Motley Fool Hidden Gems Investing - Is AI the Answer to Big-Box Retail’s Woes?

Episode Date: August 20, 2026

The big box retailers are reporting earnings, and there are plenty of headwinds to discuss. But among the common themes this earnings season, these companies are leaning into AI (and AI assistants with cheesy names) to bring their businesses into the future. Tyler, Matt, and Jon also discuss drone deliveries before finishing the episode with a listener question about the next generation of real-estate brokerages. Have a question? Email us; [e-mail] Tyler Crowe, Matt Frankel, and Jon Quast discuss:- The tariff refund for big box retailers- What retailers are doing with AI assistants and agentic AI- Uber’s partnership with Zipline- Amazon’s big “splash” with drone delivery- Why AGNT stock hasn’t been a winning investment…yet Companies discussed: HD, LOW, TJX, WMT, TGT, UBER, AMZN, BRK.A, BRK.B, AGNT, REAX Host: Tyler CroweGuests: Matt Frankel, Jon QuastEngineer: Bart Shannon Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

The woes of retail earnings continue. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors, John Quast and Matt Frankel. So today on the docket, we're going to talk about drone delivery, which is becoming a big topic in the DoorDash and the Ubers of the world. And there's been a lot of deals going on in that market lately. And we're also going to hit some reader questions at the end of our show. But as we're getting started, we're still in earnings season. And a lot of the big box retailers have been reporting this week. We've had a sprinkling of them so far. Home Depot was on Tuesday. We discussed that. And the Wednesday

crew talked about Target's earnings yesterday. But we got a little bit more of a story with Walmart, Lowe's and TJX companies, the parent company of TJ Maxx. They all reported earlier today or after the close yesterday. Guys, a lot of stuff to cover here. But Matt, what were what were some of the numbers that you saw and what were some of the reactions that you thought of when you looked at these numbers? I mean, the big thing is that the headline numbers are deceiving tariff refunds. Pretty much every retailer got them. And it made the bottom line numbers look a little better than they should have. And the market knows that the market's not rewarding it by any means. But we'll get to that. There was a common theme of general strength

the second quarter. Home Depot, for example, reported its strongest comp sales numbers since the third quarter of 2022. Target, which is in the process of a turnaround, reported comp sales in the 3.8% ballpark, a nice improvement. TJX, they beat and raised 4% comp growth. And it's worth mentioning that inflation is running around 3%. So this was actual real growth ahead of the inflation rate. So that's nice to see. Uh, Walmart was the disappointment and kind of an outlier here. Comps were 2.6%. They fell a little short of expectations. I'm not even sure they beat inflation, uh, as did their, their third quarter guidance. That was a disappointment. And this was somewhat of a surprise to me. I mean, I expected Walmart to be a little more resilient in times of

uncertain consumer spending. I mean, in 2008, Walmart was the best performing stock in the S&P. and it was because of people needed to cut back and things were expensive. Walmart is the most important of all of these retailers, in my opinion. It gives a read on low to middle income households. And that's really my biggest worry in the economy right now. It's not how the people at the top are doing. It's how the people in the middle are doing. And Walmart is really a good indicator there.

So, John, this is actually kind of brings up an interesting point here, though, because revenue numbers were a little slow at Walmart. But one theme that has been pretty common at Walmart over the past several quarters or even last couple of years is that earnings have been very much outpacing revenue growth. What's been going on here? Because when I think about Walmart, I don't think of a retailer that's like pushing price to increase margins. Yeah. Let me start with that revenue number that Matt was talking about, because it was kind of the more disappointing number among the retail players. It is interesting that all these retailers talking about the tariff refund. So, of course,

you know, all these tariffs that were levied upon them, those have been annulled. The government had to give them back. And companies like Lowe's, for example, mentioning that its competitors, in light of receiving that check, kind of leaning into lower prices. Whereas Lowe's saying, hey, we're just going to actually maintain those prices. Walmart is kind of on that spectrum of, hey, let's use this tariff

to be more competitive on price yet again. And that is really Walmart's MO. We are the low price leader. So not using those tariffs and kind of just dropping it down to cover other expenses, saying, hey, we're actually going to use this to compete on price. So maybe that's contributing to the little bit of a lackluster revenue number if other competitors are kind of saying, hey,

we're not going to lower prices, we're going to keep them where they are. Now, to your question about the profitability, this is actually pretty important here in why Walmart has been a good performing stock, in my opinion, over the last few years. Operating income growing faster than revenue. So revenue down in the single digits, operating income growth in the double digits, that is a little bit unusual to see. And it's a big deal when you're talking about a company of this magnitude, when you're talking about a company with hundreds of billions of dollars in revenue, even just a single percentage difference in that profitability. I mean, that makes a big deal on the bottom line. So Walmart has been increasingly offering digital

products. It's been selling digital things. It's a digital business. So you look at advertising. I mean, it has a wonderful first-party data set of consumer behavior and data. This is something that it can use in advertising, and that's a high-margin business. Of course, it acquired Vizio so that it can have this connected TV platform as well and integrate that into the ecosystem. Also, Walmart Plus. I mean, e-commerce and Walmart Plus, these are digital offerings as well that do help that profitability. And Walmart's been executing this playbook really, really well over the last several years. it's obviously working because like you said the profitability of walmart's doing incredibly well

but to matt's point where walmart's a little bit slower one of the things that we could possibly attribute this to and to matt's point is the lower to middle income bracket tends to be the walmart shopper we have seen a pretty large increase in fuel prices now we're not going to say that this like took up everybody's discretionary spending but it does tend to be a very large price signal for what people are willing to do you know gas prices start to go up maybe people you know maybe to make a fewer fewer discretionary spend uh items just simply because like seeing that as like a signal of maybe things are going to get a little bit more challenging is is that showing up in the numbers here well it's at least showing up in management commentary

for sure because you know the kind of the thing was are are you going to pass through this tariff refund onto the consumer, onto your customers. And several of these companies kind of saying no, not directly, because actually our costs have risen pretty substantially. So we're going to take that tariff refund to offset the higher costs that we're experiencing. And in that way, it's going to benefit our customers. But I kind of thought that that was a little bit of, let's just say creative language, but I did look it up. According to AAA, gas prices up 31% in the last year, but diesel prices, and this is, let's say, material to these retailers, diesel prices up 50% over the last year. So there is a real cost increase here to the retailers. I

get why they're saying, hey, we're actually going to use this tariff to offset some of those higher costs. So it is real. And then the other side of that coin, not only is it costing the retailers more in expenses, but as you point out, that's also costing consumers. And so there is less spend available for discretionary purchases. You got to kind of just double down on the things that you need. One last question as we're getting out of here, because I feel like the sexy thing in retail these days, or the most popular thing that people are talking about is like agentic AI and using them as agentic commerce, you know, using customers, using them to make discretionary purchases for them or things like that. And I, from a personal, like thinking about

at an investing standpoint, I can certainly see that from like a business to business sort of transaction. That's much more process, you know, purchase what you need. But from a consumer spend standpoint, I'm struggling to see how that works.

Now, obviously, there's a lot of digital companies doing it. Amazon's doing it. Shopify is doing it. Are the big box retailers diving into this as much? And are they seeing the results of this? Or is this still very much a,

I don't want to say early innings, we'll call it the pitcher still warming up sort of phase yeah i mean walmart already has an agentic uh shopping app uh i think it's called sparky uh amazon has one too it's not a big box but you know online retail there's two sides of the story here there's discovery and there's actual purchases and and one study i read said about 60 percent of consumers are using agentic ai apps for discovery meaning comparing products researching products seeing what they need but when it comes to actually completing a purchase through an agentic AI or an AI agent, it's, we're in the low teens to, you know, in some

cases, the high single digit percentages of customers are actually using it. The real issue is trust. It's not the tech. The tech is there. You know, how do you set spending caps? What happens if your agent buys something you don't want? How easy is it to cancel that? Can you instantly, you know, reverse the transaction or do you have to do what my least favorite part of online shopping and get the package, process a return, bring it to your FedEx store. Uh, you know, so it's a trust issue. Agentic shopping is working mostly for repeat purchases or things you don't really have to consider say like, you know, subscription products, groceries, uh, you know, an agent could reorder my laundry detergent once every couple of weeks. Uh, that's where it's

working. No one's using an agent to say, okay, pick a couch for me and buy it. Uh, so that's really the big trust factor in the, you know, do I have like the, an easy process to veto the purchase if I don't want it? Um, but I mean, yeah, it's, they're definitely using it. It's definitely ramping up, but you need better data to make these work and you need consumers to trust them to get the better data. So it's kind of like a, uh, what happens first scenario. Yeah. As Matt points out, AI actually was a pretty major theme here for the big box retailers in the most recent quarter and Walmart highlighting Sparky, Lowe's highlighting Milo, Home Depot highlighting My Apron. So they're all talking about it. I think it's a little cheesy, but

you know, the one company that is really leaning into AI here is Target. And Target actually hiring a chief AI officer, I think that that is a really interesting thing. I think maybe even needed to start to coordinate AI visions across the company and make sure that we're all pulling in the same direction. We all kind of have the same goals here when it comes to AI, but Target really leaning into what you're talking about, Tyler, this agentic AI. And this is where not only are you using the AI, as Matt points out, for discovery, but you're completing the purchase within an app. And Target really leaning into this, both Google and OpenAI are partners here.

So with Google, the way that you do it, basically you're able to complete that purchase as you search through the Google AI assistance. With ChatGPT, it's a little bit different. Target builds its own app within OpenAI, but either way you can complete a purchase in that system. Target highlighting that it's agentic AI growing three and a half times the industry average.

Obviously off of a small base, but still, that might be something to watch and might be something that you see increasingly from the other players, or it might be something that Target is getting out in front here a little bit and leaning into a new way of shopping, and it could be a tailwind.

We could be seeing some early uptake here, but my one takeaway is the names that they're using are really giving off some, like, clippy vibes from Microsoft Word back in the 1990s. I really hope that they get some better names here. Coming up after the break, we're going to dip into the autonomous delivery market. new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on espresso.com when you're a mid-sized business

you need every competitive advantage you can get like an ai solution that works for you not against you sap grow is built with ai embedded at its core working across every system and it's ready to go from day one so you can hit the ground running. Bring it with SAP Grow, AI cloud ERP for any size business. So even though we're in our earnings season, we wanted to switch it up a little bit here because there's been a little bit of movement in the autonomous drone delivery industry. Specifically earlier this week, Uber partnered with autonomous drone delivery company Zipline and made an investment in a private startup company. I think the most recent funding rounds has them as like a $7 billion company today. Now, John, you brought this one to the

planning meeting this morning so we could dive a little bit more into autonomous delivery. And this may be the first time that people are hearing about the company Zipline. So can you give us the skinny on what Zipline does and what this Uber deal is kind of kind of look like? Yeah, some people maybe maybe have heard of Zipline because it did have a limited partnership with Chipotle Mexican Grill, but I became enamored with this company because of the work that it's been doing in the country of Rwanda. It has literally been able to save thousands of lives because of what it's doing. And that's not exaggeration. When you look at some of these remote places in Rwanda, some lives could be saved with a simple blood transfusion,

but those clinics, those remote clinics don't, maybe even don't even have electricity. And so they don't have the infrastructure they need to keep enough blood on hand to perform this simple medical procedure. Now, there is infrastructure in a bigger city such as the capital, and really that's what Zipline's been able to do. It's been able to, as soon as there's a need in a remote clinic, it's able to get the blood that it needs onto a drone, send that way out, and it can do over 100 miles round trip and get it delivered. Now, last I checked, it was using parachutes to kind of just drop it off. But it's a real, real benefit to a society like this where delivery infrastructure or even just storing blood on site is just not possible. And so really

cool company doing some great things in the world, in my opinion. But now really trying to, I mean, it was trying to basically find customers, find a use case to kind of build out proof of concept. But Zipline's goal has been what it's partnering with Uber here to do. And so Uber is going to allow customers in many cities to be able to choose drone delivery for a Uber Eats order. Now, what's interesting here is that basically a restaurant is going to be able to receive an order, kind of put out a little pad out in their parking lot. They can put the food there and the Zipline drone will fly from a hub to the restaurant

lower a basket on a tether and that's where it gets its name zipline it's going to lower that down scoop it up take it to the home that ordered it then lower that basket down again with the zipline and open it up leave it there and fly back to the hub get recharged and wait for its next order so kind of an interesting way to do this and i could see it taking off yeah i mean zipline already has some major partners it's still in the very early stages of actually monetizing the business, but it has partnerships with Walmart, with restaurant companies like Panera, like Chipotle. The company's targeting 1 million drone deliveries daily by the end of 2029. That sounds pretty ambitious, but with those partners, the order flow is definitely there.

I'm curious about the economics, and maybe John knows more about this than I do, but drone delivery so far has been a money loser for companies who have actually used it in the real world, including Amazon. You know, I read that the average Amazon drone delivery costs the company like $30 to $40. But at scale, could it improve to the point where it makes economic sense to do those, do 1 million drone deliveries per day and be profitable without passing on $30 a delivery or whatever the cost is to customers? Yeah, that seems to be the recurring theme with just about anything autonomous these days is where these early testing versions of it are in most cases is uneconomical for reasons, one reason or another, you know, maybe the manufacturing

isn't up to snuff so that it can build at scale. Maybe the AI or the autonomous software that it's using isn't quite there yet. And so, you know, more data points to make it more accurate and things like that. So lots of similar to what we're talking about with agentic AI is like that chicken and egg sort of situation. Like how does, how does one scale? Fortunately, companies like uber and amazon can throw lots of money at this stuff and sometimes it works out sometimes it doesn't and that's actually what i wanted to get at here because this isn't the first deal that uber has made with autonomous delivery companies i think around this time last year it partnered with an israeli drone delivery company called flytrex that hasn't been quite working out as

planned and it was a partner with ground-based autonomous delivery robot company serve robotics but unsurprisingly uber and surf didn't renew their agreement and that actually ended last week i don't think it's a coincidence here that they these two stories the hey we ended our agreement with server robotics and we signed this big deal with zip robotics or zip line excuse me uh right or happening around the same time that it can't be a coincidence so like drone delivery autonomy me, these are challenging markets, you know, who's, who's winning, who's doing well. And it seems like, you know, these partnerships and agreements can come and go at any given time. So guys, as investors, clearly this is an exciting industry that likely to do incredible things in

terms of growth, but what are you looking for in this industry as a, like, what makes it a good company in this industry? Well, I mean, as I mentioned a minute ago, I want to see that the economics work. If you remember when Amazon first launched two day free shipping, that was a money loser for the company for years. It did not make economic sense. Companies like Amazon and others have all invested a lot of money and a lot of time and research efforts in building out the logistic networks. So things like free overnight shipping don't kill their profits and actually make sense economically. So I'm wondering if it's going to be that big of a curve when it comes to, you know, drone delivery and robotics and things like that. But beyond that,

there are a few other questions I have. There's going to be a big regulatory runway. Right now, companies like Amazon, like Zipline, have regulatory permits to fly drones. There's going to be more regulatory hurdles when there's a million of these going through the air at any given time. So there's going to be big regulatory hurdles that will need to be addressed. And I'd like to see them build out their partnership relationships. The big lesson you can get from Serve is that being too reliant on any one platform like Uber Eats for your demand is not a long-term sustainable model. And Zipline's doing it right

with several big partnerships before they even really launch. Yeah. I mean, it's always so dangerous to say it's different this time in investing, but here's what's different with Zipline compared to some of the other ones that you brought up, Tyler, in my view. Zipline has already flown over a hundred million autonomous miles. It has already been doing drone deliveries at scale in a niche industry for a while. So it already has a lot of experience here and it is actually, I think, ready for prime time. I think it's ready to scale this technology in an Uber partnership, whereas some of the other companies are a little bit more startup proof of concept kind of a thing. So I think it's ready to take that next step as far as adoption goes.

And one of the things you asked, what are you looking for? Well, here's one of the things that I'm asking myself as I look ahead. Let's say that Zipline is ready for the big stage. It's ready for the spotlight. It is ready to scale up. And this is, let's say, how we are going to, the normal way we're going to be getting our food delivery here in the not-too-distant future. Let's say by 2030, it will be normal to get a delivery by drone. So interesting that Uber CEO Dara Khosrowshahi, he, let's just call him Dara. He said he wants to enable the small neighborhood business to compete with Amazon. You think about what Amazon's, one of its big moats is, it's logistics. It's the shipping, right? And what if Uber actually could help the small neighborhood

corner store compete with Amazon on that because it's so easy to get your product quickly to the customer by drone. It's a huge statement, probably unrealistic, but what if, what if that is actually something that could erode at a infrastructure, a logistics moat? That would be interesting. But let's also put the counter balance to this. Okay. So Amazon also this week announcing Prime Air expanding to 500 cities by the end of the year. Now the company says that about 60% of its orders could be handled by drone right now. When you look at the size, weight requirements all that and it could get stuff to people in 30 minutes that's really big okay but uh primary isn't off to a great start here a lady in texas got her first delivery

dropped into her swimming pool and she was not happy about that so uh maybe there's still a few kinks to work out this is certainly going to be a uh a story worth following and i got to say earlier in the segment here kudos to you for the the taking off pun because i don't know who else picked up on it, but I enjoyed that one. And just a final thought here. It's really interesting to think of, you know, Uber, once we thought of the company that's going to disrupt taxis going into the, we're going to take on Amazon's logistics business. Certainly an ambitious statement, but definitely not something we saw with Uber when we got started. Coming up after the break, we're going to dip into the mailbag.

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So if you do have a question for us, email us at podcasts at fool.com. We also left the email in the show description. So if you want to email us, get us there. Free requests as always. Number one, keep it foolish. Two, keep it short. And three, try to avoid personalized advice

because we can't do that without getting in trouble with the SEC. So today's question comes in from Irina Berova. And here it goes. Hello, my beloved fools. I am your loyal listener and a Stock Advisor subscriber for more than 10 years and from the Czech Republic. I've listened to every single episode and pretty much all of the Motley Fool podcasts since 2015. So, hey, you know what, Irina, thanks. It's great to hear that you've joined us. So here's the question, and this actually is directed specifically at Matt

Frankel. In the deep COVID time, somewhere around 2020, Frankel brought to the table a cloud-based realtor called EXP Holdings. It's now changed. The ticker is now AGNT. I love the thesis. It was a win-win-win. Better fees split for agents, which means lower fees for the customer and loyal agents for the company. I bought the company and then added as the real estate market kind of went sideways. So far, it's been not a rewarding experience except for the dividend, but that doesn't seem sustainable unless something changes. It'd be great to hear Matt's current thoughts on the company in light of Berkshire Hathaway going bullish on the building industry. Is it maybe a good time to bring AG&T back to the table, or does it seem like a lost cause? Thanks all, Arena.

Yeah, so for simplicity, I'm going to refer to it as EXP, because that's still the brand name they use. The real estate market does remain, quote, frozen, as Home Depot's CEO recently put it. But there are a few real things to unpack here, both good and bad. So on the upside, EXP, their model's working. They continue to gain market share. You're gaining share of a declining market, but that's setting yourself up for success when things turn around. They just reported a record quarter. This is a real estate business we're talking about. In Q2, revenue grew 11% year over year. Sales volume grew by 15%. I promise you, home sales volume overall didn't grow by that. They're gaining share. Adjusted EBITDA more than doubled. Plus, they're a debt-free

company. They have $111 million in cash. This is a sub $800 million market cap company. They have that 4.2% dividend yield, but I wouldn't worry about sustainability. If they're not gap profitable, we'll get to that in a second. They are cashflow positive. Their dividend is well covered by their cashflow. I agree with that Berkshire angle. They're betting big on housing. They own Clayton Homes, which I can make the case is a $25 billion company all by itself. They just bought Taylor Morrison. They increased their stake in Lenar by 30%. They own one of the largest real estate brokerages, which by the way, is a direct competitor with EXP. Worth noting, existing home sales are more depressed than new homes, which Berkshire seems to be leaning a little

more into the new home sales. I mean, the bottom line is I don't necessarily think the company is a lost cause. It's a cash flowing business. It's gained market share. I would not expect market beating returns from the stock until we get a serious housing recovery. Matt, this isn't the only platform out there that is kind of billing itself as more agent friendly. One that I've kicked the tires on for a long time and never pulled the trigger on is Real Brokerage, that is ticker symbol REAX. But I wonder with both eXp and Real Brokerage, do you think that they're so agent friendly in how they structure things that it's not really paying off for shareholders?

Because the agents, they do get a huge cut and it doesn't leave much left over for the company or by extension, the shareholders. So do you think that's what's going on here? I want to pile on that too, because we're talking about the new brokerages as not necessarily being shareholder friendly, but Remax and Century 21 have been publicly traded for a long time too. And those aren't exactly killing it from a shareholder perspective either. I understand. And I'm going to use words here like stock-based compensation. That'll make smoke come out of Tyler's ears, but let's go for it anyway. So the reason that both companies are

not GAAP profitable is because they offer not only better commission splits, but they offer equity awards to every employee um or every agent in their system that's that's exp's big value proposition so it's not just stock-based comp for the people at the top they're you know it's throughout the company it's a pretty large amount considering you know the size of the company that's why they're not gap profitable i mean and their gross margins are not doing great but they're they're okay they're still solid companies both of them both have the same general plan of taking share from traditional brokerages by being generous. If we get a robust real estate market, it could pay off nicely. I wouldn't say that they're, you know, shareholder unfriendly.

Although the stock-based comp is a little bit high as a percentage of revenue, you know, compared to what I would like to see. But that could, if we get a great market, the company rebounds, then we're having a completely different discussion a year or two from now. Well, I think the last couple of conversations we've had with housing, that has been the same thing. It's like, well, when the housing market recovers, but I feel like we've been saying that for a few years now. So we'll just be, I don't know, waiting for good dough for that thing to happen for a while now. Well, that's all the time we have for today, guys. Thanks for sharing your thoughts. I'll hit disclosure and we'll get out of here. As always, people on the program may have

interest in the stocks we talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for briefs for Bart Shannon and the rest of the Motley Fool team. For John, Matt, and myself, thanks for listening, and we'll chat again soon.