Welcome to the Wal-Mart Earnings Call for the First Quarter of Fiscal Year 2014. The date of this call is May 16, 2013. This call is the property of Wal-Mart Stores, Inc. and is intended for the use of Wal-Mart shareholders and the investment community. It should not be reproduced in any way. [Operator Instructions]. This call will contain statements that Wal-Mart 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 statements provided by that Act. Please note that a cautionary statement regarding the forward-looking statements will be made following Charles Holley's remarks in this call.

Hi, this is Carol Schumacher, Vice President of Investor Relations for Wal-Mart Stores, Inc. Thanks for joining us today for our earnings call to review the first quarter of fiscal 2014. Our press release and full transcript of this call are available on our website, www.stock.walmart.com. Here's today's agenda: Mike Duke, President and CEO of Wal-Mart Stores, Inc. will provide his thoughts about the quarter and some of his thoughts about his recent interactions with our customers. Jeff Davis, EVP of Finance and Treasurer, will cover the consolidated financial details. Then, we'll go to the operating segments. Bill Simon, President and CEO of Wal-Mart U.S. first; then Doug McMillon, President and CEO of Wal-Mart International; and then Roz Brewer, President and CEO of Sam's Club will round out that section. Charles Holley, Wal-Mart's CFO will discuss our financial priorities of growth, leverage and returns and he'll also provide Q2 guidance. A quick reminder about our guidance conventions: We update our full year EPS guidance only when we release Q2 earnings, so you'll hear that information in August, not today. Today, we will provide you Q2 guidance for both EPS and our U.S. segment comps. Let me also remind you about our comp sales calendar. Our comp week begins on Saturday and ends on Friday. During fiscal 2014, we will report comp store sales on a 53-week basis with 4-5-5 reporting in Q4. Because we didn't observe the 53-week retail calendar last year, our comp calendar for Q1 began on Saturday, January 26 and ended on Friday, April 26, 2013. Last year also included an extra day for leap year, so this year's fiscal calendar for Q1 includes 1 less day. Additional information regarding some of the terms we use at Wal-Mart including constant currency, gross profit and gross profit rate are available on our website. Please note that this year, we no longer have discontinued operations, but we do have one new term we'd like you to make note of: corporate and support is now what we call our corporate areas, including core corporate, such as finance and legal, as well as Global eCommerce and global leverage services. Previously, we referred to this as other unallocated. Our Annual Meeting of Shareholders will be held at 7:00 a.m. Central Time on Friday, June 7, at the University of Arkansas campus in Fayetteville. The meeting also is available via webcast through our website. Again, that's stock.walmart.com or via Wal-Mart's free IR app. So now let's get on to the results, Mike.

Thanks, Carol, and good morning, everyone. Wal-Mart grew first quarter diluted earnings per share 4.6% to $1.14. In a quarter marked by considerable headwinds to top line sales, we delivered solid EPS growth. Frankly, we had a more difficult quarter than expected when we announced our guidance in February. It's important to note that Wal-Mart U.S. continued to gain market share across several key categories. Sales were pressured primarily by delayed tax refunds, which caused customers to put off discretionary purchases. And though no one likes to talk about weather, it was a real factor across the United States. In fact, right here in Northwest Arkansas, we had the latest snowfall in the history of Arkansas reporting. I'm pleased that Bill and his team managed through these headwinds to deliver almost $67 billion in sales and leverage. This disciplined expense management allowed Wal-Mart U.S. to deliver solid operating profit despite the pressure on sales. I share Bill's optimism about the remainder of the year and I believe the underlying strength of the Wal-Mart U.S. business will deliver positive comps next quarter. Now let me share some additional key metrics for the quarter. On a constant currency basis, consolidated net sales increased 1.8% to $114.2 billion, which excluded $1 billion from currency exchange rate fluctuations. Consolidated operating expenses as a percentage of sales were relatively flat and we are committed to achieving leverage for the full year. We are proud that our U.S. operating segments leveraged operating expenses. We generated $6.5 billion of consolidated operating income, an increase of 1.1%. As you know, I like to visit customers in their local markets around the world. I recently traveled to stores throughout South America and the U.S. It's gratifying to see how important EDLP is for our customers. Our mission is simple…

Thank you, Mike. As you just heard, Wal-Mart reported first quarter diluted earnings per share of $1.14 versus $1.09 last year. Recall last year-end, we stated the company's continued investment in eCommerce initiatives would negatively impact our fiscal 2014 diluted earnings per share by an incremental $0.09. Consequently, our first quarter results were unfavorably impacted by these initiatives by approximately $0.02. Consolidated net sales increased 1% to $113.4 billion. I would like to remind you that the first quarter of last year included an extra day due to leap year and added approximately 100 basis points to net sales. Separately, first quarter net sales included $200 million from an acquisition and were also impacted by more than $1 billion of currency exchange rate fluctuations. Therefore, on a constant currency basis, consolidated net sales would have increased 1.8% to $114.2 billion. With respect to comp sales for the quarter, total U.S. comp sales without fuel decreased 1.2%. Bill and Roz will provide more details in a minute. Membership and other income increased 1.6% compared to the first quarter last year. Please stay tuned to hear more from Roz regarding our recent advancements in club membership. Total revenue for the first quarter was $114.2 billion, a 1% increase over last year. This was on top of a strong 8.5% increase at this time, last year. Gross profit increased 1.2%, primarily driven by supply chain productivity and merchandise mix within our U.S. business segments. The gross profit rate was relatively flat to last year. Now turning to expenses. Our operating expenses, as a percentage of sales, were 19.1%, which is relatively flat to last year. As you heard from Mike, our U.S. businesses leveraged operating expenses for the quarter. And you will hear more from Doug on the international teams' focus to reduce…

Thank you, Jeff. When we last spoke to you in February, we shared that the first quarter had gotten off to a very slow start, essentially due to the delay in income tax refund checks. When we provided flat comp guidance for the first quarter, we had expected, among other things, to recover a reasonable portion of these tax refunds and had also assumed that customers would follow historical spending patterns with these funds. This did not materialize as we had anticipated. Similar to what you've heard from companies in various industries that have reported earnings, top line revenue was challenged by a number of issues. These included a $9 billion reduction in IRS estimated tax refunds versus last year, and we cashed less in income tax refunds in the prior year. Additionally, the 2% increase in payroll taxes reduced inflation and some of the most unfavorable spring weather we've seen in recent years across much of the country impacted our business. While we don't generally like talking about weather, it certainly had an impact. Weather-sensitive departments like outdoor living, sporting goods, air movement and apparel were challenged, particularly from mid-March to mid-April when weather was much less favorable than last year. However, there were bright spots where weather was fairly normal in Florida, for example, we had positive comps for the quarter. In addition, as we gave guidance last quarter, we expected an increase in the level of grocery inflation, but it did not materialize in a meaningful way. We experienced very modest inflation, much lower than last year. And in fact, we had some deflation in areas like dry grocery. We estimate that the factors discussed earlier affected our comp sales by as much as 200 basis points in the first quarter versus our expectations. Primarily driven by…

Thank you, Bill. I'd like to start the update on international by reminding you of our priorities, balancing growth and returns. As you know, Wal-Mart International is an important contributor to topline growth. During the first quarter, we delivered a respectable top line. We feel good about the net and comp sales, especially given last year's really strong first quarter, the loss of leap day and weather issues. As a reminder, our first quarter last year was our strongest of FY '13, with international net sales on a reported basis up 15% and operating income up 21.2%. During this year's first quarter, on a reported basis, Wal-Mart International grew net sales 2.9% to $33 billion. On a constant currency basis, Wal-Mart International's first quarter sales were $33.8 billion, up 5.4%, a stronger dollar against key currencies impacted international results more negatively than expected and decreased the top line by $1 billion. Our acquisition increased sales by $200 million. Our stores in the U.K., Africa, Mexico, Central America, Brazil, Chile, Argentina, China and India delivered positive comp store sales. Comp sales declined in Canada and Japan. As mentioned, last year had an extra leap day for leap year and the comparison to last year impacted sales and customer traffic by about 100 basis points. From a relative performance point of view, we were encouraged with our market share gains around the world during the quarter. We grew our share in Canada, Africa, Chile, Argentina, Central America, China and Japan. We maintained market share in the U.K. and Mexico. And although we did not grow overall share in Brazil, we did increase share in food and consumables. Like revenue growth, another important priority is improving our returns. We were disappointed with our operating income performance this quarter, which impacted returns. In fact,…

Thanks, Doug. This year, Sam's Club celebrates our 30 year anniversary. It's been an exciting journey ever since our first club opened in Midwest City, Oklahoma in 1983. I'd like to take a moment to thank all of our associates over the past 30 years who've delivered tremendous value to our members and made our business so successful. During the first quarter, we grew net sales, and comp sales were within guidance. We grew membership income by delivering superior value, responding to business member trends and enhancing our membership offering. Combined with reduced operating expenses, we generated operating profits more than 7% ahead of last year. Comp sales, without fuel, were up 0.2% for the 13-week period, lapping a 5.3% comp sales increase last year. Comp traffic was up 1.3% driven by our Advantage members, and ticket was down 1.1% driven by Business members. Unfavorable weather this year created a headwind in our weather-sensitive categories. In geographies with more moderate weather, such as the West, members responded positively to our seasonal merchandise, indicating sales in these categories improved as the weather changes. Additionally, inflation continued to moderate from Q4, impacting our top line results as inflation this quarter was approximately 50 basis points. Inflation ran between 250 and 300 basis points in the first quarter last year. Our business member is an integral part of our business, and comp sales and traffic patterns continue to indicate that they remain pressured. Small business optimism remains at historically low levels as businesses adapt to higher payroll taxes and cautious consumers. In response, we're focused on increasing awareness of the value Sam's Club offers. We're executing regional business expos and small business appreciation programs in May and June, in which our associates spend time working with members in their place of business. Despite…

Thanks, Roz. To wrap up, let me provide some perspective on the quarter. First, we feel good about many aspects of our company's performance. We delivered 4.6% earnings per share growth in a tough sales environment. Both Walmart U.S and Sam's Club levered expenses and grew operating income faster than sales. We generated solid cash flows from operations. We grew our eCommerce sales more than 30% and grew market share in the U.K., Brazil and China. We issued $5 billion of fixed income debt at record low rates on the strength of our balance sheet. And in February of this year, we announced an 18% increase in our dividend. The first quarter also presented some challenges. As a company, our leverage ratio was relatively flat. And although we grew consolidated operating income faster than sales, the growth did not meet our expectations. Looking ahead, our financial priorities remain growth, leverage and returns and we usually talk about them in this order. But today, I'd like to start with a discussion on leverage. The company's leverage in the first quarter was relatively flat, and the second quarter will be challenging as well. Our largest challenges are with international, as Doug spoke about, and our leverage services area, where we are investing in projects and programs that will save costs in the long run. Operating expense leverage is a critical piece of our business model, and we remain focused on delivering the 5-year, 100 basis point goal through fiscal 2017. Though expense leverage is not expected to be achieved equally across the quarters every year, we are committed to leveraging operating expenses for this year. Early investments to expand our leverage initiatives will initially have a short-term impact on expenses. However, these investments will benefit Walmart for the long term. Our leverage…

The forward-looking statements in this call are intended to enjoy the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995, as amended, generally were identified by the use of the words or phrases are committed, are piloting, are planning, expect, forecast, goal, going to see, guidance, is forecasted, may fluctuate, plan, will allow, will be, will benefit, will be placed, will be ready, will communicate, will conclude, will continue, will deliver, will demonstrate, will drive, will expand, will experience, will have, will improve, will include, will operate, will put, will start, will strengthen or a variation of one of those words or phrases in those statements or by the use of words or phrases of similar import. Similarly, descriptions of Walmart's objectives, plans, goals, targets or expectations were forward-looking statements. The forward-looking statements in this call included statements relating to management's forecasts and expectations for: our diluted earnings per share attributable to Walmart for the second quarter of fiscal 2014 and the comparable store sales of the Walmart U.S operating segment and the comparable club sales, excluding fuel, of the Sam's Club operating segment for the 13-week period ending July 26, 2013, and statements of certain assumptions underlying such forecasts; aspects of the U.S. businesses, more discipline in the Walmart International operating segment and investments in strategic initiatives allowing Walmart to improve its performance throughout fiscal 2014; continued investments to enhance enterprise information management, global capabilities and leveraging scale during fiscal 2014 and the moderation of such expenses over fiscal 2014; and the range for Walmart's effective tax rate for fiscal 2014 and the possibility of quarterly fluctuations in such rate. Such forward-looking statements also include management's expectations that or for: investments in Walmart's leverage services projects and programs will save costs in the long run, expenses…