Will Walmart Gobble Up Other Retailers’ Holiday Sales?

Summary

WSJ What’s News: “Will Walmart Gobble Up Other Retailers’ Holiday Sales?” – November 20, 2024

Hosted by Tracy Hunt for The Wall Street Journal

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Introduction

In this episode of WSJ What’s News, host Tracy Hunt delves into the contrasting performances of two retail giants, explores significant developments in the defense sector, analyzes market movements, and examines trends in consumer finance. The episode provides a comprehensive overview of the top business stories shaping the world today.

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Walmart vs. Target: A Tale of Two Retailers

Walmart's Robust Performance

Walmart reported impressive comparable US sales, increasing by 5.3% in the quarter ending October 25, compared to the same period last year. This growth underscores Walmart's enduring appeal, particularly in essential goods sectors.

Target's Struggles

Conversely, Target faced disappointing quarterly results, leading to a plunge in its shares and a lowered profit and sales forecast for the year. Columnist Jinju Lee attributes Target's underperformance to several strategic missteps, including stringent anti-theft measures that limited product availability and a lack of innovation in core categories like clothing and home products. Additionally, Walmart's success is siphoning market share from competitors, including dollar stores, as consumers prioritize necessities over discretionary spending.

Jinju Lee [07:17]: "Walmart has a natural advantage because the mix of things they sell is more heavily weighted towards necessities like groceries, whereas Target has a higher mix of sales in discretionary categories."

Market Implications

The divergent earnings reports highlight a shift in consumer behavior towards essential spending, benefiting retailers like Walmart that offer a broad range of necessities. In an environment where consumers are selective about their expenditures, only a few retailers are positioned to thrive.

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Defense Sector Developments: Utah Drone Company Secures Pentagon Contract

Teal Drones' Breakthrough

The U.S. Military has selected Utah-based Teal Drones, a relatively unknown manufacturer, to supply thousands of small surveillance drones. This contract, potentially worth around $260 million, marks a significant milestone for the company and signals a broader trend in military procurement.

Defense Secretary Lloyd Austin [02:00]: "The landmines that we would look to provide them would be landmines that are not persistent. You know, we can control when they would self-activate, self-detonate and that makes it far more safer eventually than the things that they are creating on their own."

Strategic Insights

Reporter Heather Somerville explains that these drones are intended for use by individual soldiers, enhancing their capabilities in surveillance and reconnaissance. The adoption of Teal Drones reflects the Pentagon’s emphasis on electronic warfare resilience, drawing lessons from Ukraine’s use of similar technology.

Heather Somerville [04:16]: "The drones that this company, Thiel, makes are similar in some respects to what Ukrainians have been deploying. But what's probably more important is that Thiel took lessons from Ukraine to harden their drones against electronic warfare."

Industry Impact

Despite this significant contract, the Defense Department remains a minor player in the U.S. drone market, accounting for less than 2% of total annual drone sales. The prolonged procurement process, spanning over 15 years, highlights challenges in aligning military needs with technological advancements.

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International Conflict: Ukraine Escalates with New Missile Deployments

Ukrainian Offensive Actions

For the second time this week, Ukrainian forces launched British-made Storm Shadow missiles into Russian territory, marking a significant escalation in the conflict. This development follows the recent authorization by the Biden administration for Ukraine to utilize U.S.-made Army Tactical Missile Systems (ATACMS).

Shift in U.S. Policy

The introduction of approximately 10,000 North Korean troops in Kursk has influenced the U.S.'s strategic approach, prompting Defense Secretary Lloyd Austin to announce the provision of anti-personnel mines to Ukraine. These mines are designed to be safer for civilians, addressing concerns over the lethal potential of Ukraine's current arsenals.

Defense Secretary Lloyd Austin [02:00]: "They're fabricating their own anti personnel landmines right now... that makes it far more safer eventually than the things that they are creating on their own."

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Market Movements and Corporate News

Stock Market Overview

U.S. markets exhibited mixed performance, with the Dow Jones Industrial Average closing 0.3% higher, the S&P 500 remaining flat, and the Nasdaq Composite slipping by 0.1%. Notable corporate highlights include:

• Nvidia's Surge: Nvidia reported a 17% year-over-year increase in sales, reaching $35.1 billion, surpassing analyst forecasts. The company's profits nearly doubled, reflecting the robust demand driven by the artificial intelligence boom.

• Legal Developments: Bill Hwang, founder of Archegos Capital Management, was sentenced to 18 years in prison on charges of securities fraud and market manipulation. Hwang has denied wrongdoing and plans to appeal the verdict.

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Consumer Finance: Rising Auto Loan Delinquencies

Increasing Delinquencies

Data from JPMorgan Chase indicates that delinquencies on auto loans have risen to 3.8%, the highest since 2010. Despite this trend, Wall Street remains unconcerned, as investors continue to purchase bonds tied to car loans, betting on the resilience of the U.S. economy to prevent widespread defaults.

Understanding Asset-Backed Securities

Reporter Vicky Huang explains that these bonds, known as asset-backed securities (ABS), bundle car loans and other debts into investment products. Higher-risk ABS offer higher yields, attracting investors confident in the economic stability and the financial robustness of higher-income borrowers who own additional assets.

Vicky Huang [10:52]: "These bonds are called asset backed securities... the higher level debt of asset backed securities tend to get lower ratings, but because the higher risk embedded, investors in those debt tend to get higher yields."

Investor Confidence

Wall Street analysts believe that the strong U.S. economy and the financial stability of higher-income consumers mitigate the risks associated with rising delinquencies among lower-credit borrowers. This confidence is reflected in the 17% increase in sales of bonds backed by the riskiest auto loans this year.

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Conclusion

This episode of WSJ What’s News provided a deep dive into the contrasting fortunes of Walmart and Target, significant advancements in defense technology, escalating international conflicts, notable market and corporate developments, and trends in consumer finance. The comprehensive analysis underscores the dynamic interplay between consumer behavior, corporate strategy, and broader economic factors shaping today's business landscape.

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Produced by Anthony Bansi with supervising producer Micah Kosmitis. For more insights and detailed discussions, listen to the full episode of WSJ What’s News.

Transcript

[Walmart Advertisement Voice]

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[Tracy Hunt]

It'S the tale of two retail giants. Target earnings disappoint a day after Walmart posts standout results.

[Jinju Lee]

Walmart has been so good at drawing customers in that Target might be something like a collateral date. Damage to Walmart's success and a little.

[Tracy Hunt]

Known Utah drone company wins a huge Pentagon contract. What would this mean for other US Drone manufacturers? Plus, more Americans are struggling to pay their car loans. So why isn't Wall street worried? It's Wednesday, November 20th. I'm Tracy Hunt for the Wall Street Journal. This is a PM Edition of what's news, the top headlines and business stories that move the world today. We'll begin with developments in Ukraine. For the first time, Ukrainian forces today fired British made Storm Shadow missiles into Russian territory. It's the second time this week that Kyiv has hit targets inside Russia with newly authorized western missiles. The Biden administration earlier this week gave authorization for Ukraine to use the U. S made army tactical missile system or atacms. Kyiv for months has been seeking authorization to use long range missiles to strike Russia. But President Biden, wary of escalating the conflict, withheld permission. But the arrival of some 10,000 North Korean troops in Kursk has shifted the calculus. Defense Secretary Lloyd Austin today also said that the US Would provide Ukraine with anti personnel mines, another measure the US has previously resisted. Austin said the mines are safer for civilians than the ones Ukraine is currently using.

[Defense Secretary Lloyd Austin]

They're fabricating their own anti personnel landmines right now. The landmines that we would look to provide them would be landmines that are not persistent. You know, we can control when they would self activate, self detonate and that makes it far more safer eventually than the things that they are creating on their own.

[Tracy Hunt]

Meanwhile, the US Military has selected little known Utah manufacturer Teal Drones to provide thousands of small surveillance drones. That's according to a regulatory filing and an army document viewed by the Wall Street Journal. Thiel was founded a decade ago by a teenage drone racer and has almost no record as a defense supplier. This purchase could give the company roughly $260 million in revenue in the coming years. WSJ reporter Heather Somerville covers technology and national security and she joins us now. So Heather, what does the military hope to do with these drones? What's the plan?

[Heather Somerville]

The plan for these drones is to provide them to platoons of soldiers in the army so that they can put them in backpacks and take them out and use them for surveillance and reconnaissance. And the idea is that they want to arm as many soldiers as possible with these drones so that they're basically part of their kit that they carry out and have with them at all times.

[Tracy Hunt]

These drones are actually very similar to what Ukrainians have deployed in vast numbers in the war with Russia. Is this a sign that the Pentagon is maybe taking a page from Ukraine?

[Heather Somerville]

The drones that this company, Thiel, makes are similar in some respects to what Ukrainians have been deploying. But what's probably more important is that Thiel took lessons from Ukraine to harden their drones against electronic warfare. And so the fair conclusion is that the US Military is recognizing in its selection of Thiel that the drones that it needs to be buying are drones that will perform in electronic warfare environments, because electronic warfare is going to be an inevitable element of wars going forward.

[Tracy Hunt]

So is the US Military turning now into a regular customer of American drone manufacturers?

[Heather Somerville]

While this army program that Thiel drones is now a part of is a really big deal for the US Drone industry, because of the size of the program, the army wants at least 11,700 drones, if not many more. It's worth pointing out that it's really an exception to the way the US Military works. The Defense Department is a very, very, very small customer of US drone manufacturers. It's less than 2% of total annual drone sales in the US that go to the Pentagon. It's also worth noting that the concept for arming US Soldiers with these type of backpackable drones dates back to 2009. It's kind of a war on terror idea that the army thought we need to get on this. And it was a long process. And here we are 15 years later with a final result. That's way too long. That is very, very, very long. And that's not going to work to keep these drone companies alive and to arm the US Military with the technology it needs going forward.

[Tracy Hunt]

That was our reporter, Heather Somerville. Thank you so much, Heather.

[Heather Somerville]

Thanks, Tracy.

[Tracy Hunt]

The bipartisan House panel probing sexual misconduct allegations against former representative Matt Gaetz declined today to release its report on President elect Donald Trump's pick for attorney. Attorney General. This sets the stage for an effort by Democrats to force a vote on the matter. The report was expected to be damaging to the 42 year old gates. Coming up, Target's holiday season starts with a lump of coal in its stocking. That's after the break.

[eBay Advertisement Voice]

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[Walmart Advertisement Voice]

One of the rarest. The last one I needed for my set.

[Tracy Hunt]

Shiny like the designer handbag of my dreams.

[Jinju Lee]

One of a kind. Ebay had it.

[Tracy Hunt]

And now everyone's asking, ooh, where'd you.

[Walmart Advertisement Voice]

Get your windshield wipers? Ebay has all the parts that fit my car. No more annoying, just beautiful.

[eBay Advertisement Voice]

Whatever you love, find it on eBay. EBay, things people love.

[Tracy Hunt]

Target shares plunged after the retailer today posted disappointing quarterly results and lowered its profit and sales goals for the year. But it's a different story at Walmart, which Yesterday reported comparable US sales that rose 5.3% in the three month period ended October 25th compared with a year earlier. Joining us now is Heard on the street columnist Jinju Lee. Jinju, both these retailers serve similar consumers, people looking for a good deal. Why are their earnings reports telling such different stories?

[Jinju Lee]

Walmart has a natural advantage here because the mix of things they sell is more heavily weighted towards necessities like groceries, whereas Target has a higher mix of sales in discretionary categories like toys, apparel, home products. And these days, consumers are really getting very choosy about where they spend money on and they tend to be focusing on necessities. What's interesting is that Walmart might also be taking away market share from dollar stores. Dollar stores are sort of places that lower income consumers go to for a quick in and out experience because the stores are much smaller. But Walmart seems to be winning that market share as well.

[Tracy Hunt]

So what's gone wrong with Target?

[Jinju Lee]

Based on what some analysts have said, one of the strategic missteps could have been locking up too many of their items to prevent theft. And then others have also pointed to perhaps not enough newness or excitement in some of their core categories like clothing and home products. Also, the larger thing might be that Walmart has been so good at drawing customers in that Target might be something like a collateral damage to Walmart's success. If we were in an environment where consumers were feeling great, then all retailers would be winning. But because consumers are so selective about where they spend these days, it's inevitable that only a few retailers will be winning.

[Tracy Hunt]

Jinju Lee is a columnist for the Wall Street Journal's Herd on the Street. Thank you so much, jinju.

[Jinju Lee]

Thank you.

[Tracy Hunt]

U.S. markets were mixed. The Dow closed 0.3% higher while the S&P 500 was flat. The Nasdaq Composite slipped 0.1%. Nvidia's sales surged in its latest quarter and profits nearly doubled, a sign of the strength of an artificial intelligence boom that has made the company the world's most valuable. Sales were $35.1 billion, the company said today, up by 17% from a year prior and ahead of forecast. In a FactSet survey of analysts, profit reached 19.3 billion. Also ahead of Wall street forecast, Archegos Capitol Management founder Bill Hwang today was sentenced to 18 years in prison. A New York federal jury this summer found hwang guilty of 10 counts, including securities fraud and market manipulation. Hwang has denied wrongdoing, and his attorney has indicated that Wong intends to appeal. More Americans are falling behind on their car payments, but Wall street isn't worried. Investors are snapping up bonds tied to car loans, betting that a strong US Economy will keep rising delinquency rates in check. According to data from JPMorgan Chase, sales of bonds backed by the riskiest auto loans to subprime borrowers hit nearly $40 billion this year through October, up 17% from all of 2023. And delinquencies on auto loans have been creeping up since the economy began reopening after the pandemic, hitting 3.8% in June, according to data from the Federal Reserve, which measures payments that are at least 30 days past due. That was the highest level since 2010. Joining us now is reporter Vicky Huang. So, Vicky, can you just tell us how these bonds work?

[Vicky Huang]

These bonds are called asset backed securities. Basically these are car loans. It can also be credit card debt or mortgages. These loans are put together and then they are sliced and diced into different trenches or levels. And the higher levels of these asset backed securities can get priority or be the first in line to receive payments. The lower level debt of asset backed securities debt tend to get lower ratings, but because the higher risk embedded, investors in those debt tend to get higher yields.

[Tracy Hunt]

So why aren't they worried about the risk of a collapse?

[Vicky Huang]

Wall street investors are not really worried about a collapse here, and that is because they believe that the economy is still very strong and the US Consumers are really the engine driving the growth of the US Economy. The Wall street analysts believe that the consumers with lower credit scores earning lower income, it's true that they are having difficulties making car payments and really struggling. The other side of it is that consumers with higher income and higher credit scores, while they are maybe starting to have some difficulties in making car payments, they still have other assets such as stocks and bonds. They own homes. So the Wall street analysts are not as worried about these consumers, who tend to make up a large percentage of the consumers we're talking about.

[Tracy Hunt]

Vicky Wong is a reporter for the Wall Street Journal. Thank you so much, Vicky.

[Vicky Huang]

Thank you for having me.

[Tracy Hunt]

And that's what's news for this Wednesday afternoon. Today's show was produced by Anthony Bansi with supervising producer Micah Kosmitis. And in case you missed it, we tried something new today. Our own chip cutter got ahold of something fellow WSJ reporters to run through the big themes that have stood out this earnings season. You can find what's news and earnings insights into banks, EVs, retail and AI right before this episode in the what's News feed. Take a listen and let us know what you think. I'm Tracy Hunt for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.