WEBVTT - CFRA's Agnese on Wal-Mart: E-Commerce Push is Positive (Audio)

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<v Speaker 1>This is taking Stock with Kathleen Hayes and Pim Fox

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<v Speaker 1>on Bloomberg Radio. Walmart shares under pressure today, down about

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<v Speaker 1>three point two per cent, forecast earnings for its next

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<v Speaker 1>fiscal year that missed some analysts estimates, just as CEO

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<v Speaker 1>Doug McMillan plans more investments to improve stores and build

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<v Speaker 1>out the retailer's e commerce capabilities. Seems like a perfectly

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<v Speaker 1>sensible strategy to many people who watch Walmart, but to

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<v Speaker 1>investors today shows are going to be spending more money

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<v Speaker 1>to ultimately boost that bottom line, and that seems to

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<v Speaker 1>be why we're getting a bit of a negative move today.

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<v Speaker 1>But let's ask somebody who knows all about this what

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<v Speaker 1>he thinks. Joe Agnes is equity analyst at c f

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<v Speaker 1>R A Research. So, Joe, what stood out to you

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<v Speaker 1>about the forecast for next year and how it ties

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<v Speaker 1>into Doug mamillan's plans. Well, we thought the forecast for

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<v Speaker 1>fiscal year seventeen, eighteen and nineteen were actually weaker than

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<v Speaker 1>we expected, so it's a bit disappointing. However, as the

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<v Speaker 1>company provide details during today's analyst meeting, our concerns were

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<v Speaker 1>somewhere alleviated as the course, stores are still expected to

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<v Speaker 1>improve operating income and operating margins, and the decreases more

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<v Speaker 1>reflection of those increased investments in e commerce, which we believe,

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<v Speaker 1>you know, are the right moves for the company to

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<v Speaker 1>make the better position themselves in the long term for

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<v Speaker 1>growth and to compete more effectively Joe. Earlier today, the

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<v Speaker 1>chief executive of Walmart, Doug McMillan, he was speaking to investors.

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<v Speaker 1>They were all gathered at Walmart's headquarters in Bentonville, Arkansas,

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<v Speaker 1>and he said, this company over time will look like

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<v Speaker 1>an e commerce company. Well before it becomes an e

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<v Speaker 1>commerce company, do they have to resolve a corruption investigation

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<v Speaker 1>with the US Justice Department and the Securities Exchange Commission?

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<v Speaker 1>Because I think that the settlement, or at least the

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<v Speaker 1>talk of a settlement, is about six hundred million dollars,

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<v Speaker 1>and I believe that Walmart has already said that they've

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<v Speaker 1>already spent or set aside about seven hundred nine million

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<v Speaker 1>dollars for this issue. Can you explain what's going on? Yes? Well,

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<v Speaker 1>while the numbers seem large, uh, Walmart produces a significant

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<v Speaker 1>amount of free cash flow fifteen billion dollars a year.

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<v Speaker 1>So I think any settlement they reached in this multi

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<v Speaker 1>year ongoing investigation, uh is not going to have a

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<v Speaker 1>significant impact on the company's long term strategy and the

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<v Speaker 1>e commerce initiative going forward. Uh. Okay, so it's something

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<v Speaker 1>then you're basically saying, they'll they'll clear this up, they'll settle,

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<v Speaker 1>they won't settle and move on. But I just have

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<v Speaker 1>to ask, as the back and forth continues between the

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<v Speaker 1>Justice Department, the SEC and Walmart, what is Walmart's defense.

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<v Speaker 1>Do they say that they didn't do what their charged

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<v Speaker 1>with doing? Do they say that there were sort of

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<v Speaker 1>rogue employees in Mexico who made bribery payments because they're

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<v Speaker 1>just how much did you have to pay? Right right?

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<v Speaker 1>The disputing it? They they noticed some issues themselves. Has

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<v Speaker 1>gone back to two thousand eleven, I believe, Um, there's

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<v Speaker 1>new management that has been put in place, as new

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<v Speaker 1>processes and new compliance that's been put in place, and

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<v Speaker 1>so they're trying to oversee and be proactive in preventing

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<v Speaker 1>future issues, you know, you're such as the ones that

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<v Speaker 1>they experienced in the past, which I think will will

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<v Speaker 1>help the perception of the company going forward. UM. You know,

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<v Speaker 1>and as I said, six h billion dollars is a

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<v Speaker 1>lot for many companies, but for a company of that

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<v Speaker 1>size of Walmart, Uh, it's it's not gonna have a

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<v Speaker 1>significant impact to the long term operations. Okay. But having

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<v Speaker 1>said that, then what makes anybody think that a company

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<v Speaker 1>this big, with the fifteen billion dollars that you just mentioned,

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<v Speaker 1>is nimble enough to go head to head against Amazon.

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<v Speaker 1>I mean, they just spent three billion in August to

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<v Speaker 1>buy jet dot com. Have they displayed any ability that

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<v Speaker 1>would outpace Amazon? Well, the way we view it is

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<v Speaker 1>that they already have the customers coming into stores. They

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<v Speaker 1>have two sixty million customers coming into their stores and

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<v Speaker 1>their keys to keep them within their infrastructure, and by

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<v Speaker 1>improving their ecommist offerings, they will better be able to

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<v Speaker 1>keep those customers in the stores and get more share

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<v Speaker 1>of their wallet of those customers. Um, it's not just

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<v Speaker 1>against Amazon, that can take share from many other companies,

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<v Speaker 1>and that we see an improvement in their e commas

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<v Speaker 1>better positioning them to take that share over the long term.

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<v Speaker 1>How about China? What role does it play? China is

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<v Speaker 1>one of their largest international markets. Internationals about of the

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<v Speaker 1>company's sales. UH top two markets are Canada in Mexico,

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<v Speaker 1>which they could leverage the US operations, so China is

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<v Speaker 1>significant long term for growth. What they're trying to do

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<v Speaker 1>there is UH increase their scale to offer a seamless

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<v Speaker 1>e commerce and bricks and mortar solution in the country,

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<v Speaker 1>and I think that's why you're seeing the j D

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<v Speaker 1>dot com deals where they sold their operations to j

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<v Speaker 1>D for a five percent plus stake and then double

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<v Speaker 1>that stake to over ten percent recently. Online sales currently

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<v Speaker 1>account for just three of total sales. Does Doug McMillan,

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<v Speaker 1>the chief executive, does his future depend on raising where

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<v Speaker 1>that three percent of total sales coming from e commerce? Yes?

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<v Speaker 1>I think so. I think the Jet dot com will

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<v Speaker 1>add over a billion dollars in sales UH. The company

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<v Speaker 1>said that in the second half of the year they

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<v Speaker 1>expect e commerce sales grow to accelerate to from twelve

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<v Speaker 1>percent last quarter and eight percent in Q one, so

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<v Speaker 1>they have a favorable trend there UH and to be

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<v Speaker 1>near thirty percent going forward. I think the company needs

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<v Speaker 1>to produce those results. I think if there's disappointment there,

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<v Speaker 1>you're going to see the share price struggle. But if

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<v Speaker 1>they can achieve those numbers and and and beat them

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<v Speaker 1>the shares to do very well well. The shares are

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<v Speaker 1>struggling today. The shares of Walmart are currently down about

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<v Speaker 1>two and down more than two dollars to share sixty

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<v Speaker 1>nine twenty nine cents for shares of w m T.

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<v Speaker 1>I want to thank you very much, Joe Agneezy, he's

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<v Speaker 1>equity analyst at c f r A Research. This is

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<v Speaker 1>taking stock, and this is Bloomberg