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Speaker 2: Let's bring and Drew Redding, Bloomberg Intelligence US home building
Speaker 2: analysts to give us a recap of what we need
Speaker 2: to know about Lowe's results. Drew, Good to speak with
Speaker 2: you is what does lows look like and when it
Speaker 2: comes to its results compared with its big arrival, Home Depot.
Speaker 3: Yes, I think Low's results could be best characterized as
Speaker 3: better than feared, particularly in light of what we heard
Speaker 3: from Home Depot yesterday. They did fall short of consensus
Speaker 3: estimates on same store sales, but I think the buy
Speaker 3: side was probably looking for something flat to lower, so
Speaker 3: a little bit better than they were looking for. Now
Speaker 3: that being said, they did trim their four year outlook.
Speaker 3: Now they're looking for four year comp sales to be
Speaker 3: flat from flat to up one percent, So that would
Speaker 3: imply that four Q is relatively flat. But you know,
Speaker 3: similar to what we heard from Home Depot, they had
Speaker 3: about one hundred basis point impact from hurricane activity that
Speaker 3: was not replicated this year. So again, if you were
Speaker 3: to back that out, it looks like the underlying trends
Speaker 3: in the business are pretty stable.
Speaker 4: You know.
Speaker 3: That being said, they're still grappling with the same consumer
Speaker 3: uncertainty and you know, the same weak housing market that
Speaker 3: their competitors, so you know, still challenges out there in
Speaker 3: the market.
Speaker 5: Drew, I think I understand it correctly that Lows has
Speaker 5: a lower percentage of sales to professional contractors than does
Speaker 5: Home Depot. If so, are they trying to narrow that gap?
Speaker 5: Are they targeting that segment a little more?
Speaker 3: Yeah, great question. So Loew's is about thirty percent professional
Speaker 3: contractors seventy percent DIY. Home Depot is about fifty to fifty,
Speaker 3: maybe even a little bit higher. On the pro front.
Speaker 3: What's interesting to your point on investment is the pro space,
Speaker 3: especially in building products distribution, has really become a battleground
Speaker 3: among home improvement retailers. You had Home Depot recently do
Speaker 3: acquisitions for srs and gms, and then you have Lows
Speaker 3: who recently acquired foundation building materials. So it's certainly an
Speaker 3: area where they're making a concerted effort to grow now.
Speaker 3: LOWS has historically focused on the small and medium sized
Speaker 3: pro and what this acquisition does is it gives them
Speaker 3: exposure to larger pros who do more complex projects, so
Speaker 3: they're able to you know, be the supplier of choice,
Speaker 3: you know, across more building product categories and at a
Speaker 3: larger scale.
Speaker 2: So basically directly competing with Home DEEPO in many ways.
Speaker 2: Is this going to become duopoly or are There's still
Speaker 2: a lot of other places that professional contractors can go to.
Speaker 3: Yeah, so the building products distributions space is still very
Speaker 3: highly fragmented. You know, I wouldn't be surprised to see
Speaker 3: further consolidation within the industry, you know, across different categories.
Speaker 3: Home Depot and LOWS are certainly, you know, two of
Speaker 3: the behemoths in the industry who have you know, the
Speaker 3: scale and financial flexibility to further consolidate the industry. But
Speaker 3: there's some other players as well, like QXO. So it
Speaker 3: is a frag mented industry, but I would expect, you know,
Speaker 3: in the coming years, it's something that continues to get consolidated.
Speaker 5: Drew, I'm probably like a lot of investors out there,
Speaker 5: I can't keep track of where all the tariffs are
Speaker 5: these days, all the different products. But I'm just guessing
Speaker 5: if I'm a Low's or home depot, my plywood from
Speaker 5: Canada that's probably being tariff. A power tool from somewhere
Speaker 5: in Asia that's probably subject to tariffs. How are these
Speaker 5: companies dealing with it? What have they been telling you guys?
Speaker 3: Yeah, good question. So Lows gets about sixty sixty percent
Speaker 3: of its products from the US, so their exposure internationally
Speaker 3: is maybe not as high as you would expect. China's
Speaker 3: probably around fifteen to twenty percent. You know, there hasn't
Speaker 3: been a whole lot of talk. I think we have
Speaker 3: seen their average ticket increase this quarter was up about
Speaker 3: three percent, and part of that is in response to
Speaker 3: tariff related price increases. Loose told us that they were
Speaker 3: only modest increases, and you know, they'll take a portfolio
Speaker 3: approach to how they increase prices. They'll look at their
Speaker 3: product lineup and see where they have more elasticity. But
Speaker 3: I think the impact of costs will start to come
Speaker 3: in a little greater as we look into Q four
Speaker 3: in early twenty twenty six. And you know, some of
Speaker 3: the areas that we're looking at you mentioned Plywood so
Speaker 3: lumber tariffs from Canada. We also had the implementation of
Speaker 3: tariffs on cabinetry both the kitchen and bath, which to
Speaker 3: go up to fifty percent in January. So I do
Speaker 3: think that the impact gets a little greater as we
Speaker 3: look at the next year, so I would expect further
Speaker 3: price increases from both retailers.
Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.
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Speaker 5: YouTube TJ Max. Before to some earnings here, Mary Ross
Speaker 5: Gilbert covers the stock for Bloomberg Intelligence as a retail analyst.
Speaker 5: She's based out there in La Mary, I know you
Speaker 5: guys like the TJ Max. I mean, Alex is a fan. Alex,
Speaker 5: Alex Steel's a fan. Scarla who's a fan? Lisa Mateo's
Speaker 5: a fan. I have the card, You've got the car.
Speaker 2: I have the credit card?
Speaker 3: All right?
Speaker 5: Very good?
Speaker 4: Mary? Are you a fan?
Speaker 5: Our investors a fan?
Speaker 4: Paul?
Speaker 6: You are absolutely right. I'm a fan too, and they
Speaker 6: it's because they carry such a variety of brands and
Speaker 6: it appeals to all income groups. So if you have
Speaker 6: a luxury consumer, you can get Balanciaga, you can get
Speaker 6: Chloe Low, So they carry all of the brands. And
Speaker 6: then if you're more oppressed and you're really a valued consumer,
Speaker 6: they have Steve Madden, they have Theory, so they really
Speaker 6: they have Puma, they have Nike, Adidas, so they have
Speaker 6: all the brands that consumers want, and that's why they're Marmas,
Speaker 6: which is tj Max and Marshall's division, reported a comp
Speaker 6: sales increase of six percent, and that's why. You know,
Speaker 6: if you look at the overall results, they were up
Speaker 6: five percent, so a lot of strength there within the
Speaker 6: Marmas home goods and of course Canada. Canada was up
Speaker 6: eight percent, So we're seeing consumers flock to get the
Speaker 6: brands that they want and they've had some amazing buying opportunities,
Speaker 6: so their margins were higher.
Speaker 2: So the way that TJX stocks at stores is that
Speaker 2: they get inventory that hasn't sold at full price stores.
Speaker 2: But if all these merchants, all these retailers are managing
Speaker 2: their inventories better and don't have a lot of excess inventory.
Speaker 2: Where does tj X get its inventory? I mean it
Speaker 2: has to have a another option, right.
Speaker 6: Yeah, Scarlett, you raise a good question. But the fact
Speaker 6: is is that some of the retailers, but also the
Speaker 6: brands themselves. So if you think of for example, PVH,
Speaker 6: which has the Tommy Hill Figure and Calvin Klein brands,
Speaker 6: we see those brands pretty prevalent throughout off price, So
Speaker 6: that's been a good channel for them to sort of
Speaker 6: release some of that excess inventory. And when they work
Speaker 6: with some of their wholesale partners, including the department stores,
Speaker 6: So where you have product that's not selling off price,
Speaker 6: is just a natural fit to be able to release
Speaker 6: that inventory. So you want to keep your inventory fresh
Speaker 6: in the stores, especially when you're a full price operator,
Speaker 6: and there hasn't been any slow down in terms of
Speaker 6: that excess inventory. And that's why even on the luxury side,
Speaker 6: where typically you wouldn't think you'd find markdowns, it's been
Speaker 6: pretty prevalent, especially with overall weakness in luxury.
Speaker 5: So what does the folks at cheek kJ max what
Speaker 5: are they saying about the consumer these days?
Speaker 6: Well, the consumer, I mean they're really seeing strength. So
Speaker 6: It's interesting because when you sort of read the take
Speaker 6: on Target with their results today and they sort of cited,
Speaker 6: you know, the consumer is very cautious. But that caution,
Speaker 6: I think what's really going on is that they've got
Speaker 6: the brands that consumers want. So those that are executing
Speaker 6: are the ones that are getting the sales, because even
Speaker 6: some retailers that are more full price oriented are generating sales,
Speaker 6: or they may be promotional, like we're going to get
Speaker 6: Gap when they go to report tomorrow, and we think
Speaker 6: we're going to see strong results there out of Old
Speaker 6: Navy and out of Gap, and those are their two
Speaker 6: largest brands. So we think that they're just executing really
Speaker 6: well and providing great fresh merchandise. But they're also promotional
Speaker 6: and they provide value to the consumer. So the consumer
Speaker 6: is flocking to value, there's no doubt about it. But
Speaker 6: we do see some you know, operators, You've got Ralph
Speaker 6: Lauren on the luxury side, they continue to outperform and
Speaker 6: their sales are always topping expectations too, and consumers there
Speaker 6: are willing to pay full price, so there are a
Speaker 6: lot less promotional every year, they seem to be less
Speaker 6: promotional for that reason. They're able to sell at full price.
Speaker 2: So clearly TJX has a strategy that works well given
Speaker 2: the current environment, and even when the economy is doing well,
Speaker 2: I would argue it has a strategy that works well.
Speaker 2: At at what point do investors want more from the
Speaker 2: company than just executing on the strategy. Will they want
Speaker 2: I don't know, am an agent? Do they want consolidation?
Speaker 2: Do they want innovation from TJX?
Speaker 6: Yeah, Well, so that's the reason why TGX is focused,
Speaker 6: you know, internationally. So they're going to be entering Spain
Speaker 6: in twenty twenty six, so coming next year, and of
Speaker 6: course they've had some they have two joint venture investments,
Speaker 6: one in Mexico and then one in the Middle East,
Speaker 6: and they're both off price retailers that they've invested in.
Speaker 6: So they're basically taking their talent and providing them a
Speaker 6: platform to leverage their talent in these joint ventures and
Speaker 6: to grow that way. So they're always looking for ways.
Speaker 6: Because Scarlett, you bring up a good point. TJX trades
Speaker 6: at a pretty high premium in the off price space,
Speaker 6: and generally it's a pretty big premium that is due
Speaker 6: to their very consistent execution. But You're right, consumers keep wondering, well,
Speaker 6: how can they keep growing on top of all this growth?
Speaker 6: And yet they keep doing it. But as they talk about, look,
Speaker 6: they have drops several times a week. There's not a
Speaker 6: lot of retailers that offer fresh merchandise several times a week,
Speaker 6: and they curate the merchandise by location, so they're very
Speaker 6: cognizant of the demographics for each location.
Speaker 5: Stay with us. More from Bloomberg Intelligence coming.
Speaker 3: Up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am. He's den on Apple, Cocklay and
Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
Speaker 5: Let's talk a little bit of commercial real estate here.
Speaker 5: We can talk about big market small markets. We do
Speaker 5: that with Liz Hard, president of Leasing for North America.
Speaker 5: The name of the firm is new Mark, joining us
Speaker 5: live here in our Bloomberg Interactive Broker Studio. We appreciate that. Liz,
Speaker 5: you step back. Let's start with retail. Talk us about
Speaker 5: the retail marketplace. Where are we in terms of filling
Speaker 5: that up?
Speaker 4: Absolutely so, overall, retail's performing really well. This year. Lowest
Speaker 4: availability we've seen is five percent, and we're at five
Speaker 4: point three right now. So across the market is doing
Speaker 4: pretty well, but like most of the market, it's a
Speaker 4: quite bifurcated story. So in normal's performing very well, power
Speaker 4: centers performing very well. But if you look at what
Speaker 4: the availability is, the availability that we're tracking half of
Speaker 4: it's been on the market for over twenty four months,
Speaker 4: So it's that bifurcated story that steth's not moving, it's
Speaker 4: really not moving.
Speaker 2: What does it look like in city center versus the suburbs.
Speaker 2: I think about a couple of places I've been to,
Speaker 2: like Seattle, which there are parts of downtown Seattle which
Speaker 2: look vacant, but then you go to the suburbs like Bellevue,
Speaker 2: and I mean, traffic is out of control and it
Speaker 2: looks like everyone has gravitated over there for certain cities
Speaker 2: that have really been hit hard by the work from
Speaker 2: home phenomenon, what does that look like?
Speaker 4: So we're seeing that trend start to stabilize. It definitely
Speaker 4: was a COVID trend that was very, very pronounced, and
Speaker 4: in the last twelve months it started to smooth out.
Speaker 4: So it is starting to show that it's starting to blend.
Speaker 4: But in the market that you just showed, Seattle is
Speaker 4: a very occupier friendly market. So that's one in which
Speaker 4: the retailers are really calling the shots. And that's true
Speaker 4: in a lot of those West Coast markets right now.
Speaker 4: You're not seeing that as much in other markets, particularly
Speaker 4: in the Sun Belt, where it's really the landlords who
Speaker 4: are calling the shots. So it is a suburban urban trend,
Speaker 4: but it's also a geographic trend across the United States.
Speaker 5: Here in New York City, we just had one of
Speaker 5: the maybe the coolest office building open up, the JP
Speaker 5: Morgan oh My Park Avenue one.
Speaker 2: Watch right, we can't go in there yet though we can't, Well,
Speaker 2: we can.
Speaker 4: Ask Jamie Diamond. You think he'll let us in if
Speaker 4: we ask him on the radio.
Speaker 5: He allows us to remote broadcast there. But again across
Speaker 5: and then across the street from penn Station on. I
Speaker 5: guess it's Sixth Avenue, you know the empty lot there
Speaker 5: where that old Pennsylvania Hotel used to be. So it
Speaker 5: seems like the city's definitely getting better.
Speaker 4: It's back.
Speaker 5: How does New York City look just from an office perspective?
Speaker 4: Absolutely so. In the Trophy category, you're below five percent availability,
Speaker 4: so low single digits, very very high performing. Again, you
Speaker 4: do have that kind of tail of two cities going
Speaker 4: on where the lower end of the market isn't performing
Speaker 4: as strongly, but we're seeing very high absorption in the
Speaker 4: top category, very strong demand being led again, you know,
Speaker 4: financial services sector, tech sector which is coming back, and
Speaker 4: you're having a little bit of an AI boom here
Speaker 4: in New York City. A lot of companies coming out
Speaker 4: for the West Coast that want to get into New
Speaker 4: York City's tech talent, which is bigger than it's ever been.
Speaker 4: It's great to see that happening here in New York City.
Speaker 2: That is super interesting. Talk a little bit more about that.
Speaker 2: What kind of space are they looking for? How quickly
Speaker 2: are they growing? And you know, where do they want
Speaker 2: to be situated. Do they want to be in midtown
Speaker 2: your banks? Do they want to be downtown where it's
Speaker 2: always been more of yes? That And what's the New
Speaker 2: York name for our tech spirits Silicon Alley? No, yeah,
Speaker 2: maybe Silicon Alley.
Speaker 4: I'd say Midtown South and then south of that. They
Speaker 4: do like to be more downtown for the most part,
Speaker 4: not Midtown. Then really although AI is a little bit
Speaker 4: of everywhere because it's also you know, very much where
Speaker 4: we are right now, right because it's even in this building.
Speaker 4: You guys have an AI division, and the talent here
Speaker 4: is going to be in your building as well, So
Speaker 4: it really is everywhere. But in terms of how quickly
Speaker 4: it's growing, I'll talk about San Francisco first, then we'll
Speaker 4: mimic how it's here as well. It's pretty incredible. It's
Speaker 4: growing as quickly as I've ever seen it in my
Speaker 4: twenty year career. There's several companies in San Francisco that
Speaker 4: started less than five years ago that are already looking
Speaker 4: for over one hundred thousand square feet. I think there's
Speaker 4: seven as of the last count, but the numbers changing
Speaker 4: so quickly it's hard to keep track of. And what
Speaker 4: you're really seeing is a commitment to the office space.
Speaker 4: So how interesting is this? Right, they're able to build
Speaker 4: new companies. They certainly have access to technology, you know that,
Speaker 4: and they're a tech first company. But why are they
Speaker 4: choosing to be in the office. Well, they're solving big
Speaker 4: problems and when they're doing it, they want to be
Speaker 4: doing it face to face, and they're choosing to do
Speaker 4: it mostly in higher end buildings, creative buildings. They love
Speaker 4: high ceilings, they love to have natural light. And one
Speaker 4: thing that's really interesting is a lot of them are
Speaker 4: thinking about productivity hacks. So how do they get snacks
Speaker 4: that are elevating their productivity? How do they make sure
Speaker 4: that they even have the level of oxygen? Isn't that
Speaker 4: interesting to make sure that they're maximizing their productivity. So
Speaker 4: a lot of an analytical approach to real estate. That's
Speaker 4: probably much more than we've seen in that past generation.
Speaker 5: How about industrial space, It seems like for a while
Speaker 5: there we're building these Amazon distribution centers everywhere you could,
Speaker 5: I mean half of the state New Jerseys at Amazon
Speaker 5: distribution center. I think talk to just about industrial.
Speaker 4: Yeah, absolutely so. Well, Amazon doesn't seem to be slowing down.
Speaker 4: Trend does continue, But what I would say in general
Speaker 4: is that we are still seeing, you know, some absorption
Speaker 4: that's happening. We built quite a bit of industrial so
Speaker 4: it does feel like from the data there's a little
Speaker 4: bit of a pullback in the data of an increase
Speaker 4: in availability, but it's just because the market's catching up
Speaker 4: to what was built, and we'll see that for the
Speaker 4: next couple of quarters. But we are very long on
Speaker 4: industrial being a very solid market in the US, especially
Speaker 4: with the reindustrialization that's happening and kind of the reformation
Speaker 4: of supply chains based on what's happening with tariffs. But
Speaker 4: what's also interesting is Small Bay Industrial. Wow, what a
Speaker 4: hot part of the market. I mean, very very low vacancy.
Speaker 4: A lot going on there too, so the market's feeling
Speaker 4: pretty hot. And then from a user perspective, you know,
Speaker 4: three pls are really shit. They're the three pls. Oh gosh,
Speaker 4: make you explain these I'm like, it's it's what you do,
Speaker 4: and you're redoing the supply chain logistic. So it's kind
Speaker 4: of like a I don't want to call it the
Speaker 4: we work of supply chain, that might be too simple,
Speaker 4: simple simplifying it, that kind of thing. They basically have
Speaker 4: them take it on and then they reposition it for you.
Speaker 4: But three pls that's really the dominant player in the market.
Speaker 2: Which city is kind of hitting on all cylinders here
Speaker 2: when it comes to industrial, when it comes to office,
Speaker 2: when it comes to retail.
Speaker 4: Ooh, all three would I think probably if you're going
Speaker 4: to say all three, it would have to be somewhere
Speaker 4: in the south southeast quadrants, so I'm sun Belt sun
Speaker 4: Belt sun Belt in southeast quadrant is where I would
Speaker 4: say it is probably heading on all three at the
Speaker 4: same time.
Speaker 5: Thirty seconds left. I finally want to go out and
Speaker 5: build something up, build a building, office tower or something.
Speaker 5: Can I get the capital to do it? Can I
Speaker 5: get the banks to lend me money to do it?
Speaker 4: Well, it certainly depends on what you're building, but if
Speaker 4: you're building for trophy in a place with good demand,
Speaker 4: you can now.
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