John David Rainey
Executive Vice President and Chief Financial Officer at Walmart
Thanks, Doug. Our strong results this quarter clearly demonstrate our ability to deliver on our financial framework of growing operating income faster than sales. This quarter's results reflect strong execution from the team across virtually every aspect of our business, share gains and improving NPS scores from our members and customers that are increasingly looking for value and convenience, and the power of our omni retail model. I'll discuss our quarterly results using our framework of growth, margins and returns. We experienced ongoing sales strength with all three operating segments outperforming our expectations. We're growing traffic and units and our inventories are in excellent shape. We're on a multi-year journey to reshape our profit profile and operating income growth trajectory, and this quarter reflects the benefits of improved margins in our core retail operations, as well as contributions from business mix. We're investing in areas that have strong capital returns, like automation, story models and digital tools and technologies. Combined, these investments are widening our competitive advantages, providing us levers to also invest in people and price, while achieving our sales and margin objectives.
Before I provide more color behind the strength of our financial results, I want to remind you that there is a supplemental presentation on our IR website with additional information beyond my remarks. First quarter total net sales grew 5.7% on a constant-currency basis, ahead of our guidance of 4% to 5% growth. As a reminder, the leap year this year contributes approximately 1 point to our year-over-year sales growth. International led the enterprise with constant-currency sales growth of 10.7%, reflecting strength in Walmex, China and Flipkart. Across markets, seasonal events were strong and were encouraged by early improvements in general merchandise sales. International e-commerce sales were up 19% as we continued to expand our capabilities. In Canada, the majority of our marketplace growth came from items serviced by Walmart fulfillment services. And in India, Flipkart same-day delivery became available to millions more customers as they expanded the offering to 20 cities.
Walmart U.S. also delivered better-than-expected growth with comp sales up 3.8%, including strong e-commerce growth of 22%, led by store-fulfilled pickup and delivery, marketplace and advertising. Traffic and sales growth were strong across both stores and digital channels, and we're pleased with the unit growth. We're seeing higher engagement across income cohorts, with upper income households continuing to account for the majority of the share gains. Sam's U.S. comp sales, ex fuel, were also strong at 4.4%. The Sam's team continues to make progress on quality and value with Member's Mark, our private brand. The team is doing a great job of being on top of product trends with the brand. Member's Mark drove high-single-digit growth in Q1 and is a growing reason why members join and renew alongside digitally-enabled solutions such as Scan & Go and curbside pickup.
Next to sales, gross profit growth was the key driver of upside in Q1. Consolidated gross margin expanded 42 basis points, led by Walmart U.S. Across segments, we benefited from lower markdowns as a result of disciplined inventory management and favorable business mix, enabling strong margin flow-through from sales. Consolidated adjusted operating income grew 12.9% in constant currency, more than 700 basis points higher than our sales growth. This reflects better-than-expected sales growth and higher gross margins and membership income. This was partially offset by expense deleverage in our U.S. segments related to higher variable pay expenses from our outperformance. Walmart U.S. was the primary driver of outperformance, but all segments contributed to operating income growing faster than sales.
Taking a closer look at margins, as we continue to work closely with our suppliers to lower cost, we're managing our Walmart U.S. pricing aligned to competitive price gaps and customers are responding favorably, resulting in sustained sales growth and higher gross margins. Our price gaps to the retail market remain strong. Improved inventory management and favorable business mix allowed us to optimize our pricing on everyday essentials, and we're investing further in value within our private brands. Our rollback program is driving customer engagement and supporting our volume growth with grocery rollback counts up 45% year-over-year in April. Carrying forward the success we saw last year in our seasonal programs, we're using celebrations and festive events to reinforce our value proposition, and customers are responding.
Chinese New Year, Valentine's Day and Easter drove stronger sales across categories, including general merchandise. We're also working with suppliers to bring innovation to U.S. customers, while leaning into our own private brands as sources of value, quality and newness. As a result, we've continued to see strong momentum in private brand sales, with grocery penetration up 30 basis points in Q1. While private brand penetration is in the low-20s as a percent of sales, more than half of all customer grocery baskets over the last year have had a private brand in them. Our inventory levels continue to come down, with Walmart U.S. declining about 4% and Sam's down nearly 5% at quarter end, while we sustain strong sales and healthy in-stock rates. Having the right inventory in the right categories and the right places has allowed us to not only minimize markdown activity, but also support higher in-stock levels with goods flowing more smoothly through distribution centers and to stores. Importantly, the business is realizing efficiencies, while both customer and associate NPS scores are rising.
Global e-commerce growth was 21% in Q1 and e-commerce losses continue to narrow, most notably, in the U.S., net delivery cost per order improving nearly 40%. More customers are shopping with us more often across more categories, moving us along the pathway of delivery density and transaction margins that give us clear visibility into profitability in this channel over time. Many consumer pocketbooks are still stretched. And we see the effect of that in our business mix as they're spending more of their paychecks on non-discretionary categories and less on general merchandise. This merchandise mix remains a headwind to margins, but it's consistent with our expectations.
Our Walmart U.S. team is executing strategies to improve general merchandise sales and to increase the visibility of our growing e-commerce brand assortments in fashion, home and electronics. We have the opportunity to grow general merchandise sales in stores with our first-party e-commerce assortment, and especially with our marketplace. We were encouraged to see share gains in fashion, home and hard lines in Q1. In addition, marketplace sales in categories such as furniture, sporting goods, kids apparel and home grew more than 20%. In addition to sales growth and gross margin improvement, the reshaping of our profit composition is an exciting part of our strategy. We're enhancing capabilities at higher margin growth drivers such as advertising, membership, marketplace and fulfillment, and data analytics and insights, and seeing the corresponding improvement in our business mix.
Global advertising grew 24%, led by 26% growth from Walmart Connect in the U.S. and International's 27% growth. Walmart's U.S. ad sales reflected more than 50% growth from marketplace sellers, while overall active advertiser counts increased nearly 19%. Sam's ad business now has 30% more active advertisers versus last year. We're pleased with the trends in our membership programs around the world. Sam's Club U.S. reached another record high level for member counts and Plus member penetration, resulting in membership income growth over 13%. Sam's China member count grew 25%, with increasing active and renewal rates. In addition, Walmart+ continued to grow double digits as members engage with us more frequently and spend more than other customers.
For marketplace within International, all markets grew double digits, led by Flipkart and Walmex, reflecting the strength we're experiencing across markets. In the U.S., Walmart's marketplace delivered strong results, aided by 36% more sellers on our platform, with 28% of sellers using our marketplace fulfillment services. To give you an example of the benefit of our omni model, in April, we launched a new service enabling customers to order from an extended assortment of nearly 40,000 tires on our marketplace and have them installed at one of our 2,300 auto care centers and stores in the U.S. It's a great example of how we're leveraging our unique omni capabilities to remove friction for customers. Within data analytics and insights, Walmart Data Ventures continues to see strong demand from clients for their insights on consumer behavior and trends in our omnichannel operations.
In Q1, this business doubled versus last year. In April, we announced a new self-serve integration to make it easier for supplier advertisers to combine Walmart Luminate's insights with Walmart Connect's closed loop omnichannel retail media solutions to help drive product, brand and category sales. This is the first time we're bringing these two solutions together, creating greater cohesion between both offerings and helping suppliers deliver more relevant shopping experiences for our customers. Beyond executing on our operating strategies, you're also seeing a discipline from us to address areas of our business that have not performed as well. You should expect this discipline to continue, concentrating our efforts and capital on clear drivers of incremental value. This requires us to be bold enough to step back from areas that at one time were clear opportunities or were strategically or financially accretive, but now have diminishing value.
It was through this lens that we made the decision to close all 51 Walmart Health centers, as Doug mentioned. Total business reorganization costs resulted in a charge of $0.02 per share in the first quarter. Wrapping up Q1 results, below the line items reflected slightly higher interest expense on relatively flat net debt balances and a lower tax rate year-over-year based on changes in the fair value of our equity investments. Adjusted EPS of $0.60 per share compared favorably to our guidance of $0.49 to $0.52.
Turning to guidance, our team is executing at a very high level. Q1 results exceeded our expectations for both sales and operating income growth. And while it might be a little much to expect every quarter to be this good, we feel really good about the performance, and it demonstrates how this business can perform when we're firing on all cylinders. Consumer economic conditions have been relatively consistent since the start of the year. Many of the value seeking behaviors we witnessed last year have continued, particularly around seasonal events. Our focus on providing customers with value and convenience is resonating, and we're gaining share. That said, we're one quarter into a year that still has some degree of uncertainty, and we don't want to get ahead of ourselves.
We currently expect Q2 sales to increase between 3.5% and 4.5%, and for operating income growth, in line with that at roughly 3% to 4.5%. EPS is expected to be between $0.62 and $0.65 per share. In Q2, we expect operating income growth to be impacted by timing of tech and wage investments. Combining Q1 results with the midpoint of our Q2 guidance would suggest first half sales would grow nearly 5% and operating income would grow about 8%. We feel really good about our start to the year, and our outlook for the second half is consistent with 90 days ago. Our Q1 results and the midpoint of our 2Q guidance suggest that we should be at the high end or even slightly above our sales and operating income guidance for the year. We'll revisit our full year guidance as we exit Q2. This is more aligned with our historic cadence of updates and consistent with the philosophy we have as a management team to recognize early momentum, but to also maintain prudence early in the year, given the macro uncertainty and so much of the year is still ahead of us.
In closing, I'm extremely pleased with our results this quarter. They demonstrate what our team is capable of when we're laser focused on the member and customer, disciplined on cost and leveraging the technology investments we've made. Profits are growing, customer NPS scores are increasing, and we're running a great operation. We like our position, we like who we are, and we like where we're going. We appreciate your interest in Walmart, and are now ready to take your questions.
