WEBVTT - Jennifer Bartashus on Walmart Earnings (Audio)

0:00:00.080 --> 0:00:02.960
<v Speaker 1>Takes us into really what's an encouraging earning story here

0:00:03.000 --> 0:00:06.240
<v Speaker 1>and might this be an undervalued stock? We're talking Walmart here,

0:00:06.600 --> 0:00:09.800
<v Speaker 1>massive pop in the shares overnight five really capping off.

0:00:09.840 --> 0:00:13.039
<v Speaker 1>I believe what the seven day rally here, longest winning

0:00:13.080 --> 0:00:16.520
<v Speaker 1>streak going back to October of last year. Let's get

0:00:16.520 --> 0:00:19.320
<v Speaker 1>a sense really of what we at least the guidance

0:00:19.320 --> 0:00:22.279
<v Speaker 1>from the company means per se and also against the

0:00:22.280 --> 0:00:25.840
<v Speaker 1>broader backdrop of this, it's more evidence of a slowing

0:00:25.880 --> 0:00:28.280
<v Speaker 1>retail story in the US. Joining US now as Jennifer

0:00:28.520 --> 0:00:32.480
<v Speaker 1>Ratasha is here Bloomberg Intelligence Senior Retailed Staples and Packaged

0:00:32.800 --> 0:00:36.160
<v Speaker 1>Food analyst Jennifer David here, Good morning from Hong Kong

0:00:36.159 --> 0:00:39.240
<v Speaker 1>and the Age of Pacific. Hope you're well. Are we

0:00:39.280 --> 0:00:43.800
<v Speaker 1>gonna be okay? That seems to be the headline from Walmart. Yeah,

0:00:43.840 --> 0:00:46.840
<v Speaker 1>good morning and thank you for having me with you today. Um,

0:00:46.920 --> 0:00:49.400
<v Speaker 1>when when we look at Walmart, you know the fact

0:00:49.400 --> 0:00:51.879
<v Speaker 1>that they beat earnings was a positive sign, but we

0:00:51.920 --> 0:00:54.080
<v Speaker 1>also have to bear in mind that only three weeks

0:00:54.080 --> 0:00:56.960
<v Speaker 1>ago they lowered their guidance and then they beat their

0:00:56.960 --> 0:01:00.560
<v Speaker 1>guidance and so um, you know, so it's it's a

0:01:00.600 --> 0:01:02.640
<v Speaker 1>good note, but at the same time, you have to

0:01:02.680 --> 0:01:05.040
<v Speaker 1>take it a little bit with a grain of salt. Now,

0:01:05.160 --> 0:01:07.880
<v Speaker 1>some of the commentary that they shared does give some

0:01:08.160 --> 0:01:11.600
<v Speaker 1>confidence that the back to school season is going well UM,

0:01:11.720 --> 0:01:14.440
<v Speaker 1>gives the little bit more optimism on their ability to

0:01:14.480 --> 0:01:17.399
<v Speaker 1>handle inventory UM, which will be very important as we

0:01:17.440 --> 0:01:20.080
<v Speaker 1>get into the second half of the year. Jennifer Stug

0:01:20.080 --> 0:01:22.280
<v Speaker 1>in New York, I want to say thanks as well

0:01:22.319 --> 0:01:24.840
<v Speaker 1>for joining us here on Day Break Asia. Yeah, the

0:01:24.880 --> 0:01:27.800
<v Speaker 1>inventory build was a curious phenomenon here. I think that

0:01:27.880 --> 0:01:31.560
<v Speaker 1>they perhaps misread the consumer early on in the pandemic.

0:01:31.720 --> 0:01:35.160
<v Speaker 1>Maybe people's tastes have changed, or maybe they've moved away

0:01:35.160 --> 0:01:37.559
<v Speaker 1>from buying goods to services. I mean, there are different

0:01:37.600 --> 0:01:40.759
<v Speaker 1>stories here are part of that overall narrative. But as

0:01:40.800 --> 0:01:43.319
<v Speaker 1>it applies to Walmart, what do we know about the

0:01:43.360 --> 0:01:48.680
<v Speaker 1>way that they were able to unwind inventory or liquidate, Well,

0:01:48.720 --> 0:01:52.000
<v Speaker 1>it's they've done a pretty decent job. And basically, when

0:01:52.080 --> 0:01:53.880
<v Speaker 1>when we were in the hype of the pandemic, the

0:01:54.000 --> 0:01:57.040
<v Speaker 1>retailers couldn't get enough inventory UM. And then as the

0:01:57.040 --> 0:01:59.560
<v Speaker 1>pandemic started to fade, they sort of bulked up and

0:01:59.600 --> 0:02:01.360
<v Speaker 1>they wanted to be sure that they would be able

0:02:01.400 --> 0:02:04.760
<v Speaker 1>to remain with things in stock for consumers and not

0:02:04.840 --> 0:02:07.640
<v Speaker 1>trigger another round of panic buying. UM. But what that

0:02:07.720 --> 0:02:10.520
<v Speaker 1>led to was kind of an over confidence in how

0:02:10.600 --> 0:02:12.720
<v Speaker 1>much they would be able to sell in this huge

0:02:12.720 --> 0:02:15.919
<v Speaker 1>amount of inventory that they were then sitting on. Now

0:02:16.200 --> 0:02:19.360
<v Speaker 1>for Walmart, the trickiest part of that inventory excess they

0:02:19.360 --> 0:02:21.960
<v Speaker 1>have is apparel UM, and they've had a little bit

0:02:21.960 --> 0:02:24.120
<v Speaker 1>more of a hard time selling through that apparel. They've

0:02:24.160 --> 0:02:28.799
<v Speaker 1>done a better job with home decore items and electronics UM.

0:02:28.840 --> 0:02:30.320
<v Speaker 1>And part of the way they cleared some of that

0:02:30.400 --> 0:02:34.920
<v Speaker 1>inventory was through the traditional method of rollbacks and lowering prices,

0:02:34.960 --> 0:02:38.840
<v Speaker 1>but also they ran a Walmart Plus member sales event

0:02:38.960 --> 0:02:41.400
<v Speaker 1>in June UM and a lot of the items that

0:02:41.440 --> 0:02:45.280
<v Speaker 1>were part of that sales event were those categories where

0:02:45.280 --> 0:02:48.160
<v Speaker 1>they had excess inventory. So they took a very strategic

0:02:48.200 --> 0:02:51.840
<v Speaker 1>approach and how to decrease that inventory. UM. And they

0:02:51.880 --> 0:02:54.000
<v Speaker 1>did say on their call today that they've canceled a

0:02:54.000 --> 0:02:57.280
<v Speaker 1>lot of orders and that they're they're more right sized

0:02:57.320 --> 0:02:59.760
<v Speaker 1>in their inventory as they looked at the second half

0:02:59.760 --> 0:03:03.520
<v Speaker 1>of the here. Well, I'm curious then, was that a

0:03:03.600 --> 0:03:06.639
<v Speaker 1>one off in terms of and the reason I asked

0:03:06.680 --> 0:03:08.880
<v Speaker 1>this inventory question is I mean, it's it's not the

0:03:08.919 --> 0:03:11.960
<v Speaker 1>same industry, but for example, Toyota this part of the world,

0:03:12.360 --> 0:03:14.760
<v Speaker 1>you look at Day's inventory has been rising. You know,

0:03:14.840 --> 0:03:17.040
<v Speaker 1>this is a company that's known for just in time,

0:03:17.160 --> 0:03:20.480
<v Speaker 1>just enough, and they're starting to go just in case

0:03:20.639 --> 0:03:22.720
<v Speaker 1>in terms of their inventory. Right. So I'm just trying

0:03:22.720 --> 0:03:25.000
<v Speaker 1>to see whether there's a read through from what Walmart

0:03:25.040 --> 0:03:27.080
<v Speaker 1>did to the entire industry or even just the Walmart

0:03:27.080 --> 0:03:31.440
<v Speaker 1>itself in these next few quarters. Well, there's certainly they

0:03:31.480 --> 0:03:34.320
<v Speaker 1>seem to be learning some of the lessons um and

0:03:34.320 --> 0:03:37.000
<v Speaker 1>and with with regards to inventory and just the value

0:03:37.000 --> 0:03:39.600
<v Speaker 1>of inventory, there there are two factors there. One is

0:03:40.080 --> 0:03:43.080
<v Speaker 1>um just inflation, and the value of inventory has gone

0:03:43.160 --> 0:03:46.200
<v Speaker 1>up even if the actual number of physical goods held

0:03:46.200 --> 0:03:49.000
<v Speaker 1>in inventory hasn't UM So that is part of the

0:03:49.040 --> 0:03:52.520
<v Speaker 1>story UM. But but more importantly, UM, it seems that

0:03:52.560 --> 0:03:55.920
<v Speaker 1>Walmart is gotten much smarter in terms of being strategic

0:03:56.000 --> 0:03:58.800
<v Speaker 1>on where they need to buy and where they've canceled orders.

0:03:59.280 --> 0:04:02.880
<v Speaker 1>Um and so that puts us in a pretty confident

0:04:02.920 --> 0:04:05.600
<v Speaker 1>position that as we as we moved through back to

0:04:05.600 --> 0:04:08.200
<v Speaker 1>school and we get towards the end of the year, UM,

0:04:08.240 --> 0:04:11.800
<v Speaker 1>if they've canceled orders that they thought might be an access.

0:04:12.240 --> 0:04:14.400
<v Speaker 1>That means hopefully that they'll be able to sell through

0:04:14.440 --> 0:04:16.880
<v Speaker 1>their holiday inventory and the end the year on a

0:04:17.000 --> 0:04:20.240
<v Speaker 1>very strong note. Um. And we've heard other retailers talk

0:04:20.320 --> 0:04:24.640
<v Speaker 1>about canceling orders than trying to write size inventory as well. So, UM,

0:04:24.680 --> 0:04:26.719
<v Speaker 1>I think we'll hear more tomorrow from the Target. I

0:04:26.800 --> 0:04:28.680
<v Speaker 1>was just going to ask about that. I mean, so

0:04:28.720 --> 0:04:31.920
<v Speaker 1>today we had the Walmart stock popping about five percent.

0:04:32.000 --> 0:04:34.560
<v Speaker 1>I'm looking at Target shares up two point nine percent today.

0:04:34.560 --> 0:04:37.080
<v Speaker 1>You mentioned the fact that they will deliver numbers tomorrow.

0:04:37.400 --> 0:04:40.080
<v Speaker 1>Is it it's it the same story or is there

0:04:40.120 --> 0:04:42.280
<v Speaker 1>things that we really need to tear a pardon in

0:04:42.360 --> 0:04:46.520
<v Speaker 1>terms of differentiation? Well, when when we when we compare

0:04:46.560 --> 0:04:48.880
<v Speaker 1>Walmart and Target, one of the key things to remember

0:04:49.000 --> 0:04:53.560
<v Speaker 1>is that Target is much more is much less reliant

0:04:53.600 --> 0:04:57.919
<v Speaker 1>on food sales than Walmart, So overt Walmart sales in

0:04:58.000 --> 0:05:00.960
<v Speaker 1>total are for food and consume up goals. So that's

0:05:00.960 --> 0:05:04.160
<v Speaker 1>a huge part of their US business. Walmart is I mean,

0:05:04.200 --> 0:05:08.840
<v Speaker 1>Target is much more focused on apparel, home decore. Um,

0:05:08.960 --> 0:05:10.880
<v Speaker 1>and they do sell essentials as well, but it's a

0:05:10.920 --> 0:05:14.080
<v Speaker 1>smaller part of their overall business. So tomorrow. For Target,

0:05:14.120 --> 0:05:15.520
<v Speaker 1>what we're going to be looking at it is that

0:05:15.640 --> 0:05:20.039
<v Speaker 1>inventory and and UM their management team had taken the

0:05:20.120 --> 0:05:22.240
<v Speaker 1>track of trying to sort of rip the band aid

0:05:22.279 --> 0:05:25.159
<v Speaker 1>off and dump as much inventory as possible in the

0:05:25.200 --> 0:05:28.360
<v Speaker 1>second quarter, So we're going to seem very very weak margins,

0:05:28.600 --> 0:05:32.040
<v Speaker 1>but hopefully we'll see a much better inventory number come

0:05:32.080 --> 0:05:34.120
<v Speaker 1>out of Target UM that will set them up for

0:05:34.120 --> 0:05:36.400
<v Speaker 1>the rest of the year. Okay, Jennifer, good stuff. Always

0:05:36.400 --> 0:05:39.440
<v Speaker 1>a pleasure. Thanks for spending time with us. Jennifer Bartoshes,

0:05:39.560 --> 0:05:44.440
<v Speaker 1>Bloomberg Intelligence senior Retail, staples and package food analysts, joining

0:05:44.480 --> 0:05:45.279
<v Speaker 1>us on the program.