Main Street Research’s Post

Transcript

Joining us, James Demmert, founder and chief investment officer at Main Street Research from the desk at the Nazi. James, good morning, Sir. Long time no chat. Good to see you. Let's talk some Walmart here. Pretty nice little bounce. What do you think it tells us about the consumer? Good morning, Oliver. I think it tells us a lot about the consumer. You know, one of the big comments that came from the report and the earnings was that high income earners are shopping at Walmart and you know, they're they're finding that the cost savings of the Walmart produce is way better than going out to dinner. And and also, you know, I think for the first time we're seeing, you know, the Walmart versus Whole Foods pricing power really come into play. So this is a. I think it's a call on the consumer being sensitive to inflation in food prices. And what's really interesting and we can talk about this is they're ecommerce growth. Wow, Sam Walton is probably dancing in heaven right now with that, with that great growth from ecommerce. Yeah, that's that category two of the kind of higher tier buyer as well, to your point, right. So we kind of get a good message here that Walmart is really kind of embracing sort of the the, you know, the Amazon. Style approach nowadays. Yeah, they are. And you know, they've been trying to do this for a long time without any traction. So I'm not sure if it's the inflationary pressure that's just really driving people to use their ecommerce, but ecommerce was up 22%, which is huge. And another high margin business that came through in those numbers is their advertising, another 26% rise and they're very high margin advertising business that they also run. So this is these are big surprises. Huge beat on the top and the bottom line. And what I love is they just guided, hey, our guidance is is firm for the year. We might even exceed it. We don't hear that too often, even though earnings in general have been pretty better than expected. Yeah, you know, the tickets were basically the same average ticket price flat, but transactions up by almost the exact same amount that sales were up. So it's also kind of this post. Inflation story where, you know, it's basically coming from their execution, it's coming from their, you know, targeting of a demographic that needs goods at a reasonable price. Seems like Walmart deserves some credit for it's not just like a macro drift. Yeah, you're no question about it. This is not a, you know, just a Mac. You know, usually Walmart does better in inflationary trends, but this is way above norm. They are executing extremely well and particularly in these high margin segments, which is really a creative to the earnings and really, really great to see well run company with Walmart breaking out and then Home Depot pretty choppy. Does seem like there's a message here though too about the consumer that doesn't really wanna. Outlay too much. Doesn't wanna break the wallet right now either though, is it? You think that's fair to say, James? Yeah, it really is. I I think that these are two stories about companies that are in the consumer discretionary business, right Home Depot and in Walmart, but very different tales. You know what's helping Walmart that inflationary pressure in those in those higher rates is hurting Home Depot. You know and what we heard on that call where in those results, as you know were mixed and missing a bit on the Rev and and really not getting there on the earnings and the big. Concerned that they have is understandable the big ticket purchases have the customers are just putting those off and that's because of the high rates and high cost and that's something that will that home but don't people has been you know sort of suffering from they need you know sort of lower rates they need the the cost effect to come down so sort of the opposite of of Walmart. What I found was interesting in the trading you may have noticed this because I know you watched the markets closely is that when. The CPI number came out and it looked like, ohh, maybe the Fed will lower rates. Home Depot rallied big yesterday. So that tells you Home Depot has become an interest rate play, almost like a bank, which we haven't seen in the past. Yeah, it's a good observation with the the Home Builders too, had it had a huge session as well. So what when you talk with clients right now, James, how do you have the portfolio discussion around consumer stocks? I mean, are these companies that should be in the. Strategy. Or should I still be playing the consumer through the various tech categories? How does the discretionary side fit into this? Yeah. I think in portfolio construction, you know, we we're big fans of the tech trade and the AI bull market. But you know, in portfolio construction, you do not want to put all your eggs in that basket. So you want to kind of move away to diversify the portfolio In the consumer discussion space, one of our favorite names is Home Depot. We think it's a new business cycle. They should do extremely well, particularly if the Fed can lower rates a little bit. I think that's going to be a big driver. There'll be a lot more beta in Home Depot probably than Walmart. But we also own companies like Booking and the consumer discretionary space, very high margin business and some of the other more AI tech related companies. But Home Depot is our is our play on that non tech related consumer discretionary space. Alright, nice. Like it. Well, you got a solid pullback from the highs to reset and give you an opening. So that certainly seems appealing if you're looking to buy dips. James, thank you very much. Appreciate the analysis. My pleasure. You got? Mr. Dimmer joins us from Main Street Research.