Walmart Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview This discussion, which presents Walmart Inc.'s ("Walmart," the "Company," "our," or "we") results for periods occurring in the fiscal year ending January 31, 2025 ("fiscal 2025") and the fiscal year ended January 31, 2024 ("fiscal 2024"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three months ended April 30, 2024, 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, 2024, 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, 2024. 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. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole. Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker. Comparable store and club sales, or comparable sales, is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs for a particular period from the corresponding prior year period. Walmart's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated digitally, including omni-channel transactions which are fulfilled through our stores and clubs as well as certain other business offerings that are part of our ecosystem, such as our Walmart Connect advertising business. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Sales related to divested businesses are excluded from comparable sales, and sales related to acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies. In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S. dollar into U.S. dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior year period's currency exchange rates. Additionally, no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and the Walmart International segment in the future. Each of our segments contributes to the Company's operating results differently. Each, however, has generally maintained a relatively consistent contribution rate to the Company's net sales and operating income in recent years other than minor changes to the contribution rate for the Walmart International segment due to fluctuations in currency exchange rates. We operate in a 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 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. We compete with a number of companies for attracting and retaining quality employees ("associates"). We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events, weather and other risks related to climate change, global health epidemics, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, disruptions in supply chain and inventory management, cost and availability of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, general economic conditions, insurance costs, interest rates, labor availability and costs, tax rates, the imposition of tariffs, cybersecurity attacks and unemployment. 17 Table of Contents Merchandise costs continued to be impacted by inflation, however at a lower rate than we experienced in recent years. The impact to our net sales and gross profit margin is influenced in part by our pricing and merchandising strategies in response to cost increases. Those pricing strategies include, but are not limited to: absorbing cost increases instead of passing those cost increases on to our customers and members; reducing prices in certain merchandise categories; focusing on opening price points for certain food categories; and when necessary, passing cost increases on to our customers and members. Merchandising strategies include, but are not limited to: working with our suppliers to reduce product costs and share in absorbing cost increases; focusing on private label brands and smaller pack sizes; earlier-than-usual purchasing and in greater volumes or moderating purchasing in certain categories; and securing ocean carrier and container capacity. These strategies have and may continue to impact gross profit as a percentage of net sales. Further information on the factors that can affect our operating results and on certain risks to our Company and an investment in our securities can be found herein under " Item 5. Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence. For a detailed discussion on results of operations by reportable segment, refer to " Results of Operations " below. Company Performance Metrics We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs. At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate. We define our financial priorities as follows: • Growth - serve customers through a seamless omni-channel experience; • Margin - improve our operating income margin through productivity initiatives as well as category and business mix; and • Returns - improve our Return on Investment ("ROI") through margin improvement and disciplined capital spend. Growth Our objective of prioritizing growth means we will focus on serving customers and members however they want to shop through our omni-channel business model. This includes increasing comparable store and club sales through increasing membership at Sam's Club and through Walmart+, accelerating eCommerce sales growth and expansion of omni-channel initiatives that complement our strategy. Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar, which may result in differences when compared to comparable sales using the retail calendar. We focus on comparable sales in the U.S. as we believe it is a meaningful metric within the context of the U.S. 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, 2024 and 2023, were as follows: Three Months Ended April 30, 2024 2023 2024 2023 With Fuel Fuel Impact Walmart U.S. 4.9 % 7.5 % 0.0 % (0.2) % Sam's Club 4.6 % 4.6 % (0.7) % (3.0) % Total U.S. 4.9 % 7.1 % 0.0 % (0.6) % Comparable sales in the U.S., including fuel, increased 4.9% for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The Walmart U.S. segment had comparable sales growth of 4.9% for the three months ended April 30, 2024, driven by growth in transactions, with strong sales in grocery and health and wellness. The Walmart U.S. segment's eCommerce net sales positively contributed approximately 2.9% to comparable sales for the three months ended April 30, 2024, which was primarily driven by store-fulfilled pickup and delivery. Comparable sales at the Sam's Club segment increased 4.6% for the three months ended April 30, 2024, which benefited from growth in transactions, including strong sales in grocery and consumables and health and wellness. The Sam's Club segment's eCommerce sales positively contributed approximately 1.7% to comparable sales for the three months ended April 30, 2024, which was primarily driven by curbside pickup and club-fulfilled delivery. 18 Table of Contents Margin 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. We invest in technology and process improvements to increase productivity, manage inventory, and reduce costs, and we operate with discipline by managing expenses and optimizing the efficiency of how we work. Additionally, we focus on our mix of businesses, including the expansion of connected value streams with higher margins, such as advertising and membership income. 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, (Amounts in millions) 2024 2023 Net sales $ 159,938 $ 151,004 Percentage change from comparable period 5.9 % 7.6 % Gross profit as a percentage of net sales 24.1 % 23.7 % Operating, selling, general and administrative expenses as a percentage of net sales 20.8 % 20.4 % Operating income $ 6,841 $ 6,240 Percentage change from comparable period 9.6 % 17.3 % Operating income as a percentage of net sales 4.3 % 4.1 % Gross profit as a percentage of net sales ("gross profit rate") increased 42 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was primarily driven by the Walmart U.S. segment, due to managing prices aligned to our competitive price gaps, lower markdowns as a result of disciplined inventory management and favorable business mix, partially offset by mix shifts into lower margin merchandise categories. Operating expenses as a percentage of net sales increased 40 basis points for the three months ended April 30, 2024. The increase was primarily driven by higher compensation related expenses in our U.S. segments, including higher variable pay as a result of exceeding our planned performance as well as previously announced wage investments, and business reorganization costs, partially offset by expense leverage from strong sales growth in our International segment. Operating income increased $0.6 billion or 9.6% for the three months ended April 30, 2024, primarily due to the factors described above as well as from strong growth in membership income globally. Returns As we execute our financial framework, we believe our return on capital will improve over time. We measure return on capital with our return on investment and free cash flow metrics. In addition, we provide returns in the form of share repurchases and dividends, which are discussed in the Liquidity and Capital Resources section. Return on Assets and Return on Investment We include Return on Assets ("ROA"), the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP") and Return on Investment ("ROI") as metrics to assess returns on assets. While ROI is considered a non-GAAP financial measure, management believes ROI is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. ROA was 7.9% and 4.5% for the trailing 12 months ended April 30, 2024 and 2023, respectively. The increase in ROA was primarily due to an increase in consolidated net income during the trailing 12 month period, as a result of higher operating income and changes in the fair value of our equity and other investments. ROI was 15.0% and 12.7% for the trailing 12 months ended April 30, 2024 and 2023, respectively. The increase in ROI was the result of an increase in operating income, primarily due to lapping opioid legal charges as well as business reorganization and restructuring charges incurred in the comparative trailing 12 months, as well as improvements in business performance, partially offset by an increase in average invested capital primarily due to higher purchases of property and equipment. We define ROI as operating income plus interest income, depreciation and amortization, and rent expense for the trailing 12 months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and amortization, less average accounts payable and average accrued liabilities for that period. 19 Table of Contents Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure. For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. As mentioned above, we consider ROA to be the financial measure computed in accordance with GAAP most directly comparable to our calculation of ROI. ROI differs from ROA (which is consolidated net income for the period divided by average total assets for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; and adjusts total assets for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities to arrive at total invested capital. Because of the adjustments mentioned above, we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA. Although ROI is a standard financial measure, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI. 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, (Amounts in millions) 2024 2023 CALCULATION OF RETURN ON ASSETS Numerator Consolidated net income $ 19,681 $ 11,085 Denominator Average total assets (1) $ 249,554 $ 245,598 Return on assets (ROA) 7.9 % 4.5 % CALCULATION OF RETURN ON INVESTMENT Numerator Operating income $ 27,613 $ 21,350 + Interest income 553 323 + Depreciation and amortization 12,136 11,110 + Rent 2,291 2,301 = ROI operating income $ 42,593 $ 35,084 Denominator Average total assets (1) $ 249,554 $ 245,598 ' + Average accumulated depreciation and amortization (1) 115,841 108,730 ' - Average accounts payable (1) 55,170 53,597 - Average accrued liabilities (1) 25,810 24,294 = Average invested capital $ 284,415 $ 276,437 Return on investment (ROI) 15.0 % 12.7 % (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 two. As of April 30, 2024 2023 2022 Certain Balance Sheet Data Total assets $ 254,054 $ 245,053 $ 246,142 Accumulated depreciation and amortization 118,518 113,164 104,295 Accounts payable 56,071 54,268 52,926 Accrued liabilities 24,092 27,527 21,061 20 Table of Contents Strategic Capital Allocation Our strategy includes allocating the majority of our capital to higher-return areas focused on automation such as eCommerce, supply chain and store and club investments. The following table provides additional detail regarding our capital expenditures: (Amounts in millions) Three Months Ended April 30, Allocation of Capital Expenditures 2024 2023 Supply chain, customer-facing initiatives and technology $ 2,602 $ 2,715 Store and club remodels 1,546 1,236 New stores and clubs, including expansions and relocations 67 4 Total U.S. 4,215 3,955 Walmart International 461 474 Total Capital Expenditures $ 4,676 $ 4,429 Free Cash Flow Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. 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 provided by or used in financing activities. 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 $4.2 billion for the three months ended April 30, 2024, which represents a decrease of $0.4 billion when compared to the same period in the prior year. The decrease was primarily due to changes in working capital assets and liabilities, including timing impacts, partially offset by an increase in cash provided by operating income. Free cash flow for the three months ended April 30, 2024 was negative $0.4 billion, which represents a decrease of $0.6 billion when compared to the same period in the prior year. The decrease in free cash flow was due to the decrease in net cash provided by operating activities described above and an increase of $0.2 billion in capital expenditures to support our investment strategy. Walmart's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. 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. 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 provided by or used in financing activities. Three Months Ended April 30, (Amounts in millions) 2024 2023 Net cash provided by operating activities $ 4,249 $ 4,633 Payments for property and equipment (4,676) (4,429) Free cash flow $ (427) $ 204 Net cash used in investing activities (1) $ (4,409) $ (4,860) Net cash provided by (used in) financing activities (321) 1,940 (1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow. 21 Table of Contents Results of Operations Consolidated Results of Operations Three Months Ended April 30, (Amounts in millions, except unit counts) 2024 2023 Net sales $ 159,938 $ 151,004 Percentage change from comparable period 5.9 % 7.6 % Total U.S. calendar comparable sales increase 4.9 % 7.1 % Membership and other income $ 1,570 $ 1,297 Percentage change from comparable period 21.0 % 1.2 % Total revenues $ 161,508 $ 152,301 Percentage change from comparable period 6.0 % 7.6 % Gross profit margin as a percentage of net sales 24.1 % 23.7 % Operating income $ 6,841 $ 6,240 Operating income as a percentage of net sales 4.3 % 4.1 % Other (gains) and losses $ (794) $ 2,995 Consolidated net income $ 5,307 $ 1,896 Unit counts at period end 10,607 10,545 Retail square feet at period end 1,051 1,051 Our total revenues, which are mostly comprised of net sales but also include membership and other income, increased $9.2 billion or 6.0% for the three months ended April 30, 2024 when compared to the same period in the previous fiscal year. The increase was primarily due to strong positive comparable sales in our U.S. segments and international markets driven by growth in transactions, including strong sales in grocery as well as strength in eCommerce. Net sales were also positively affected by an extra day in February 2024 due to a leap year which increased net sales by approximately 1%, as well as $0.4 billion of fluctuations in currency exchange rates for the three months ended April 30, 2024. Membership and other income increased $0.3 billion or 21.0% for the three months ended April 30, 2024, primarily due to strong growth in membership income globally. Gross profit rate increased 42 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was primarily driven by the Walmart U.S. segment, due to managing prices aligned to our competitive price gaps, lower markdowns as a result of disciplined inventory management and favorable business mix, partially offset by mix shifts into lower margin merchandise categories. Operating expenses as a percentage of net sales increased 40 basis points for the three months ended April 30, 2024 when compared to the same period in the previous fiscal year. The increase was primarily driven by higher compensation related expenses in our U.S. segments, including higher variable pay as a result of exceeding our planned performance as well as previously announced wage investments, and business reorganization costs, partially offset by expense leverage from strong sales growth in our International segment. 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 $3.8 billion in other gains for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year, was primarily due to changes in the fair value of our equity and other investments driven by changes in their underlying stock prices. Our effective income tax rate was 24.6% for the three months ended April 30, 2024, compared to 29.5% for the same period in the previous fiscal year. The decrease in effective tax rate was primarily due to 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. operations and international operations, which are subject to statutory rates that may be different than the U.S. statutory rate. As a result of the factors discussed above, consolidated net income increased $3.4 billion for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. Accordingly, diluted net income per common share attributable to Walmart was $0.63 for the three months ended April 30, 2024, which represents an increase of $0.42 when compared to the same period in the previous fiscal year. 22 Table of Contents Walmart U.S. Segment Three Months Ended April 30, (Amounts in millions, except unit counts) 2024 2023 Net sales $ 108,670 $ 103,901 Percentage change from comparable period 4.6 % 7.2 % Calendar comparable sales increase 4.9 % 7.5 % Operating income $ 5,332 $ 4,984 Operating income as a percentage of net sales 4.9 % 4.8 % Unit counts at period end 4,609 4,684 Retail square feet at period end 698 699 Net sales for the Walmart U.S. segment increased $4.8 billion or 4.6% for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was due to comparable sales of 4.9% for the three months ended April 30, 2024, driven by growth in transactions, with strong sales in grocery and health and wellness. The Walmart U.S. segment's eCommerce sales positively contributed approximately 2.9% to comparable sales for the three months ended April 30, 2024, which was primarily driven by store-fulfilled pickup and delivery. Gross profit rate increased 46 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was primarily driven by managing prices aligned to our competitive price gaps and lower markdowns as a result of disciplined inventory management, partially offset by mix shifts into lower margin merchandise categories. Operating expenses as a percentage of net sales increased 48 basis points for the three months ended April 30, 2024, when compared to the same periods in the previous fiscal year, primarily due to increased compensation related expenses, including higher variable pay as a result of exceeding our planned performance and previously announced wage investments, as well as business reorganization costs. As a result of the factors discussed above, operating income increased $0.3 billion for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. Walmart International Segment Three Months Ended April 30, (Amounts in millions, except unit counts) 2024 2023 Net sales $ 29,833 $ 26,604 Percentage change from comparable period 12.1 % 12.0 % Operating income $ 1,533 $ 1,164 Operating income as a percentage of net sales 5.1 % 4.4 % Unit counts at period end 5,399 5,262 Retail square feet at period end 272 272 Net sales for the Walmart International segment increased $3.2 billion or 12.1% for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was primarily due to positive comparable sales in each of our international markets driven by strong sales in food and consumables as well as strength in eCommerce. Net sales benefited from the timing of certain seasonal events, along with positive fluctuations in currency exchange rates of $0.4 billion for the three months ended April 30, 2024. Gross profit rate increased 32 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was primarily driven by improved eCommerce profitability and favorable business mix, partially offset by ongoing format and channel mix shifts in certain markets, and price investments. Operating expenses as a percentage of net sales decreased 47 basis points for the three months ended April 30, 2024 when compared to the same period in the previous fiscal year, primarily due to strong sales across markets, disciplined expense management and ongoing format mix changes in certain markets. As a result of the factors discussed above, operating income increased $0.4 billion for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. 23 Table of Contents Sam's Club Segment Three Months Ended April 30, (Amounts in millions, except unit counts) 2024 2023 Including Fuel Net sales $ 21,435 $ 20,499 Percentage change from comparable period 4.6 % 4.5 % Calendar comparable sales increase 4.6 % 4.6 % Operating income $ 615 $ 458 Operating income as a percentage of net sales 2.9 % 2.2 % Unit counts at period end 599 599 Retail square feet at period end 80 80 Excluding Fuel (1) Net sales $ 18,703 $ 17,763 Percentage change from comparable period 5.3 % 7.4 % Operating income $ 515 $ 354 Operating income as a percentage of net sales 2.8 % 2.0 % (1) We believe the "Excluding Fuel" information is useful to investors because it permits investors to understand the effect of the Sam's Club segment's fuel sales on its results of operations, which are impacted by the volatility of fuel prices. 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 4.6% for the three months ended April 30, 2024, 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, 2024, which benefited from growth in transactions, including strong sales in grocery and consumables and health and wellness. Sam's Club eCommerce sales positively contributed approximately 1.7% to comparable sales for the three months ended April 30, 2024, which was primarily driven by curbside pickup and club-fulfilled delivery. Gross profit rate increased 58 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase in gross profit rate for the three months ended April 30, 2024 was primarily due to lapping inflation related LIFO charges in the prior year, and lower markdowns as a result of disciplined inventory management. Membership and other income increased 14.3% for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. The increase was due to growth in the membership base and Plus penetration. Membership income also benefited from lapping a prior year promotional offering related to previous membership fee increases. Operating expenses as a percentage of net sales increased 17 basis points for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year, primarily due to increased compensation related expenses, including higher variable pay as a result of exceeding our planned performance, and elevated technology spend. As a result of the factors discussed above, operating income increased $0.2 billion for the three months ended April 30, 2024, when compared to the same period in the previous fiscal year. Liquidity and Capital Resources Liquidity The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to fund dividends on our common stock and share repurchases. 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 for the foreseeable future. Net Cash Provided by Operating Activities Three Months Ended April 30, (Amounts in millions) 2024 2023 Net cash provided by operating activities $ 4,249 $ 4,633 Net cash provided by operating activities was $4.2 billion as compared to $4.6 billion for the three months ended April 30, 2024 and 2023, respectively. The decrease was primarily due to changes in working capital assets and liabilities, including timing impacts, partially offset by an increase in cash provided by operating income. 24 Table of Contents Cash Equivalents and Working Capital Deficit Cash and cash equivalents were $9.4 billion and $10.6 billion at April 30, 2024 and 2023, respectively. Our working capital deficit was $18.9 billion as of April 30, 2024, which increased when compared to the $17.0 billion working capital deficit as of April 30, 2023, primarily driven by an increase in short-term borrowings and an increase in accounts payable to support business growth, partially offset by a decrease in accrued liabilities due to payments related to the opioid legal settlement. 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, 2024 and January 31, 2024, cash and cash equivalents of $3.5 billion 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, (Amounts in millions) 2024 2023 Net cash used in investing activities $ (4,409) $ (4,860) Net cash used in investing activities was $4.4 billion as compared to $4.9 billion for the three months ended April 30, 2024 and 2023, respectively. The decrease of $0.5 billion for the three months ended April 30, 2024 is primarily the result of the change in other investing activities related to certain short-term investments, partially offset by an increase in payments for property and equipment. Net Cash Provided by (Used in) Financing Activities Three Months Ended April 30, (Amounts in millions) 2024 2023 Net cash provided by (used in) financing activities $ (321) $ 1,940 Net cash provided by or 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 provided by or used in financing activities. Net cash used in financing activities was $0.3 billion as compared to net cash provided by financing activities of $1.9 billion for the three months ended April 30, 2024 and 2023, respectively. The change in net financing cash flows is primarily due to lapping debt issuances in the prior year, partially offset by an increase in short-term borrowings. In April 2024, 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, 2024, all undrawn. Long-term Debt The following table provides the changes in our long-term debt for the three months ended April 30, 2024: (Amounts in millions) Long-term debt due within one year Long-term debt Total Balances as of February 1, 2024 $ 3,447 $ 36,132 $ 39,579 Repayments of long-term debt (1,574) — (1,574) Other (8) (204) (212) Balances as of April 30, 2024 $ 1,865 $ 35,928 $ 37,793 During the three months ended April 30, 2024, our total outstanding long-term debt decreased $1.8 billion primarily due to maturities of certain long-term debt. Refer to Note 4 to our Condensed Consolidated Financial Statements for details on the repayments of long-term debt. Dividends Effective February 20, 2024, the Company approved the fiscal 2025 annual dividend of $0.83 per share, an increase over the fiscal 2024 annual dividend of $0.76 per share. For fiscal 2025, the annual dividend was or will be paid in four quarterly installments of $0.2075 per share, according to the following record and payable dates: Record Date Payable Date March 15, 2024 April 1, 2024 May 10, 2024 May 28, 2024 August 16, 2024 September 3, 2024 December 13, 2024 January 6, 2025 The dividend installments payable on April 1, 2024 and May 28, 2024 were paid as scheduled. 25 Table of Contents Company Share Repurchase Program 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, 2024 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, 2024, authorization for $15.5 billion of share repurchases remained under the share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status. We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. 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, 2024 and 2023: Three Months Ended April 30, (Amounts in millions, except per share data) 2024 2023 Total number of shares repurchased 18.0 14.3 Average price paid per share $ 59.05 $ 47.82 Total amount paid for share repurchases $ 1,059 $ 686 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 short-term borrowings, long-term debt and related interest payments, leases and purchase obligations. Capital Resources We believe our cash flows from operations, current cash position, short-term borrowings and access to capital markets will continue to be sufficient to meet our anticipated cash requirements and contractual obligations, which includes funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases. 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, 2024, 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 Standard & Poor's A-1+ AA Moody's Investors Service P-1 Aa2 Fitch Ratings F1+ AA Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain consistent over time. Factors that could affect our credit ratings include changes in our operating performance, the general economic environment, conditions in the retail industry, our financial position, including our total debt and capitalization, and changes in our business strategy. Any downgrade of our credit ratings by a credit rating agency could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper markets with the same flexibility that we have experienced historically, potentially requiring us to rely more heavily on more expensive types of debt financing. The credit rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies. 26 Table of Contents Other Matters In Note 6 to our Condensed Consolidated Financial Statements, which is captioned "Contingencies" and appears in Part I of this Quarterly Report on Form 10-Q under the caption " Item 1. Financial Statements ," we discuss, under the sub-captions " Settlement of Certain Opioid-Related Matters, " and " Ongoing Opioid-Related Litigation, " the Prescription Opiate Litigation, the Settlement Framework, and other matters, including certain risks arising therefrom. In Note 6 , we also discuss, under the sub-caption " Asda Equal Value Claims " the Company's indemnification obligation for the Asda Equal Value Claims matter as well as under the sub-caption " Money Transfer Agent Services Matters " a United States Federal Trade Commission complaint related to money transfers and the Company's anti-fraud program and a government investigation by the U.S. Attorney's Office for the Middle District of Pennsylvania into the Company's consumer fraud prevention and anti-money laundering compliance related to the Company's money transfer agent services. In Note 6 , under the sub-caption " Mexico Antitrust Matter ," we also discuss a quasi-judicial process initiated by the Comision Federal de Competencia Economica of Mexico against Walmex. We reference various legal proceedings related to the Prescription Opiate Litigation, the Settlement Framework, DOJ Opioid Civil Litigation and Opioids-Related Securities Class Actions and Derivative Litigation; Asda Equal Value Claims; Money Transfer Agent Services Litigation; and Mexico Antitrust Matter in Part II of this Quarterly Report on Form 10-Q under the caption " Item 1. Legal Proceedings ," under the sub-caption "I. Supplemental Information." We also discuss items related to the Foreign Direct Investment Matters in India and the Driver Platform Matters in Part II of this Quarterly Report on Form 10-Q under the caption " Item 1. Legal Proceedings ," under the sub-caption "II. Certain Other Matters." We also discuss an environmental matter with the State of California and an environmental matter with the U.S. Environmental Protection Agency in Part II of this Quarterly Report on Form 10-Q under the caption " Item 1. Legal Proceedings ," under the sub-caption "III. Environmental Matters." The foregoing matters and other matters described elsewhere in this Quarterly Report on Form 10-Q represent contingent liabilities of the Company that may or may not result in the incurrence of a material liability by the Company upon their final resolution.