Latest / Bloomberg Intelligence / BI Weekend: US Banks, Domino’s, LVMH Earnings

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BI Weekend: US Banks, Domino’s, LVMH Earnings · Bloomberg Intelligence

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Speaker 2: Today, we'll look at why Wall Street's Vegas Banks report
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Speaker 2: quarterly earnings that surpassed almost all analyst expectations.
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Speaker 3: Plus look at how the tech company Oracle will commit
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Speaker 3: to the widespread use of AMD chips.
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Speaker 2: But first, We begin with some big news in the
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Speaker 2: tech sector because.
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Speaker 3: This week the AI research and development company OpenAI signed
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Speaker 3: a multi year agreement with Broadcom. It is to collaborate
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Speaker 3: on custom chips and networking equipment.
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Speaker 2: The plan is to add ten gigawats worth of AI
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Speaker 2: data center capacity, with the companies beginning to deploy racks
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Speaker 2: of service containing the gear in twenty twenty six.
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Speaker 3: OpenAI will design the hardware and work with Broadcom to develop.
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Speaker 2: It for more. We were joined by mandeep Seeing Bloomberg Intelligence,
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Speaker 2: senior tech industry analyst. You first asked man Deep, first
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Speaker 2: take on the latest deal.
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Speaker 4: Look, OpenAI is going after heading as much compute capacity
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Speaker 4: as they can, and they did. First ten gigawatts with Nvidia,
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Speaker 4: six gigawatts with AMD, and now ten gigawats with Broadcom.
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Speaker 4: And the difference here is with Broadcom they get to
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Speaker 4: use their own chips. Nvidia and AMD are what we
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Speaker 4: call merchant silicon. I mean that's basically generalized chips where
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Speaker 4: you can deploy the workload you want, whether it's from
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Speaker 4: OpenAI or Microsoft or any other vendor. In the case
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Speaker 4: of custom silicon, which is what Broadcom does, a company
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Speaker 4: like open AI or Google. Google makes up almost you know,
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Speaker 4: fifty percent plus of Broadcom's AI revenue. So Google has
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Speaker 4: their chip called TPUs. They use it for everything run
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Speaker 4: on Google's platform, whether it's YouTube, whether it's AI, whether
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Speaker 4: it's cloud. Everything inside Google's run on their TPU. So
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Speaker 4: OpenAI's strategy here is to use an approach which is
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Speaker 4: similar to Google TPUs because it saves you a lot
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Speaker 4: of money. I mean, imagine, an Nvidia AI chip costs
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Speaker 4: you thirty grand. A custom silicon that Broadcom is making
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Speaker 4: for Google costs you six grand. That's the cost differential
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Speaker 4: we are talking about. And it's not because has to
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Speaker 4: spend thirty grand to make that chip. They have a
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Speaker 4: seventy five percent gross margin on the chip that they're
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Speaker 4: selling to the customer. So Nvidia's cost is also low,
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Speaker 4: but they mark up the price of their silicon. Same
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Speaker 4: thing with AMD. In the case of Google, they are
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Speaker 4: going directly to Broadcom to make that chip at a
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Speaker 4: far lower price, and it's for their own use, which
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Speaker 4: is why they don't have to pay the markup to
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Speaker 4: Nvideo or AMD. And that's why having your custom silicon
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Speaker 4: strategy is so good because it really saves you so
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Speaker 4: one gigaw with Nvidia silicon would cost you about forty
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Speaker 4: to fifty billion. One gigawat with a Broadcom open Ai
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Speaker 4: silicon would cost you twenty five to thirty billion. So
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Speaker 4: if you're talking about you know, thirty to forty percent
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Speaker 4: cost differential, and it's huge, I mean in the context
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Speaker 4: of what these guys are trying to do, you know,
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Speaker 4: scaled infrastructure.
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Speaker 3: In addition to that distinction, there's also no investment or
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Speaker 3: stock component to this open Ai Broadcom deal, which makes
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Speaker 3: it different from the deal that it struck with Nvidia
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Speaker 3: and AMD. So I guess my question is how would
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Speaker 3: open Ai finance the purchase or the chips in general?
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Speaker 4: That's a great question because right now they have to
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Speaker 4: do a lot of financing. It's one thing that's a
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Speaker 4: common thread in the Invidia transaction where even though Invidia
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Speaker 4: is putting ten billion dollars in open Ai, they still
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Speaker 4: have to find the remainder of the money. So if
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Speaker 4: you imagine, you know, forty to fifty billion dollars per gigawatt,
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Speaker 4: ten gigawatts costume around five hundred billion, Nvidia is only
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Speaker 4: investing up two hundred billions, so they still have to
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Speaker 4: figure out the remainder of four hundred billion in the
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Speaker 4: case of AMD, I mean, yes, they are getting some stock,
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Speaker 4: but you still have to figure out the financing for that,
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Speaker 4: you know, three hundred billion or so. Here, it's the
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Speaker 4: same thing. You need the money. And open eyes bet
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Speaker 4: is if we keep ramping up our revenue, that is
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Speaker 4: obviously a big source of the funding. We'll do a
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Speaker 4: lot of private deals because we already have the buy
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Speaker 4: in from these big player whether it's Nvidia or Microsoft
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Speaker 4: and other sovereign providers. And I think it's a lot
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Speaker 4: of scale game right now, because once we keep hitting
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Speaker 4: our milestones, we'll keep raising more money. And that's the
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Speaker 4: hope when it comes to open air.
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Speaker 2: One name I hadn't heard during all this dance between
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Speaker 2: all these tech companies is Apple. Yeah, what's going on there?
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Speaker 3: Glaring absence exactly.
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Speaker 4: I think that's the right way to frame it. And look,
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Speaker 4: at some point, I think they are going to go
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Speaker 4: the broadcom route. Out of the three partnerships that Openei
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Speaker 4: has had, a company like Apple will never go for
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Speaker 4: merchant silicon. I mean, look at what they have done
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Speaker 4: in their own devices. It's all custom silicon. And that's
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Speaker 4: where if I had to pick a strategy for Apple,
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Speaker 4: it will likely be custom Silicon using Broadcom or Marvel
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Speaker 4: or one of these asay providers. But the hard thing
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Speaker 4: for them is because they have missed out all the
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Speaker 4: action in the past last three years, it's so hard
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Speaker 4: to catch up. Even if you throw money and you
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Speaker 4: know your capex dollars, the time is off the essence,
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Speaker 4: and the longer they delay this, I feel either is
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Speaker 4: Broadcom or a partnership with Google now that antitrust is behind,
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Speaker 4: so they may very well adopt Google's LM across their
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Speaker 4: huge That will be huge, But I think you know,
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Speaker 4: with the regulatory overhand going away, that could be a
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Speaker 4: very likely strategy.
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Speaker 3: Apple has a ton of cash. It can't buy its
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Speaker 3: way to a solution.
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Speaker 2: Here, what do you buy?
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Speaker 4: I mean these are all scale players, a broad coom.
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Speaker 4: Maybe you could say Marvel is a smaller player, but
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Speaker 4: you need the best and chips. That's why everyone is
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Speaker 4: buying Nvidia because they have the highest performance per what.
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Speaker 4: So you can't really get a second or a third
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Speaker 4: player because then you compromise on the performance per what.
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Speaker 4: When the biggest constraint out there is power, so you
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Speaker 4: know you need the leading later and it comes to
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Speaker 4: the chip side of the equation.
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Speaker 3: Our thanks to Man Deep Saying, Bloomberg Intelligence senior tech
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Speaker 3: industry analysts.
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Speaker 2: We moved next to corporate earnings from the pizza chain Dominoes.
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Speaker 3: Dominoes reported better than expected third quarter earnings this week.
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Speaker 3: They were fueled by demand for promotions and the stuffed
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Speaker 3: crust pizza.
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Speaker 2: From where we were joined by Michael Haylen, Bloomberg Intelligence
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Speaker 2: Senior restaurant and food service analyst.
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Speaker 3: We began by asking Michael to break down the latest results.
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Speaker 2: It was a great quarter.
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Speaker 5: I mean five point two percent same star sales in
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Speaker 5: the US, and everyone knows quick service restaurants, you know,
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Speaker 5: have been struggling due to low income consumer weakness.
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Speaker 2: They did it with stuffed crust pizza.
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Speaker 5: They were the only major national pizza chain that did
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Speaker 5: not have stuff crust pizza. So they added that to
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Speaker 5: the repertoire and this year and that that's boosted sales value.
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Speaker 5: This quarter was the best deal ever nine ninety nine
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Speaker 5: for any pizza and no matter how many toppings you
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Speaker 5: want on it, right, So giving people a discount that
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Speaker 5: they really want on an item they really want, and
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Speaker 5: then you know DoorDash, George is the first quarter they
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Speaker 5: were fully rolled out on door Dash and that has
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Speaker 5: really helped them take a chunk of that third party
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Speaker 5: delivery aggregator business, boosting same source sales.
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Speaker 3: Okay, that all makes sense, but is that sustainable, especially
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Speaker 3: the promotions like nine ninety nine, which definitely sound appealing
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Speaker 3: in this day and age. I mean, these campaigns might
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Speaker 3: drive volume, but at some point don't they erode profitability?
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Speaker 6: Well?
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Speaker 5: I think you know what we saw was margins were flat,
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Speaker 5: you know, so to your point, you know, but what
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Speaker 5: Madgeman said and what they're right about is that you know,
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Speaker 5: you don't take margin to the bank, you take dollars
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Speaker 5: to the bank.
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Speaker 6: Right.
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Speaker 5: And so they did this nine ninety nine deal and
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Speaker 5: they actually ran it longer than expected because franchises were
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Speaker 5: making so much money off of it, right, And so yeah,
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Speaker 5: they're willing to sacrifice a little bit of margin expansion
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Speaker 5: here for that track because it's making franchisees happy and
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Speaker 5: that's the key when running, when being a franchise or so, yeah,
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Speaker 5: I think this is sustainable, right.
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Speaker 7: They are.
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Speaker 5: They have only a fraction of the third party delivery business, right,
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Speaker 5: but they have a third of the pizza market in
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Speaker 5: the US. So that's a huge slug of business that
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Speaker 5: we think is a great opportunity that's going to continue
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Speaker 5: to build over time. You know, Uber Eats, it took
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Speaker 5: them quite some time to build some momentum there. This
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Speaker 5: was just the first quarter of being fully rolled out
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Speaker 5: on door dash, So we think it's going to have
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Speaker 5: a big impact over the next three quarters. But it
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Speaker 5: sounds like it can continue to build stuff Cruss Pizza, right,
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Speaker 5: this is something that's a permanent menu item. This is
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Speaker 5: not something that is you know, just a limited time
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Speaker 5: offer that's going to be run for a few weeks, right.
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Speaker 5: And then value, they have a bunch of different value
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Speaker 5: things they do these boost weeks, and they have a
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Speaker 5: tip promotion and so they run different value at different times.
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Speaker 5: But what they've done has been able to like, you know,
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Speaker 5: create a name for themselves and are owning certain type
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Speaker 5: of discounts that they run throughout the year. And so
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Speaker 5: I think that is important for national pizza players. It's
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Speaker 5: it's a business that's heavily weighted towards low income consumers,
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Speaker 5: and you know, to my point earlier, they're struggling right now.
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Speaker 2: So Mike, explain the economics or explain the strategy of
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Speaker 2: using these third party delivery of folks like Uber Eats
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Speaker 2: or door dash. What changed for Dominoes, for example? Why
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Speaker 2: would they not use them but then make the decision
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Speaker 2: to use them.
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Speaker 5: Yeah, great question. So you know, at first it was
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Speaker 5: really about the cost, right, And you know years ago
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Speaker 5: third party delivery companies were charging thirty percent plus Dominos
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Speaker 5: number one, they waited till the prices came down. Also,
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Speaker 5: their business is really just using the marketplace. They're still
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Speaker 5: using their own delivery drivers, right, and so they're able
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Speaker 5: to use door dash on for their marketplace and play
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Speaker 5: a much much lower vig to the company for the listing, right.
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Speaker 5: And so they were the last of all the major
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Speaker 5: pizza players and QSR names. They were the final holdout.
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Speaker 5: A big part of it was they were just so
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Speaker 5: big in delivery and they didn't want to cannibalize the
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Speaker 5: margin on that business. But what we're seeing is it
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Speaker 5: really dry transactions. This quarter, we saw positive same store
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Speaker 5: sales growth with carry out as well as delivery. They
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Speaker 5: saw same store sales growth with every income cohort. It
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Speaker 5: was a very strong quarter across the board.
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Speaker 3: You can count on people to not want to get
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Speaker 3: off their couch and always order in, and that's guaranteed
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Speaker 3: money made.
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Speaker 2: The only offspring that's still on my dole is my
11:41
Speaker 2: last guy. He's in college, and he knows he has
11:44
Speaker 2: to call me, text me. Does he to get pre
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Speaker 2: approval to use any third party deliveries because I hate
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Speaker 2: that cost?
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Speaker 3: Yeah, I mean, well as Gen xers and older, you know,
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Speaker 3: the thought of paying out extra for someone to deliver
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Speaker 3: food too is just so.
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Speaker 2: I haven't heard from him in like six months.
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Speaker 3: That's good progress. So, Michael, is Domino's attracting higher income
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Speaker 3: consumers who are perhaps trading down and looking for those
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Speaker 3: deals like the nine ninety nine pizza, and I wonder
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Speaker 3: how much more market share they can pick up that way.
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Speaker 5: Well, same store sales, to your point, did grow with
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Speaker 5: higher income consumers. They didn't talk about whether that's a
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Speaker 5: trade down naturally, though. You will see that from increasing
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Speaker 5: your third party delivery sales, right because those customers tend
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Speaker 5: to skew younger and skew more affluent.
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Speaker 2: So we do know that's kind of card.
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Speaker 5: Yeah, yeah, exactly.
12:37
Speaker 2: Thanks to Michael Halen Bloomerg Intelligence Senior restaurant and food
12:40
Speaker 2: service analysts.
12:41
Speaker 3: Coming up look at how the luxury goods maker LVMH
12:44
Speaker 3: unexpectedly returned to sales growth last quarter.
12:46
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Speaker 2: depth research and data on two thousand companies and one
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Speaker 2: hundred and thirty industries.
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Speaker 3: I'm Scarlet Foom.
12:57
Speaker 2: And I'm Paul Sweeney.
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Speaker 8: This is Bloomberg.
13:03
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
13:08
Speaker 1: on Bloomberg Radio.
13:10
Speaker 2: Return next to US bank earnings.
13:12
Speaker 3: This week, Wall Street's biggest banks reported third quarter earnings
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Speaker 3: that surpassed almost all analyst estimates.
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Speaker 2: They included Goldman Sachs, Bank of America, Morgan Stanley, JP,
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Speaker 2: Morgan Chase, and Wills Fargo. The results were driven by deals, investment, banking,
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Speaker 2: and market volatility.
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Speaker 3: For a closer look at Bank of America and Morgan Stanley,
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Speaker 3: we were joined by Alison Williams, Bloomberg Intelligence, senior analysts
13:30
Speaker 3: for global banks and asset managers.
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Speaker 2: First asked Alison what she made of Morgan Stanley's quarterly results.
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Speaker 8: Obviously, it's a strong environment for equities, especially the third
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Speaker 8: quarter was a very strong environment. We hit records multiple times,
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Speaker 8: including in the end of September. We had new records
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Speaker 8: earlier this quarter. But you know, as we know, when
13:50
Speaker 8: you manage a team, when you have that strong environment,
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Speaker 8: you want people that are going to take advantage of it.
13:54
Speaker 8: And I mean equities trading really jumping. We saw we
14:00
Speaker 8: saw strong growth actually at JP Morgan and Morgan Stanley.
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Speaker 8: Goldman trailing a bit so, raising maybe some questions about
14:07
Speaker 8: what happened there, but also equity fees Morgan Stanley doing well.
14:10
Speaker 2: And then the wealth.
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Speaker 8: Business, I mean that's really the focus for investors. Those
14:15
Speaker 8: flows really strong.
14:17
Speaker 3: Yeah, wealth management net revenue of eight point two to
14:19
Speaker 3: three billion, it was estimated to increase seven percent to
14:22
Speaker 3: seven point seven to eight billion, So that was a big,
14:24
Speaker 3: big beat. And this is the part of the business
14:26
Speaker 3: that Morgan Stanley has really been focused on to kind
14:30
Speaker 3: of separate it from Goldman Sex because this is the
14:32
Speaker 3: steady eddy business where it's fee generated, it's recurring, you're
14:36
Speaker 3: not dictated by the whims of the market and volatility
14:41
Speaker 3: and anything that could happen in any quarter.
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Speaker 6: Right.
14:43
Speaker 8: So, yeah, So to your point, that wealth and asset
14:46
Speaker 8: management tends to be more favored by investors because it
14:49
Speaker 8: does tend to be more of a recurring revenue model.
14:52
Speaker 8: You know, obviously if the market goes down twenty percent
14:55
Speaker 8: or up twenty percent, that has an impact on fees,
14:58
Speaker 8: but it's not parable to something like the underwriting or
15:03
Speaker 8: the pure transactional business. Recall the pandemic when things completely
15:06
Speaker 8: shut down. I mean, granted they recovered, but the fact
15:10
Speaker 8: of the matter is like it's less volatility, more recurring revenue.
15:15
Speaker 8: Investors like that fee income and they like sort of
15:20
Speaker 8: the relative stability of that business.
15:24
Speaker 3: So one thing that really jumped out at me, Allison,
15:26
Speaker 3: when I was looking at the earnings is the fact
15:28
Speaker 3: that all the bank's provision for credit losses Japan, Morgan
15:32
Speaker 3: set aside more than what analysts thought it would set aside.
15:35
Speaker 3: Golden Sacks set aside less. Morgan Stanley was estimated to
15:38
Speaker 3: have set aside ninety seven million. It ended up setting
15:41
Speaker 3: aside zero zero for bad losses bad loan losses. What
15:44
Speaker 3: does that say they did?
15:46
Speaker 8: And I mean for Morgan Stanley, lending is such a
15:48
Speaker 8: small part of their business. It's the least out of
15:51
Speaker 8: all the banks, So if you're going to see zero,
15:53
Speaker 8: you would see it there. But the one question we
15:56
Speaker 8: do have, which I think will become clear as we
15:58
Speaker 8: see many of the other bank report is you know,
16:01
Speaker 8: we're seeing a very strong consumer at these big banks,
16:04
Speaker 8: but is there differentiation in terms of the high end
16:07
Speaker 8: consumer or lower income consumer? A lot of these banks,
16:11
Speaker 8: you know, the focus really is on the higher end consumer.
16:14
Speaker 8: JP Morgan. They're despite a lot of the headline figure
16:18
Speaker 8: or headlines that came out from Jamie's comments. We look
16:21
Speaker 8: at the credit card business and the credit trends in
16:24
Speaker 8: that business super strong. Their charge off rate, they actually
16:28
Speaker 8: guided it down because they had to because the delinquencies
16:32
Speaker 8: are coming in, you know, so much lower. We know
16:35
Speaker 8: that JP Morgan really focuses on that Sapphire card, that
16:38
Speaker 8: high end card. So they are seeing a strong consumer.
16:42
Speaker 8: But will we see something different when we see some
16:45
Speaker 8: of the other card companies report.
16:47
Speaker 2: You know, when you think about it, the drivers of
16:48
Speaker 2: the investment banking business are pretty darn simple. Listen to
16:52
Speaker 2: chief executive chief financial Officer Alistair Borthwick. Here's what he
16:56
Speaker 2: told analyst on Wednesday. Quote, we've seen more certainty now
16:59
Speaker 2: around trade and tear and around taxes as well. It's
17:02
Speaker 2: a louder client base to make longer term decisions. That's
17:05
Speaker 2: reflected in our investment banking activity. Yeah, it's as simple
17:09
Speaker 2: as that, but again it's hard to predict kind of
17:12
Speaker 2: what those macro trends are going to be. Switching gears
17:14
Speaker 2: to the Bank of America, their bankers did really well,
17:18
Speaker 2: not that that's a surprise, but they put us a
17:20
Speaker 2: big growth.
17:20
Speaker 8: Rate, they did, and you know, to your point, Paul,
17:23
Speaker 8: I mean, you've been in this business, right, so the
17:26
Speaker 8: having clarity is generally helpful for the investment banking business.
17:30
Speaker 8: That's why we did see sort of a fall off midyear.
17:34
Speaker 8: But what we've heard from the banks and their bankers
17:37
Speaker 8: is that, look, clients are beginning to accept that there
17:41
Speaker 8: is some level of uncertainty they'll have to deal with.
17:43
Speaker 8: It's not going away necessarily anytime soon. So if you
17:46
Speaker 8: need to come to market now, it's probably a good time.
17:49
Speaker 8: And by the way, record equity prices fed cutting rates,
17:54
Speaker 8: you know, those are also helpful and bringing some of
17:56
Speaker 8: those deals to market. Bank of America, by the way,
18:00
Speaker 8: talking about their backlog up very strongly for the fourth quarter.
18:03
Speaker 8: So this momentum into this next quarter is likely to
18:08
Speaker 8: show up again in the in the fourth quarter results.
18:11
Speaker 3: So for Bank of America, it feels like investors were
18:13
Speaker 3: singularly focused on the net interest income number because it
18:17
Speaker 3: had not done so well just a year ago, and
18:20
Speaker 3: Bank of America was really focused on improving that. This
18:23
Speaker 3: was a big beat on the NII number here and
18:26
Speaker 3: they actually guided higher for the fourth quarter. The bank
18:29
Speaker 3: is going to hold its first investor day I think
18:31
Speaker 3: since twenty eleven next month. How does this set up
18:34
Speaker 3: Bank of America for this investor day?
18:36
Speaker 8: So I think they are set up well for the
18:38
Speaker 8: investor day. And keep in mind investor Day will be
18:40
Speaker 8: focused I think on the long term trends. We have
18:43
Speaker 8: gotten some management changes, some announcements related to succession planning,
18:48
Speaker 8: and I think, you know, Brian moynihan has done a
18:51
Speaker 8: great job with the bank. I think the investor day
18:53
Speaker 8: is really going to be focused on, you know, what
18:55
Speaker 8: is the look forward? And AI is something that we've
19:00
Speaker 8: heard a little bit about Bank of America talking about
19:02
Speaker 8: that this quarter, Goldman Sachs bringing out their three point
19:05
Speaker 8: zero program. Morgan Stanley actually had been talking about that
19:08
Speaker 8: with their cuts last year. How is AI going to
19:12
Speaker 8: contribute to the structural profitability of Bank of America? You know,
19:17
Speaker 8: so cyclical, some very strong trends' quarter structural they've done
19:22
Speaker 8: a good job, but what is next for the bank?
19:25
Speaker 2: I mean, I just forgot how big Bank of America is,
19:27
Speaker 2: and they meet They grew through so many acquisitions, two
19:30
Speaker 2: hundred and thirteen thousand employees. It's got a market cap
19:33
Speaker 2: of almost four hundred billion dollars. They seem like they've
19:38
Speaker 2: got the right mix of assets at this point.
19:40
Speaker 8: Yeah, So to your point, they did grow a lot
19:44
Speaker 8: through acquisitions under prior managements. And I think you know
19:47
Speaker 8: what Brian oinnihan has come in and said was they're
19:50
Speaker 8: really going to focus on organic growth. They focused on
19:54
Speaker 8: this strategy responsible lending. There's some noise around that when
19:58
Speaker 8: times are good, right because everyone said, well, are you
20:00
Speaker 8: being too conservative? But then when times are bad, that
20:04
Speaker 8: is really helpful to managing the downside. And that's one
20:06
Speaker 8: of the things that I think can give investors come
20:09
Speaker 8: for as we worry about recession risks in the coming quarters.
20:14
Speaker 3: Our thanks to Alison Williams, Bloomberg Intelligence, Senior Analyst for
20:17
Speaker 3: Global Banks and Asset managers.
20:19
Speaker 2: We move next to earnings from the luxury goods maker LBMH.
20:22
Speaker 3: This week, LVMH reported third quarter earnings that beat analyst
20:25
Speaker 3: estimates in all five business units after two quarters of declines.
20:29
Speaker 3: The rise of revenue and China sales also suggest that
20:32
Speaker 3: the slump and luxury demand might be easy.
20:34
Speaker 2: For more on this, we were joined by Deb Aik
20:36
Speaker 2: and Bloomberg Intelligence luxury goods analyst.
20:38
Speaker 3: We began by asking Deb for her take on LVMH's
20:41
Speaker 3: results and whether it signals that luxury is back.
20:44
Speaker 9: Really a very big sentiment indicator. The comments from the
20:49
Speaker 9: company were more positive than the market anticipated. When we
20:54
Speaker 9: look at the numbers in terms of the organic sales growth,
20:57
Speaker 9: the market expected around minus one minute plus one. But
21:01
Speaker 9: it's about the sequential improvement from Q two to Q
21:05
Speaker 9: three and the fact that all five of the business
21:08
Speaker 9: units are improved versus Q two, and more than that,
21:13
Speaker 9: China is mid to high single digit growth versus a
21:16
Speaker 9: year ago. The US is robust, Europe is doing the
21:20
Speaker 9: same as it did across the board, doing okay but
21:23
Speaker 9: missing out on tourism and Asia. Extra Pan is positive.
21:27
Speaker 9: We know four q US will face a bit more
21:31
Speaker 9: of a difficult comp after the spent in last year
21:34
Speaker 9: beyond the election and the Trump win. But into the
21:38
Speaker 9: first half of twenty twenty six, the market is looking
21:40
Speaker 9: more positive and it's certainly rallied the whole of the sector.
21:43
Speaker 9: This morning and this afternoon.
21:46
Speaker 2: Hey, dev, what's the correlation between luxury spending and just
21:49
Speaker 2: kind of the broader stock market around the world, Because
21:53
Speaker 2: markets are really performing well, how does that correlate to
21:56
Speaker 2: just luxury spending.
21:57
Speaker 9: The big thing on luxury spend has been that the
22:01
Speaker 9: very high end has done well, so Airmyre's Brunellokucinelli, where
22:06
Speaker 9: they work with a restricted volume operating model, They've done
22:11
Speaker 9: well in terms of their top line growth. But when
22:14
Speaker 9: I think about an LVMH, you know they're given how
22:18
Speaker 9: big they are, they need a big volume there, even
22:21
Speaker 9: with some price in to manage growth in this category.
22:24
Speaker 9: And instead, what we saw last year and the beginning
22:28
Speaker 9: of this year was maybe a little bit of trading down.
22:30
Speaker 9: So brands like Tapestry's Coach Ralph Lauren they became really
22:35
Speaker 9: so popular, not only in the US, but more on
22:38
Speaker 9: a globalized basis too. And so the view has been
22:42
Speaker 9: that the sentiment around the share prices has very much
22:46
Speaker 9: been opposed and opposite to what's been happening on the
22:50
Speaker 9: stock market, but with the exception of the mid range,
22:54
Speaker 9: and the mid range have done better because the view
22:56
Speaker 9: in the investor mindset has been the luxury buyer will
23:02
Speaker 9: trade down. They've done that in some brands, but not
23:05
Speaker 9: all brands, in some categories, not all categories, and generally
23:08
Speaker 9: we expect the biggest and the best to come back first.
23:12
Speaker 3: What about LVMH's wines and spirits division. We've been hearing
23:15
Speaker 3: from Constellation brands and other spirits companies that you know,
23:19
Speaker 3: there's been this massive shift in consumer tastes away from alcohol,
23:24
Speaker 3: certainly the younger generation. Does that affect a company like LVMH.
23:27
Speaker 9: So a different kind of thing with LVMH. I think
23:31
Speaker 9: at the very high end we had some US weakness,
23:34
Speaker 9: so they operate in wines, fine wines, high end champagnes, cognacs,
23:40
Speaker 9: and others. Champagne is doing well and is back to
23:44
Speaker 9: growth in the US. Rose Wine is doing very very well,
23:49
Speaker 9: but some of the spirit side is still struggling a
23:53
Speaker 9: little bit, and I think that's because we've seen some
23:57
Speaker 9: trading down. So we had China very heavily and the
24:01
Speaker 9: US not so solid through the first half the year,
24:04
Speaker 9: but there are signs of that coming back. If I
24:06
Speaker 9: look at the numbers on the Q three for wines
24:09
Speaker 9: and spirits, they're at plus one and they were at
24:11
Speaker 9: minus four for Q two and minus nine for Q one,
24:15
Speaker 9: So it seems as though inventory is leveled out and
24:18
Speaker 9: we're starting to see some selling.
24:21
Speaker 2: Deba I learned from you long ago, and looking at luxury,
24:24
Speaker 2: you have to also pay attention to what's happening in
24:26
Speaker 2: China and the Chinese consumer. Are the Chinese spending either
24:30
Speaker 2: in China or are they traveling to the London Parish,
24:33
Speaker 2: New York Milan type thing? What are you seeing?
24:37
Speaker 9: Yeah, we're still seeing a lot of the spend. We're
24:40
Speaker 9: getting mid high single digit growth in that Q three
24:43
Speaker 9: from alviw Majia onny is on localized spending. We are
24:48
Speaker 9: seeing pockets of growth on the tourism side. So there
24:52
Speaker 9: is a more positive view and mixed linked into the
24:55
Speaker 9: commentary from these results, but overall we are still absolutely
25:00
Speaker 9: the missing Asian tourist, Chinese tourists from Europe, and also
25:06
Speaker 9: in Europe, we're missing the strength of the dollar having
25:09
Speaker 9: swung over last year with US purchases here and you're
25:13
Speaker 9: you are seeing in some but not as many in
25:16
Speaker 9: terms of full recovery versus twenty nineteen. There's growth year
25:19
Speaker 9: on year, but not versus twenty nineteen into the USI.
25:23
Speaker 9: But when it comes to the Chinese tourist, we used
25:26
Speaker 9: to say a third of luxury goods just over we're
25:30
Speaker 9: on the we're from the Chinese cohort, and that would
25:33
Speaker 9: include on land and traveling right, and we still think
25:37
Speaker 9: there's a way for that to go, but certainly on
25:40
Speaker 9: land and locally they're doing better than they were.
25:43
Speaker 2: Oh thanks to deb Aik and Bloomberg Intelligence, Luxury Goods analyst.
25:46
Speaker 3: Coming up, look at why the global snacking company Kelenova
25:49
Speaker 3: is adding a jolt of protein to its big as snack.
25:52
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
25:55
Speaker 2: research and data on two thousand companies and one hundred
25:57
Speaker 2: and thirty industries.
25:58
Speaker 3: You can access Bloomberg Intelligence Big on the terminal. I'm
26:01
Speaker 3: Scarlet Foo.
26:02
Speaker 2: And I'm Paul Sweeney. This is Bloomberg.
26:11
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
26:15
Speaker 1: on Bloomberg Radio.
26:17
Speaker 2: We move now to news from the consumer good sector, because.
26:20
Speaker 3: This week the global snacking company Kelenova announced it'll offer
26:23
Speaker 3: a version of pop tarts with higher protein content. This
26:26
Speaker 3: will begin in November.
26:27
Speaker 2: The news comes this company start to add protein to
26:29
Speaker 2: food with hopes of louring shoppers who've moved away from
26:32
Speaker 2: highly processed products.
26:33
Speaker 3: In other news, the retail giant Walmart announced a partnership
26:36
Speaker 3: with AI research company open Ai. This deal would allow
26:39
Speaker 3: shoppers to browse and purchase his products on the AI
26:41
Speaker 3: chotbot chat GPT. For more on all of.
26:44
Speaker 2: This, we were joined by Jen bartashis Bloomberg Intelligence Senior
26:46
Speaker 2: retail analyst.
26:47
Speaker 3: We began by asking Jen for her take on Kelenova's
26:50
Speaker 3: protein boost.
26:51
Speaker 7: Really, what we're seeing is a lot of these package
26:53
Speaker 7: fry companies are tapping into this protein trend. It's something
26:57
Speaker 7: that consumers are really looking for. And at the end
27:00
Speaker 7: of the day, when it comes to PepsiCo or it
27:01
Speaker 7: comes to Kelenova, this is really about making people feel
27:05
Speaker 7: marginally better about eating food that is bad for them. Right,
27:08
Speaker 7: Let's let's just be honest about it, right, So you know,
27:12
Speaker 7: when you put protein on the package, people feel like
27:15
Speaker 7: even if they're making a bad choice. It's not as
27:17
Speaker 7: bad as it could have been. And that's really what's
27:19
Speaker 7: behind this.
27:20
Speaker 3: It's like the equivalent of vanity sizing at retailers. Right,
27:23
Speaker 3: you know, you're actually a size six, but we're going
27:25
Speaker 3: to tell you you're a size two so you feel better
27:27
Speaker 3: and buy more clothes. Is this as simple jen as
27:31
Speaker 3: just adding protein powder on top of the Kellogg's pop
27:35
Speaker 3: tarts excuse me, Kelenova pop darts.
27:37
Speaker 7: Yes, So what they've done is they've they've added protein
27:40
Speaker 7: into the pastry part of the pop tart and that
27:43
Speaker 7: changes the texture and the taste just a little bit.
27:46
Speaker 7: But what's really interesting is the consumer trend behind it.
27:49
Speaker 7: You know, we ran a proprietary protein study back in
27:52
Speaker 7: the middle of the summer, and what we saw was
27:54
Speaker 7: that almost forty percent of consumers eat something with protein
27:58
Speaker 7: enhanced whether it's a snack or a beverage, on a
28:01
Speaker 7: weekly basis, and you know, at at least thirty eight
28:05
Speaker 7: percent so that they're eating more protein enhanced products in
28:09
Speaker 7: the last three months. So clearly there's a consumer uptake,
28:12
Speaker 7: there's interest in this, and that's what these companies are
28:14
Speaker 7: really tapping into.
28:15
Speaker 2: Do I want more protein do I need more protein?
28:18
Speaker 3: I'm eating more egg whites, but that's because it's available
28:20
Speaker 3: at work.
28:21
Speaker 2: What are you doing, I don't know, use the same thing.
28:24
Speaker 3: Your goldfish do not have extra protein on them.
28:27
Speaker 2: Have extra protein.
28:30
Speaker 7: Neither of you are on GLP one drugs, right, But
28:32
Speaker 7: protein is a big solution for people who are on
28:35
Speaker 7: those drugs because you tend to lose muscle mass as
28:38
Speaker 7: a side effect of those drugs, and so as the
28:41
Speaker 7: uptake of GLP one goes up, there's more and more
28:44
Speaker 7: demand for these protein and Harry products.
28:46
Speaker 2: That's what I needed. Okay, Now I'm at a cocktail
28:48
Speaker 2: party and I need to sound smart on proteins. Now
28:51
Speaker 2: I got mine.
28:51
Speaker 3: But apparently fiber is the new protein and jen Is
28:54
Speaker 3: didn't the PepsiCo CEO say something about.
28:56
Speaker 7: This, yeah, you know, whether it's yeah, anything that helps
29:00
Speaker 7: kind of enhance the product. So when you talk about
29:04
Speaker 7: Dorito's that they have additional milk protein being added, you know,
29:08
Speaker 7: higher fiber products. All of these things are things that people,
29:12
Speaker 7: the average consumer perceives as having a health or wellness benefit,
29:15
Speaker 7: and people are trying, in small steps to be a
29:18
Speaker 7: little bit better about their health.
29:20
Speaker 2: All right, let's get to another story I thought was
29:21
Speaker 2: really interesting Walmart partners with open Ai to offer shopping
29:26
Speaker 2: on chat GPT. This sounds like a natural what's going
29:31
Speaker 2: on here?
29:31
Speaker 6: Jen?
29:33
Speaker 7: Yeah, this is an interesting move, but I think it
29:35
Speaker 7: really illustrates sort of that trend of what's happening across
29:38
Speaker 7: retail in general. Walmart's really been very good about doing
29:42
Speaker 7: experimentation and kind of checking out what the opportunities are
29:46
Speaker 7: when it comes to social media and social commerce particularly,
29:51
Speaker 7: and this lead us to partnership with with Open Eye.
29:55
Speaker 7: This really does tap into that as well. Now, social
29:59
Speaker 7: spending is still very small in terms of the overall
30:01
Speaker 7: percentage of what retailers are achieving, but it's important to
30:04
Speaker 7: be present and I think that's what's most notable about
30:08
Speaker 7: this announcement.
30:09
Speaker 3: What is social spending and how do the numbers differ
30:12
Speaker 3: from from normal shopping through Walmart's website or going into
30:18
Speaker 3: Walmart's actual stores.
30:20
Speaker 7: Yeah. So social commerce is when you're on a platform,
30:22
Speaker 7: whether it's on chat, gptin now or whether it's on TikTok,
30:26
Speaker 7: or whether it's on Facebook or any of the social
30:29
Speaker 7: media platforms, and you have the ability to add to
30:31
Speaker 7: cart and buy now. That's that's social commerce, but it's
30:35
Speaker 7: still a tiny, tiny fraction of the overall e commerce
30:39
Speaker 7: that happens for these companies.
30:41
Speaker 4: So while it's.
30:41
Speaker 7: Important in terms of their showing that they're present and
30:45
Speaker 7: that they're aware of new technologies, it's not going to
30:47
Speaker 7: move the needle with regards to their overall e commerce
30:50
Speaker 7: sales or their overall business mix.
30:52
Speaker 2: At this point, Jen, we've got a little bit more data,
30:56
Speaker 2: a little bit more time and has it relates to tariffs?
30:59
Speaker 2: What's your best guest says to what your package food companies,
31:03
Speaker 2: your retailers, how are they kind of segmenting the terrors
31:07
Speaker 2: before maybe passing along something to the consumer.
31:10
Speaker 7: Yeah, it's a complicated situation, Paul, And really what's happening
31:14
Speaker 7: is where they can find alternative sourcing. A lot of
31:18
Speaker 7: companies have been trying to do that. There are some
31:20
Speaker 7: companies in package food where that's not as easy. So
31:23
Speaker 7: I would take McCormick as an example, where a lot
31:25
Speaker 7: of spices you can't produce domestically or you can't source domestically,
31:30
Speaker 7: and then it becomes a question of how do you
31:33
Speaker 7: negotiate with partners, do you find alternative countries of origin
31:37
Speaker 7: that maybe have slightly lower tariff levels, and it's also
31:41
Speaker 7: a lot of effort right now is going into finding
31:43
Speaker 7: efficiencies that can help offset those costs so that they
31:46
Speaker 7: can absorb some of that cost and not have to
31:48
Speaker 7: pass it on to consumers. Ultimately, most of the companies
31:51
Speaker 7: we're talking to are saying that where needed, they will
31:54
Speaker 7: very strategically pass price through, but they're trying to avoid
31:58
Speaker 7: a uniform, unilateral price increase just due to tariffs.
32:02
Speaker 3: How much of this work has been done what you
32:04
Speaker 3: just described, and I guess I wonder how much of
32:07
Speaker 3: it will be covered in the earnings calls this quarter.
32:11
Speaker 7: I think it will be definitely a topic of the
32:13
Speaker 7: earnings calls this quarter. But when we had tariffs back
32:17
Speaker 7: in twenty eighteen, a lot of companies started the process
32:20
Speaker 7: of identifying other options for sourcing. So there's probably been
32:25
Speaker 7: more progress made than people would recognize because it didn't
32:28
Speaker 7: just start this year, and so it's been sort of
32:32
Speaker 7: a gradual shift. And once they have those plans in place,
32:35
Speaker 7: they can sort of accelerate that and then the focus
32:39
Speaker 7: really is on efficiencies, and that's where the technology comes
32:41
Speaker 7: back into play, where it helps them be better with
32:44
Speaker 7: regards to their sourcing, their negotiations, and really in terms
32:49
Speaker 7: of understanding what products they actually need to carry and
32:53
Speaker 7: which products they could perhaps suspend or discontinue.
32:56
Speaker 2: Our thanks to Jen Bartashi's Bloomberg Intelligence Senior retail analyst.
33:00
Speaker 3: We move next to news in the tech sector.
33:02
Speaker 2: This week, we heard that the chip maker Advanced micro
33:04
Speaker 2: Devices received a major order from Oracle for its new
33:07
Speaker 2: AI chips. This announcement is part of a frenzy of
33:09
Speaker 2: deals by big tech and AI companies.
33:11
Speaker 3: And in other news, the cloud based software companies Salesforce
33:14
Speaker 3: expanded its partnership with open Ai. This will allow companies
33:17
Speaker 3: to access Salesforce's agent Force app and chat GPT, enabling
33:21
Speaker 3: instant checkout in its commerce platform.
33:23
Speaker 2: For more, we would joined by anaag Rana, Bloomberg Intelligence
33:26
Speaker 2: technology analyst. We first asked Anarak if the recent deal
33:29
Speaker 2: between AMD and Oracle is unusual.
33:31
Speaker 6: The slight and usual part is that the AMD chip
33:34
Speaker 6: seems to be doing at parity at what Nvidio chips
33:36
Speaker 6: are for this particular case. Now, I do not know
33:39
Speaker 6: what kind of workloads Oracle will put on it, so
33:42
Speaker 6: you really can't do an apples to apples comparison. But
33:45
Speaker 6: The story at this point is Oracle has a massive
33:48
Speaker 6: backlock of orders and it needs to invest money to
33:52
Speaker 6: get them converted into revenue. They need to open more
33:55
Speaker 6: data centers or rent out more data centers. They need
33:58
Speaker 6: to buy more chips, buy more hardware, and combine all
34:01
Speaker 6: that together and eventually then they're going to get paid
34:03
Speaker 6: for all that stuff. So they're going anywhere they can
34:05
Speaker 6: find chips right now, and you know, it seems that
34:07
Speaker 6: AMD is their next stop.
34:09
Speaker 3: So there are a couple of threads to pull on there.
34:11
Speaker 3: It feels like AMD is increasingly the number one alternative
34:15
Speaker 3: to invidios chips. We can talk about that a little bit.
34:17
Speaker 3: But what struck me is that there's no dollar amount
34:21
Speaker 3: disclosed in this deal or partnership or promise. The previous
34:26
Speaker 3: deal that AMD struck with open Ai just said tens
34:30
Speaker 3: of billions of dollars in new revenue. Why are firms
34:32
Speaker 3: keeping it so vague.
34:35
Speaker 6: Well, because they do not know how many chips they
34:37
Speaker 6: would need at what point, at what capacity. This is
34:40
Speaker 6: a you know, it's not you know, it's more so
34:43
Speaker 6: signaling that we are not just truly dependent on in video,
34:47
Speaker 6: we have other options as well. It helps them with
34:49
Speaker 6: navigating in terms of pricing from in video. Also, you know,
34:52
Speaker 6: we know in video chips are getting expensive over the
34:55
Speaker 6: last few years, so there could be one reason. The
34:58
Speaker 6: other thing we don't know is what the workloads there are.
35:01
Speaker 6: Because we know, for the absolute best of the best,
35:04
Speaker 6: you you have to use in video chips. That's what
35:06
Speaker 6: we know. Whether all of that changes in twelve to
35:08
Speaker 6: eighteen months, we don't know. But there are other workloads
35:12
Speaker 6: that may not require that amount of you know, firepower
35:14
Speaker 6: or horse power you could say. For that you may
35:17
Speaker 6: use you know, AMD chips or something even more inferior.
35:21
Speaker 2: And even yet another announcement in your space an rock Salesforce,
35:24
Speaker 2: a company you've been talking to us about for many,
35:26
Speaker 2: many years, Salesforce and open Ai announced an expanded strategic partnership.
35:33
Speaker 2: What's going on there?
35:35
Speaker 6: Yeah, So for me, this is actually a far bigger
35:38
Speaker 6: news and has more ramifications in the long run. If
35:41
Speaker 6: you see what's been happening in the software landscape over
35:44
Speaker 6: the past two years, the threat is that Opening I
35:48
Speaker 6: will come and it will take away you know, basically
35:51
Speaker 6: the businesses of all the application software vendors. You know,
35:54
Speaker 6: whether that's Adobe, Workday Salesforce, HubSpot, you name it. Because
35:58
Speaker 6: open ai has shown capabilities that their model can help
36:03
Speaker 6: out in functions such as finance, human resources, sales automations,
36:08
Speaker 6: et cetera. This integration between the world's biggest CRM software vendor,
36:13
Speaker 6: which is Salesforce, and open Ai shows that both of
36:16
Speaker 6: them will be working together and you know, it'll be
36:19
Speaker 6: easier for enterprises to go inside open ai chart GPT
36:23
Speaker 6: ask for what they want that gets connected to the
36:26
Speaker 6: data that resuldes in Salesforce. Makes it very easy for
36:30
Speaker 6: the enterprise customers to do their work as well, rather
36:33
Speaker 6: than just going into you know, Salesforce. So I think
36:36
Speaker 6: this is a bigger news in the long run. But
36:39
Speaker 6: you know we are all talking about Oracle as well.
36:41
Speaker 3: Yeah, open Ai announces a new deal with someone every day, Paul.
36:45
Speaker 3: This is kind of what you're getting back to. And
36:48
Speaker 3: this really both of these announcements are the latest in
36:51
Speaker 3: the string of big tech building more computing infrastructure and
36:54
Speaker 3: meeting this demand, this and satual demand. I've really lost
36:57
Speaker 3: track of the permutations, an what were you about? These
37:01
Speaker 3: back and forth announcements and partnerships, and you know, the
37:05
Speaker 3: billions of dollars that may or may not change hands.
37:08
Speaker 3: Do do we think that these are just announcements that
37:10
Speaker 3: may not come to fruition if circumstances change, for instance,
37:14
Speaker 3: in the next six months.
37:16
Speaker 6: See from a salesforce point of view, and which is
37:18
Speaker 6: which I was? You know, you would say most of
37:20
Speaker 6: us are worried about as the legacy software names. It's
37:23
Speaker 6: a good thing because opening I is a new channel
37:25
Speaker 6: of communication with you know, the rest of the world.
37:28
Speaker 6: If you can integrate your product with them, it kind
37:32
Speaker 6: of saves you from getting disrupted. The question is and
37:35
Speaker 6: the long run, and then we'll find out what happens
37:37
Speaker 6: is will Opening I have that much level of funding
37:40
Speaker 6: to keep up with all the promises that they have.
37:43
Speaker 6: They have given very high revenue estimates for the next
37:46
Speaker 6: few years. But at the same time, I mean, the
37:48
Speaker 6: rest of the bigger you know, tech vendors are not
37:52
Speaker 6: you know, just sleeping. At that point, I would say,
37:54
Speaker 6: we'll find out whether open I will be able to
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Speaker 6: gain market share from the likes of you know, Microsoft, Topple,
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Speaker 6: Google and Meta or Amazon, or this is going to
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Speaker 6: be just an expansion of the overall market.
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