Ca$htag$: TGT & COST Demand Giving WMT Run for Its Money

here on the Schwab Network. I'm Diane King Hall alongside Kevin Henkes over at the CBO. Time now for our cash segment. For that, let's bring in our next guest. And that is Landon Swan, co-founder of like folio with new sentiment data on Walmart ahead of its quarterly results. Feels like it's a big test in front of us tomorrow. Will Walmart pass? That's the question. What is your sentiment data look like? Landon it's good to see you. It's good to see you too. And yes, it is a big test. I mean, after last quarter's results from Walmart I mean they were trading like 135 I think. And over the next several days after not so great report, actually, I think it was more about guidance. They dropped down to 115 ish, which is basically where we're at now. So we've, you know, kind of had that big drop off little sideways. So I think that that tells us that the market is waiting to hear what's going on because there's such, it's obviously, you know, Walmart is very important, but, you know, it's also important just to retail in general. You know, we know that July retail numbers came in, I think down 4.4% month over month. So everyone's kind of looking to see how how Walmart's doing there. A big tell for the market. Generally speaking, I can say that based on our data they're doing pretty well. Not amazing but pretty well. We've got you know, if you look at the, the 90 day moving average of, of our demand metric, we've got him at plus 14%, which is, is basically what the stock has done on a year over year basis as well, plus 14%. Now, the interesting part is the, the shorter moving average, the 30 day moving average is actually up 18%. So that tells us that maybe if there's guidance or maybe if there's some, some data that comes in after the fiscal quarter cut off, but still known to Walmart but not being reported, that could, you know, lead to a little bit more bullish outlook from, from the reporting side of, of Walmart. So plus 14%, again, on the long term moving average plus 18 on the shorter term. Now, you know, when you kind of look at how that stacks up, we've actually got, you know, two of the big competitors cost Costco and Target doing better than that. So Walmart's on the lower end. I think that we're going to have a, you know, the chance at a decently bullish retail season here coming up. But you can see that Walmart's on the lower end. But still plus 18% is strong. One of the things that we're seeing is that this there's a bit of a you know, we always talk about the k-shaped economy. We there's a bit of that going on here with target and, and Costco beating out Walmart. We know that people. Yes, they are trading down, but also some of the, you know, some of the core consumers for Walmart are, are, are buying less units. They're, they're not buying as much as part of their cost cutting measures. And so that's a bit of a concern. However, you know, I think the story with Walmart is, you know, this is like 39 or £0.40 e really high and it's starting to trade like a tech company because it's starting to become more of a tech company. And when you look at, you know, obviously their, their, their operating margins are like what, 4% net margins, I think 3%. So this is, that's not the normal setup for a company that's got a 40PE ratio with 5% growth. Those numbers don't make sense until you start looking at, you know, where, where some of the growth could potentially come from. You know, e-commerce drives a lot of traffic. That's low margin, but it drives interest in a Walmart Plus membership, which is basically 100% margin. And then of course, the Walmart Connect the ads platform, which, you know, estimates are somewhere in the 70% range on margin. And so if you think about, you know, Walmart selling $100 worth of groceries, you know, that might add the same to the bottom line as them selling $5 in ads. And so that's the really appealing story. As for investing in Walmart long term, is that they've got some very high margin items or very high margin divisions of their business, sort of set up to to continue to grow. I don't think that the retail business can justify the p e ratio that they're at. So a lot of people are betting on the future betting on the tech side of this. And but the retail side is, is strong based on our data. So overall, I think with the sell off the stock being a little bit lower, you know, we're leaning bullish into this one. But I think long term it's also a very strong play. Landon, three months ago when we were talking about earnings, we also talked about the p e ratio. It's still over 40. That doesn't that seems slightly elevated. But with e commerce and different things going on maybe you can justify some of it. But it's historical is between 22 and 28. Right. And that's one thing. Okay. There's one problem. Now you've got your data, your demand data with target. And target could be taking some business away from Walmart. Then you've got the other topic that we brought up earlier today, which is some of the other discounters like TJX, that might be a warning shot for Walmart as people move to higher priced like target and making different choices for retail. And if the one article I read that it said, if revenue growth decelerates, this could be another ugly quarter for Walmart because people are moving to other places like target, discount stores aren't doing as well, like TJX. And the valuation is here's the number 161% sector premium over its peers. That is, it seems like a number that's hard to come over. And so you mentioned they're going to be pretty good. Well this stock at this price cannot afford just pretty good landing. It's got to be almost perfect. It does. And you know they they lowered or they they came in with lower than expected guidance. So I think that a lot of people are a lot of investors are going to be asking, you know, did are we hitting at least this lower than expected guidance from last quarter? I think that's a must, right. I mean, you you can't you can't come down again on that. So if there is any kind of loss of acceleration of demand or revenue, that's that's a big problem. And that's what happens at these p e ratios when they get stretched. Any kind of miss makes it snap back. Now, based on our data, I don't think that's going to happen. I think that they've got a decent story to tell, especially again in that the more recent the more recent data, the 30 day moving average, which is not part of the earnings report. You know, the fiscal quarter has ended since then or before that started. And so I think they'll have a more upbeat tone, or at least the potential to have data that supports a more upbeat tone. And I think one of the the big questions that people are going to want to look for is, okay, let's say, let's say they get their, their moderate growth or, you know, tracking for this lower guidance or maybe slightly above, is it coming from increased traffic, increased number of customers and buying in those customers buying more? Or is it just per ticket inflation? And so if they're just kind of holding customers and holding, you know, the bag sizes are about the same. But inflation has pushed pushed revenue up. I don't think that's going to go over well with investors. I think you've got to have you know, obviously you've got to have more people coming in the store, so to speak, with with bigger bags on their way out. Now, again, the data that we've got is showing that that is is likely happening. But when you compare it to the peers, Costco and Target, it is a little concerning that those others are beating. You can also take the other side and say, well, everybody's doing well. Maybe not TJX, but everybody's doing well on this side of thing on the on the really big box retailers. So that's a good thing for Walmart. I can see that argument. But really it's just what kind of tolerance do investors have at this price level for the promise of really high margin businesses eventually coming to fruition and being major profit drivers? That's that's the question. And until that point, can retail continue to satisfy and maybe hold at these levels that I think that's the whole key for this company. So the ultimate earnings report would be yes. You know things are going better. Maybe we'll raise guidance a little bit. Also ads are up more than we expected. And Walmart Plus memberships are up more than expected. That's that's exactly what people want to hear. I think if you miss on some of those though, it's going to be potentially choppy. I don't think you're going to see a big sell off unless you know our data is completely wrong. And just fewer people are coming to the store and they just miss again and lower guidance. That would be, you know, obviously a big problem at a 40PE ratio. Then the price can come down pretty quickly. The point you made about wanting to be seen as like a tech stock, I mean, they did move their listing uptown. It used to be listed here. It's over at Nasdaq now. London. You know, it's interesting when you look at your consumer demand growth. I mean I wonder if some of it's like just easier comps for target and more difficult ones for Walmart on your chart. And you know, to your point, maybe just look at it all as, as growth across the board. You gave your leaning, but what would be the earnings score you would give this one? Yeah. First of all, I think you got it nailed on target. It is easier comps on a year over year basis for sure. And then the earnings score is plus 31. So that puts us in a bullish stance you know firmly but not you know not crazy but definitely you know fairly confident going in that they're going to put good numbers up on the core business. And then I think all eyes are going to be on those higher margin businesses, which you know, long term are going to be huge drivers. It's just, you know, how patient can you be as an investor? Okay, that's the question. Is your patience long, especially this year? It's done a lot of