Yahoo Finance

Walmart reporting first quarter earnings this morning in the CFO talking to Yahoo Finance earlier today warning of higher prices ahead due to tariffs.

Given that you've got 30% tariffs on certain categories of items that are going to be imported, you're likely going to see some price increases go up there.

With Walmart setting the tone for other big box earnings in the coming weeks, we're now getting how to play the retail sector with the Yahoo Finance Playbook. And joining us now is David Bellinger, director and senior analyst at Mizuho Americas. David, it is good to see you. I I do want your take on on the Walmart results, David. Uh, you know, mixed results, but uh, it's it's the talk of tariffs and price hikes getting getting attention there. I I'm curious just to get your take. What what do you make of the report and commentary from the company?

Yeah, thanks for having me back on. We looked at this as very solid Q1 print. The stock was all over the place this morning. It was up pre-market. It was down 5% at the open. We've clawed back most of those losses or almost flat. But it it looked like the demand picture was getting overlooked here. So sales picked up each and every month of Q1. I thought the commentary on the start to Q2 was pretty constructive. But what's happening here is Walmart did not provide Q2 operating income or earnings per share, uh, guidance for for the quarter, and it it looks like you might have some of these wild swings because of the price increases, so they don't know. It seems like the the ranges implied are very wide. So that uncertainty what is what led to this this downdraft in shares today. And also just entering the print, you've had a big run up. The stocks up almost 20% off the April lows. So we think that this was, uh, sort of a sell the news event, but the demand picture, we thought we thought was, uh, pretty good in general.

David, um, Walmart obviously doesn't raise its prices that often or that by that much, right? That's one of the reasons, um, that it has remained popular with shoppers. When it does, what tends to be the effect and what do you expect to happen this time?

Well, for any retailer, when you raise prices, you you usually see volumes slow down. This elasticity of demand type impact and demand destruction. So what Walmart's doing here is raising prices. I mean, you you essentially have to with 145% tariff goods, even at 30%, is hard to absorb all of those costs. So prices have to go up across the board, across retail. But what Walmart has here, which is pretty unique to them, is we see this optionality to not raise prices as quickly. You keep those spreads versus your competitors pretty wide, and they're even taking some prices down, which we think is the more interesting piece here. It should drive volume. Why why they can do this is they've got this second P&L, right? They've got advertising, marketplace, membership. So those are really high margin businesses, and they are growing incredibly fast. And that's basically funding any type of gross margin hit they might have. They'll have an offset with those businesses. And just just a small example here, the advertising business almost a five billion dollar annual run rate business, that's bigger than Pinterest, growing faster than Pinterest. So it it's very interesting dynamic here and very unique to Walmart that they've got these accretive drivers in the background.