00:00I think there's two things happening with the results yesterday. The first is that when you
00:04look at the Walmart results, the underlying health of the consumer remains strong and remains intact
00:09because what really caused the stock to fall is the deflation that we're seeing in pharmacy
00:14sales. And that caused the comp to be weaker than expected and 3Q guidance. That headwind remains in
00:21place for the back half of the year. So that is going to deflate Walmart's comp as we move into
00:27the back half. When we think about the consumer and how the consumer is shopping, traffic was up.
00:32In fact, traffic was up at both Walmart and at Target. So those are encouraging signs that the
00:37consumer is still going out and spending. And when you look at the e-commerce sales at Walmart over 20%,
00:43it shows you the strength of the spending. Now, does the consumer care about value? Absolutely.
00:49Both retailers are slashing prices, they're providing more value, and we think that will
00:53continue to draw customers to their brands over others. But Poonam, in the longer term,
00:58how have we seen the tariff picture and a lot of the, I don't want to call it a trade
01:03war, but
01:04you know, the budding of heads between President Trump and the Chinese administration on tariffs?
01:11And has that affected either of these retailers? I know Walmart used to get a significant amount of
01:16its stock from China. Yeah. So when you look at Walmart specifically, more than half of Walmart's
01:24business is grocery. So much of that stuff is less impacted from what comes from China. But when you
01:30look at the discretionary side of the business, apparel, home, toys, et cetera, there is an impact.
01:35And yes, tariffs have raised costs for retailers like Walmart and Target, and even others across the
01:41U.S. because most of what we consume is brought in from abroad, especially on the discretionary side.
01:47Now, that said, I think the tariff situation was worse off last year when we were talking about 100
01:52plus percent tariffs from China. From that standpoint, we've come down a lot. And I think the new tariffs
01:58that are in discussion are calling for a 10 to 15 percent increase. Those are manageable. So I think
02:04we're at a place where retailers now know how to mitigate some of this tariff increase through supplier
02:10negotiations, through internal efficiencies. And yes, they're passing some prices on to the
02:15consumer. But Walmart and Amazon, they're trying to hold back for as long as they can before they
02:21can pass those on. The tariff refunds have been a big theme for company earnings this last quarter
02:29and will probably continue to be. But I wonder for how much longer, because it feels like it's a
02:34one-time boost, but you can't count on it going forward, can you? Absolutely. It is a one-time boost
02:40for
02:40sure. So it helped in 2Q results for many retailers across the board, including Walmart.
02:45I think the boost gets smaller as we move through the back half for most retailers. The bulk was
02:51realized in the second quarter itself. But I wouldn't expect this refund to continue into 2027. I think
02:57we will see some in 3Q. But once they've essentially received or gotten that refund back,
03:04that's it. The new tariffs in place don't qualify for a refund.
03:09So, Poonam, talk to us a little bit about how consumers have been shifting their patterns of
03:16purchases. You know, when I look at the retail sales report at the macro level, it often, you know,
03:21they have non-store retailers and it's still relatively small compared to all the times that
03:26I click online to buy something. It seems like it's, you know, a lot more that I seem to purchase
03:32online, but it's only 20-ish percent of total retail sales comes from online. You have a really great
03:39chart here in your chart pack from about 10 days ago, talking about like active users on different
03:46apps and stuff like that to buy. So have these, you know, trend toward online slowed down at all? Or
03:54how have any of those trends been changing? Sure. So when you look at those numbers that you're
03:58talking about in the retail sales report, the one thing I'd keep in mind is when you're looking at
04:02that non-store retail line, you're not looking at e-commerce sales from the brick and mortar
04:07businesses themselves. So a big piece of the equation is missing. By our estimate and our e-commerce
04:13model, retail online sales as a percent of total retail sales are closer to over 25% today. And we
04:20think they're edging to 31% of total retail in the next three to four years. So the opportunity for
04:26retail sales to grow online is still very vast and it's still very large. In fact, when you look at
04:31some of the numbers, whether it's from Amazon or whether it's from even Walmart, you're seeing plus
04:3620% gains in e-commerce. So I think the shift to e-commerce is still very much real. It's
04:42happening.
04:42It's outpacing store growth. That said, there are some categories that do better online than others.
04:48For example, food is still, you know, underpenetrated online. And while we're seeing it increase
04:52slightly, there's a long runway to go on the grocery side of the business.
04:56Yeah, I think about Walmart Plus and how much money Walmart has put into developing its e-commerce
05:00platform and how it's paid off tremendously insofar as the stock return has done much better and
05:07the company is trying to call itself a bit of a tech company in many ways. What has Target's efforts
05:13been like when it comes to e-commerce?
05:16So Target's also making an e-commerce push. And, you know, they have Target. They have the shipping
05:21with Target also as part of their membership and their Target circle. I would say that the two
05:26are a little different when you look at how big they are in e-commerce. Walmart scaled up quite
05:30nicely, right? Walmart's today about $150 billion when you look at its e-commerce sales. Target's not
05:36there yet. And one of the big reasons that you're seeing such a differentiation between the two is
05:41much of Walmart's scale in e-commerce comes from food and grocery. So when you think about Walmart Plus,
05:48it's, I need avocados today, so I'm going to get them shipped. I need spinach. I need this. It's easy.
05:54Whereas Target, the mix of Target's business is 20% grocery and 80% discretionary and Walmart's 50%
06:01grocery or more. So there's a clear differentiator in how big each of those can get based on the
06:05verticals that they compete.
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