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Speaker 2: The retail earnings from Walmart out of the gate, it
Speaker 2: sounded good. They raise their full year sales guidance, but
Speaker 2: it missed on the bottom line. It shares her down
Speaker 2: about four percent. So here to give us more details
Speaker 2: on that is Jennifer Bartasha. She's Bloomberg Intelligence senior analysts retail,
Speaker 2: Staples and package Foods. Jenn Welcome to the show. Were
Speaker 2: the expectations just a little bit too hi? Coming into
Speaker 2: the print? I mean what happened?
Speaker 3: Well, when I look at this quarter, it really is
Speaker 3: it's really more about one off kind of things that
Speaker 3: were unanticipated, and so I don't know that there's any
Speaker 3: way the street really could have anticipated, you know, higher
Speaker 3: costs for related to you know, having to to hold
Speaker 3: money back for settling claims. So if you look at
Speaker 3: the quarter on paper, it was actually a pretty good quarter,
Speaker 3: especially in a very volatile backround, you know, background.
Speaker 4: That we have.
Speaker 5: What are they saying about the consumer, the health of
Speaker 5: consumer gen because nobody has a better pulse finger on
Speaker 5: the pulse than Walmart.
Speaker 3: Very true. I mean, when when you look at the
Speaker 3: health of the consumer, you know, Walmart is definitely capitalizing
Speaker 3: on whatever willingness there is to spend. I think one
Speaker 3: of the very interesting takeaways from the results today is
Speaker 3: that in Sam's Club everything was driven by units sold,
Speaker 3: and in Walmart US, you know, their traffic was up
Speaker 3: and their and their ticket was up. That means that
Speaker 3: Walmart is really unique across other retailers in terms of
Speaker 3: selling greater volumes, which really means that they're bringing more
Speaker 3: and more people into that ecosphere. And they did call
Speaker 3: out higher income households as one of those biggest contributors.
Speaker 2: Now you're comparing Okay to Walmart to let's say, a
Speaker 2: Sam's Up. What about Walmart to a Target?
Speaker 5: As far as.
Speaker 2: How tariffs affect them, I mean, do towers affect Walmart
Speaker 2: differently than they affect Target?
Speaker 3: Well, I would. I would argue that that Target actually
Speaker 3: has a little bit greater exposure to tariffs than Walmart.
Speaker 3: And that's simply because, as Paul knows, Walmart is the biggest,
Speaker 3: you know, grocery retailer in the United States, and it
Speaker 3: takes a big chunk of their revenue, and Walmart imports
Speaker 3: as a result a little bit less that said, you know,
Speaker 3: I think one of the other differences is Walmart has
Speaker 3: doubled down on improving the quality and the assortment in
Speaker 3: their general merchandise. And one of the things that they
Speaker 3: called out today is that they're seeing market share gains
Speaker 3: and things like apparel and fashion, which are traditionally the
Speaker 3: areas that target has excelled at. So that that's also
Speaker 3: an interesting takeaway looking at the two retailers between yesterday
Speaker 3: and today.
Speaker 5: What do you think here going forward, Jen, these retailers
Speaker 5: will try to do with any tariff induced cost increases.
Speaker 5: Are they going to take as much as a hen
Speaker 5: in the margin before passing on the consumer or how
Speaker 5: do you think you're going to do that?
Speaker 3: Well, I think in order to preserve value, value perception
Speaker 3: is really important, and that's what's going to help keep
Speaker 3: you retain market help you retain market share. So I
Speaker 3: think price increases will be a last resort. But you know,
Speaker 3: the impact of tariffs has been very gradual, and I
Speaker 3: think what we're going to see is, is we get
Speaker 3: into second half with all of these retailers, the inventory
Speaker 3: they currently have on hand, much of which they accelerated
Speaker 3: to get in ahead of tariffs, is now being sold
Speaker 3: and it's being replaced at higher cost. So we're seeing
Speaker 3: inventory go up basically off of the cost of inventory itself.
Speaker 3: And how will they sell that through without having to
Speaker 3: do markdowns and without having to absorb too much cost
Speaker 3: is really what's what's going to be critical. I do
Speaker 3: think margins are going to be pressured a little bit
Speaker 3: more in the second half because of that, and because
Speaker 3: that they are going to have to take some strategic
Speaker 3: price increases where they can, They're just going to be
Speaker 3: very targeted and where they do that, Jan.
Speaker 2: Can you get into delivery and e commerce? Because that
Speaker 2: has been a big help for Walmart? I mean, it
Speaker 2: would it eventually give Amazon some competition?
Speaker 5: Where is it?
Speaker 2: Where does it stand there?
Speaker 6: Well?
Speaker 3: I think one of the big competitive advantages for Walmart
Speaker 3: is the stores and the proximity to people's houses. So
Speaker 3: the ability to deliver quickly and two people's homes on
Speaker 3: a same day or a few hours basis is really
Speaker 3: a competitive advantage. That they have. E Commerce is growing
Speaker 3: at an incredibly healthy clip for Walmart, and as a
Speaker 3: result of that, we're seeing, you know, the higher margin
Speaker 3: businesses like advertise digital advertising really grow as well. And
Speaker 3: that also helps, you know, strengthen ensure up the overall
Speaker 3: financial position of the company. So that focus on expanding
Speaker 3: digital sales I think we will continue, and they're really
Speaker 3: executing well on those strategic objectives, and I think we'll
Speaker 3: see a lot of that type of focus as we
Speaker 3: get into the end of the back to school season
Speaker 3: and into the holiday season.
Speaker 5: All right, this is Walmart we're talking about, Jen, Why
Speaker 5: can't they just raise prices five to ten percent on
Speaker 5: light bulbs and whatever? I mean, where am I going
Speaker 5: to go if they do that? I mean, it's Walmart, well.
Speaker 3: It is, but I mean their culture is steeped in
Speaker 3: being the lowest possible price provider, and so, you know,
Speaker 3: I think that part of the reason they've been able
Speaker 3: to gain market share in recent years as we saw
Speaker 3: very high food inflation, is that they're really focused on
Speaker 3: preserving that price gap to other competitors. So you're right, Paul,
Speaker 3: they could raise prices by five percent, and Walmart does
Speaker 3: raise prices when it's needed. We saw prices grow up
Speaker 3: during the period of food inflation, but they're also one
Speaker 3: of the fastest to take prices back down when they can,
Speaker 3: and so I think that they've got a team of
Speaker 3: merchants who are very skilled at deciding when and where
Speaker 3: they need to take price, and because they sell such
Speaker 3: a broad variety of categories and items, it doesn't have
Speaker 3: to be a uniform price hike across the entire company.
Speaker 2: In the last minut or so we have here, I mean,
Speaker 2: can you just explain how they keep their prices so low?
Speaker 2: I mean, how are they able to do it?
Speaker 5: I don't get it.
Speaker 3: Well, there's a self fulfilling cycle in retail, which is
Speaker 3: that as you sell more units, you get better prices
Speaker 3: when you're buying them right, because you're selling higher volumes.
Speaker 3: And so Walmart has really gotten into that cycle where
Speaker 3: they're selling such big volumes that they're able to procure
Speaker 3: even better purchasing terms, and so that definitely helps them
Speaker 3: with the ability to keep prices level when other competitors
Speaker 3: who may not have the benefit of that type of
Speaker 3: cycle are having to pay slightly higher costs.
Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.
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Speaker 5: Back to the world of M and A. We had
Speaker 5: a little bit of a trade here, I'm gonna say
Speaker 5: kind of more than a little bit of a trade,
Speaker 5: Toma Bravo agreeing to acquire day Force and a deal
Speaker 5: about twelve point three billion dollar deal. Let's break this
Speaker 5: thing down with Niroshptel, Bloomberg Contelligence senior software anamals Neuraj. First,
Speaker 5: tell us what does day Force do and why are
Speaker 5: they selling themselves to Tomo Bravo.
Speaker 6: Yeah, dave Force is in the HR payroll software space,
Speaker 6: so consider the back office segment. This total market's about
Speaker 6: fifty billion in size, about ten percent growth rate. So
Speaker 6: they're selling modules when they're trying to imboard employees. They're
Speaker 6: doing performance reviews all the way to retirement type of services.
Speaker 2: So what kind of struggles have they been going through
Speaker 2: that Tomo Bravo is coming in.
Speaker 6: Yeah, that's an interesting question, Lisa. From our view, we
Speaker 6: have not a lot of struggle here. It's more normalization
Speaker 6: of growth in the industry. They have a ten to
Speaker 6: twelve percent forecasted growth rate ahead from the next two years,
Speaker 6: but that's considerably down from twenty plus percent in twenty
Speaker 6: twenty two and twenty twenty three. But that's more of
Speaker 6: the industry shift from being able to sell to new
Speaker 6: customers and now reliance on existing customers. And when they're
Speaker 6: selling to existing customers, the big sale is behind them,
Speaker 6: the big payroll sale is behind them. Now they're adding
Speaker 6: on two to four dollars type of price per user
Speaker 6: when they're selling talent modules or learning modules and some
Speaker 6: of the other HR software aspects.
Speaker 5: Why is day Force selling here. It's not you don't
Speaker 5: see it, but it's a little bit unusual for growing
Speaker 5: software technology companies to sell to private equity.
Speaker 6: Yeah, that's a good point, Paul. I think two years
Speaker 6: ago this would be seen as too cheap. Let's say
Speaker 6: five times forward sales about twenty seven on a price
Speaker 6: to earnings for twenty two twenty six, So there would
Speaker 6: have been a little pushback. Maybe there would have been
Speaker 6: some other competing bids coming in today, application software has
Speaker 6: faced a lot of pressure. Not only this normalization, there's
Speaker 6: an oversupply in the mid market space in terms of
Speaker 6: software all the way from sales and marketing, even in
Speaker 6: the HR and software and payroll space. So that's an issue.
Speaker 6: I think the other issue here is that you don't
Speaker 6: have a lot of churn from the large incumbents like
Speaker 6: the ADP and the workday that was fuel for these
Speaker 6: smaller mid market players to get a little boost to
Speaker 6: their revenue growth. So I think, you know, there's an
Speaker 6: issue here with the industry. There isn't a lot of buyers.
Speaker 6: There's a lot of supply here, especially as you move
Speaker 6: down market.
Speaker 2: And I'm reading through it in the rush of the article,
Speaker 2: and it seems like Toma Brobot has been pretty busy.
Speaker 2: I mean, I'm seeing, you know, agreed to purchase Boeing
Speaker 2: Companies flight navigation unit. But isn't this a pretty tough
Speaker 2: time for private equity companies that are looking to deploy capital.
Speaker 2: Can you talk about that and about some the action
Speaker 2: that they've seen.
Speaker 6: Yeah, when we look at Tomo Bravo's kind of past history,
Speaker 6: they are one of the top application software and generally
Speaker 6: software ecquisitors, and I think we've seen that pace slow
Speaker 6: down over the last two years. Prices have come in,
Speaker 6: but what they're targeting is more focused. They're looking for
Speaker 6: these platforms that have a lot of AI opportunity, but
Speaker 6: that needs to be leveraged and pulled out of the businesses.
Speaker 6: Before application software was more steady, you sell on a
Speaker 6: subscription type of basis. That business models in jeopardy, especially
Speaker 6: as enterprise users leverage LMS to do more of the
Speaker 6: job scope. So we're not sure where the future business
Speaker 6: model goes. When you go off a dollar per user,
Speaker 6: are you going to go on a consumption basis or
Speaker 6: a token basis? So that's up in the air right now.
Speaker 1: How are the.
Speaker 5: Business conditions broadly defined nearage for your part of the
Speaker 5: technology space, the application software space.
Speaker 4: How are the fundamentals for your business? Fundamentals are stable.
Speaker 4: We came into the year at about eleven and a
Speaker 4: half percent sales growth for twenty twenty five. Over the
Speaker 4: first two quarter quarters.
Speaker 6: That has bumped up to about thirteen percent, so about
Speaker 6: one hundred and fifty bases point lift. And the margins
Speaker 6: they continue to leverage, reducing sales and marketing expenses, so
Speaker 6: they're getting about a three hundred basis point lift on
Speaker 6: operating profit margins, which average around twenty seven percent, So
Speaker 6: pretty good stable financial models. The issue is this AI
Speaker 6: overhang has knocked down these stocks. These stocks are down
Speaker 6: on average eight percent, Application overall Software Universe and application
Speaker 6: software is down twelve percent, and it's this AI risk
Speaker 6: that's really clouded. Are they going to be able to
Speaker 6: sell their software at the same pace and the same
Speaker 6: dollar level or is it going to move and migrate
Speaker 6: to an AI agent which is going to be doing
Speaker 6: the software function.
Speaker 2: In the last minute, so we have here left. Is
Speaker 2: this one of tomar Brobo's biggest deals.
Speaker 6: No, I think over the last couple of years. Yes,
Speaker 6: it is definitely one of their biggest deals, and they're
Speaker 6: not paying so so much relative to some past deals
Speaker 6: that were in the seventy eight times in the software space.
Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.
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Speaker 5: All Right, A piece of news that I kind of
Speaker 5: found interesting today was Boeing China says they're gonna are
Speaker 5: Boeing maybe they're in talks itself to five hundred planes
Speaker 5: to China, and that's big. I mean, they're not giving
Speaker 5: those things away there. Seems you're kind of expensive. And
Speaker 5: it really opens back up potentially that Chinese market, which
Speaker 5: has been challenging for or Boeing and some of the
Speaker 5: other Western players, said Phillip Joints Us here Bloomberg, Chief
Speaker 5: correspondent for Global Aviation. He Joints is here on a
Speaker 5: Bloomberg Interactive broker studio here, So sid what's happening here
Speaker 5: with Boeing in China.
Speaker 7: So we understand that Boeing is in talks with China
Speaker 7: for a large aircraft deal, which could be as many
Speaker 7: as five hundred planes. And what we understand is that
Speaker 7: the Chinese government is currently asking airlines in China what
Speaker 7: their requirements are and sort of gauging the various options
Speaker 7: for what sort of aircraft, what sort of size of aircraft,
Speaker 7: what sort of range and everything, and then they potentially
Speaker 7: could agree to a deal as part of a broader
Speaker 7: reconciliation on trade between Trump and President she when they
Speaker 7: meet in the fall.
Speaker 5: Just a red headline want to get in there. The
Speaker 5: DOJ official urges fed Pal to remove Governor Lisa Cook.
Speaker 5: We'll have more reporting on that coming up.
Speaker 2: That's interesting. Okay, Sid, a little bit of background, can
Speaker 2: you give us? So this is like a sales route
Speaker 2: stretches back to when US President Donald Trump last visit
Speaker 2: in twenty seventeen. Can you paint the backstory for us?
Speaker 7: Yes, So, Boying has been largely shut out of the U,
Speaker 7: out of the Chinese market, and China is one of
Speaker 7: the fastest growing aviation markets in the world, and Boeing
Speaker 7: has been largely shut out partly because of trade tensions.
Speaker 7: China was also the first country to ground the sevent
Speaker 7: thry seven Max after those two fatal crashes back in
Speaker 7: twenty nineteen, and so for Boeing, this is a sort
Speaker 7: of massive step forward in terms of being able to
Speaker 7: garner a new business instead of being able to challenge Airbus.
Speaker 7: I mean Airbus has but we've reported yesterday that Airbus
Speaker 7: is potentially going to win a five hundred plane order
Speaker 7: from China as well. So China needs new airplanes. Airlines
Speaker 7: in China are looking to replace alder Fleet. They're also
Speaker 7: looking to get growth in and Comac, which is the
Speaker 7: local Chinese company which is building a competitor to the
Speaker 7: seventry seven and the Airbus A three twenty isn't yet
Speaker 7: at scale, so they're not able to produce as many
Speaker 7: planes as they would need to actually replace that market.
Speaker 7: So it is a massive market for both.
Speaker 5: Would you get on one of those planes? I haven't
Speaker 5: heard about these planes? So all these Chinese planes.
Speaker 7: So C nine one nine's is a competitor to the
Speaker 7: E three twenty and it does have a lot of
Speaker 7: Western components in it. So the engines are made by CFM,
Speaker 7: which also makes engines for Boeing and Airbus, and it's
Speaker 7: got avionics from Honeywell, so it's got a lot of
Speaker 7: Western components in it. And this sort of ramp up
Speaker 7: of the aircraft has been very very slow, so they
Speaker 7: haven't actually been able to deliver many planes. I mean
Speaker 7: they're still building them in the fives and tens of
Speaker 7: a year, and so for the Chinese airlines they need
Speaker 7: to replace them.
Speaker 2: So what is this deal contingent apartment? What can make it?
Speaker 5: What can break it?
Speaker 7: So we understand that this deal is contingent on actually
Speaker 7: a larger trade deal. I mean, remember President Trump has
Speaker 7: used aircraft deals as a major bargaining chip for trade
Speaker 7: deals and trade negotiations, and we saw that massive order
Speaker 7: from Qatar when they announced the deal there, and when
Speaker 7: he went in his midle East to he had lots
Speaker 7: of aircraft deals, and so aircraft purchases have become a
Speaker 7: very large part of trade in Trump's in Trump's economy,
Speaker 7: and this would be a win for Trump if they
Speaker 7: can actually get a deal across the line.
Speaker 5: Where where is Boeing on the seven thirty seven max deliveries?
Speaker 5: Because I know they're I don't know, thirty eight per
Speaker 5: month or something, but they like to get it above
Speaker 5: what do you like to get it to fifty? And
Speaker 5: that's when the real cash flow really starts coming in.
Speaker 5: Where are they these.
Speaker 7: So Boeing's around thirty eight a month and that's where
Speaker 7: the cap is at the moment, where the FA cap
Speaker 7: deproduction I forgot after the door flew out last year,
Speaker 7: and so it's a problem. They're trying to get production
Speaker 7: back up and get it to a level where they
Speaker 7: can actually start making money. And that's part of Kelly
Speaker 7: Ottberg's turnaround effort to actually ramp up production off the
Speaker 7: seven thury seven and actually start generating cash from that aircraft.
Speaker 7: And so they are looking to sort of ramp up
Speaker 7: beyond thirty eight a month by the end of the year,
Speaker 7: and as they ended next year, they could sort of
Speaker 7: see that going up further.
Speaker 2: How are they doing against air boss, I mean, are
Speaker 2: they doing better against the competition?
Speaker 7: Not yet. I mean, Evers is still the world's biggest
Speaker 7: aircraft supplier. They're still the world's biggest aircraft manufacturers the case.
Speaker 7: I No, it hasn't. So I think they overtook Boeing
Speaker 7: back in twenty eighteen or nineteen.
Speaker 5: Yeah, I don't like that.
Speaker 2: We need to get going back, get a new CEO,
Speaker 2: you know.
Speaker 5: So Boeing Okay, So just park on Lisa's question, Bob.
Speaker 7: So boy is doing pretty well in terms of just
Speaker 7: recovering from where the pit that they were in and
Speaker 7: sort of the new CEO has focused on actually building
Speaker 7: on quality. Is talked about how he's sort of encouraging
Speaker 7: workers to speak up against any sort of quality misshaps
Speaker 7: or any quality sort of issues, and so far it's
Speaker 7: been a sort of big step forward for Boeing, but
Speaker 7: they're still not out of the woods yet and they
Speaker 7: still need to They did that massive equity raise last
Speaker 7: year and they sort of showed up their balance sheet,
Speaker 7: and we will look forward to seeing what actually happens
Speaker 7: with Boeing end of the year and if they can
Speaker 7: actually get their production beyond the thirty eight a month
Speaker 7: on the seven three seven.
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