Welcome to the Walmart Earnings Call for the Second Quarter of Fiscal Year 2012. The date of this call is August 16, 2011. This call is the property of Wal-Mart Stores, Inc. and intended solely for the use of Walmart shareholders. It should not be reproduced in any way. [Operator Instructions] This call will contain statements that Walmart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and intended to enjoy the protection of the Safe Harbor for forward-looking statements provided by that Act. These forward-looking statements generally are identified by the use of the words or phrases anticipate, assume, based on, expect, goal, may be impacted, may see, plan, plans, should be, will see, will also be, will be, will begin, will better equip, will continue, will cover, will create, will drive, will enable, will go, will keep, will lend, will provide, will, will see, and will use or a variation of one of those words or phrases in those statements or by the use of words and phrases of similar import.
Similarly, descriptions of Walmart's objectives, plans, goals, targets or expectations are forward-looking statements. The forward-looking statements made in this call discuss, among other matters, management's forecasts of Walmart's diluted earnings per share from continuing operations attributable to Walmart for the 3 months ending October 31, 2011 and the year ending January 31, 2012 and the assumptions underlying the forecast for such earnings per share including the assumption that currency exchange rates will remain at current levels, as well as management's forecast for the comparable store sales of Walmart to Walmart U.S. operating segment and the comparable club sales without fuel of Walmart Sam's Club operating segment for the 13-week period from July 30, 2011 through October 28, 2011.
The forward-looking statements also include statements that discuss management's expectations regarding Walmart's effective tax rate for fiscal 2012, quarterly fluctuations in that tax rate and the factors that may impact that tax rate. The forward-looking statements also discuss management's plans and expectations with respect to Walmart leveraging operating expenses for the full year, creating 15,000 jobs in Africa over the next 5 years, continuing to advocate policies that make sense for Walmart's customers and business and being relentless in widening the price gap to pass savings along to customers, as well as that EDLP will lead to top line growth as customer traffic improves, that the effects of conversion to SAP will continue into fiscal year 2013 for the time of implementation of SAP in Argentina and Central America and for the use of the productivity loop to deliver on Walmart's EDLC-EDLP model as to the growth and net interest expense in the last 6 months of fiscal year 2012.
Our net sales rose approximately 40 basis points to $64.9 billion for the second quarter. Comp sales for the 13-week period ending July 29 was inside our guidance at negative 0.9% and the best quarterly comp performance in almost 2 years. Ticket was positive every month of the quarter. Traffic, which drove more than half of the comp, improved sequentially each month. Better traffic was driven in part by the 90-day rollback program at the gas pump. This program, which is available in 18 states saves customers $0.10 a gallon on gas and diesel when using a reloadable Walmart gift card or credit card.
Grocery and health and wellness, which represent 2/3 of our sales revenue, continue to deliver positive comps. We also saw trend improvements in all other businesses except entertainment. This improvement is attributable to our focus on expanding merchandise assortment, price leadership and increased in-stock levels. Weather trends across the country later in the quarter also helped.
The economy remains challenging for our core customers. Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced, and our stores must staff and stock for the volatility both up-and-down. We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family. Our grocery business continued its positive trend and again delivered low-single digit positive comps for the period. Food remains a key traffic driver to our stores. The strong performance during the July 4 weekend offset softness in the Memorial Day weekend.
Sales across dry grocery continue to accelerate from additional assortment. Sales of consumables also improved over the first quarter. We continue to see strength in our new modular programs that are bringing back assortment and had strong seasonal performance in pets and beauty, both of which delivered basis points comp improvement in the triple digits versus the first quarter. While we saw an increase in grocery inflation of approximately 3.5% during the quarter, customers remain under continued pressure and are trading down to lower price points and smaller pack sizes, as well as opting out of discretionary purchases. As a result, we're seeing minimal pass-through of inflation to sales.
Food inflation has replaced gasoline price as the most important household expense concern. In addition, more than 15% of Walmart moms in our monthly survey have experienced the loss of a household wage earner's job in the last year. Almost 40% of these Walmart moms indicate they're holding off or eliminating items they would normally buy, reinforcing the need for us to drive Every Day Low Price. Moms of all income levels showed a drop in confidence over the last year, with middle-income moms showing the greatest drop. And our health and wellness business again delivered a low-single digit positive comp driven by the strength of our prescription business. We continue to benefit from the additional traffic in our pharmacies as a result of the Humana program and our optical business benefited from the kick-off of our $29 back-to-school eyewear offering. We expect the momentum to continue in the third quarter as more parents get their children ready for school.
Neighborhood markets posted positive comps for 15 consecutive months now, delivering a comp of over 3% for the second quarter. This format reflects the ongoing strength of our food and health and wellness business. Overall, apparel comps declined in the mid-single digits during the second quarter, which includes approximately 300 basis points improvement from the first quarter. This performance was driven by ongoing business initiatives, especially in our basic apparel offering, an improvement in sales of summer merchandise tied to the warm weather. Men's, ladies and our baby apparel delivered the best comps for the period. Our children's apparel, shoes and intimate departments remain soft.
We are well positioned to gain sales and share for the important back-to-school season. We are expanding our offerings in important categories to regain customers, and we're adding back items in key brands. We're confident that the back half of the year will see ongoing improvement in apparel sales.
Comp sales for home declined in the mid-single digits for the quarter. We remain committed to strengthening this important category. Better weather versus the first quarter drove customers to our Outdoor Living department. We were ready, given our expanded assortments and innovation across the categories. However, there appears to have been a trade-off in indoor living categories. Customers are opting out of decor items for their homes or they're trading down.
Entertainment had high-single digit negative comp sales for the quarter. As others have reported, media and gaming continue to experience significant headwinds. New movie releases from last year were also a headwind. However, customers do shop for value and our $5 movie bin continues to do very well. Double-digit deflation in TV prices still exist, but our unit sales were up again. Customers want innovation and tablets continue to sell very well. We continued to see strength in our prepaid wireless business, although as you know, we record this as a net commission in our comp sales as opposed to its full transactional value.
Straight Talk remains a billion dollar plus brand for Walmart U.S. Within toys, we gained momentum as the quarter progressed. Sales of licensed toys associated with new movie releases and seasonal items including pools, water toys and bikes improved significantly.
Hardlines had low-single digit negative comp sales but improved over the first quarter. Favorable weather drove sales across sporting goods, especially hunting, fishing and camping and air movement-related products. New modulars in stationery and crafts helped push items in these categories. Tires sales continue to do well for automotive.
We’ve spoken often about multi-channel retailing, allowing customers to shop on their own terms. We're now moving towards a strategy called continuous channel shopping, recognizing the continued integration of customers using web-based devices to shop our stores and to research and shop online as well. Today, roughly 60% of walmart.com sales involve the stores through services such as Site to Store and Pick Up Today. In fact, some of our highest volume Site to Store sales come out of large metropolitan areas such as New York City and the San Francisco Bay Area.
During second quarter, we also launched a delivery and installation service program for electronics. We're providing delivery, setup and installation for TVs. We also offer basic setup for home theater and wireless networks. The in-home service network has up to 50,000 technicians available who'll service our customers. Our prices are very competitive and this now puts us on par with other electronics retailers.
Now I'll cover the remaining financial results. Our gross profit dollars were up 1.2% over last year second quarter, growing faster than the rate of sales. We lapped last year's deep rollback program in the second quarter, which we expected to impact our rate comparison this quarter. Additionally, our logistics team continues to drive routing and load efficiencies, allowing us to minimize the majority of the headwinds associated with rising diesel prices impacting the cost of goods. In fact, rising diesel costs were a headwind, 2/3 of which were mitigated by these transportation initiatives.
Based on the start of August sales, we're confident that our plans are working, and we'll see ongoing sales improvement. We expect comp sales for the 13-week period from July 30 through October 28 to be between minus 1% and plus 1%. Last year's third quarter 13-week comp was negative 1.3%. Timing of our calendar ending on Friday means a large portion of the Halloween sales could fall into the fourth quarter period. We still remain concerned about the increased economic pressure on our customers and the uncertain impact it will have on their shopping behavior. With the ongoing economic volatility, it's important as ever to deliver on our one-stop shopping promise, a broad assortment of merchandise backed with Every Day Low Price.
We remain committed to the productivity loop and our goal of leveraging operating expense. We will continue to invest in price to help our customers weather the economy, so gross profit should be flat to slightly down for the third quarter.
Now I'll turn it over to Doug for the international update.
Doug McMillon
Thanks, Bill. During our briefing following our Shareholders Meeting on June 3, I laid out our key initiatives for leveraging our scale and expertise in the Walmart International markets. They included making progress on EDLP as a global pricing philosophy, enhancing the productivity loop to get costs down, further developing global talent and sharing ideas back-and-forth with the U.S. businesses, both Walmart and Sam's Club. It's only been a couple of months since then, and I'm happy to report that we have already made progress on each of these areas. I'm also proud to share some important milestones that Walmart International achieved in the second quarter. As you know, ASDA completed its acquisition of 147 Netto stores in the U.K. ASDA has already converted more than 60 of these stores, which now have more than 4x the number of products than previously offered. This means customers can find what they need for the entire week just as they do in ASDA superstores.
In addition, we completed our 51% acquisition of Massmart. Massmart is a leading general merchandise retailer and basics foods wholesaler in sub-Saharan Africa and the second largest in consumer goods. As you heard, we will include the results from our countries in Africa in our third fiscal quarter. In terms of sharing ideas back and forth, South African suppliers offer an important opportunity for us to bring new and exciting merchandise to our other markets. Recently, we contracted with Ocean Fresh, a South African seafood supplier to export sustainably sourced wild hake, a fish, to our stores in the United States. This is helping to create 100 jobs in South Africa, and we believe this is the first indicator of even more opportunities on the continent. To recognize our new partnership with our customers in sub-Saharan Africa, we have launched our Working Together to Save You Money campaign, offering price reductions in Massmart’s stores for an extended period of time.
Now let's get to the numbers. Walmart International reported second quarter net sales of $30.1 billion, an increase of 16.2% over last year. Changes in currency rates increased our net sales by $2.3 billion. As a reminder, our markets benefited this fiscal quarter from Easter sales and in the United Kingdom, the royal wedding. Last year, second quarter results benefited from sales related to the World Cup. So in some cases, there were difficult comp sales comparisons.
On a constant-currency basis, net sales were $27.8 billion, an increase of 7.1% over last year’s second quarter. All of our markets had constant currency sales growth, except in Japan, where sales were affected by the March 2011 natural disasters. Mexico, the U.K., Canada, Brazil and China provided the strongest net sales growth in the second quarter. As a percentage of sales, Walmart International second quarter constant currency gross profit margin and other income was flat to last year. Second quarter reported operating expenses were $6 billion, which includes an increase of $500 million due to changes in currency exchange rates. Although Japan, Brazil, the U.K. and Chile had expense leverage in the second quarter, Walmart International's constant currency operating expenses grew faster than sales at 9.4%.
Our second quarter reported operating income grew 8.9% from last year to $1.4 billion, and this includes a benefit of $110 million from changes in currency exchange rates. On a constant currency basis, operating income grew 50 basis points. Excluding the $53 million in charges that Jeff mentioned and the $14 million impact on costs associated with the integration of Netto, Walmart International grew constant currency operating income 5.6%. Inventory management continues to be a challenge as days on hand increased over last year in most of our markets. Our constant currency inventory, excluding Massmart, grew 11.1% as we added a significant number of stores in most of our markets.
Now let's get into the results for several of our larger markets. Country management teams are held accountable for their results on a constant currency basis. The following discussion of country results excludes the impact of currency and unless otherwise stated, sales and comp sales are presented on a nominal basis. Comp sales are reported on a calendar basis. We'll kick off this quarter with the U.K. ASDA had a solid second quarter, growing sales excluding fuel ahead of last year. However, operating income declined due to $31 million of costs related to Netto. Adjusting for fuel sales and Netto, ASDA grew operating income faster than sales.
In the second quarter of this year, comparable sales, excluding fuel, increased 50 basis points. Traffic decreased by 120 basis points and average ticket increased 170 basis points. Customers are consolidating their trips in the face of high fuel prices. ASDA grew expenses slower than sales in the second quarter, leveraging on tight expense management. After excluding the Netto costs, ASDA's expenses declined from last year. ASDA continues to gain recognition for saving people money everyday, supported by the 10% online price guarantee and now more than 250,000 baskets are being checked online by customers each week. As a clear statement to the quality our customers can find, ASDA's private brands and other products have won more than 300 awards so far this year, including Retail Champion at the International Cheese Awards, Meat and Fish Retailer of the Year and numerous other wine awards.
In June, ASDA was recognized as the price leader by the Grocer magazine as the lowest priced supermarket for the 14th year running. So it was no surprise that there were long lines of customers on grand opening day at our converted Netto stores. In these stores, customers will receive the same ASDA low prices, the 10% price guarantee and in-store pickup from online shopping.
Including the stores from the Netto acquisition, ASDA's total store count was 536 at the end of the second quarter. Economic indicators suggest that 2011 will remain a challenging year for our U.K. consumers, and we're confident that ASDA and its Netto store conversions are entering the second half of the year with good momentum, delivering availability and Every Day Low Prices.
Finally, Judith McKenna, who spent several years as ASDA's Chief Financial Officer has been promoted to Chief Operating Officer. Judith has a long track record of success, and we look forward to her experience in ASDA's operations. Congratulations, Judith.
Let's move to the Americas. In previous earnings discussions, I discussed only the results of Mexico and Central America separately in this section. Now that one year's passed since our Central American operations have been combined into Walmex, we will discuss the results of the consolidated company going forward. While the following results are on a U.S. GAAP basis, Walmex separately reports its earnings under Mexican GAAP. So some numbers are different from the Walmex reported results.
Overall, Walmex sales grew at a fast rate, but operating income declined from last year second quarter due to the noncash accounting charge mentioned earlier by Jeff. As we mentioned last quarter, our operations in Mexico went live with the SAP implementation during Q2. This effort increased the level of precision for inventory valuation and the result was a noncash accounting charge of $17 million. Walmex's consolidated net sales for the second quarter were up 9.1%. Comparable sales from Mexico were up 1.1%. Average ticket in Mexico increased 2.2%, and customer traffic declined 1.1%. Comp stores in Central America were up 6.2% on a constant-currency basis.
As Walmex noted in its earnings call on July 19, our teams continued to strengthen its EDLP position in Mexico, and we've converted to EDLP in each of our 5 Central American countries, making permanent price reductions on more than 12,000 items. We've also converted all of our Central American supercenters to the Walmart brand.
Mexico's second quarter consolidated comp store sales for the self-service formats grew by 1.9%, while ANTAD's comp store sales report for the rest of the industry, exuding Walmex, grew faster at 2.2%. In the second quarter, Walmex advanced its investment schedule for new stores and logistics modernization and opened 129 stores in this quarter as compared to 57 in the second quarter of last year. An aggressive, but steady, rate of new store openings is part of the new store growth plan. And Walmex has achieved 45% of planned floor expansion to date. We will begin to see the sales from these new stores in our third fiscal quarter as the majority were opened at the end of June.
Second quarter gross margin as a percentage of sales was flat to last year. Walmex's consolidated second quarter operating income declined 5.3% from last year and decreased 2.2% from last year after excluding the noncash inventory charge. Walmex's expenses grew faster than sales at 14.1% from last year, primarily due to the new stores. With 394 more stores than at the end of the second quarter of last year, Walmex is well positioned for the rest of the year.
Moving on to Brazil. Net sales grew in the second quarter; however, operating income declined from last year. As part of our progress in implementing EDLP as a global pricing philosophy, Brazil began its EDLP conversion earlier this year. The number of items converted to date represents a large portion of Brazil's overall sales. Brazil's second quarter net sales grew and comparable sales grew from last year. Average ticket increased 7.4% and customer traffic declined 4.6%. We believe that the investment in EDLP is right for our ultimate success in the marketplace and more important, best for our customers.
Similarly, descriptions of Walmart's objectives, plans, goals, targets or expectations are forward-looking statements. The forward-looking statements made in this call discuss, among other matters, management's forecasts of Walmart's diluted earnings per share from continuing operations attributable to Walmart for the 3 months ending October 31, 2011 and the year ending January 31, 2012 and the assumptions underlying the forecast for such earnings per share including the assumption that currency exchange rates will remain at current levels, as well as management's forecast for the comparable store sales of Walmart to Walmart U.S. operating segment and the comparable club sales without fuel of Walmart Sam's Club operating segment for the 13-week period from July 30, 2011 through October 28, 2011.
The forward-looking statements also include statements that discuss management's expectations regarding Walmart's effective tax rate for fiscal 2012, quarterly fluctuations in that tax rate and the factors that may impact that tax rate. The forward-looking statements also discuss management's plans and expectations with respect to Walmart leveraging operating expenses for the full year, creating 15,000 jobs in Africa over the next 5 years, continuing to advocate policies that make sense for Walmart's customers and business and being relentless in widening the price gap to pass savings along to customers, as well as that EDLP will lead to top line growth as customer traffic improves, that the effects of conversion to SAP will continue into fiscal year 2013 for the time of implementation of SAP in Argentina and Central America and for the use of the productivity loop to deliver on Walmart's EDLC-EDLP model as to the growth and net interest expense in the last 6 months of fiscal year 2012.
Our net sales rose approximately 40 basis points to $64.9 billion for the second quarter. Comp sales for the 13-week period ending July 29 was inside our guidance at negative 0.9% and the best quarterly comp performance in almost 2 years. Ticket was positive every month of the quarter. Traffic, which drove more than half of the comp, improved sequentially each month. Better traffic was driven in part by the 90-day rollback program at the gas pump. This program, which is available in 18 states saves customers $0.10 a gallon on gas and diesel when using a reloadable Walmart gift card or credit card.
Grocery and health and wellness, which represent 2/3 of our sales revenue, continue to deliver positive comps. We also saw trend improvements in all other businesses except entertainment. This improvement is attributable to our focus on expanding merchandise assortment, price leadership and increased in-stock levels. Weather trends across the country later in the quarter also helped.
The economy remains challenging for our core customers. Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced, and our stores must staff and stock for the volatility both up-and-down. We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family. Our grocery business continued its positive trend and again delivered low-single digit positive comps for the period. Food remains a key traffic driver to our stores. The strong performance during the July 4 weekend offset softness in the Memorial Day weekend.
Sales across dry grocery continue to accelerate from additional assortment. Sales of consumables also improved over the first quarter. We continue to see strength in our new modular programs that are bringing back assortment and had strong seasonal performance in pets and beauty, both of which delivered basis points comp improvement in the triple digits versus the first quarter. While we saw an increase in grocery inflation of approximately 3.5% during the quarter, customers remain under continued pressure and are trading down to lower price points and smaller pack sizes, as well as opting out of discretionary purchases. As a result, we're seeing minimal pass-through of inflation to sales.
Food inflation has replaced gasoline price as the most important household expense concern. In addition, more than 15% of Walmart moms in our monthly survey have experienced the loss of a household wage earner's job in the last year. Almost 40% of these Walmart moms indicate they're holding off or eliminating items they would normally buy, reinforcing the need for us to drive Every Day Low Price. Moms of all income levels showed a drop in confidence over the last year, with middle-income moms showing the greatest drop. And our health and wellness business again delivered a low-single digit positive comp driven by the strength of our prescription business. We continue to benefit from the additional traffic in our pharmacies as a result of the Humana program and our optical business benefited from the kick-off of our $29 back-to-school eyewear offering. We expect the momentum to continue in the third quarter as more parents get their children ready for school.
Neighborhood markets posted positive comps for 15 consecutive months now, delivering a comp of over 3% for the second quarter. This format reflects the ongoing strength of our food and health and wellness business. Overall, apparel comps declined in the mid-single digits during the second quarter, which includes approximately 300 basis points improvement from the first quarter. This performance was driven by ongoing business initiatives, especially in our basic apparel offering, an improvement in sales of summer merchandise tied to the warm weather. Men's, ladies and our baby apparel delivered the best comps for the period. Our children's apparel, shoes and intimate departments remain soft.
We are well positioned to gain sales and share for the important back-to-school season. We are expanding our offerings in important categories to regain customers, and we're adding back items in key brands. We're confident that the back half of the year will see ongoing improvement in apparel sales.
Comp sales for home declined in the mid-single digits for the quarter. We remain committed to strengthening this important category. Better weather versus the first quarter drove customers to our Outdoor Living department. We were ready, given our expanded assortments and innovation across the categories. However, there appears to have been a trade-off in indoor living categories. Customers are opting out of decor items for their homes or they're trading down.
Entertainment had high-single digit negative comp sales for the quarter. As others have reported, media and gaming continue to experience significant headwinds. New movie releases from last year were also a headwind. However, customers do shop for value and our $5 movie bin continues to do very well. Double-digit deflation in TV prices still exist, but our unit sales were up again. Customers want innovation and tablets continue to sell very well. We continued to see strength in our prepaid wireless business, although as you know, we record this as a net commission in our comp sales as opposed to its full transactional value.
Straight Talk remains a billion dollar plus brand for Walmart U.S. Within toys, we gained momentum as the quarter progressed. Sales of licensed toys associated with new movie releases and seasonal items including pools, water toys and bikes improved significantly.
Hardlines had low-single digit negative comp sales but improved over the first quarter. Favorable weather drove sales across sporting goods, especially hunting, fishing and camping and air movement-related products. New modulars in stationery and crafts helped push items in these categories. Tires sales continue to do well for automotive.
We’ve spoken often about multi-channel retailing, allowing customers to shop on their own terms. We're now moving towards a strategy called continuous channel shopping, recognizing the continued integration of customers using web-based devices to shop our stores and to research and shop online as well. Today, roughly 60% of walmart.com sales involve the stores through services such as Site to Store and Pick Up Today. In fact, some of our highest volume Site to Store sales come out of large metropolitan areas such as New York City and the San Francisco Bay Area.
During second quarter, we also launched a delivery and installation service program for electronics. We're providing delivery, setup and installation for TVs. We also offer basic setup for home theater and wireless networks. The in-home service network has up to 50,000 technicians available who'll service our customers. Our prices are very competitive and this now puts us on par with other electronics retailers.
Now I'll cover the remaining financial results. Our gross profit dollars were up 1.2% over last year second quarter, growing faster than the rate of sales. We lapped last year's deep rollback program in the second quarter, which we expected to impact our rate comparison this quarter. Additionally, our logistics team continues to drive routing and load efficiencies, allowing us to minimize the majority of the headwinds associated with rising diesel prices impacting the cost of goods. In fact, rising diesel costs were a headwind, 2/3 of which were mitigated by these transportation initiatives.
Based on the start of August sales, we're confident that our plans are working, and we'll see ongoing sales improvement. We expect comp sales for the 13-week period from July 30 through October 28 to be between minus 1% and plus 1%. Last year's third quarter 13-week comp was negative 1.3%. Timing of our calendar ending on Friday means a large portion of the Halloween sales could fall into the fourth quarter period. We still remain concerned about the increased economic pressure on our customers and the uncertain impact it will have on their shopping behavior. With the ongoing economic volatility, it's important as ever to deliver on our one-stop shopping promise, a broad assortment of merchandise backed with Every Day Low Price.
We remain committed to the productivity loop and our goal of leveraging operating expense. We will continue to invest in price to help our customers weather the economy, so gross profit should be flat to slightly down for the third quarter.
Now I'll turn it over to Doug for the international update.
Doug McMillon
Thanks, Bill. During our briefing following our Shareholders Meeting on June 3, I laid out our key initiatives for leveraging our scale and expertise in the Walmart International markets. They included making progress on EDLP as a global pricing philosophy, enhancing the productivity loop to get costs down, further developing global talent and sharing ideas back-and-forth with the U.S. businesses, both Walmart and Sam's Club. It's only been a couple of months since then, and I'm happy to report that we have already made progress on each of these areas. I'm also proud to share some important milestones that Walmart International achieved in the second quarter. As you know, ASDA completed its acquisition of 147 Netto stores in the U.K. ASDA has already converted more than 60 of these stores, which now have more than 4x the number of products than previously offered. This means customers can find what they need for the entire week just as they do in ASDA superstores.
In addition, we completed our 51% acquisition of Massmart. Massmart is a leading general merchandise retailer and basics foods wholesaler in sub-Saharan Africa and the second largest in consumer goods. As you heard, we will include the results from our countries in Africa in our third fiscal quarter. In terms of sharing ideas back and forth, South African suppliers offer an important opportunity for us to bring new and exciting merchandise to our other markets. Recently, we contracted with Ocean Fresh, a South African seafood supplier to export sustainably sourced wild hake, a fish, to our stores in the United States. This is helping to create 100 jobs in South Africa, and we believe this is the first indicator of even more opportunities on the continent. To recognize our new partnership with our customers in sub-Saharan Africa, we have launched our Working Together to Save You Money campaign, offering price reductions in Massmart’s stores for an extended period of time.
Now let's get to the numbers. Walmart International reported second quarter net sales of $30.1 billion, an increase of 16.2% over last year. Changes in currency rates increased our net sales by $2.3 billion. As a reminder, our markets benefited this fiscal quarter from Easter sales and in the United Kingdom, the royal wedding. Last year, second quarter results benefited from sales related to the World Cup. So in some cases, there were difficult comp sales comparisons.
On a constant-currency basis, net sales were $27.8 billion, an increase of 7.1% over last year’s second quarter. All of our markets had constant currency sales growth, except in Japan, where sales were affected by the March 2011 natural disasters. Mexico, the U.K., Canada, Brazil and China provided the strongest net sales growth in the second quarter. As a percentage of sales, Walmart International second quarter constant currency gross profit margin and other income was flat to last year. Second quarter reported operating expenses were $6 billion, which includes an increase of $500 million due to changes in currency exchange rates. Although Japan, Brazil, the U.K. and Chile had expense leverage in the second quarter, Walmart International's constant currency operating expenses grew faster than sales at 9.4%.
Our second quarter reported operating income grew 8.9% from last year to $1.4 billion, and this includes a benefit of $110 million from changes in currency exchange rates. On a constant currency basis, operating income grew 50 basis points. Excluding the $53 million in charges that Jeff mentioned and the $14 million impact on costs associated with the integration of Netto, Walmart International grew constant currency operating income 5.6%. Inventory management continues to be a challenge as days on hand increased over last year in most of our markets. Our constant currency inventory, excluding Massmart, grew 11.1% as we added a significant number of stores in most of our markets.
Now let's get into the results for several of our larger markets. Country management teams are held accountable for their results on a constant currency basis. The following discussion of country results excludes the impact of currency and unless otherwise stated, sales and comp sales are presented on a nominal basis. Comp sales are reported on a calendar basis. We'll kick off this quarter with the U.K. ASDA had a solid second quarter, growing sales excluding fuel ahead of last year. However, operating income declined due to $31 million of costs related to Netto. Adjusting for fuel sales and Netto, ASDA grew operating income faster than sales.
In the second quarter of this year, comparable sales, excluding fuel, increased 50 basis points. Traffic decreased by 120 basis points and average ticket increased 170 basis points. Customers are consolidating their trips in the face of high fuel prices. ASDA grew expenses slower than sales in the second quarter, leveraging on tight expense management. After excluding the Netto costs, ASDA's expenses declined from last year. ASDA continues to gain recognition for saving people money everyday, supported by the 10% online price guarantee and now more than 250,000 baskets are being checked online by customers each week. As a clear statement to the quality our customers can find, ASDA's private brands and other products have won more than 300 awards so far this year, including Retail Champion at the International Cheese Awards, Meat and Fish Retailer of the Year and numerous other wine awards.
In June, ASDA was recognized as the price leader by the Grocer magazine as the lowest priced supermarket for the 14th year running. So it was no surprise that there were long lines of customers on grand opening day at our converted Netto stores. In these stores, customers will receive the same ASDA low prices, the 10% price guarantee and in-store pickup from online shopping.
Including the stores from the Netto acquisition, ASDA's total store count was 536 at the end of the second quarter. Economic indicators suggest that 2011 will remain a challenging year for our U.K. consumers, and we're confident that ASDA and its Netto store conversions are entering the second half of the year with good momentum, delivering availability and Every Day Low Prices.
Finally, Judith McKenna, who spent several years as ASDA's Chief Financial Officer has been promoted to Chief Operating Officer. Judith has a long track record of success, and we look forward to her experience in ASDA's operations. Congratulations, Judith.
Let's move to the Americas. In previous earnings discussions, I discussed only the results of Mexico and Central America separately in this section. Now that one year's passed since our Central American operations have been combined into Walmex, we will discuss the results of the consolidated company going forward. While the following results are on a U.S. GAAP basis, Walmex separately reports its earnings under Mexican GAAP. So some numbers are different from the Walmex reported results.
Overall, Walmex sales grew at a fast rate, but operating income declined from last year second quarter due to the noncash accounting charge mentioned earlier by Jeff. As we mentioned last quarter, our operations in Mexico went live with the SAP implementation during Q2. This effort increased the level of precision for inventory valuation and the result was a noncash accounting charge of $17 million. Walmex's consolidated net sales for the second quarter were up 9.1%. Comparable sales from Mexico were up 1.1%. Average ticket in Mexico increased 2.2%, and customer traffic declined 1.1%. Comp stores in Central America were up 6.2% on a constant-currency basis.
As Walmex noted in its earnings call on July 19, our teams continued to strengthen its EDLP position in Mexico, and we've converted to EDLP in each of our 5 Central American countries, making permanent price reductions on more than 12,000 items. We've also converted all of our Central American supercenters to the Walmart brand.
Mexico's second quarter consolidated comp store sales for the self-service formats grew by 1.9%, while ANTAD's comp store sales report for the rest of the industry, exuding Walmex, grew faster at 2.2%. In the second quarter, Walmex advanced its investment schedule for new stores and logistics modernization and opened 129 stores in this quarter as compared to 57 in the second quarter of last year. An aggressive, but steady, rate of new store openings is part of the new store growth plan. And Walmex has achieved 45% of planned floor expansion to date. We will begin to see the sales from these new stores in our third fiscal quarter as the majority were opened at the end of June.
Second quarter gross margin as a percentage of sales was flat to last year. Walmex's consolidated second quarter operating income declined 5.3% from last year and decreased 2.2% from last year after excluding the noncash inventory charge. Walmex's expenses grew faster than sales at 14.1% from last year, primarily due to the new stores. With 394 more stores than at the end of the second quarter of last year, Walmex is well positioned for the rest of the year.
Moving on to Brazil. Net sales grew in the second quarter; however, operating income declined from last year. As part of our progress in implementing EDLP as a global pricing philosophy, Brazil began its EDLP conversion earlier this year. The number of items converted to date represents a large portion of Brazil's overall sales. Brazil's second quarter net sales grew and comparable sales grew from last year. Average ticket increased 7.4% and customer traffic declined 4.6%. We believe that the investment in EDLP is right for our ultimate success in the marketplace and more important, best for our customers.
No comments:
Post a Comment