Is AI the Answer to Big-Box Retail’s Woes?

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors 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.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Aug. 20, 2026.

Tyler Crowe: 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. Today, I'm joined by longtime Fool contributors, Jon Quast and Matt Frankel. 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. 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 haven't been reporting this week. We have 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 some of the numbers that you saw, and what were some of the reactions that you thought of when you looked at these numbers?

Matt Frankel: 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. 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 for the second quarter. Home Depot, for example, reported its strongest comp sales number 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's running around 3%. This was actual real growth ahead of the inflation rate, so that's nice to see.

Walmart was the disappointment and an outlier here. Comps were 2.6%. They fell a little short of expectations. I'm not even sure they beat inflation as did their third quarter guidance. That was the disappointment. This was somewhat of a surprise to me. I expected Walmart to be a little more resilient in times of uncertain consumer spending. 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.

Tyler Crowe: Jon, this actually 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 the 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 pushing price to increase margins.

Jon Quast: Let me start with that revenue number that Matt was talking about, because it was the more disappointing number among the retail players. It is interesting that all these retailers talking about the tariff refund. Of course, all these tariffs that were levied upon them, those have been annalled, the government had to give them back. Companies like Lowe's, for example, mentioning that its competitors, in light of receiving that check, leaning into lower prices. Whereas Lowe's saying, "Hey, we're just going to actually maintain those prices." Walmart is on spectrum of, "Hey, let's use this tariff to be more competitive on price, yet again." That is really Walmart's MO. We are the low price leader. Not using those tariffs and just dropping it down to cover other expenses, saying, "Hey, we're actually going to use this to compete on price." Maybe that's contributing to the little bit of a lackluster revenue number if other competitors are 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 and why Walmart has been a good performing stock, in my opinion, over the last few years, operating income growing faster than revenue. 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, that makes a big deal on the bottom line. Walmart has been increasingly offering digital products; it's been selling digital things. It's a digital business. You look at advertising, and 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. E-Commerce and Walmart Plus, these are digital offerings as well that do help that profitability, and Walmart's been executing this playbook really well over the last several years.

Tyler Crowe: It's obviously working because like you said, the profitability at 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 to this 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, took up everybody's discretionary spending, but it does tend to be a very large price signal for what people are willing to do. Gas prices started to go up. Maybe people make a fewer discretionary spend items just simply because of seeing that as like a signal of, maybe things are going to get a little bit more challenging. Is that showing up in the numbers here?

Jon Quast: It's at least showing up in management commentary for sure, because the the thing was, are you going to pass through this tariff refund onto the consumer or onto your customers, and several of these companies saying, no, not directly because actually, our costs have risen pretty substantially. 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 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. 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." It is real. 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 just double down on the things that you need.

Tyler Crowe: One last question is we're getting out 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. Customers using them to make discretionary purchases for them or things like that. From a personal, thinking about it, investing standpoint, I can certainly see that from a business to business transaction. That's much more process purchase what you need. But from a consumer standpoint, I'm struggling to see how that works. Now, obviously, there's a lot of digital companies doing it. Amazon is 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 it still very much, I don't want to say early innings. We'll call it the picture still warming up phase.

Matt Frankel: Walmart already has an agentic shopping app. I think it's called Sparky. Amazon has one too. It's not a big box, but online retail. There's two sides of the story here. There's discovery, and there's actual purchases. One study I read said about 60% 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, we're in the low teens to, 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. 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 reverse the transaction or do you have to do my least favorite part of online shopping and get the package, process or return, bring it to your FedEx store? It's a trust issue.

Agentic shopping is working mostly for repeat purchases or things you don't really have to consider, say like subscription products, groceries, an agent could reorder my laundry detergent once every couple of weeks. That's where it's working. No one's using an agent to say, "Pick a couch for me and buy it." That's really the big trust factor in that do I have an easy process to veto the purchase if I don't want it? 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. It's like what happens first scenario.

Jon Quast: 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 My Lowe, Home Depot highlighting My Apron. They're all talking about it. I think it's a little cheesy, but the one company that is really leaning into AI here is Target. Target is actually hiring a chief AI officer. I think 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 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 map points out for discovery, but you're completing the purchase within an app. Target really leaning into this, both Google and OpenAI are partners here.

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 3.5 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.

Tyler Crowe: 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 better names here.

Coming up after the break, we're going to dip into the autonomous delivery market. Even though we're in our earning 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, Jon, you brought this one to the planning meeting this morning so we could dive a little bit more into autonomous delivery. This may be the first time that people are hearing about the company's Zipline. Can you give us the skinny on what Zipline does and what this Uber deal look like?

Jon Quast: Some people 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. 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 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 has 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 just drop it off. But it's a 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. It was trying to basically find customers, find a use case to build out proof of concept. But Zipline's goal has been what it's partnering with Uber here to do. 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, 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. An interesting way to do this, and I could see it taking off.

Matt Frankel: 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 is targeting one 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 Jon 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. I read that the average Amazon drone delivery cost the company like 30-$40. But at scale, could it improve to the point where it makes economic sense to do one million draw deliveries per day and be profitable without passing on $30 a delivery or whatever the cost is to customers?

Tyler Crowe: 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, uneconomical for reasons one reason or another. 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 more data points to make it more accurate and things like that. Similar to what we were talking about with Agentic AI is like that chicken and egg sort of situation like 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.

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 working out as planned, and it was a partner with ground-based autonomous delivery robot companies, Serve Robotics. But unsurprisingly, Uber and Serve didn't renew their agreement, and that actually ended last week. I don't think it's a coincidence here that these two stories, they hey, we ended our agreement with Serve Robotics, and we signed this big deal with Zipline, excuse me, right happening around the same time. It can't be a coincidence. Drone delivery autonomy, these are challenging markets. Who's winning, who's doing well. It seems like these partnerships and agreements can come and go at any given time. Guys, as investors, clearly, this is an exciting industry 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?

Matt Frankel: 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. Things like free overnight shipping don't kill their profits and actually make sense economically. I'm wondering if it's going to be that big of a curve when it comes to 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. There's going to be big regulatory hurdles that will need to be addressed. 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 is doing it right with several big partnerships before they even really launch.

Jon Quast: 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 100 million autonomous miles. It has already been doing drone deliveries at scale in a niche industry for a while. 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 start up proof of concept thing. I think it's ready to take that next step as far as adoption goes. One of the things you asked, what are you looking for? 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, the normal way we are 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.

Interesting that Uber CEO Dara Khosrowshahi; 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, one of its big mots is, it's logistics. It's the shipping. 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 that is actually something that could erode at a infrastructure, a logistics mote? That would be interesting. But let's also put the counterbalance to this. 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. It could get stuff to people in 30 minutes. That's really big. But Prime Air 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. Maybe there's still a few kinks to work out.

Tyler Crowe: This is certainly going to be a story worth following. I got to say earlier in the segment here, kudos to you for the taking off pun because I don't know who else picked up on it, but I enjoyed that one. Just a final thought here, it's really interesting to think of Uber, once we thought of the company that's going to disrupt taxes. 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 with a break, we're going to dip into the Mailbag. [MUSIC]

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Tyler Crowe: Hey, everyone, just a quick reminder, we love answering your questions on air. If you do have a question for us, email us at podcast@fool.com. We also left the email in the show description. If you want to email us, get us there, prerequests as always. No. 1, 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.

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." You know what, Irina, thanks. It's great to hear that you enjoyed us. 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. The ticker is now AGNT. I love the thesis. It was a 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 went sideways. So far, it's been not a rewarding experience, except for the dividend, but that doesn't seem sustainable unless something changes. Be great to hear Matt's current thoughts in the company in light of Berkshire Hathaway going bullish on the building industry. Is it maybe a good time to bring AGNT back to the table, or does it seem like a loss cause? Thanks, all, Irina."

Matt Frankel: For simplicity, I'm going to refer to it as the eXp. That's still the brand name they use. The real estate market does remain "frozen," as Home Depot's CEO recently put it. But there are a few real things to unpack here, both good and bad. On the upside, eXp, their models 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 third, revenue grew 11% year every year. Sales volume grew by 15%. I promise you, home sales volume overall didn't grow by that. They're gaining share. Adjust at either 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 GAAP profitable, we'll get to that in a second. They are cash-flow positive. Their dividend is well covered by their cash flow.

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 Lennar 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. The bottom line is I don't necessarily think the company's 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.

Jon Quast: Matt, this isn't the only platform out there that is 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, it has it 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 leftover for the company or by extension, the shareholders. Do you think that's what's going on here?

Tyler Crowe: I'm going to pile on that, too, because we're talking about the new brokerages as not necessarily being shareholder friendly, but RE/MAX and Century 21 have been publicly traded for a long time, too, and those aren't exactly killing it from a shareholder perspective, either.

Matt Frankel: I understand. 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. The reason that both companies are not GAAP profitable is because they offer not only better commission splits, they offer equity awards to every employee or every agent in their system. That's eXp's big value proposition. It's not just stock-based comp for the people at the top. It's throughout the company. It's a pretty large amount, considering the size of the company. That's why they're not gap profitable. Their gross margins are not doing great, but they're OK. 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 shareholder unfriendly, although the stock-based comp is a little bit high as a percentage of revenue compared to what I would like to see. But if we get a great market, the company rebounds, then we're having a completely different discussion a year or two from now.

Tyler Crowe: I think the last couple of conversations we've had with housing, that has been the same thing. It's like, when the housing market recovers, but I feel like we've been saying that for a few years now. We'll just be, I don't know, waiting for Godot for that thing to happen for a while. 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 they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what's here. All personal finance content follows Motley Fool editorial standards, it 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 now. Thanks for Bart Shannon, and the rest of The Motley Fool team. For Jon, Matt, and myself, thanks for listening, and we'll chat again soon.

Jon Quast has no position in any of the stocks mentioned. Matt Frankel, CFP® has positions in Amazon, Berkshire Hathaway, and Shopify and has the following options: short January 2028 $170 calls on Shopify. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Chipotle Mexican Grill, DoorDash, Home Depot, Lennar, Microsoft, Shopify, TJX Companies, Target, and Walmart. The Motley Fool recommends Lowe's Companies and Uber Technologies and recommends the following options: short September 2026 $35 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.