Latest / Bloomberg Intelligence / Delta Gives Upbeat Outlook as CEO Hails ‘Stable’ Environment

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Delta Gives Upbeat Outlook as CEO Hails ‘Stable’ Environment · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
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  Speaker 1: or watch US live on YouTube.
• 0:23
  Speaker 2: One of the stocks in the news is Delta Airlines.
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  Speaker 2: Stocks up thirteen point eight percent here today. Delta Airlines
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  Speaker 2: reinstated profit outlook for the year, and they say that
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  Speaker 2: the travel in the US is climbing back, corporate travel
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  Speaker 2: is strengthening, so looks pretty good, and consumers have become
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  Speaker 2: a little numb to the ongoing trade disputes.
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  Speaker 3: That's, according to the CEO, is.
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  Speaker 4: Being numb good though exactly maybe relative to where you're
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  Speaker 4: flying exactly.
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  Speaker 3: George Ferguson he does this stuff for a living.
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  Speaker 2: He files all the airlines and all the aerospace companies
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  Speaker 2: for Bloomberg Intelligence joins us. Now, George, what did you
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  Speaker 2: take away from kind of Delta? What's changed since they
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  Speaker 2: pulled guidance and now they're reinstating their guidance.
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  Speaker 5: Well, I think what's changed since they pulled guidance is
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  Speaker 5: that guidance got lower. But they didn't mention that right,
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  Speaker 5: so they reinstated guidance, but at a lower EPs than
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  Speaker 5: they had initiated at the end of the year. I
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  Speaker 5: think the market still looks a little bit soft to us.
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  Speaker 3: For sure, fuel.
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  Speaker 5: Prices are giving airlines a bit of a bolster on
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  Speaker 5: the bottom line. But I think, you know, what we
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  Speaker 5: heard today was on the demand side was more of
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  Speaker 5: the continuing story, and that is that premium is holding
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  Speaker 5: up really well and Delta's going to do very well
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  Speaker 5: there because of their loyalty programs and such. Basic economy
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  Speaker 5: isn't And if you look at Delta's you know, price
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  Speaker 5: paid per mile flown for customer, it was down and
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  Speaker 5: every single market that they served or maybe flatish in
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  Speaker 5: Latin America, but all the rest of the markets down
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  Speaker 5: during the quarters. So to us, it looks like a
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  Speaker 5: market that still needs to have capacity come out. Some
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  Speaker 5: of it will see.
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  Speaker 4: The CEO pointed to progress in trade talks between the
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  Speaker 4: US and other countries and the potential for some geopolitical
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  Speaker 4: conflicts to abate. I mean the flying public, really, I
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  Speaker 4: don't know, are they really thinking about this when they
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  Speaker 4: book a flight on Delta or any other airline.
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  Speaker 5: Yeah, I mean, so when I think of that, I
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  Speaker 5: think that's going to largely benefit his international business. I
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  Speaker 5: don't know, you know, I was polis to pick him
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  Speaker 5: because I get to Paris for Paris Air Show, you know,
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  Speaker 5: every other summer, and when I was in Paris, it
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  Speaker 5: was teaming with Americans. So it didn't seem like, even
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  Speaker 5: with protests going on around, it didn't seem like demand
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  Speaker 5: was off for international travel at least you know, anecdotally
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  Speaker 5: and some of the places I've been to.
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  Speaker 3: So I don't know.
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  Speaker 5: I mean, I think it takes a little bit of
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  Speaker 5: demand off, maybe a very little bit, but right now
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  Speaker 5: the international traveler seems to be rolling right over top
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  Speaker 5: of that and going anyways.
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  Speaker 2: George, how does an airline take capacity out of the system?
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  Speaker 2: Is that just going from like ten flights between Newark
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  Speaker 2: and Miami a day to I don't know, seven or eight.
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  Speaker 5: I mean, I think ultimately you gotta park airplanes. I mean,
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  Speaker 5: you know, it's a capital intensive business. You don't want
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  Speaker 5: to buy those airplanes and not utilize them. You take
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  Speaker 5: your old stuff, you park it, you maybe retire it,
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  Speaker 5: sell it off. But what I mean, what we're seeing
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  Speaker 5: as three Q develops and so we'll watch as closely
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  Speaker 5: to see what it does to demand. Is we're seeing
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  Speaker 5: that the low cost carriers Spirit Frontier look like they're
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  Speaker 5: taking large portions out of their plan for three Q.
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  Speaker 3: Now it may not hold.
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  Speaker 5: They may add some of those those routes back, some
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  Speaker 5: of those seats back, but we're seeing numbers down twenty
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  Speaker 5: percent in some of their capacity. On the full service side,
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  Speaker 5: United and Delta is still adding. United adding the most
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  Speaker 5: I think, I want to say, five is six is
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  Speaker 5: percent when I looked at earlier today, Delta adding two
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  Speaker 5: three ish percent, an economy that's not growing that fast.
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  Speaker 5: American look kind of flat, meaning the economy is growing
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  Speaker 5: at rates, you know, some two percent. So it feels
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  Speaker 5: like the big full service are going to push through
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  Speaker 5: here and try to push through and continued to subsidize
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  Speaker 5: the front of the cabin, sorry, subsidized the back of
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  Speaker 5: the cabin. That basic economy with the front of the
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  Speaker 5: cabin strength. I feel like at some point they'll break
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  Speaker 5: that front of the cabin. I think that's sort of
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  Speaker 5: how the industry always works.
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  Speaker 4: We'll see in none of these reports do I see
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  Speaker 4: anything mentioned about jet field prices. Should we be concerned
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  Speaker 4: about that.
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  Speaker 5: Well, I mean, right now it's a tailwind, and if
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  Speaker 5: that reverses could be a problem. Right, But I mean
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  Speaker 5: jet fuel prices are down because of slower global growth, right,
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  Speaker 5: I mean, I think the geopolitical backdrop doesn't help it,
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  Speaker 5: but it doesn't seem to have pushed prices up.
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  Speaker 2: Firmer.
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  Speaker 5: I think I saw today Saudi's are talking potentially about
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  Speaker 5: reducing some of the capacity ads they're coming on. I
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  Speaker 5: don't know if that sounds strong enough yet, but if
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  Speaker 5: jet fuel turns, that would be that would work against them,
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  Speaker 5: because again, we've got an airline business. If you look
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  Speaker 5: at Delta, they added three ish percent capacity or around
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  Speaker 5: there for this quarter and revenues were flat. Right, So
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  Speaker 5: they're adding capacity and revenues are flat. I generally don't
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  Speaker 5: like that kind of.
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  Speaker 3: Backdrop business travel.
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  Speaker 2: Delta actually kind of called that out as perhaps corporate
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  Speaker 2: travel is quote unquote strengthening.
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  Speaker 3: Are you seeing that across the industry?
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  Speaker 2: And where I guess where's corporate travel versus pre pandemic.
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  Speaker 5: Yeah, so they're not telling us anymore, right, and usually
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  Speaker 5: you tell us when you're really excited about where it is. Look,
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  Speaker 5: I think the summer flying seasons are all about leisure.
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  Speaker 5: What I heard was that they that they were having weakening,
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  Speaker 5: weaker pricing power in sort of the off peak demand times.
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  Speaker 5: And my read through on that is that summer leisure
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  Speaker 5: traveler where they know they got you right. All my
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  Speaker 5: friends call me, they go, hey, George, I hear airfares
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  Speaker 5: are down, but I'm trying to travel over July fourth
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  Speaker 5: week on vacation with the family, and I'm paying a
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  Speaker 5: crazy price. And I'm like, yeah, because you're going when
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  Speaker 5: everyone else in the world wants to go somewhere, right,
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  Speaker 5: So when I read off peak, I also think that's
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  Speaker 5: probably a little bit of business travel, and so I
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  Speaker 5: don't know that it's going swimmingly and they're not. They're
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  Speaker 5: not giving us numbers. What I heard was kind of stabilized,
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  Speaker 5: but I didn't hear to me, I didn't hear something
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  Speaker 5: that sounded like it was getting much better. And again,
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  Speaker 5: summer's about leisure.
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  Speaker 4: I live in the flight path of I guess it's
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  Speaker 4: candy well everything. Yeah. Sometimes I look up and I'm like, oh, wow, Jed,
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  Speaker 4: it's amazing to me George that I guess the engine
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  Speaker 4: technology has advanced so much that I barely hear them.
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  Speaker 4: Should I get excited about the advancements in jet engine technology?
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  Speaker 4: Thirty seconds?
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  Speaker 5: Yeah. Look, first, I'm jealous because you're in the flight
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  Speaker 5: path of everything.
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  Speaker 3: And yeah, you come over an.
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  Speaker 5: I'll sit there with a lawn chair and we'll watch them. Jeff,
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  Speaker 5: jet engine technology is outstanding. It is probably even getting
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  Speaker 5: quieter and more fuel efficient. It'll cost more to it'll
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  Speaker 5: cost more to maintain over the long run, but going
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  Speaker 5: the right direction.
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  Speaker 2: Years ago, George turned me onto this app flight Radar
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  Speaker 2: twenty five.
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  Speaker 4: It's great.
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  Speaker 2: Yeah, so you can track every plane in now and
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  Speaker 2: you could.
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  Speaker 4: There's also a button where you can push where you
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  Speaker 4: can get the cockpit view. Yes, like pretend you're flying.
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  Speaker 3: Great. So now I'm completely addicted to that.
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  Speaker 2: George Ferguson's senior aerospace, defense and Airlines analyst of Bloomberg Intelligence,
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  Speaker 2: giving us the latest here on Delta and again Delta
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  Speaker 2: stock up about thirteen percent here today on news that
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  Speaker 2: they are putting out guidance which they had pulled their guidance,
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  Speaker 2: so Street taking that as a positive sign that the
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  Speaker 2: company has some confidence in their business allegory.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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• 8:09
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 8:13
  Speaker 2: Speaking of technology, we like talking to men Deep Singing.
• 8:16
  Speaker 2: He's a senior tech and also Bloomberg Intelligence. All right,
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  Speaker 2: you've scoled us on AI over the last several years.
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  Speaker 2: I think I now understand what it is. I understand
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  Speaker 2: that it's big. It's a big business. But four trillion
• 8:31
  Speaker 2: dollar market cap for NVIDI are you kidding me?
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  Speaker 3: What's going on? I mean, tell me that's overvalued.
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  Speaker 6: Well, when you see a company that's growing fifty percent
• 8:42
  Speaker 6: and is able to generate almost one hundred billion dollars
• 8:45
  Speaker 6: in free cash flow, then it's not. And that's where
• 8:49
  Speaker 6: you know you have to look at it from the
• 8:51
  Speaker 6: lens of what is sustainable versus what is happening right
• 8:56
  Speaker 6: now now. Typically chip companies, we know they have that
• 9:01
  Speaker 6: cyclical element where you know, after a period of rapid growth,
• 9:06
  Speaker 6: there is a digestion period. I don't think this time
• 9:09
  Speaker 6: is any different. But what we are witnessing now is
• 9:12
  Speaker 6: the super cycle in terms of the buildout of AI infrastructure,
• 9:16
  Speaker 6: so you are not going to see a very quick
• 9:20
  Speaker 6: slowdown simply because right now we are in AI land
• 9:24
  Speaker 6: grab mode. Everyone is. I mean, we talked about picks
• 9:27
  Speaker 6: and shovels for the longest time, you know, in the
• 9:31
  Speaker 6: past twelve months. That trade is still ongoing simply because
• 9:35
  Speaker 6: the demand for GPU compute really continues to rise. Because
• 9:42
  Speaker 6: you have this explosion in coding agents now. I mean,
• 9:46
  Speaker 6: think of what has coding agents done in the past
• 9:49
  Speaker 6: six months. That is the use case that every hyperscaler
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  Speaker 6: is using now, every enterprise is looking to deploy. In fact,
• 9:57
  Speaker 6: Microsoft set thirty five percent of their new code is
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  Speaker 6: written by a coding agent. That's all AIGPU based And
• 10:05
  Speaker 6: that's why there is so much exciting.
• 10:06
  Speaker 4: And if I'm in a company with earnings coming up,
• 10:09
  Speaker 4: I don't have to wait very long to show the
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  Speaker 4: results of my big investments in AI do It's already
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  Speaker 4: there right well?
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  Speaker 6: I think for hyperscalers, especially Microsoft.
• 10:21
  Speaker 4: Send users, I mean the regular Joe's out there.
• 10:24
  Speaker 6: Yeah, I think again depends on w sector you are
• 10:27
  Speaker 6: in and how far along you are in terms of
• 10:30
  Speaker 6: deploying those I mean, what these companies have shown is
• 10:34
  Speaker 6: not only are they investing in AI data center build out,
• 10:37
  Speaker 6: they're actually deploying it in house. And Microsoft is the
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  Speaker 6: prime example of that, where they've done a couple of restructurings.
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  Speaker 6: They've set thirty five percent of their code is written
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  Speaker 6: by AI. So it's hard to argue against the proof
• 10:50
  Speaker 6: points that they're giving us. And look at open Aiy's growth.
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  Speaker 6: They've almost doubled their revenue in the first six months
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  Speaker 6: of the year, and Tropic has foxed its revenue from
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  Speaker 6: one to four billion, and in the first six months
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  Speaker 6: of the year. That kind of growth, it's hard to argue.
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  Speaker 6: Again said, you're right. I mean some of it will
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  Speaker 6: be visible and you know the companies that are using
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  Speaker 6: it as end customers. But really there is so much
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  Speaker 6: runway because these use cases are all new and everyone
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  Speaker 6: is looking at the productivity aspect, and that's what everyone
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  Speaker 6: is excited about.
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  Speaker 2: All right, let's switch gears to something near and dear
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  Speaker 2: to my heart, which is paying huge compensation packages for people.
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  Speaker 2: It used to be like in my Wall Street, this
• 11:31
  Speaker 2: is like sports teams. He did it for bankers and traders.
• 11:34
  Speaker 2: Now in your world, the geek engineers are getting pay
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  Speaker 2: packages of a couple hundred million dollars. I'm seeing Meta
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  Speaker 2: Platforms has made high compensation offers to new members of
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  Speaker 2: its super intelligence team, including more than a two hundred
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  Speaker 2: million dollar package for a former Apple executive.
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  Speaker 3: What's going on here.
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  Speaker 6: Well, I mean with this AI wave specifically, when you
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  Speaker 6: think about the transformer model and the subsequent development, a
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  Speaker 6: lot of it has been pioneered by I would say,
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  Speaker 6: you know one hundred to two hundred AI researchers that
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  Speaker 6: were at the forefoil. So if you are one of those,
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  Speaker 6: and everyone knows you're either working at open Ai or
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  Speaker 6: Entropic or Google DeepMind, that's where you know. Meta was like,
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  Speaker 6: we are lacking behind in our large angline model efforts.
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  Speaker 6: We have really got all the compute and the data.
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  Speaker 6: What is it that we can do to fill up
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  Speaker 6: that gap in terms of whire model is not being
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  Speaker 6: as heavily used as an open ai model.
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  Speaker 4: So they have.
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  Speaker 6: Brought in all the researchers. I doubt they'll be able
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  Speaker 6: to fix all the problems with their model by bringing
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  Speaker 6: in all the researchers over the next six months, but
• 12:47
  Speaker 6: what it could do is slow down open ai because
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  Speaker 6: open ai was shipping product you know pretty much every month.
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  Speaker 6: Now suddenly, if you lose two or three of your
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  Speaker 6: key people, then maybe cheap doesn't get shipped in the
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  Speaker 6: second half. So I think what Meta has done is
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  Speaker 6: really made every attempt to slow others down and then
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  Speaker 6: in the process they'll have more time to catch up.
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  Speaker 6: And I think that seems to be the strategy.
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  Speaker 2: It's a show Hey O Tani type contract man Deep
• 13:17
  Speaker 2: saying thank you so much because you guys can't do
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  Speaker 2: lave exactly.
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  Speaker 3: We're going to see it and lead go exactly.
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  Speaker 6: Yeah, you wait it on the way out of.
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  Speaker 2: The door, men Deep seeing senior tech analysts for the moment.
• 13:30
  Speaker 2: Bloomberg Intelligence. Here in our Bloomberg Inactive Broker's.
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  Speaker 1: Studio, you're listening to the Bloomberg Intelligence Podcast. Catch us
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• 13:49
  Speaker 2: All right, John Tucker Ball Sweeney, We're live.
• 13:51
  Speaker 3: Here on Bloomberg Directive Broker Studio.
• 13:53
  Speaker 2: Or streaming live on YouTube as well as to check
• 13:55
  Speaker 2: us out there Amazon Prime Day. I know you're all
• 13:59
  Speaker 2: over John, It's actually Prime Days plural. I think there's
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  Speaker 2: four of them.
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  Speaker 4: So you spread it out and things are I don't know.
• 14:05
  Speaker 2: But it just gets you just buy stuff in July.
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  Speaker 2: I guess you wouldn't ordinarily be thinking about buying stuff.
• 14:10
  Speaker 2: But let's see how it's going out there in the
• 14:12
  Speaker 2: world of retail and etail.
• 14:14
  Speaker 3: Put them.
• 14:14
  Speaker 2: Goyle, senior US e commerce and retail analysts, joins us here,
• 14:18
  Speaker 2: she's at Bloomberg Intelligence. She's down there in prinstance, put
• 14:23
  Speaker 2: what are we learning about Amazon and Amazon Prime Days
• 14:26
  Speaker 2: and maybe how the consumers do in these days?
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  Speaker 7: Sure, so you know the days. It's four days this
• 14:32
  Speaker 7: year versus two days last year, so longer, which means
• 14:35
  Speaker 7: that people have more time to shop. So early reads
• 14:39
  Speaker 7: from different third party vendors suggest that sales were down
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  Speaker 7: in its first day, and I'm not surprised by that
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  Speaker 7: because there's no urgency, right you have till Friday midnight
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  Speaker 7: to shop, so I think people are taking their time. Overall,
• 14:52
  Speaker 7: we do expect a Prime Day versus last year will
• 14:55
  Speaker 7: be up by the end of it. Consumers are looking
• 14:58
  Speaker 7: for deals, Prices are are going to go up with
• 15:01
  Speaker 7: the terriff situation and the best time until block Friday
• 15:05
  Speaker 7: to get deals is this week?
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  Speaker 4: Okay, you always leave it to me to ask the
• 15:09
  Speaker 4: stupid question, Well, what are the big sellers on the
• 15:12
  Speaker 4: AM on the amasode.
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  Speaker 7: So what they're pushing is exactly what they've pushed before.
• 15:18
  Speaker 7: You have electronics, you have home products, you have the
• 15:21
  Speaker 7: vacuum cleaners, you have the devices that they have, whether
• 15:24
  Speaker 7: it's the Alexa, it's really a little bit of everything
• 15:28
  Speaker 7: is on sale. The average discount that I've seen, you know,
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  Speaker 7: there are clearly some things that are fifty to sixty
• 15:34
  Speaker 7: percent off, but I'd say the average discount is probably
• 15:36
  Speaker 7: in the twenty to thirty five percent range from just
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  Speaker 7: the products that I've seen as I've been tracking it.
• 15:41
  Speaker 4: But that's the stuff they're pushing. What is this stuff
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  Speaker 4: people are actually buying.
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  Speaker 7: I think they're buying what they're pushing because people want
• 15:48
  Speaker 7: to buy what's on sale, right, So if it's not
• 15:51
  Speaker 7: on sale, why do I need to buy it today?
• 15:54
  Speaker 7: I can wait till I need it, all right?
• 15:56
  Speaker 2: So next Wednesday we are picking up our new puppy,
• 15:59
  Speaker 2: and so we've spent the last couple of days taking
• 16:01
  Speaker 2: advantage of Amazon Prime buying a lot of dog stuff.
• 16:05
  Speaker 4: Is that dog stuff? Manufactured overseas where you're now paying like.
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  Speaker 2: I don't know teriffs, and that's kind of where I
• 16:13
  Speaker 2: wanted to go poon them. If we haven't seen the
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  Speaker 2: tariff impact yet, or maybe we have, I don't know.
• 16:18
  Speaker 2: When do you and the retail companies you talk to,
• 16:21
  Speaker 2: when do you think the tariff price increases? If any
• 16:25
  Speaker 2: come through to the consumer, they may not. When do
• 16:28
  Speaker 2: your companies think we'll see it?
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  Speaker 7: So I can tell you that I think they're there,
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  Speaker 7: but they're selectively there. Companies have already started to raise prices. Nike,
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  Speaker 7: for example, has raised the price of its sneakers that
• 16:40
  Speaker 7: are over one hundred and forty dollars by five dollars.
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  Speaker 7: And that's that the ten percent pause teriff rate. When
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  Speaker 7: I'd say, it depends where these rates settle. Right now,
• 16:48
  Speaker 7: we're hearing Vietnam twenty percent, and that's ten percent versus
• 16:53
  Speaker 7: twenty percent. So now Nike will it have to increase
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  Speaker 7: its rates further? I think so they will act they
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  Speaker 7: have to do that. They said the ten percent is
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  Speaker 7: costing them an additional billion dollars in costs this year
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  Speaker 7: in their physical twenty twenty six. If it goes to
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  Speaker 7: twenty percent, Vietnam is a big sourcing country for footwear especially,
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  Speaker 7: They're definitely going to have to take prices up unless
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  Speaker 7: they're going to let the margin.
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  Speaker 6: Take a hit.
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  Speaker 4: Do these companies like Puma do they have to reinvent
• 17:20
  Speaker 4: themselves in light to all this, So to.
• 17:25
  Speaker 7: A certain extent, they have to think about their cost
• 17:27
  Speaker 7: structure a little more. But what I would say is
• 17:29
  Speaker 7: Puma is a little more diversified. Right, It's a European name,
• 17:33
  Speaker 7: so the exposure to the US is less than what
• 17:35
  Speaker 7: it is for a Nike, so they do benefit from that.
• 17:38
  Speaker 7: Even ADDIAUS, for example, their exposure to the US is
• 17:41
  Speaker 7: less the Nike, so they can take what they make
• 17:44
  Speaker 7: in the higher tariff countries and use that for everywhere
• 17:48
  Speaker 7: else but the US. So they do have some strategies
• 17:51
  Speaker 7: that they can deploy and are already deploying. But strategies
• 17:54
  Speaker 7: will have to change, right, will materials get compromise if
• 17:57
  Speaker 7: the consumers not willing to pay for the added costs.
• 18:00
  Speaker 7: These retailers cannot absorb a twenty percent tariff, They just cannot.
• 18:05
  Speaker 7: Their margins are in the single digits, so it's just
• 18:08
  Speaker 7: not something they can afford.
• 18:10
  Speaker 2: So what Yeah, interesting, So Bloomberg News is out with
• 18:13
  Speaker 2: the stories saying that talking about the running category, and
• 18:17
  Speaker 2: that's critical for a lot of these sneaker makers in
• 18:20
  Speaker 2: how competitive it is. How do you think about that
• 18:23
  Speaker 2: part of the retail space.
• 18:25
  Speaker 7: So running is a very important category for all the
• 18:28
  Speaker 7: at leisure brands. I would say probably since the pandemic,
• 18:32
  Speaker 7: it's grown and important. So there have been more people
• 18:34
  Speaker 7: that choose to run. Now, is it going to be
• 18:37
  Speaker 7: easy for any of them to win the running race? No?
• 18:40
  Speaker 7: Because really the clear standouts in running today are the Adds,
• 18:45
  Speaker 7: the Asex, the Brooks, and the Nikes. Those are the
• 18:48
  Speaker 7: names that you kind of think of when you think
• 18:50
  Speaker 7: about running. And while Puma has its own shoe and
• 18:53
  Speaker 7: Sodas Adidas, it's going to be hard to penetrate in
• 18:56
  Speaker 7: that market because the others aren't slowing down. Everyone layser
• 19:00
  Speaker 7: focused on this category and we'll just have to see
• 19:02
  Speaker 7: who bites that what because it is a very very
• 19:05
  Speaker 7: competitive category in the leisure space.
• 19:07
  Speaker 4: And I'll quote Calvin Coolidge here, I choose not to run.
• 19:12
  Speaker 3: That's exactly right. I don't know though, I'll walk on
• 19:16
  Speaker 3: the warlock.
• 19:17
  Speaker 4: There we go, All right, let'll stick with.
• 19:18
  Speaker 3: That all right, put them goil. Thank you so much
• 19:20
  Speaker 3: for we appreciate that putting Goile.
• 19:21
  Speaker 2: She covers all the retail stuff for Bloomberg Intelligence.
• 19:27
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 19:31
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• 19:34
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• 19:38
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• 19:42
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• 19:44
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• 19:46
  Speaker 6: Well.
• 19:46
  Speaker 2: A lot of investors trying to get a sense of
• 19:48
  Speaker 2: how the consumer is faring during this time of uncertainty
• 19:52
  Speaker 2: brought about in part by all this discussion of tariffs
• 19:55
  Speaker 2: and what I might mean for the economy. One of
• 19:57
  Speaker 2: the areas they look at is the retailers. What are
• 19:59
  Speaker 2: the retailers well?
• 20:00
  Speaker 3: Today?
• 20:00
  Speaker 2: On Bloomberg Television, Ralph Lauren, CEO Patrese Louvey said that
• 20:05
  Speaker 2: demand for its signature clothing such as cable knit sweaters
• 20:08
  Speaker 2: remain strong even as the fashion industry is buffetted by
• 20:11
  Speaker 2: terras and an economic slowed down.
• 20:13
  Speaker 3: Let's break that down a little bit. Mary Ross Gilbert
• 20:15
  Speaker 3: joins us.
• 20:16
  Speaker 2: She's a senior equity analy's covered in the retail space
• 20:18
  Speaker 2: for Bloomberg Intelligence. She joins us from La via Zoom. So, Mary,
• 20:24
  Speaker 2: we heard from the Ralph Lauren CEO says he still
• 20:27
  Speaker 2: sees demand kind of pretty solid. What do you make
• 20:30
  Speaker 2: of his comments and what are you seeing across your
• 20:32
  Speaker 2: retail coverage.
• 20:34
  Speaker 8: Yeah, so, Paul, we're seeing strength clearly with Ralph Lauren.
• 20:39
  Speaker 8: When we look at the data for the June quarter,
• 20:41
  Speaker 8: which they're going to report in early August, their sales
• 20:45
  Speaker 8: are trending up about twenty percent, and that's just for
• 20:49
  Speaker 8: the US market, and the US is about forty two
• 20:52
  Speaker 8: to forty three percent of their sales, and when you
• 20:55
  Speaker 8: look at the consensus third at six percent, so they're
• 20:58
  Speaker 8: really hitting it out of the ballpark. And it's not
• 21:01
  Speaker 8: just in the US, it's actually around the globe.
• 21:03
  Speaker 3: So when you think about.
• 21:04
  Speaker 8: China, China is supposed to be having a slowdown, but
• 21:08
  Speaker 8: not for Ralph Lauren. There are sales in the last quarter,
• 21:12
  Speaker 8: which was the March quarter, it was up twenty percent.
• 21:15
  Speaker 8: So they're really seeing some strength. And when you look
• 21:17
  Speaker 8: at some of the other brands out there, I think
• 21:21
  Speaker 8: you'll see some variability, You'll see some retailers kind of struggling.
• 21:25
  Speaker 8: So on the value side, we saw American Eagle shows
• 21:28
  Speaker 8: some struggles there, but part of it had to do
• 21:30
  Speaker 8: with some fashion misses, So there it was really associated
• 21:35
  Speaker 8: with execution. And then the other companies that are executing,
• 21:38
  Speaker 8: we're seeing good sales trends and so we're seeing off
• 21:41
  Speaker 8: price is still showing resilience. So we think the consumer
• 21:44
  Speaker 8: really is showing resilience.
• 21:47
  Speaker 4: Where does Ralph Lauren make it stuff?
• 21:51
  Speaker 8: That is a good question, John, So about twenty percent
• 21:55
  Speaker 8: comes from Vietnam. China is probably around seven or eight
• 22:00
  Speaker 8: percent is what we estimate, So they've been diversifying, and
• 22:03
  Speaker 8: of course we just got the news about a week
• 22:05
  Speaker 8: or so ago that Vietnam tariffs are going up to
• 22:09
  Speaker 8: twenty percent, possibly by August first, they haven't set an
• 22:13
  Speaker 8: exact date yet, and that's up from ten percent. So
• 22:15
  Speaker 8: when you think about non China tariffs for apparel retailers,
• 22:21
  Speaker 8: that's about ten percent, and so then does this mean
• 22:25
  Speaker 8: Vietnam at twenty percent is sort of the new We're
• 22:29
  Speaker 8: going up to twenty percent for non China, and China
• 22:32
  Speaker 8: right now is at thirty percent, so we estimate that
• 22:35
  Speaker 8: would be an incremental twenty six basis points impact. But
• 22:39
  Speaker 8: if anything, Ralph Lauren has the ability to pass on
• 22:43
  Speaker 8: price increases and to be less impacted. They have pricing
• 22:47
  Speaker 8: power with their consumers. Their average price point has been
• 22:52
  Speaker 8: marching up, and consumers are willing to pay full price.
• 22:55
  Speaker 8: If you look at their Wimbledon collection, good luck trying
• 22:58
  Speaker 8: to find something because a lot of it has been
• 23:00
  Speaker 8: sold out.
• 23:01
  Speaker 2: So is that how you're approaching tariffs here?
• 23:04
  Speaker 3: Mary?
• 23:05
  Speaker 2: As you look across your research coverage of retail companies,
• 23:08
  Speaker 2: is the higher end will have a better chance of
• 23:10
  Speaker 2: passing along price increases versus maybe something towards the middle
• 23:14
  Speaker 2: lower end.
• 23:16
  Speaker 8: Yeah, it's going to be a combination of how these
• 23:19
  Speaker 8: companies are able to mitigate the impact. I mean, we
• 23:21
  Speaker 8: certainly saw in two thousand and nineteen, you remember twenty eighteen,
• 23:26
  Speaker 8: twenty nineteen Trump one point zero it most of these
• 23:30
  Speaker 8: companies were able to sort of cycle past it. So
• 23:35
  Speaker 8: even companies on the value side will look for strategic
• 23:39
  Speaker 8: price increases, so they'll be very pointed in that. But
• 23:42
  Speaker 8: they're also sharing the costs with their suppliers, so the
• 23:44
  Speaker 8: suppliers are absorbing some of it. In that Trump one
• 23:48
  Speaker 8: point zero scenario, they actually absorbed half the cost, So
• 23:53
  Speaker 8: there are ways to mitigate it obviously, you know, focusing
• 23:57
  Speaker 8: on your cost, continuing to redo your costs, so all
• 24:01
  Speaker 8: of those things. So there will be an impact this year,
• 24:03
  Speaker 8: mainly in the second half, but then as we get
• 24:06
  Speaker 8: you know, into twenty twenty six, most of these companies
• 24:10
  Speaker 8: will be able to cycle past that and hopefully see
• 24:14
  Speaker 8: some margin improve it depending on how final negotiations come
• 24:18
  Speaker 8: out on tariffs.
• 24:20
  Speaker 4: In the meantime, does Resilient demand more than makeup for
• 24:23
  Speaker 4: any hit top margins. And by the way, parenthetically, I
• 24:26
  Speaker 4: have to tell everybody I think that's Ralph Lauren.
• 24:29
  Speaker 3: She's wearing I'm wearing Ralph Lauren.
• 24:33
  Speaker 4: I'm not going to say it's a content of entry.
• 24:34
  Speaker 8: I had no idea I came in, but I guess
• 24:39
  Speaker 8: I'm an example, but it's not really, it's not me.
• 24:42
  Speaker 8: When you look at the fact that they added five
• 24:44
  Speaker 8: point nine million.
• 24:45
  Speaker 4: Cousins, they need to put you on the defensive.
• 24:49
  Speaker 8: It's mainly younger consumers, so millennials and gen z love
• 24:55
  Speaker 8: the brand, so you will be seeing it more and
• 24:58
  Speaker 8: more on them, all.
• 24:59
  Speaker 2: Right, be talking to you more and more because this
• 25:01
  Speaker 2: retaillers report, it is gonna be really a good view
• 25:04
  Speaker 2: as to how much they're taking in their margin versus
• 25:08
  Speaker 2: how much you and I are going to be.
• 25:09
  Speaker 4: The CEO also cited for Ralph Lauren increased demand, not
• 25:14
  Speaker 4: just like from the tennis set, but from what's that
• 25:18
  Speaker 4: other sport that's kind of okay, No, the one that's
• 25:22
  Speaker 4: kind of like baseball, Yes.
• 25:26
  Speaker 2: Slight set, like exactly.
• 25:30
  Speaker 3: Thank you so much.
• 25:31
  Speaker 2: Mary Ross, Gilbertie's senior equanalys covering retail for Bloomberg Intelligence.
• 25:35
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