Walmart Slumps After Rare Profit Miss Overshadows Higher Sales

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2:01Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. The retail earnings from Walmart. Out of the gate, it sounded good. They raised their full year sales guidance, but it missed on the bottom line. Its shares are down about 4%. So here to give us more details on that is Jennifer Bartasch. She's Bloomberg Intelligence Senior Analyst, retail staples and packaged foods.

2:39Jen, welcome to the show. Were the expectations just a little bit too high coming into the print? I mean, what happened? Well, when I look at this quarter, it's really more about one-off kind of things that were unanticipated. And so I don't know that there's any way the street really could have anticipated higher costs related to having to hold money back for settling claims. So if you look at the quarter on paper, it was actually a pretty good quarter, especially in a very volatile background that we have. What are they saying about the consumer, the health of the consumer, Jen? Because nobody has a better finger on the pulse than Walmart.

3:19Very true. I mean, when you look at the health of the consumer, you know, Walmart is definitely capitalizing on whatever willingness there is to spend. I think one of the very interesting takeaways from the results today is that in Sam's Club, everything was driven by units sold. And in Walmart U.S., you know, their traffic was up and their ticket was up. That means that Walmart is really unique across other retailers in terms of selling greater volumes, which really means that they're bringing more and more people into that ecosphere. And they did call out higher income households as one of those biggest contributors.

3:54Now, you're comparing, OK, to Walmart to, let's say, a Sam's Club. What about Walmart to a Target as far as how tariffs affect them? I mean, do tariffs affect Walmart differently than they affect Target? Well, I would argue that Target actually has a little bit greater exposure to tariffs than Walmart. And that's simply because, as Paul knows, Walmart is the biggest grocery retailer in the United States, and it takes a big chunk of their revenue. And Walmart imports, as a result, a little bit less. That said, I think one of the other differences is Walmart has doubled down on improving the quality and the assortment in their general merchandise.

4:33And one of the things that they called out today is that they're seeing market share gains in things like apparel and fashion, which are traditionally the areas that Target has excelled at. So that's also an interesting takeaway, looking at the two retailers between yesterday and today. What do you think here going forward, Jen, these retailers will try to do with any tariff induced cost increases? Are they going to take as much as they can in the margin before passing along the consumer? Or how do you think they're going to do that? Well, I think in order to preserve value, value perception is really important.

5:07And that's what's going to help keep you retain market, help you retain market share. So I think price increases will be a last resort. But, you know, the impact of tariffs has been very gradual. And I think what we're going to see is as we get into second half with all of these retailers, the inventory they currently have on hand, much of which they accelerated to get in ahead of tariffs, is now being sold. And it's being replaced at higher cost. So we're seeing inventory go up basically off of the cost of inventory itself and how well they sell that through without having to do markdowns and without having to absorb too much cost is really what's going to be critical.

5:47I do think margins are going to be pressured a little bit more in the second half because of that and because that they are going to have to take some strategic price increases where they can. They're just going to be very targeted in where they do that. Jen, can you get into delivery and e-commerce? Because that has been a big help for Walmart. I mean, would it eventually give Amazon some competition? Where does it stand there? Well, I think one of the big competitive advantages for Walmart is the stores and the proximity to people's houses. So the ability to deliver quickly and to people's homes on a same day or a few hours basis is really a competitive advantage that they have.

6:25E-commerce is growing at an incredibly healthy clip for Walmart. And as a result of that, we're seeing the higher margin businesses like digital advertising really grow as well. And that also helps strengthen and shore up the overall financial position of the company. So that focus on expanding digital sales, I think, will continue. And they're really executing well on those strategic objectives. And I think we'll see a lot of that type of focus as we get into the end of the back-to-school season and into the holiday season. All right. This is a Walmart we're talking about, Jen. Why can't they just raise prices 5 % to 10 % on light bulbs and whatever?

7:06I mean, where am I going to go if they do that? I mean, it's Walmart. Well, it is. But I mean, their culture is steeped in being the lowest possible price provider. And so, you know, I think that part of the reason they've been able to gain market share in recent years, as we saw very high food inflation, is that they're they're really focused on preserving that price gap to other competitors. So you're right, Paul, they could raise prices by 5%. And Walmart does raise prices when it's needed. We saw prices go up during the period of food inflation. But they're also one of the fastest to take prices back down when they can.

7:45And so I think that they've got a team of merchants who are very skilled at deciding when and where they need to take price. And because they sell such a broad variety of categories and items, it doesn't have to be a uniform price hike across the entire company. Jen, in the last minute or so we have here, I mean, can you just explain how they keep their prices so low? I mean, how are they able to do it? I don't get it. Well, there's a self-fulfilling cycle in retail, which is that as you sell more units, you get better prices when you're buying them, right? Because you're selling higher volumes.

8:17And so Walmart has really gotten into that cycle where they're selling such big volumes that they're able to procure even better purchasing terms. And so that definitely helps them with the ability to keep prices level when other competitors who may not have the benefit of that type of cycle are having to pay slightly higher costs. Stay with us. More from Bloomberg Intelligence coming up after this. Looking for more investing options? Meet SIBO, the exchange that pioneered options trading. With exclusive trading products like VIX and SPX options, Cibo can help you trade in any market environment.

8:52There are risks associated with Cibo Company products. Review the disclosures and disclaimers at cibo.com slash US underscore disclaimers. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work, I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Wan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares.

9:30Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seat inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time. The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode, available on Plus and Pro plans.

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10:45Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4imprint certain your order will arrive on time and look exactly right. Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. 4certain. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, let's get back to the world of M &A.

11:25We had a little bit of a trade here. I'm going to say kind of more than a little bit of a trade. Toma Bravo agreeing to acquire Dayforce in a deal about$12.3 billion deal. Let's break this thing down with Neeraj Patel, Bloomberg Intelligence, Senior Software Analyst. Neeraj, first tell us, what does Dayforce do, and why are they selling themselves to Toma Bravo? Yeah, Dayforce is in the HR payroll software space. So consider the back office segment. This total market's about$50 billion in size, about 10 % growth rate. So they're selling modules when they're trying to inboard employees. they're doing performance reviews all the way to retirement type of services.

12:05So what kind of struggles have they been going through that Toma Bravo is coming in? Yeah, that's an interesting question, Lisa. From our view, we have not a lot of struggle here. It's more normalization of growth in the industry. They have a 10 to 12 percent forecasted growth rate ahead for the next two years, but that's considerably down from 20 plus percent in 2022 and 2023. But that's more of the industry shift from being able to sell to new customers and now reliant on existing customers. And when they're selling to existing customers, the big sale is behind them. The big payroll sale is behind them.

12:46Now they're adding on$2 to$4 type of price per user when they're selling talent modules or learning modules and some of the other HR software aspects. Why is day force selling here? You don't, it's not, you don't see it, but it's a little bit unusual for growing software technology companies to sell to private equity. Yeah, that's a good point, Paul. I think two years ago, this would be seen as too cheap, let's say five times forward sales, about 27 on a price to earnings for 2026. So there would have been a little pushback. Maybe there would have been some other competing bids coming in. Today, application software has faced a lot of pressure.

13:33Not only this normalization, there's an oversupply in the mid-market space in terms of software, all the way from sales and marketing, even in the HR and software and payroll space. So that's an issue. I think the other issue here is that you don't have a lot of churn from the large incumbents like the ADP and the Workday. That was fuel for these smaller mid-market players to get a little boost to their revenue growth. So I think, you know, there's an issue here with the industry. There isn't a lot of buyers. There's a lot of supply here, especially as you move down market. And I'm reading through it in the article, and it seems like Toma Bravo has been pretty busy.

14:11I mean, I'm seeing, you know, agreed to purchase Boeing Company's flight navigation unit. But isn't this a pretty tough time for private equity companies that are looking to deploy capital? Can you talk about that and about some of the action that they've seen? Yeah, when we look at Tomo Bravo's kind of past history, they are one of the top application software and generally software acquisitors. And I think we've seen that pace slow down over the last two years. Prices have come in. But what they're targeting is more focused. They're looking for these platforms that have a lot of AI opportunity, but that needs to be leveraged and pulled out of the businesses.

14:53Before, application software was more steady. You sell on a subscription type of basis. That business model is in jeopardy, especially as enterprise users leverage LLMs to do more of the job scope. So we're not sure where the future business model goes. When you go off a dollar per user, are you going to go on a consumption basis or a token basis? So that's up in the air right now. How are the business conditions broadly defined, Neeraj, for your part of the technology space, the application software space? How are the fundamentals for your business? Fundamentals are stable. We came into the year at about 11.5 % sales growth for 2025 over the first two quarters.

15:36That has bumped up to about 13%, so about 150 basis point lift. And the margins, they continue to leverage reducing sales and marketing expenses. So they're getting about a 300 basis point lift on operating profit margins, which average around 27%. So pretty good stable financial models. The issue is this AI overhang has knocked down these stocks. These stocks are down on average 8 % overall software universe, and application software is down 12%. And it's this AI risk that's really clouded. are they going to be able to sell their software at the same pace and the same dollar level, or is it going to move and migrate to an AI agent, which is going to be doing the software function?

16:22Neeraj, in the last minute or so we have here left, is this one of Tomo Bravo's biggest deals?

16:29No, I think over the last couple of years, yes. It is definitely one of their biggest deals, And they're not paying so much relative to some past deals that were in the 78 times in the software space. Stay with us. More from Bloomberg Intelligence coming up after this. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Juan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares.

17:20Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seed inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time. The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. ChachiPT. Put ChachiPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting work mode available on plus and pro plans.

18:03Whether you're planning a big tech event, launching a new campaign, or just stocking up on team gear, finding the right promotional products makes all the difference. 4imprint offers thousands of options from on-trend apparel and premium drinkware to tech, totes, and giveaways. So you can find and the right fit for any audience, purpose, or budget. You can customize it all. Your logo, your message, your look. And many items come with no setup charge to help you save. And if you're really watching the bottom line, you'll find standout choices at every price point so you can make a real impact while staying on budget.

18:36Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4imprint certain your order will arrive on time and look exactly right. Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. For certain. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day.

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19:47Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right. A piece of news that I kind of found interesting today was Boeing. China says they're going to or Boeing, maybe they're in talks to sell to 500 planes to China. And that's big. I mean, they're not giving those things away. Those things are kind of expensive.

20:26And it really opens back up potentially that Chinese market, which has been challenging for Boeing and some of the other Western players. Sid Phillips joins us here. Bloomberg chief correspondent for Global Aviation. He joins us here in our Bloomberg Interactive Broker Studio here. So, Sid, what's happening here with Boeing in China? So we understand that Boeing is in talks with China for a large aircraft deal, which could be as many as 500 planes. And what we understand is that the Chinese government is currently asking airlines in China what their requirements are and sort of gauging the various options for what sort of aircraft, what sort of size of aircraft, what sort of range and everything.

21:05And then they potentially could agree to a deal as part of a broader reconciliation on trade between Trump and President Xi when they meet in the fall. Just a red headline, want to get in there. The DOJ official urges Fed Pal to remove Governor Lisa Cook. We'll have more reporting on that coming up. That's interesting. Okay, Sid, a little bit of background can you give us. So this is like a sales route stretches back to when U.S. President Donald Trump last visited in 2017. Can you paint the backstory for us? Yeah. So Boeing's been largely shut out of the Chinese market. And China is one of the fastest growing aviation markets in the world.

21:43And Boeing has been largely shut out partly because of trade tensions. China was also the first country to ground the 737 MAX after those two fatal crashes back in 2019. And so for Boeing, this is a sort of massive step forward in terms of being able to garner new business, in sort of being able to challenge Airbus. I mean, Airbus has, we reported yesterday that Airbus is potentially going to win a 500-plane order from China as well. So China needs new airplanes. Airlines in China are looking to replace older fleet. They're also looking to get growth in. and COMAC, which is the local Chinese company, which is building a competitor to the 737 and the Airbus A320, isn't yet at scale.

22:28So they're not able to produce as many planes as they would need to actually replace that market. So it is a massive market for both. Would you get on one of those planes? I haven't heard about these planes. So tell us about these Chinese planes. So C919 is a competitor to the A320 and it does have a lot of Western components in it. So the engines are made by CFM, which also makes engines for Boeing and Airbus. And it's got avionics from Honeywell. So it's got a lot of Western components in it. And this sort of ramp up of the aircraft has been very, very slow. So they haven't actually been able to deliver many planes.

23:02I mean, they're still building them in the fives and tens of a year. And so for the Chinese airlines, they need to replace them. So what is this deal contingent upon me? What can make it? What can break it? So we understand that this deal is contingent on actually a larger trade deal. I mean, remember, President Trump has used aircraft deals as a major bargaining chip for trade deals and trade negotiations. And we saw that massive order from Qatar when they announced the deal there. And when he went on his Middle East tour, he had lots of aircraft deals. And so aircraft purchases have become a very large part of trade in Trump's economy.

23:40And this would be a win for Trump if they can actually get a deal across the line. Where is Boeing on the 737 MAX deliveries? Because I know they're, I don't know, 38 per month or something, but they like to get it above 40, like to get it to 50. And that's when the real cash flow really starts coming in. Where are they these days? So Boeing's around 38 a month. And that's where the cap is at the moment, where the FAA capped their production. Ah, I forgot about that. After the door flew out last year. And so. It's a problem. They're trying to get production back up and get it to a level where they can actually start making money.

24:12And that's part of Kelly Ortberg's turnaround effort to actually ramp up production off the 737 and actually start generating cash from that aircraft. And so they are looking to sort of ramp up beyond 38 a month by the end of the year. And as they end up next year, they could sort of see that going up further. How are they doing against Airbus? I mean, are they doing better against the competition? Not yet. I mean, Airbus is still the world's biggest aircraft supplier. They're still the world's biggest aircraft manufacturer. Has that always been the case? No, it hasn't. So I think they overtook Boeing back in 2018 or 19.