Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Speaker 1: Wait Inside from the reporters and editors who bring you
Speaker 1: America's most trusted business magazine, plus global business, finance and
Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: And a very good afternoon everybody Live on Radio, YouTube
Speaker 2: and Bloomberg originals. Well, the third FOMC decision, it is
Speaker 2: on the books, fed your J. Powells. We just heard
Speaker 2: from Charlie saying it's unlikely that the next policy rate
Speaker 2: move will be a hike, and that is something to
Speaker 2: perhaps tend your hot on.
Speaker 3: Tim, Yeah, I think investors certainly did. R Jay Powell
Speaker 3: said that we've seen stocks come back around, though, as
Speaker 3: Charlie mentioned, Hire by about two tenths of one percent.
Speaker 2: Right now, we were down at least and P ANDAZ decwenhundred.
Speaker 3: We were down going into it for sure. The Fed
Speaker 3: signaling fresh concerns about inflation, though reaffirming it needs more
Speaker 3: evidence that price gains are cooling before cutting interest rates
Speaker 3: from a two decade high. Were you surprised by anything?
Speaker 2: You and I were laughing, We're like so dot dot dot,
Speaker 2: the FED and Jaypowell their data dependent.
Speaker 3: Yeah, Hi, Hi for longer, Hi for longer exactly. I
Speaker 3: made the joke higher for longer. He said, no, Hi
Speaker 3: for longer, No exactly.
Speaker 2: So it's interesting. And in terms of the Ray curve,
Speaker 2: we've talked about this. You heard Charlie walking through the numbers.
Speaker 2: I think what's most as significant is at the shorter
Speaker 2: end of the Yeale curve that to your note, which
Speaker 2: was above five percent right before the FOMC decision. We're
Speaker 2: now seeing at four ninety four. So we definitely a
Speaker 2: little bit lower here. So it's interesting. I think we
Speaker 2: got a lot of what we've heard, but Ja Pale
Speaker 2: continuing to talk about needing more evidence sticking to that
Speaker 2: two percent inflation target objective, if you will, but a
Speaker 2: lack of further progress there, so he wants to see
Speaker 2: more before they're ready to do something different.
Speaker 3: I also thought or cut rates. For the first time
Speaker 3: I heard him talk politics or not talk politics. I
Speaker 3: guess and say, look, I've been through and accounted for
Speaker 3: different presidential elections. We are not a group of people
Speaker 3: who takes politics into account. That's not our job, right,
Speaker 3: That's the factor that they will. I can look at
Speaker 3: the minutes, right. I thought that was an interesting moment.
Speaker 2: Yeah, exactly. He did say further progress though in bringing
Speaker 2: down inflation out assured inflation again, showing a lack of
Speaker 2: further progress, and the path though forward is not certain.
Speaker 2: So yeah again data dependent.
Speaker 4: All right.
Speaker 2: First up, let's talk markets as we should on this
Speaker 2: FED Wednesday. We've got a great guest to do it.
Speaker 2: We've got back with us Doug Cioka, CEO and partner
Speaker 2: at Kavar Capital Partners. They've got roughly one and a
Speaker 2: quarter billion in assets under management. He's with us once
Speaker 2: again from Leewood, Kansas. Doug, good to have you here.
Speaker 2: It feels like, you know, net net after a decision
Speaker 2: and not quite an hour press conference with Jay Powell,
Speaker 2: it does still feel like there's data dependent all so,
Speaker 2: there were some nuances there, some maybe some tweaks here
Speaker 2: in terms of his message. But how did you see it?
Speaker 4: I think so.
Speaker 5: I think you and and Tim were correct, Carol, like
Speaker 5: it was more data dependence. Market's kind of done around
Speaker 5: trip of where it was before the menion where it
Speaker 5: stands right now, particularly it relates to stocks bomb market
Speaker 5: is a little bit better bid. He was certainly prepared.
Speaker 5: I think Tim's right for the questions related to politics.
Speaker 5: I think the timing inso much as the release over
Speaker 5: the weekend of last week that his secret committee Donald
Speaker 5: Trump that is about having more of a presidential influence
Speaker 5: on the FED were he to be elected. I think
Speaker 5: that the FED was smart to be out in front
Speaker 5: of reinforcing the a political nature of their organization and
Speaker 5: the decision making, the process, and certainly the part about stagflation.
Speaker 5: I thought that was maybe the best answer to his
Speaker 5: whole press conference. He doesn't see stag and he doesn't
Speaker 5: see flation.
Speaker 2: We want to do a rap song.
Speaker 3: I wanted to carol after that, and I was like,
Speaker 3: that was like a little a little different version of Powell,
Speaker 3: this time spicy. He seems a little spicy today. I
Speaker 3: don't know, he felt a little felt a little different,
Speaker 3: felt like he went off script a little bit.
Speaker 4: I agree.
Speaker 5: I think he felt the consequence of the meeting merited such.
Speaker 5: I do believe like he certainly and sort of the
Speaker 5: people that are served with every many years would reinforce
Speaker 5: the fact that he doesn't feel the outside influence on
Speaker 5: his decision making, pointing at the record of your point, Tim,
Speaker 5: I think reinforces that, but I also think it's his
Speaker 5: personality that needs to shine through, and I think being
Speaker 5: in touch with the bifurcated economy is really critical. When
Speaker 5: he came into office, all this in the investment business
Speaker 5: were so excited because he wasn't an academic right here.
Speaker 5: He was someone who had invested, started and sold businesses.
Speaker 5: So that touch point with mainstream America and Wall Street
Speaker 5: were kind of a rare combination. And if he can
Speaker 5: come through and find the personality in that profile, I
Speaker 5: think it even magnifies you more as influence.
Speaker 2: So what are your expectations, Doug in terms of what
Speaker 2: the Fed may or may not do or shouldn't do?
Speaker 2: You maybe this year a little bit of both, you know.
Speaker 5: I think the FED did a really good job today, Carol.
Speaker 5: The Edming Jpollo course is displaying a better understanding the
Speaker 5: complexion of the economy, right, And in so many ways,
Speaker 5: our economy is bifurcated. If you have the goods economy
Speaker 5: and the services economy. There are wealth and income lines
Speaker 5: of demarcation, there are large employers small employers, and the
Speaker 5: FED is handicapped right in my opinion because of the
Speaker 5: limited number of tools in our policy toolbox. So if
Speaker 5: they caught rates, that's not going to impact large companies
Speaker 5: that have turned out their debt. It's not going to
Speaker 5: impact healthcare companies, insurance companies, or educational entities. But it
Speaker 5: will meaningleslly help small businesses, particularly small banks, small real
Speaker 5: estate subcomponents, and these are starving for an increase in
Speaker 5: volume that's going to be courtesy of elevated liquidity because
Speaker 5: they've been impeded by tighter financial conditions, could see higher
Speaker 5: interest rates. So the FED understands, and I thought articulately well,
Speaker 5: today there are segments of the goods economy consumer goods
Speaker 5: economy broadly negatively impacted by higher interest rates. Credit card debt,
Speaker 5: subprime model debt was mentioned in one of the questions.
Speaker 5: The bulk of the person of power in this country, however,
Speaker 5: is not in that subsect of the economy. They're not
Speaker 5: going to have their spending patterns impacted by fifty two
Speaker 5: hundred paces points lower than where interest rates sit right now.
Speaker 5: So I think the Fed is do a good job
Speaker 5: of not letting the perfect be the enemy of the good,
Speaker 5: because the perfect is not coming and waiting too long
Speaker 5: could be problematic, So I think that they are still
Speaker 5: predisposed to cutting is smart and understand the two speed
Speaker 5: economy is really really healthy.
Speaker 3: You remind me, Doug of a question I think it
Speaker 3: was Nancy Marshall Genzler Marketplace asked about the effect of
Speaker 3: higher rates on the regular consumer, those who say that
Speaker 3: mortgages are out of reach for them right now because
Speaker 3: rates are higher, and Powell was so quick to say,
Speaker 3: he was so quick to say that what hurts these
Speaker 3: folks more is inflation, and that is what we are
Speaker 3: trying to do. We're trying to get inflation under control.
Speaker 3: Because if you're living paycheck to paycheck and inflation and
Speaker 3: you're experiencing inflation, that's an immediate price increase for your
Speaker 3: basic goods that you just can't afford it.
Speaker 5: That's right, No, I don't disagree with that, dam It's
Speaker 5: almost like there's a meeting point in the middle, because
Speaker 5: access to capital becomes more challenging in the presence of
Speaker 5: higher rates put in position to suppress inflation. So there's
Speaker 5: a middle ground, right, And I think he made a
Speaker 5: really good point to another really good answer that kind
Speaker 5: of dovetails into both these sub points.
Speaker 4: Is that the FED has a.
Speaker 5: Dual mandates, and when the dual mandate, if one of
Speaker 5: the mandates is starting to be more in control of
Speaker 5: being inflation PC and out below three percent, we can
Speaker 5: focus more on job markets, fullness and stability, and that
Speaker 5: will help the consumer that it is in a subprime
Speaker 5: lending that has an affordable mortgages. So I think that's
Speaker 5: one way he was trying to convey that they're in
Speaker 5: touch with the fact that they do have one blunt instruments,
Speaker 5: but they have a dual mandates and the way they're
Speaker 5: going to lean on the propulsion of one sector, each
Speaker 5: of that mandate at any point in time is going
Speaker 5: to address the greatest number of people in need.
Speaker 2: Hey twenty seconds, what's your best investment idea in this
Speaker 2: market environment?
Speaker 5: Yeah, we're kind of the minder. You want to control
Speaker 5: the controllables because there's so much variability that exists in
Speaker 5: the market, and obviously volatility has been elevated. But within
Speaker 5: fixed income, you know, finding these positive real yields with
Speaker 5: load to moderate maturities, right, whether it be Treasury's mortgage
Speaker 5: debt governed A ANDC paper, we've seen these at levels
Speaker 5: today that we've not seen in fifteen to seventeen years.
Speaker 5: Then with inequities, keep within reasonable valuations.
Speaker 4: If the S and p's at twenty.
Speaker 5: One times the average stocks at eighteen times, look for
Speaker 5: those in fifteen sixteen times, high free cash flows, strong
Speaker 5: balance sheets, Plenty of those in health, grantergy, financial services,
Speaker 5: and even in some technoledge and sectors.
Speaker 2: All right, that's a nice little bucket. All right, Doug,
Speaker 2: thank you so much. Doug Cioka, chief executive officer, partner
Speaker 2: of ur Kavar Capital Partners, joining us from Leewood, Kansas.
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Speaker 2: As we said, Big day fed decision with some data
Speaker 2: on the economy, US factory activity contracted.
Speaker 1: We had that.
Speaker 2: We also had some jolts labor, you know, in terms
Speaker 2: of jobs openings, and we saw that there's more openings
Speaker 2: out there. So that kind of plays into what we
Speaker 2: got from Jay Powell in terms of maybe some softness,
Speaker 2: if you will, in the labor market. But one industry
Speaker 2: that we like to pay a lot of attention to
Speaker 2: tim Is, especially when it comes to rate environment policy.
Speaker 2: Is the home builders.
Speaker 3: Yes, stocks in the group up slightly year to date
Speaker 3: with more homebuilders. We welcome back Brad Dillman, chief economist
Speaker 3: at RPM Living. It's the real estate services and management
Speaker 3: company and owner of multi family residential properties and developments.
Speaker 3: Brad here in our Bloomberg Interactive Brokers studio, welcome back.
Speaker 1: How are you.
Speaker 6: I'm doing excellent, Great to be here with you.
Speaker 3: It's good to have you with us. Okay, So you
Speaker 3: guys are based in Austin. You've got a client list
Speaker 3: that owns a portfolio of some three billion dollars. You acquire,
Speaker 3: you build. Remind our audience though, exactly what RPM does
Speaker 3: and what insight that gives you on the home building industry.
Speaker 4: Yeah.
Speaker 6: So we're a manager, investor and developer of apartments, the
Speaker 6: key part.
Speaker 4: Of the business. Management.
Speaker 6: We manage over two hundred and twenty five thousand units.
Speaker 6: That makes us the third largest in the country according
Speaker 6: to the National Multi.
Speaker 3: Family So multi family owners hire you to do management.
Speaker 6: That's right, Which is you know exploded during this the.
Speaker 2: BOLK is that like ninety percent of your business. Yes,
Speaker 2: I was trying to get nice here because you know
Speaker 2: your website talks a little bit about investing and stuff,
Speaker 2: but it's really about management.
Speaker 4: Yeah, and we do.
Speaker 6: We have about twenty thousand units that are invested into
Speaker 6: but that management part of me the third largest in
Speaker 6: the country. That's that's something a lot of data there too.
Speaker 3: How do you scale management though, because at the end
Speaker 3: of the day, management is about solving problems on a
Speaker 3: very small level that can add up to something big
Speaker 3: if they're not addressed. I mean, it's responding to tenants needs.
Speaker 6: Yeah. So you got scale for one, right, but how
Speaker 6: does that scale?
Speaker 3: How do you scale plumbers? How do you scale scale
Speaker 3: in a market?
Speaker 1: Yeah?
Speaker 6: So once you do scale in a market, right, and
Speaker 6: then you could start to share resources between properties. Obviously
Speaker 6: data becomes very important, learning management systems become very important.
Speaker 6: And so these are the kind of things that you know,
Speaker 6: set us apart basically, Right, we have this thoughtful approach
Speaker 6: for looking at how we're actually going to translate our
Speaker 6: individuals on the ground into improving better. So we track
Speaker 6: peak performances. We have a bunch of KPIs in these kinds.
Speaker 3: So maybe you'd have like a service provider on retainer
Speaker 3: for example, that would handle x number of properties for you,
Speaker 3: which would be cheaper than somebody one off calling a
Speaker 3: plumber to fix something.
Speaker 6: Oh, we have staff too, right, so we have our
Speaker 6: own facilities staff that can handle these kinds of things.
Speaker 6: Can be work orders a zeriou.
Speaker 2: How much is automated though at this point, like in
Speaker 2: terms of servicing.
Speaker 6: Well, you do have prop tech, right, so prop tech
Speaker 6: can help you, you know, with an understanding of whether
Speaker 6: or not there's an issue with certain items in a structure.
Speaker 6: But it depends on whether not the structure actually has
Speaker 6: that yet and whether or not that's going to be
Speaker 6: rolled out depends on the investor. A lot of times
Speaker 6: that's large because of the cost or what that's right, Yeah,
Speaker 6: part of the costs that's going to affect their returns
Speaker 6: are interesting.
Speaker 2: Okay, So the rate environment, how is that impacting? What
Speaker 2: can you tell us from your advantage point in terms
Speaker 2: of servicing properties, which is as you said and reminded
Speaker 2: us of the bulk of your business. How is the
Speaker 2: economic and the rate environment impacting that?
Speaker 6: Yeah, So obviously these rates that we've had over the
Speaker 6: last several years have been critical on the cost of debt, right,
Speaker 6: so many people are underwriting properties that they purchased back
Speaker 6: in say twenty twenty one. They're now paying a lot
Speaker 6: more in debt expense than they thought they were going
Speaker 6: through and they're not hitting the rents they thought they
Speaker 6: were going to. There's also more supply than they expected.
Speaker 6: This is an interesting new one, seriously. Yeah, So if
Speaker 6: you look at rent growth, it's some of these major
Speaker 6: markets in the Sun Belt it's down.
Speaker 2: Is that because there has been so much development? Because
Speaker 2: I'm live in an area just outside of New York
Speaker 2: City and rents are pretty high. Yeah, and I think
Speaker 2: some of that has to do although there's been a
Speaker 2: fair amount of development.
Speaker 3: But is it the rent is too Damn I've heard
Speaker 3: that before in this area.
Speaker 4: WHOA stop the presses?
Speaker 2: But isn't Are they just done so much building? Like
Speaker 2: I know some of these markets, like remind everybody we're
Speaker 2: talking about Charleston while we're talking about Austin, Dallas, Houston, Phoenix, Raleigh, Durham, Jacksonville, Tampa.
Speaker 2: These are the markets that you guys play.
Speaker 6: In, that's right. Yeah, And so these were also markets
Speaker 6: you know, they've they've been hit by two things.
Speaker 4: Really right.
Speaker 6: One was the eviction mortory. This was national and related practices. Okay,
Speaker 6: so that created a tighter occupants the environment than we
Speaker 6: otherwise would have had. That took rents higher than they
Speaker 6: otherwise would have been in the context of zero interest rates,
Speaker 6: remember back then. Yeah, that's a lot of supply that's
Speaker 6: all coming to market now. So over the last couple
Speaker 6: of years, we've seen this slowing rent growth environment that's
Speaker 6: now gone negative across huge slots of the Sunbelt, Austin down.
Speaker 2: Which is it's interesting because it's in contrast to what
Speaker 2: we hear, certainly from the FED and JPT right about
Speaker 2: the pressures because of the rental costs exactly.
Speaker 6: And you're not the only one to notice that the
Speaker 6: Cleveland Fed put out of paper to this effect of
Speaker 6: talking about how we kind of need to be looking
Speaker 6: at new lease rent growth in some of these metrics
Speaker 6: when we think about the kind of data that's feeding
Speaker 6: into the inflation calculation. Because if you're telling me that
Speaker 6: shelter inflation is still strong at over five percent, and
Speaker 6: granted I'm only talking about conventional multifamily, that simply doesn't
Speaker 6: jive with rents being down eight percent. Your vere in
Speaker 6: Austin down four percent, You're overe in Atlanta just down
Speaker 6: four percent, your vereen in Orlando, and so on.
Speaker 3: Let's not look at it year over year. Let's look
Speaker 3: at it pre pandemic, because some of the places that
Speaker 3: you mentioned had incredible growth during the pandemic. And we
Speaker 3: especially with the rise of remote work, are we seeing
Speaker 3: a normalization back to rates of twenty twenty we still
Speaker 3: a higher or twenty.
Speaker 6: H we're certainly still higher.
Speaker 3: So that's what I mean. So if you sort of
Speaker 3: normalize this, is it as bad as you say?
Speaker 6: I think it's bad in the sense that if we're
Speaker 6: looking at inflation as measured in the CPI, Yeah, it
Speaker 6: simply doesn't jive with what we're seeing on the ground.
Speaker 6: It doesn't jive with what we're seeing in the private,
Speaker 6: secret data.
Speaker 3: We talked about this with one of our colleagues here
Speaker 3: who Yeah, I think it was Matt Bosler who wrote
Speaker 3: that story about how we're looking at this on a
Speaker 3: national level, but it's a regional story because in some
Speaker 3: areas that shelter component.
Speaker 2: Is not exactly It is really fascinating to see that.
Speaker 2: So okay, so what does it mean? All right? So
Speaker 2: then when you put that into account against the national statistics.
Speaker 2: I mean, how do you describe the housing market?
Speaker 6: Well, so now you want to get an own housing too.
Speaker 6: It's a little bit of a different dynamic. I think
Speaker 6: you know, the k Shuler data came out obviously just
Speaker 6: twenty city indexes at a new high. We've got very
Speaker 6: little volume there right an ar shows us there's not
Speaker 6: a lot of existing you know, home sales. Even the
Speaker 6: data for the k Shuler the sales pairs very low
Speaker 6: by this anders the last fifteen years. So it's sort
Speaker 6: of a moving up on little volume. We're seeing that
Speaker 6: channel to the homebuilders, right, Pulti Group, de or Horton,
Speaker 6: some of these groups coming out with some good earnings
Speaker 6: increasing guidance as well. So I think new housing is
Speaker 6: certainly benefiting right now. In single family all you do
Speaker 6: bread is rental. We only do rental, yes.
Speaker 2: Yeah, okay, So that's interesting because part of the other
Speaker 2: story was that people couldn't afford to buy homes because
Speaker 2: either first of all, there weren't supplies or the prices
Speaker 2: were too high in it was pushing them into rental.
Speaker 2: Is that a trend that you guys continue to see
Speaker 2: in the markets.
Speaker 6: You play. I think we're seeing that now because you've
Speaker 6: got these high mortgage rates, right, there's just no liquidity, really,
Speaker 6: I mean, I guess there is liquid there's just not
Speaker 6: a lot of overlap. There's not a lot of volume
Speaker 6: going on, you know, in the single family market today,
Speaker 6: in the owned housing market today. So yeah, I think
Speaker 6: what we are going to see here is a continent
Speaker 6: until long term rates come down, continued constriction in existing
Speaker 6: home sales activity, and then that channeling back towards rentals,
Speaker 6: which in any case are getting much more affordable at
Speaker 6: least if you look at these sun built markets.
Speaker 3: Big part of the story over the last few years
Speaker 3: actually post financial crisis has really been there just aren't
Speaker 3: enough homes for Americans out there right now in new
Speaker 3: household formations, just not we're not seeing it. When does
Speaker 3: that story end? When does that story change?
Speaker 4: In your opinion?
Speaker 6: So in my projection, I think we're that's going to
Speaker 6: inflect here in the next couple of years, will enter
Speaker 6: systemic oversupply for the first time in two thousand and one.
Speaker 4: Now I'm kind of alone in that outlook. Okay.
Speaker 6: My gauge which I use is using the population sixteen
Speaker 6: and over the non institutionalized. A lot of other commentators
Speaker 6: out there talking about household which is in part weighted
Speaker 6: by the household stock itself, the housing stock itself, right,
Speaker 6: So it's a little bit of a circular reference. It's
Speaker 6: got very different figures saying, you know, we're under built
Speaker 6: by five million units, and so that's ten million people
Speaker 6: you need to house. And yes we've had immigration of
Speaker 6: a large scale, but we've also been completing a lot
Speaker 6: of housing. Those numbers just don't work out for me.
Speaker 6: I get to a figure that we're underbuilt five hundred
Speaker 6: thousand units total, but a lot of that is on
Speaker 6: the single family side because of the distortions we had
Speaker 6: in the market for the last decade. Our underbuilding over
Speaker 6: the last decade has been in single family, no question.
Speaker 2: It's just fascinating. Like I said to you, you know,
Speaker 2: we had too many homes during the GFC, the Great
Speaker 2: Financial Crisis. You know, people were talking about blowing up homes.
Speaker 2: Just get to some of the supply and here we are.
Speaker 4: You know.
Speaker 2: Once again, I mean things are you know, cyclical right
Speaker 2: or I don't know if there's a cycle in terms
Speaker 2: of the build and then the underbuild. So it's kind
Speaker 2: of fascinating to see got it run. Thanks for coming in.
Speaker 2: Brad Dillman, He's chief economist at RPM Living joining us
Speaker 2: here in studio.
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Speaker 3: Well, we don't get retail sales data for the month
Speaker 3: of April until about two weeks from now, but worth
Speaker 3: checking in with an apparel retailer who deals with a
Speaker 3: host of challenges each day, just to check in on
Speaker 3: how things are going. We have with us Chris Riccobono,
Speaker 3: the founder of Untucket. It's the men's apparel company that
Speaker 3: designs and sells shirts meant to be worn untucked. In
Speaker 3: addition to selling online, the company also has seventy three
Speaker 3: stores in the US and Canada, and at a time
Speaker 3: when many retailers are closing stores, Untucket is opening them,
Speaker 3: with fourteen new stores set to open by the end
Speaker 3: of the year. Chris, good to have you with us.
Speaker 3: How you doing. How's business great?
Speaker 4: Thanks for having me. It's good.
Speaker 7: It's been a roller coaster of a ride, you know.
Speaker 7: Starting with in twenty nineteen, we had opened up ninety stores,
Speaker 7: expanded into England Canada. Things were going great. Then obviously
Speaker 7: COVID hits. Everyone starts buying at leisure, not wearing their
Speaker 7: shirts out like they do for ours or on vacation
Speaker 7: or dinner, so it was it tough to get through.
Speaker 7: We managed to get through, and then there were a
Speaker 7: few more bumps in the road, obviously with inflation and
Speaker 7: interest rates.
Speaker 3: But how big of a bump in the road was COVID.
Speaker 3: It was a big bump because were you guys almost
Speaker 3: this is it?
Speaker 4: Yeah?
Speaker 7: We went from selling from fifteen letter of intents coming
Speaker 7: in for a lot of money to almost going bankrupt
Speaker 7: in April three months later. It was a three month difference.
Speaker 7: And it wasn't just because the store closures. It was
Speaker 7: the trend of moving into ath leisure.
Speaker 4: So we hung on.
Speaker 7: Everyone stuck with us. They knew we were going to
Speaker 7: be a great post pandemic brand with the casual shirt,
Speaker 7: and they stuck with us and we made it through.
Speaker 7: So we took on some debt deals that you know
Speaker 7: are still impacting us in some way today. And then
Speaker 7: obviously you have the interest rates and inflation. But we're
Speaker 7: still doing very well today. We had our best year
Speaker 7: ever in twenty twenty two. People wear our shirts everywhere,
Speaker 7: so it's something they need. So even in a recession
Speaker 7: or something close to a recession, they need the shirts.
Speaker 7: They wear them to work, they wear them out to work,
Speaker 7: out to dinner, they wear them on vacation. But it's
Speaker 7: definitely been a wild ride, much more difficult than it was.
Speaker 2: How expensive was that debt to get you through?
Speaker 4: It was expensive. It just gone up and up and
Speaker 4: up and up. That's the problem.
Speaker 2: Were you able to at any point though, because especially
Speaker 2: when we moved down to zero and rates, you know,
Speaker 2: were you able to access or refinance at any kind.
Speaker 7: Of lower rates or no, we didn't refinance. We no,
Speaker 7: it did not have a variety of reasons. Obviously the
Speaker 7: cap structures are pretty complex. But it's definitely been a challenge. Luckily,
Speaker 7: we became profitable in twenty twenty two. We cut our
Speaker 7: marketing significantly. A lot of brands d two see brands
Speaker 7: when they cut their marketing, they drastically dropped because they
Speaker 7: realized they weren't really a strong brand to begin with.
Speaker 7: We cut our marketing by fifteen million, if not north
Speaker 7: of that, and we grew and as positive Ebita once
Speaker 7: again in twenty twenty three, our Ebita also went up
Speaker 7: and we grew. So but it's a everyday challenge. As
Speaker 7: you guys probably hear, people are searching sales more than
Speaker 7: they ever have. It's a dramatic difference when you look
Speaker 7: at the stats of those people going to final sale.
Speaker 7: You know, it cost me ten to fifty to get
Speaker 7: a Starbucks coffee the other day at the airport. So
Speaker 7: if you're spending ten dollars and fifty cents for a
Speaker 7: Grande latte, you understand why people need.
Speaker 4: Relief, you know for sure.
Speaker 6: So what do you do then?
Speaker 2: Talk to us a little bit about pricing and how
Speaker 2: you think about that, you know, so that you are
Speaker 2: not ruled out by your consumer. And you know, as
Speaker 2: you know coming in here our producer, other people in
Speaker 2: the news love your product and wear your products. So
Speaker 2: how do you think about pricing and also maintain some
Speaker 2: margins so that you can keep up that profitability.
Speaker 7: It's challenging because during COVID the consumer kind of controlled
Speaker 7: all the brands you had that. Think about Covid. Remember
Speaker 7: every day it was a wild sale going on, so
Speaker 7: the customer almost got used to that. We're trying to
Speaker 7: pull them back to more normalcy. But during a very
Speaker 7: tough time while all brands are on sale around the clock.
Speaker 4: We're doing a pretty good job with that.
Speaker 7: Like I said, we have what I think is biasedly
Speaker 7: a great product that people want, they need, they use
Speaker 7: in all areas of their life, so they still are
Speaker 7: willing to spend a good amount of money on our product.
Speaker 7: We just know that we have to have product available
Speaker 7: on sale, but we still you know, a lot of
Speaker 7: people buy product a full price. Keeps our margins strong.
Speaker 7: I'm coming across in a way how challenging the environment is.
Speaker 4: But we are doing well.
Speaker 7: We're opening twenty stores. We hope to have another eighty
Speaker 7: in the next three years. Not a lot of brands
Speaker 7: are doing that.
Speaker 2: That's amazing in an environment right tim where everybody's like, Eh,
Speaker 2: just go direct to consumer, Why do you need to
Speaker 2: the expense of stores.
Speaker 7: I think we just do it incredibly efficiently. In twenty fifteen,
Speaker 7: everyone said retail was dead. Our buyers said if you
Speaker 7: don't open a store, we're not buying from you. We
Speaker 7: need to touch and feel the product. Even during COVID
Speaker 7: people ask me, are you mad that you have ninety stores.
Speaker 7: I said, it's the best thing we ever did. Your
Speaker 7: LTV long term value goes up when people come into
Speaker 7: your store. It's more efficient. Your upt's go up. People
Speaker 7: get more attached to it's how many items you buy, Okay,
Speaker 7: got it. People get attached to the brand we serve Scotch.
Speaker 4: We have Scotch there.
Speaker 7: There's couches, people compare their fits, they try on the shirts,
Speaker 7: you leave and you want to come back, So we
Speaker 7: love it.
Speaker 4: It's also a billboard in a way.
Speaker 7: You're it's very I'm not sure if you have had
Speaker 7: anyone who's talking about how hard it is to acquire
Speaker 7: customers online these days. The cost has gone up dramatically,
Speaker 7: So we see it as an advantage while these other brands,
Speaker 7: these small brands that are eating at you online, they
Speaker 7: can't open up another eighty stores, so it kind of
Speaker 7: separates us out.
Speaker 1: So on the stores.
Speaker 3: I was as I was preparing for this, I saw
Speaker 3: on a story recent a Wall Street Journal story, you
Speaker 3: were mentioned in the context of how you choose locations
Speaker 3: for news stores using essentially phone numbers and location data
Speaker 3: from cell phones. Talk a little bit about how you
Speaker 3: do that and how that determines where you open your
Speaker 3: next store.
Speaker 7: It's called placer Ai. It's pretty amazing. So basically, I'll
Speaker 7: give you an example. We just opened up at what
Speaker 7: Whitman Wall in Long Island and it was fairly close
Speaker 7: to some other malls we were in, so we weren't
Speaker 7: sure is it going to be the same demo? Is
Speaker 7: are they gonna have the same habits? Are they going
Speaker 7: to pull from the malls that were already in, and
Speaker 7: just showed that it was different. People who had the
Speaker 7: same demographic did the same things. What time they went home,
Speaker 7: where they went Did they go to Lululemon before they
Speaker 7: came in us?
Speaker 3: So?
Speaker 7: Did they go to Starbucks? The people at this mall
Speaker 7: do the same things at the people at this mall,
Speaker 7: but they're not currently buying from you. Incredibly detailed information
Speaker 7: that just confirmed with what the mall was telling us.
Speaker 7: So it's like another level and it seems to be working.
Speaker 7: We were able to identify, you know, seventy five more
Speaker 7: stores down the road that we can open up and
Speaker 7: not eat into our current customer base and have the
Speaker 7: same type of customer behavior.
Speaker 2: First of all, I'm terrified, yeah, but I'm not surprised,
Speaker 2: and I assume that all of that information is just
Speaker 2: getting so specific. We talk about dossier's that are on
Speaker 2: all of us, but it's really down to incredible detail.
Speaker 2: But it does help you make smart decisions in terms
Speaker 2: of opening up stairs. I mean, how quickly does a
Speaker 2: store become profitable for you guys? Are they profitable?
Speaker 7: They are profitable, So about ninety two percent of our
Speaker 7: stores are profitable. The ones that are not profitable are
Speaker 7: in cities that have just the landscape has totally changed
Speaker 7: post pandemic, like whether it's crime, homelessness San Francisco, but
Speaker 7: that's shifting, Boston, Chicago, it just depends the main Sorry
Speaker 7: Walnut Street in Philly, Yeah, it's shifting, but it's just
Speaker 7: it'll never be what it was where we are right.
Speaker 7: Everyone's in a different location.
Speaker 2: But you won't shut them down.
Speaker 4: Even New York.
Speaker 7: If you look at certain areas and lower fit there's
Speaker 7: less traffic right than it used to be. We will
Speaker 7: shut them down in the next two to three years,
Speaker 7: and we'll funnel them out into the malls. That works
Speaker 7: a good for us.
Speaker 3: What's the exit plan here? You were talking. You started
Speaker 3: by talking about you had an exit plan right before COVID.
Speaker 3: Then COVID happened. What's the exit plan?
Speaker 7: The exit plan is to continue to grow, focus on
Speaker 7: stores wholesale.
Speaker 4: We have no wholesale.
Speaker 7: There are no brands our size that have no wholesale.
Speaker 7: We decided to go about it opening stores and spending
Speaker 7: money to bringing people online. Most brands that start go wholesales,
Speaker 7: so we have a massive wholesale opportunity ahead of us.
Speaker 7: We just did a partnership with DXL, Big and Tall.
Speaker 7: They had incredible sell throughs on the small tests we did.
Speaker 7: International expansion, will be announcing some different countries that will
Speaker 7: be going into licensing deals come at us all the time.
Speaker 7: All of these things we had to kind of add
Speaker 7: on pause. We wanted to get through COVID. We wanted
Speaker 7: to make sure everything was okay with our cap table
Speaker 7: and now focus, so we're not going anywhere for a while.
Speaker 4: My partner and I love doing this. There's tons of
Speaker 4: growth ahead.
Speaker 7: My belief is that a lot of these brands and
Speaker 7: at twenty to thirty forty million dollar range. When they
Speaker 7: have to become profitable pullback marketing, they're going to run
Speaker 7: out money and not be there. Yeah, and we're going
Speaker 7: to kind of be left with some of these other
Speaker 7: great brands that exist.
Speaker 2: But you want to remain private.
Speaker 7: Well, we'll see what the exit is. You know, it
Speaker 7: would either be a sale or going public. It's whatever
Speaker 7: kind of presents at the time. We've got to get
Speaker 7: the environment change better first. It's just not a listen,
Speaker 7: it's not a great environment for any business in my
Speaker 7: you know, if you have high interest rates, you can't recapitalize.
Speaker 4: You can't.
Speaker 7: Yeah, it's hard to raid money, it's hard to you know,
Speaker 7: increase margins. All these different things that we know will
Speaker 7: kind of turn soon and hopefully and we're kind of
Speaker 7: just keep doing the things we're doing in the meantime
Speaker 7: because it's working ten.
Speaker 2: Or fifteen seconds. I know, you're all about the dudes.
Speaker 7: Anything for women or we actually have women's sign which
Speaker 7: which I have friends who don't know that because we
Speaker 7: don't market it, and that's that's in the works. And
Speaker 7: our women's line is significant. It's you know, I don't
Speaker 7: want to share the percentage of the business, but it
Speaker 7: does very well. Repeats are there, and one of our
Speaker 7: plans in the future is to market these other products
Speaker 7: outside of shirts.
Speaker 2: Interesting well, Chris, just FYI, we women shop.
Speaker 6: We had I understand their.
Speaker 3: Percentage, all right, Chris, thank you so much for joining us.
Speaker 3: Chris Ricobono, founder of Untucket. Here in our Bloomberg Interactive
Speaker 3: Brokers studio.
Speaker 4: This is the.
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