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Thanks for joining us on this special holiday edition of Bloomberg Daybreak. US markets are closed for President's Day. I'm Nathan Hager, and coming up this hour, we will get a read on the energy market after a winter that has seen wild swings in the weather, and on trade. Plus we'll look ahead to one of the biggest earning stories of the week as Walmart gets set to report results from the holiday quarter. First, though, we want to take a look at the broader investment landscape how it
may be changing with a new president in office. I think it's pretty safe to say it was a pretty tough environment as far as regulation goes when Gary Gensler was head of the Securities and Exchange Commission under then President Joe Biden. Now with a new SEC chief on the way under current President Donald Trump, are things starting to change for investors? Let's get some answers on this. Joining us on this holiday is Eric Balchunis, ETF, analyst
for Bloomberg Intelligence. Thanks so much for being with us on the holiday. Eric, and I know we've got a lot of acting commissioners acting chiefs on the way as well, But are things starting to change now as far as where things sit in your world and ETFs.
Uh.
Yeah, There's been a couple of small things that we've seen, nothing major, But I think one of the big things is esther purse, which she was a commissioner. She is a commissioner, and she was in the minority during the Gensler era and she had a lot of opposing opinions that she would write about. And now she's working one of the two commissioners of the Act, is helping the
acting commissioner. And some of the things we've seen, for example, they approved options on some precious metals ets that have been waiting ten years. It's a minor thing, but it just shows I think she just wants to get stuff out the door in the end. You know, she was very big on the SEC being a merit based regulator meeting. You just want to get the disclose out and then let the consumers pick. You don't want to play nanny too much in sort of saying.
This is bad, this is good.
So I think what you're going to see is just, you know, a little bit of Pandora's box opening up with products and I think some will be really good and successful. Some are going to be a little wild and we'll cause some head scratching maybe, but this is the ETF industry always pushes the envelope, and they're just gonna be able to push a little further. I think under this SEC chair, who hasn't been confirmed yet, but assuming he is Atkins, he'd be working obviously with Hester Purse.
And the other thing they did was they moved a bunch of people who were on a crypto fraud. They moved some people out of that team, and that again was another sign that in terms of the crypto, which was I think Gensler is like you know, he was both known for being tough on that. It's going to
be more lenient for sure. I would look for a ton of new coins and tokens to be etfised, and I would look for the industry also to push the envelope and some other things like share classes and maybe even some things like trying to put private equity and private credit into ETFs.
Knowing they have a more liberal regulator.
I mean, the regulator is more conservative, but I'd say they're more liberal in terms of what they'll approve.
Well, let's dig into those broad strokes just a little bit. What kinds of products are you looking forward to that could find some success among investors.
Yeah, so I think the first two are ets tracking Solana and XRP, which are two different networks. They're cryptocurrencies, and those two in particular have been the industry has been trying to get those approved for like five years. And even though Gary Gensler approved Bitcoin and ether, he basically said everything outside of that is a security and therefore it cannot be put into an ETF under the thirty three Act. And they even called XRP and Solana
securities in lawsuits. And so the fact that the Salana ETF was acknowledged recently there was a new filing. They got acknowledged. They never acknowledged one of the pasts. Acknowledged just means the sec is like, Okay, we know you filed. We're going to let people comment on it. It's part of the normal process. In the past, when someone tried to follow Solana or XRP ETF, they would literally call the issuer and say get this out of here. It
wouldn't even last three days. But this they've been filed now for two weeks. They've been acknowledged they're moving along the normal past. Doesn't mean to be approved, but it's a good sign. That probably indicates that they may actually rescind some of the lawsuits, because it would be weird for them to approve these while having a lawsuit and saying and writing that these are securities. So that's something
to watch right there. And if Solana and XRP are put into ETF form, they have I think a decent chance to get some assets. Now, once you get out of there, you're going to get into some weird stuff like dose coin, Polka Dot bonk. They even filed for a trump Coin ETF, a Milania ETF, and a double leveraged Malania. So here's the thing though, even if all that gets out, most of it will just live in oblivion.
I think you've got think about the precious metals. Gold is the stud, Silver's got a good living, platinum, pladium, And then once you get to commodities like coffee, nickel, aluminum, some ETFs are tried and failed. I think you'll see the same thing here. I think Bitcoin will get like seventy five percent of the assets, Ether ten percent, and then XRP Solana will you know, fight over the other eight or nine percent, and then we'll see one wacky one get lucky for a minute, and then you know,
rise and fall. So I think even though we will see a ton of stuff approved, most of the assets from the big money in America are they're not going to go crazy. They're gonna stick to bitcoin as they're that's crazy to most people, to be honest. So they're gonna stick to bitcoin, and that's where most of.
The assets will go.
But look for some really interesting things. And the thing about a Trump and Malania coin etf is I was that this was going to be interesting, is that these are pretty fringe.
I mean, they just launched.
It made clear to everybody that the Trump coin was you know a lot of even if the crypto people didn't like it. It kind of they call it a rug pull. You know, you put a meme coin out and then all of a sudden, the people who started leave and then the people who came in late.
Hold the bag. It's like, you know, kind of a short term Ponzi effect.
Now that's Trump is the boss of the sec chair, so it'd be weird if you didn't approve a coin based on his coin, given that he's the boss that.
Isn't the work.
It all gets a little It's going to be interesting to see how they deal with this, because we do think some of the main coins will be approved. But once you get to this really outskirtsy meme coin world, will the.
SEC just sort of let it out?
That's a question we don't quite know, but if I had to guess now, I'd lean towards they've probably let most stuff out. But for people worried about how this will be bad, most of this stuff will be ignored by investors.
Speaking with Eric Balchuna's ETF analysts for Bloomberg Intelligence, Eric, if we're expecting these kind of approvals, what are you expecting when it when it comes to enforcement of some of the potential risks around some of these new products.
This is where the big debate on what should the SEC behold Should it really police the products, invest them and say is this really safe for retail?
It's sort of I guess like the FDA, at.
Some point, you know, there's a line between what is safe versus Hey, let's just disclose all risks and let people have a choice and they if they want to, you know, you know, if someone wants beat McDonald's every day. It's really their choice, even though that's not healthy, and you could argue the government should ban McDonald's. But this
is the same deal. And I think this sec with this chair is going to be a little more like, look, just let this stuff out, let people choose, but just we're going to put a lot of the risks in the perspectives. Now nobody reads the perspectives, that's the problem. But I think most people if they see a two X Smulania ETF, they're probably going to know it's wacky, like they're going to know there's some that it's not vanguard. Okay, But this whole thing is why we and BI have
something called the traffic light. It's based on movie ratings. I always thought ETSD movie ratings that way, you know, if the name sounds innocent, maybe you know, you know, if the if the ETF has some stuff you need to know about, you know, just sort of like a nasty surprise indicator system. And so we would give most of these yellow lights. The two X millennia would be read because it's leverage. One ex millenni would be yellow because its kind of extra volatility, and there's really no
cash flows backing any of this. It's like just it's like a commodity. So I just think that would be helpful for investors to have. Like imagine if you went on your Schwab account, you pulled up any ticker and it said you know, rated g PG, PG thirteen or R. You get a very good idea of like, okay, if this is our y and here's the three reasons they got rated R tag. To me, that would be awesome. We try to create this. We did create the system.
It's on the terminal. But that's I think how you should think as an investor if you're looking at this stuff. If it sounds wacky, you know, read the fine print. If it sounds innocent, like the Vanguard is some P five hundred, that probably is. But every now and then there are some with innocent names that are a little more involved, like the oil ETF. But I think most of these are.
Going to sound wacky, and they are wacky, so but always I would read the perspectives if you can. And that's what the SEC is going to say.
Just put all this stuff, all the risks in the documents, and that's that's the kind of you know, because they want innovation, and they want things to be out there for consumers. But there is a point where you can put something out that, you know, is somebody could lose money on. But I you know, this is again the debate on what a regulator should be.
Eric.
Now that we do have a new administration in office, have you seen some interesting shifts in ETF flows now the there's new leadership in the White House.
Yeah, it's interesting.
You know, I think ETF investors over the years, you know, we wrote a piece saying the S and P five hundred doesn't care who.
The president is.
It's almost like the US stock market. We call it the eighth Wonder of the World because it's just so relentless. It's almost like immune to any of this. And I think over the years, even if there has been drama and maybe a pullback, it goes right back up. And so we have seen no change in the flows from like last summer into fall, into the winter into this
twenty twenty five. It's it's basically been a lot of people continue to buy what we call beta, the S and P five hundred, the bond ETFs, you know, the sixty forty people are just continuing to buy now on the fringes. There is some stuff that we see moving, like, for example, in the bond space, we do see people moving towards the shorter end of the curve, more towards like a money market type deal, and I think that's a little protection. We've seen obviously money go into the
bitcoin ets and some into gold. There's some thought that that is, you know, an inflation hedge. And then the stock market. Sometimes we'll see some flow like try to bet on small caps having a rebound or.
Europe, but those are usually short lived.
So you do sometimes see people trying to bet on some kind of a rotation or regime change.
So again they're on the outskirts.
We see bets being made, but for the most part, the sort of mainstream flow of money continues to buy us stocks, you know, at a breakneck pace, and it's going to take more than just like a you know, a scary tariff headline to get these ETF investors to to change direction. And you know, and why would they. They've they've almost been conditioned like Pavolovian dogs to just keep buying because it's worked out.
If you've ever read a.
Scary headline pulled your money out put in cash.
You're basically filled with a ton of regret.
And so this is where we're at. Why I think that it will take like a black Swan event in my opinion, to really see anything shift, something like the COVID something we're not not tariffs, you know, not a crazy tweet Like it has to be something like really major that nobody's even looking at in my opinion, for the general blob of money to like stop investing or to move out of stocks.
Really appreciate this. Eric, thanks again for coming on with us.
You got it anytime.
That's Eric Baluchunis ETF, analyst for Bloomberg Intelligence, and coming up next on the special holiday edition of Bloomberg Daybreak, we're going to take a look at the oil market how that may be shifting under the new administration. We'll be speaking with Stephen Schork, president of the Short Group. It's twenty minutes past the hour. I'm Nathan Hager, and this is Bloomberg. Welcome back to this special holiday edition of Bloomberg Daybreak. US markets are closed for President's Day.
I'm Nathan Hager, and we want to take a look now at the oil market, commodities across the board have been rocked with President Trump threatening and in some cases imposing tariffs on friend and foe alike. Here to give us a sense of the energy outlook as we make sense of this new tougher trade policy is Stephen Shork,
president of the energy analysis firm the Short Group. Thanks again for being with us, Steven, And we have seen oil prices really take a hit on the tariffs that President Trump is already imposed and the threat of more to come. How do tougher trade policies affect your outlook for the months to come?
Yeah, absolutely, Nathan. So what I like to do, of course, is always look at the market's term structure or its forward curve. And with all of the rhetoric and some of it has made good on with regard to the tariffs, when it comes to oil, we have to think about this logically. A lot of this is bluster. The United States, and specifically our refineries in the Upper Midwestern the Chicago market area, are wholly dependent on importing crude oil from Canada.
These refiners are geared specifically to refine Canadian heavy crude oil. So with regards to the terrifs, when it comes to oil. I think it's a bit of brinksmanship so far. I think the administration has blinked on that matter, because the last thing the administration wants to do, of course, is drive up oil prices, which consumers will begin to feel
immediately at the pump. So that said, when we look at the term structure, the market has been fairly stable non ex WTI has been ranged bound in between about seventy dollars and seventy five dollars a barrel for this quarter, which is in perfect agreement with our modeling that we came out. We entered this year with oil at about sixty nine dollars fifty cents. The midpoint for this quarter based on our model is about seventy one dollars and
sixty cents. And as they said, the market has pretty much been ranged bound in between seventy and seventy five. Most importantly, a recent survey put out by the Dallas Federal Reserve to oil executives in the oil patch down in Texas, Oklahoma, Kansas, and so forth, or asked what they were planning oil prices based on their capital spending and as long as the oil prices hold in that seventy seventy five dollars range. Not coincidentally, the industry will
continue to invest. So from this standpoint, the teriffs the talk their rhetoric, Yes, it makes a lot of noise, but when you look at the relatively lack of volatility, So we're looking at a market when we look at whether it's range bound, there's a lack of volatility. The market has been relatively stable as far as looking at the spreads, the spreads are indicating. That is to say, as we look at prices along the forward curve, the market is well balanced. No one is clamoring for product.
So do you see any factor breaking the oil market out of this range, and if so, is it going to go up or is it going to go down?
I think the risk is certainly to the downside. Of course, the big two geopolitical headlines out there are sanctions and a harder stamps on Russian and Iranian oil, and of course that is a potential uptick that would propel oil prices higher. But again, looking at the forward curve, in the turn structure in oil markets all around the world, traders are placing a maximum of minimum concern on these
geopolitical events. So just as we've seen over the past two years when more in the Middle East broke out, it's less about supply more about demand. So the supply issues will always okay, supplies out of the Middle East transiting through the Red Sea with all the attacks and shipping, that's a supply issue, but it had not impact prices. So the concern now is more of global economic growth. And when we say that when it comes to oil,
of course we're talking about China. But we've been waiting for bide when it comes to China for the past three years with this demand to hit, it has not hit. I don't think it's going to hit in this year. So certainly, if there is a risk of breaks out of that range, Nathan, it is certainly oil prices below seventy dollars a barrel rather than oil prices above eighty dollars a barrel through the first at least six months of this year.
To your point about waiting for that demand shift to change coming out of China, it gets us into the next OPEC Plus meeting and the decision on whether to continue with the delayed production increases from the oil cartel. What's your expectation there.
Yeah, exactly, so there's speculation, of course, if we're tougher on Russia, we're tougher in Iran the other OPEC members, primarily the Arab oil producers who don't have a lot of love loss with between the Arabs and the Iranians, that Saudi Arabia and so forth will increase production. But that is just trying to play geopolitics.
One oh one.
What we have to look at again is the spread, the spread between Brent Dubai, the Dubai spreads, the Middle East spreads, and what we're indicating here is once again a market that is relatively stable on a global standpoint. So once again OPEK is going to look rather than look at the potential, they're going to look at what the market's telling them. Their analysts are excellent at looking
at this. So I would suspect there's a fifty to fifty chance that they'll they'll maintain the status quo i e. They'll kick the production, you know, the quota adherents, they'll kick that can down the road until their next meeting
unless they see something that happens in the spreads. And right now that the spreads are telling OPEK, they're telling traders that the market is in balance at this point, regardless of all these known unknowns of geopolitical events, be it Iran Russia, the war between in Gaza between Iran and Israel basically, and certainly the situation in Ukraine. So until we see something hard tangible to trade on the spreads is telling us no OPA will maintain the status quo.
We're speaking with Stephen Schork, president of the Short Group, energy analyst with us on this special edition of Bloomberg Daybreak. I know you said we should look past the noise when it comes to the oil market, Stephen, but if you'll indulge me for a minute, we have heard noise, if you want to call it that, from President Trump on the campaign trail, now in office saying drill, baby, drill.
He wants to boost energy production in this country. Is that something you're thinking about when it comes to the outlook for crud?
Of course, and that really hammers home the point of the rhetoric. So yes, the president, we'll want to talk about drill, about baby drill, But guess what we are drilling, baby, and we are drilling a lot of oil at this point. So again i'll reference that the response is to a survey to E and T executives put forth by the Dallas said, and the response that is, the industry response is relatively lukewarm to the idea of drill baby drill.
Why because we're already drilling more oil than we ever had, and we are by far drilling the most oil than any country in the world. So there really is a lot of neat left on that bone for us to drill even more so, according to those responses, you only have fourteen percent of the responses come from these executives
that said they planned to increase capital spending significantly. The majority of the executives at these current prices are comfortable with drilling at current rates, i e. There is no need the market is telling them. They're not getting any signal from the market to drill. So yes, President Trump or President ex Monacle and the President Tariff will certainly beat the drums about drill baby drill, But the bottom line is we're already drilling and there's just not that
much more at this juncture. Given this price a range, for us to drill even more, it does not make any economic sense for any producer out there.
We've been talking about the price range for crewe the term structure. How does all this feed into where the rubber literally meets the road in terms of gas prices that we should expect to pay as we head into the spring and summer months.
Yeah, absolutely so. Right now, accordingly surveyed by TRIPLEA, the national average is about three fifteen cents a gallon, slightly higher three dollars and twenty cents in the metro New York City area. But that three fifteen cents is no I take that back. That was three thousand and fifteen cents today compared to three dollars twenty cents a year ago. So so basically we're on parts a year ago adjusted for inflation, three and fifty cents, as we can all imagine,
is a very cheap price. With the oil remaining stable a low volume utility, we can maintain that status pro But let's keep in mind we are in February. Once we get into March April, may we start burning in our cars a different type or boiling, I should say, a different type of gasoline, a summer grade gasoline which is more expensive to blend and market and transport and so forth. So we will see a natural increase in gasoline prices. Typically that would be about between fifteen and
twenty cents between winter gasoline and summer gasoline. So, giving the current price environment, that range amount of seventy seventy five at three thousand and fifteen cents. By the time Memorial Day to fourth of July rolls around and we're all going out the beach up to the Poconos, gasoline prices would naturally at this range b probably three dollars and thirty cents. Three dollars and thirty five cents in the current environment.
Okay, Now where the environment is right now, and with crude prices in this range, how does that affect the energy transition? I mean, we've seen the talk of the end of the electric vehicle mandates. There's a new administration that is very bullish on crude. Where do you see the energy transition going forward?
Basically where I saw going backwards. I think the whole concept of the energy transition it made great, you know, it was great for PowerPoint presentations in global economic forms and so forth, But the industry understood that demand for fossil fuels was not moving anywhere, that fossil fuel demand will continue to grow India just came out and said they expect fossils field growth to continue until twenty fifty.
The same goes for China and so forth. So what we're seeing now here is more of an economic even playing field where these mandates. If there's economically viable for full eds or for any of the energy transitions, then we wouldn't need the government, that is, wouldn't need to
underwrite it. So what we're seeing now here is a transition that is more of an all inclusive And I always go back to President Obama's twenty twelve re election platform, where he recognized that there was a need, a growing need for renewables, of course, but equally he also and I encourage our listeners to go back and reread his twenty twelve platform because it also embraced nuclear, it did embrace clean coal, it embraced natural gas and fossil fuels.
So we're going back to this. Any transition is moving more from a binary transition, that is to say, I have to kill all of my dispatchable energy and now I have to have it all replaced by intermittent weather related BTUs. We're moving away from that, and we're moving more towards an all inclusive policy where renewables, of course will play a role in this, but so too will
natural gas, nuclear energy, and other fossil fuels. And it will be in all of the above approach to our energy needs going forward for at least the next four years, as opposed to the zero sum game where we have to kill fossil fuels and we can only use renewables, which was always has been known to be untenable. We've just we're now seeing the quipout part out loud.
Really appreciate this, Stephen, thanks again for coming on with us.
Absolutely always enjoy being back here.
That's Stephen Schork, president of the Short Group. And straight ahead, we'll look ahead to earnings from Walmart this week as this special edition of Bloomberg Daybreak continues. It's thirty eight minutes past the hour. I'm Nathan Hager, and this is Bloomberg. Welcome back to the special holiday edition of Bloomberg Daybreak.
US markets are closed for Presidents Day. I'm Nathan Hager closing out this hour with a look ahead to one of the big earning stories of the week coming from one of the world's biggest retailers, Walmart reports results from the holiday quarter this Thursday. But what can we expect from the outlook for this retail giant with so much uncertainty around the economy, not to mention trade policy. Here with some insights for us is Aroune Sundorum, Senior vice
president for Equity Research at CFR. Thanks for being with us, Aron. We'll look at at the chart right now Walmart stock. It's up more than ten percent year to date. Can we expect that kind of bowl run to continue when the retail giant posts those earnings this week?
Walmart tends to guide conservatively to start the year, so don't be surprised if you do see a softer than expected outlook. But I think investors typically look at the outlook with the grain of salt because Walmart tends to, at least over the last few years, they have raised their outlook as the year progresses. So expect to be on top of bottom line potentially a weaker than put the outlook, But you know, I don't think that should send tend the stock that much lower.
What's going to drive the beat? Do you think? Is it just going to be about the bounce that we tend to see for retail around the holidays.
Well, yeah, I mean for Walmart. Yeah, their in their US business. Yeah, the strong holiday season should drive a beat to the top line when they report a Q three result. They even know that back then that early results for their holiday season was encouraging, and we do know that the overall Hollay season was pretty strong. And I think one thing we often overlook with Walmart too is that they have a very large international business that has been growing in a high single digit percentage range
over the last few quarters. They're doing well and regions like Mexico, China, Canada, all those regions are doing pretty well. And then lastly, you know, Walmart also has their club business, sam Club, and that's also been performing really well. We talk a lot about Costco and how well Costco is doing, but sam Club, you know, it seems to be a formidable competitor to Costco and it's also growing at a mid to high single digit percentage range.
Interesting to hear you single out China, Canada, and Mexico as far as growth drivers in internationally. Those are the three countries that have been targets of tariff threats from President Trump. How could that affect the outlook if we start to see trade uncertainty creeping into these earnings.
Yeah, so that's that's another reason why I do think the outlook could be more conservative than usual. We saw that with with Amazon when Amazon reported recently that there is more uncertainty this year than than previous years. We have potential tariffs, we have inflation that looks like looks like it's going to accelerate this year. We still have high interest rates and and and all that kind of
clouds and already pretty cloudy outlook. So I do think we'll see, you know, a conservative outlook in that regard. But regarding its international businesses, although they're a global company, they do have pretty like localized supply chains. A lot of what they uh supply and produce and sell, a lot of it is located domestically. So yeah, I mean, yeah, they're going to face tariff. If there are tariffs, it's
clearly going to be a win for Walmart. But I think they can they'll be able to mitigate that headwin. And again, this is not their first rodeo with tariffs. Walmart experienced the tariff the trade war with China back in twenty eighteen twenty nineteen, So I think generally retailers are better prepared for tariffs this time around, So.
You don't expect to see much of a shift in the supply chain flows for Walmart, even if we do see even more aggressive tariffs than the President has telegraphed.
Yeah, so I think from the first trade war with China back in twenty eighteen twenty nineteen, since then, all retailers have diversified their supply chain a bit more, and a lot of them have moved out of China, went to regions like you know, Vietnam, Cambodia, India, places like that, and so I think generally we're seeing a much more diversified supply chain.
So that does help reduce tariff risks.
And Walmart US about two thirds of the items of cells in the US are made, grown, or assembled domestically in the US. That is a lot, I mean a large percentage of of their products. So there's only about one third of their goods that are imported, and a lot of that is in China. So I think because Walmart is predominantly a food retailer, I think they're better and and a lot of food products are you know, domestically produced. I think they face less care risks than
you know, general merchandise retailers. To retail is like a target for example, that UH sell predominantly general merchandise items, a lot, a lot more of those goods are imported from other countries.
So it was curious whether we could see something of a of a trade impact on food when you think about Canada and Mexico being you know, agriculture suppliers to some extent into the US. Could could that be a headwind for Walmart.
Yeah, so yeah, there's potential places in food with tariffs especially, I think a lot more agricultural commodities, things like fruits and vegetables that we often import from, you know, places like Canada and Mexico. So yeah, that's an area where I mean, we're watching closely and we could we could see inflation accelerate in a lot of those fresh categories. Ian Walmart's still the leader in price, and I think they typically have more levers than others to absorb some
of these cost increases. But then of the day, there's only so much that they can absorb, and anything incremental that they can't absorb will likely be passed on, passed on, to the consumer. But again, you know, Walmart being the value retailer, they tend to have, you know, the lowest prices in town. And yeah, that's why I think Walmart typically does well in inflationary environments because they can provide that value that you know, other retailers, you know, can't necessarily do the same.
We're speaking to Aroun Sundram, Senior vice president for Equity Research at CFR looking ahead to those Walmart earnings coming up later this week. Ahead of these earnings are and we've heard from companies like McDonald's talking about pressures that they see on the low end consumer. And we've seen this phenomenon lately, as inflation is stayed elevated, a lot of higher end consumers have been shopping for value at
places like Walmart. How do you see that feeding through potentially into what we get this way.
Yeah, that's that's been a theme for the past year or two, and I think that's a thing that's going to continue in twenty twenty five. Yeah, clearly the lower income consumer is feeling a bit more stress right now. And you would think that, you know, Walmart, you know, you think this would be hurting Walmart. They wouldn't be seeing these strong results, but I think they've been able to offset that by bringing in incremental middle to upper
income consumers. And I think one of the reasons they've been able to do that is because of the new subscription model, Walmart Plus. Walmart Plus is a direct competitor to Amazon Prime. You get fast, free delivery on groceries, and I think that Walmart Plus business has done really well. And they don't disclose the exact number of members that are signed up, but from from our channel checks, it
seems that it's growing at a pretty good rate. I mean, even Walmart's e commerce business, it's growing out about twenty percent clip year every year. I think a lot of that is because they've been able to bring in more of those Walmart Plus members in there. And I think Walmart Plus is great because that helps also retain those higher income households and even even when inflation does come down, you know, now you know once you once you lock
these customers in, you drive more conversion. So that's why we're pretty optimistic here because Walmart's always been known for a value retailer, but they're actually now being better known for convenience that's usually a title that's held with Amazon as the leader in convenience, but now Walmart I think it's doing better in the convenience factor. And if you combine value and convenience, it's a pretty strong proposition for the for the consumer.
Sort of fed into my next question thinking about how Walmart stacks up against Amazon with this this kind of subscription model, I guess, a consumer loyalty program. You might think of Amazon as as sort of a first mover with Amazon Prime. Is Walmart chipping away at Amazon Prime with its offering?
Yeah?
So Walmart, I mean Walmart Plus is is a direct It's a dire direct competition against Amazon Prime. But I think where Walmart has always had a stronghold is in grocery. That's an area where Amazon has struggled over the last several years. Amazon bought Whole Food several years ago.
That business is.
Doing well, but they're local business or their their own business called Amazon Fresh and hasn't performed up to expectations. And I think Amazon has really struggled in the grocery arena, which is where Walmart has always shined in grocery and perishables. So I think a lot of I mean from a stat I saw earlier, a large percentage of Walmart Plus subscribers are also Amazon Prime suscribers. So people tend to have both subscriptions, and they use Walmart Plus for groceries
and they use Amazon Prime for everything else. And the Walmart Plus is a little bit cheaper. It's ninety eight dollars per year in the US. Amazon Prime is about one hundred and forty dollars per year in the US, And I think you get because of the different offerings you get, you tend to see consumers sign up for both.
It's also curious to to get your thoughts on whether we could see wage pressures from Walmart coming down the linecause I'm thinking about Costco coming out where it's thirty dollars an hour wage for workers. There. Is that going to put pressure on Sam's Club, the subscription service the Walmart offers.
Yeah, yeah, so I mean wage investments, wage pressures. That's been a headlind for several years now. Sam's Club they actually just recently announced a wage increase back in September of last year, but that's going to be another continued trend this year. We'll likely see more wage pressures this year. The good news is that, you know, when you have a company growing sales, you know, mid to high single digits, you can absorb some of those costume increases and it
doesn't really impact the overall bottom line. But when you struggle to grow sales, like some other retailers there are right now, it's very difficult to also grow margins because of all these added wage pressures. So at the end of the day, I'm not overly worried about these wage investments as long as Walmart is able to grow their sales at amid single distrect percentage range, which we do expect will happen in twenty twenty five.
In terms of Walmart's stock performance, it's hard to see a lot of pessimism around the stock, a lot of buy ratings on Walmart. Are there risks to that momentum?
Yeah, I mean, I mean, the number one concern I get with investors on Walmart is not anything about the fundamentals. It's about how expensive the stock has gotten. From a four pe perspective. It's trading nearly forty times.
Of a forward pe.
Historically it's traded about twenty five times for p so a pretty significant premium. But you know. The one thing I'll note is that you know, Walmart shares used to be even more expensive back in the day, back in the late nineties early two thousands. When they're significantly expanding their super center's footprint, the share is traded above forty
times forward earnings. And I think right now that the shares do deserve this this hefty premium because of all the things we talked about already, but also they're also growing their store footprint right now, they're growing more supercenters across the country. They're growing they're also growing SAMs Club locations across the country. They're targeting thirty new Sam's Club
locations across the country. And then last thing, this is the most important thing I think, is that Walmart's business is diversifying. We talked about Walmart Plus and the subscription revenue they're getting from that. They're also generating a lot of advertising revenue as they grow out their e commerce market. Marketplace in advertising, as you know, is much higher market business than selling groceries.
It's out of a store.
So as as this advertising business continues to grow, I think you can see Walmart's overall margins continue to expand and when you have when when you're a retailer generating you know, six hundred billion dollars per year and nearly seven hundred billion dollars per year in revenues, every percent, every basis point of margin translate into into uh into
a lot of profits. So that's what I'm pretty excited about is I think over the next few years, and Walmart has many levers to expand margins because of you know things we talked about, but because of their subscription revenue,
their advertising revenue, they're growing their general merchandise sales. They're also introducing automation and robotics, and they're in their fulfillment centers and all of that they can translate into pretty operating marketing expansion over at least I think the next three years. And that's why I think the happy premium can hold. And I think there's still upside to the stock from here.
Lots to consider as we wait those earnings from Walmart due out this Thursday. Thank you for this, Arun, again, great having you on with us.
Yeah, thank you.
That's Arun Sundram, senior equity research analyst at CFIRA. Want to deliver thanks as well to Stephen Shork of the Short Group and Eric Balchunis of Bloomberg Intelligence. Thanks to you as well for joining us on this special hour of Bloomberg day Break for this president. Stay, I'm Nathan Hager. Stay with us. Today's top stories and global business headlines are coming up right now.