00:00 Corey
So the holiday season, I think went went very well. Um, we saw across a number of retailers that reported uh preliminary sales in early January that um they had record holidays uh for a number of retailers. So, I don’t think that Walmart’s going to be uh deviating from that that trend that we’ve seen from from other retailers that have reported thus far. So, we’re at about 4 and a half% uh same store sales growth for the the fourth quarter consensus
00:41 Corey
is closer to about a four. Um, so that’s really not where we think the surprise lies. The surprise, um is probably more in kind of what the forward outlook is going to be. And we just think that the messaging there is going to be one of conservatism, very simply.
01:03 Speaker B
Yeah, I mean, I’m struck by um General Mills coming out today and talking about, you know, consumer sentiment continuing to be weak, heightened uncertainty. Um, you know, and and obviously there’s not a one-to-one comparison between a general Mills and a Walmart, but you know, they have some of the same customers who are buying those groceries at Walmart. So, um you know, how is that going to feed through then into that outlook?
01:31 Corey
It’s a great question. And and we also had Pepsi just a few weeks ago announced price cuts of up to 15%. Um, are they going to be that, you know, that that uh severe across the board? Probably not. But I think you have this this this is sort of culmination of lower inflation, of maximum fair pricing, which is going to put a cap on drug pricing in certain areas. Um, you have the GLP ones, switching from an injectable to a pill. All of this presenting probably a little bit of a headwind to uh overall pricing growth. And pricing growth is a lot of times a benefit for retailers because it’s more of a pass through mechanism.
02:20 Corey
But if you’re going to see lower pricing growth in 2026 versus 2025, and I’ll just give you a stat around this, uh food inflation in Walmart’s business was, let’s call it about 130 basis points in 2026. We see that potentially slowing to about 50 bips, which is probably about closer to normal in in 2026. So, um, the the idea that, you know, they’re going to post maybe a or start at least the year at like a 4% plus comp growth is probably a bit too ambitious and just for again, historical context, last two years, they’ve averaged if he sends uh last year, uh last three years, sorry, was 5% sales growth and about 10% profit growth. They probably just don’t start there this year. So we think we put a put this in our research, maybe a 4% sales growth rate and like an 8% profit growth rate seems reasonable to start.
03:22 Speaker B
And is all of that enough to propel the stock higher from here, right? Like you have a buy rating on this thing, but you only have 132 price dollar price target. and that’s where the stock is. So that doesn’t imply, I mean, you know, I know you can’t tell me if you’re going to raise it after they come out with their earnings, but, you know, that we’ll be watching for that, I guess. But, you know, so what’s, I guess what’s the catalyst for the stock going to be then?
03:52 Corey
I think it it’s going to come in the form of higher earnings and potentially even a higher multiple as well. So if you look at the multiple today, it’s 45 times. If you look at it relative to Costco, Costco’s actually peaked in the mid-50s. So for a multiple to stretch for a retailer that’s compounding, where it has consistent sales growth, accelerating profit growth, you do have the opportunity or the willingness for investors to pay more for that asset. Um, but fundamentally our upside case is actually our price target’s 130, around 130. uh upside price target’s actually 160 and that’s based on an earnings number that’s about $3.50 by fiscal 2028. And if you just hold the multiple relatively consistent um at about 45 times, you you can actually get to $160 and we don’t think that that is unreasonable in the case of outcomes for for Walmart stock.
04:54 Speaker B
Um, Corey, we haven’t even we haven’t really talked about the new CEO, right? John Furner and um, not to mention that they’re one of their main competitors, Target’s getting a new CEO or has a new CEO in the form of Michael Fidaleki as well. What do these guys need to, I mean, the job at Target is quite different than the job at at Walmart now, I would argue. Um, but let’s start with Furner. What do you think he needs to accomplish?
05:27 Corey
From John, I think we want just more of the same because under Doug, we had a period of investment and then a period of harvesting those investments. And now Walmart’s in the harvesting phase where you really have the opportunity to accelerate profitable growth. and e-com, which was a drag for this business for years, decades even, is now the growth engine for Walmart. So the the focus, I think, and this is very clear, if you look at the recent executive appointments that John Furner made, um, over the last several weeks, because he appointed Dave Guggina to be CEO of Walmart US. Uh, Dave actually was previously leading the supply chain, uh, for Walmart and their e-commerce division. So it’s it’s a very kind of clear focus on driving profitable growth through e-commerce, which again, is driving most of the growth. They posted a 4 and a half percent same sort of sales number in Q3, of that four and a half
06:40 Corey
4.4 of those percentage points were driven by e-commerce. So that is where the growth is, and I think that’s where John is most likely to be focused as we look ahead because the store business, while it’s very, very important and serves as sort of a a Nexus or a hub for its e-com business, the the incrementality, if you will, is going to be stemming from the e-commerce growth.