Doug McMillon
President and Chief Executive Officer at Walmart
Good morning. Thank you for joining us to hear about our results. We had a good quarter from a topline point of view. Sales for the period were ahead of what we expected across all segments and we're pleased with the momentum we see so far in Q2. The bottom line was below our expectations due primarily to three areas that negatively affected operating income in our U.S. businesses, both in Walmart and Sam's Club. Each of these items represents about a third of our overall profit miss.
The first item is wage expense. As the omicron variant case count declined rapidly in the first half of the quarter, more of our associates that were out on COVID leave came back to work faster than we expected. We hired more associates at the end of last year to cover for those on leave. So, we ended up with weeks of over staffing. That issue was resolved during the quarter primarily through attrition.
The second item relates to our general merchandise inventory level primarily in Walmart U.S. GM was a lower percentage of total sales in Q1 resulting in an unfavorable gross margin mix. We also had higher costs for containers and storage and we've taken and are taking steps to contain those cost pressures to the first half of this year. The third item is related to fuel costs and our supply chain.
So, those are the three items, and I now share more detail on each to help provide clarity. As for wages and staffing in the U.S., we had nearly all associates on COVID leave return in February. We expected the omicron curve to be steep on the backside, but given that we needed more associates to cover in January, it just took some time over March and April to get wage costs in line with sales. We're now staffed in a way that supports our top line performance. As it relates to Walmart U.S. general merchandise sales, we knew that we were up against stimulus dollars from last year, but the rate of inflation in food pulled more dollars away from GM than we expected, as customers needed to pay for the inflation in food. We like the fact that our inventory is up because so much of it is needed to be in stock on our side counters, but a 32% increase is higher than we want. We'll work through most or all of the excess inventory over the next couple of quarters.
We started being aggressive with rollbacks in apparel for example during Q1. Even with reduced prices, the apparel margin can still be helpful to our overall mix. As we managed the quarter, we generally passed on cost increases from suppliers at the category cost to goods level, but fuel costs accelerated during the quarter faster than we were able to pass them through creating a timing issue. Fuel ran over $160 million higher for the quarter in the U.S. than we forecasted. We made progress matching pricing to the increased costs as the quarter progressed. And while we expect some gross margin pressure in Q2, we expect an improvement over Q1. We are not happy with the profit performance for the quarter, and we've taken action especially in the latter part of the quarter on cost negotiations, staffing levels, and pricing while also managing our price gaps. While we've experienced high levels of inflation in our international markets over the years, U.S. inflation being this high and moving so quickly, both in food and general merchandise is unusual. We will control what we can control, reduce our inventory level, and keep prices as low as we can, especially on opening price point food items while improving our profit performance.
Inflation is playing a role in the top and bottom line and the pace of change created a timing issue for us in Q1. We're adjusting to the mix change and operational costs. Importantly, we expect a solid top-line performance to continue and we're taking up sales guidance for the year. Customers and members are coming to us for value. I'd like to highlight our international team and their performance. We had strong top line performance and managed the quarter very well across the markets. Our biggest international pressure point is related to the COVID lockdowns in China, which created operational and financial pressure. Our teams did a great job of pivoting to serve customers and members through delivery. They stepped up as stores and clubs closed and demand for delivery spiked. Overall, the international segment had another good quarter. We are making progress executing our strategy. The flywheel we we're building is better for customers and members and the more diversified approach to profitability is making the company stronger.
We're excited about our newer businesses and our plans to automate much of the supply chain. We're committed to our 4% top line growth and greater than 4% profit growth algorithm. Our strategy and mid to long-term financial plans support that despite the turbulence we're managing through today. Globally, we continue to build new mutually-reinforcing businesses. As we grow in areas like marketplace, that leads to growth in fulfillment services and advertising income. Our B2C relationships lead the complementary B2B relationships, which strengthen our P&L. The number of marketplace sellers we have continues to grow. And growth in Walmart Connect and Flipkart ads was strong for the quarter. Walmart GoLocal continues to add new partners for our delivery platform. And we've now reached more than 1,600 delivery points in the U.S.
We recently increased the Walmart Plus benefit for fuel to up to $0.10 and expanded the number of participating fuel locations to more than 14,000 including Exxon and Mobil stations. Our health and wellness work continues. In the U.S., we announced an expansion of Walmart Health into Florida with the opening of four new locations, and more and more on the way. In India, the launch of Flipkart Health Plus following our acquisition of online pharmacy platform sastasundar.com is enabling us to increase access to affordable care in that country. The team recently launched the Flipkart Health Plus app, which is available on low bandwidth so it's usable for more people in more cities.
And in Canada, we're growing our number of primary-care clinics to 87 and in partnership with Telus Health, we'll launch digital pharmacy services. We're also making progress with Financial Services. In India, PhonePe recently processed more than a 100 million transactions in a single day with annualized total payment value of about $770 billion. It's one of the fastest growing businesses in this space.
I also like what we're doing in Mexico with our digital wallet Cashi. In the U.S. through our JV with Ribbit Capital, we completed the acquisitions of two Fintech businesses, One Finance and Even, and combined those businesses under the one brand. Around the world, we can help our customers and members transact seamlessly, digitally and help them strengthen their lives financially.
Now, I'll briefly comment on each segment before Brett adds additional detail. In Walmart U.S., our sales performance was ahead of plan and we continue to gain share in grocery. Inflation is lifting the average ticket and our transaction count in stores went up slightly versus last year. Overall, basket size is up as you would expect, but units per basket are down a bit. Price leadership is especially important right now and one-stop shopping becomes more than just convenience when people are paying over $4 a gallon for fuel.
Overall eCommerce growth increased about 1% for the quarter. We're making progress on the e-commerce experience as in-stock improves, and the team continues to improve on the app and site experience and delivery accuracy and speed. Our e-commerce operations were affected early in the quarter as we lost one of our largest fulfillment centers to a fire, which created some cost inefficiencies for us. The buildings were destroyed, but thankfully and most importantly, no one was hurt. The loss did put strain on our system, however. The team quickly reacted to utilize our stores and spread volume to our other FCs to fulfill e-commerce orders. I'm proud of the team for moving so quickly to keep orders flowing to our customers.
Moving to Sam's Club U.S., we continue to drive strong comp sales on a one and two-year basis with strength across most categories. Transactions were up in Q1. Overall membership count continued to grow. Plus member penetration reached another all-time high, and we saw good growth in eCommerce. Profitability was negatively affected by the areas I mentioned earlier. Walmart International continues to build on the momentum from last year with strong comp sales across markets and strong growth in eCommerce.
I visited our teams in stores in Mexico and Canada since the first of the year. The progress they're making on building out our flywheel capabilities is impressive. From financial services and healthcare that I mentioned earlier to marketplace expansion and advertising, the teams are moving quickly. Also like the example from Mexico where we have a 200 pesos per month unlimited Internet option, it's helping customers access the benefits of the digital economy that would otherwise cost them three times that price.
In summary, around the world, we're still living in environments with COVID present and navigating the economic and other impacts to deliver for customers and members. As always, our associates are doing a great job and we're grateful to them. We continue to change and strengthen our company and position it for a strong future. Thank you for your interest in our company. We hope to see you at our Annual Associate and Shareholder Celebration in a couple of weeks. As I turn it over to Brett, I want to pause and say a big thank you to him. Brett made significant contributions to our company in all parts of our business for many years. He has represented our associates, our investors and our company so well. His knowledge, astute judgment, and character have made him a pleasure to work with. Thank you, partner. With that, I give you Mr. Biggs.
