Walmart Stores (WMT) U.S. Strategic Update Conference Call (Transcript)

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Wal-Mart Stores, Inc. (NYSE:WMT) Walmart U.S. Strategic Update Call April 1, 2015 10:00 AM ET

Executives

Carol Schumacher - Investor Relations

Charles Holley - Chief Financial Officer

Greg Foran - CEO, Walmart U.S.

Judith McKenna - COO, Walmart U.S.

Analysts

Simeon Gutman - Morgan Stanley

Matt Fassler - Goldman Sachs

Craig Johnson - Customer Growth Partners

Bob Drbul - Nomura Securities

Paul Trussell - Deutsche Bank

Matt Nemer - Wells Fargo

Chris Horvers - JP Morgan

David Strasser - Janney Capital Markets

Greg Melich - Evercore ISI

Dan Binder - Jefferies

Joe Feldman - Telsey Advisory Group

Bernie Sosnick - Gilford Securities

Budd Bugatch - Raymond James

Wayne Hood - BMO Capital Markets

Michael Exstein - Credit Suisse

Scott Mushkin - Wolfe Research

Carol Schumacher

Good morning, everyone on behalf of Walmart’s Investor Relations department. Thanks for joining us today. And I am Carol Schumacher with the Walmart IR team. In front of you on the tables, you will see that we have our forward-looking statement there. And I want to remind you that during the presentations and also during the Q&A today, some of our executives maybe making forward-looking statements. For further information regarding our filings and other earnings related information, please check our website that’s stock.walmart.com.

This meeting is being audio webcast and the webcast will include a Q&A. There will be a transcript available, but due to the time of getting that done, it will not be available until tomorrow, but the transcript along with the audio webcast will be available again at stock.walmart.com.

On behalf of our team, I am very happy to introduce the members of our executive team from Bentonville, Arkansas. On the side, you all know Charles Holley, our CFO of Walmart Stores, Inc.; next to Charles, Greg Foran, the CEO of Walmart U.S.; on the other side, Judith McKenna, who is our Chief Operating Officer for Walmart U.S. and Jeff Davis, who I think many of you know, previously was Treasurer and now is CFO of Walmart U.S.

We’ll start today with some remarks from Charles and we will have some formal remarks; there are no slides and then we’ll go to Q&A. So Charles, I turn it to you.

Charles Holley

Thanks, Carol and welcome everybody. It's good to see you again. Thank you for being here and taking time out of your day to visit with us. So why are we here? You might remember, Greg, had mentioned back in October, he was very new to his position and he promised to come back and give you his thoughts and observations of the business and what he thought we wanted to do going forward. So, we thought this was a good time. He’s been in role now for approximately eight months, so he has a pretty good idea of the business.

I’ll just say a couple of things about the business right now. We’re not here to talk about our first quarter, so we’re not going to read-up our guidance or anything like that. But I will say we are very consistently what you heard back in October and in the fourth quarter earnings release, we’re very focused on price; assortment; our experience and our access.

Now, we’re also -- now when I talk about that, I am talking about the core business that we have, making sure we want a very good core business whether it's in Walmart U.S., whether it's in Canada, Mexico, Brazil or China and in addition making sure that we’re making the investments to stay relevant with our customers in the future. You heard us talk about we’re making the largest investment that we’ve ever made, as far as the integration of physical and digital. We feel like we’re in better shape than anybody out there and prepared better than anybody to leverage what we already have to integrate the digital and physical. I think that’s very important. As far as this year, we have a very good tailwind and that’s been gas prices which we’ve talked about a lot in our fourth quarter earnings release. But we have three really big headwinds, I think and the first one obviously was the investment that we’re making in our wages and in our associates; the second one would be our continued stepped up investment in global e-commerce; and the third is foreign exchange. Foreign exchange continues to weigh heavily for our foreign operations as we translate back to the U.S.

Walmart is very committed to returning back to shareholders. And I don’t see any change in the short-term future on how we look about our allocation of capital and how we want to make sure that we have good dividends for our shareholders and that whatever is left over, we use for share repurchase if not for acquisitions that are available.

With that Greg, I’ll turn it over to you to say few things.

Greg Foran

Thanks Charles and good morning everyone. I am really pleased to be here with you this morning and have the opportunity to give you some updates on the Walmart U.S. business. I am joined today as Carol has already mentioned by Judith, our COO; and Jeff, our CFO; and also by Scott Huff just over here who is our EVP of Merchandising Operations. Judith and I going to give you an update over the next 13 minutes and then we’ll be happy to answer any questions Following the formal agenda, we’ll share a quick lunch with you and will be available for further discussion.

We’re going to cover three topics with you today: Firstly and quite quickly, some principles our team manages the business by; secondly, key findings from the review that we conducted on the business; and thirdly, the sequence plan that we’re going to be implementing following this assessment.

Building a strong and enduring business is both strategy and principles. Let me begin with the principles: One, tell the unvarnished truth, if you acknowledge the issue, you can begin to address it; two, make hard decisions; three, explain the strategy to your team so they understand and are committed to what you are doing; four, trust in you associates and take care of them; five, keep things simple; and finally, six, play it away. As I look at the opportunities that we have before us, I know that these principles will serve us well.

So, to the review, as Charles has mentioned, I’ve been here eight months, and over those eight months, I’ve spent quite a lot of time around our stores, listening and learning whether it’s walking with the third shift by the night managers in Wichita or stocking the shelves with our associates in Sioux Falls or talking about out of stocks with customers on the sidewalk in Nashville or listening to customer calls at our call centers; it’s been a busy few months. Judith has likewise been pounding the action aisles and the side counters as has all of our senior team. Why? Because it’s way we do business. It’s where the moments of truth occur whether it be cleaned stores, in-stock quality afresh, ease of store pick-ups, or checking out.

I know that when you get these things right, you add in terrific assortment and low everyday prices. You have a healthy growing business. So, what we learned? I’m going to share with you eight key points in particular. But before I begin, let me say I believe that Walmart is the greatest retailer in the world and I’m truly honored to lead our business here in the U.S. Part of what gets me excited is that in our DNA, we’re always looking for better ways to serve our customers.

So, to the review, first point, over the last few quarters, we've found that we've got opportunities to improve the shopping experience, and Judith will cover this in some more details. When I say opportunities, I mean areas where we can further strengthen our shop keeping skills and in turn the customer experience. Our processes require some rework, might be overnight stocking, markdown cadence, rotation of fresh food are just some.

We want this year to be the year of improving our stores. So by the time we hit holiday season, our stores are clean, tidy, well merchandised and run by engaged associates. Today in the main, we’re not. Of course there are bright spots. I was visiting our stores in Boise, Idaho just last week and I liked what I saw. It’s a tough market, strong competitors, but our stores are clean; our fresh was fresh and our department managers were engaged. If you’d like to know where I would like our business to be by the holiday season, visit Boise.

Two, our inventory quantity and flow can be better. We’ve got too much inventory in the backrooms and our processes are not where we want them to be and that’s causing some undue shrinkage and some out of stocks. We’ve had too many PDQs or displays, not allowing associates to merchandise the store, their store the way they need to for their customer. Our modulus and merchandise flow can be much better. There are lots of opportunities.

However, we’ve already made some changes as part of our agents and changer initiatives that I talked about in October. We’ve reduced the number of PDQs that are flowing to stores. We’ve given our store managers control of an important share of the merchandise space to ensure localization and ownership. We started to reduce the price of products, nearing expiration date to give value to customers and to reduce shrinkage. We estimate this markdown initiative alone is delivering a retail run rate saving of over $500 million annually; a small number turns a big number, is a big number.

Point three; we’ve got some opportunities in store layout and design. Both Supercenters and Neighborhood Markets have potential to be better adjacencies, flows, side lines, lighting even the temperature in some of our stores. Some of the stores recently opened in our opinion are not quite as good as ones that we had opened in previous years. Customer convenience and space has been compromised. But I can tell you that I like Supercenters and I like large Neighborhood Markets, both working in tandem; leveraging off one another; well designed and operated, these truly are powerful and enduring formats. We have a store in Las Vegas that I was in recently; they made simple and sensible changes to how we lay out produce areas of the store; plus they added labor to the department to better curate the merchandise. Our store manager Donna and her associates have within just four short months taken the percentage of baskets with produce from 25% to 45%. That’s the productivity loop in action.

Fourthly, the integration of physical and digital retail: With over 4,500 stores, we are within 10 miles of nearly 90% of all Americans. As we continue to expand, that equation becomes even more fascinating. That is a competitive advantage. But both grocery home shopping and pick up are areas where we can be better from many aspects. This is a very, very exciting landscape.

Point five; we’ve got opportunities with adjacencies like gas, care clinics and financial services. We have a mindset that we are building scalable profitable businesses whilst driving additional traffic to our stores. Consider how important pharmacy is to Supercenters and Neighborhood Markets as a traffic driver.

Point six, we have opportunities in price. And whilst we have pockets of leadership, in more competitive markets, our gain is too small. And again some competitors, we are big; once more we lost a little bit of our muscle for reacting quickly. And I also believe that was straight from executing some of our EDLP principles consistently.

This year, we are focusing on addressing our store experience. And we are working through what announced in time, we will invest in price. Although I can assure you price remains everyday part of our discussions and actions. We have identified opportunities to get there without compromising service or assortment. I continue to be encouraged by some of the actions we’re taking and the resulting uplift. For example Andy Barron, our SVP for Softlines, and his team developed a cami or tank top for this season, great quality; unbelievable price, $1.68. We projected sales for this item to be 13 million units this season versus 6 million that we did the previous season. Andy came to me the other week and said he’s upped the order to 50 million units.

Point seven, assortment, it’s the life blood of our business. When we get the assortment right, we know that the customers respond. The apparel team has driven strong comps over the last year; as well seasonal continues to be a little highlight. I am impressed with what those teams delivered last year and I am looking forward to Easter. I don’t think anyone has a better Easter assortment than Walmart. And note our assortment focus is not just in general merchandise, but in fresh, grocery and private label.

And finally point eight, our job at the home office in Bentonville is to serve the stores to in turn serve customers. Sam Walton, founder of our business based on this principle. But to be frank, in some recent years, we’ve slipped a little away from this. We’ve recently undertaken some important activities to simplify our organization and empower our stores, our associates in our stores to make decisions, but more to do.

So that in a nutshell is what was learned, eight key points and with it lots and lots of detail. We’ve got plenty of opportunity, but as I often say to my team, you get one point for talking about it, nine points to do it.

So let's move on and share with you what are we doing and what we intend to do. We have as I talked priority to grow sales and market share and that starts with improving the core and concurrently investing for the future to help our customers shop anywhere, anytime. I’ll share briefly our plan of attack on this. We’ve developed a number of specific and large projects that for the purpose of this presentation will group into four areas, exactly the same that Charles just shared with you: Assortment; price; experience; and access. I am going to cover three of those whilst Judith will dive into experience.

So first to assortment, we’ve got a few projects that into this broader heading; they are building an assortment discipline, fresh, private label and omnichannel. Now speaking to each of these, we know that we’ve lost some of our muscle in building a customer relevant assortment and we’ve been slow in using data to help achieve this. I am pleased to tell you that this project is now well underway and we’ll roll it out sensibly and carefully over the next 18 months to 24 months. We’re establishing customer decision trees based on data about how our customers shop; building substitutability in loyalty tool to assist with choice; and driving disciplines around the design and building of modulus and store all of this and much more fits into the space. Likewise, you’ve heard me comment about fresh. This is a complex and challenging area and further progress will need to be steady and sure.

As with all of these projects the applications to Neighborhood Markets and Supercenters is extremely relevant. At our Year Beginning Meeting, we brought 500 assistant managers, one from each market to go through special fresh training. I spent 12 hours on the floor with those managers listening, learning and teaching. While we are the largest private label player in the U.S., we can and should do more. Our customers love it and it delivers on our promise, but we’re not fulfilling our mission of save money and live better, if we don’t provide a more competitive price offering in some private label areas. We’ll sensibly lean in to this opportunity, but never compromise on quality.

And finally omnichannel will see us leverage our physical and digital capabilities. We need to strengthen our leadership here and I’ll talk more about that later.

Now the price, the second of the four areas: We’ve got stable projects that will assist with price. Firstly, we’re focusing on EDLP, not that margin. We’re developing new tools to competitive pricing. We’re leveraging the learnings from GEC and experiments that we’ve conducted in the past. Secondly, we’re looking at how we source product in a very systematic sensible way, including commodity pricing, especially as we see some of these key materials falling worldwide. And our urgent agenda program continues to deliver some very good results and it is funding some of the early investments in customer experience and price. Walmart’s formula is no secret. We use the productivity loop level to deliver lower prices to our customers.

On to experience, the third area, we’ve got several projects here from the store operating model to a couple of urgent agenda pieces. Judith, over to you.

Judith McKenna

Thank you Greg and good morning. And I am very clear that the priority for operations for this year is to improve the customer experience. And I’m going take a few minutes just to talk you about some of the things we are trying to do to simplify the business, but also couple of the major projects that fall into this area that Greg mentioned.

Our job is to run good stores. And we know that if we make life easier for our associates, they will have more time to serve our customers. So, one of the things that we've done is actually go back to some of the fundamentals and core principles of how we run retail. Retail isn’t rocket science, but sometimes it’s easy to get distracted by the number of things that are going on. So one of the things that we did at our Year Beginning Meeting this year is we stripped our agenda back very simply for stores and to sick fundamentals. And these won’t be a surprise to anybody but they start with people. Our job is to get, grow, train and keep our people and also to teach and train in our stores.

Secondly, it’s about service basics. The three things that matter most to customers are clean, fast, and friendly. And we’re adjusting the way we operate to make sure we make those real priorities. Thirdly, it’s availability, getting items from the backroom on to the sales floor available for customers to buy them. Fourthly, a focus on fresh, particularly for stores, we’re asking them to look at niche and produce as hero departments, merchandising. We’re giving a bit more freedom to merchandise to our stores; we want them to have fun with that; we want them to drive sales as a result of this. And connected, and digitally connected in stores is all about the experience of bringing digital and physical together and against the stores the priority is all around pickup, and we’re introducing that picks that help us measure things like wait times which we haven’t had previously.

Now as I said, all of these are different but what’s different about them is the way we’re going to focus on them, the way we’re going to be disciplined in the way we measure them and the way we talk about them every day in the business. Now to do that for example is introducing the specific [ph] reporting that just brings those 60 things together and the metrics behind them that we measure. We put them in one single report available digitally to our store managers and then being able to do that which is more than 80 surplus reports, they don’t have to go into anymore. And we’re also looking the way we reward people around those.

So this year we've introduced customer experience metric into our market managers, our store managers and increased proportion from our share for our associates. So, we really are committed to moving that forward, which brings me to the two major projects, Greg has already mentioned one of them, which is urgent agenda. And to give you an update on some of the things that we talked about at the October analysts, we said it was inventory, markdowns, returns and outlier stores.

The good news is that returns and outlier stores, we’ve been pleased with the progress and we’ve moved those back into business as usual. We’re continuing to focus on markdowns and we’re making good progress there but we’re also continuing the progress in inventory. And it’s easy to talk about inventory in terms of the numbers but actually it’s really important from a simplification perspective in stores because with less inventory in the box, it’s easy for our associates to do their job; it’s easier to keep that customer availability, moving items from the backroom to the sales floor but actually in a much more productive manner. That’s urgent agenda.

The second is the major projects; we’re putting together into our funnel which is store operating model. And that’s got three key elements to it: The associate proposition; the customer proposition; and store process. To touch on those briefly, the associate proposition, we’ve already heard a lot about. I am glad that we’re going to mention it in a moment, the star rate changes that we made for associates. But it isn’t just about the way just that we pay that’s important, it’s about the hours that we give as well.

So, we’re also doing a lot of work around scheduling to give more choice to our associates but also to give more clarity as the hours they are working because that really drives engagement. We’re also looking at training. We talked about pathway which is a new training program that we’re introducing for associates when they start to be able to have opportunity to offer the right skills to be successful. And we’re also looking at departmental managers, and putting more departmental managers back into our supercenters where they matter most, where the work needs to be done most to help drive our customer experience.

The second area is around customer proposition and that’s going around further in the stores. We said that the new team is going to own customer service and what that means and what we expect from it for our customers. Their number one focus for this year will be the frontend. We’re really encouraged by the way checkout promise worked to Christmas; we got some fantastic feedback from customers but from associates as well. We have enough registers open to move people through quickly. And it’s one of the areas we’ve invested hours into, so this year we will continue to focus on that.

And then the third area is business process. And actually this is all around simplification as well. And it’s a little things; it’s from trialing iPads in stores which some of you have been asked, you may remember that we introduced that a few years ago that a store manager has all information that they need at their fingertips to see what’s going on the shop floor not in the backroom. But more importantly it’s the big process review. And the key one that we’ve got underway at the moment is this one of how do we move products and it’s coming in the backdoor to getting on to the shelves. There is lots of moving parts with that. There is no single silver bullet to correct what we’ve got but actually by using best practice from around the world, we think over the course of this year, we can make a big difference.

So, all of these things together are the priorities that we’ve got to drive the experience. It’s about being very focused about what we’re going to do; being very disciplined about what we’re going to do; and measuring and managing the results of this. It’s not going to happen overnight but it’s a progress that we’ll make towards the holiday season and get our stores set for our customers. Greg?

Greg Foran

Thanks Judith. Let me finish off by sharing with you some of the projects that we have underway with access which fundamentally is driven around convenience. Our customers want to save even more time today. And as I mentioned earlier, we believe we have an incredible advantage to serve them given our large store base and supply chain.

This year we’ve expanded the grocery home shopping teams to include Phoenix, Arizona and Haynesville, Alabama. You’re going to start see our orange pickup signs and stores this year. Customers can take advantage of our prices and convenient locations to save on shipping cost. Access also involves changing our formats to serve customers even better. And we’ve got a capital work streams underway there. They include reinvention of both the supercenter and Neighborhood Market and work on our next generation supply chain which supports the integration of digital and physical retail.

There are opportunities for us to significantly update and improve things like space allocations; adjacencies; ambience; navigation; and flow in both of our formats. We’re working on this now as we are also on the next generation of our supply chain, one that leverages moving pallets with features one unit and looks at inventory across the entire enterprise.

So, we had significant multiple projects underway and we’ve shared some of the details around those with you this morning. I can assure you that each of them is sponsored and led by some of our best people. Each is carefully scoped and resourced; each tracked against agreed metrics and milestones. As we think about how these play out, the key takeaways are that we’re going to focus this year on addressing our core operations; we’ll also focus on generating the funds that allow us significant, multiyear price investment in both physical and digital.

Before I close, I do want to talk about most important group of al, our people. They’re the ones who make the difference in our business every day. When we made our announcement in February that we were investing more in our associates, our decision to raise starting wages to $9 this month and $10 next year, grabbed most of the headlines. But actually what we announced is much more comprehensive. As Judith mentioned, it involves training; schedule changes; enhancements to benefits; and putting department managers, the kings of our court back into our stores. We believe these changes will make a difference to our business, helping with turnover and retention. Already 75% of store management team started with all the associates. With better pay and clear career path, we will grow and develop the best talent in retail.

To close let’s play it forward two to three years. You went to a Walmart Supercenter, its light; it’s bright and it’s large. You were struck by the ease by which you can see where you want to find what you want and where you need to go. The fruit and vegetables are tending, the color vibrant as is the rest of fresh and you easily navigate through the store; the items are relevant and merchandised effectively and attractively; associates with the product and are easily identifiable and are helping customers.

It’s clear that prices are a source of pride and dissolved without any gimmicks. You’re taken by the stunning value you see on any in case and you see a brand that you never expected to see in a Walmart store and are attracted to an item that shouts value. Customers around you are using their mobile phones to order online for free pick up in the store or maybe to confirm that Walmart does regularly win on price. You’re through the checkout quickly and efficiently and you pick up that birthday gift that you ordered online and you exit the store. You remark to your partner as you leave that Walmart does really save you time and money.

Retailing is a simple business. We buy some merchandise and we sell. Our ambition is clear, we will grow sales; we will improve the core operations by running great stores; we will leverage by integrating digital and physical in ways only Walmart can; and we will continue to invest in our associates.

We’ve got a lot of work to do, but I am very confident about our future. With our footprint of over 4,500 stores, we are uniquely positioned in the retail landscape to win the features customer shop in our stores online or on mobile phones. With these strengths combined with our investment and associates, we will reset the legacy we inherited from Sam Walton, leading the next revolution in retail to save our customers money, so they can live better anytime, anywhere.

Some of you may know, but likely not that one of my sons is a pretty good rugby league player in Australia. As we’ve said to one another for all the talk of kicks, passes and plays, the key ingredient in that game is belief; you either take it away from the opposition and feed your own or the equation goes the other way, belief. The mean that is Walmart believes. Thank you. Let's open it up for some questions.

Carol Schumacher

Before we get underway with the Q&A, let me just remind you that you do need to wait for a microphone so that those on the webcast can also hear the questions, as can our executives up here. And we’d ask that you please state your name and your firm before you ask the questions. Simeon, I think you had your hands up ahead of everybody, so we’ll start with you.

Question-and-Answer Session

Q - Simeon Gutman

Thank you. Simeon Gutman, Morgan Stanley. Greg, curious on age old question of pricing; you talked about it and you mentioned that it's still in the works. After studying and been around in this business for a little longer, curious if you can diagnose the price position today and if you think changes down the road are going to be tweaks or maybe larger adjustments? And of course this article this morning talking about getting some savings with some of your vendors to the extent that’s true, if you can comment on and will those savings be reinvested back into price or through alternate marketing channels? Thanks.

Greg Foran

As I get around, I see quite a difference in price across the widths and breadths of America to be honest. We track it very carefully and very closely. And Scott and his team have had really been lenient to get us some robust data. We continue to be extremely focused on price, and I hope that came through by what I see. And we’re not moving away from that at all. But we also recognize that assortment and the experience that you have in store is pretty important as well. And we’re going to make sure that we get that part of the equation right; we’re focusing heavily on that this year without taking our objective of continuing to ensure that Walmart does win on price. We’re not moving away from that. We will remain true to everyday low price. It's a big country, its’ going to be competitive areas, there will be areas that will be less competitive, but Walmart has a very strong intention which I intend to follow through which is that we unbelievably competitive on price and continue to hold that position.

Simeon Gutman

And as far you are talking about the article on the Wall Street Journal, Greg I would think that that article didn’t say anything new for us at all. We work with our suppliers to try to get the cost down so we can run everyday low price, I don’t know that anything new there.

Greg Foran

Absolutely, so would you expect Walmart to be out there checking the prices of commodities and having appropriate discussions, do you ought to be disappointed in a business that’s of our scale and size is not on top of that. And reaffirmation of everyday low price all of you in this room are pretty familiar how that works. And you are probably starting to realize that I am a very strong supporter of that; I am not into gimmicks, I’m into simplicity ensuring that we negotiate the very best price and then pass that price on to our customers.

Carol Schumacher

And we’ll go to Matt Fassler and then we’ll come back up front.

Matt Fassler

Thanks a lot. Good morning. It's Matt Fassler from Goldman Sachs. And I want to ask about food ecommerce home delivery that theme. Can you talk about your learnings so far from the tests that you’ve run; your initial view on the optimal model for that business? And as you roll out to additional markets, is this to facilitate additional tests or is it roll out what you think you’ve proven to-date?

Greg Foran

I’ll make a couple of comments and then Judith, please jump in. So, we’ve been in Denver now for I guess coming up a year and continue to feel very good about what we’re seeing and what we’re learning in Denver and obviously feel good enough about to now take into Phoenix and take into Huntsville, Alabama. In each case, we’re experimenting; we’re fixing; we trial on some new things and learning quickly. The most important thing is that as we get around those stores, I can tell you that feedback from the customers is very, very positive; they like what we’re doing, and also strongly supported by our associates.

Judith McKenna

The only thing I’d add to that is we’re indeed still testing different elements of this; Denver is a very developed market for us within that. But going into Huntsville and to Phoenix that can be very different types of market with different market demographics that go with those and equally we’re testing in some of those pickup only versus pickup and delivery. So, as far as what the economics of everything looks like, all of those are part of the testing process that we’re going through.

I would echo what Greg said in terms of customer response and it’s been very strong as we've launched into Phoenix and into Huntsville in particular.

Carol Schumacher

Okay. We’ll go, Craig here front.

Craig Johnson

Craig Johnson, Customer Growth Partners. Greg, I would like to follow-up on something -- two things. One, you mentioned at the end of your presentation in terms of competition and second an area, I don’t think you touched on that’s traffic and trips, particularly trip missions. By our analysis, it looks like you all have been at best holding share in terms of share of trip missions. Meanwhile most of your competitors that are gaining share whether it’s Kroger, Costco, the Dollars, the off prices are all gaining share of market and they are all gaining share of trip missions. Could you address what -- any learnings you got out of your review that you’ve been doing in terms of what you are finding out in terms of your traffic, you share of trip missions, what learnings you got out there, and what recommendations and what you are doing about it, what are you planning to do about it?

Greg Foran

I think it’s a pretty good indicator of how any business is going; that’s been my experience. One of the things that I avoid doing is in this role is spending a lot of time dealing with averages. So I am pleased to hear that as you talk about it, you break it down to individual competitors. We are a big player; there are lots of other big players out there. So, what I like our team to do is to focus on specifics and ensure that we address those specifics.

Our plan is to get traffic counts up in store. You heard me reiterate how important it is to get to core part of our business going. As I get around the stores, I see lots of opportunities and so it is due to just due to basics data, improving in stock. We are not where we need to be on in stock yet but I can tell you that there wouldn’t be a day that goes by that my colleague over here Scott is not working extremely hard on it because he hears lots about it, not just from me but from other people.

We’ve got to improve in stock; we’ve got to improve fresh; we've got to look at some of the adjacencies and layouts that we have in stores. And all of that I’ve learnt over the years will encourage customers to go to store and encourage customers who are in your store to actually buy more. There is no quick seal to fix that. You actually have to roll your sleeves up, bend your back and get in there and it is literally a store at a time approach.

Now, in a business that’s got 4,500 stores, it’s not a way that Judith or I can do that on ally. So part of our action over the last few months has been to make sure that we surround ourselves with the team that are going to be able to do it because you can then use scale to your advantage. But traffic is critical; getting that basket operating the way we want it is critical, yes there’s been progress last year, but we've got a lot more to do and we're pretty focused on that.

Carol Schumacher

Okay. Michael, we’ll go to Bob and then we’ll come up to follow here.

Bob Drbul

Hi, it’s Bob Drbul from Nomura Securities. Greg, you have been very focused on fresh from October, a lot more today. Can you just talk a little bit about the performance that you’ve seen or lift that you’ve seen sales performance in the category? And the second question then I have is the changes that you are talking about in the format with the layout or design, can you just elaborate a little bit more in terms of any of the changes you think will be a high level and what we should be looking for in the stores?

Greg Foran

So, I’ll talk a little bit and Judith, maybe you pick up on some pieces as I get through that. So first comment I’d make is that the fresh is critical but it’s not the only anything that I’m focused on. I can appreciate that it comes through in what I say but I take as just as much interest in what’s happening with the women’s camis, what I do with quality of the organic carrots in the Neighborhood Market. What are we doing in fresh? It is a really challenging part of any business because there are multiple things that you have got to get right in order to be good at fresh. If you think about how you procure the product; if you think about how you then organize for that to be distributed through to your stores, let me just quickly spend a minute on that.

I am pleased that some of the work that we’re doing in this area, we’re seeing us get closer to the field; consolidate product; get it to our distribution centers our HPDCs in a quicker fashion; hold less of it in the HPDC and get it to the store faster. What does that mean? It means that by the time that product gets to the store it’s been out of the filed for less if we then run less inventory in the store the customer benefits because when they buy that product they get a payment at last for five or six days. As I get around and I talk to customers I will often hear customers say to me the product looked good yesterday but the day after I opened up the fridge and I can tell you that apple or that strawberry or that mango was not good enough to eat. So we’re looking at what we do from a procurement and transportation perspective and there has been real work done on that and we’ve leaned into some work that we did down in Texas and we’re also expanding an operation in Los Angeles that’s going to do that and then we’re looking further down the track from there.

In terms of stores there’s being a lot of focus on training, our people I spoke briefly about one part of it at [YBN], but I can assure you that 4,500 store managers went through that same training. You can imagine what happens if we do store visits and we walk in and the sort of discussions that we had and I can tell you that over the last four to six weeks I am seeing a little bit of momentum in this area, I am seeing improvements in what we’re offering our customers. But we’ve got a lot more to do in this area here.

Judith McKenna

And on what does the stores in the future look like, as you heard Greg talk this about this before I’m going to talk about it before, so both negative market on [indiscernible] and what we’re looking at is how does the look in sale of that stores base of customers for the future, how do we integrate technology more into the stores, how do we make it easy to navigating and easy to get through as well as what are the adjacencies and what are those categories that we want to lean into and what are those categories that we know customers are starting to shop in different way.

In neighborhood markets in particular you will see things like all neighborhood markets in the future will open up with a bakery and a deli because we absolutely believe that’s important for the future and we’re looking at how that looks and how that feels. So we have a number of different tasks going on and we’ll continue to do that over the course of this year to bring all of the additional elements together. Probably one of the biggest changes you will see in stores is one of the things I talked about which is pick up, I mean our emphasis onto pick up in stores and the integration of digital and physical. So we’re looking at stores where we can take that to the front of the store to make that more convenient place for customers to pick up as they checked out they can collect their parcels but also very different signage package for it, which means that it’s very easy to see and it’s easy for customers to know that’s a business that we’re in.

Paul Trussell

Paul Trussell, Deutsche Bank. Clearly the focus is on improving sales. But as we invest in labor hours, continue to integrate digital into retail improve the inventory; how do we think about margins near term, should we be bracing for a few years potentially a margin pressure? And if you can just speak about the long term operating profit potential relative to Walmart U.S. historically? And then lastly how can you just discuss the neighborhood market profitability relative to the supercenter from a profit and return standpoint? Thank you.

Greg Foran

Sure, I’ll comment briefly and then hand to you Charles. In any country that I’ve worked and any business over the last almost 40 years, margin has always been an interesting topic and as a general rule you only ever see them go south as competition comes along and particularly as that competition has operating models that often have very low SG&As and so therefore operate at lower margins. So we’re going to continue to be challenged in terms of margins as we do the sort of things that we’re doing. But we’re also taking this in a very thoughtful and planned way and so one of the things I wanted to make sure that we left to you with today is that, we’re not firing off in a very -- any particular direction, we’ve sat down, we’ve analyzed this, we’ve pulled together a series of off-projects that are pretty significant and difficult. We cost those out, we measure them and over a period of probably three to five years those will be executed systematically and sensibly in our business. At the end of the day what do we end up with, really great stores with something that I think is quite unique in this market which is the ability to both shop physically and digitally and provide customers with that convenience. So that sort of how I think about margins.

Charles Holley

Let me give you kind of an overall company view of how we look at it; first of all we run some operations with some pretty high operating margins already and I think that we don’t want to be in a position where we are constantly trying to increase something that’s already very high at the expense of sales and market share and that’s always a balance and that’s something that we look at. As far as opportunity on margin I can tell you and Greg would tell you that we have stores that we know that we can -- we have stores that are extremely good as far as margin go, but we have stores that still have a ways to go and can do much better. We have some international operations that can do much better. So every store and every operation going to be a little different on how you look at it, net-net in the long-term we want to have stable margins, now that doesn’t mean that margins are going to be the same as a company every year or every quarter, they’re going to bounce around some, but we are in a heavy investment mode in our wage and our associates along with our global e-commerce, but you saw the guidance that we have and we put out through this year because of those things. In fact, just as a reminder on the integration of physical and digital, we said for about 24 months, 18 to 24 months, we will be in a heavy investment mode and this the guidance that we gave out for this year reflects that.

Judith McKenna

The other part of the question was specifically I think Paul about Neighborhood Market profitability, was that your second question?

Charles Holley

They vary and what we’ve said in the past, they have returns very close to 3% or they take a little longer to get mature because of the RX and now the RX kicks in as far as scripts, but they have ability to have returned to very close to supercenters.

Carol Schumacher

There will be two upfront Matt, we’ll start with you and then you compare the script.

Matt Nemer

Thanks. Matt Nemer with Wells Fargo. Historically, Wal-Mart has been reluctant to do a large scale loyalty program because it's sort of been at odds with EDLP. But I think one of the learning’s in retail is that if you look at Amazon Prime and Cosco and other loyalty programs they have been very effective at building wallet share, would you rethink that and potentially launch a broader loyalty program and is Savings Catcher sort of fill in strategy along those lines?

Greg Foran

I guess over the years I never discount anything, would be my initial comment. But I’d also say that I absolutely believe because I have seen it work that focus here and your attention on just getting the right price in front of the customer and offering that in a very [indiscernible] and consistent manner generally is the program that works the best over a long period of time. So that’s what we’re focusing our attention on at the moment. In relation to Savings Catcher, it's a pretty good program. The way I look at it is, it's a bit like an insurance policy, I would expect that our pricing on shelf is right in the majority of cases. In the odd case that it isn’t and you go through to check out and you decide that you want to scan that receipt, I am hoping that you get a response that comes back that says we save you a dime or we didn’t save you anything at all.

And the reason for that is that we got the price right to begin with. So that’s how we think about Savings Catcher. And we’re happy with the way that is going.

Chris Horvers

Good morning. Chris Horvers with JP Morgan. So, I was curious if your view on the Dollar Store competitive impact has changed. In past you talked about the convenient factor of them cutting of that filling tripper perhaps pack sizes, the customer intra-month where they don’t have to check, filling in with the single role of [county]. So has a view change and do you think that these strategies really address that or address other issues? And then secondly, you mentioned that you really like the large format Neighborhood Market store, so is this the sort of official cementing of the view around the Express format perhaps now rolling out? Thanks.

Greg Foran

John and Carol maybe you might wait to follow in with some comments on Express on Neighborhood Market. One of the most important things and that makes a retailer work well in our game is getting the assortment right. I mentioned that it is the life blood of your business. Building an assortment is actually a combination of art and science, and if any of you have been buyers, you -- and a good buy you’ll understand how difficult it is. It's not something that you just walk in and do in order you sit there and wait for a supplier to tell you that this is exactly the assortment that you should run. You’ve got to understand how to do this, there is a process that you go through, you begin first of all by understanding the customer, understanding the customer decision tree, you need to analyze the market, you need to understand opening price point, you will need to understand the role of private label will play, you need to understand what products are substitutable and which ones customers are loyalty, you need to make decisions on which ones are deleted, what roll seasonal plays, it’s like a 10 step process.

If you do that properly a Walmart, Supercenter or a Neighborhood Market competes just fine with any format that’s out there because you’ve followed a sensible disciplined process for building an assortment. So that’s how I think about Dollar Stores, if we fix assortment, actually we complete well, we complete well with Dollar Stores, we compete well with Cosco, we compete well with anyone, but do that process. So that’s why it's a really key plank in our step forward. I like large Neighborhood Market, so let me give you a definition of what I mean there, most Neighborhood Markets that we roll out are what we call a product 41, which means the 41,000 square feet in selling area and whereas 41 whether it needs to be a little bit bigger, we’re not sure, we’re still discussing those things. But it feels there about to be right. Once you start getting sort of under 30,000 square feet it becomes a little bit more different for us in terms of how we operate those stores particularly when we take into account supply chain. So I make that decision that I like the larger Neighborhood Markets. Express stores I think we’ve got almost 100 out there now, Judith, we told you that we do those 100, we look at them, we’d see how that go. Frankly, the majority of being really only opened in the last couple of months of last year. So it's too early to tell, I don’t have a view on that at the moment.

Judith McKenna

Yes everything that’s about from a Neighborhood Market despite in terms of competition you can probably take in the results that we had, that we talked about, they are actually doing well and one of the reasons for that as I think they helped us compete against the broad range of competitors and they help us with this sale interest, for customers not just the stock up which is great from the sales potential as we put the queue together and have a strategy that uses both of them. From an Express stores perspective which we renamed the cost the smaller Neighborhood Market and we are still in the process of opening the last of the trial stores, they go through this month and then we’ll have our trial in place. We just stopped tethering to those stores which we talked about in October. So we changed slightly what the format of [indiscernible] looks like and we’re testing both what the customers response to them is, as well as what the economic model is for that. But they will take as a little bit of time yet to assess where we’re going to take them.

Carol Schumacher

Michael, we’ll take a couple of from the back.

David Strasser

Thank you. David Strasser, Janney Capital Markets. So you're laying out in some way -- the more I listen to the fairly dramatic change in strategy from sort of a cost focused business over the last five or six years to more of a service focus business. Over the last decade or so Walmart has gone through some different iterations of going back and forth there. I guess one key question is what have you learned from or what do you think were some of the things that drove success for your predecessors running in the U.S. and what do you think some of the things that they may have done wrong? And as you think about sort of this pretty dramatic change I mean I guess you talked about timing, I am just from a cost standpoint this could get more substantial, I am still trying to understand from a modeling standpoint how to do this. I guess two things; number one, what have you learned from the successes and failures of people ahead of you? And two, this does sound like a pretty substantial change with a lot of cost involve, I am just trying to understand it better. Thank you.

Greg Foran

I guess at this point that I would want to make is that we’re not about moving away from low price, really difficult to have low price unless you have low cost. We’ve learned that if you put too much pressure on some cost in your business and read into that stores then you can impact the shopping experience and environment for customers. So that it does make sales difficult to achieve and the second thing it does is that it's a bit like squeezing a balloon, you can start incurring cost elsewhere in your organization because you are not as efficient or effective in things like marking product down.

So I shared with you the experience that we had of sensibly implementing a markdown cadence across the whole variety of product and that will deliver in your savings that retail $500 million. If you put too much pressure in store wages and you reduce hours saying in the meat department to a point where the department manager or maybe not even the department manager maybe it's someone else who has just been called in is responsible for filling the need. What happens is that you may end up putting too much on show or you may not even put the right cost out there that product has a four day shelf life and at the end of the fourth day you need to have cleared it.

If that person doesn’t understand the rate of sale of that product and you get to the fourth day and you're throwing that out of full retail this is having taken a sensible markdown cadence on day three, then you can incur a lot of cost. So, as we get into the detail of this, what we’re finding is we’re finding opportunities to do things better. So we may put some more costs in here, but we try and offset that with savings here. At the end of the day we don’t want to run a business where margins are going up and costs are going up. We actually want the opposite to occur. We can’t do that unless we grow the top-line. So that’s why we’re very focused on sales, that’s why we’re focused on getting the assortment right, that’s why we’re focused on how we lay stores out and the adjacencies and the flows , that’s why we’re focused on the store operating model, department managers are the kings in their court.

I can tell you that we head good department managers in stores, you run good stores. So if we can maximize the big machine out there, I don’t think you need to assume that margins go up and the cost go up, what you can assume is that we do more sales this way and actually we’re able to leverage the business. So that’s how we think about it. Charles, Judith anything you want to add?

Judith McKenna

As you just said that if you think about this there is no lack of focus still on [EDLP]. It’s just where you look for that cost coming out of and other things we talk about, about simplification and simplification of process that is not customer facing, it’s around how do we take cost out of the business from that perspective and that’s one of the areas that we can leverage global back practice and how to do that within the organization.

Charles Holley

And you have to remember we have as a company levered our expenses until 2010, since I think it was 1999, so we needed to go through that phase of productivity and efficiency and I think what Greg is saying is now we need to make sure we’re not overdoing in areas and we maybe we cut too much here-there, reinvest where we need to but we did not have a good track record at all controlling cost for 10 plus years.

Judith McKenna

We’ll take one from this side we’ll go with Greg.

Greg Melich

Greg Melich with Evercore ISI. I wanted to follow up on maybe how some of the incentives have changed for store managers with the simplified process or rented department managers they seem critical, it’s simple which is good but also and incentives also help clarified. So how have those changed and maybe the same question but for the merchants. You gave I think, Greg the example of the Tank-top for a dollar something and how have merchants consensus has changed to encourage them to take some risk, to make that decision while let’s sell it for $1 and not five and see what the volume is?

Greg Foran

So why don’t you cover the stores and I’ll jump in with the --.

Carol Schumacher

Yes of course, so from an incentive perspective actually we’ve made it really simple to measure the customer experience, we’ve introduced a series of measures which are all based on customers feedback, a pair of dashboard on clean fast and friendly that store can say we care, we count. It’s applicable for store associates, the departmental managers, its applicable right ways to the market managers. So whilst everyone you’re introducing incentive programs and this is part of the existing program it can get more complex, actually we’ve made as simple as possible and made the things that our store associates are really passionate about already.

From the departmental management perspective and putting in new departmental management will make a significant difference, we’ve been very thoughtful about the stores that we do that in some stores are much more complex to run, unless we’ll need even more departmental managers, some stores are less complex to run and actually we’ve been able to put a balance between them. But the departmental management roles are the people will actually own and run the departments. So for us having managed one of the key focuses over the whole of the management team is proving to be in the stores these trials is in, quite a significant step change.

Greg Foran

And in terms of dimension part of the business, there is lots and lots of dialog around everyday low price. We’re measuring price in a very robust way now every single weight part of the stocks team jumps in there and gives us updates, we break it down by department, by category. We’re having different types of discussions with supplies we are changing some of the marketing approaches that we’ve done in the past to reflect more of an everyday low price, everyday low cost. We’re taking a different view of how we do modular walkthroughs, how modular are built and a lot of that gets picked up in the projects that we’re running but there are many other things that Scott and Andy and Mitchell and Steve are doing day to day with the merchants to sensibly pivot the business so that we get back to the DNA that we know is pretty good.

Dan Binder

Dan Binder, Jefferies. It’s one of the focus that’s on price roll and you talked about developing some tools, just wondering if you could elaborate a little bit on that. And then also your view on in store pricing versus online, is there going to be a gap and then how do you think about that price investment from a timing perspective? It sounds like maybe its next year when it gets stepped up, if you could just clarify that point a little bit more?

Greg Foran

So firstly maybe just to clarify the in store, on line pace. We made decisions at the end of last year to actually allow our store to match prices if they need and where customer s can find products online. And like anything you have to develop the muscle to do that because there are always some people out there who can come out with an item that’s on a marketplace the $0.10 but they cost you $20 to have that product delivered. So we had a couple of weeks of dealing our way through the year, but as I get around the country I can tell you that we’re doing a pretty good job of making sure that what we do online not only in walmart.com but across the broader set and what we do in-store is much more appropriate, not saying that at 100% right but we are doing it and that’s working.

How we think about that pricing and how we’re working through it, that still work in progress with us, we’re making a lot of progress around it and Scott in particular in his area has been active with working with the GEC guys on a number of tools that they use. You can imagine that they have tools that strike particular sites, that run particular algorithms and we’re looking at how we can take those learning and put those into the life of a buyer in a physical store. We’re also looking at how we appropriately combine the buying between what we do in a physical store and what we do online, so take toys for example, we sell a heck of a lot of toys in our physical toys and we’ve run a pretty good business here and is going well. I can also tell you that we run a pretty good toy business online, in a lot of cases we’ve got the same suppliers, in a lot of cases it's the same inventory and so learning how we can now take that physical team and join that with the digital team is something that we’re looking at working out how we do included in that will be how we think about price, so how we think about assortment, how we think about inventory, how we think about end of season clearance.

So all of that is a dialogue and a work stream which is actually underway and gathering some pretty good momentum at the moment.

Carol Schumacher

Hey, Michael I’ll take one from the back.

Joe Feldman

Joe Feldman, Telsey Advisory Group. Wanted to ask, you guys commented on giving a little more growth to the managers and the department managers, can you comment on how much growth that is and how that’s different from today? And sort of second part of the question, what will that mean for the stores, like what should we expect to see in the stores by the holiday season in terms of the progress you guys are making?

Greg Foran

Why don’t you start?

Carol Schumacher

Yes, so in terms of phase in for the stores, one of the things that we’re looking at is giving them the ability to choose some of the features that they have in store. They have great regional items, be the items that they just feel very passionate about. So again with Scott in the team putting some process into it and enable them to be able to do that without us getting into problems with inventory and flow and things that go behind that through gain, besides just making that process simple for them to be able to do it and letting them have a bit of fun with it as well because that really sparks this emotion of selling and what we want the stores to do is reengage in selling and that’s their roll in this, in serving the customers that’s the first pace around that.

What was the second part of the question around?

Joe Feldman

The second part was what types of improvements we should expect to see by the holiday season?

Carol Schumacher

It’s very interesting, when Greg was out in-store visit last weekend he was talking about being in Boise, Idaho, that was a good store, it was --.

Greg Foran

Actually, four good stores.

Carol Schumacher

So its four good stores, it was clean, it was well merchandise, customers could get through the check out, there was good availability on the shelf for customers, it was a good shopping experience. So as we progress through these fundamentals that we’re doing that’s exactly what our customers should expect to see.

Greg Foran

The bits I would add to that is, I started filling the shelf’s night stocker and my mother then encourage me to join at that point in Walworth in New Zealand full time. So here I am 17 years old, finished school and didn’t go to university and here I am working in a Walworth store having progressed from being a night fellow to now working basically as an entry level associate. If you give people tools to help them do their job and you give them -- you teach them how to do it and they take some ownership in it, some amazing things can happen in the retail business. Likewise, if you start stripping that away the opposite occurs. So if you think about where technology is and you think about our ability to track items or find out if they are in order or where do they sit in the planogram, we know we’re going to get some more, is it a seasonal item and it's going to dropout.

Imagine giving that information to a 17 or 20 year old entry level associate and providing that in a [Tellzone] or the new device that we’ve got, all of a sudden they take an interest in what’s happening and they serve customers because they have information. We’re really determined to get this right, because retail is those moment to truth. We can sit in [indiscernible], we can talk about this and we can talk about that, but at the end of the day we’re only as good as that store with that associates, serving their customer, I know that. Okay, we’ve got 4,500 stores, so how do I think about, I can’t think of 4,500 stores. So I going to get 100 people in this business, who then break that down into this number of stores and that number of stores and that number of stores and then all of a sudden you get some momentum because you're doing the basics right. You must give people in-stores freedom and you must give them information.

Now it's not wholesale, it's not about saying, you can decide exactly how you want to lay out every modular, it's not about saying that you can be in charge of all your replenishment because actually order made at replenishment systems will generally do a better job than even your best grocery manager. But you got to give them enough to keep them interested and you got to give them enough to serve customers and then they’ll progress through the business and one day they will be doing our jobs. And we lost our little bit of that because we wound things down pretty tight. So we’re just sensibly now opening it up and I think we’re going to be pleased by what we’re going to see.

Carol Schumacher

Okay, we’ll take one up here.

Bernie Sosnick

Bernie Sosnick, Gilford Securities retailers detail and you’re making a very convincing argument that Walmart is in better shape being in the hands of people who know shop keeping but there is another element, the excitement, the merchandising and I really don’t hear much of that. Could you discuss a little bit for example the consumer electronics and entertainment department which had a very poor quarter, I know that there was the absence of gaming, games that were introduced a year earlier. But Walmart was down big time and others were up, Best Buy had a game and Walmart reset the electronics department and re-assorted it. What went wrong and how can we energize what Walmart is doing to convey a stronger message to the customers right now?

Greg Foran

I can see I am going to have to get you one of these tank tops or [indiscernible] if you don’t think I am passionate about merchandise at $1.68, in fact I’ll get you a few, but they’re so cheap, but I love merchandise. Assortment is absolutely the key to running our business. You got to have the store operating disciplines but actually that secondary to getting new assortment right, you can run the cleanest, tidiest, nicest store that you’ve ever seen but if the products in there isn’t right it actually doesn’t matter. If you get the product right and the store isn’t clean and nice and tidy you still have a business.

So merchandise is absolutely critical, let me deal specifically with your question because it’s a great question. Project reboot went some of the way to addressing some of the issues, so I walked in as that was in the final throws of getting rolled out. So what we thought about it; we had to look at the space that we had and we made some adjustments to increasing in this area reducing in that area, good not sure we went far enough. We had to look at moving some of the accessories from the back of the department to the front of department. Good decision, but I don’t think we did a great job in ensuring that we replenished those products appropriately a lot of them went on to what we call assembly merchandise, what that means is it takes a bit longer for us to replenish the stores. This is what we call staple stock which means you pretty much get it the next day.

Thirdly, I don’t think we did a lot around looking at department managers and associates that were working in that department. So there were some things in reboot that were good but there were other things that I think we missed the [indiscernible]. Someone mentioned before about store layout, once again that is a skill that you learn over a period of years. A guy called Jack Shoemaker and Roger Corbett who is on our board have taught me a lot over the years about store layout, that creating a situation where you create a concave situation in your store. What does that mean; it means your walls are more powerful than the middle. Why is that important? Well, actually if you went and spoke to many customers, they couldn’t tell you and nor should they. But what they will tell you is that it’s just feels good, this store just feels better, I can see where I want to go, it’s just -- I like it.

In reboot, we’ve put a lot of signage up in the department so we started to lose sight lines, assistance working in that department found it very difficult to see who was shopping in an isle three gondolas over because they couldn’t see the tops of those people. So something as simple as that creates an issue actually our store hours in last week and this is very true story, I was walking in that department and we started taking the signs down. And the department manager who’s being with us for about 17 years came up and gave me a big hug and she said thank goodness we’re doing this.

You will actually see in the next few weeks that we’ll make some more adjustments to what we’re doing in that category, but I can tell you that that Andy Barron who looks after it his team have taken me through as recently as two weeks ago. What they want to do in that area that will now go to our layout center, Scott and his team will get actively involved in that and when we get that area right then we’ll roll it out and we’ll do that as quickly as we can. But we made a mess in that area other areas I think we’ve done a really good job. But that one I agree with you, I think we missed.

Carol Schumacher

We’ll do Budd and then Walter.

Budd Bugatch

Budd Bugatch with Raymond James. You talked about keeping it simple and then also EDLP how do we factor in EDLP, price first, rollbacks keeping it simple, how does that all factor together? Do any of those programs disappear over time now and just can you help us shuffle of this together?

Greg Foran

So we are looking at all of those things. We’re not in the game of creating rollbacks for the sake of rollbacks because that defeats the purpose of everyday low price and rollbacks going to be done for the right reason and Scott and his team now measure is part of one of the projects, every single month I get a report on how many rollbacks, whether they were added value or they weren’t adding value. How long they’re on for, et cetera, et cetera.

Don’t expect us to do anything different other than do the right thing with rollbacks, we know when we do them right we know they work. As we think about private label we’re working through that process at the moment. I personally have found in the eight months that I have lived here the great value, is actually really good product. I’ve worked in other businesses where often that what you call a generic can vary considerably in terms of the quality, I actually haven’t found a great value item that I don’t think is really good quality, we were eating beacon and eggs for breakfast the other day and my wife said it’s great value beacon and I can tell you it was fantastic.

I like great value, it’s important as we think about great value that we make sure that we get the pricing on great value appropriate and there are examples, some examples that I find where we’re not. So we’ve got some work underway on that at the moment it’s going to be an important part of our strategy as we think about some of the competitive set that we deal with and both Judith and I have spent time dealing with some pretty good European discounters. So you can assume that we have a reasonable understanding of the role that private label plays in that space.

But we will keep things very simple as I think about price first; I think in some categories its complicated things. I think in some categories it’s not required. I think in other categories it maybe, but it’s part of the assortment process let’s not just assume that it’s required in every category, let’s consider it carefully. At the end of the day I don’t want to say the selling product that we are not proud of.

Unidentified Analyst

First, my name is [indiscernible]; first as your retail has become very important internationally and particularly companies like Unigrow, H&M have been very important competitors to Walmart and to everybody. We’re soon going to see another entry but with Primark coming into the Northeast. And I was wondering how Walmart is going to address that competitor or in all of fashion compared to these competitors because I think that it has lost share of market in fashion and lost it to other retailers?

Greg Foran

Yes, Primark very, very good competitor and how do we think about them, really good competitor. We’ve had teams over there looking at their business, we know they’re coming, we know where they’re coming and when they’re coming. We have been leveraging off the [Ester] team and George and you can assume that we going to compete very, very aggressively. We welcome it to be honest. One of the things that I like about our merchant team that I am seeing because they report directly to me now is that when we’re giving them a challenge like this they aren’t trying to lien in and have a go so when they have a look at the jeans that might be on sale in Primark or the T-shirt, we’re looking at that, we’re pulling it to pieces we understand where they’re sourcing from. Its slightly different duty rates when you bring product into America and while there is in the UK and you’re nodding your head so you know that. We engineer those, reverse engineer them and we’re looking forward to it. You can assume that we will compete and we will compete aggressively with Primark or anyone else in their space we won’t back away from having great prices.

Carol Schumacher

We have time for a few more; we’ll go to Wayne and then Michael.

Wayne Hood

So I actually have two questions, one is I am wondering some hard discussions are you having now with your suppliers as more of them move to what looks like to be a direct replenishment model where you saw what Amazon’s announcement, other people are moving to their model we have move the consumer actually away from the store, so just comment on that. And then secondly I guess the next step is on the backend of replenishment and that is moving from primarily case back distribution methodology to individual ECs and I am just wondering Charles maybe you could even speak to this; when does that capital requirement come into play and how does that affect the cost structure because it’s different in case back being lower margin higher cost, when are we going to be talking about that capital investment that needs to be made?

Charles Holley

I’ll start with the capital investments and maybe you guys can talk about the other questions and comments. As I said in October our heaviest investment for this integration which would be [ECs] versus case backs and everything else it will be 18 to 24 months, what we’re building out sweet and fulfillment centers right now in the U.S. and so they’ll be very heavy investment that you will see this year and next year.

Greg Foran

And as we think about discussions with suppliers around that space and some are being personally involved in and the way can actually do some of this ourselves and we need to get on and do it and so areas like neckties or shaving or categories like that, it’s on our road map get into it. If it makes sense of the customer than it make sense for Walmart. If you do it with the supply then that’s also fine I don’t preclude any of those things. At the end of the day I think we are still uniquely positioned in this space. 4,500 outlets and growing and ability to move product to a store cheaper than anyone else that I know of in the world. And a lot of customers who are really happy to go to a store to go and pick it up, so I like the equation that we have here, our challenge is to make sure that we execute really strongly and rapid.

Carol Schumacher

Michael and then Michael, my Michael will go to Scott after that.

Michael Exstein

Michael Exstein, work with Credit Suisse. My question is really this you’ve laid out I think a reasonable set of expectations and plans going forward but most of it sounds like a reaction to things you didn’t do, didn’t do right, didn’t anticipate or pulling the company into the 21st century. The growing days of Walmart was when it led and I happen to heard doing much about leading, what you’re going to lead, what you’re going to do to set the agenda other than changing the waging and hour structure for your employees. Can you talk about that?

Greg Foran

So there is no doubt that there are some parts of our business, some fundamentals that we feel we need to lien into and address. And you got to do that in order to set that foundation before you start building the next layers on. It’s important particularly when you got 4,500 stores that you don’t try and take on too much too soon. What you got to do is to get that momentum going so that’s why we are really concentrating at the moment on getting that base there which is about improving the shopping from experience for the customer. I’ve reiterated that you can also assume that price is going to be a key path of our foundation and that we’re going to gradually lien into that in a very sensible and thoughtful way, but that’s not going away.

The big price for us in the future goes back to the point that I made about this integration of digital and physical. You, I am sure can see the opportunity that that presents. I think if I was running a pure play [indiscernible] company at the moment one thing I’d love is that I’d love to have 4,500 growing to 5,000 distribution points that were within 90 plus percent of where Americans live and a supply chain that can get the product there really quickly. We’re excited about that. We have some good ideas in that space and we’ve got to make sure that we develop the tools and the technology to get there.

I am also passionate about making sure that we lead in providing technology to the people in our stores to do a better job and Judith spoke a little bit about that, but a lot of that is catch up that you can also assume that we will quickly catch up, but the team are already thinking about where do we go from there.

Carol Schumacher

And Greg our last question will be from Scott.

Scott Mushkin

Scott Mushkin of Wolfe Research. So just wanted to kind of summarize it a little bit and go off Michael’s question, it seems to me if you look at Walmart, their number on competitive advantage historically has been price based on superior logistics. But what I am hearing today is we’re behind on logistics a little bit, we need to make some investments there plus maybe the price gaps are not nearly what they used to be and in some markets Greg as you’ve even said may be we’re not even the lowest. So that’s forcing you to compete on a thing that you guys haven’t really been that good at, which is assortment, perishables. So I guess my question is are you just kind of kicking the can down the road here a little bit and why not address the bigger issues which is the price gaps, immediately? Thanks.

Greg Foran

I guess at this point as I disagree with you that Walmart wasn’t good at assortment. I think it depends how you want to go back, I’ve been visiting Walmart for getting up 20 years and I can tell you that when I visited them and even prior to that they were really, really good at building an assortment. It was probably their single biggest competitive advantage. By having the right assortment they’ve got customers into their stores to buy the products, they we then able to get the productivity loop going and get the pricing right. Sure one doesn’t always exactly follow in that sequence but don’t underestimate how good they were at assortment or how important it is in building a business.

We know that at this point in time and I’ve done now about 116 stores unannounced, so I have a pretty good sense from one end of this country to the other what you see when you go into a Walmart store. To be really frank if we went out there and started shouting about price today and I’m thinking you can get a great return on your investment. I think customers who would want to make sure that we are in stock, that the store is clean, including the toilets. That the fresh was reasonably fresh, and that the service from the front end was appropriate. So that’s why we’ve said let’s get ourselves to holiday seasons to a point where, where we’re proud enough of take our mother or grandmother into the store and say hey this is who we work for, our associates are engaged. I think it’s a really logical approach for us to take to get that fixed and I think there is good growth by doing that.

As we start to do that we then move on to what the next stages in the plan are and as I price is important. I think some people will look at this and say it’s a bit of the old and maybe not enough in the new, that’s not how I look at it. I think we have an enormous competitive advantage in scale. I think we have enormous competitive advantage with the dot-com business that we’re now starting to understand how we integrate that into the scale that we have. And I know that we have enormous competitive advantage when we get our associates engaged in our business in a really meaningful way and a lot of them already are, but we've got room in other areas. So I think it’s exactly the right approach, I feel very confident that what we are doing, the quarter in which we are doing it, the way we are doing it is actually going to deliver sensible long-term results.

We’re not thinking about this quarter-to-quarter we are thinking in a much longer timeframe but I can tell you we’re 100% committed to getting this thing not just right for a year or two, but right for a couple of decades.

Carol Schumacher

And on that note Greg thank you for all the questions that you have taken. Our leadership team is going to stay and be available for questions during lunch. This concludes our Web cast and again the transcript. [call ended abruptly]

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