WMT | Q4 2016

Executives: Pauline Mohler - Senior Director-Corporate Finance C. Douglas McMillon - President, Chief Executive Officer & Director Gregory S. Foran - President & Chief Executive Officer, Walmart U.S. David Cheesewright - President & Chief Executive Officer, Walmart International, Wal-Mart Stores, Inc. Rosalind Gates Brewer - President & Chief Executive Officer, Sam's Club, Wal-Mart Stores, Inc. Neil M. Ashe - President & Chief Executive Officer, Global eCommerce and Technology Brett M. Biggs - Chief Financial Officer & Executive Vice President

Pauline Mohler - Senior Director-Corporate Finance: Welcome. This is Pauline Mohler, Senior Director of Global Investor Relations for Wal-Mart Stores, Incorporated. Thanks for joining us today to review the results for the fourth quarter and full year of fiscal 2016. The date of this call is February 18, 2016. This call is the property of Wal-Mart Stores, Incorporated and is intended for the use of Walmart shareholders and the investment community. It should not be reproduced in any way. This call contains statements that Walmart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking information provided by that act. Please note that a cautionary statement regarding the forward-looking statements will be made following Brett Biggs' remarks later in this call. Today, in addition to the earnings release, we announced our annual dividend for fiscal year 2017 and you will hear more about that in today's call. Information regarding today's news is available on the Investors portion of our corporate website, stock.walmart.com. At this site, we also post earnings terminology, which includes our definition of adjusted earnings per share, our global unit counts and a slide presentation that we recommend you should review in conjunction with this call and the earnings press release. The slide presentation has been updated to include the FCPA and compliance-related costs which we have typically discussed in the transcript. As a reminder for fiscal 2016, we utilized a 52-week comp reporting calendar. For this year, quarter-to-date and year-to-date comps will be based upon 13 and 52-week periods, respectively. Our Q4 reporting period ran from Saturday, October 31, 2015, through Friday, January 29, 2016. Now, let's move on to today's call. Doug McMillon, President and CEO of Wal-Mart Stores, Incorporated, will provide his thoughts about our results for the quarter and year in the context of our overall strategy. Then, we'll cover the three operating segments, starting with Greg Foran, President and CEO of Walmart U.S.; followed by Dave Cheesewright, President and CEO of Walmart International; and then Roz Brewer, President and CEO of Sam's Club. Next, Neil Ashe, President and CEO of Global eCommerce and Technology, is joining us this quarter to share insights regarding our investments in e-commerce. And last, Brett Biggs, Walmart's CFO, will wrap up with context around the financial results, along with guidance for the first quarter and full year of fiscal 2017. Now, I'd like to turn it over to our CEO, Doug McMillon. Doug?

C. Douglas McMillon - President, Chief Executive Officer & Director: Thanks, Pauline, and good morning, everyone. Thank you for joining us to hear more about our fourth quarter earnings, year-end results and progress against our strategy. We had a solid fourth quarter to close out our fiscal year, with adjusted earnings per share of $1.49. It's important to note our numbers reflect some discrete items this quarter, including the impact of store closures and certain tax items. And Brett will share more details in a minute. For fiscal year 2016, adjusted EPS was $4.59. And excluding the $17.2 billion impact of currency, we delivered revenue of $499.4 billion, up 2.8%, which is $13.7 billion of growth. We continue to be pleased with the fundamental trends. We're making progress with customers and associates and feel good about where we're heading. We're improving our stores, adding critical capabilities and deepening our digital relationships with customers as we work to become the first to deliver a seamless shopping experience at scale. We'll save our customers not only money but time, and shopping with us will be simple, convenient and fun. I also want to call out our continued commitment to our shareholders. In the fourth quarter, we were able to return $4 billion to our shareholders through dividends and share repurchases. In fact, today we announced a dividend increase. Our annual dividend was $1.96 and we've increased it to $2 per share. This is the 43rd consecutive year of dividend increases for Walmart. Overall, this past year has been a year of investment, operational improvement and change, even while we delivered solid growth. We do see an underlying strength in our Walmart U.S. business that wasn't there a year ago. I want to share a few highlights. As you know, our biggest investments have been in people and technology. On this call one year ago, we announced our investment in higher wages, better training and more department managers to make Walmart U.S. a better place to work and shop. We can only be successful with customers with engaged and empowered associates. A few weeks ago, we announced the second part of the wage increase. And it's awesome to give a raise to more than 1 million people on the same day. We also announced a simplified paid time-off policy that will mean no waiting for associates to use their time off. These and other changes in the business are making a difference. Our customer satisfaction scores have risen significantly this year and we now have had six consecutive quarters of positive comps and five straight quarters of positive traffic at Walmart U.S. In the technology and e-commerce space, we continued to innovate with a focus on the customer. We have developed a new platform that we can scale across the business. We have improved our fulfillment capabilities with new fulfillment centers that are helping us get orders to customers' doors faster and more efficiently. And we continued to see growth in store pickup for online orders. We also expanded online grocery shopping to over 150 locations across more than 20 markets in the U.S. Customers are ordering online and on their phones and then picking up their groceries on our parking lots without ever leaving their cars. Customer satisfaction for those who use our free pickup service is in the high 90s. We are learning some interesting things along the way. We've found that 8

Gregory S. Foran - President & Chief Executive Officer, Walmart U.S.: Thank you, Doug. Over the last 12 months, we've laid out our plan to win in the U.S. now and in the future. We are executing against it and have taken several steps towards delivering on our commitment of growing the top line, increasing market share and delivering shareholder value. We've still got a lot of work to do, but I'm pleased that our fourth quarter results demonstrated solid progress against this plan. Across the key metrics we track to measure our progress, we're right where we expected to be. Comp sales were positive for the sixth straight quarter and driven by our fifth straight quarter of positive traffic. Our customers are increasingly pleased with the changes in our stores. And they're letting us and others know through improvements in the Net Promoter Score and improved customer experience feedback. In fact, at the end of this fiscal year, more than 75% of stores had met or exceeded their customer experience goals set back at the beginning of the year. This was a significant improvement over the 16% that were meeting this mark at the beginning of the fiscal year. Additionally, our associates are more engaged, and turnover is lower. Department managers have been hired in key areas of the stores, and our new training programs are underway. New technology is in our associates' hands, and better processes are creating efficiencies in the stores, driving higher in-stocks and a continuing decline in comp store inventory. As we have discussed, there will be more investments necessary to further deliver on our plan, but we have remained on task and we're seeing progress. Before discussing our fourth quarter results, I want to address two announcements we've made recently. First, we announced the second phase of our two-year, $2.7 billion investment in our associates. Just two days from now, on February the 20th, we'll raise the starting wage to at least $10 per hour for hourly associates hired before January 1, 2016. Additionally, we're continuing to simplify our business and enhance our benefits package by shifting to a paid time-off policy for all associates. These changes, along with our previous announcements around training programs and store structure, are exciting for all our associates. We are providing our people with a ladder of opportunity to build a career with Walmart and to provide great service to our customers. Secondly, in January, we announced the closing of 150 U.S. stores, including all 102 of our Express format locations. Closing stores is never an easy decision, but it's necessary to ensure we are positioned to deliver our long-term plan. Strengthening the Supercenter and Neighborhood Market formats, while simultaneously delivering a seamless experience with e-commerce, will require our full attention. In fact, we expect to open more than 135 stores in fiscal 2017 alone. While we know that closing stores affected a number of our associates, I'm proud to say that more than half of these associates have already received offers or have been placed in open roles in nearby stores. And we're moving aggressively to identify other open positions for the remaining associates who are interested in transferring to new locations. Due to the financial impact of the store closures, our reported results differ significantly from the adjusted results and the underlying business performance. As reported, we incurred $729 million in charges related to these store closures. Therefore, unless otherwise noted, today's financial discussion will exclude the impact of store closures for purposes of comparability. For reported results including the impact of store closures and additional information, please refer to the accompanying presentation posted with this transcript. Moving to our fourth quarter results, net sales grew $1.9 billion, or 2.4%, and comp store sales were up 0.6%. We're pleased with the continued growth in customer traffic, which improved 0.7% this quarter on top of last year's 1.4% traffic gain. On a two-year stack basis, our fourth quarter comp sales improved to 2.1%. While customers benefited from lower gas prices, we experienced significant headwinds from deflation in meat and dairy products. Additional sales pressure came from warmer than normal temperatures early in the quarter and delays in IRS tax refund checks impacted the very end of the quarter. Neil will cover our e-commerce initiatives in more detail in this call, but for this quarter, e-commerce contributed approximately 30 basis points to our comp. Overall, we were pleased with our performance over the six-week holiday season. We made a strategic decision to sensibly pull back on short-term, deep price investments as we looked to simplify the experience for both our customers and associates, and shift back towards a more EDLP focus. Investments in e-commerce fulfillment centers allowed us to extend the shipping cut-off date. And customers took full advantage of Pickup, ordering their gifts online and conveniently picking them up alongside their grocery trips. As we approached the end of the season, customers transitioned from online to in-store, and we delivered, driving strong performance across the box as customers stocked up on last-minute gifts and food for their holiday meals. The Supercenter format delivered its sixth straight positive comp in the fourth quarter. Additionally, our traditional-format Neighborhood Markets continued their strong performance, delivering a 7% comp. We're seeing steady progress in our efforts to improve each of these formats, with a focus on fresh offerings, clean stores, fast check-outs, friendly associates and better in-stocks. We're pleased with our progress in Grocery, which saw a positive comp this quarter, led by improvement in Consumables. As I mentioned earlier, we experienced substantial deflation in both meat and dairy, which resulted in slight deflation across all of Food. We estimate this deflation negatively impacted our segment comp by approximately 100 basis points, relative to last year's comp. Our Grocery business delivered positive comp traffic growth, even while lapping positive comp traffic from last year. We continue to push forward with our Win in Fresh initiatives, including testing new layouts, reducing inventory while improving in-stocks in both Food and Consumables, and exceeding expectations in our urgent agenda items such as reducing waste and throwaways. We still have work to do in our Fresh area, and many things we want to accomplish in the upcoming year, but we remain on track. In our General Merchandise areas, Apparel improved throughout the quarter, after a slow start due to warmer-than-usual temperatures. On-trend assortments, particularly in active wear, drove results in this area. In Entertainment, we continued to experience soft wireless sales and a slower adoption of new technology in televisions. We're continuing to make progress in this space by focusing on our operating model, including service to our customers, assortment and department layout, but it will take time to get it right. Across the rest of the General Merchandise and Home categories, solid performance came from better in-stocks, assortment updates and new products. Finally, Health & Wellness remained a positive comp driver for us, with growth coming from branded drug inflation and better in-stocks in OTC. However, a slower flu season created a headwind to our Cold, Cough and Flu business this quarter. Moving to the remainder of our financials, gross margin was up 69 basis points versus last year. Gross margin rate improved in Food, General Merchandise and Consumables. This was somewhat offset by declines in Health & Wellness, although we're still focused on providing better visibility and tools to help combat ongoing pharmacy reimbursement pressures. Transportation costs were helped by lower fuel rates. Additionally, our intentional pullback on deep price investments during the holiday season meaningfully improved margins in Entertainment. Lastly, we made additional progress on our urgent agent items, focused on reducing costs both in how we operate the business and in procuring merchandise, and remained diligent on improving processes related to shrink. As expected, expenses increased 129 basis points in the fourth quarter, driven by our investments in associates and stores, including transitioning to a new paid time-off policy, along with building out our e-commerce capabilities. However, we did a better job of aligning store labor hours with customer traffic by leveraging efficiencies gained from new processes and technology. The increase in expenses was partially offset by the improvements in gross margin, which resulted in an operating income decline of 5.3%. We continued to make progress in managing inventory. Overall inventory grew 0.9%, or approximately 25% the rate of total sales growth. Comp store inventory declined 2.9%, as we remained focused on cleaning out our back rooms and using processes such as CAP and top-stock to ensure better in-stocks for our customers. Inventory will remain a key focus area for us in this new fiscal year. Fiscal 2016 has been a year of redefinition, redefining our goals, redefining our focus and redefining our future. We've been intentional in our design and in our actions, and these actions have resulted in steady progress. To recap our performance for the year, net sales increased by $10.3 billion, or 3.6%. Comp store sales grew 1.2%, driven by a 1.2% growth in comp traffic. E-commerce contributed approximately 25 basis points to our comp performance. Gross margin improved 14 basis points for the year, helped by our ongoing focus on urgent agenda items and lower transportation costs, partially offset by headwinds from shrink and pharmacy reimbursement pressures. However, the investments in our associates, stores and e-commerce drove expenses up 8.3% versus last year, which resulted in an operating income decline of 7.1%. We opened 69 Supercenters this year, including relocations and conversions, and 146 traditional-format Neighborhood Markets. In FY 2017, we expect to open 50 to 60 Supercenters, including relocations and conversions. We'll also open 85 to 95 Neighborhood Markets. Additionally, we plan to further expand our online grocery program to more markets this year. As we have discussed in the past, we are committed to growth, but we'll do it sensibly, with the customer in mind as we select the right locations, products and service offerings for each store. We know the decisions we've made this year to improve our business pressured the bottom line, but we're confident they were in the best interest of our customers, our associates and our shareholders. We believe in our long-term plan. And we remain on track to achieve these goals. In the new fiscal year, we're continuing to march down the path we've laid out. Our initiatives across the box are gaining steam. And we'll look forward to drive improvements in assortment and pricing, while focusing on building a seamless shopping experience across all channels. We've just held our annual Year Beginning Meeting in Indianapolis, with nearly 7,000 of our operations and merchandising associates. I told the team that I was proud of their hard work and progress last year, and this year, we would build upon that as we work to execute with excellence. In fact, we have raised the bar higher with new annual goals in our stores to drive an even cleaner, faster and friendlier customer experience as the year goes on. We expect these efforts, along with the ongoing investments in our stores and our associates, to drive continued growth in the top line. Lower fuel prices will also provide some tailwinds. However, food deflation, which has accelerated in the last six weeks, will remain a challenge. Given these factors, for the 13-week period ended April 29, 2016, we expected a comp sales increase of around 50 basis points. Last year's 13-week comp ended May 1, 2015, increased 1.1%. As a reminder, the investments in our associates will be an expense headwind this year, most significantly in the first quarter, as we implement phase two of these investments prior to lapping last year's phase one implementation, which started in April. However, we will continue to focus on lowering costs through better buying and operating a better business. Now, I'll turn it over to Dave for an update on Walmart International. Dave?

David Cheesewright - President & Chief Executive Officer, Walmart International, Wal-Mart Stores, Inc.: Thanks, Greg. I'm pleased with our progress this quarter in a challenging global economy. We're delivering our strategy, seeing comp sales improve, and bringing in profit ahead of our expectations. Whilst our performance was driven by Walmex and Canada, our results reflect broad achievement. Nine of our 11 markets had positive comps this quarter and seven of our markets have now maintained positive comps for at least seven quarters in a row. We continue to see headwinds in the UK, China and Brazil, which I'll discuss more in a moment. We continue to execute on our strategic priorities, which are to

Rosalind Gates Brewer - President & Chief Executive Officer, Sam's Club, Wal-Mart Stores, Inc.: Thanks, Dave. I'll start today's call with details around our fourth quarter performance. I will also provide an update on how we have begun to execute against the strategy that I detailed during our third quarter earnings call. At Sam's Club, we remain laser-focused on our members. Through investments we've made and will continue to make in people and technology, we will deliver for our members a seamless shopping experience across our app, our site and our clubs. Let's begin by talking about our fourth quarter results. It's important to note that our reported results were negatively impacted by certain charges totaling approximately $77 million. This amount includes a charge of approximately $57 million resulting from our decision to close underperforming clubs. The remainder of the charges includes a policy change related to paid time-off as well as severance and other costs associated with recently-announced organizational enhancements. Unless otherwise noted, today's financial discussion will exclude fuel for purposes of comparability. For results with fuel and additional information, please refer to the accompanying presentation posted with this transcript. Comp sales for the fourth quarter were below our expectations. Severe winter storms significantly disrupted approximately 200 clubs toward the end of the quarter, which resulted in a negative impact to the comp of approximately 30 basis points. That said, we know that our core comp performance can improve, and it will. The work we have underway, which I'll talk about in just a bit, is designed, in part, to improve the fundamentals of our business, specifically membership and merchandising. Broadly speaking, trends that we saw throughout the year were again prevalent during the quarter. Among the most notable items were

Neil M. Ashe - President & Chief Executive Officer, Global eCommerce and Technology: Thanks, Roz. I want to pick up on Doug's comments about our opportunity to be the first to offer a seamless shopping experience at a scale that only Walmart can deliver. E-commerce at Walmart is about bringing together all of the pieces to help customers buy the items they want at Walmart prices, however and wherever they want. Our customers look at us as one Walmart, one easy experience across our app, site and store or club. In a short span, we've built an e-commerce technology company inside of Walmart. We have rolled out a new technology platform and we have dramatically increased our physical distribution network. And, in just the past six months, we've grown to serve over 20 markets with online grocery. During the fourth quarter, we started to get a glimpse into how these capabilities we put into place are starting to come together to deliver the seamless customer experience. Looking forward, we're focused on three big opportunities

Brett M. Biggs - Chief Financial Officer & Executive Vice President: Thanks, Neil. I'll wrap up today by providing some thoughts on the company's performance in fiscal year 2016, as well as our expectations for fiscal year 2017. Before we jump into guidance, I want to highlight a few items from the quarter and the year. Overall, we are pleased with the way we ended fiscal year 2016. In the fourth quarter, Walmart U.S. comp sales increased 0.6%, representing the sixth consecutive quarter of positive comp sales and the fifth straight quarter of positive traffic. For the year, Walmart International delivered another solid financial performance, with very strong results in Canada and at Walmex. We generated full year constant currency revenue growth of nearly $14 billion, or 2.8%. Currency impacted our full year revenue by over $17 billion. We continue to innovate and make progress toward a seamless shopping experience through a number of initiatives, including an increased number of online grocery markets. While we would've liked to have seen higher e-commerce sales growth this quarter, we continue to make good foundational progress for the future. For the year, we generated approximately $27 billion in operating cash flow, which speaks to our continued financial strength as we transform the company. I'm particularly pleased with our inventory performance in Walmart U.S. During the year, we returned over $10 billion in the form of dividends and share repurchases. We are able to deliver consistent returns to shareholders while investing for the future. ROI decreased to 15.5%, primarily due to lower operating income as well as continued capital investments. Additionally, today, we announced an increase in our dividend from $1.96 per share to $2 per share in fiscal 2017. We've now increased our dividend for 43 consecutive years. Now, I'd like to spend some time specifically on our EPS results for the fourth quarter and fiscal year 2016. Fourth quarter and full year adjusted EPS were $1.49 and $4.59, respectively. Our reported EPS for the same periods were $1.43 and $4.57, respectively. Let me briefly discuss the discrete items that were factored into our adjusted EPS. Recall, in January, we announced the closure of 269 stores globally. Charges for these store closures, which impact both the fourth quarter and full year earnings, resulted in a negative impact of $0.20 per share. Also, our effective tax rate for the fourth quarter and the full year benefited from the December passage by Congress of the tax extenders legislation, which we considered in our fourth quarter guidance. However, the fourth quarter and full year effective tax rate also benefited by $0.14 per share related to other discrete tax items in the quarter. Finally, our full year adjusted EPS also excludes the effects of a benefit of approximately $0.04 from an adjustment for certain leases we disclosed in the third quarter of fiscal 2016. Now, let's shift gears and discuss fiscal year 2017 guidance. We remain confident that the investments we are making in our associates, our stores and our digital capabilities are the right ones and are better preparing Walmart for the future. It's also important to note that, although we continue to invest in these important areas for the future, we will remain focused on managing expenses across the company. Our guidance today includes several important assumptions, including that the economic conditions in our largest markets remain generally consistent and that the currency exchange rates remain at current levels. From a capital standpoint, as we indicated at our October Investor Meeting, we expect capital investments to be approximately $11 billion in fiscal year 2017, down from fiscal year 2016. Currency remains a headwind for our business, as it is from many U.S. multinational companies. Today, we expect a currency headwind of approximately $12 billion on net sales for fiscal year 2017. Additionally, currency is expected to impact EPS by approximately $0.10 per share this year, including approximately $0.03 in the first quarter. Now, let's turn to full year sales growth guidance. In October, we guided that on a constant currency basis, net sales would grow 3% to 4% annually over the next three years. Excluding the impact of the recently-announced store closures and the continuing impact of a strengthening U.S. dollar, our fiscal 2017 sales growth guidance would have remained in that same range. However, including store closures and the impact of the strengthening U.S. dollar, we now expect net sales growth to be relatively flat in fiscal year 2017. As for taxes, our earnings per share guidance is based on a fiscal 2017 estimated tax rate ranging between 31.5% and 33.5%. As is the norm, our tax rate will fluctuate from quarter to quarter and may be impacted by a number of factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in laws, outcomes of administrative audits, the impacts of discrete items and the mix of earnings among our U.S. and international operations. In any given quarter, our effective tax rate could be higher or lower than the full year range. I also want to note that historically, the tax extenders legislation has been approved at the end of each year, impacting the fourth quarter tax rate. In the December legislation, many of the relevant tax provisions were either made permanent or passed through 2019. As a result, beginning in fiscal 2017, the benefits of the extenders will be spread across the full year, rather than all being in the fourth quarter. Other discrete items as described above may still cause the effective tax rate to fluctuate from quarter to quarter. Taking into account the previously-mentioned assumptions, including currency rates at today's levels, tax rate and the incremental wage investments of $1.5 billion, we expect full year fiscal 2017 EPS to range between $4 and $4.30. This most closely compares to our adjusted earnings per share of $4.59 in fiscal year 2016 and is broadly in line with our guidance from October for our earnings per share to be down 6% to 12% in fiscal year 2017. With respect to the first quarter, we expect earnings per share to range between $0.80 and $0.95. This compares to the $1.03 we reported last year. When comparing to last year's EPS, it's important to note that the first quarter this year will be impacted somewhat more on a year-over-year basis than subsequent quarters due to the timing of wage investments. In closing, I'm honored to serve as the Chief Financial Officer during this very exciting time at Walmart. All of us at Walmart are pleased with the progress we're making and the work of our great associates around the world. We look forward to building on that and serving our customers in the future.

Operator: This call included and the accompanying financial presentation, which is available at www.stock.walmart.com, include certain forward-looking statements intended to enjoy the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements relate to management's guidance and forecasts as to, and expectations for, with respect to Walmart as a whole