Yahoo Finance Live anchors discuss notable takeaways from Walmart earnings.

Video Transcript

AKIKO FUJITA: Let's kick things off with retail earnings, though. We did get some numbers out from Home Depot as well as Walmart. Walmart certainly the big one, Brian, given that they had warned in advance about a hit to profit given what they've been seeing, especially on the inventory picture.

But the numbers here looking good, at least we're seeing the stock up about 6% here. Total revenue was up more than 8%, some of that driven by inflation and higher prices on food and other items. We should point out the company reiterated its forecast for the second half of the year, same-store sales now expected to grow by roughly 3%. Adjusted earnings per share expected to decline 9% to 11% for the full year.

Brian, we always look to Walmart, obviously the biggest retailer here in terms of a bellwether of where the consumer sentiment is right now. A lot of similar things that we heard from the previous quarter, they're talking about customers coming in, trading down on items. They've also got more and more customers coming in from the higher-income bracket, something they pointed out there.

And then, of course, inventory, I'm looking at the number there, it was up 25% in the quarter, which continues to be the story. They have to slash prices. They have to clear inventory ahead of the holiday season.

BRIAN CHEUNG: Yeah, and I think that, broadly speaking, the story is that Walmart kind of beat the Street's expectations. Now, the question is whether or not the Street's expectations--

AKIKO FUJITA: Were so low.

BRIAN CHEUNG: --were so low because of the May statement that they had where they warned that their revenues might not be as hot as some had expected for this particular quarter. That was a reason why the stock, which by the way, was about $160 a share earlier this year, ended up dropping to as low as $120. But now, hey, they beat the estimates, right. So that's why shares are back up again about 6% today.

AKIKO FUJITA: You could argue that's why they put out the warning ahead.

BRIAN CHEUNG: And that's maybe one strategy that you might see other types of companies start to deploy into the next few quarters as well. But look, at the end of the day, we still have to talk about Walmart as Walmart. As you mentioned, right, the inflationary story should be good for a company that's known for its relatively lower prices.

And again, Doug McMillon saying it straight-up in the statement, "we're pleased to see more customers choosing Walmart during this inflationary period." Also interesting to note they had record member accounts at Sam's Club, so a lot of people still trying to buy in bulk. And obviously, those membership revenues a lot stickier and probably more reliable to lean on for future quarters.

AKIKO FUJITA: Yeah, it is about being a little more price conscious and buying in bulk. The other thing I thought it was interesting, the CFO saying about the trade downs that are happening, but also seeing that consumers are opting for smaller packaged goods and also paying more in credit card instead of debit card. And that, I think, points to sort of consumers being a little more aware about their spending, potentially maybe putting it on their card to pay it down later. All these things that we sort of look to see, well, where exactly is the sentiment and is the concern for a recession real?

BRIAN CHEUNG: Well, and I think that when it comes to Walmart, it's just so important to remember that this is the nation's second-- I think it's the second largest or the first--

AKIKO FUJITA: After Amazon.

BRIAN CHEUNG: --largest employee-- yeah, largest employer, Amazon and Walmart kind of trade spaces there. But in addition to being the largest employer, they have a really good pulse on the overall American consumer because of, as you mentioned, trends and how much they're needing to rely on debt, for example, or credit cards to finance the transactions at the stores. I'd also be interested to see any sort of data on, like, layaway, for example, that's not necessarily something that they had on the earnings call, nor did they talk about-- they only update, I think, about once a year how many employees that they employ.

But at the end of the day, I think that the story for inflation will remain the same because even if, let's say, for example, the overall CPI numbers start to come down later this year, remember, prices are not going down. They're just going to go up at a slower rate. So I don't think that takes momentum out of people who have made the trade-off, for example, going to Whole Foods, right, for higher-income people who have decided to go to Walmart. Just because inflation goes down to 6% doesn't mean that they're going to start to go back to Whole Foods again, right.

AKIKO FUJITA: Well, and this is something we were talking about before the show in terms of the market share gains they made in the quarter in the food category. You know, 3/4 of that, according to Walmart, came from households that made $100,000--

BRIAN CHEUNG: Higher income, right.

AKIKO FUJITA: --or more. And so as we were saying that, look, is this sort of the trade-off that's happening? You're having Walmart customers who are already in the door trading down, but you've also got more cost-conscious customers who are saying, maybe I don't necessarily need to shop at, let's say, a place like Whole Foods that has a higher price point. Maybe I'll explore Walmart to see how much cheaper it can be.

BRIAN CHEUNG: Yeah, and obviously, a lot of people making the switch between where they're shopping, but also remember that people who are already existing and have been loyal customers to Walmart, the CFO saying on the call customers trading down from deli meats to tuna and beans. So there's a lot of that trade-off happening inside their own-- even the lower-income customers as well, something definitely worth watching. By the way, Target we're watching later this week as well.