Wall Street Breakfast Podcast: TGT, WMT Preview; DIS Review


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Listen below or on the go on Apple Podcasts and SpotifyCatalyst watch for the week of August 13. Seeking Alpha Senior Executive Editor Kim Khan on what investors can expect when retail sales and housing starts and permits numbers are released. (00:26) Julie gives a brief earnings preview of Walmart (WMT), Target (TGT), and Applied Materials (AMAT). (01:43) Kim shares insight on what investors may not have expected from Disney, the rationale behind the Disney+ price increases and the rumor that is not going away? (02:24)

Julie Morgan: Kim, next week, it’s that time again to find out about retail sales.

Kim Khan: Yeah. I mean, it’s finally a quiet week on the economic front, as far as at least Fed watchers are concerned. We’ve made it through two big numbers, the CPI, just today when we’re recording and then nonfarm payroll last week without too many speed bumps into the Fed’s plan.

So people are going to be pretty confident going into next week, but there’s nothing that’s going to really shake them up. But it’s still a good gauge of where the economy is going and how the consumer is holding up.

We’re going to look and see how many companies points to adverse weather conditions, not sleet and snow this time, but people staying at home because it’s just so darn hot. That’s out on Tuesday. And the next day we have the latest housing starts and building permits numbers, that’ll give us an indication on the housing market.

And an interesting thing I saw was from Wells Fargo who I’ve noticed ties the two things together saying that an unexpected tailwind for the consumer could be the amount of equity that’s built up in people’s homes. And their note says that homeowners have more equity in their homes today than they did at any point in the 35 years between 1987 and 2022.

Now, of course, if they draw that equity out to spend, it’s going to be expensive, given where interest rates are, but it’s going to be a lot cheaper than, say, putting it on a credit card. So that could be a tailwind to keep people and consumer demand higher.

JM: So now let’s talk about earnings. Today, we’re covering three companies. Walmart and Target, of course, they’re always together, and Applied Materials. They’re reporting – all reporting next week. Our Editor, Clark, tells me that Walmart is anticipated to benefit from a weaker consumer discretionary backdrop, while Target may lose market share. Investors will be watching for commentary on pricing strategies and potential student loan repayment headwinds.

For Applied Materials, Chris says, investors will be looking to hear about the impact of the U.S. imposed China export controls, and how that’s impacting business as well as the state of the global semiconductor recovery.

Now, Kim, we know that Disney reported earnings this week, and so there’s all kinds of news about Disney. But we’re going to start off with where they started off, which is ESPN Bet. They are getting into gambling.

KK: Yeah. I mean, they made a big deal with PENN, it kind of has an impact with Barstool Sports as well with their partner, but they’re trying to leverage that brand of ESPN that is just a global powerhouse still, but at the same time, their TV properties are struggling.

So they’ve got to find new avenues of revenue for that. Obviously, sportsbook is a very lucrative one. Getting into it, there’s I think 16 states now that they can get into that have legalized sports gambling, that they can tie into the ESPN properties, have it online, especially is going to be the big thing.

At a time when people seem to be still cutting the cord, still watching less TV, this was a big deal for them. But a lot of people also said that it might be a kind of distraction saying, “Oh, look at this big deal we got. Don’t pay too much attention to the earnings tomorrow.”

JM: Yeah, actually, you know what? That makes sense because it was like this big thing. It was actually my top story, the day before. But then we go to the following day, we look at earnings and we see that Disney has lost subscribers. Tell me this? Did you see that one coming? Is this something that has been a trend?

KK: It has been a trend for streaming services and trying to get the subscriber numbers to keep rising as much as the companies are wanting them to. A lot of it has to do with just the stiff competition in the space. And people are saying, only so many streaming channels I can watch in so many hours of the day for my TV viewing. Where do I draw the line? Do I swap this one out? Which one do I like better? And then you’ve still got a kind of like all powerful Netflix coming out with kind of must see programs. There’s Max.

And so, yes, a lot of people saw that coming. It was really how much. And then what they maybe didn’t see coming was that they’re saying, can begin to say, okay, we’re also going to raise prices here.

JM: Okay. So let’s talk about raising prices. When I think about, okay, you’re going to raise prices, in my mind, that means you’re going to lose customers because people are already paying so much for everything. I mean, inflation.

KK: Right. And it can be, like the straw that breaks a camel’s back for a lot of people saying, no, I just refuse, I’m done. But I think that they’re betting on the one, the brand. I mean, people like Disney. If you have kids, it’s tough to get rid of the Disney streaming channel that your kids are used to.

But also, I mean, if you’re just a Gen Xer and you want to see all the latest Marvel, we’ve talked about it on the podcast, you might say, okay, going up to $14 for no commercials for Disney, that’s about in line with what I’m paying for Netflix. So I’m willing to do it. That would be my guess if they’re looking at the numbers and seeing the attrition rate and saying, well, people are already there. They won’t want to drop off too much.

I mean, they all could also be looking at Discovery when they didn’t see too much of a drop off as it was expected when they rebranded HBO Max. So it might be like, once we’re in your living room, you’re going to have a hard time trying to get us out.

JM: And I got to be honest. I’m one of those people. It is going to be difficult to try to get me away from Disney+ because of some of the shows, the original content that I do enjoy, but it does make me think you have all these services, one on top of another. What was the point of cutting the cord?

KK: Exactly. I mean, sometimes, you do a tally at the end of the month. And remember, you’re also still paying for Internet. And all of a sudden you think, oh, how much was I paying for cable?

JM: Exactly. What about the Parks? I mean, Parks are usually busy. I live in Florida, I go to Orlando. I see so many tourists not knowing where they’re going. Tell me about the Parks segment.

KK: Well, the Parks are so important now that people are calling it Disney’s core business. And it’s no longer a movie studio. It’s a Parks business because it’s, I think this quarter was 75% of the profit came from Parks. They’re relying on it heavily. They do an excellent job executing with it. What they aren’t in control of is foot traffic, which latest trends seem to show or is dropping. There are some surveys out.

So especially over the July 4th weekend, saying, it was one of the lowest 4th of July as far as wait times for rides in recent memory. That’s going to send some shudders through the Disney corporate offices if that trend continues, there could be a number of reasons for why that is.

People are pointing to a lack of new rides coming out, even though they’re kind of rebranding some rides like Splash Mountain, there’s no big event ride for people to come to. There’s obviously weather as in – it’s boiling hot. There’s a price point. They raised prices to, I think, $285 for a two-day ticket for an adult.

So now, you’ve got just the parents upwards of $600 just to get into the park for a couple of days. And you’ve seen Disney doing a lot of discounting with hotels in the area and accommodation and food and things to try and get people back into the Parks.

JM: Anything else from Disney that really stood out for you, Kim?

KK: Well, the persistent rumor of Apple coming in and making this kind of huge bid for Disney, it’s not going away. The idea that Bob Iger is kind of stuck with what to do with streaming and stuck with content as a whole; I was talking to one of our analysts and investment group leaders, Victor Dergunov, earlier today, and he was saying that the content is something that Disney needs to fix. Apple would be happy to take it off Disney’s hands, I think, and try their luck at it. But I mean, it just seems far-fetched still.

JM: Well, it seems far-fetched, but it’s not going away. So that means we’ll probably be talking about it again.

KK: Absolutely.



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