CFRA's Agnese on Wal-Mart: E-Commerce Push is Positive (Audio)

out the retailer's e commerce capabilities. Seems like a perfectly sensible strategy to many people who watch Walmart, but to investors today shows are going to be spending more money to ultimately boost that bottom line, and that seems to be why we're getting a bit of a negative move today. But let's ask somebody who knows all about this what he thinks. Joe Agnes is equity analyst at c f R A Research. So, Joe, what stood out to you about the forecast for next year and how it ties

into Doug mamillan's plans. Well, we thought the forecast for fiscal year seventeen, eighteen and nineteen were actually weaker than

we expected, so it's a bit disappointing. However, as the company provide details during today's analyst meeting, our concerns were somewhere alleviated as the course, stores are still expected to improve operating income and operating margins, and the decreases more reflection of those increased investments in e commerce, which we believe, you know, are the right moves for the company to make the better position themselves in the long term for

growth and to compete more effectively Joe. Earlier today, the chief executive of Walmart, Doug McMillan, he was speaking to investors. They were all gathered at Walmart's headquarters in Bentonville, Arkansas, and he said, this company over time will look like an e commerce company. Well before it becomes an e commerce company, do they have to resolve a corruption investigation with the US Justice Department and the Securities Exchange Commission?

Because I think that the settlement, or at least the talk of a settlement, is about six hundred million dollars, and I believe that Walmart has already said that they've already spent or set aside about seven hundred nine million dollars for this issue. Can you explain what's going on? Yes? Well, while the numbers seem large, uh, Walmart produces a significant amount of free cash flow fifteen billion dollars a year.

So I think any settlement they reached in this multi year ongoing investigation, uh is not going to have a significant impact on the company's long term strategy and the e commerce initiative going forward. Uh. Okay, so it's something then you're basically saying, they'll they'll clear this up, they'll settle, they won't settle and move on. But I just have to ask, as the back and forth continues between the Justice Department, the SEC and Walmart, what is Walmart's defense.

Do they say that they didn't do what their charged with doing? Do they say that there were sort of rogue employees in Mexico who made bribery payments because they're just how much did you have to pay? Right right?

The disputing it? They they noticed some issues themselves. Has gone back to two thousand eleven, I believe, Um, there's new management that has been put in place, as new processes and new compliance that's been put in place, and so they're trying to oversee and be proactive in preventing future issues, you know, you're such as the ones that they experienced in the past, which I think will will

help the perception of the company going forward. UM. You know, and as I said, six h billion dollars is a lot for many companies, but for a company of that size of Walmart, Uh, it's it's not gonna have a significant impact to the long term operations. Okay. But having said that, then what makes anybody think that a company this big, with the fifteen billion dollars that you just mentioned, is nimble enough to go head to head against Amazon. I mean, they just spent three billion in August to

buy jet dot com. Have they displayed any ability that would outpace Amazon? Well, the way we view it is that they already have the customers coming into stores. They have two sixty million customers coming into their stores and their keys to keep them within their infrastructure, and by improving their ecommist offerings, they will better be able to keep those customers in the stores and get more share

of their wallet of those customers. Um, it's not just against Amazon, that can take share from many other companies, and that we see an improvement in their e commas better positioning them to take that share over the long term. How about China? What role does it play? China is one of their largest international markets. Internationals about of the company's sales. UH top two markets are Canada in Mexico, which they could leverage the US operations, so China is

significant long term for growth. What they're trying to do there is UH increase their scale to offer a seamless e commerce and bricks and mortar solution in the country, and I think that's why you're seeing the j D dot com deals where they sold their operations to j D for a five percent plus stake and then double that stake to over ten percent recently. Online sales currently account for just three of total sales. Does Doug McMillan, the chief executive, does his future depend on raising where

that three percent of total sales coming from e commerce? Yes? I think so. I think the Jet dot com will add over a billion dollars in sales UH. The company said that in the second half of the year they expect e commerce sales grow to accelerate to from twelve percent last quarter and eight percent in Q one, so they have a favorable trend there UH and to be near thirty percent going forward. I think the company needs to produce those results. I think if there's disappointment there,

you're going to see the share price struggle. But if they can achieve those numbers and and and beat them the shares to do very well well. The shares are struggling today. The shares of Walmart are currently down about two and down more than two dollars to share sixty nine twenty nine cents for shares of w m T. I want to thank you very much, Joe Agneezy, he's equity analyst at c f r A Research. This is taking stock, and this is Bloomberg