Do you expect any changes based on that?

Not necessarily huge changes.

You know, what we've seen historically, um, when we've had periods of very high gas prices, it takes a little bit of time for consumers to genuinely change their purchase behavior, um, because most, most consumers can weather a short-term kind of shock in terms of, uh, higher gas prices at the pump.

But the longer the higher gas prices last, the more that consumer behavior does shift.

And, and the shift that we typically see is that people will start to consolidate trips, um, so that instead of seeking, you know, a few items at a bunch of different retailers, they start to favor retailers where they can buy more of the items they want in the same place.

Um, so that kind of behavior, um, obviously benefits companies like Costco, um, just as it benefits companies like Walmart and Target, where there's a broad assortment, and people can actually do a complete shoppit- uh, shopping trip, uh, to meet all of their needs.

But in terms of, uh, trying to get more of a profit down the line, do you see Costco thinking about things like raising membership prices, making it a little bit more expensive to get people in the door? Is that, is that something that could be coming down the line for Costco customers?

Um, probably not anytime soon.

Do you expect any changes based on that?

Not necessarily huge changes.

You know, what we've seen historically, um, when we've had periods of very high gas prices, it takes a little bit of time for consumers to genuinely change their purchase behavior, um, because most, most consumers can weather a short-term kind of shock in terms of, uh, higher gas prices at the pump.

But the longer the higher gas prices last, the more that consumer behavior does shift.

And, and the shift that we typically see is that people will start to consolidate trips, um, so that instead of seeking, you know, a few items at a bunch of different retailers, they start to favor retailers where they can buy more of the items they want in the same place.

Um, so that kind of behavior, um, obviously benefits companies like Costco, um, just as it benefits companies like Walmart and Target, where there's a broad assortment, and people can actually do a complete shopit- uh, shopping trip, uh, to meet all of their needs.

But in terms of, uh, trying to get more of a profit down the line, do you see Costco thinking about things like raising membership prices, making it a little bit more expensive to get people in the door? Is that, is that something that could be coming down the line for Costco customers?

Um, probably not anytime soon.

Do you expect any changes based on that?

Not necessarily huge changes.

You know, what we've seen historically, um, when we've had periods of very high gas prices, it takes a little bit of time for consumers to genuinely change their purchase behavior, um, because most, most consumers can weather a short-term kind of shock in terms of, uh, higher gas prices at the pump.

But the longer the higher gas prices last, the more that consumer behavior does shift.

And, and the shift that we typically see is that people will start to consolidate trips, um, so that instead of seeking, you know, a few items at a bunch of different retailers, they start to favor retailers where they can buy more of the items they want in the same place.

Um, so that kind of behavior, um, obviously benefits companies like Costco, um, just as it benefits companies like Walmart and Target, where there's a broad assortment, and people can actually do a complete shoppit- uh, shopping trip, uh, to meet all of their needs.

But in terms of, uh, trying to get more of a profit down the line, do you see Costco thinking about things like raising membership prices, making it a little bit more expensive to get people in the door? Is that, is that something that could be coming down the line for Costco customers?

Um, probably not anytime soon.

How are they doing that?

Yeah, their e-commerce business is really flourishing.

And to your point, Paul, it's been multiple.

I mean, it's just on a string of double digit, high 20%, mid 20% growth every quarter.

And really what's happening is you're seeing a big expansion of their marketplace.

So you've got more sellers coming into the marketplace, more shoppers buying on the marketplace.

And that's then feeding ad revenue.

Do we have any sense of how well that effort is going? Walmart Plus versus Amazon?

What is Target trying to do and are they making any headway there?

Yeah.

So, you know, a lot of the issues with Target, you know, they sort of lost their their way with what they used to deliver in that sense of like target and the joy and the discovery.

And so they're going back into sort of key topics and key categories where they think that they can be differentiated.

So things like baby, things like beauty.

areas of health and wellness where they think that they can have a competitive advantage and bring people back into stores.

So they've been changing their assortment, changing what's in the stores.

What are they saying about the inflation we're seeing out there in the economy, particularly at the gas pump?

How involved is Tyson? I mean, is it a target? Is it a potential beneficiary if the government focuses more on foreign meat processors?

Yeah, the government is, they've specifically really called out foreign meat processors like JBS, but Tyson does have a pretty good sized beef business.

At the end of the day, a lot of this sentiment coming from the government is about the whole idea of affordability.

And people point to beef as prices that are just have gone up and up and up and up.

But there is a supply demand equation behind that that accounts for why those prices are still high.

And so, you know, when it comes to collusion on price fixing or that there's something nefarious going on, I think that sometimes kind of that subject of affordability overshadows the fact that we just have a basic supply demand equation imbalance.

And that's really, you know, as we see it, something that's not going to change for the next probably two or three years.

why is that uh why is it gonna have that supply and demand out of balance for beef

So what was buttressing the stock? Well, the company

really looked at last year as an investment and a reset year.

And so they put into place a lot of strategies to help reinforce the core business.

And it was really a story about getting back to retail basics.

So things like just having clean stores, not having cluttered aisles, having enough people working in the store so that there's customer service, improving the assortment of what they are offering, and increasing their value perception by lowering prices in some areas and adding... adding products that are in lower price point ranges to appeal to their core demographic.

So as those changes started to gain traction and customers noticed it, that was really what was driving performance last year and why the stock then was rewarded with regards to its price appreciation.

Dollar General been a real competitor as of late for, say, the Walmarts of the world or Family Dollar? Who is, I guess, Dollar General's biggest competition?

That's a great question.

But I'm wondering, I mean, how much of this is really just about being included in the Nasdaq 100 and therefore the QQQ ETF? Oh,

yeah.

Yeah, there's certainly part of that, Scarlett, where that's probably part of the motivation.

I think that there is, obviously, there's a perception with regards to being perceived more as a tech company, which Walmart, in all truthfulness, has evolved into a tech company, especially amongst other retailers, by being listed at NASDAQ.

Long term, maybe it helps their valuation, just in terms of having that perception of being more you know aligned with peers you know amazon is listed on nasdaq things like that so i think that there's a lot of those components together combined are really behind the move

jen nobody arguably has a better finger on the pulse of the consumer than walmart what are they saying these days

Actually, they seem relatively optimistic.

They talk about spending holding steady for kind of that middle income consumer.

What are they saying these days?

Actually, they seem relatively optimistic.

They talk about spending holding steady for kind of that middle-income consumer.

High-end consumers seem to be spending pretty freely.

A little bit of concern about some of the lower-end consumer, but it does seem to be sort of evening out.

And so when they were looking forward to the holiday season, which is the most important thing with regards to the retailers that I cover, they seem cautiously optimistic that there will be a pretty good holiday season this year.

We do think that people will prioritize spending on kids.

But if this strong performance is really more result of strategy and execution over the longer term, how much of a read does it really provide on the state of consumer spending beyond the fact that Walmart has become this exceptionally well-run tech forward company? I mean, you just look at Target, for instance, which has a lower outlook.

That's kind of young, right?

It is reasonably young.

He's been at the helm since 2014.

And I will say, to his credit, he's really implemented a cultural change at Walmart.

If you think back to the...

The early noughts, you know, Walmart had a bit of a reputation as maybe a bully with some of their suppliers and partners, you know, and that culture has really evolved to where it's much more of a technology-led company.

They're willing to experiment.

All right, so stepping back here, what's the play for Walmart? If you're an investor in Walmart today, why are you an investor in Walmart today?

What's your understanding?

Yeah, it's a little bit harder in the cattle business.

You have to remember that raising cattle, it's a capital intensive activity.

And so there have been a lot of things that have held ranchers back from increasing the size of their herds.

We've had high interest rates because a lot of them have to borrow in order to rebuild herds.

We've had drought conditions, especially in the West and in the South.

which make it difficult to commit to raising more animals if your land can't sustain them.

Jen, how do you think about this?

As it relates to tariffs, what's your best guess as to what your packaged foods companies, your retailers, how are they kind of segmenting the tariffs before maybe passing along something to the consumer?

Yeah, it's a complicated situation, Paul.

And really what's happening is where they can find alternative sourcing, a lot of companies have been trying to do that.

There are some companies in packaged food where that's not as easy.

So I would take McCormick as an example where a lot of spices you can't produce domestically or you can't source domestically.

And then it becomes a question of how do you negotiate with partners Do you find alternative countries of origin that maybe have slightly lower tariff levels? And it's also a lot of effort right now is going into finding efficiencies that can help offset those costs so that they can absorb some of that cost and not have to pass it on to consumers.

Ultimately, most of the companies we're talking to are saying that where needed, they will very strategically pass price through, but they're trying to avoid a uniform, unilateral price increase just due to tariffs.

How much of this work has been done, what you just described? And I guess I wonder how much of it will be covered in the earnings calls this quarter.

As it relates to tariffs, what's your best guess as to what your packaged foods companies, your retailers, how are they kind of segmenting the tariffs before maybe passing along something to the consumer?

Yeah, it's a complicated situation, Paul.

And really what's happening is where they can find alternative sourcing, a lot of companies have been trying to do that.

There are some companies in packaged food where that's not as easy.

So I would take McCormick as an example where a lot of spices you can't produce domestically or you can't source domestically.

And then it becomes a question of how do you negotiate with partners? Do you find alternative countries of origin that maybe have slightly lower tariff levels? And it's also a lot of effort right now is going into finding efficiencies that can help offset those costs so that they can absorb some of that cost and not have to pass it on to consumers.

Ultimately, most of the companies we're talking to are saying that where needed, they will very strategically pass price through, but they're trying to avoid a uniform, unilateral price increase just due to tariffs.

How much of this work has been done, what you just described? And I guess I wonder how much of it will be covered in the earnings calls this quarter.

So essentially, do they have online ordering so that they're able to deliver groceries to consumers or how does this work?

They do.

So they offer the ability to order online.

And then they fill that order in one of two ways.

They either fill it from one of these highly automated fulfillment centers, which is Ocado-driven.

And those are the ones with all the robots that do all the work that you see images of.

Or, and which is much more common in the network, they fill those orders in stores.

Does e-commerce, are the profit margins in delivery higher? Yeah.

What's next for the packaged food business? I mean, is this just an industry-wide secular decline?

Well, right now it appears to be, especially in North America, a bit of a secular decline.

Pockets of growth are becoming more and more isolated.

And so when you're looking at scanner data, the problem is the consumer, as I said, they're shifting behaviors, but they're just not buying as much as they used to.

And you see this even with Walmart or Target or Kroger.

where people used to buy in multiples and stock up their pantries and they just don't shop that way anymore.

They're buying more on an as-needed basis and part of that is the macroeconomic environment.

What will you be watching for, Jen, in terms of how competitors respond or react or move to kind of take advantage of this breakup?

What's next for the packaged food business? I mean, is this just a industry-wide secular decline?

Well, right now it appears to be, especially in North America, a bit of a secular decline.

Pockets of growth are becoming more and more isolated.

And so when you're looking at scanner data, the problem is the consumer, as I said, they're shifting behaviors, but they're just not buying as much as they used to.

And you see this even with Walmart or Target or Kroger where people used to buy in multiples and stock up their pantries and they just don't shop that way anymore.

They're buying more on an as-needed basis and part of that is the macroeconomic environment.

And so that just doesn't favor these companies right now where historically they've been pantry staples.

What will you be watching for, Jen, in terms of how competitors respond or react or move in, you know, to kind of take advantage of this breakup?

So that being the case, Jen, does it need to broaden its selection of products available to customers?

Well, I don't know that they need to broaden the selection, but they need to be thoughtful about the selection that's in the stores.

I mean, these are small boxes, so you have very limited space.

And in order to retain those higher income consumers from middle income, high income that are coming into Dollar General, part of it is going to be making sure that there are things that are fresh and interesting, but still at very good value.

And I think one of the interesting points is that Dollar General has been able to maintain a selection of things at a $1 price point.

And when you think about it, their biggest rival in the dollar space, Dollar Tree, moved to $1.25 as their baseline price.

So there's definitely some opportunity there to appeal to that value seeker and give them something to be excited about.

so jen in any town usa do these four dollars stores dollar tree dollarama all that did they are they all in the same town together is it more regionally carved out

What does this new CEO have to do to help this company get back on track?

Well, you know, it's very interesting.

He's highlighted three priorities, but they're not really new priorities.

But if they can bring focus to it, maybe that will help.

And that's, you know, reenergizing the assortment, bringing back some of that style and, you know, value that people crave.

It's about having a very good, consistent in-store execution and experience, which is what you were actually just talking about.

Having things in stock, having associates available.

How did that play out in this quarter and how will it play out going forward?

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 they can in the margin before passing along to the consumer? Or how do you think they're going to do that?

I think in order to preserve value, value perception is really important.

And that's what's going to help you retain market share.

So I think price increases will be a last resort.

But the impact of tariffs has been very gradual.

And I think what we're going to see is as 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 well they sell that through without having to do markdowns and without having to absorb too much cost is really what's going to be critical.

Why can't they just raise prices 5% to 10% on light bulbs and whatever? I mean, where am I going to go if they do that? I mean, it's Walmart.

What does this new CEO have to do to help this company get back on track?

Well, it's very interesting.

He's highlighted three priorities, but they're not really new priorities.

But if they can bring focus to it, maybe that will help.

And that's re-energizing the assortment, bringing back some of that style and value that people crave.

It's about having a very good, consistent in-store execution and experience, which is what you were actually just talking about.

Having things in stock, having associates available.

How did that play out in this quarter and how will it play out going forward?

Am I right?

You are right with regards to certain categories.

I will say retailers are pretty good about trying to bring down prices where they can as quickly as they can because they really are trying to get consumers to value them in terms of being loyal to their retail operations.

But inflation has been persistent and commodity costs are down from previous highs, but they're still elevated relative to historic levels.

That means that these companies have absorbed a lot and don't have a lot of room to absorb more.

So there is still some selective price increases that are going through.

Tomatoes are a unique category because we're looking at prices going up for tomatoes through the end of the year because of some trade agreement changes that have happened.

How do you explain it to people? Like, where do those cost increases get born?

Jennifer, can you dig more into some of the advantages, but also the risks associated with breaking up the company?

Obviously, some of the advantages, and this seems very similar to what Kellogg did when they spun Kelanova and WK Kellogg out into two separate companies.

They separated the growth prospects and then those from the slow growth areas.

That's very similar to what Kraft Heinz seems to be doing.

Obviously, if you can focus on growth areas, that gives you undivided attention to really expand and grow.

that would be an advantage.

I think one of the disadvantages, and this is something that's kind of a broader question to consider, is whether there's a cycle that's starting.

Because your business doesn't have a lot of growth.

So where are they with the pricing stuff in terms of their inventory, in terms of tariffs, in terms of where they source their material?

Yeah, so from a pricing perspective, you know, when people look at value, price is one of the first things they look at.

They're fairly price competitive, and we've seen an uptick in the number of promotions that they're doing.

So, you know, buy $40 of these kinds of essentials and get a $5 gift card.

They're doing a lot more of that kind of promotion to pull people in.

But one of the issues is that they talked today about inventory and having to adjust and right-size their inventory.

And that's a little bit concerning because that's been a topic that has, it's not new for Target.

this stock seems cheap to me is it cheap on a historical basis or how are people thinking about valuations

But how about the mom and pop retailers out there on Main Street USA? How tough is it going to be for them, do you think?

It's incredibly tough, Paul, because the mom and pop retailers, it's usually only a handful of employees.

It's a very set type of inventory that they carry.

They don't necessarily have the ability to flex in and out of different product categories to lessen the impact of tariffs because they're usually known for a particular type of product.

which is why their customers come to them.

And so they're very reliant also on getting goods either directly or through third parties that are imported.

And so there's just very little room in their operations to be able to offset the pricing that's going to come with these tariffs.

Kroger or some big grocery store and, I don't know, Kraft Food comes in and says Cheese Whiz is going to be 10% or 15% higher price to you, Kroger, because of tariffs, how does that conversation go? Who's got the leverage there? Who eats it? Who takes it? How does that go?

What are they saying about the chicken population these days and eggs and all that kind of stuff? Because they're the folks that know.

Yeah, so the chicken supply is actually pretty healthy.

From a standpoint of the chickens that are used for consumption, they really weren't impacted all that much by avian influenza.

And so that was the good news.

The bad news is that the mortality rates on the type of chicken that they're currently using is still pretty high.

So that means that they're not getting as many chickens into the processing plants that they normally would given the number of eggs that are being laid.

And so that is an inherent top or cap to supply.

Has that trend for these guys shifted now?