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Kohl’s Jumps on Outlook Boost in Sign of Consumer Resilience · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
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  Speaker 2: Want to talk retail now, because you've got more numbers
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  Speaker 2: out today from some big players, including Coles and Abercrombie.
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  Speaker 2: Let's break it all down now with Mary Ross Gilbert,
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  Speaker 2: Bloomberg Intelligence's senior equity analyst. She covers retail, so she's
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  Speaker 2: the right person to talk to you right now. So Mary,
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  Speaker 2: Cole's trying to reverse fourteen straight quarters of declining revenue.
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  Speaker 2: How do they do?
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  Speaker 3: Yeah?
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  Speaker 4: So Lexus Coles, Okay, look, they reported comp sales down
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  Speaker 4: still and as you pointed out, fourteen consecutive quarters of
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  Speaker 4: declines or another way to look at it, over the
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  Speaker 4: past three years. They're cycling three years of declines. So
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  Speaker 4: but what really we're looking at in the news that
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  Speaker 4: came out with Cole's one is that on the call,
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  Speaker 4: the company said July sales were flat.
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  Speaker 2: That was really encouraging.
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  Speaker 4: And when you look at the third quarter and the
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  Speaker 4: guidance for the third quarter again, still looking for declines
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  Speaker 4: for the balance of the year, down four to five
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  Speaker 4: percent on a comp sales basis, but for the third
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  Speaker 4: quarter they're going to cycle a nine point three percent
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  Speaker 4: decline last year, so that means the comparisons are easier
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  Speaker 4: and they're off to a good start, so it's encouraging.
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  Speaker 4: And what we're finding is that they're bringing back the
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  Speaker 4: core private brands that are really resonating because of the
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  Speaker 4: open price points and their core consumer, which is that
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  Speaker 4: sort of load to low middle income consumer. They're really
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  Speaker 4: pressed by inflation still and so they are really looking
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  Speaker 4: for the value and is they've brought that back in
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  Speaker 4: and they brought back fashion jewelry and you know, they're
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  Speaker 4: working on refining fine jewelry. But that's all resonating now
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  Speaker 4: with the customer and so that's where they're seeing some strength.
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  Speaker 4: And so we're seeing encouraging signs there. But they're not
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  Speaker 4: out of the woods yet, right because you know, again
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  Speaker 4: three years of sales declines and you know, they're still
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  Speaker 4: their sales are still declining. So we'll see if they
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  Speaker 4: actually reach stabilization by the end of the year. They're
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  Speaker 4: saying no, we're not, but we're thinking they're providing conservative
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  Speaker 4: guidance so that they can beat. And then with regard
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  Speaker 4: to the stock action, part of that reflects short covering.
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  Speaker 4: If you look at the shares borrowed, it's about a
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  Speaker 4: third of the outstanding shares are borrowed, so it's going
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  Speaker 4: to take over five days to cover you know, shorts,
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  Speaker 4: and so that's part of the action in there.
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  Speaker 5: Hey, Mary, what are Coals and some of the other
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  Speaker 5: companies saying about I don't know their strategy for dealing
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  Speaker 5: with tariffs in terms of a passing along to consumers,
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  Speaker 5: b taking it maybe in their margin or c. I
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  Speaker 5: don't know, kind of pushing back on some of their suppliers.
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  Speaker 5: Is there a consensus building about how some of these
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  Speaker 5: retailers are dealing with it.
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  Speaker 4: Yeah, Paul, that's a really good question because tariffs is
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  Speaker 4: absolutely top of mind, and with Coals, Coals really sources
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  Speaker 4: most of their product from other brands and companies. They
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  Speaker 4: do have their own private brand business. It's probably somewhere
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  Speaker 4: around a third of the business. You know, they're getting
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  Speaker 4: it back in order because of course they went too
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  Speaker 4: low last year, and what they're finding is they're sharing
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  Speaker 4: with their vendors. This is what we're finding across the board,
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  Speaker 4: and they're finding an ability to raise prices on select items.
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  Speaker 4: So with Coals, we did see a margin improvement in
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  Speaker 4: the quarter, and so with because the private brands do
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  Speaker 4: deliver a higher margin for on an overall basis versus
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  Speaker 4: the third party brands getting that benefit and that's helping
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  Speaker 4: to offset a bit of the tariffs. And again they're
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  Speaker 4: less impacted versus some of the specialty apparel brands like
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  Speaker 4: Abercrombie and PVH and those companies reporting which they did
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  Speaker 4: disclose what kind of exposure they have, But we are
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  Speaker 4: seeing across the board that there is sharing. It's usually
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  Speaker 4: about fifty percent, where their suppliers will say we'll absorb
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  Speaker 4: fifty percent of the cost and then the other fifty
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  Speaker 4: percent is taken by that brand. Then they will do
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  Speaker 4: strategic price increases on certain items that they feel will
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  Speaker 4: be less noticeable to the consumer.
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  Speaker 5: Mary.
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  Speaker 2: Before we get to Abercrombie, one more question here on Coals.
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  Speaker 2: Bloomberg News is reporting that Coles is having trouble paying
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  Speaker 2: its vendors on time. What do we know about that,
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  Speaker 2: Alexis I'm really glad you brought that up, because that
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  Speaker 2: was never brought up on the call.
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  Speaker 4: Nothing came up in that conversation. When we saw that
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  Speaker 4: article break yesterday, we said, what I mean, that's kind
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  Speaker 4: of like a warning sign, and it basically says, look,
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  Speaker 4: they're just trying to manage their working capital needs because
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  Speaker 4: we're in a period right now where they're taking in
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  Speaker 4: all of the inventory that for the holiday season that's
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  Speaker 4: coming in right now, and so that's a big cash
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  Speaker 4: use and that's kind of where we are in the
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  Speaker 4: third quarter is where they're going to have to, you know,
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  Speaker 4: raise their revolver borrowings to fund those needs. And so
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  Speaker 4: there was a bit of a concern, but nobody on
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  Speaker 4: the earnings call brought that up with the company. But
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  Speaker 4: we kind of we're watching that closely. Like I said,
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  Speaker 4: Cole's is not out of the woods yet.
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  Speaker 5: All right, Ambercrombie, what's the story there?
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  Speaker 4: So on Abercrombie, generally they beat but okay, and it
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  Speaker 4: was all led by Hollister, which we could see in
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  Speaker 4: the transaction data, and it was something that we saw
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  Speaker 4: in the first quarter, and they're cycling some big comparable
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  Speaker 4: sales increases in the prior year period. For their names
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  Speaker 4: Abercrombie brand. But the decline in comp sales is down
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  Speaker 4: about eleven percent, was way worse than what analysts were
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  Speaker 4: looking for. They were looking for a decline of something
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  Speaker 4: like down seven percent. The reason for that is they
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  Speaker 4: had some carryover inventory at lower average price points that
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  Speaker 4: they were selling through in the quarter and that's what
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  Speaker 4: really took the comp sales down. But they were very
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  Speaker 4: optimistic about third quarter start with their denim program, with
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  Speaker 4: their NFL collaboration, and so they feel like that's going
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  Speaker 4: to really benefit all of the initiatives that they have
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  Speaker 4: to benefit the Abercrombie brand going forward. So they feel like, no,
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  Speaker 4: this is just a little bit of a hiccup, nothing
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  Speaker 4: to be alarmed about. And I think what we're seeing
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  Speaker 4: generally when we think about all these earnings reports so far,
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  Speaker 4: is that the consumer is resilient. We have the lower
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  Speaker 4: income being a little more strained and being very careful
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  Speaker 4: and choosing what they're going to buy, but when they
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  Speaker 4: see the value you they're spending.
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  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: Williams Sonoma, I don't know. I don't shop very often.
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  Speaker 2: To you, I used to do more. I liked I
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  Speaker 2: like your kitchen stuff. I have to say I own
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  Speaker 2: quite a bit.
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  Speaker 5: Okay, all right, the stock they reported some numbers stalks
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  Speaker 5: off about one percent here today Williams Sonoma's sales surprises
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  Speaker 5: cost look management. That's the reaction from Bloomberg Intelligence. Let's
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  Speaker 5: talk to that analyst. Lindsay Dutch Consumer Hardlines, senior analysts
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  Speaker 5: for Bloomberg Intelligence. Lindsay talked to us about Williams Sonoma.
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  Speaker 5: What did you learn in their in their earnings release
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  Speaker 5: and how's their business doing?
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  Speaker 6: Hi, Paul, thanks for having me. William Sinoma had another
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  Speaker 6: really good quarter. We're seeing continued momentum and sales, which
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  Speaker 6: the positive for them, especially given higher interest rates and
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  Speaker 6: new home sales being soft. And more importantly, they held
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  Speaker 6: the guidance for operating margin flat even though they're facing
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  Speaker 6: tremendous costs headwinds from tariffs.
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  Speaker 2: You know, I'm looking at the stock right now, it's
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  Speaker 2: not doing much of anything. A down about half a percent.
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  Speaker 2: Why not a better reaction from Wall Street?
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  Speaker 6: You know, I'm also puzzled by that. I think that
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  Speaker 6: there's not much more that you can ask for from
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  Speaker 6: a company like this. You know, they are working on
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  Speaker 6: getting to some sales growth goals.
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  Speaker 7: They're showing progress there.
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  Speaker 6: They are leveraging their scale, negotiating with suppliers. They're basically
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  Speaker 6: mitigating all of the costs from the tariffs that they're
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  Speaker 6: experiencing this year, which was basically a doubling in the
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  Speaker 6: tariff rate than they were expecting from the first quarter,
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  Speaker 6: so it's a significant headwind. They're basically planning to offset
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  Speaker 6: all of it with all of their mitigation efforts, and
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  Speaker 6: they're going to continue to see some profit growth this year.
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  Speaker 6: Long term goals are intact.
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  Speaker 5: So how are they mitigating it? So they're not going
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  Speaker 5: to pass anything along to consumers? How are they mitigating it?
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  Speaker 6: So they are doing select price increases. They have multiple
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  Speaker 6: levelers that they are pulling, so they are negotiating with
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  Speaker 6: their suppliers sort of managing the cost sort of on
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  Speaker 6: the supply side, they're shifting sourcing, you know, with a
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  Speaker 6: new threat of an additional tariff just on furniture imports.
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  Speaker 6: They're looking to increase US made inventory heading into next year.
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  Speaker 6: They are also increasing the prices and the fact that
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  Speaker 6: demand is showing momentum, you know, that's a positive sign
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  Speaker 6: that they can execute those price increases successfully and continue
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  Speaker 6: to get a good margin on those products.
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  Speaker 2: So Williams Nooma is a company that also owns the
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  Speaker 2: Pottery Barn brand West Elm. Curious if there were strengths
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  Speaker 2: sort of across the board across its brand.
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  Speaker 6: Yes, So this was a second consecutive quarter that we
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  Speaker 6: saw same sour sales growth across all brands. Pottery Barn
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  Speaker 6: and West Elm are the two big ones that we've
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  Speaker 6: been watching over the past say four to six quarters,
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  Speaker 6: and that's because there really has been a bit of
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  Speaker 6: a challenge when it comes to demand for furniture. Coming
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  Speaker 6: into this year, we saw some positive momentum in that business.
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  Speaker 6: Williams Sonoma has continued to outperform, So we saw growth
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  Speaker 6: in those two brands again in this second quarter while
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  Speaker 6: the industry was still down for the quarter. So they
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  Speaker 6: are seeing, you know, good demand with those two big brands,
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  Speaker 6: and they're saying that a lot of that is coming
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  Speaker 6: from the new products that they're launching.
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  Speaker 5: See, I was on an impression prior to this furniture
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  Speaker 5: tariff talk that pretty much all our furniture came from
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  Speaker 5: like North Carolina, like Thomasville, North Carolina. That's kind of
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  Speaker 5: where I thought it all came from. That's not the case.
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  Speaker 5: Talk to us about the furniture supply chains. Where does
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  Speaker 5: this stuff come from? And what is the tariff situation
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  Speaker 5: there on this stuff?
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  Speaker 6: Right, So, the best disclosure I have is from the
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  Speaker 6: end of last year, and I do think some of
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  Speaker 6: the numbers have moved a little bit. But at the
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  Speaker 6: end of fiscal twenty twenty four, Williams Sonoma got about
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  Speaker 6: eighteen percent of their cost of goods sold made in
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  Speaker 6: the US. You know, They're a little bit higher than
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  Speaker 6: a peer like rh which was closer to ten percent
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  Speaker 6: at the end of last year. Part of that is
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  Speaker 6: because Williams Sonoma has a lot more seasonal items and
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  Speaker 6: decore items rather than just plain furniture. I do think
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  Speaker 6: that number, you know, probably was is increasing throughout this year,
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  Speaker 6: and again I think there will be an accelerated effort
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  Speaker 6: to get that number higher for twenty twenty six with
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  Speaker 6: a with a threat of a new tariff. When we
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  Speaker 6: think about the other countries, you know, exposure to China
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  Speaker 6: has drastically come down since twenty eighteen twenty nineteen, that's
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  Speaker 6: more closer to the twenty percent range. But there's also
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  Speaker 6: exposure to Vietnam, which is a big one, and India
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  Speaker 6: where the tariff just went up to fifty percent. So
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  Speaker 6: there's still more diversification to be done on the supply
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  Speaker 6: chain and I think those efforts will continue heading into
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  Speaker 6: the next year.
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  Speaker 2: And lindsay in about thirty seconds, connect these dots. How
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  Speaker 2: much are Williamson Noma's fortunes tied to the housing market, So.
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  Speaker 7: That's a great question. They are.
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  Speaker 6: They will see stronger demand with a pickup in housing,
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  Speaker 6: but they've been lucky to see that higher income consumer
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  Speaker 6: still looking to update, you know, within their kitchens in
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  Speaker 6: existing homes, and that is fueling demand over the past
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  Speaker 6: year or so.
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  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
• 12:34
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 12:44
  Speaker 1: you get your podcasts or watch us live on YouTube.
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  Speaker 2: Cracker Barrel cannot get enough of this story at all, apparently,
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  Speaker 2: so I want to bring in Michael Halen. He's Bloomberg
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  Speaker 2: Intelligence Senior Restaurant and food service analyst. So has Cracker
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  Speaker 2: Barrel not been canceled now, Michael, because they're bringing back
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  Speaker 2: the old logo.
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  Speaker 8: Well, I checked this morning, and some right wing commentators
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  Speaker 8: are not happy about some of their past endorsements of
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  Speaker 8: the Nashville LG TBq Parade and some things like that.
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  Speaker 8: They have some issue with one of the board members
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  Speaker 8: whose whose experiences.
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  Speaker 5: As you enjoy the biscuits, is.
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  Speaker 8: Owning a DEI company.
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  Speaker 5: What's that? Just enjoy the biscuits and gravy. That's where
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  Speaker 5: it stops and starts with me. It's awesome.
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  Speaker 8: Yeah, yeah, man, it's it's crazy. I mean, Crocker Barrel
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  Speaker 8: now has been on both sides of the culture war right.
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  Speaker 8: So you know, in the first Trump presidency there the
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  Speaker 8: left had taken issue with some people that were dining
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  Speaker 8: at Cracker Barrel, right, and now you have the right
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  Speaker 8: up in arms. It's kind of sad to see, to
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  Speaker 8: be honest with you, I think the right was on
• 13:54
  Speaker 8: the right side of history the first time, and I
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  Speaker 8: think you know, now that they're in power, they're you know,
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  Speaker 8: you know, the ones engaging in cancel culture. So it's
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  Speaker 8: kind of disappointed to see. I think they've been very
• 14:08
  Speaker 8: unfair towards Julie Messino, who's, in our opinion, has done
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  Speaker 8: a great job so far.
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  Speaker 1: You know.
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  Speaker 5: One of the things more substantive that then the logo
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  Speaker 5: is kind of the interiors of the restaurants and the menu.
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  Speaker 5: There's some big changes there with these new formats. Is
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  Speaker 5: are they still moving ahead with that.
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  Speaker 8: Mike, Yeah, and we're seeing results. They've been beating and
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  Speaker 8: the streets been forced to raise their estimates throughout the year, right,
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  Speaker 8: so sales are inflecting higher. We expect traffic to inflect
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  Speaker 8: higher in this next fiscal year over the next twelve
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  Speaker 8: months or so. So yeah, things are going well. I mean,
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  Speaker 8: they've got a lot of shade online about the remodels,
• 14:49
  Speaker 8: obviously about this logo rebrand. But these people complaining clearly
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  Speaker 8: weren't going to the stores because Samstar sales and traffic
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  Speaker 8: have been in the gutter for years, So you know,
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  Speaker 8: to us, I think a lot of the complaining is
• 15:03
  Speaker 8: done by people that really don't frequent click tracker Barrow.
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  Speaker 8: They're using it as an excuse to kind of push
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  Speaker 8: their ideologies. And it's it's you know, it is what
• 15:15
  Speaker 8: it is. But it's refreshes are working. They're bringing they're
• 15:21
  Speaker 8: bringing in you know, dinner business has improved for five
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  Speaker 8: straight quarters, right, and they're trying to bring in younger
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  Speaker 8: consumers who really basically left the brand for dead. You know,
• 15:32
  Speaker 8: it wasn't a member of their consideration set, right, And
• 15:35
  Speaker 8: so we think the management team is making the right
• 15:38
  Speaker 8: moves refreshing their stores, just giving them a fresh coat
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  Speaker 8: of paint, you know, updating the furniture inside, right, and
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  Speaker 8: you know, we we expect these to continue to help
• 15:50
  Speaker 8: boost results.
• 15:51
  Speaker 4: Yeah.
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  Speaker 2: Have they had to raise prices at all? Because I
• 15:54
  Speaker 2: know that's a sensitive area for their customer base really
• 15:57
  Speaker 2: for everybody, right, But I mean, how have they able
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  Speaker 2: to deal with tariffs and not having to raise prices
• 16:04
  Speaker 2: unless they are.
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  Speaker 8: Yeah, so they have a little bit more exposure to
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  Speaker 8: tariffs because of their retail stores in their front about
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  Speaker 8: twenty percent of those items in that retail store are
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  Speaker 8: sourced from China. They have been working hard to work
• 16:20
  Speaker 8: you know, to source products from other countries or within
• 16:24
  Speaker 8: the United States that try to ease that impact, right,
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  Speaker 8: But that's a that's a smaller.
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  Speaker 5: Part of their sales.
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  Speaker 8: The restaurants sales are a much bigger part of their
• 16:35
  Speaker 8: average unit volumes in the restaurants.
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  Speaker 5: Right.
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  Speaker 8: The good thing for Cracker Barrel is that it's priced
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  Speaker 8: so far below it's casual dining competitors. Right. Average checks
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  Speaker 8: at dinner are you know, maybe thirty forty percent cheaper
• 16:50
  Speaker 8: than some of their competitors, right, And so they've been
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  Speaker 8: able to lean into strategic pricing they relate to the
• 16:58
  Speaker 8: game there and this new management team. This is one
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  Speaker 8: of their many initiatives that they've implemented to try to
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  Speaker 8: boost top line growth. And so they are strategically raising
• 17:10
  Speaker 8: prices five percent, but it's at the units that can
• 17:12
  Speaker 8: support it based on, you know, demographics in the DMA.
• 17:18
  Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.
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• 17:37
  Speaker 5: Again we've been reporting on Ta jams. Smucker's reported some
• 17:40
  Speaker 5: numbers here, some customers pulling back on some of their
• 17:43
  Speaker 5: purchases here from some of these well known consumer products
• 17:47
  Speaker 5: that we all know and love in the supermarket. Then
• 17:50
  Speaker 5: Openia joins us. Bloomberg Intelligence consumer analysts talk to us
• 17:53
  Speaker 5: about JW. Smuckers. What do you learn on their quarterly earnings?
• 17:57
  Speaker 3: Yes, so, basically they're trying to pass through cost increases
• 18:02
  Speaker 3: from green Coffee into their coffee portfolio. So far it
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  Speaker 3: has paid off for them. They have experienced some growth
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  Speaker 3: and limited elasticity on that.
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  Speaker 7: Going forward.
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  Speaker 3: They're getting ready for a third wave of price increase
• 18:18
  Speaker 3: at the end of probably at the end of the year,
• 18:20
  Speaker 3: so that's probably going to test, you know, price and
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  Speaker 3: elasticity even further. But you know, there are some bright
• 18:27
  Speaker 3: spots still for the company. You have Miow mix cats
• 18:31
  Speaker 3: seem to be doing well. You have on crossed the
• 18:34
  Speaker 3: bowls that part of their business is particularly strong. But
• 18:38
  Speaker 3: then you have others such as milk Bone, which is
• 18:42
  Speaker 3: not doing that well, and obviously Jif and the like.
• 18:46
  Speaker 2: The dogs don't like the milk bone.
• 18:48
  Speaker 3: I guess, well, it is a little bit of there's
• 18:51
  Speaker 3: there's a discretionary pullback. It seems that even though the
• 18:56
  Speaker 3: pet market has stabilized, there's the owners do not give
• 19:01
  Speaker 3: as many treats to the dogs as they used to.
• 19:04
  Speaker 2: Even the dogs are feeling it, all right. What about
• 19:06
  Speaker 2: their coffee business though, right, because they own brands like
• 19:09
  Speaker 2: well known brands Folgers, Bustello and you know these fifty
• 19:13
  Speaker 2: percent coffee terraffs against Brazil. I mean, how is that impacting?
• 19:16
  Speaker 2: How did it impact last quarter?
• 19:18
  Speaker 7: Yes?
• 19:18
  Speaker 3: So they definitely added some pricing for that, and you
• 19:23
  Speaker 3: can see coffee, like I said, eat increase about fifteen
• 19:26
  Speaker 3: percent due to pricing. They expect terref to be a
• 19:32
  Speaker 3: fifty cent hit two EPs this year, which is an
• 19:35
  Speaker 3: increase compared to twenty five cents.
• 19:38
  Speaker 7: You know that. They said that he was last cert
• 19:41
  Speaker 7: names called.
• 19:41
  Speaker 5: So for the companies you followed, what is there kind
• 19:44
  Speaker 5: of a norm that you're seeing in terms of how
• 19:46
  Speaker 5: much of terraf increases they want to pass along to consumers,
• 19:49
  Speaker 5: how much they want to take in their margin, and
• 19:51
  Speaker 5: maybe how much they want to push back on their distributors.
• 19:54
  Speaker 3: There's any kind of norm so we're seeing, you know,
• 19:58
  Speaker 3: because all of thesempanies have moved pricing to the consumer
• 20:03
  Speaker 3: at a higher level than they used to.
• 20:07
  Speaker 7: They're starting to see.
• 20:08
  Speaker 3: Some pullback in terms of volume not increasing to the
• 20:12
  Speaker 3: way that they expect it to, so they're trying to
• 20:14
  Speaker 3: do other things. They're trying to do cost savings. For example,
• 20:18
  Speaker 3: going back to smocker, they're going to close the Hostess
• 20:22
  Speaker 3: Indianapolis plan. So those kind of cost savings programs seem
• 20:26
  Speaker 3: to be working in terms of giving it to the retailers.
• 20:31
  Speaker 3: They're retailers that are pushing back. I mean, you're talking
• 20:33
  Speaker 3: about Walmart. You know, they're definitely not going to be
• 20:36
  Speaker 3: too police to increase prices even further.
• 20:39
  Speaker 2: Talking about Hostess, they bought Hostess not long ago, right
• 20:42
  Speaker 2: in twenty twenty three, but it's been a drag on
• 20:45
  Speaker 2: the company overall.
• 20:47
  Speaker 3: Yes, and they're doing a lot of pullback. They're estimating
• 20:53
  Speaker 3: they're going to take out about twenty five percent of SKUs.
• 20:56
  Speaker 7: For that brand.
• 21:00
  Speaker 3: They're really going in it in terms of they want
• 21:03
  Speaker 3: to invest in the in the in the in the brand.
• 21:05
  Speaker 7: They think that there's still room to grow.
• 21:09
  Speaker 3: During the call, there was a lot of GLP one
• 21:12
  Speaker 3: reference if that was a little bit of a of
• 21:16
  Speaker 3: a drag due to that, and and they have mentioned
• 21:18
  Speaker 3: that they don't see it as you know, being that reason.
• 21:23
  Speaker 5: What are you seeing from the consumers, how is the
• 21:26
  Speaker 5: consumer doing it?
• 21:27
  Speaker 3: There?
• 21:27
  Speaker 5: From the companies you follow, what are they saying.
• 21:30
  Speaker 3: Yeah, they're pretty much tired of the price increases. They're
• 21:34
  Speaker 3: definitely trading down. You see Walmart mentioning that they're getting
• 21:39
  Speaker 3: more higher income consumers. So that is definitely something that
• 21:44
  Speaker 3: keeps these companies, the package food companies, alert on alert
• 21:49
  Speaker 3: because there's so much room to grow and maneuver.
• 21:53
  Speaker 7: Based off all these things that are happening.
• 21:56
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