, except unit counts) 2023 2022 2023 2022

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Volatility in fuel prices may continue to impact the operating results of the Sam's Club segment in the future.

Net sales for the Sam's Club segment increased $0.9 billion or 4.5% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increase was primarily due to comparable sales, including fuel, of 4.6% for the three months ended April 30, 2023.

Growth in comparable sales benefited from growth in average ticket and transactions and included higher inflation impacts in certain merchandise categories.

Sam's Club eCommerce sales positively contributed approximately 1.5% to comparable sales, which was primarily driven by Curbside Pickup and Ship to Home.

Net sales were negatively impacted by lower fuel sales, which decreased $0.4 billion when compared to the same period in the previous fiscal year.

Gross profit rate increased 36 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increase in gross profit rate was primarily due to the lapping of increased supply chain costs.

Membership and other income increased 4.7% for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year.

The increase was due to increases in new member sign-ups and Plus penetration.

Operating expenses as a percentage of segment net sales increased 47 basis points for the three months ended April 30, 2023, when compared to the same period in the previous fiscal year, primarily driven by lower fuel sales and elevated technology spend.

As a result of the factors discussed above, operating income decreased slightly when compared to the same period in the previous fiscal year.

Net sales for the Sam's Club segment decreased $0.1 billion or 0.3% and increased $0.8 billion or 1.9% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The decrease for the three months ended July 31, 2023 was primarily due to a decrease in fuel sales of $1.0 billion due to deflation in this category.

Net sales excluding fuel increased $0.9 billion primarily due to increased merchandise sales, which benefited from growth in average transactions and ticket and included elevated inflation impacts on certain merchandise categories.

The increase for the six months ended July 31, 2023 was driven by an increase in comparable sales, including fuel, of 2.1%.

Net sales were negatively impacted by a decrease in fuel sales of $1.4 billion for the six months ended July 31, 2023.

Sam's Club eCommerce sales positively contributed approximately 1.8% and 1.7% to comparable sales for the three and six months ended July 31, 2023, respectively, which was primarily driven by Curbside Pickup and Ship to Home.

Gross profit rate increased 135 and 88 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases in gross profit rate were primarily due to the lapping of higher supply chain costs and inventory write-downs in the previous year.

The three months ended July 31, 2023 also increased due to the lapping of a larger inflation related LIFO charge recorded in the previous year.

Membership and other income increased 6.9% and 5.8% for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year.

The increases were due to growth in our membership base, Plus penetration and renewals.

Operating expenses as a percentage of segment net sales increased 107 and 79 basis points for the three and six months ended July 31, 2023, respectively, when compared to the same periods in the previous fiscal year, primarily driven by lower fuel sales, elevated technology spend and higher facilities costs.

As a result of the factors discussed above, operating income increased $0.1 billion for both the three and six months ended July 31, 2023, when compared to the same period in the previous fiscal year.

Liquidity and Capital Resources

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We believe our sources of liquidity will continue to be sufficient to fund operations, finance our global investment activities, pay dividends and fund our share repurchases for at least the next 12 months and thereafter for the foreseeable future.

Net Cash Provided by or Used in Operating Activities

Three Months Ended April 30,

Net Cash Provided by Operating Activities

Six Months Ended July 31,

(Amounts in millions) 2023 2022

Net cash provided by (used in) operating activities $ 4,633 $ (3,758)

Net cash provided by operating activities was $4.6 billion as compared to net cash used in operating activities of $3.8 billion for the three months ended April 30, 2023 and 2022, respectively.

Net cash provided by operating activities $ 18,201 $ 9,240

Net cash provided by operating activities was $18.2 billion as compared to $9.2 billion for the six months ended July 31, 2023 and 2022, respectively.

The increase is primarily due to moderated levels of inventory purchases and timing of certain payments.

Cash Equivalents and Working Capital Deficit

Cash and cash equivalents were $10.6 billion and $11.8 billion at April 30, 2023 and 2022, respectively.

Our working capital deficit was $17.0 billion as of April 30, 2023, which increased when compared to the $13.3 billion working capital deficit as of April 30, 2022, primarily driven by a decrease in short-term borrowings partially offset by an increase in accrued liabilities.

Cash and cash equivalents was $13.9 billion at both July 31, 2023 and 2022.

Our working capital deficit was $17.2 billion as of July 31, 2023, which increased when compared to the $15.7 billion working capital deficit as of July 31, 2022, primarily driven by a decrease in inventories, as described above and an increase in accrued liabilities, partially offset by a decrease in short-term borrowings.

We generally operate with a working capital deficit due to our efficient use of cash in funding operations, consistent access to the capital markets and returns provided to our shareholders in the form of payments of cash dividends and share repurchases.

As of April 30, 2023 and January 31, 2023, cash and cash equivalents of $3.1 billion and $2.9 billion, respectively, may not be freely transferable to the U.S.

As of July 31, 2023 and January 31, 2023, cash and cash equivalents of $3.0 billion and $2.9 billion, respectively, may not be freely transferable to the U.S.

due to local laws or other restrictions or are subject to the approval of the noncontrolling interest shareholders.

Net Cash Used in Investing Activities

Three Months Ended April 30,

Six Months Ended July 31,

(Amounts in millions) 2023 2022

Net cash used in investing activities $ (9,909) $ (8,584)

Net cash used in investing activities was $4.9 billion as compared to $4.6 billion for the three months ended April 30, 2023 and 2022, respectively.

The increase of $0.3 billion for the three months ended April 30, 2023 is primarily the result of an increase in payments for property and equipment.

Net Cash Provided by Financing Activities

Three Months Ended April 30,

Net cash used in investing activities was $9.9 billion as compared to $8.6 billion for the six months ended July 31, 2023 and 2022, respectively.

The increase of $1.3 billion for the six months ended July 31, 2023 is primarily the result of an increase in payments for property and equipment.

Net Cash Used in Financing Activities

Six Months Ended July 31,

(Amounts in millions) 2023 2022

Net cash provided by financing activities $ 1,940 $ 5,315

Net cash provided by financing activities generally consists of transactions related to our short-term and long-term debt, dividends paid and the repurchase of Company stock.

Transactions with noncontrolling interest shareholders are also classified as cash flows provided by financing activities.

Net cash provided by financing activities was $1.9 billion as compared to $5.3 billion for the three months ended April 30, 2023 and 2022, respectively.

The decrease in net cash provided by financing activities is primarily due to decreases in short-term borrowings, partially offset by proceeds received from the issuance of long-term debt in fiscal 2024 and fewer repurchases of Company stock.

Net cash used in financing activities $ (3,309) $ (1,400)

Net cash used in financing activities generally consists of transactions related to our short-term and long-term debt, dividends paid and the repurchase of Company stock.

Transactions with noncontrolling interest shareholders are also classified as cash flows used in financing activities.

Net cash used in financing activities was $3.3 billion as compared to $1.4 billion for the six months ended July 31, 2023 and 2022, respectively.

The increase in net cash used in financing activities is primarily due to decreases in short-term borrowings, the purchase of certain noncontrolling interests and payments of long-term debt, partially offset by proceeds received from the issuance of long-term debt in fiscal 2024 and fewer repurchases of Company stock.

In April 2023, the Company renewed and extended its existing 364-day revolving credit facility of $10.0 billion as well as its five-year credit facility of $5.0 billion.

In total, we had committed lines of credit in the U.S.

of $15.0 billion at April 30, 2023, all undrawn.

of $15.0 billion at July 31, 2023, all undrawn.

Long-term Debt

The following table provides the changes in our long-term debt for the three months ended April 30, 2023:

The following table provides the changes in our long-term debt for the six months ended July 31, 2023:

(Amounts in millions) Long-term debt due within one year Long-term debt Total

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Other (4) (37) (41)

Balances as of April 30, 2023 $ 3,975 $ 38,120 $ 42,095

During the three months ended April 30, 2023, our total outstanding long-term debt increased $3.3 billion primarily due to the issuance of new long-term debt in April 2023, partially offset by the maturities of certain long-term debt.

Balances as of July 31, 2023 $ 2,897 $ 36,806 $ 39,703

During the six months ended July 31, 2023, our total outstanding long-term debt increased $0.9 billion primarily due to the issuance of new long-term debt in April 2023, partially offset by the maturities of certain long-term debt.

Refer to Note 4 to our Condensed Consolidated Financial Statements for details on the issuances and repayments of long-term debt.

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From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors.

All repurchases made during the three months ended April 30, 2023 were made under the current $20 billion share repurchase program approved in November 2022, which has no expiration date or other restrictions limiting the period over which the Company can make repurchases.

As of April 30, 2023, authorization for $18.6 billion of share repurchases remained under the share repurchase program.

All repurchases made during the six months ended July 31, 2023 were made under the current $20 billion share repurchase program approved in November 2022, which has no expiration date or other restrictions limiting the period over which the Company can make repurchases.

As of July 31, 2023, authorization for $18.2 billion of share repurchases remained under the share repurchase program.

Any repurchased shares are constructively retired and returned to an unissued status.

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We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow.

The following table provides, on a settlement date basis, share repurchase information for the three months ended April 30, 2023 and 2022:

Three Months Ended April 30,

The following table provides, on a settlement date basis, share repurchase information for the six months ended July 31, 2023 and 2022:

Six Months Ended July 31,

(Amounts in millions, except per share data) 2023 2022

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Total amount paid for share repurchases $ 1,171 $ 5,747

Sale of Subsidiary Stock

During the three months ended April 30, 2023, the Company received $0.5 billion related to new rounds of equity funding for the Company's majority-owned PhonePe subsidiary, which reduced the Company's ownership from approximately 89% as of January 31, 2023 to approximately 85%.

Purchase and Sale of Subsidiary Stock

During the six months ended July 31, 2023, the Company paid $3.5 billion to acquire shares from certain Flipkart noncontrolling interest holders and settle the liability to former noncontrolling interest holders of PhonePe.

Additionally, during the six months ended July 31, 2023, the Company received $0.7 billion related to new rounds of equity funding for the Company's majority-owned PhonePe subsidiary.

Material Cash Requirements

Material cash requirements from operating activities primarily consist of inventory purchases, employee related costs, taxes, interest and other general operating expenses, which we expect to be primarily satisfied by our cash from operations.

Other material cash requirements from known contractual and other obligations include opioid and other legal settlements, short-term borrowings, long-term debt and related interest payments, leases, purchases of subsidiary stock and purchase obligations.

Capital Resources

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We have strong commercial paper and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets.

As of April 30, 2023, the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows:

As of July 31, 2023, the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows:

Rating agency Commercial paper Long-term debt

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis