Brett Biggs
Executive Vice President and Chief Financial Officer at Walmart
Thanks, Doug.
In the third quarter, momentum continued with strong sales and profit growth in each of our segments while continuing to accelerate our strategic priorities. We're off to a good start for the holiday season and in good position to continue delivering strong results. Despite the various macro and industry challenges, our inventory position is good. Stores and fulfillment centers are well-staffed and our price position remains strong. Customers should expect to find the items they want at great values, and we are ready to serve them however they want to shop. Our omni model is a substantial competitive advantage as shopping behaviors continue to evolve. Customers want choices in how they shop and our unique set of assets with a network of stores, expanding digital capabilities, robust distribution networks and innovative services very effectively serve their evolving needs. Walmart US comp sales grew 9.2%, including nearly 6% growth in transactions, with in-store shopping leading the way. E-commerce sales growth was up 8% in Q3 against strong sales gains last year, resulting in an 87% two-year stack. We continue to see strong market share gains in grocery this year as well as unit share gains on a two-year stack.
Sam's Club had another outstanding quarter with comp sales growth, excluding fuel, of 15.5%, including more than 10% growth in transactions and 32% growth in e-commerce. Membership counts had another record high and renewal rates remained strong.
International results were impressive, including e-commerce penetration of around 19% as omni services scale across key markets. For example, Canada has expanded online grocery pick up from stores nationwide, while in Mexico, customers' express delivery orders can be shipped via gig drivers in under 90 minutes from 120 stores. We continue to make good progress on accelerating the flywheel. We're seeing increased contributions from growth businesses such as advertising, e-commerce marketplace and Spark last mile delivery. Our delivery reach is expanding and our scale enables us to monetize this capability by offering same day services to other merchants through our Walmart Go Local's B2B initiative.
Now let's discuss Q3 results. As a reminder, the previously announced international divestitures significantly affect year-over-year comparisons. So my comments today will focus on the underlying business, excluding the effect of divestitures. Also COVID costs remained elevated globally, although lower than last year in most markets. In addition, EPS includes a $0.67 negative effect from premiums paid for bond tenders, which allowed us to retire higher rate debt to reduce interest expense in future periods. Total constant currency revenue grew more than 10% to over $139 billion. Walmart US comp sales momentum remained strong; up 15.6% on a two-year stack, due in part to strong US consumer spending and some inflation. Strength in China, Mexico and India led to international sales growth of more than 10% in constant currency. Strong trends at Sam's Club continued with comp growth of nearly 31% on a two-year stack, excluding fuel and tobacco. Currency benefited sales by about $1.3 billion. Gross margin rate declined 51 basis points due primarily to increased supply chain costs and headwinds from fuel mix in the US segments as well as format mix shifts in International. However, total gross margin dollars grew 9.6%. SG&A expenses leveraged 13 basis points, reflecting strong sales and lower COVID costs, partially offset by increased wage investments in the US. As a result of these investments, we've seen a great response to our holiday hiring programs, with the addition of over 200,000 new store and supply chain associates. Operating income on a constant currency basis was up 6.3%, leading to adjusted EPS of $1.45. As anticipated, free cash flow for the year is about $8 billion lower than last year, primarily reflecting inventory increases and higher capex. We repurchased $2.2 billion of stock in Q3 and $7.4 billion year-to-date, up significantly from last year. I'm pleased with the improvements in ROI, even as we've made strategic investments, with reported ROI increasing 80 basis points to 14.5%, which is among the best level in four years.
Now let's discuss the quarterly results for each segment. Walmart US had another good quarter, aided by strong consumer spending, stemming in part from government stimulus and inflation. Strong sales trends were led by grocery, health and wellness and apparel. Back to school categories also performed well, along with automotive and holiday decor. We're pleased with the strong momentum in the grocery business as our strong price positioning and omni offerings resonate with customers. Grocery sales were up nearly 10% as strong unit growth and low to mid single digit inflation benefited results. In fact, food sales grew $3.6 billion during Q3, which is the strongest quarterly growth in six quarters.
We're continuing to enhance and scale our strategic growth businesses. Both national and local partners have shown strong interest in our new Walmart Go Local business, while the Spark Driver platform continues to expand nationally. Walmart Connect advertising sales have increased nearly 240% on a two-year stack, and in Q3, we launched a new demand side platform in partnership with the Trade Desk to expand offsite media offerings. We also added around 21 items to our e-commerce marketplace assortment during the quarter, significantly increased the number of items available for expedited delivery and saw continued strong growth in Walmart Fulfillment Services' penetration.
Walmart US gross profit rate declined 12 basis points, reflecting increased supply chain costs. We're seeing inflationary cost pressures in some areas, and our merchants remain laser focused on taking the necessary steps to mitigate supply chain congestion while working with suppliers in monitoring price gaps to manage margins appropriately. Lower markdowns and increased contributions from advertising revenue have helped offset cost pressures. SG&A expenses deleveraged 20 basis points due primarily to investments and wages. But operating income was strong, up almost 6%. Inventory increased 11.5% in preparation for what we expect to be a strong holiday season. The steps taken to mitigate transit and port delays have positioned us well, including adding extra lead time to orders, chartering vessels for Walmart goods, rerouting deliveries to less congested ports and expanding overnight hours at key US ports.
International had a great quarter, with double-digit sales growth, strong momentum in e-commerce across key markets and operating profit growth outpacing sales. E-commerce sales in constant currency grew 33% on top of strong gains last year, with growth in China, Flipkart and Mexico particularly strong. We've nearly doubled e-commerce sales in international over the past two years, and it's encouraging that our ecosystem is expanding and developing in areas such as digital advertising.
China comps were quite strong in Q3, increasing 16.5% with continued strength from Sam's Club as well as more than 90% growth in e-commerce sales. During the mid-autumn festival, sales were terrific and we saw an acceleration in omni performance with nearly all hypermarkets setting online sales records during this event. Flipkart had another good quarter, with strong sales growth and favorable trends in monthly active customers and users. In anticipation of the holiday season, the team has doubled fulfillment capacity versus last year, with dozens of new fulfillment center locations, more than 1,000 last mile delivery hubs, and expanded relationships with Toronto partners to handle a large percentage of last mile deliveries. Comp sales in Mexico increased 6% and grew faster than the market according to ANTAD, with strong consumer spending on categories related to back to school and seasonal celebrations. Customer adoption of omni offerings continue to grow, and we're seeing a strong response to the launch of Walmart Fulfillment Services with one-fourth of Marketplace sales fulfilled through this network. In Canada, comp sales were up 6% and increased more than 13% on a two-year stack. Seasonal sales events were especially strong and omni sales continued to increase. Online grocery is now available in nearly all stores, and we've launched Express pickup within two hours in a couple of stores in Toronto. International operating income at constant currency increased 17.5%, reflecting strong sales and expense leverage.
Sam's Club continued to deliver excellent results, with strong growth in sales, membership and profit. Membership income was up more than 11% as we achieved another record in member counts, strong renewal rates and increased Plus member penetration. Sam's operating income was up more than 10% as strong membership income and expense leverage more than offset gross margin pressure from supply chain costs, fuel and inflation.
Now let's turn to guidance. We anticipate Q4 Walmart US comp sales, excluding fuel, increasing around 5%, resulting in over 6% gain for the full year. Annual adjusted EPS is expected to be around $6.40 for the year, representing 17% growth. We continue to make good progress on our capital investments, but we now anticipate the timing of some investments originally planned for this year will flow into next year. As a result, we expect full year capex to be around $13 billion versus our original guidance of $14 billion.
In closing, I'm very encouraged by the Q3 results, and I'm optimistic about Q4. I continue to be very excited about the evolution of Walmart into a one of a kind omnichannel company.
Thank you for your interest this morning. And we'd be happy to take your questions.
