‘We’re a company that wins in any type of economic environment’

Why do you think your stock price is at a record high?

The more that I learned about Walmart and where they’re going, I just felt like they have all the tools in place. They’ve made all the investment to be really successful here. And, to be clear, be successful on a digital journey where they’ve been more brick-and-mortar. And what Walmart had already was a great brand and hundreds of millions of customers that were shopping each week there. And they were simply now allowing them to shop in ways that customers wanted to do through digital channels.

You were an outside executive when you joined from being PayPal’s CFO. Was it hard to get acclimated to a culture where a lot of people get promoted from within?

I’m the first CFO, I believe, in over two decades that was hired from outside the company. And I have to admit that when I first started, I thought, there’s a lot of eyes on me and it was like, who is this new guy?

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But Doug [McMillon] didn’t hire me to be an expert in retail. I have people working for me that I’ll never know as much about retail as they do. My job was to help with the strategy, help with what we’re doing from an enterprise perspective, help with financial operations. And the culture here really embraced me.

How did being the CFO of United Airlines and PayPal prepare you for this job at Walmart?

Helping to lead a fast-growth digital business like PayPal and combining both of those experiences really fit well at Walmart. I can remember at United, one time, I took a trip with my family to Hawaii. We were sitting in first class and through the course of that flight, I was served food and got 18 different pieces of silverware. And I landed and, of course, jet fuel is one of your largest expenses. I’m like, this is crazy. What if we serve four pieces of silverware? What would be the fuel savings? Because the weight of that, wow, it was a million dollars a year, just on that one flight, just from silverware. And so it shows you how thin the margins were in that business.

And so you go from that environment to PayPal, which was growing 20% plus a year, had 20% plus margins, adding hundreds of millions of customers, and then bringing both those perspectives to Walmart.

Is it hard to find cost savings at a company like Walmart, which is known for being super efficient?

We do have a culture of what we call everyday low cost. And we do that to provide everyday low prices to our customers. But like every company, we have opportunity. We can look at opportunities in procurement, buying corrugate or cardboard or things like that, and leveraging our scale to get better pricing. We have inefficiencies, just like every company, but that’s the journey that we’re on. We’ve talked publicly about getting to a target of 20% sales general and administrative costs as a percent of our revenue. We’re not there yet, but I’m hopeful that with all the teams working on this, we eventually will.

What changed in Walmart’s business this year that allowed it to put up better sales and profits than in prior years?

It didn’t happen by accident. It’s not an accident that almost 20% of our business is e-commerce. It’s not an accident that we’re gaining share, and that’s mostly coming from households that make more than a hundred thousand dollars a year. It’s not an accident that we delivered over 4 billion items in the last year [on the] same day or next day. This is a part of our strategy. And what you’re seeing right now is all the pieces of this strategy beginning to come together, and it’s coming together in a way where, between this year and next year, we’ll grow operating income about 10% on average each year.

Can these growth rates continue?

I even think we’re somewhat insulated because when the economy gets more challenging for consumers, they come to us for value. We’re the company that provides everyday low prices. But what’s different now, we’re also known for convenience. So I think we’re a company that wins in any type of economic environment.

What we’re doing now is growing in these digital channels that is unlocking new revenue streams for us. Things like advertising, fulfillment services, data monetization, all which have higher margins. And so you’ve got this core retail business that is growing at GDP, low margin, but all these other businesses that are growing at 20% to 30% to 40% a year that are much higher margin than that.

Does Wall Street get it now?

I actually think in the last quarter, maybe two quarters, you’ve seen this flip, and maybe the best evidence of this is our PE [price-earnings] multiple. It has increased from something like 22 times to above 30 times right now. To me, PE multiples are a function of growth and certainty.

Is the e-commerce business making money?

Sam’s today makes money. We have international segments that make money. Walmart US is getting really close. But this is not something I’m worried about. It’s no longer a question of if, it’s a matter of when.

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There’s a couple things that are contributing to that. One is we talk about this densification of our network. When you deliver a package to one house on the street versus five houses on the street, you’re spreading those costs over more volume.

The other thing that we’re seeing is consumers’ willingness to actually pay for expedited delivery. What we’re seeing is that a fully 30% of customer orders from one of our stores, someone is willing to pay … to have expedited delivery within an hour or within three hours.

Why do you think you are gaining market share with higher-income shoppers?

We’re being recognized right now as being more convenient for customers. That appeals to all households irrespective of what your paycheck is or how much money you’re bringing in each month. And convenience really matters. Everybody wants to have that immediacy when they order something. And we’ve just gotten much better there.

Should President-elect Donald Trump implement tariffs in 2025? Would that hurt Walmart’s progress?

We certainly don’t want them because we want lower prices for our customers. But we’ve lived in a tariff environment for seven years now. We will work with our suppliers and through our own private brand assortment to try to bring down prices, but tariffs are going to be inflationary for customers.

How do you keep prices low in a tariff environment?

One of the things that we’ve been focused on for years is diversifying our supply chain, irrespective of what company or country we’re talking about. It’s good to have that surety of supply. We’ll have to see where tariffs are applied and what the percentages are. But we can also often look to source something from a different area, which may be where a tariff is not applied.

Are you allocating a lot of capital to artificial intelligence?

There’s a lot of back-office type, more mundane tasks that you can automate. And we’re doing some of that today. But aside from AI, technology investment is something that is really important for us and I think fundamentally different than a lot of other customers. The area that I like to point to on technology is what we’re actually doing in Sam’s Club.

And so you’re familiar, I think, with Scan and Go. You walk out under these exit arches without ever going through a checkout. The interesting thing about this is those customers that use Scan and Go, the Net Promoter Score is 90.

Lastly, what should investors expect from Walmart in 2025 in terms of growth?

I think our digital businesses, when we look at our forward projections over the next three to five years, most of our growth is coming digitally. That’s where most of our operating income — or growth — is coming from as well. Even in the most recent quarter, if you look at the increase in operating income year over year, over half of it came from membership income and advertising.

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