Hightower's Stephanie Link on top retail stocks to own: COST, AMZN, WMT

Key Concepts

Walmart Q1 results, "meet and keep print," same-store sales, two-year stack, haves vs. have-nots in retail, tariff absorption, consumables vs. discretionary sales, Target turnaround, Starbucks China strategy, Dick's Sporting Goods acquisition of Foot Locker assets, UnitedHealthCare (UNH) guidance pull, repricing.

Walmart Q1 Results and Outlook

• Main Point: Walmart's Q1 results were strong, exceeding expectations, particularly in same-store sales. Stephanie Link believes Walmart is being conservative with its guidance.
• Specific Details:
  • Same-store sales were up 4.5% in the US, exceeding expectations.
  • This translates to a two-year stack of over 7.5% comp.
  • 72% of Walmart's sales are consumables, while the rest is discretionary.
• Key Argument: Walmart is a "have" in retail, winning and taking market share, similar to Costco and Amazon.
• Tariff Impact: Walmart is absorbing some tariff effects, with suppliers also trying to hold. They are managing the impact of tariffs on their business, which is two-thirds US and one-third China and Mexico.
• Guidance: Longer-term guidance is uncertain due to the evolving tariff situation.
• Comparison to Target: Walmart's focus on consumables (72% vs. Target's 50%) gives it an advantage. Target is considered "awfully cheap" but faces a more challenging turnaround.

Starbucks Strategy

• Main Point: Starbucks is exploring a partnership in China to address challenges in that market.
• China Market: China is considered a growth market but a "headache" for Starbucks.
• Internal Issues: Starbucks needs to reset on products, productivity, and labor costs.
• Financial Impact: Numbers are expected to come down in the near term.
• CEO Confidence: The CEO has a successful track record at Chipotle, but the turnaround will take time.
• Stock Valuation: The stock is not considered cheap.

Dick's Sporting Goods and Foot Locker Deal

• Main Point: Dick's Sporting Goods' acquisition of select Foot Locker assets is viewed with some skepticism.
• Mary Dillon's Track Record: Mary Dillon, formerly of Ulta (where the stock rose 243% under her leadership), is now at Foot Locker.
• Foot Locker's Turnaround: Foot Locker's turnaround has been painful and has a long way to go.
• Dick's Perspective: Dick's didn't necessarily need the deal. They have a great management team, execution, and margin improvement.
• Deal Details: The deal expands Dick's footwear business, providing more scale.
• Concerns: There are concerns about acquiring Foot Locker locations in malls.

UnitedHealthCare (UNH)

• Main Point: UnitedHealthCare (UNH) is considered "dead money" for the time being due to pulled guidance and repricing needs.
• Guidance Pull: The company pulled its guidance, making it difficult to assess the numbers.
• Valuation: The stock is trading at around 13-14 times earnings.
• Repricing: The company needs to reprice, with expectations for a fix by 2026.
• Market Position: UNH is still considered the number one company in the industry and "best in breed."
• Investment Strategy: Not selling at current levels, but not necessarily buying more either.

Synthesis/Conclusion

The discussion covers various companies and their current situations. Walmart is performing strongly, benefiting from its focus on consumables and effective management of tariffs. Starbucks faces challenges in China and needs internal restructuring. The Dick's Sporting Goods/Foot Locker deal is viewed with mixed feelings. UnitedHealthCare is facing headwinds and requires time to reprice and recover. The overall sentiment suggests a focus on companies with strong fundamentals and the ability to navigate current economic challenges.