Walmart is picking up higher-income consumers, something to pay attention to, says Cowen's Chen

Jair's Walmart are lower in pre-market trading. Big Box retailer posted profit and revenue above analyst estimates, but its outlook was short of forecast joining us. Fresh from the Walmart call is Oliver Chen, senior retail analyst and a managing director at Cal. And he's also professor of retail at Columbia University. Do I call you professor? Can I call you Oliver? How you doing, Oliver? It's good to have you on. I'm great being here. Good morning.

Do you know anything different than, or do you feel any differently than you did like last night before this came out? Is there anything, is there new information for you? What's really impressive is Walmart as an ecosystem. So what I mean there, advertising growing at 30% for the full year, reaching 2.7 billion. Also lots of progress on curbside and pickup. So thinking about Walmart as a tech-enabled company is really a key theme. Also, Joe, it continues to be a tale of different product categories resonating. For example, a grocery running at high teens, consumer discretionary running at negative mid-single digits.

So that's a key aspect which we'll continue to see. And Walmart's, I'm a luxury analyst as well. Walmart's picking up higher income consumers. That's something to pay attention to as well. And we're watching inventories every quarter. So Joe, inventories were flat. They were up double digit last quarter.

That's a much better position to be in. So we're encouraged by the momentum. And the consumer is being very choiceful. That's the right adjective in terms of the consumer facing some inflation pressure, yet having low unemployment. There are a lot of cross currents happening now in the broader consumer ecosystem. So if we were to try to extrapolate to the overall economy from Walmart, you don't see any negatives, really. Are there trouble spots? Are there storm clouds anywhere? There are storm clouds.

I would say discretionary. Discretionary businesses, home, electronics, apparel. Also gross margins were down due to taking markdowns and promotions. Everybody's looking to save money. So the focus here is value. And also, retailers have to manage inventory with a lot of agility. So we think there'll be winners and losers as we go forward.

High labor market's a key positive. Low unemployment's a key positive, too. OK. So at that point, we're just always coming back to the Fed. They're going to be on track for 50 or 25, you think, based on Home Depot and Walmart, Oliver. Yeah, I think what we have to watch here is really what happens with inflation and disinflation over time. Also, the unemployment figure is something we look at as a leading indicator of what's happening with the consumer.

We'll also hear target from target next week. We're more cautious on target. We have an outperform rating on both. But our caution and target is informed by what we're seeing negative trends in consumer discretionary. So the consumer being much more choiceful, much more discerning, is something that we'll see play out in retail at large. Also, the consumer is looking for lots of promotions, too. That's been a tough scenario for mall-based retailers in the peril, as well.

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