By coinnews 
00:00 Speaker A
Walmart CEO warning of price hikes on the earnings call, saying higher tariffs will result in higher prices. Walmart declined to give profit guidance for the second quarter after reporting mixed results for Q1. Joining us now, we’ve got good friend of the show, Oliver Chen, TD Cowen senior research analyst here. Oliver, good to see you. Just take us into your assessment here of what you saw and heard from Walmart.
00:25 Oliver Chen
Hey Brad, great being here. Uh we continue to be excited about Walmart. It’s a top three idea for us. They’re managing well in a very difficult environment and specifically, they’re going to hold food prices as much as they can, but they’re going to prioritize in terms of managing these tariffs and offering the consumer value. They will have to raise some prices based on the feedback today, but overall it was a really solid quarter with upside on the revenue line, gross margins a little bit lighter than we expected, but that was more than made up by SG&A and they reiterated full year guidance in a tough environment. That being said, for next quarter, they only spoke to top line revenue guidance, margins will be very volatile and they know and they said the quarters will be volatile. As we zoom back, as you know Brad, this is a story of and retail for us. It’s and retail because it’s value and grocery plus technology. It’s middle and low-income consumers plus they’re getting higher household income consumers and they’re a leader in everyday low prices in food. That will continue to be true and really benefits them in this tough environment.
02:06 Speaker A
The stock Oliver though down about nearly 5% here. I wonder to what degree that price action is about the company indicating they’re going to raise prices sooner than previously put forward, as soon as next month. How surprised were you by that?
02:28 Oliver Chen
Well, it’s been so difficult and Walmart is going to really be the leader in terms of holding prices as low as possible. So a lot of their articulation here doesn’t surprise me in terms of what they’re seeing, but keep in mind they’re one of the best position retailers in terms of their leverage with suppliers as well as supply chain, as well as the history of this company from Sam is everyday low prices. So we see them as very well positioned in this environment, but consumers will feel this pain and there’s a lot of volatility. So I think they’re doing a great job managing this unprecedented situation and the real pressure here will likely be in food a little bit too, in terms of the pricing.
03:35 Speaker A
You know, it’s really interesting because staples are one of the areas and companies who are really representing that staples trade like a Walmart. When we do see any type of kind of economic or geopolitical skirmish, even that could lead to economic pain, Walmart shares typically get leaned into. How are you assessing perhaps the unwind if we do see more of a risk on move and some of the investors out there, larger institutions perhaps getting a little bit more appetite to include risk back in their portfolio?
04:23 Oliver Chen
Yeah, Brad, in terms of thinking about that, we have a hold rating on Target, but it has a very discretionary portfolio, 50% plus. You compare that against Walmart, which is 60% grocery. Um so you’re right in terms of appetite for risk and if things get better and we don’t have a recession, you’re going to look at retailers like Target. We have buy ratings on stocks like Revolve as well as Warby Parker. Those are opportunities to watch too and another idea we have is Bath & Body Works. So balancing the two. That being said, taking us back to Walmart, Walmart has general merchandise, a marketplace model, digital advertising and technology, as well as food and groceries. So it’s and retail and that they’re a need plus a want retailer. Costco also has great discretionary too. So these retailers should be both defensive and offensive, particularly with what Walmart’s doing in the marketplace, which unleashes a lot of better brands, beauty, technology, some luxury goods as well. So we like that characteristic. Our top idea this year is BJ’s Wholesale. Keep in mind that we’re very excited about the wholesale channel in general. That should benefit BJs. Sam’s Club had great results today and so did Costco and those business models are also very focused on everyday low prices.
06:12 Speaker A
I am curious, you mentioned Target in there and we continue to have this idea that Walmart and Target are these two big competitors. Do we need to throw that out at this point? Are they each other’s biggest competitor?
07:01 Oliver Chen
Yeah, Madison, I’d say that um they differ in that Walmart’s such a grocery food leader and a pioneer and organic. At Target, there’s a lot of discretionary, it’s very exposed to home and toys, but they’re both highly scaled retailers with tremendous reach. I would say that Target bringing joy, private label, Target Circle a little bit earlier in the journey. They do compete because they both have such big importance to US customers at large, but as you think about Walmart, it’s very advanced grocer, as you think about Target, it’s very good at home, discretionary, apparel. Food’s about 20% analytically and food’s about 60% at Walmart.