Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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Speaker 1: you blink, you will probably miss the direction of stock markets.
Speaker 1: They are whipping around. Uh, they were down, then they
Speaker 1: were up as much as a percent on the Nasdaq,
Speaker 1: which has been leading the losses and the gains, and
Speaker 1: now they're up solidly but way off that NAZAC up
Speaker 1: to tents of two tenths of a percent joining us now.
Speaker 1: Matt Malee, equity strategist for Miller, ty Back and Company,
Speaker 1: joining us, Mad, how do you interpret the whippy action
Speaker 1: that we've seen, Uh, that really has marked every day
Speaker 1: over the past few weeks. After the past few weeks,
Speaker 1: excuse me, it feels like a Friday. Yeah, it's it's well,
Speaker 1: yesterday's it was. It was particularly worrisome because a lot
Speaker 1: of these big swings we've seen have been kind of
Speaker 1: one directional. We do in other words, well, say two directional.
Speaker 1: In other words, the first direction is in the morning
Speaker 1: we either open up very strongly or open down very strongly,
Speaker 1: and then uh, and then we move in the other direction,
Speaker 1: So that's kind of a second move. Yesterday we actually
Speaker 1: had three moves and uh. I think that you know,
Speaker 1: that does nothing but making people more uncertain. And as
Speaker 1: we all know, I mean, it's an old cliche, but
Speaker 1: it's very very true. There's nothing worse for the markets.
Speaker 1: The markets hate nothing more than uncertainty. And I think
Speaker 1: this has got people stepping back from this rally this morning.
Speaker 1: I mean, it's still holding up a little bit, but
Speaker 1: we're well off our highs on the day. Matt Malie,
Speaker 1: in your experience, is it possible to know how many
Speaker 1: shares of a particular stock need to be traded in
Speaker 1: order to move that said stock in one d direction
Speaker 1: or another. I'm sure there's been many studies on it,
Speaker 1: but for exact numbers that I'm not aware of it. Okay.
Speaker 1: The reason I bring that up is because hardly anyone
Speaker 1: has that information. I've never met anybody who can tell
Speaker 1: precisely what kind of volume is necessary in order to
Speaker 1: move his stock, and the reason I posed this to
Speaker 1: you is because the prices are determined not by long
Speaker 1: term shareholders who may not ever touch their positions. But
Speaker 1: I'm wondering who determines the price that we see on
Speaker 1: a daily basis, not on a long term basis, but
Speaker 1: on this volatile trading basis. Well, I'm afraid nowadays, of course,
Speaker 1: and more than more than ever, it's these uh you know,
Speaker 1: it's the mechanics trading. And we all talk about algalis
Speaker 1: and high frequency traders and such. We've been talking about
Speaker 1: it for years, but there's no questions they play a
Speaker 1: big role. And and the thing is in in in
Speaker 1: former days when you didn't have such a you know,
Speaker 1: there was been recognized trading around for a while. But
Speaker 1: with these algorithms that they're just kicking immediately. But not
Speaker 1: only do they add by orders when the when the
Speaker 1: market's going up, but they cancel sell orders and they
Speaker 1: cancel offerings in the same one in the opposite direction,
Speaker 1: when they add sell orders, they cancel their bids. And
Speaker 1: this exacerbates the big swings that we have in the marketplace,
Speaker 1: and it makes it for much harder for for us
Speaker 1: to regain our you know, kind of the UH investor
Speaker 1: confidence that we need to get, you know, to form
Speaker 1: an exactly a kind of the bottom for this h
Speaker 1: this sell off. So given that confusion, can you read
Speaker 1: anything into this? I know that you have a lot
Speaker 1: of specialty looking at technical analysis and sort of watching
Speaker 1: the markets and the patterns. Me are you gleaning anything
Speaker 1: or is it sort of all over the place because
Speaker 1: of this of the noise? Well? No, actually, you know
Speaker 1: we are seeing some things now, I mean the showing
Speaker 1: that we I think we're getting somewhat close to a
Speaker 1: bottom the problem whenever we have in terms of time,
Speaker 1: I think that we you know, we're starting to see
Speaker 1: a big pickup in volume. We're seeing some of the
Speaker 1: major groups I'm sorry, the major average is being oversold,
Speaker 1: maybe not yet to the quite the big extremes we
Speaker 1: usually see, but still getting very close to that. We're
Speaker 1: also seeing um sentiment. I mean, I look at the
Speaker 1: daily Sentiment index which measures futures traders. It's only ten
Speaker 1: percent bulls right now, that's quite a quite extremely sometimes
Speaker 1: you usually seem to need to see it fall into
Speaker 1: the single digits, but we're getting very close to that.
Speaker 1: So the problem is with these mechanized tradings going on,
Speaker 1: you could see a big another down, draft, another down
Speaker 1: five percent or more over a couple of days before
Speaker 1: we get that bottom um. But the thing I like
Speaker 1: the most right now is what we're seeing in some
Speaker 1: of the really beaten down groups, like the housing stocks
Speaker 1: and the um bank stocks. They've gotten so oversold that
Speaker 1: they're really getting to a level they should be bought.
Speaker 1: I believe number one and number two this week they've
Speaker 1: outperformed the rest of the market, so they're holding up
Speaker 1: much better than the rest of the market. Shows that
Speaker 1: at least they're getting washed out. So I think the
Speaker 1: rest of the market is getting very close to being
Speaker 1: washed out as well. Matt. Maybe I just want you
Speaker 1: to offer a little bit more detail into the technical
Speaker 1: aspects of trading, in the sense that sell orders can
Speaker 1: be canceled because you might put out a bid there
Speaker 1: to sell a large block of stock, and by the
Speaker 1: time you get back any information about what's available at
Speaker 1: a particular price, you can then cancel that order, which is,
Speaker 1: as you say, would accentuate changes in volatility exactly. They
Speaker 1: they again these these uh the way these things are
Speaker 1: set up in in in fractions of a section, so
Speaker 1: and I mean real fraction tiny when millions of it,
Speaker 1: well one thousands of of a second. Uh, these orders
Speaker 1: can be canceled. You think you've got a bid to hit,
Speaker 1: in other words, that you can sell it at a
Speaker 1: certain price. When you go down to sell it, it's
Speaker 1: not there. Uh. And then suddenly you're selling at a
Speaker 1: lower price. And if you put a market order in
Speaker 1: and then suddenly you're you're hitting. Instead of sending a
Speaker 1: lot of one price, you sold just very little there,
Speaker 1: and then you sell the stock down, so it's it
Speaker 1: gets overdone. I'll tell you though, if we get another downdraft,
Speaker 1: I believe the best way to play it is not
Speaker 1: trying to pick the bottom. But while I call align
Speaker 1: the book. In other words, if you want to buy
Speaker 1: a foul dollars with a stock by two at one level,
Speaker 1: then by another two hundred down half of a dollar
Speaker 1: below that, and below that, blow that line it all
Speaker 1: the way down. You're never gonna be able to pick
Speaker 1: the bottom. But that way your average price will be
Speaker 1: actually quite good and you won't be sitting there trying
Speaker 1: to chase things around when all this mechanized trading is
Speaker 1: going on. Matt, what do you think is driving the
Speaker 1: sell off. Well, I think you know, it's threefold. Number
Speaker 1: one is the the Federal Reserve u uh sticking by
Speaker 1: their guns and saying that they're going to continue to tighten. Um.
Speaker 1: And the one thing is that they've been tightening for
Speaker 1: two years now, almost two years anyway, and and that's
Speaker 1: what happens. That usually takes usually a big lad between
Speaker 1: when they start tightening when it has an impact on
Speaker 1: the stock market. Now. The same thing as is true
Speaker 1: uh on the these um things with trade issues with China.
Speaker 1: I mean, it was a lot of talk, but once
Speaker 1: these trade I'm sorry, these terrorists were actually imposed, that's
Speaker 1: when it's starting having the impact. And it is having
Speaker 1: an impact as we're seeing on at least not earnings
Speaker 1: right now, but on earnings guidance, and that's a big concern.
Speaker 1: And the last thing, of course, I think is Europe
Speaker 1: with this thing is Italy. The people. You know, we've
Speaker 1: seen the European banks fall well into the bear market
Speaker 1: territory before and our markets started to decline. It's something
Speaker 1: people were ignoring and not paying enough attention to. So
Speaker 1: it's kind of three three pronged thing here. Um. But uh,
Speaker 1: you know, it's it's the economy is still fine. I think, Well,
Speaker 1: this correction is healthy and normal. It could be a
Speaker 1: little bit deeper, actually, could be even go down another
Speaker 1: you know, like I said, five or six or seven
Speaker 1: percent more, But uh, we don't want things to go
Speaker 1: up on a straight line. This is actually healthy and
Speaker 1: h I wouldn't um, I wouldn't get overly concerned. It's scary,
Speaker 1: but that's that's the way it works. Thanks very much
Speaker 1: for being with us. Matt Malee is the chief equity
Speaker 1: strategist for Miller, tay Back and Company, and it sounds
Speaker 1: as though he's bullish, at least on the price action.
Speaker 1: I mean, this price action is mind boggling. Now we're
Speaker 1: back down to barely any gain at all on the NASDAC.
Speaker 1: I mean, things have absolutely been swinging all over the
Speaker 1: place h today, and they have been over the past
Speaker 1: few days. That certainly undermines confidence in and of itself. Yeah,
Speaker 1: and you've got this sell off well. I mean, even
Speaker 1: though the SMP fire is higher by a little bit
Speaker 1: more than six and a half points, it is off
Speaker 1: its highs of the day, and we are almost doing
Speaker 1: a round turn to where the market opened. General Electric
Speaker 1: has been a source SPoD for equity markets for a
Speaker 1: long time, and today it almost looked like they were
Speaker 1: ripping the band aid off. And then regulator, as it
Speaker 1: turns out, are looking into the company Brooks Otherland Bloomberg
Speaker 1: opinion columnists covering all things industrials choices. Now, so what's
Speaker 1: going on here and why can't she just catch a break?
Speaker 1: There are a couple of different things going on here. Um,
Speaker 1: so you know you reference regulators what they said on
Speaker 1: the conference callege the SEC is expanding its investigation into
Speaker 1: the companies that counting practices to include this twenty two
Speaker 1: billion good will charge that they booked in their power unit. Now,
Speaker 1: the SEC started this investigation after g E said in
Speaker 1: January that it was going to have a fifteen billion
Speaker 1: reserve shortfall related to a legacy insurance business. So to me,
Speaker 1: it's not terribly surprising that the SEC is going to
Speaker 1: look at this good will charge because it's basically the
Speaker 1: same issue. So the insurance business GE reviewed that every
Speaker 1: single year. So then all of a sudden come out
Speaker 1: with a fifteen billion dollar shortfall. I think raised a
Speaker 1: lot of questions about the credibility of their internal controls.
Speaker 1: It's the same issue with the good will I mean
Speaker 1: G reviewed that as recently as the second quarter and
Speaker 1: said that the you know, caring value exceeded the fair
Speaker 1: value and so too. Then all of a sudden do
Speaker 1: a complete all of a sudden, have this twenty two
Speaker 1: billion dollar charge. I think those are the same questions. Now.
Speaker 1: The difference, I think, and the bigger point is that
Speaker 1: G also said the d o J is now investigating
Speaker 1: the same things the SEC was looking into, including this
Speaker 1: good will charge the Department of Justice, meaning it could
Speaker 1: be potentially criminal. Yes, and so I think that obviously
Speaker 1: adds another element of risk here. The other factor is
Speaker 1: now that you're bringing this good will charge into the
Speaker 1: SEC and based investigation. There's a number of shareholder fraud
Speaker 1: lawsuits out there against GE related to that insurance reserve shortfall.
Speaker 1: This just sort of adds more fuel to their claims.
Speaker 1: I wonder if you could tell us what the effect
Speaker 1: or potential effect this might have on the credit rating
Speaker 1: of g E. Yes, so um SMP has cut its
Speaker 1: credit rating on GE earlier this month or now at
Speaker 1: B B B plus, down from A, and Moody's and
Speaker 1: Fish put their ratings on review for downgrade Um. Personally,
Speaker 1: I have to say that's long overdue, and they were
Speaker 1: about the last people to wake up to the fact
Speaker 1: that gees earnings and debt prospects for the foreseeable future
Speaker 1: are nowhere near that realm of credit worthiness. Um, you know,
Speaker 1: in terms of the numbers from today changing their outlook.
Speaker 1: I don't know if there's anything that would necessarily, you know,
Speaker 1: dilute that more other than just sort of the ongoing
Speaker 1: challenges that the power unit, which g says is going
Speaker 1: to cause it to significantly miss its cash flow targets
Speaker 1: for the year. So why were the shares up ahead
Speaker 1: of the market open when the company said that it
Speaker 1: was going to cut its dividend, which was widely expected,
Speaker 1: but still it means that shareholders are getting less money
Speaker 1: and missed estimates, and still their shares were rallying until
Speaker 1: I mean, it almost makes you feel like they shouldn't
Speaker 1: have conference calls, right, But no, I I think you
Speaker 1: know why you saw the shares railing. The divon and
Speaker 1: cut was expected, but I think it's the kind of
Speaker 1: aggressive action people are really looking for out of Larry
Speaker 1: colpe Um. And I think I talked with you at
Speaker 1: the time when John Flannery cut the divon in last
Speaker 1: year about how it probably wasn't going to be enough
Speaker 1: and that the payout was still going to soak up
Speaker 1: way too higher percentage of their free cash flow. Um.
Speaker 1: And that was with their you know, old target. Now
Speaker 1: obviously with the new target, it becomes even more untenable.
Speaker 1: And so I think this was a bold step and
Speaker 1: it was also a necessary step when you look at
Speaker 1: all of these potential capital calls, the g E and
Speaker 1: the ongoing struggles in G Power. I mean, he needed
Speaker 1: to do something to shore up the balance sheet, and
Speaker 1: I think this was what investors were looking for. Um.
Speaker 1: You know, and there's some debate about GE has long
Speaker 1: been sort of a retail investor attraction, but you know,
Speaker 1: you probably lost some of that base when they cut
Speaker 1: the dividend the first time around. So that maybe why
Speaker 1: you're not saying quite as painful of a reaction. Is
Speaker 1: the power unit at GE salvage herble? Yeah, Uh, that
Speaker 1: is the question. Um, you know, there's a lot of
Speaker 1: debate about this. I do think it's interesting what they're doing.
Speaker 1: So they said they're going to split the power unit
Speaker 1: into two, and so one will be primarily focused on
Speaker 1: the gas, turbines, equipment, and services, and then the other
Speaker 1: will be sort of all of these other assets that
Speaker 1: are in power, so that's steam, that's nuclear, that's power convergent.
Speaker 1: Not all of those other assets are bad and they're
Speaker 1: not necessarily as exposed to this sort of structural transition
Speaker 1: where you know, the preference is really shifting to renewable
Speaker 1: energy technologies because they're cheaper. But some of these assets,
Speaker 1: like industrial focus generation equipment or the grid's business, those
Speaker 1: still have a relatively viable outlook. I mean, you think
Speaker 1: about a b b is trying to sell its grids
Speaker 1: business and it is getting pretty high valuations for it.
Speaker 1: And so the idea here is to sort of create
Speaker 1: i mean almost a bad bank of power assets and
Speaker 1: then you know, an okayish bank of these other assets.
Speaker 1: So that should help. The other big thing is cost cuts, um,
Speaker 1: but you know, there's a big debate on how much
Speaker 1: those cost cuts are actually going to translate to the
Speaker 1: bottom line. G has done a lot of restructuring over
Speaker 1: the years, and we haven't really seen that playoff, and
Speaker 1: there's issues in Europe to given the agreements that they
Speaker 1: made as part of the Alstom deal around jobs numbers
Speaker 1: as to how deep they can cut their many Thanks
Speaker 1: always Brooks Otherland, a Bloomberg opinion columnist all about deals
Speaker 1: and industrial companies. After the close of trading today, we
Speaker 1: will get quarterly results from Facebook. And here to tell
Speaker 1: us about Facebook and other technology stocks is none other
Speaker 1: than Colin Gillis, the director of research for Chatham Road Partners.
Speaker 1: Colin Gillis, is Facebook as big as it's going to
Speaker 1: ever get him? It's always a wonderful pleasure to speak
Speaker 1: with you. And let's put this into perspective. Right, we've
Speaker 1: gotten three names out of the five letter fang tech
Speaker 1: stocks that have reported, right, Facebook, Apple, Amazon, Netflix, and Google.
Speaker 1: And then we know that of the Amazon, Netflix and
Speaker 1: Google reports that we've seen, the stocks have all traded
Speaker 1: down today. Is Facebook's turned The stock has declined over
Speaker 1: from a tie in July. I do not think it's peaked.
Speaker 1: You don't think it's peaked. In other words, I do
Speaker 1: not you think that it's going to rally. I do, right,
Speaker 1: And so I understand the concerns that they're running out
Speaker 1: of users, right, the concerns literally you know they've got
Speaker 1: around two point two billion users are about three point
Speaker 1: five billion humans on the Internet, So that's going to
Speaker 1: be a constraint factor. I definitely understand that they're putting
Speaker 1: in more and more expenses around privacy and contact control, right,
Speaker 1: but they're going to be able to extract over time
Speaker 1: more value per user. And while you may see margins
Speaker 1: come down, they've told us that quite clearly, Right, this
Speaker 1: is still a company that's going to grow its revenue
Speaker 1: this quarter, somewhere along the lines of you know, on
Speaker 1: a year of a year basis, it's a real bit nous,
Speaker 1: if it's a real business, then those billions of users
Speaker 1: are potentially at risk if something goes wrong with the platform,
Speaker 1: and something has gone wrong previously correct, correct, Yeah, And
Speaker 1: this is you know, this is the risk reward equation, right,
Speaker 1: and this is why some people have decided to exit
Speaker 1: their investments and rotate their money into other names. Right.
Speaker 1: But given the magnitude of the pullback, and also you
Speaker 1: said hasn't gotten as large as E were going to get.
Speaker 1: It's market cap is four billion dollars, well, still well
Speaker 1: below you know where Google is at it, you know,
Speaker 1: with seven seventeen Amazon, right, much larger than Netflix. Well, Colin,
Speaker 1: I'm wondering heading into what was your outlook on Facebook shares.
Speaker 1: So we were uh concerned for four pull back. We
Speaker 1: were concerned that the market was not factoring in the
Speaker 1: costs related to the obviously efforts that they were that
Speaker 1: they had to implement. Right, and some of that did
Speaker 1: bear out to be true, But now I think the
Speaker 1: pendulum has swung too far the other way. Well, hold
Speaker 1: on a second, because you were talking about how it's
Speaker 1: a real business and how it's you know, it's not
Speaker 1: as big as Google, for example. But at the end
Speaker 1: of the day, Facebook essentially is an advertising platform. Is
Speaker 1: essentially a place where they have a lot of eyeballs
Speaker 1: and they can distribute content to them. But if they're
Speaker 1: algorithms and if their privacy standards are questioned, that undermines
Speaker 1: their business model, albeit real or not. Well, it only
Speaker 1: undermines that business model if we see users leaving the platform,
Speaker 1: and if we see advertisers leaving the platform. Right, and
Speaker 1: so we're gonna see that. We're gonna get that data
Speaker 1: literally literally, you know, in a few hours, right, and
Speaker 1: we'll see the particularly the most valuable component are the
Speaker 1: North American right monthly active users, and we'll see if
Speaker 1: that number moves, right, it's kind of stalled out right,
Speaker 1: you know they were it's around two one million, right,
Speaker 1: you know, any lift from that number last quarter would
Speaker 1: be would be a positive. So you know it's not
Speaker 1: going to grow much. But if you can extract more
Speaker 1: revenue from those people, right, and that number that are
Speaker 1: two the average revenue per user is people are expecting
Speaker 1: a nice hefty lift on that. The estimate is that
Speaker 1: each user in the United States or Canada generates about
Speaker 1: twenty six dollars in revenue for the company. Right, all right,
Speaker 1: Now you talk about the potential for Facebook, do they
Speaker 1: have a plan for how to monetize What's App? Well,
Speaker 1: you know, what's app is a wonderful messaging service. Messaging
Speaker 1: in and of itself has not been very well monetized,
Speaker 1: and so I wouldn't be focused as much on the one.
Speaker 1: I wouldn't be an investor based on the what's that
Speaker 1: part of the story. I wouldn't be an investor based
Speaker 1: on uh oculus part of the story. Right, Instagram is
Speaker 1: obviously also a growing, flourishing business. It's going to have
Speaker 1: the same monetization opportunities as Facebook, right, But you want
Speaker 1: to make sure that the core business itself is is
Speaker 1: that they're able to stabilize it. They're able to do
Speaker 1: so in a way where they can retain their users,
Speaker 1: where they can retain their advertisers, and that they can
Speaker 1: can quell both public perception as well as investor concerned
Speaker 1: that the management team has a privacy issue that they
Speaker 1: can't contain. Let's shift our focus a little bit to Thursday.
Speaker 1: That's when Apple is going to report their third quarter earnings.
Speaker 1: Shares of that company up almost year to date. What
Speaker 1: are you expecting to hear from them, right, you know?
Speaker 1: And so the thing with Apple is, while everyone you
Speaker 1: know will dissect the numbers that the report, the most
Speaker 1: important piece of information they'll give will be the guidance
Speaker 1: for the December quarter because they're still very stacked to
Speaker 1: the holiday season. And right, if you focus on the
Speaker 1: iPhone itself, right, the concern that the thesis is one
Speaker 1: of two things. Right, it's a stable platform on which
Speaker 1: they can build a successful services business on top of right,
Speaker 1: and that's a positive thesis. Or you look at the
Speaker 1: units of iPhones and you say they've done a good
Speaker 1: job of driving more revenue per phone. But if you're
Speaker 1: concerned that the unit base you know, is either growing
Speaker 1: and you know, small single digit numbers, or possibly even shrinking,
Speaker 1: but the revenue is being made up because they're getting
Speaker 1: more revenue per phone. Then that may impact the services
Speaker 1: business and its ability to grow, because a big part
Speaker 1: of the of the story and the thesis is that
Speaker 1: the services business will become a major margin driver and
Speaker 1: will add a higher multiple business onto the lower multiple hardware,
Speaker 1: onto the hardware side, thinner, lighter and has written a
Speaker 1: display that's the description of the new MacBook Air that's
Speaker 1: just been released and is on sale from Apple. Do
Speaker 1: you believe that the desktop or the laptop or the
Speaker 1: computer and PC business for Apple is important? It's you know,
Speaker 1: it's it's it's really just icing on the cake, right
Speaker 1: and depending on how the phones move and and the
Speaker 1: r poos, right, the rest of it is, you know,
Speaker 1: just kind of consider ampler information. Thank you so much
Speaker 1: for being with us. Colin Gillis, a director of research.
Speaker 1: Chatham wrote partners talking about what to expect with Facebook
Speaker 1: coming out after the bell with their earnings, as well
Speaker 1: as Apple under armour has been a stock that has
Speaker 1: been hard to get right. Today it is surging at
Speaker 1: twenty six per scent after demonstrating that it's turnaround is
Speaker 1: taking hold. That is the biggest one day pop in
Speaker 1: the share since two thousand and eight. Joining us to
Speaker 1: break it all down, give us a sense of what's ahead.
Speaker 1: Is Channa cartuitis He's apparel and footwear analyst for Bloomberg Intelligence.
Speaker 1: So Chenn, what's your take? What exactly drove there better
Speaker 1: than expected results? Yeah? High, I think this is today
Speaker 1: we actually see the first phase of the turnaround UM
Speaker 1: actually benefiting the company UM. And I think it's mainly
Speaker 1: on the margin side, and and they took a few
Speaker 1: steps that are necessary for the business, but they were
Speaker 1: very hard to do UM. So, first of all, the
Speaker 1: inventory inventory was done one percent versus last year, and
Speaker 1: that was a surprise because we were expecting it to
Speaker 1: be a lot higher. And when you have less inventory
Speaker 1: is when you have to do a less discounting. So
Speaker 1: in Bloomber Intelligence, we track, for example, the promotional emails
Speaker 1: year of year. So last year in the third quarter
Speaker 1: we had about thirty three emails we got from them.
Speaker 1: This year's only twenty, so there's a thirty percent decrease
Speaker 1: in discounting. So gross margin the higher and that's what
Speaker 1: drove most of the benefit this quarter. Just say that again,
Speaker 1: you tracked the number of promotional emails that are sent
Speaker 1: out by like every company, for the companies we cover, yes,
Speaker 1: and it gives us some indication year of a year
Speaker 1: how promotions look like. Clearly, because I noted that the
Speaker 1: retailers cited under Armour in several cases as being the
Speaker 1: cause for why their numbers were not better because they
Speaker 1: were flushing out the inventory that I guess under Armour
Speaker 1: had shipped to them, right, So under Arma would have
Speaker 1: different channels to clear their inventories. So you know, while
Speaker 1: the retailers have elevated inventory under Arma, we're not promoting
Speaker 1: their own in their own channels, so they're able to
Speaker 1: get their margins on that side. Is this is this
Speaker 1: a story about international growth versus growth in the United
Speaker 1: States for under Armour. So under Armory is still mostly
Speaker 1: US a lot more than you know, their competitors like
Speaker 1: Nike and Adidas. So yeah, they're still let's say they're
Speaker 1: still seeing you know, double digit growth in international markets,
Speaker 1: but it's a much much lower base. UM we saw
Speaker 1: a pause and then in the the third quarter it was
Speaker 1: only about UM they think they're gonna see the re
Speaker 1: acceleration of that in the fourth quarter, so going back
Speaker 1: to a growth. So it's it's for the most part,
Speaker 1: it's an international story. For undrum. The interesting thing to
Speaker 1: me is how under armour certainly is an idiosyncratic story.
Speaker 1: But I'm looking right now at the SMP five hundred
Speaker 1: sub index of retailers, which is actually outperforming the broader
Speaker 1: SMP index year to date, which is a surprise because
Speaker 1: this industry had been left for dead. What does that
Speaker 1: tell you? So you know what I gotta I gotta
Speaker 1: say when we're going into I had a you know,
Speaker 1: feeling and looking at the data, that is going to
Speaker 1: be the year that retailers actually fight back the five
Speaker 1: back Amazon, the fight back the shift to e commerce.
Speaker 1: They're trying to um. You know, they are in a
Speaker 1: mode of surviving survival, so closing stores, we're just in
Speaker 1: the inventory. But now they're trying to figure that out.
Speaker 1: So now they they're starting to at tools to actually
Speaker 1: help them compete with their online competitors, so, you know,
Speaker 1: getting better insights from data online on you know, which
Speaker 1: inventory they should put in which stores. UM, that helps
Speaker 1: them to again avoid discounting so less inventory in stores
Speaker 1: that are not doing well. Um, cutting the cycles of
Speaker 1: getting merchandise into the stores. Instead of the nine to
Speaker 1: twelve months, now you can go three to six months.
Speaker 1: So you're better, you know, you have a better idea
Speaker 1: and the trends out there in the market. Then you're
Speaker 1: not bringing in merchandise. It's not going to sell fast.
Speaker 1: So its retailers are getting smarter about what they're selling
Speaker 1: the store. Um. I think people are feeling compelled to
Speaker 1: go and visit the stores because they look better and
Speaker 1: they have more you know, on trend stuff. Um. Therefore
Speaker 1: the seals are beratter, margins are better. Can you speak
Speaker 1: to any product that they've introduced that is a big
Speaker 1: winner for them right now, specifically und armor? Yeah. I
Speaker 1: think actually that's part of the problem, um, because what
Speaker 1: we're seeing is the turnaround is mainly about the margin.
Speaker 1: I'm still waiting to see in the product pipeline what's
Speaker 1: going to be the next hit. Now next month in December,
Speaker 1: they're gonna have an investor day, and I think over
Speaker 1: there we're going to see some of the new products
Speaker 1: are going to come out next year in to reignite
Speaker 1: the growth rather than just the margins. They're going to
Speaker 1: be using technology to make these textiles and these products.
Speaker 1: I mean they got hoodies, joggers, polos, underwear, I mean
Speaker 1: everything you know, cold gear, hot gear, compression gear. I
Speaker 1: think they want to be known as as the company
Speaker 1: that actually brings into science into their apparel and footwear.
Speaker 1: And I think that's the message they want to send
Speaker 1: to the consumers and they're going to continue to do
Speaker 1: so going forward. So is under Armour grabbing share from
Speaker 1: other retailers or is this just sort of a general
Speaker 1: increase in demand across the boarders the economy expands. So
Speaker 1: that's not happening yet. So I don't think they're taking
Speaker 1: share away from Nike audit does. It's just that the
Speaker 1: sales that they are getting, they're getting in a much
Speaker 1: better margin than they did before, so they don't have
Speaker 1: to clear as much inventory. So we're not seeing that
Speaker 1: grabbing share yet, but we might next year. And it
Speaker 1: is a competitive business, very competitive business, and very hard
Speaker 1: to get into. If you're not easy to make shoes, no,
Speaker 1: and not to make them in the volume that Adidas
Speaker 1: or Audi Das as well as Nike makes, and make
Speaker 1: you and make it the design compelling enough of people
Speaker 1: to buy. Maybe Elon Musk will get into it. Oh
Speaker 1: there you go from your lips. All right, No that's
Speaker 1: I'm not sorry, sorry, not sorry, sorry not I see
Speaker 1: footwear in your future. Thanks very much for being with us.
Speaker 1: And Grass is a apparel and footwear analyst for Bloomberg Intelligence.
Speaker 1: You can follow him on Twitter at se Gratis. Now
Speaker 1: spell it c g R A z U t I s.
Speaker 1: We all follow him because we want to know what's
Speaker 1: going on in the world of apparel and footwear. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
Speaker 1: on Twitter at Pam Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg Radio.