Speaker 1: This is taking Stock with Kathleen Hayes and Pim Fox
Speaker 1: on Bloomberg Radio. Walmart shares under pressure today, down about
Speaker 1: three point two per cent, forecast earnings for its next
Speaker 1: fiscal year that missed some analysts estimates, just as CEO
Speaker 1: Doug McMillan plans more investments to improve stores and build
Speaker 1: out the retailer's e commerce capabilities. Seems like a perfectly
Speaker 1: sensible strategy to many people who watch Walmart, but to
Speaker 1: investors today shows are going to be spending more money
Speaker 1: to ultimately boost that bottom line, and that seems to
Speaker 1: be why we're getting a bit of a negative move today.
Speaker 1: But let's ask somebody who knows all about this what
Speaker 1: he thinks. Joe Agnes is equity analyst at c f
Speaker 1: R A Research. So, Joe, what stood out to you
Speaker 1: about the forecast for next year and how it ties
Speaker 1: into Doug mamillan's plans. Well, we thought the forecast for
Speaker 1: fiscal year seventeen, eighteen and nineteen were actually weaker than
Speaker 1: we expected, so it's a bit disappointing. However, as the
Speaker 1: company provide details during today's analyst meeting, our concerns were
Speaker 1: somewhere alleviated as the course, stores are still expected to
Speaker 1: improve operating income and operating margins, and the decreases more
Speaker 1: reflection of those increased investments in e commerce, which we believe,
Speaker 1: you know, are the right moves for the company to
Speaker 1: make the better position themselves in the long term for
Speaker 1: growth and to compete more effectively Joe. Earlier today, the
Speaker 1: chief executive of Walmart, Doug McMillan, he was speaking to investors.
Speaker 1: They were all gathered at Walmart's headquarters in Bentonville, Arkansas,
Speaker 1: and he said, this company over time will look like
Speaker 1: an e commerce company. Well before it becomes an e
Speaker 1: commerce company, do they have to resolve a corruption investigation
Speaker 1: with the US Justice Department and the Securities Exchange Commission?
Speaker 1: Because I think that the settlement, or at least the
Speaker 1: talk of a settlement, is about six hundred million dollars,
Speaker 1: and I believe that Walmart has already said that they've
Speaker 1: already spent or set aside about seven hundred nine million
Speaker 1: dollars for this issue. Can you explain what's going on? Yes? Well,
Speaker 1: while the numbers seem large, uh, Walmart produces a significant
Speaker 1: amount of free cash flow fifteen billion dollars a year.
Speaker 1: So I think any settlement they reached in this multi
Speaker 1: year ongoing investigation, uh is not going to have a
Speaker 1: significant impact on the company's long term strategy and the
Speaker 1: e commerce initiative going forward. Uh. Okay, so it's something
Speaker 1: then you're basically saying, they'll they'll clear this up, they'll settle,
Speaker 1: they won't settle and move on. But I just have
Speaker 1: to ask, as the back and forth continues between the
Speaker 1: Justice Department, the SEC and Walmart, what is Walmart's defense.
Speaker 1: Do they say that they didn't do what their charged
Speaker 1: with doing? Do they say that there were sort of
Speaker 1: rogue employees in Mexico who made bribery payments because they're
Speaker 1: just how much did you have to pay? Right right?
Speaker 1: The disputing it? They they noticed some issues themselves. Has
Speaker 1: gone back to two thousand eleven, I believe, Um, there's
Speaker 1: new management that has been put in place, as new
Speaker 1: processes and new compliance that's been put in place, and
Speaker 1: so they're trying to oversee and be proactive in preventing
Speaker 1: future issues, you know, you're such as the ones that
Speaker 1: they experienced in the past, which I think will will
Speaker 1: help the perception of the company going forward. UM. You know,
Speaker 1: and as I said, six h billion dollars is a
Speaker 1: lot for many companies, but for a company of that
Speaker 1: size of Walmart, Uh, it's it's not gonna have a
Speaker 1: significant impact to the long term operations. Okay. But having
Speaker 1: said that, then what makes anybody think that a company
Speaker 1: this big, with the fifteen billion dollars that you just mentioned,
Speaker 1: is nimble enough to go head to head against Amazon.
Speaker 1: I mean, they just spent three billion in August to
Speaker 1: buy jet dot com. Have they displayed any ability that
Speaker 1: would outpace Amazon? Well, the way we view it is
Speaker 1: that they already have the customers coming into stores. They
Speaker 1: have two sixty million customers coming into their stores and
Speaker 1: their keys to keep them within their infrastructure, and by
Speaker 1: improving their ecommist offerings, they will better be able to
Speaker 1: keep those customers in the stores and get more share
Speaker 1: of their wallet of those customers. Um, it's not just
Speaker 1: against Amazon, that can take share from many other companies,
Speaker 1: and that we see an improvement in their e commas
Speaker 1: better positioning them to take that share over the long term.
Speaker 1: How about China? What role does it play? China is
Speaker 1: one of their largest international markets. Internationals about of the
Speaker 1: company's sales. UH top two markets are Canada in Mexico,
Speaker 1: which they could leverage the US operations, so China is
Speaker 1: significant long term for growth. What they're trying to do
Speaker 1: there is UH increase their scale to offer a seamless
Speaker 1: e commerce and bricks and mortar solution in the country,
Speaker 1: and I think that's why you're seeing the j D
Speaker 1: dot com deals where they sold their operations to j
Speaker 1: D for a five percent plus stake and then double
Speaker 1: that stake to over ten percent recently. Online sales currently
Speaker 1: account for just three of total sales. Does Doug McMillan,
Speaker 1: the chief executive, does his future depend on raising where
Speaker 1: that three percent of total sales coming from e commerce? Yes?
Speaker 1: I think so. I think the Jet dot com will
Speaker 1: add over a billion dollars in sales UH. The company
Speaker 1: said that in the second half of the year they
Speaker 1: expect e commerce sales grow to accelerate to from twelve
Speaker 1: percent last quarter and eight percent in Q one, so
Speaker 1: they have a favorable trend there UH and to be
Speaker 1: near thirty percent going forward. I think the company needs
Speaker 1: to produce those results. I think if there's disappointment there,
Speaker 1: you're going to see the share price struggle. But if
Speaker 1: they can achieve those numbers and and and beat them
Speaker 1: the shares to do very well well. The shares are
Speaker 1: struggling today. The shares of Walmart are currently down about
Speaker 1: two and down more than two dollars to share sixty
Speaker 1: nine twenty nine cents for shares of w m T.
Speaker 1: I want to thank you very much, Joe Agneezy, he's
Speaker 1: equity analyst at c f r A Research. This is
Speaker 1: taking stock, and this is Bloomberg