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The retail earnings from Walmart out of the gate, it sounded good. They raise their full year sales guidance, but it missed on the bottom line. It shares her down about four percent. So here to give us more details on that is Jennifer Bartasha. She's Bloomberg Intelligence senior analysts retail, Staples and package Foods. Jenn Welcome to the show. Were the expectations just a little bit too hi? Coming into the print? I mean what happened?
Well, when I look at this quarter, it really is 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, you know, higher costs for related to you know, having to 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 backround, you know, background.
That we have.
What are they saying about the consumer, the health of consumer gen because nobody has a better pulse finger on the pulse than Walmart.
Very true. I mean, when 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 US, you know, their traffic was up
and their 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.
Now you're comparing Okay to Walmart to let's say, a Sam's Up. What about Walmart to a Target?
As far as.
How tariffs affect them, I mean, do towers affect Walmart differently than they affect Target?
Well, I would. I would argue that 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, you know, 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, you know, I think one of the other differences is Walmart has doubled down on improving the quality and the assortment in
their general merchandise. And one of the things that they called out today is that they're seeing market share gains and things like apparel and fashion, which are traditionally the areas that target has excelled at. So that 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 a hen in the margin before passing on the consumer or how do you think you're going to do that?
Well, I think in order to preserve value, value perception is really important, and 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, is 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 will they sell that through without having to do markdowns and without having to absorb too much cost
is really what's what's going to be critical. I 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 and where they do that, Jan.
Can you get into delivery and e commerce? Because that has been a big help for Walmart? I mean, it would it eventually give Amazon some competition?
Where is it?
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 two people's homes on a same day or a few hours basis is really a competitive advantage. That they have. E Commerce is growing at an incredibly healthy clip for Walmart, and as a result of that, we're seeing, you know, the higher margin
businesses like advertise digital advertising really grow as well. And that also helps, you know, strengthen ensure up the overall financial position of the company. So that focus on expanding digital sales I think we 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 Walmart we're talking about, Jen, Why can't they just raise prices five to ten percent on light bulbs and whatever? I 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 really focused on preserving that price gap to other competitors. So you're right, Paul, they could raise prices by five percent, and Walmart does
raise prices when it's needed. We saw prices grow up during the period of food inflation, but they're also one of the fastest to take prices back down when they can, and 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.
In the last minut 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.
And 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.
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Back to the world of M and A. We had a little bit of a trade here, I'm gonna say kind of more than a little bit of a trade, Toma Bravo agreeing to acquire day Force and a deal about twelve point three billion dollar deal. Let's break this thing down with Niroshptel, Bloomberg Contelligence senior software anamals Neuraj. First, tell us what does day Force do and why are they selling themselves to Tomo Bravo.
Yeah, dave Force is in the HR payroll software space, so consider the back office segment. This total market's about fifty billion in size, about ten percent growth rate. So they're selling modules when they're trying to imboard employees. They're doing performance reviews all the way to retirement type of services.
So what kind of struggles have they been going through that Tomo 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 ten to twelve percent forecasted growth rate ahead from the next two years, but that's considerably down from twenty plus percent in twenty twenty two and twenty twenty three. But that's more of the industry shift from being able to sell to new
customers and now reliance on existing customers. And when they're selling to existing customers, the big sale is behind them, the big payroll sale is behind them. Now they're adding on two to four dollars 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. 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 twenty seven on a price to earnings for twenty two twenty six, 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. Not 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 rush of the article, and it seems like Toma Brobot has been pretty busy. I mean, I'm seeing, you know, agreed to purchase Boeing Companies 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 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 ecquisitors, 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. Before application software was more steady, you sell on a
subscription type of basis. That business models in jeopardy, especially as enterprise users leverage LMS 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 nearage 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 eleven and a half percent sales growth for twenty twenty five. Over the first two quarter quarters.
That has bumped up to about thirteen percent, so about one hundred and fifty bases point lift. And the margins they continue to leverage, reducing sales and marketing expenses, so they're getting about a three hundred basis point lift on operating profit margins, which average around twenty seven percent, So pretty good stable financial models. The issue is this AI
overhang has knocked down these stocks. These stocks are down on average eight percent, Application overall Software Universe and application software is down twelve percent, 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.
In the last minute, so we have here left. Is this one of tomar Brobo's biggest deals.
No, I think over the last couple of years. Yes, it is definitely one of their biggest deals, and they're not paying so so much relative to some past deals that were in the seventy eight times in the software space.
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All Right, A piece of news that I kind of found interesting today was Boeing China says they're gonna are Boeing maybe they're in talks itself to five hundred planes to China, and that's big. I mean, they're not giving those things away there. Seems you're kind of expensive. And it really opens back up potentially that Chinese market, which has been challenging for or Boeing and some of the other Western players, said Phillip Joints Us here Bloomberg, Chief
correspondent for Global Aviation. He Joints is here on a 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 five hundred 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, and then they potentially could agree to a deal as part of a broader reconciliation on trade between Trump and President she 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 US President Donald Trump last visit in twenty seventeen. Can you paint the backstory for us?
Yes, So, Boying has been largely shut out of the U, out of the Chinese market, and China is one of the fastest growing aviation markets in the world, and Boeing has been largely shut out partly because of trade tensions. China was also the first country to ground the sevent thry seven Max after those two fatal crashes back in twenty nineteen, and so for Boeing, this is a sort of massive step forward in terms of being able to garner a new business instead of being able to challenge Airbus.
I mean Airbus has but we've reported yesterday that Airbus is potentially going to win a five hundred plane order from China as well. So China needs new airplanes. Airlines
in China are looking to replace alder Fleet. They're also looking to get growth in and Comac, which is the local Chinese company which is building a competitor to the seventry seven and the Airbus A three twenty isn't yet at scale, so 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 all these Chinese planes.
So C nine one nine's is a competitor to the E three twenty 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. I 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 apartment? 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 in his midle East to he had lots of aircraft deals, and so aircraft purchases have become a very large part of trade in Trump's in Trump's economy, and this would be a win for Trump if they can actually get a deal across the line.
Where where is Boeing on the seven thirty seven max deliveries? Because I know they're I don't know, thirty eight per month or something, but they like to get it above what do you like to get it to fifty? And that's when the real cash flow really starts coming in. Where are they these.
So Boeing's around thirty eight a month and that's where the cap is at the moment, where the FA cap deproduction I forgot 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. And that's part of Kelly Ottberg's turnaround effort to actually ramp up production off the seven thury seven and actually start generating cash from that aircraft.
And so they are looking to sort of ramp up beyond thirty eight a month by the end of the year, and as they ended next year, they could sort of see that going up further.
How are they doing against air boss, I mean, are they doing better against the competition?
Not yet. I mean, Evers is still the world's biggest aircraft supplier. They're still the world's biggest aircraft manufacturers the case. I No, it hasn't. So I think they overtook Boeing back in twenty eighteen or nineteen.
Yeah, I don't like that.
We need to get going back, get a new CEO, you know.
So Boeing Okay, So just park on Lisa's question, Bob.
So boy is doing pretty well in terms of just recovering from where the pit that they were in and sort of the new CEO has focused on actually building
on quality. Is talked about how he's sort of encouraging workers to speak up against any sort of quality misshaps or any quality sort of issues, and so far it's been a sort of big step forward for Boeing, but they're still not out of the woods yet and they still need to They did that massive equity raise last year and they sort of showed up their balance sheet, and we will look forward to seeing what actually happens with Boeing end of the year and if they can
actually get their production beyond the thirty eight a month on the seven three seven.
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