John David Rainey
EVP and CFO at Walmart
Thanks, Doug. I'd like to start by thanking our customers, associates and partners for helping us deliver a strong quarter to start the year. Despite a challenging macro environment, the team executed and we've made progress advancing our various strategic initiatives. I'll begin by reviewing highlights for the quarter using the framework of growth, margins, and returns. Then I'll spend a couple of minutes reviewing key themes from our recent Investor Day before detailing our updated guidance. Starting with growth, for the first quarter constant currency sales increased nearly 8% or about $11 billion with strength across all segments.
Walmart U.S. comp sales, excluding fuel, increased 7.4%, including 27% growth in e-commerce. After a strong start, sales growth moderated as the quarter progressed. The 90 basis point deceleration and comp sales growth from Q4 was driven by pricing and the effect of lapping higher inflation rates in the prior year period. We continue to gain share and grow unit volume and grocery. This was consistent with our expectations on how we built our plan.
At the headline level, consumer spending has proven resilient, but below the surface, we continue to see signs that customers remain choiceful, particularly in discretionary categories. In Q1 we saw a nearly 360 basis point shift in U.S. sales mix from general merchandise to grocery and health and wellness. To benchmark the magnitude of this shift exceeds the 330 basis points of category mix shift we experienced in all of last year. In addition to the persistence of inflation and food and consumables, customers were also impacted by a reduction of SNAP benefits and lower tax refunds.
These impacts were partially offset by higher spending tied to an increase and the cost of living adjustment for Social Security Benefits. In our international segment, sales were strong, up nearly 13% on a constant currency basis led by double-digit growth in China, Walmex, and Flipkart. Many of the same impacts on consumer spending in the U.S. affected our international markets too. And Sam's Club U.S. comp sales increased 7% with member fee income up 6.3%.
Average spend per member increased mid-single-digits. Now on margins, consolidated gross margins decreased 18 basis points with ongoing pressure from category sales mix globally. This headwind was partially offset by a reduction in supply chain and freight costs relative to last year's heightened levels. Category mix was a notable headwind across geographies and formats. Walmart U.S. general merchandise sales declined mid-single-digits while food and consumable sales increased low double-digits. Headline inflation and food and consumables came down over 400 basis points from the start of Q1 to the end of the quarter.
But prices remain high and customers are being cautious with their spend in discretionary categories and while we make attractive margins in food and consumables, they have a lower margin than general merchandise. We expect category mix to remain a gross margin headwind for the balance of FY 2024. The higher margin initiatives that are connected to our core Omni retail business, including marketplace, advertising, and membership continue to meaningfully outgrow the base. I'll discuss each of these.
First, marketplace and fulfillment services. We're growing our marketplace with new items and sellers and an improved experience. We've increased seller counts in the U.S. by more than 40% year-over-year and the number using Walmart fulfillment services has more than doubled. We're adding higher profile in demand brands that our customers are searching for but not typically distributed at Walmart elevating our profile as a digital shopping destination. And in India, Flipkart's commerce platform continues to scale, growing first time e-commerce customers and expanding its reach in tier 2 and tier 3 cities.
Flipkart's e-cart business now includes more than 35,000 Kirana partners as well as providing fulfillment services for Flipkart sellers and other third parties. Moving to advertising, our global advertising business delivered strong growth of over 30% in Q1. In the U.S., Walmart Connect advertising sales increased nearly 40% as we experience strong momentum and new advertisers, particularly from marketplace sellers. And the number of three piece sellers utilizing our ad capabilities has doubled over the past 12 months. Sam's Club ad business called Member Access Platform grew double-digits with the number of active advertisers up more than 50% versus last year.
Advertisers are responding to our recently launched in club sales attribution feature which provides advertisers with clear insights on the returns of digital ads been both online and in clubs while enhancing member experience. And in international, the advertising business continued to show strength, led by Flipkart ads, which was up over 50%. And lastly, membership. Sam's Club member counts have had a multiyear run of robust growth with another record high achieved in Q1. Member counts have grown nearly 30% over the past three years and we're increasingly attracting greater numbers of millennials and Gen Z.
We also like the trends we're seeing from Walmart Plus members. Nearly 50% of our Walmart Plus members are coming from the online pickup and delivery channel. Members spend more than non-members. They shop with us more frequently and the membership deepens engagement, helps enable personalization, and allows us to offer more services and to provide more offers on things that are important to our customers. Turning back to the middle of the P&L, SG&A expenses leveraged 58 basis points aided by strong sales growth across the enterprise, a continued focus on managing cost into moderating sales growth as inflation lessens, and lapping some COVID-related wage cost in the U.S. last year.
Taking all this together, our operating income grew more than 17%. This is relative to sales growth of nearly 8%, which resulted in operating margin expansion of 34 basis points, reinforcing the financial framework that we laid out at our Investor Day. As signaled when we issued FY 2024 guidance in February, several below the line items impacted our Q1 earnings results including higher net interest expense. Q1 net interest expense was more than $550 million and we issued 5 billion of debt at favorable rates.
Non-controlling interest was also higher in the quarter due in part to stronger results from Walmex. Adjusted EPS of $1.47 was better than we expected as sales outpaced our plan and cost leverage exceeded plan. GAAP EPS was $0.62, the difference between adjusted and GAAP EPS reflects an $0.85 impact from unrealized gains and losses on equity investments. The team continued to do a good job managing inventory and we ended the quarter down 7%, including a more than 9% decline in Walmart U.S.
Managing cost and inventory are two of the key controllables as we navigate an uncertain macro environment. We're improving inventory efficiency and merchandise flow and addressing placement in order to better serve customers, improve store and stock levels, while also mitigating future risks if demand softens. Let me take a moment to discuss our returns or specifically return on investment or ROI which declined by 120 basis points this quarter. We calculate ROI on a trailing 12-month basis. As such, the decline in Q1 is a result of nearly 4.2 billion in charges we incurred in Q3 and Q4 last year related primarily to the opioid legal settlement framework and the separation of Flipkart and PhonePe.
Together these negatively impacted the first quarter ROI by about 140 basis points. These will again be a headwind in Q2 and to a lesser extent in Q3. As we lap these charges, we expect meaningful improvement in ROI in the back half of this year. When you look beyond these unique items, our underlying operational ROI is steadily moving higher. At our Investor Day in April, I said that we want our ROI to go up every year and I still believe that will be the case this year. Let me briefly reference key segment highlights for Q1.
For Walmart U.S. comp sales were strong, up 7.4% reflecting higher store traffic trends as well as strong growth and store fulfilled pickup and delivery. From a category perspective, comp sales were driven by strong growth in food and health and wellness, partially offset by a decline in general merchandise sales. Unseasonably cooler spring weather negatively impacted sales in certain seasonal hardline categories including lawn and garden. Gross margins decreased 41 basis points primarily due to ongoing pressure from category mix shifts.
As mentioned previously, supply chain costs and transportation were lower as we lapped last year's elevated levels. Inflation remained high, up low double-digits in food categories. It's important to remember that while year-over-year inflation started to moderate as the quarter progressed, this is largely due to lapping higher levels from last year. On a two-year stack basis, food inflation remains over 20% and continues to pressure discretionary wallets. Share gains and grocery continued, including from higher income households as our strong price gaps resonate with customers who are increasingly prioritizing value and convenience.
We're also seeing market share gains in the areas of general merchandise where we've invested to improve the customer experience such as entertainment and automotive. In this environment as customers manage household budgets more tightly and are biasing spending toward everyday essentials, we're reinforcing our value proposition across the merchandise offering, including seasonal event savings, featuring high quality owned brands, and leaning into opening price points.
For the Easter holiday, we offered customers a curated Easter meal along with a traditional Easter basket for the same price as last year. Private brand penetration and grocery categories increased nearly 110 basis points in Q1 following a 160 basis points increase in Q4 and 130 basis point increase in Q3. E-commerce sales were led by continued double-digit growth and store fulfilled pickup and delivery. Customers increasingly value convenience and speed of delivery.
We have an advantage here as we leverage the proximity of our stores to fulfill and deliver digital orders to customer homes. In many cases, we can get orders delivered faster to customers while building a sustainable Omni economic model. Strong flow through on higher sales contributed to SG&A expense leverage which offset gross profit pressure, resulting in strong operating income growth of 11.7% relative to comp sales growth of 7.4%. Our international segment delivered an outstanding quarter with strong growth in both sales and profit, continuing the momentum built in the back half of last year.
International grew both the top and the bottom line faster than the enterprise. Sales grew nearly 13% on a constant currency basis, led by double digit growth in China, Walmex, and Flipkart. Impressively, operating income grew more than three times faster than sales, up 41% with each market delivering year-over-year improvement. The strong profit flow through is particularly encouraging as the team has been delivering operating efficiencies on top of strong sales growth. In China sales increased 28% as the team executed well during the Chinese New Year season and also saw increased traffic as the Chinese economy reopens.
Results were strong across formats and channels with continued member growth and higher member retention at Sam's Club, improved trends in hypermarkets, and more than 50% sales growth in e-commerce. Walmex had another good quarter with sales strength in Bodega stores, Sam's Clubs, and e-commerce. We continue to take advantage of opportunities to expand our physical footprint, opening more than 120 stores over the past 12 months while also scaling our omnichannel capabilities. As customers desire for convenience increases, the team has rolled out a 60-minute delivery option to 80% of Walmart Supercenter and Express stores in Mexico.
In India, Flipkart had strong topline results and improved its contribution profit. The team continues to expand their products and services. As an example, Flipkart Travel added to its portfolio of offerings by launching bus reservation services during the quarter through its Cleartrip platform and already is capable of offering 1 million bus connections to customers. And we continue to be pleased with PhonePe's great performance. During the quarter, we reached an important milestone with annualized total payment volume, or TPV, eclipsing the 1 trillion level for the first time.
For Sam's Club, U.S. comp sales were strong, up 7% in Q1. In addition to solid increases in both transaction and ticket, Sam's e-commerce sales were up 19%, led by strong growth in curbside. Sam's delivered another quarter of record member counts and membership income growth was 6.3%. Plus member penetration also hit an all-time high during the quarter. And it was terrific to celebrate the 40th birthday of Sam's Club during the quarter with member promotions and events. We saw incredible response from our existing and new members including the largest quarterly membership sign-up on record.
Operating income declined slightly as a result of an inflation-related LIFO charge of $48 million. Without that charge, operating income would have increased 10%. At our investment community meeting in April, I outlined our plan to grow operating income faster than sales centered on three strategic building blocks of our financial objectives. First, we're focused on driving organic sales growth from our omnichannel business model. It's clear, our omni model is resonating with customers across income demographics who are seeking out Walmart digitally and in stores, curbside and via delivery, and we're growing mine share for our convenience, which nearly matches our mine share for price.
As we continue to scale digital capabilities in our markets around the world, we have an opportunity to drive significant growth in the top line over the coming years. The second component of our financial model is to diversify our earnings streams through improved product and business mix. To improve product mix, we're focused on increasing sales penetration in higher-margin categories like apparel and home through the expansion of our e-commerce marketplace assortment and an upgraded presentation and experience in our remodeled stores. Our e-commerce assortment has grown to include over 200 million SKUs in apparel and nearly 60 million in home categories.
In our newest remodeled supercenters, take a differentiated approach to showcasing general merchandise with more brand shops, digital displays, mannequins, wider aisles and updated fixtures. We're very encouraged by the early reads on customer response to these initiatives, and we plan to update 300 stores with these features this year. In addition, as I mentioned earlier, we're making progress in improving our business mix as we scale a portfolio of highly attractive growth initiatives that reinforce our core retail model and will directly reshape our e-commerce and enterprise profit trajectory.
This set of initiatives drive stronger returns and includes advertising, data, and membership in many markets. Collectively, these initiatives generate operating margins that are appreciably higher than our core business, and we expect we'll begin to positively influence operating profit growth relative to sales growth this year. The third building block of the model includes improving returns by scaling proven high-return investments in our supply chain that drive operating leverage and improve incremental margins. We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years.
Our capital structure and cash flow generation are an advantage, and we're allocating capital responsibly with a bias towards increasing returns. I'll reiterate what I said at our Investor Day, we like our strategic position. Over time, we expect revenue growth across a diversified set of drivers, improved category mix, and increasingly accretive business mix, coupled with improved unit economics. This is all fueled by supply chain investments with attractive payback cycles.
We expect the outcome will be operating income growing faster than sales. Turning to guidance. There continues to be a great deal of uncertainty looking out over the balance of this year as macro pressures on the consumer have gradually intensified. As such, we continue to maintain a prudent approach to our outlook while, at the same time, having a high level of confidence in what we can control. It's also not our historic practice to always update guidance exiting Q1, and we don't necessarily want to establish a precedent. But we think in this unique environment, it's important to provide an ongoing framework as our views evolve.
We're raising our full year guidance to reflect Q1 performance and our expectations for Q2. We now expect net sales in constant currency to grow approximately 3.5%. Our expectations are for Walmart U.S. and International to grow slightly faster than our prior view, and for Sam's Club growth to be consistent with our February guidance. We expect operating income and constant currency to increase approximately 4% to 4.5%, including an expected 100 basis point impact from LIFO charges and we estimate adjusted EPS to be in a range of $6.10 to $6.20, including an expected $0.14 impact from LIFO.
There are also a few changes below the line. Our recent debt issuance yielded a more favorable interest rate than estimated, and as such, our net interest expense is expected to grow $600 million versus last year. NCI or non-controlling interest is expected to be closer to a $0.20 drag to EPS year-over-year, including strength in Walmex. And our tax expectations have moved toward the upper end of our prior range at approximately 26.5%. Looking at Q2, we're offering the following view. Net sales growth in constant currency of approximately 4%. Operating income in constant currency is expected to decline approximately 2% versus last year.
Excluding the $173 million benefit from Walmart Chile insurance proceeds last year, operating income growth in constant currency is expected to be flat to up slightly. As you compare EPS versus the prior year, we're lapping the $0.05 benefit from Chile insurance proceeds and other income and $0.05 from JD's dividend and other gains and losses, resulting in a total of $0.10 of comparable EPS headwinds. We expect adjusted EPS of $1.63 to $1.68 in Q2 this year. In closing, the year is off to a good start. We're positioning our business to succeed with an expanding omni ecosystem that allows us to grow our top and bottom line throughout any economic environment.
If the consumer environment tightens further, we have a compelling value proposition with everyday low prices and a suite of conveniences to continue to gain wallet share. If the macro environment improves, we have the opportunity to sell more general merchandise and improve our margin mix through both our first-party stores and e-commerce and third-party marketplace businesses. And the transformation of our business mix towards higher-margin streams of value is underway, helping to protect our profits today and to drive better profit growth in the future. I look forward to seeing many of you at our shareholders' meeting activities next month here in Northwest Arkansas. And with that, let me turn it over to the operator for questions.
