1
00:00:02,920 --> 00:00:07,280
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:09,960 --> 00:00:13,840
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

3
00:00:13,920 --> 00:00:17,000
Speaker 2: weekdays at ten am Eastern on Apple Car, playing Android

4
00:00:17,040 --> 00:00:20,120
Speaker 2: Otto with the Bloomberg Business App. Listen on demand wherever

5
00:00:20,200 --> 00:00:24,040
Speaker 2: you get your podcasts, or watch us live on YouTube.

6
00:00:25,160 --> 00:00:30,160
Speaker 3: One of the movers today is Salesforce dot Com. I

7
00:00:30,160 --> 00:00:31,600
Speaker 3: thought it was just one of those stocks that can

8
00:00:31,680 --> 00:00:36,080
Speaker 3: do no wrong. But the stock's down twenty percent last

9
00:00:36,479 --> 00:00:39,440
Speaker 3: this morning kind of reported some numbers so disappointing to

10
00:00:39,479 --> 00:00:41,120
Speaker 3: the street, so I wanted to break it down and

11
00:00:41,159 --> 00:00:43,599
Speaker 3: al so we can do that with the on Rock

12
00:00:43,640 --> 00:00:46,360
Speaker 3: from Chicago on rog Rana. He's a senior tech analyst

13
00:00:46,400 --> 00:00:50,400
Speaker 3: for Bloomberg Intelligence. Honorrock Mark Bennioff here, I thought everything

14
00:00:50,440 --> 00:00:52,479
Speaker 3: he touches turns of gold. What happened to Salesforce and

15
00:00:52,520 --> 00:00:53,800
Speaker 3: the results last night?

16
00:00:54,920 --> 00:00:57,160
Speaker 4: Yeah, the macro spending is not good right now, and

17
00:00:57,200 --> 00:00:59,600
Speaker 4: we saw that good work day a week ago. People

18
00:00:59,600 --> 00:01:02,960
Speaker 4: are push out contracts so large deals. They're not signing

19
00:01:02,960 --> 00:01:05,800
Speaker 4: at the same pace they did before. So a little

20
00:01:05,840 --> 00:01:08,480
Speaker 4: bit of you know, tale of two tech stories. One

21
00:01:08,520 --> 00:01:11,320
Speaker 4: is companies are spending more on AI, but then they're

22
00:01:11,319 --> 00:01:14,199
Speaker 4: taking spending away from other areas such as, you know.

23
00:01:14,160 --> 00:01:16,880
Speaker 5: Buying new software or consulting and things like that.

24
00:01:17,760 --> 00:01:22,080
Speaker 6: Does Salesforce not have an AI product yet? And why.

25
00:01:23,400 --> 00:01:23,560
Speaker 5: No?

26
00:01:23,560 --> 00:01:26,880
Speaker 4: They have one particular productl data cloud and that twenty

27
00:01:26,880 --> 00:01:27,440
Speaker 4: five percent.

28
00:01:27,480 --> 00:01:30,440
Speaker 5: But frankly speaking, remember, if you have a revenue based

29
00:01:30,440 --> 00:01:34,640
Speaker 5: this size, you know, thirty five forty billion dollars.

30
00:01:34,280 --> 00:01:36,600
Speaker 4: You know that a few million is not going to

31
00:01:36,680 --> 00:01:39,319
Speaker 4: move the needle if all the other spending starts to

32
00:01:39,319 --> 00:01:39,839
Speaker 4: slow down.

33
00:01:40,640 --> 00:01:42,600
Speaker 7: All right, here's Alex, here's the group.

34
00:01:42,760 --> 00:01:45,800
Speaker 3: An example, just a great Wall Street inefficiency, one of

35
00:01:45,840 --> 00:01:48,200
Speaker 3: the reasons that many firms on Wall Street just can't

36
00:01:48,240 --> 00:01:52,680
Speaker 3: generate decent returns. There are fifty six analysts covering Salesforce

37
00:01:52,720 --> 00:01:55,559
Speaker 3: dot com. I'm going to say a lot. I'm thinking

38
00:01:55,920 --> 00:01:59,760
Speaker 3: five get paid, five make aprofit off of bride and

39
00:01:59,760 --> 00:02:01,040
Speaker 3: read research on that name.

40
00:02:01,200 --> 00:02:02,960
Speaker 7: You know, just absolutely crazy.

41
00:02:03,080 --> 00:02:07,760
Speaker 3: Forty buys, fifteen holds one cell, forty buys yep. So

42
00:02:07,840 --> 00:02:10,399
Speaker 3: what's the the forty buys out there?

43
00:02:10,440 --> 00:02:10,959
Speaker 7: Anna Rod?

44
00:02:11,440 --> 00:02:14,640
Speaker 3: Did they fundamentally change their view of Salesforce dot Com

45
00:02:14,639 --> 00:02:16,840
Speaker 3: after these results?

46
00:02:17,400 --> 00:02:19,919
Speaker 4: No, no, no, there's no reason to do that, because

47
00:02:19,960 --> 00:02:22,800
Speaker 4: this is just elongation of the sales cycle. It's not

48
00:02:22,840 --> 00:02:25,720
Speaker 4: that people aren't buying cloud products. It's just a matter

49
00:02:25,800 --> 00:02:28,880
Speaker 4: of there not signing large deals. People are basically saying,

50
00:02:28,880 --> 00:02:31,040
Speaker 4: you know, I can live with what I have right now,

51
00:02:31,240 --> 00:02:33,240
Speaker 4: and I'll wait for next year to go back and

52
00:02:33,280 --> 00:02:35,720
Speaker 4: buy this stuff. It's not that it's not things are

53
00:02:35,760 --> 00:02:38,040
Speaker 4: not that horrible. I mean, they're still growing at ten

54
00:02:38,080 --> 00:02:40,680
Speaker 4: percent or so. It's not the end of the world.

55
00:02:41,360 --> 00:02:45,320
Speaker 4: But what really happened is three quarters ago their new

56
00:02:45,320 --> 00:02:48,160
Speaker 4: bookings rate was slowing down and started to take a

57
00:02:48,280 --> 00:02:50,800
Speaker 4: u turn, so they went from eleven percent to thirteen percent,

58
00:02:51,320 --> 00:02:53,280
Speaker 4: and they were at thirteen percent for two quarters in

59
00:02:53,280 --> 00:02:53,600
Speaker 4: a row.

60
00:02:54,120 --> 00:02:55,280
Speaker 5: This quarter, we were.

61
00:02:55,200 --> 00:02:58,000
Speaker 4: Expecting it to be around twelve percent or so, twelve

62
00:02:58,040 --> 00:03:01,000
Speaker 4: to thirteen percent, and they came at ten. So these

63
00:03:01,120 --> 00:03:04,239
Speaker 4: deals being pushed out, it's it's just a matter of time,

64
00:03:04,360 --> 00:03:04,880
Speaker 4: whether it's.

65
00:03:04,800 --> 00:03:07,840
Speaker 5: Two quarters away, whether it's three, but they will close.

66
00:03:07,880 --> 00:03:10,160
Speaker 4: People are looking to move more things to the cloud

67
00:03:10,600 --> 00:03:13,680
Speaker 4: on the application side also, so it's just I would

68
00:03:13,680 --> 00:03:16,280
Speaker 4: say a little bit of delay, but that delay is

69
00:03:16,320 --> 00:03:19,280
Speaker 4: now takes you into twenty twenty five rather than being

70
00:03:19,400 --> 00:03:21,520
Speaker 4: a middle of the you know, this year's story. So

71
00:03:21,800 --> 00:03:23,760
Speaker 4: that's partially the reason of people are saying, you know, well,

72
00:03:23,760 --> 00:03:25,880
Speaker 4: we'll come back to the story six months from now.

73
00:03:26,160 --> 00:03:28,960
Speaker 6: Are you surprised at the severity of this dock drop though,

74
00:03:29,080 --> 00:03:31,720
Speaker 6: based on this because this is also just a law

75
00:03:31,760 --> 00:03:34,600
Speaker 6: of large numbers, right, You're growing at double digits and

76
00:03:34,639 --> 00:03:37,760
Speaker 6: then eventually that double digits slows. That's like life, right.

77
00:03:38,520 --> 00:03:40,120
Speaker 5: Yeah, Alex, absolutely right.

78
00:03:40,160 --> 00:03:42,160
Speaker 4: I mean, if you look at salesforce on the on

79
00:03:42,200 --> 00:03:44,720
Speaker 4: the rosy side, their free cash flow this year is

80
00:03:44,720 --> 00:03:47,440
Speaker 4: going to grow twenty percent, with the likelihood of another

81
00:03:47,480 --> 00:03:50,560
Speaker 4: fifteen to twenty percent growing next year. This company has

82
00:03:50,640 --> 00:03:54,280
Speaker 4: now changed the narrative from high sales growth or growth

83
00:03:54,360 --> 00:03:58,000
Speaker 4: at any cost, to growing with a lot of margin expansion.

84
00:03:58,320 --> 00:03:59,760
Speaker 5: This company has a long.

85
00:03:59,600 --> 00:04:03,240
Speaker 4: Way to go before the margins reach I would call maturity.

86
00:04:03,320 --> 00:04:06,360
Speaker 4: They still tend turn to a twelve percent away from

87
00:04:06,360 --> 00:04:08,800
Speaker 4: that stage. So there is a lot of free cash

88
00:04:08,840 --> 00:04:11,560
Speaker 4: flow that needs to come out of this company. So,

89
00:04:11,840 --> 00:04:14,240
Speaker 4: you know, I think I am surprised about the severity

90
00:04:14,240 --> 00:04:15,200
Speaker 4: of their reaction.

91
00:04:16,400 --> 00:04:18,080
Speaker 3: You know, an, I guess this kind of goes to

92
00:04:18,240 --> 00:04:21,159
Speaker 3: a question I've been asking since this whole AI scam,

93
00:04:21,200 --> 00:04:25,320
Speaker 3: I mean discussion began eighteen months ago. How much of

94
00:04:25,320 --> 00:04:29,320
Speaker 3: this is really incremental new spending for this new thing

95
00:04:29,400 --> 00:04:33,040
Speaker 3: called AI versus just taking some tech spending from other

96
00:04:33,080 --> 00:04:36,320
Speaker 3: parts of the stack, whether it's software or hardware applications.

97
00:04:36,880 --> 00:04:39,160
Speaker 7: And does I talked to us about that.

98
00:04:39,960 --> 00:04:41,160
Speaker 5: Yeah, I completely agree with you.

99
00:04:41,200 --> 00:04:43,440
Speaker 4: This has been our case because one of the things

100
00:04:43,440 --> 00:04:46,159
Speaker 4: we saw was one of the most important companies in

101
00:04:46,160 --> 00:04:49,520
Speaker 4: the space for leading indicators is Accenture, and their consulting

102
00:04:49,560 --> 00:04:52,520
Speaker 4: revenue has been declining for the last three quarters because

103
00:04:52,520 --> 00:04:53,640
Speaker 4: of exactly what you said.

104
00:04:53,680 --> 00:04:54,479
Speaker 5: People are not.

105
00:04:55,200 --> 00:04:57,240
Speaker 4: You know, if you have a consulting project, you put

106
00:04:57,240 --> 00:04:59,480
Speaker 4: that on hold and you use that money to buy

107
00:04:59,680 --> 00:05:02,440
Speaker 4: you know, few chips new servers trying to figure out

108
00:05:02,480 --> 00:05:03,560
Speaker 4: if your infrastructure is.

109
00:05:03,520 --> 00:05:06,640
Speaker 5: Ready for the next phase of AI development.

110
00:05:06,800 --> 00:05:09,559
Speaker 4: You're actually experimenting with new products and trying to figure

111
00:05:09,600 --> 00:05:11,520
Speaker 4: out and the big question for a lot of them

112
00:05:11,640 --> 00:05:13,760
Speaker 4: is do I really need to buy a brand new

113
00:05:13,800 --> 00:05:17,840
Speaker 4: software product where my next generation CRM product could look

114
00:05:17,880 --> 00:05:20,160
Speaker 4: a little bit different or some other product could look

115
00:05:20,200 --> 00:05:21,120
Speaker 4: at a little bit different.

116
00:05:21,520 --> 00:05:22,000
Speaker 5: What we are.

117
00:05:21,920 --> 00:05:25,479
Speaker 4: Seeing right now is text spending flat from last year,

118
00:05:25,960 --> 00:05:29,160
Speaker 4: no new increment, but we're hopeful that you know, the

119
00:05:29,279 --> 00:05:34,400
Speaker 4: typical waterfall is you have hardware semiconductor spending first, then

120
00:05:34,400 --> 00:05:37,480
Speaker 4: it trickles down to software, then it trickled downs to services.

121
00:05:37,600 --> 00:05:39,080
Speaker 5: So we are optimistic that.

122
00:05:39,040 --> 00:05:42,279
Speaker 4: Next year we should see some improvement in software spending,

123
00:05:42,520 --> 00:05:45,039
Speaker 4: and perhaps the second half of next year into the

124
00:05:45,080 --> 00:05:48,880
Speaker 4: year after something on the consulting and then the services side.

125
00:05:49,000 --> 00:05:52,279
Speaker 6: Do we learn anything from Dell in terms of AI

126
00:05:52,520 --> 00:05:54,240
Speaker 6: and spend from Salesforce?

127
00:05:55,560 --> 00:05:57,320
Speaker 4: Yeah, but that's the same exact thing that they are

128
00:05:57,320 --> 00:06:00,039
Speaker 4: buying more AI servers, but at the expense of some

129
00:06:00,080 --> 00:06:03,120
Speaker 4: thing perhaps like a salesforce or for that matter, workday.

130
00:06:03,440 --> 00:06:06,279
Speaker 6: Okay, so a woe for salesforce is good for Dell.

131
00:06:07,360 --> 00:06:10,000
Speaker 4: Yeah, it's good for all the semiconductor names and the

132
00:06:10,040 --> 00:06:13,800
Speaker 4: GPO players. People are basically saying, Okay, if I have

133
00:06:13,880 --> 00:06:16,840
Speaker 4: to go experiment on AI, I gotta find that money somewhere.

134
00:06:17,080 --> 00:06:19,800
Speaker 4: Net Net, I'm still spending the same amount on technology

135
00:06:19,800 --> 00:06:22,280
Speaker 4: that I did last year. It's a question of reallocation

136
00:06:22,360 --> 00:06:25,839
Speaker 4: of those resources. Another place where seeing an improvement in

137
00:06:25,880 --> 00:06:29,240
Speaker 4: spending is companies outsourcing a lot more work because that

138
00:06:29,360 --> 00:06:31,600
Speaker 4: they're saying is I got to find cost savings in

139
00:06:31,680 --> 00:06:34,280
Speaker 4: order to deploy it into these AI products.

140
00:06:34,760 --> 00:06:38,400
Speaker 3: So just stepping back even further for tech spending. What

141
00:06:38,400 --> 00:06:42,280
Speaker 3: are the likes of IDC saying about tech spending over

142
00:06:42,320 --> 00:06:44,839
Speaker 3: the next couple three years on RUG?

143
00:06:46,120 --> 00:06:49,000
Speaker 4: So the next three is I think almost everybody unanimously

144
00:06:49,040 --> 00:06:50,919
Speaker 4: believes that it is going to be a good number

145
00:06:51,000 --> 00:06:53,640
Speaker 4: because frankly speaking, and I've said this a number of times,

146
00:06:53,800 --> 00:06:55,839
Speaker 4: when you look at it is as a percentage of GDP,

147
00:06:56,040 --> 00:06:57,760
Speaker 4: tech spending is still a small portion.

148
00:06:58,200 --> 00:07:00,520
Speaker 5: When I look at just the US alone, and we.

149
00:07:00,560 --> 00:07:04,560
Speaker 4: Have somewhere around enterprise technology spending, you know, excluding smartphones,

150
00:07:04,800 --> 00:07:07,400
Speaker 4: somewhere around one and a half trillion or so. When

151
00:07:07,400 --> 00:07:10,080
Speaker 4: you look at healthcare spending, it's not a four trillion.

152
00:07:10,320 --> 00:07:11,000
Speaker 5: So we we.

153
00:07:11,000 --> 00:07:13,400
Speaker 4: Talk a lot about tech, but as a percentage of

154
00:07:13,400 --> 00:07:15,880
Speaker 4: total GDP in the US, it's still a small number.

155
00:07:16,120 --> 00:07:18,920
Speaker 4: And software is even a smaller portion of that. So

156
00:07:19,160 --> 00:07:22,560
Speaker 4: you know, we are I'm pretty optimistic to bullish that

157
00:07:22,920 --> 00:07:25,800
Speaker 4: in the long run, I'm happy with, you know, with

158
00:07:25,880 --> 00:07:28,400
Speaker 4: the tech space in you know, in terms of growth rate,

159
00:07:28,440 --> 00:07:31,960
Speaker 4: in terms of profitability, in terms of sustainability compared to

160
00:07:32,040 --> 00:07:32,880
Speaker 4: other sectors.

161
00:07:33,280 --> 00:07:35,280
Speaker 6: What else? What else is on your radar right now

162
00:07:35,320 --> 00:07:37,720
Speaker 6: on our AGAs we're almost done with all the big

163
00:07:37,720 --> 00:07:38,280
Speaker 6: tech guys.

164
00:07:39,480 --> 00:07:39,840
Speaker 5: Yeah.

165
00:07:39,880 --> 00:07:42,360
Speaker 4: So now when you look at it, Workday and Salesforce

166
00:07:42,400 --> 00:07:44,800
Speaker 4: are the first companies to report in the next cycle

167
00:07:44,840 --> 00:07:47,880
Speaker 4: of earning. So when you look at, you know, results

168
00:07:47,880 --> 00:07:50,360
Speaker 4: that coming out in July, we're going to head a

169
00:07:50,400 --> 00:07:52,560
Speaker 4: lot of the same what we have heard from these

170
00:07:52,560 --> 00:07:55,200
Speaker 4: two companies. Now, the two exceptions from that in our

171
00:07:55,280 --> 00:07:58,520
Speaker 4: view would could be Microsoft and perhaps even SAP. But

172
00:07:58,680 --> 00:08:02,480
Speaker 4: other than that, every other you know, software company we anticipate,

173
00:08:02,520 --> 00:08:05,600
Speaker 4: and even services companies we anticipate, we'll talk about the

174
00:08:05,640 --> 00:08:08,640
Speaker 4: same thing. Deal delays elongation of that, and this is

175
00:08:08,680 --> 00:08:10,960
Speaker 4: partially the reason. You know, if you look at somebody

176
00:08:10,960 --> 00:08:13,240
Speaker 4: like a service now he's getting really hammered today, or

177
00:08:13,360 --> 00:08:16,240
Speaker 4: article getting hammered, and then that makes sense because this

178
00:08:16,320 --> 00:08:18,600
Speaker 4: is a leading indicator that things are not going to

179
00:08:18,640 --> 00:08:21,320
Speaker 4: be good when results come out come out in July.

180
00:08:22,200 --> 00:08:25,360
Speaker 6: Great stuff, I likes the best of course, right, thanks

181
00:08:25,360 --> 00:08:27,560
Speaker 6: a lot on a rock run a Bloomberg Intelligence a

182
00:08:27,600 --> 00:08:31,600
Speaker 6: senior technology analyst. Salesforce is getting totally creamed. I mean

183
00:08:31,600 --> 00:08:33,480
Speaker 6: it's down like twenty percent. It's a raise in like

184
00:08:33,520 --> 00:08:36,319
Speaker 6: three hundred and seventy points from the now like this

185
00:08:36,520 --> 00:08:39,080
Speaker 6: serious decliner here today.

186
00:08:38,960 --> 00:08:42,360
Speaker 3: And Mark Pennioff. You know he's the before today. The

187
00:08:42,600 --> 00:08:44,800
Speaker 3: net worth of according to Rich Gover, about ten billion

188
00:08:44,800 --> 00:08:45,800
Speaker 3: dollars to take a little.

189
00:08:45,559 --> 00:08:47,240
Speaker 6: Bit of it, a little bit of a head there.

190
00:08:47,240 --> 00:08:52,560
Speaker 2: Today you're listening to the Bloomberg Intelligence Podcast. Catch us

191
00:08:52,640 --> 00:08:55,800
Speaker 2: live weekdays at ten am Eastern on Apple car Play

192
00:08:55,840 --> 00:08:58,880
Speaker 2: and Android Auto with the Bloomberg Business. You can also

193
00:08:59,000 --> 00:09:02,520
Speaker 2: listen live on Amazon Alexa from our flagship New York station,

194
00:09:02,880 --> 00:09:05,920
Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.

195
00:09:07,600 --> 00:09:10,640
Speaker 3: Cole's Way, The stock is down the most on record,

196
00:09:10,920 --> 00:09:14,960
Speaker 3: huge miss on earnings, cut the guidance, and the street

197
00:09:15,040 --> 00:09:18,120
Speaker 3: sending this stock down twenty seven percent, the most on

198
00:09:18,240 --> 00:09:21,800
Speaker 3: records is extraordinary. Let's check in with the Bloomberg Intelligence

199
00:09:21,800 --> 00:09:24,520
Speaker 3: analyst that covers this stock in this sector. Mary Ross Gilbert,

200
00:09:24,679 --> 00:09:29,280
Speaker 3: Senior Equity analyst for Retail for Bloomberg Intelligence, joining us

201
00:09:29,320 --> 00:09:32,520
Speaker 3: from La via zoom So, Mary, thanks so much for

202
00:09:32,600 --> 00:09:36,520
Speaker 3: joining us here. Twenty seven percent reduction in this stock price. Here,

203
00:09:37,040 --> 00:09:40,160
Speaker 3: what does a market not like from the earnings?

204
00:09:41,600 --> 00:09:45,080
Speaker 8: Yeah, so we sort of knew going into earnings that

205
00:09:45,160 --> 00:09:50,680
Speaker 8: they have a wonderful data measure that we use called

206
00:09:50,679 --> 00:09:56,680
Speaker 8: Bloomberg's Second Measure. And it basically tracks consumer transactions ATM

207
00:09:56,920 --> 00:10:00,280
Speaker 8: and credit card transactions, and so based on that data,

208
00:10:00,880 --> 00:10:02,959
Speaker 8: we had a feeling that they might miss by two

209
00:10:03,040 --> 00:10:05,960
Speaker 8: hundred to three hundred basis points, which they did. Comp

210
00:10:06,080 --> 00:10:10,120
Speaker 8: sales fell four point four percent. That was below analysts

211
00:10:10,160 --> 00:10:14,240
Speaker 8: one point seven percent estimate. And really what was happening

212
00:10:14,280 --> 00:10:17,800
Speaker 8: there for the company is that they were going against

213
00:10:18,400 --> 00:10:22,880
Speaker 8: a significant clearance activity in the first quarter of twenty three.

214
00:10:23,520 --> 00:10:26,200
Speaker 8: Now they knew that going into the quarter, and that's

215
00:10:26,200 --> 00:10:29,319
Speaker 8: why they expected sales to be flat. But they expected

216
00:10:29,360 --> 00:10:33,640
Speaker 8: their new category initiatives. This means like Home de Corps

217
00:10:34,840 --> 00:10:37,640
Speaker 8: of course so Fa, which continues to do really well.

218
00:10:37,960 --> 00:10:40,800
Speaker 8: The key was so FORA bringing in all the customers

219
00:10:40,800 --> 00:10:45,440
Speaker 8: and generating real sales and very profitable sales is the

220
00:10:45,480 --> 00:10:48,520
Speaker 8: fact that those customers are not buying enough of the

221
00:10:48,600 --> 00:10:52,440
Speaker 8: adjacent categories. So that's where they sort of came up short.

222
00:10:52,720 --> 00:10:56,160
Speaker 8: So they did show that their initiatives are working, but

223
00:10:56,400 --> 00:11:00,520
Speaker 8: just not enough and it's not across the whole store,

224
00:11:00,679 --> 00:11:02,600
Speaker 8: and that's what they need to do, and so this

225
00:11:02,640 --> 00:11:05,400
Speaker 8: is going to take some time for them to really

226
00:11:05,480 --> 00:11:11,559
Speaker 8: get category mixed throughout the store and really be executing

227
00:11:11,760 --> 00:11:15,400
Speaker 8: so it just delays this potential turnaround for the company.

228
00:11:15,640 --> 00:11:17,800
Speaker 6: Okay, so let me just break that down. So, one,

229
00:11:17,840 --> 00:11:20,880
Speaker 6: you got tough comps because it was really promotional last year,

230
00:11:20,960 --> 00:11:23,600
Speaker 6: so that was stressful. But all the stuff that they're

231
00:11:23,640 --> 00:11:26,440
Speaker 6: doing to entice people to buy stuff also isn't working

232
00:11:26,559 --> 00:11:29,280
Speaker 6: in the way that they thought. Is that a consumer

233
00:11:29,960 --> 00:11:33,199
Speaker 6: problem or is that a Coohle's execution problem.

234
00:11:33,920 --> 00:11:36,440
Speaker 8: Yeah, so actually I'm going to reword what you just

235
00:11:36,480 --> 00:11:40,720
Speaker 8: said there because it is working those new categories. So

236
00:11:40,800 --> 00:11:45,960
Speaker 8: for example, their home seasonal and eight Everyday Decore, those

237
00:11:45,960 --> 00:11:49,520
Speaker 8: sales were up thirty percent, Impulse items were up sixty percent,

238
00:11:50,640 --> 00:11:55,280
Speaker 8: women's full price sales were up three percent, gifting of

239
00:11:55,640 --> 00:11:58,880
Speaker 8: thirty percent. So we're seeing that they're working, but it's

240
00:11:59,080 --> 00:12:03,000
Speaker 8: just not enough up to offset, you know, the weakness

241
00:12:03,000 --> 00:12:06,240
Speaker 8: that they're experiencing. For example, in active wear, even though

242
00:12:06,240 --> 00:12:12,000
Speaker 8: they're private brand, private brands within active are doing well.

243
00:12:12,400 --> 00:12:14,400
Speaker 8: They need to have a better mix of some of

244
00:12:15,720 --> 00:12:19,520
Speaker 8: some national brands in there to really rejuvenate the sales

245
00:12:19,559 --> 00:12:22,160
Speaker 8: in that category. Also, when they brought in so far

246
00:12:22,240 --> 00:12:24,960
Speaker 8: As shops, they got rid of jewelry and so they

247
00:12:25,000 --> 00:12:28,439
Speaker 8: sort of missed out on gifting in the jewelry area,

248
00:12:28,559 --> 00:12:31,440
Speaker 8: so they're planning to bring that back. They're also hoping

249
00:12:31,520 --> 00:12:35,439
Speaker 8: to boost conversion of those so for a shoppers by

250
00:12:35,440 --> 00:12:38,040
Speaker 8: bringing in more relevant junior brands, and that's going to

251
00:12:38,080 --> 00:12:41,800
Speaker 8: come later this year, and that includes Aero Coal, Stall, Roxy,

252
00:12:41,960 --> 00:12:45,240
Speaker 8: Madden World, Quicksilver for example. And then of course they're

253
00:12:45,280 --> 00:12:48,800
Speaker 8: going to be adding babies shops, which could also help

254
00:12:48,840 --> 00:12:51,000
Speaker 8: them later in the year. So we do expect to

255
00:12:51,040 --> 00:12:54,880
Speaker 8: see some improvement and these categories are working, it's just

256
00:12:55,080 --> 00:12:58,200
Speaker 8: going to take a lot longer to get the overall

257
00:12:58,559 --> 00:13:01,760
Speaker 8: mix right, That's what we think is happening.

258
00:13:02,000 --> 00:13:04,640
Speaker 3: Mary Again, a twenty seven percent decline in the stock

259
00:13:04,679 --> 00:13:06,880
Speaker 3: press on a piece of news like this, to me,

260
00:13:07,840 --> 00:13:11,440
Speaker 3: it calls into question how investors are viewing this management team.

261
00:13:11,440 --> 00:13:14,240
Speaker 3: I look on the MGMT function on the Bloomberg terminal

262
00:13:14,400 --> 00:13:16,240
Speaker 3: and I see most of the senior managers are only

263
00:13:16,240 --> 00:13:17,760
Speaker 3: there less than a couple of years.

264
00:13:17,800 --> 00:13:19,839
Speaker 7: So this is a relatively new management team.

265
00:13:20,040 --> 00:13:22,520
Speaker 3: Is this Wall Street saying we don't have much confidence

266
00:13:22,520 --> 00:13:23,000
Speaker 3: in you guys?

267
00:13:24,440 --> 00:13:26,400
Speaker 8: It could be temporary, That's the way I look at it,

268
00:13:26,440 --> 00:13:30,960
Speaker 8: because frankly, Tom Kingsbury, who's the CEO here, he is

269
00:13:31,000 --> 00:13:35,880
Speaker 8: the one responsible for turning Burlington Stores into the successful,

270
00:13:36,640 --> 00:13:40,120
Speaker 8: fast growing off price retailer that it is. It's very

271
00:13:40,120 --> 00:13:43,680
Speaker 8: focused on the low end consumer. So he, I think

272
00:13:43,920 --> 00:13:46,960
Speaker 8: is the right person and all of the initiatives that

273
00:13:47,000 --> 00:13:50,760
Speaker 8: he's been doing. We've noticed the changes dramatically since he

274
00:13:50,840 --> 00:13:53,400
Speaker 8: came on board in the stores. In fact, even the

275
00:13:53,480 --> 00:13:57,080
Speaker 8: culture of the environment you go in there and you

276
00:13:57,120 --> 00:14:00,600
Speaker 8: talk to the salespeople. Year over year, once he came

277
00:14:00,679 --> 00:14:04,120
Speaker 8: on board, we observed a huge change, a huge lift

278
00:14:04,160 --> 00:14:07,960
Speaker 8: in the culture where everyone is more excited about the business. So,

279
00:14:08,480 --> 00:14:11,880
Speaker 8: you know, it's the first quarter. They had tough comparisons,

280
00:14:12,240 --> 00:14:14,240
Speaker 8: and we'll have to see as more and more of

281
00:14:14,240 --> 00:14:17,240
Speaker 8: these initiatives come into play. We think it's really just

282
00:14:17,280 --> 00:14:20,560
Speaker 8: going to be a delay in the turnaround rather than hey,

283
00:14:20,600 --> 00:14:23,680
Speaker 8: this is a failure for management, because these things, when

284
00:14:23,720 --> 00:14:28,160
Speaker 8: you're doing a complete redo of a business, it really

285
00:14:28,200 --> 00:14:33,120
Speaker 8: takes time to gain traction, especially in an intense segment

286
00:14:33,360 --> 00:14:34,280
Speaker 8: which they play in.

287
00:14:35,120 --> 00:14:38,680
Speaker 6: We also get Nordstrom's gap costco out after the closing

288
00:14:38,720 --> 00:14:41,680
Speaker 6: bell that that's a pretty random mix. It's going to

289
00:14:41,720 --> 00:14:44,200
Speaker 6: be interesting to see the macro read for that. What

290
00:14:44,280 --> 00:14:46,160
Speaker 6: are you going to be paying most attention.

291
00:14:45,920 --> 00:14:52,040
Speaker 8: To well, a lot of exciting things happening with Gap,

292
00:14:52,600 --> 00:14:56,320
Speaker 8: and we're expecting to, you know, hear some pot of

293
00:14:56,640 --> 00:15:00,640
Speaker 8: positive results coming out of Gap. Nordstrom. I think they're

294
00:15:00,680 --> 00:15:03,240
Speaker 8: seeing an improvement overall in the business, but most of

295
00:15:03,240 --> 00:15:05,440
Speaker 8: it is being driven on the rack side, so again

296
00:15:05,520 --> 00:15:08,440
Speaker 8: that's their off price model and that's really sort of

297
00:15:08,480 --> 00:15:11,240
Speaker 8: the big story for Nordstrom. But we think the full

298
00:15:11,280 --> 00:15:15,000
Speaker 8: line store is seeing some improvement as well. And if

299
00:15:15,040 --> 00:15:18,880
Speaker 8: you look at other retailers that are really executing well

300
00:15:18,960 --> 00:15:22,800
Speaker 8: like Abercrombie, which their numbers are out yesterday and just

301
00:15:23,000 --> 00:15:27,120
Speaker 8: bluep same with urban outfitters with their free people and

302
00:15:27,160 --> 00:15:32,400
Speaker 8: anthropology brands once again just blew past estimates. So it's

303
00:15:32,520 --> 00:15:37,600
Speaker 8: really a case where if you're really executing, then you're

304
00:15:38,120 --> 00:15:41,040
Speaker 8: coming out and head of plan and then of course

305
00:15:41,080 --> 00:15:42,560
Speaker 8: the shares react accordingly.

306
00:15:43,560 --> 00:15:48,200
Speaker 3: So, Mary, what are you hearing from your companies, your contexts.

307
00:15:48,720 --> 00:15:51,160
Speaker 3: How about the health of the consumer these days?

308
00:15:52,200 --> 00:15:52,960
Speaker 7: What are we seeing?

309
00:15:54,680 --> 00:15:57,680
Speaker 8: You know, it's a good question. I would say overall,

310
00:15:57,880 --> 00:16:01,120
Speaker 8: the consumer is very resilient, so of course, you know,

311
00:16:01,200 --> 00:16:04,400
Speaker 8: within off price or value, the low end consumer is

312
00:16:04,480 --> 00:16:08,640
Speaker 8: still being challenged with inflation. But the good news is

313
00:16:09,280 --> 00:16:13,320
Speaker 8: they're employed, and so being employed I think is one

314
00:16:13,360 --> 00:16:15,520
Speaker 8: of the biggest factors out there. And of course we

315
00:16:15,640 --> 00:16:21,160
Speaker 8: just saw so that all bodes well for retail generally,

316
00:16:21,840 --> 00:16:25,960
Speaker 8: but again it's really going to be segmented, with those

317
00:16:26,000 --> 00:16:29,280
Speaker 8: earning a higher income being able to spend more and

318
00:16:29,320 --> 00:16:32,640
Speaker 8: those with lower income being even more discerning.

319
00:16:33,080 --> 00:16:35,440
Speaker 6: When I find so interesting and you bought up Abercrombie,

320
00:16:36,320 --> 00:16:39,320
Speaker 6: is it and we're talking to the Red Robin CEO. Also,

321
00:16:39,600 --> 00:16:42,920
Speaker 6: if you know your customer and I want to say niche,

322
00:16:42,960 --> 00:16:44,840
Speaker 6: because like Gap is a niche, but like you know

323
00:16:44,880 --> 00:16:47,840
Speaker 6: who you're designing for and that's the business that you're doing,

324
00:16:47,840 --> 00:16:49,400
Speaker 6: and you're not going to try and chase all the

325
00:16:49,440 --> 00:16:54,240
Speaker 6: things you can actually outperform in this market across the board,

326
00:16:54,280 --> 00:16:56,800
Speaker 6: whether you're super high end to take a look at LVMH,

327
00:16:57,240 --> 00:16:59,800
Speaker 6: whether you're looking at Swiss Watches, or whether you're looking

328
00:16:59,800 --> 00:17:03,200
Speaker 6: at Gap, or whether you're looking say ad best Buy,

329
00:17:03,240 --> 00:17:06,120
Speaker 6: and I find that to be a really striking difference

330
00:17:06,119 --> 00:17:07,520
Speaker 6: maybe than what we've seen before.

331
00:17:10,040 --> 00:17:12,480
Speaker 8: I would agree with you. So if Abercrombie, you raised

332
00:17:12,520 --> 00:17:15,960
Speaker 8: a good point, they're sort of poor millennial customer with

333
00:17:16,000 --> 00:17:21,439
Speaker 8: the Abercrombi brand will continuing to introduce new categories. So

334
00:17:21,560 --> 00:17:26,000
Speaker 8: for example, they brought out, you know, the wedding shop

335
00:17:26,240 --> 00:17:28,719
Speaker 8: and that was sort of an add on to the

336
00:17:28,720 --> 00:17:32,119
Speaker 8: best Dressed Guests, and it was just so well received

337
00:17:32,240 --> 00:17:35,040
Speaker 8: because they were listening to their customer and they're giving

338
00:17:35,080 --> 00:17:38,119
Speaker 8: them more and more of what that customer wants. And

339
00:17:38,200 --> 00:17:41,600
Speaker 8: it's also extending the age range sort of beyond the

340
00:17:41,680 --> 00:17:45,400
Speaker 8: millennial poor consumer that they go after, and so that's

341
00:17:45,440 --> 00:17:49,360
Speaker 8: also helping to bring in new customers. And then they're

342
00:17:49,400 --> 00:17:53,479
Speaker 8: starting to look at the adjacent categories and buying there.

343
00:17:53,520 --> 00:17:57,040
Speaker 8: So they're really showing how they can continue to execute

344
00:17:57,119 --> 00:18:01,399
Speaker 8: against very difficult comparisons where they're already showing double digit

345
00:18:01,440 --> 00:18:05,960
Speaker 8: lifts in comp sales. So that's a sign of great

346
00:18:06,040 --> 00:18:07,240
Speaker 8: execution right there.

347
00:18:08,040 --> 00:18:09,600
Speaker 7: All right, Mary, thanks so much for joining us.

348
00:18:09,600 --> 00:18:12,200
Speaker 3: Mary Ross Gilbert, she's a senior Ecadannaals covering the retail

349
00:18:12,200 --> 00:18:15,400
Speaker 3: space for Bloomberg Intelligence, joining us from Los Angeles via

350
00:18:15,480 --> 00:18:18,399
Speaker 3: zoom Here looking at Coles again, that's stock down twenty

351
00:18:18,400 --> 00:18:20,440
Speaker 3: five percent plus on some week numbers.

352
00:18:22,359 --> 00:18:26,240
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

353
00:18:26,320 --> 00:18:29,400
Speaker 2: weekdays at ten am Eastern on Apple Card Playing Android

354
00:18:29,440 --> 00:18:32,520
Speaker 2: Auto with the Bloomberg Business App. Listen on demand wherever

355
00:18:32,600 --> 00:18:36,400
Speaker 2: you get your podcasts, or watch us live on YouTube.

356
00:18:37,240 --> 00:18:40,560
Speaker 6: I'm Alex the alongside Paul Sweeny. This is Bloomberg Intelligence Radio.

357
00:18:40,600 --> 00:18:42,280
Speaker 6: We bring you all the top news and economics and

358
00:18:42,320 --> 00:18:45,480
Speaker 6: finance through our lens of Bloomberg Intelligence analysts. They cover

359
00:18:45,560 --> 00:18:48,359
Speaker 6: two thousand companies and one hundred and thirty industries all

360
00:18:48,400 --> 00:18:51,400
Speaker 6: around the world. We're also taking a look here at

361
00:18:51,400 --> 00:18:53,720
Speaker 6: some stocks really on the move after earnings, and one

362
00:18:54,119 --> 00:18:57,040
Speaker 6: is Red Robin Gourmet Bergers. That stock is up a

363
00:18:57,080 --> 00:19:00,600
Speaker 6: whopping twenty percent. If you look inside the numbers, you're

364
00:19:00,600 --> 00:19:05,080
Speaker 6: looking to adjusted loss per share at eighty cents, revenue down

365
00:19:05,119 --> 00:19:08,000
Speaker 6: seven point one percent year on year, comm sales down

366
00:19:08,040 --> 00:19:10,480
Speaker 6: six point five percent, average check is a little higher

367
00:19:10,480 --> 00:19:13,879
Speaker 6: by about three percent, and mark operating margin was eleven percent.

368
00:19:13,920 --> 00:19:18,320
Speaker 6: But the street loves it. Let's get a read on why. GJ.

369
00:19:18,480 --> 00:19:21,560
Speaker 6: Hart is president's CEO and director of Red Robin Gormet

370
00:19:21,560 --> 00:19:24,400
Speaker 6: Berger's and he joins us now DJ great to get

371
00:19:24,400 --> 00:19:27,359
Speaker 6: your perspective. What do you think the street is loving

372
00:19:27,400 --> 00:19:29,720
Speaker 6: so much about these earnings when the numbers and the

373
00:19:29,760 --> 00:19:31,640
Speaker 6: comps feel a little weak on the numbers.

374
00:19:33,520 --> 00:19:36,680
Speaker 9: Well, I think what they like is our strategic plan

375
00:19:36,800 --> 00:19:39,160
Speaker 9: to move this company forward. We call it the North

376
00:19:39,200 --> 00:19:43,720
Speaker 9: Star Plan. And we reported that in the first five

377
00:19:43,760 --> 00:19:46,680
Speaker 9: weeks of the second quarter that our comps that turned positive,

378
00:19:47,000 --> 00:19:49,800
Speaker 9: and I think that that surprised them a bit because

379
00:19:49,840 --> 00:19:52,960
Speaker 9: I think they all had us slightly negative. And I

380
00:19:52,960 --> 00:19:55,800
Speaker 9: think we're making great progress. Our teams have done amazing

381
00:19:55,920 --> 00:19:58,520
Speaker 9: work and we're really proud of where we are today.

382
00:19:58,600 --> 00:20:01,240
Speaker 9: And we sequentially really proved in the first quarter in

383
00:20:01,280 --> 00:20:03,960
Speaker 9: spite of a very tough start. So we feel great

384
00:20:03,960 --> 00:20:05,920
Speaker 9: about where we're going. And I think they see that,

385
00:20:06,320 --> 00:20:07,320
Speaker 9: and it's great to see.

386
00:20:08,320 --> 00:20:12,560
Speaker 3: GJ talk to us about your consumer, your customer, Who

387
00:20:12,680 --> 00:20:14,520
Speaker 3: is your customer and kind What are you seeing from

388
00:20:14,560 --> 00:20:16,119
Speaker 3: your customer's behavior these days?

389
00:20:17,000 --> 00:20:22,359
Speaker 9: Sure, well, our customer is basically Middle America and families

390
00:20:22,560 --> 00:20:25,800
Speaker 9: and all over the United States. And what we're seeing,

391
00:20:26,960 --> 00:20:31,800
Speaker 9: interestingly enough, is in our premium burgers, in our premium

392
00:20:31,800 --> 00:20:34,960
Speaker 9: gourmet burgers that we promote, we're seeing a real high

393
00:20:34,960 --> 00:20:35,440
Speaker 9: take rate.

394
00:20:36,240 --> 00:20:40,080
Speaker 10: We're also seeing that on the value in the.

395
00:20:39,840 --> 00:20:43,480
Speaker 9: Tavern burgers are actually having a high take grade as well.

396
00:20:43,920 --> 00:20:46,000
Speaker 9: And so what we are seeing is some trade down

397
00:20:46,040 --> 00:20:50,200
Speaker 9: from some of our guests, but then it's still surprising

398
00:20:50,240 --> 00:20:53,040
Speaker 9: to see that our gourmet lines are still doing as

399
00:20:53,040 --> 00:20:55,480
Speaker 9: well as they are. The other indicator is that things

400
00:20:55,520 --> 00:20:59,520
Speaker 9: like add ons, appetizers, desserts, those take grates are about

401
00:20:59,520 --> 00:21:03,280
Speaker 9: the same. So net we're feeling relatively about the consumer

402
00:21:04,200 --> 00:21:04,600
Speaker 9: when you.

403
00:21:04,640 --> 00:21:08,080
Speaker 6: Take a look at who is coming through your doors.

404
00:21:08,160 --> 00:21:12,720
Speaker 6: Has that changed at all as the economic environment has

405
00:21:12,760 --> 00:21:14,600
Speaker 6: become more challenging.

406
00:21:16,080 --> 00:21:19,679
Speaker 9: Well, you know, put aside to the economy for a minute.

407
00:21:20,160 --> 00:21:22,439
Speaker 9: Our comeback plan in the North Star plan is all

408
00:21:22,480 --> 00:21:26,640
Speaker 9: about engagement with our guests, bringing back fun value and

409
00:21:26,720 --> 00:21:30,840
Speaker 9: really taking this ic, iconic brand back to where it was.

410
00:21:30,920 --> 00:21:33,640
Speaker 9: And so we're seeing a lot of laps guests come

411
00:21:33,680 --> 00:21:36,359
Speaker 9: back in. We're seeing a lot of new guests. Our

412
00:21:36,440 --> 00:21:41,000
Speaker 9: loyalty platform that we just relaunched, we're seeing numbers like

413
00:21:41,000 --> 00:21:43,200
Speaker 9: we've never seen before in terms of sign up. So

414
00:21:43,720 --> 00:21:45,880
Speaker 9: we're getting a good base of people and we're doing

415
00:21:45,920 --> 00:21:49,680
Speaker 9: exactly what we wanted to do is just send a message, Hey,

416
00:21:49,720 --> 00:21:51,920
Speaker 9: come back into Red Robin, give us a try, and

417
00:21:52,119 --> 00:21:54,159
Speaker 9: I think you'll be pleased. And we're seeing that so

418
00:21:54,480 --> 00:21:55,320
Speaker 9: that feels great.

419
00:21:56,560 --> 00:21:59,440
Speaker 3: Inflation, how does that impact your business to what extent

420
00:21:59,480 --> 00:22:01,800
Speaker 3: can you pass along to your customer base.

421
00:22:01,880 --> 00:22:02,800
Speaker 7: How are you guys dealing with that?

422
00:22:04,040 --> 00:22:06,679
Speaker 9: So, as we've said, inflation for us is sort of

423
00:22:06,680 --> 00:22:09,160
Speaker 9: in that three to five percent for the for the year,

424
00:22:09,520 --> 00:22:12,080
Speaker 9: and we're staying true to that. So certainly it's still

425
00:22:12,119 --> 00:22:15,560
Speaker 9: there in terms of pricing power. You know, we've lagged

426
00:22:16,040 --> 00:22:18,560
Speaker 9: others in the industry over the last couple of years,

427
00:22:18,880 --> 00:22:22,639
Speaker 9: but we still feel like, you know, pricing is going

428
00:22:22,680 --> 00:22:25,120
Speaker 9: to be tough, and we have a great value compared

429
00:22:25,160 --> 00:22:28,200
Speaker 9: to pretty much everybody out there with a seventeen dollars

430
00:22:28,240 --> 00:22:33,000
Speaker 9: check average in a full service experience. So you know,

431
00:22:33,040 --> 00:22:36,280
Speaker 9: again we're positioned well. We are trying to screen value

432
00:22:36,280 --> 00:22:40,080
Speaker 9: with our thirty bottomless sides and our tavern Berger lineup,

433
00:22:40,160 --> 00:22:42,520
Speaker 9: and I think that's starting to resonate with the guests

434
00:22:42,560 --> 00:22:45,040
Speaker 9: that were everyday value and hey, you can come in

435
00:22:45,080 --> 00:22:45,640
Speaker 9: and have a lot.

436
00:22:45,560 --> 00:22:46,560
Speaker 10: Of fun at Red Route.

437
00:22:46,960 --> 00:22:47,760
Speaker 6: What about labor.

438
00:22:49,720 --> 00:22:52,720
Speaker 9: Labor is always a challenge right around the around the

439
00:22:52,800 --> 00:22:53,480
Speaker 9: United States.

440
00:22:53,480 --> 00:22:56,679
Speaker 10: It's we're seeing increases all over the place.

441
00:22:56,760 --> 00:22:59,359
Speaker 9: But you know, the good news is there's more labor available,

442
00:22:59,440 --> 00:23:02,400
Speaker 9: So our our team member base is strong at this point,

443
00:23:03,320 --> 00:23:05,080
Speaker 9: and certainly it's a challenge. We have to be as

444
00:23:05,080 --> 00:23:08,439
Speaker 9: efficient as possible. We've invested a lot back into the

445
00:23:08,480 --> 00:23:12,600
Speaker 9: overall experience by putting labor back into the restaurants. Management

446
00:23:12,600 --> 00:23:15,760
Speaker 9: teams are appropriate now and so yes, it's going to

447
00:23:15,760 --> 00:23:18,400
Speaker 9: be an ongoing challenge, but we're not alone in that

448
00:23:18,480 --> 00:23:20,440
Speaker 9: and we're going to continue to stay the course because

449
00:23:20,480 --> 00:23:22,919
Speaker 9: we believe long term it's the right thing to do

450
00:23:23,000 --> 00:23:25,760
Speaker 9: for the brand, to bring it back to the iconic

451
00:23:25,760 --> 00:23:27,879
Speaker 9: brand and it's been for almost fifty years.

452
00:23:28,680 --> 00:23:31,879
Speaker 3: So GJ kind of on that front, give us a

453
00:23:31,880 --> 00:23:35,360
Speaker 3: sense of the history of Red Robin, you know, kind

454
00:23:35,359 --> 00:23:37,520
Speaker 3: of where, how did it get started, what's the where

455
00:23:37,520 --> 00:23:41,720
Speaker 3: do you guys kind of find yourself in the competitive landscape.

456
00:23:41,400 --> 00:23:42,760
Speaker 7: And where do you need to get to.

457
00:23:43,600 --> 00:23:47,080
Speaker 9: Sure well, Red Robin started up in the state of

458
00:23:47,160 --> 00:23:50,119
Speaker 9: Washington outside of Seattle, and it really started as a

459
00:23:50,119 --> 00:23:54,480
Speaker 9: tavern and it's and it's humble beginnings have gone to

460
00:23:54,560 --> 00:23:58,680
Speaker 9: over five hundred restaurants all over the United States. We

461
00:23:58,840 --> 00:24:02,320
Speaker 9: have fit fit a really nice niche within casual dining.

462
00:24:02,760 --> 00:24:05,760
Speaker 9: We are family friendly, we are a bunch of fun

463
00:24:05,880 --> 00:24:06,720
Speaker 9: in the restaurant.

464
00:24:07,400 --> 00:24:09,359
Speaker 10: We have great value, great.

465
00:24:09,080 --> 00:24:13,320
Speaker 9: Hospitality, and great food and that niche sort of has

466
00:24:13,359 --> 00:24:16,560
Speaker 9: been one that when Red Robin really started to go

467
00:24:16,680 --> 00:24:19,760
Speaker 9: a little bit astray, that no one's really filled that gap.

468
00:24:19,800 --> 00:24:23,119
Speaker 9: So we're really believed that debt positioning still holds true today.

469
00:24:23,359 --> 00:24:26,200
Speaker 9: We just need to bring things relevant. So whether it's

470
00:24:26,240 --> 00:24:29,080
Speaker 9: the food offerings or the hospitality or the fun environment,

471
00:24:29,400 --> 00:24:31,520
Speaker 9: we need to bring it relevant, which is what we're doing,

472
00:24:31,640 --> 00:24:33,920
Speaker 9: which is why we're investing so much into this plan.

473
00:24:34,440 --> 00:24:36,800
Speaker 9: But if we do that well, we think there's plenty

474
00:24:36,840 --> 00:24:40,080
Speaker 9: of room for us to continue to grow and we're

475
00:24:40,080 --> 00:24:41,959
Speaker 9: going to continue to work hard to make that happen.

476
00:24:42,400 --> 00:24:45,120
Speaker 6: And your resume is quite long, right, you're the former

477
00:24:45,160 --> 00:24:49,120
Speaker 6: CEO of California Pizza Kitchen Texas Roadhouse. I love KPC

478
00:24:49,640 --> 00:24:50,440
Speaker 6: no CPKA.

479
00:24:50,640 --> 00:24:53,919
Speaker 3: Well, if you're in Monterey, California, there ain't no pizza

480
00:24:54,000 --> 00:24:55,800
Speaker 3: and so CPK is it. So it's not bad, the

481
00:24:55,880 --> 00:24:56,920
Speaker 3: kids are happy, it's all good.

482
00:24:56,960 --> 00:24:58,639
Speaker 6: No, it's good. And the barbecue chicken part of it

483
00:24:58,640 --> 00:25:01,160
Speaker 6: it was really good too. I mean, yeah, I do.

484
00:25:01,280 --> 00:25:01,840
Speaker 3: I'm sorry.

485
00:25:02,080 --> 00:25:04,359
Speaker 6: You've done a lot and you've seen a lot, and

486
00:25:04,400 --> 00:25:07,560
Speaker 6: you've operated these kind of restaurants through many different environments.

487
00:25:07,560 --> 00:25:09,840
Speaker 6: Can you just give me your sort of career perspective

488
00:25:10,440 --> 00:25:13,400
Speaker 6: on what you see now and trends developing and how

489
00:25:13,440 --> 00:25:14,320
Speaker 6: things have changed.

490
00:25:16,240 --> 00:25:18,879
Speaker 10: Well, sure, I'll be happy to look.

491
00:25:18,960 --> 00:25:21,320
Speaker 9: I think at the end of the day, in this

492
00:25:21,440 --> 00:25:24,720
Speaker 9: restaurant business, you have to stay the course and really

493
00:25:24,800 --> 00:25:27,080
Speaker 9: know who you are and who you are trying to be.

494
00:25:27,520 --> 00:25:29,119
Speaker 9: And as long as you do that day in and

495
00:25:29,160 --> 00:25:31,280
Speaker 9: debt execute at a very high level.

496
00:25:31,200 --> 00:25:33,440
Speaker 10: You're going to be successful. It's going to ebb and flow.

497
00:25:33,520 --> 00:25:35,600
Speaker 9: The ups and downs are going to be there, and

498
00:25:35,640 --> 00:25:38,600
Speaker 9: you need to stay true to who you want to be.

499
00:25:39,320 --> 00:25:42,879
Speaker 9: And I think that's that's the big opportunity for us here.

500
00:25:43,040 --> 00:25:46,080
Speaker 9: You know, in spite of a tougher economic backdrop, if

501
00:25:46,119 --> 00:25:48,920
Speaker 9: you will, we're starting to see good success and great

502
00:25:48,960 --> 00:25:51,600
Speaker 9: momentum for a plan that we put in place. So

503
00:25:51,920 --> 00:25:54,280
Speaker 9: what I've seen over the years, you know, Texas Roadhouse,

504
00:25:54,320 --> 00:25:56,159
Speaker 9: we grew, it was a real high growth company.

505
00:25:56,359 --> 00:25:57,359
Speaker 10: Still loved the company.

506
00:25:57,440 --> 00:25:59,720
Speaker 9: CPK was a turnaround and we had a lot of

507
00:25:59,760 --> 00:26:03,320
Speaker 9: great success there as well. But again, you know, it's

508
00:26:03,400 --> 00:26:06,440
Speaker 9: really staying true to who you are and making sure

509
00:26:06,480 --> 00:26:09,760
Speaker 9: you align every single team member in the organization around

510
00:26:09,760 --> 00:26:11,120
Speaker 9: your mission, vision and values.

511
00:26:11,320 --> 00:26:12,520
Speaker 10: Where it is you want to get to.

512
00:26:12,680 --> 00:26:14,879
Speaker 9: And so as long as you do that, stay the course,

513
00:26:15,200 --> 00:26:18,480
Speaker 9: and you provide the leadership that's steadfast in that commitment,

514
00:26:18,800 --> 00:26:21,359
Speaker 9: you'll be okay. And that's what my experience of almost

515
00:26:21,440 --> 00:26:25,399
Speaker 9: forty years now gosh, getting old, you know, that's what

516
00:26:25,400 --> 00:26:25,960
Speaker 9: it tells me.

517
00:26:26,320 --> 00:26:31,040
Speaker 3: So, GJA, talk to us about the footprint for Red Robin.

518
00:26:31,119 --> 00:26:33,520
Speaker 3: How many units do you have now? How many restaurants

519
00:26:33,520 --> 00:26:35,040
Speaker 3: have now? And maybe where do you want to go?

520
00:26:35,920 --> 00:26:39,800
Speaker 9: Sure, well, we have five hundred and ten restaurants and

521
00:26:40,920 --> 00:26:43,000
Speaker 9: you know, look at this point, we like to say,

522
00:26:43,119 --> 00:26:45,440
Speaker 9: first things first, we need to get this North Star

523
00:26:45,520 --> 00:26:48,399
Speaker 9: plan in place and start to have growth within our

524
00:26:48,440 --> 00:26:51,600
Speaker 9: existing restaurant base. It's a little too early to talk

525
00:26:51,640 --> 00:26:52,200
Speaker 9: about growth.

526
00:26:52,200 --> 00:26:54,600
Speaker 10: Again. There is plenty of white space in America.

527
00:26:54,240 --> 00:26:56,800
Speaker 9: For more Red Robins, but we need to do first

528
00:26:56,840 --> 00:26:58,840
Speaker 9: things first, and that's what we're doing. And you know,

529
00:26:58,960 --> 00:27:00,840
Speaker 9: it's a couple of years away in terms of thinking

530
00:27:00,880 --> 00:27:01,440
Speaker 9: about growth.

531
00:27:02,680 --> 00:27:05,720
Speaker 6: Really interesting stuff. When you're gonna get him in New York.

532
00:27:05,720 --> 00:27:07,800
Speaker 6: I've never been to one. Are you thinking about it?

533
00:27:10,040 --> 00:27:13,600
Speaker 9: Well, you probably in Manhattan right so, no, we're not

534
00:27:13,640 --> 00:27:16,240
Speaker 9: thinking about Manhattan right now, but we certainly would love

535
00:27:16,280 --> 00:27:17,119
Speaker 9: to host you in.

536
00:27:17,200 --> 00:27:18,439
Speaker 10: Any one of our restaurants.

537
00:27:18,760 --> 00:27:20,040
Speaker 7: I know there's one.

538
00:27:20,119 --> 00:27:24,120
Speaker 6: I know something you said, there's one field trip there

539
00:27:24,359 --> 00:27:27,359
Speaker 6: than John Tucker's Beach Club. Of course, make the rounds

540
00:27:27,080 --> 00:27:30,040
Speaker 6: and this all makes GJ. Thanks a lot. We really

541
00:27:30,040 --> 00:27:33,440
Speaker 6: appreciate it, really good perspective. Congrats on the good outlook

542
00:27:33,480 --> 00:27:35,960
Speaker 6: and the stock pop today. J. J. Hart, President and

543
00:27:36,000 --> 00:27:39,680
Speaker 6: CEO and director of Red Robin Gourmet Burgers. I mean,

544
00:27:40,080 --> 00:27:41,760
Speaker 6: you know, we've been eating out a lot more and

545
00:27:41,920 --> 00:27:43,960
Speaker 6: as the weather got nicer and a man, you see

546
00:27:43,960 --> 00:27:46,040
Speaker 6: that on your credit card bill, so I can definitely

547
00:27:46,040 --> 00:27:49,520
Speaker 6: see how sort of a different kind of place would

548
00:27:49,520 --> 00:27:51,840
Speaker 6: be really helpful to go to and still be able

549
00:27:51,880 --> 00:27:54,520
Speaker 6: to have fun and eat good food and also not

550
00:27:54,600 --> 00:27:56,159
Speaker 6: pay three hundred dollars for three people.

551
00:27:57,160 --> 00:27:58,280
Speaker 7: But you had a glass of prosecco.

552
00:27:58,720 --> 00:28:02,439
Speaker 6: Yeah, but just one androun like Panda and back like before.

553
00:28:02,520 --> 00:28:03,240
Speaker 6: It's very different.

554
00:28:03,480 --> 00:28:05,040
Speaker 10: Where did you do that was three hundred dollars for

555
00:28:05,119 --> 00:28:05,639
Speaker 10: three people?

556
00:28:05,960 --> 00:28:06,520
Speaker 6: Brooklyn?

557
00:28:06,960 --> 00:28:07,240
Speaker 4: Really?

558
00:28:07,560 --> 00:28:07,800
Speaker 3: Yes?

559
00:28:08,200 --> 00:28:11,240
Speaker 6: And one of those three people is nine and a half,

560
00:28:12,280 --> 00:28:14,760
Speaker 6: so anyway a half people, yeah, exactly two and a

561
00:28:14,800 --> 00:28:15,240
Speaker 6: half people.

562
00:28:16,680 --> 00:28:20,600
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

563
00:28:20,680 --> 00:28:24,200
Speaker 2: weekdays at ten am Eastern on Applecar Play and Android

564
00:28:24,200 --> 00:28:27,000
Speaker 2: Auto with a Bloomberg Business app. You can also listen

565
00:28:27,119 --> 00:28:30,200
Speaker 2: live on Amazon Alexa from our flagship New York station,

566
00:28:30,560 --> 00:28:33,600
Speaker 2: Just say Alexa, Play Bloomberg eleven thirty.

567
00:28:34,760 --> 00:28:37,760
Speaker 6: Him Alex see you alongside Paul Sweeney. Not only do

568
00:28:37,880 --> 00:28:40,320
Speaker 6: we cover all the news and finance with our great

569
00:28:40,360 --> 00:28:44,080
Speaker 6: analysts of Bloomberg Intelligence, we also tap our huge amount

570
00:28:44,160 --> 00:28:47,520
Speaker 6: of reporters over at Bloomberg News and every day they

571
00:28:47,560 --> 00:28:50,040
Speaker 6: have a Big Take, and it really delves into the

572
00:28:50,080 --> 00:28:52,840
Speaker 6: topics that we're talking about every day and is an

573
00:28:52,880 --> 00:28:56,160
Speaker 6: amazing deep dive to get a true sense of what's

574
00:28:56,160 --> 00:28:59,440
Speaker 6: going on out there. And today's big takes about none

575
00:28:59,520 --> 00:29:03,040
Speaker 6: other an Elon Musk, and it talks about Elon's orbit,

576
00:29:03,440 --> 00:29:07,200
Speaker 6: that Musk's galaxy of companies is basically under threat as

577
00:29:07,320 --> 00:29:09,719
Speaker 6: Tesla continues to spiral, and it takes a look at

578
00:29:09,720 --> 00:29:12,120
Speaker 6: the people in his orbit that try and keep things running,

579
00:29:12,320 --> 00:29:14,680
Speaker 6: even though many accuse him of being distracted by all

580
00:29:14,720 --> 00:29:17,000
Speaker 6: of his ventures. One of the writers is Kurt Wagner,

581
00:29:17,040 --> 00:29:20,280
Speaker 6: Bloomberg Tech reporter, and he joins us. Now, Kurt, does

582
00:29:20,360 --> 00:29:22,760
Speaker 6: walk us through what you learned in this piece.

583
00:29:24,480 --> 00:29:27,240
Speaker 11: I mean a big part of what you know, working

584
00:29:27,280 --> 00:29:29,400
Speaker 11: for Elon is all about, is sort of working for

585
00:29:29,440 --> 00:29:31,840
Speaker 11: Elon everywhere he needs you, right, So you might be

586
00:29:31,960 --> 00:29:35,160
Speaker 11: employed technically by Tesla, but you might show up on

587
00:29:35,520 --> 00:29:38,160
Speaker 11: you know, a SpaceX project or an X project. And

588
00:29:38,520 --> 00:29:41,000
Speaker 11: I think, you know, not only are the people that

589
00:29:41,560 --> 00:29:43,800
Speaker 11: he works with sort of hovering around and all these

590
00:29:43,880 --> 00:29:46,520
Speaker 11: various roles, but I think his companies are becoming closer

591
00:29:46,520 --> 00:29:49,120
Speaker 11: and closer together. And that's why it's so important that

592
00:29:49,240 --> 00:29:51,560
Speaker 11: you know, when Tesla is struggling, it has this trickle

593
00:29:51,560 --> 00:29:55,160
Speaker 11: effect because that's where he gets his wealth to fund XAI,

594
00:29:55,320 --> 00:29:58,360
Speaker 11: to to you know, deal with X, to deal with SpaceX.

595
00:29:58,400 --> 00:30:00,440
Speaker 11: And so, you know, what we wanted to sort of

596
00:30:00,480 --> 00:30:03,120
Speaker 11: do is show people that all of these different companies

597
00:30:03,120 --> 00:30:05,719
Speaker 11: and all the people who work them are interconnected. And

598
00:30:05,760 --> 00:30:08,000
Speaker 11: we try to do that with a pretty cool visual

599
00:30:08,040 --> 00:30:11,360
Speaker 11: graphic that folks can see on the on the website today.

600
00:30:11,800 --> 00:30:14,840
Speaker 7: Kurt, what is the musconomy to find that?

601
00:30:16,080 --> 00:30:20,320
Speaker 11: Yeah, it's a term that represents or reflects these six

602
00:30:20,440 --> 00:30:24,240
Speaker 11: different businesses that he's running at any given time, and

603
00:30:24,880 --> 00:30:27,760
Speaker 11: again sort of this idea that they all work together.

604
00:30:27,920 --> 00:30:31,960
Speaker 11: They you know, in X's case, the data from X,

605
00:30:31,960 --> 00:30:34,560
Speaker 11: which used to be called Twitter, is now sort of

606
00:30:34,560 --> 00:30:36,320
Speaker 11: powering XAI his startup.

607
00:30:36,480 --> 00:30:36,680
Speaker 10: Right.

608
00:30:36,880 --> 00:30:39,840
Speaker 11: The money from Tesla has historically been used to help

609
00:30:39,880 --> 00:30:43,520
Speaker 11: fund SpaceX and his purchase of X. And again you

610
00:30:43,640 --> 00:30:47,800
Speaker 11: see the musconomy as this collection of businesses that Elon

611
00:30:47,960 --> 00:30:50,960
Speaker 11: runs and how they are all intertwined with one another.

612
00:30:51,320 --> 00:30:53,640
Speaker 6: Do the people in his orbit do they like this?

613
00:30:54,120 --> 00:30:56,680
Speaker 6: Like that to me sounds terrible, Like I like predictability,

614
00:30:56,720 --> 00:30:58,400
Speaker 6: which I know as funny as I work in news.

615
00:30:58,480 --> 00:31:00,360
Speaker 6: I like predictability. I like to know what I'm doing.

616
00:31:00,400 --> 00:31:02,680
Speaker 6: I do not want to be pulled in seventeen thousand directions.

617
00:31:02,960 --> 00:31:04,400
Speaker 6: Do people in his orbit like that?

618
00:31:06,040 --> 00:31:06,200
Speaker 5: Well?

619
00:31:06,240 --> 00:31:09,080
Speaker 11: I think the people at the very you know, center

620
00:31:09,160 --> 00:31:11,480
Speaker 11: of this universe, the people who are closest to Elon.

621
00:31:11,960 --> 00:31:14,600
Speaker 11: Whether they like it or not, it's sort of a necessity, right,

622
00:31:14,640 --> 00:31:16,840
Speaker 11: because that's what it takes to be close to that

623
00:31:16,960 --> 00:31:19,560
Speaker 11: center of power. And so we've seen, for example, his

624
00:31:19,680 --> 00:31:23,360
Speaker 11: business manager Jared Birchall shows up pretty much across all

625
00:31:23,440 --> 00:31:26,320
Speaker 11: these different companies. His lawyer, Alex Spiro shows up across

626
00:31:26,320 --> 00:31:28,560
Speaker 11: all of these companies. So if you want to be

627
00:31:28,840 --> 00:31:31,280
Speaker 11: at the center of this universe, you have to be

628
00:31:31,320 --> 00:31:33,600
Speaker 11: willing to go where Elon goes. And as we know,

629
00:31:33,680 --> 00:31:35,600
Speaker 11: he not only has these six companies, but he's doing

630
00:31:35,640 --> 00:31:37,920
Speaker 11: a million other things as well. And so whether they

631
00:31:38,000 --> 00:31:40,280
Speaker 11: like it or not, I'm not sure if it really matters,

632
00:31:40,560 --> 00:31:42,880
Speaker 11: because that's just what it takes to work for Elon.

633
00:31:42,680 --> 00:31:44,760
Speaker 7: Musk and Kurt the center at all.

634
00:31:44,800 --> 00:31:47,479
Speaker 3: As you mentioned, from an economic financial perspective, is Tesla

635
00:31:47,760 --> 00:31:50,239
Speaker 3: stocks off twenty eight percent year to date? Is that

636
00:31:50,280 --> 00:31:53,840
Speaker 3: exerting any pressure on musconomy.

637
00:31:54,880 --> 00:31:57,560
Speaker 11: Well, it is because we've started to hear rumblings that

638
00:31:57,600 --> 00:32:01,240
Speaker 11: Tesla's board is, you know, on happy with Elon being

639
00:32:01,280 --> 00:32:04,400
Speaker 11: distracted with these other companies, right, And so I think

640
00:32:04,440 --> 00:32:06,640
Speaker 11: when things are going well, when the stock is up,

641
00:32:06,680 --> 00:32:09,960
Speaker 11: when business is booming, you know, the idea of him

642
00:32:10,000 --> 00:32:13,800
Speaker 11: spending you know, several hours a day over at Twitter

643
00:32:14,200 --> 00:32:17,080
Speaker 11: or now X is not as big of a deal, right,

644
00:32:17,080 --> 00:32:19,840
Speaker 11: But when suddenly the stock is down, when business is struggling,

645
00:32:20,080 --> 00:32:23,160
Speaker 11: those hours feel like a huge distraction and it feels

646
00:32:23,200 --> 00:32:26,200
Speaker 11: like he's not plugged into the money making part of

647
00:32:26,240 --> 00:32:28,920
Speaker 11: this machine, which is Tesla. And so I think the

648
00:32:29,000 --> 00:32:33,080
Speaker 11: business there is a huge indicator of what he's able

649
00:32:33,120 --> 00:32:36,200
Speaker 11: to do with his time. Elsewhere, and that's what we're

650
00:32:36,200 --> 00:32:38,560
Speaker 11: seeing right now. I think that tension is as Tesla's

651
00:32:38,560 --> 00:32:41,240
Speaker 11: business is struggling, is creating pressure on him to focus

652
00:32:41,280 --> 00:32:43,000
Speaker 11: more of his time at the carmaker.

653
00:32:43,520 --> 00:32:47,280
Speaker 6: How do they all? How do all the businesses though intersect?

654
00:32:47,440 --> 00:32:51,200
Speaker 6: Because from a broad look they don't. But then if

655
00:32:51,240 --> 00:32:53,560
Speaker 6: you dive a little deeper, like they do, like X

656
00:32:53,640 --> 00:32:56,080
Speaker 6: you can use all that stuff for large language models

657
00:32:56,120 --> 00:32:58,440
Speaker 6: for his AI stuff, and the AI stuff goes into

658
00:32:58,520 --> 00:33:00,480
Speaker 6: the car stuff, and the car stuff, I guess goes

659
00:33:00,480 --> 00:33:01,680
Speaker 6: into the rocket ship stuff.

660
00:33:03,000 --> 00:33:04,800
Speaker 10: Yeah, I mean you kind of hit on it.

661
00:33:04,880 --> 00:33:09,440
Speaker 11: Like the connective tissue between these companies can be somewhat small.

662
00:33:09,840 --> 00:33:12,280
Speaker 11: In X's case, as you pointed out, the data there

663
00:33:12,360 --> 00:33:16,680
Speaker 11: is being used to train a chatbot called Grock within XAI.

664
00:33:17,760 --> 00:33:20,880
Speaker 11: We know that, for example, the corporate plane, like small things,

665
00:33:20,880 --> 00:33:23,320
Speaker 11: the corporate plane that Elon uses that Tesla is the

666
00:33:23,360 --> 00:33:25,360
Speaker 11: same one that's used at SpaceX. We know that they

667
00:33:25,400 --> 00:33:29,360
Speaker 11: share certain employees, so you know, I mentioned Jared Burchell,

668
00:33:29,440 --> 00:33:32,680
Speaker 11: his business manager, Alex Biro, his lawyer, Like these are

669
00:33:32,720 --> 00:33:35,480
Speaker 11: the types of connective things that bring these companies together.

670
00:33:35,880 --> 00:33:38,440
Speaker 11: Is the people and and sort of you know, the

671
00:33:38,520 --> 00:33:41,880
Speaker 11: smaller parts of their business that are intertwined. And I

672
00:33:41,920 --> 00:33:45,160
Speaker 11: feel like, again I already talked about it, but Tesla

673
00:33:45,240 --> 00:33:47,320
Speaker 11: is sort of the engine behind this whole thing. If

674
00:33:47,320 --> 00:33:49,720
Speaker 11: Tesla is humming and doing well, it kind of enables

675
00:33:49,760 --> 00:33:50,920
Speaker 11: everything else to grow too.

676
00:33:51,640 --> 00:33:52,400
Speaker 7: How about Twitter?

677
00:33:52,600 --> 00:33:55,000
Speaker 3: You bought that for forty four billion dollars. Kurt and

678
00:33:55,040 --> 00:33:57,440
Speaker 3: a lot of analysts says the value of Twitter's declined

679
00:33:57,520 --> 00:34:02,280
Speaker 3: dramatically as advertisers have Is there any pushback from anybody

680
00:34:02,320 --> 00:34:04,640
Speaker 3: or folks just saying, hey, it was his money, you

681
00:34:04,680 --> 00:34:04,960
Speaker 3: can do.

682
00:34:04,920 --> 00:34:05,680
Speaker 7: With it what he wants.

683
00:34:07,080 --> 00:34:10,280
Speaker 11: Yeah. I mean, I do think it poses a challenge

684
00:34:10,320 --> 00:34:13,839
Speaker 11: because of this distraction I was talking about with Elon's time, right,

685
00:34:13,920 --> 00:34:17,000
Speaker 11: I think, especially if you're a Tesla investor, you have

686
00:34:17,080 --> 00:34:19,560
Speaker 11: to be scratching your head and saying, what are you doing?

687
00:34:19,960 --> 00:34:22,360
Speaker 11: You know, why are you spending money on this, on

688
00:34:22,440 --> 00:34:25,319
Speaker 11: this or excuse me, spending time on this money losing

689
00:34:25,400 --> 00:34:28,000
Speaker 11: business when you could be sort of you know, making

690
00:34:28,000 --> 00:34:32,000
Speaker 11: money for shareholders over here. And I think it's, you know,

691
00:34:32,280 --> 00:34:34,560
Speaker 11: becoming a bit of a problem. I think what will

692
00:34:34,560 --> 00:34:37,640
Speaker 11: be interesting is to see whether x sort of gets

693
00:34:37,719 --> 00:34:41,200
Speaker 11: folded into x AI at some point, I could see

694
00:34:41,239 --> 00:34:43,799
Speaker 11: those two companies sort of emerging so that you know,

695
00:34:43,840 --> 00:34:47,160
Speaker 11: again X provides the data for these large language models,

696
00:34:47,320 --> 00:34:49,360
Speaker 11: but it sort of gives him some cover to spend

697
00:34:49,360 --> 00:34:52,040
Speaker 11: time in X because now it's part of the AI business,

698
00:34:52,040 --> 00:34:54,440
Speaker 11: which is much more exciting, I think, for people than

699
00:34:54,520 --> 00:34:57,239
Speaker 11: the free speech business, which hasn't been very lucrative for him.

700
00:34:57,760 --> 00:35:00,200
Speaker 6: The free speech business. Wo's in the free speech business? Like,

701
00:35:00,200 --> 00:35:01,520
Speaker 6: what is that mental wires?

702
00:35:01,800 --> 00:35:02,400
Speaker 10: That is Elon?

703
00:35:02,760 --> 00:35:05,000
Speaker 11: Elon is the is in the free speech business.

704
00:35:05,080 --> 00:35:05,520
Speaker 10: I guess.

705
00:35:05,600 --> 00:35:07,600
Speaker 6: So what do you think the biggest question then is

706
00:35:08,520 --> 00:35:12,040
Speaker 6: going in your reporting? What emerges the biggest problem or

707
00:35:12,040 --> 00:35:12,800
Speaker 6: the biggest question?

708
00:35:14,440 --> 00:35:18,520
Speaker 11: Yeah, I think really it comes down to kind of this.

709
00:35:18,640 --> 00:35:21,160
Speaker 11: We haven't really talked much about this yet, but Elon's

710
00:35:21,280 --> 00:35:24,960
Speaker 11: pay package at Tesla is sort of up for debate.

711
00:35:25,160 --> 00:35:25,359
Speaker 10: Right.

712
00:35:25,400 --> 00:35:27,400
Speaker 11: You may remember he was supposed to be paid I

713
00:35:27,400 --> 00:35:31,399
Speaker 11: believe it was fifty six billion dollars and that pay

714
00:35:31,480 --> 00:35:33,839
Speaker 11: package was I believe set up in twenty eighteen. It's

715
00:35:33,880 --> 00:35:37,319
Speaker 11: been challenged in court and a judge basically said this

716
00:35:37,360 --> 00:35:41,359
Speaker 11: isn't a fair compensation, and Elon is fighting this in court.

717
00:35:41,360 --> 00:35:44,080
Speaker 11: But it's a huge deal, not only because it's you know,

718
00:35:44,160 --> 00:35:47,080
Speaker 11: his own net worth, but because that money is then

719
00:35:47,239 --> 00:35:50,120
Speaker 11: used to fund so many of these other projects. So

720
00:35:50,200 --> 00:35:53,360
Speaker 11: if he's not able to secure this this pay package

721
00:35:53,440 --> 00:35:56,080
Speaker 11: that he thought he had, it impacts the loans that

722
00:35:56,120 --> 00:35:59,120
Speaker 11: he takes out and impacts his liquidity to be able

723
00:35:59,160 --> 00:36:01,480
Speaker 11: to use on these other companies. And I do wonder

724
00:36:01,719 --> 00:36:04,520
Speaker 11: if he starts to lose a lot of his net worth,

725
00:36:04,560 --> 00:36:08,040
Speaker 11: his value, if that's going to have an impact on Xai, Twitter,

726
00:36:08,440 --> 00:36:09,719
Speaker 11: SpaceX and others.

727
00:36:10,120 --> 00:36:11,919
Speaker 6: All Right, thanks so much, Kret. We really appreciate it's

728
00:36:11,920 --> 00:36:13,759
Speaker 6: a great read. You guys. You should definitely check it out.

729
00:36:14,120 --> 00:36:17,759
Speaker 6: Kurt Wagner, Bloomberg type reporter standing by there for us.

730
00:36:20,360 --> 00:36:24,240
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

731
00:36:24,320 --> 00:36:27,840
Speaker 2: weekdays at ten am Eastern on applecard Play and Android

732
00:36:27,880 --> 00:36:30,640
Speaker 2: Auto with the Bloomberg Business app. You can also listen

733
00:36:30,760 --> 00:36:33,839
Speaker 2: live on Amazon Alexa from our flagship New York station.

734
00:36:34,239 --> 00:36:37,960
Speaker 2: Just say Alexa, play Bloomberg eleven thirty.

735
00:36:38,960 --> 00:36:40,640
Speaker 3: Let's check in on these markets. I get a little

736
00:36:40,640 --> 00:36:43,680
Speaker 3: bit of a sell off here today. Anna Rothbund joins us.

737
00:36:43,680 --> 00:36:48,799
Speaker 3: She is the chief investment Officer SEBIZ Investment Advisory Services,

738
00:36:49,360 --> 00:36:52,480
Speaker 3: joining us from Cleveland Ohio via zoom here on a

739
00:36:53,320 --> 00:36:55,480
Speaker 3: You know, it seems like we've kind of cycled through

740
00:36:55,480 --> 00:36:58,319
Speaker 3: these earnings. Although we've got some retailers this week, the

741
00:36:58,400 --> 00:37:01,880
Speaker 3: earnings framework seems pretty solid out there for the market.

742
00:37:02,680 --> 00:37:04,560
Speaker 3: I think we've got a FED that's going to be

743
00:37:04,680 --> 00:37:08,359
Speaker 3: on the margin cutting rates going forward. Does that set

744
00:37:08,440 --> 00:37:10,839
Speaker 3: us up for pretty constructive outlook here?

745
00:37:10,840 --> 00:37:12,520
Speaker 7: For risk assets? How do you guys think about it?

746
00:37:14,600 --> 00:37:17,320
Speaker 1: Well, good morning. The valuations are still high.

747
00:37:17,520 --> 00:37:20,960
Speaker 12: I mean from an entry point, it isn't that attractive.

748
00:37:21,000 --> 00:37:23,520
Speaker 12: I mean, it's been exciting, and if you've been holding stocks,

749
00:37:23,600 --> 00:37:26,359
Speaker 12: it has been exciting. But if you're trying to put

750
00:37:26,440 --> 00:37:29,120
Speaker 12: cash to work, it is kind of a nervous environment.

751
00:37:29,560 --> 00:37:33,319
Speaker 12: So earnings great, is about six percent year over year?

752
00:37:33,800 --> 00:37:37,319
Speaker 12: Guidance not so great, And underlying that guidance really is

753
00:37:37,320 --> 00:37:40,640
Speaker 12: the economic activity. The GDP number came in this morning.

754
00:37:41,239 --> 00:37:44,200
Speaker 12: Forget the first quarter, because if we want to compare

755
00:37:44,200 --> 00:37:46,319
Speaker 12: it to earnings, which is year over year, you have

756
00:37:46,360 --> 00:37:48,799
Speaker 12: to compare the GDP year over year, and that number

757
00:37:48,840 --> 00:37:51,360
Speaker 12: is two point nine percent better than one point three

758
00:37:51,520 --> 00:37:54,640
Speaker 12: but two point nine percent GDP growth to six percent

759
00:37:55,000 --> 00:37:58,719
Speaker 12: earnings growth year over year, that basically tells you the

760
00:37:58,719 --> 00:38:04,040
Speaker 12: stock market isn't the economy, but that is the economic backdrop,

761
00:38:04,080 --> 00:38:06,440
Speaker 12: and those are the fundamentals that the companies have to

762
00:38:06,520 --> 00:38:12,200
Speaker 12: work with support guidance. Weaker growth prospects, these don't really

763
00:38:12,200 --> 00:38:15,040
Speaker 12: excite us at this point, especially when the valuations are high.

764
00:38:15,400 --> 00:38:18,080
Speaker 6: You had Bill Dudley writing a column for Bloomberg today

765
00:38:18,480 --> 00:38:20,000
Speaker 6: that you know, it was fun. I was talking about

766
00:38:20,000 --> 00:38:22,440
Speaker 6: the neutral rate. Maybe the neutral rate is a lot higher.

767
00:38:22,480 --> 00:38:25,160
Speaker 6: So it's not sort of higher for longer, it's higher

768
00:38:25,239 --> 00:38:27,360
Speaker 6: like forever. Now we're going to be in a totally

769
00:38:27,400 --> 00:38:30,960
Speaker 6: different kind of normalized environment. What do you think about that?

770
00:38:32,480 --> 00:38:36,760
Speaker 12: Well, so I do think that neutral rate is probably higher.

771
00:38:37,120 --> 00:38:42,080
Speaker 12: It doesn't mean that the rate right now isn't restrictive enough.

772
00:38:42,320 --> 00:38:44,880
Speaker 12: Right so, right now, I do think that it is

773
00:38:44,920 --> 00:38:49,239
Speaker 12: restrictive because the rate sensitive areas of the economy and

774
00:38:49,280 --> 00:38:50,879
Speaker 12: the markets they have responded.

775
00:38:51,160 --> 00:38:53,799
Speaker 1: It's the not so rate sensitive areas that have been

776
00:38:53,800 --> 00:38:54,520
Speaker 1: really booming.

777
00:38:54,520 --> 00:38:58,120
Speaker 12: If you think about the sixty six percent of Americans

778
00:38:58,160 --> 00:39:02,840
Speaker 12: that have that own home, most of which grand majority

779
00:39:02,880 --> 00:39:06,560
Speaker 12: of which have locked in low rates. That's not rate sensitive,

780
00:39:06,880 --> 00:39:10,000
Speaker 12: right So in thirty four percent of Americans who are

781
00:39:10,480 --> 00:39:13,440
Speaker 12: renting their rents are super high because there are that

782
00:39:13,480 --> 00:39:15,160
Speaker 12: many homes out there for them to buy, so the

783
00:39:15,160 --> 00:39:16,200
Speaker 12: rent keeps going up.

784
00:39:16,560 --> 00:39:17,520
Speaker 1: So from that.

785
00:39:17,560 --> 00:39:22,399
Speaker 12: Perspective, the majority of Americans actually are not rate sensitive, right,

786
00:39:22,480 --> 00:39:26,440
Speaker 12: So to me, raising rates from this point on, or

787
00:39:26,520 --> 00:39:31,239
Speaker 12: keeping rates super high for indefinitely isn't really going to

788
00:39:31,360 --> 00:39:34,440
Speaker 12: help us with the inflation, bringing inflation down to what

789
00:39:34,520 --> 00:39:35,040
Speaker 12: I think.

790
00:39:34,920 --> 00:39:37,880
Speaker 1: Is an arbitrary two percent, because it's.

791
00:39:37,719 --> 00:39:40,399
Speaker 12: Not going to affect those people who have low rates, right.

792
00:39:40,480 --> 00:39:44,120
Speaker 12: So I think thinking about neutral where the neutral rate

793
00:39:44,239 --> 00:39:47,200
Speaker 12: might might be, which, by the way, nobody really knows,

794
00:39:47,560 --> 00:39:50,680
Speaker 12: and thinking that the air on the side of higher

795
00:39:50,719 --> 00:39:54,399
Speaker 12: forever or higher indefinitely, I think is a little bit

796
00:39:54,440 --> 00:39:55,400
Speaker 12: too restrictive.

797
00:39:55,440 --> 00:39:56,799
Speaker 1: I do think that we need to be on the

798
00:39:56,840 --> 00:39:57,960
Speaker 1: path for normalization.

799
00:39:59,120 --> 00:40:01,840
Speaker 3: So on a given it sounds a little bit more

800
00:40:01,880 --> 00:40:04,400
Speaker 3: of a conservative bent for you kind of how do

801
00:40:04,440 --> 00:40:07,000
Speaker 3: you guys think about asset allocation these days?

802
00:40:07,320 --> 00:40:08,360
Speaker 7: A little bit more defensive?

803
00:40:10,680 --> 00:40:13,000
Speaker 12: Yeah, I mean, so we're long term investors and we're

804
00:40:13,000 --> 00:40:14,760
Speaker 12: diversified investors, and for.

805
00:40:14,760 --> 00:40:17,120
Speaker 1: A lot of us, it's it hasn't been easy for

806
00:40:17,200 --> 00:40:19,319
Speaker 1: a while now. For about two years.

807
00:40:19,680 --> 00:40:23,960
Speaker 12: Stocks and bonds have not been correlated. I mean, they

808
00:40:24,000 --> 00:40:27,360
Speaker 12: have been highly correlated. Maybe not today because of tech,

809
00:40:28,080 --> 00:40:30,960
Speaker 12: but the correlation has been really high. And that environment

810
00:40:31,000 --> 00:40:35,120
Speaker 12: diversified portfolios are really difficult to manage. So a lot

811
00:40:35,160 --> 00:40:39,600
Speaker 12: of our investors have gone into alternative investments. So here

812
00:40:39,640 --> 00:40:43,760
Speaker 12: we're talking about absolute return type of strategies like hedge funds.

813
00:40:44,200 --> 00:40:46,160
Speaker 1: Hedge funds run the gamut, so you really have to

814
00:40:46,200 --> 00:40:49,319
Speaker 1: be not careful, but very selective and.

815
00:40:49,360 --> 00:40:52,239
Speaker 12: What you choose, and certainly managers matter, and a lot

816
00:40:52,280 --> 00:40:54,640
Speaker 12: of people have gone into private credit and private equity.

817
00:40:54,840 --> 00:40:56,840
Speaker 1: But I will remind people.

818
00:40:56,800 --> 00:41:00,439
Speaker 12: That despite the fact that you don't experience that day

819
00:41:00,480 --> 00:41:04,520
Speaker 12: to day intra day volatility in those instruments because they

820
00:41:04,520 --> 00:41:07,759
Speaker 12: are not marked to market more frequently as frequently as

821
00:41:07,760 --> 00:41:11,520
Speaker 12: the public markets, the underlying exposure to the economy is

822
00:41:11,560 --> 00:41:14,359
Speaker 12: exactly the same. So you're either going to feel it

823
00:41:14,400 --> 00:41:15,960
Speaker 12: now or you're going to feel it later.

824
00:41:16,200 --> 00:41:17,720
Speaker 1: So you really have to be choosy.

825
00:41:17,800 --> 00:41:22,000
Speaker 12: But certainly diversifying away from stocks and bonds, we've seen

826
00:41:22,040 --> 00:41:23,080
Speaker 12: a lot of that happening.

827
00:41:23,560 --> 00:41:26,200
Speaker 6: What should your allocation be to bonds? The narrative of

828
00:41:26,200 --> 00:41:28,440
Speaker 6: the last couple of days is higher rates herting stocks,

829
00:41:28,480 --> 00:41:30,480
Speaker 6: and then today it's like, Okay, maybe we've seen the

830
00:41:30,520 --> 00:41:32,680
Speaker 6: run up and yields, go ahead and buy some bonds,

831
00:41:32,719 --> 00:41:34,960
Speaker 6: but stocks are still training heavy. What do you make

832
00:41:35,000 --> 00:41:35,359
Speaker 6: all that?

833
00:41:36,840 --> 00:41:39,760
Speaker 1: Yeah, so if you're investing in bonds, certainly bonds.

834
00:41:40,160 --> 00:41:42,840
Speaker 12: If you lose bonds and stocks, stocks are going to

835
00:41:42,920 --> 00:41:45,240
Speaker 12: lose more, right, I mean, it's just a more volatile

836
00:41:46,400 --> 00:41:48,120
Speaker 12: asset class and it's lower.

837
00:41:47,840 --> 00:41:48,960
Speaker 1: On the capstack. Right.

838
00:41:49,440 --> 00:41:52,760
Speaker 12: If you own bonds, yes, we're in a very difficult environment.

839
00:41:52,800 --> 00:41:54,440
Speaker 1: But you have to own it for income. If you

840
00:41:54,480 --> 00:41:55,520
Speaker 1: own it for total.

841
00:41:55,280 --> 00:41:58,399
Speaker 12: Return, or if you own it your price sensitive, it's

842
00:41:58,400 --> 00:42:00,000
Speaker 12: not going to be a fun ride for you.

843
00:42:00,320 --> 00:42:00,920
Speaker 1: So if you're.

844
00:42:00,760 --> 00:42:04,480
Speaker 12: Owning it for income, and if let's say credit for example, investment,

845
00:42:04,800 --> 00:42:08,880
Speaker 12: great credit spreads are super tight, but underneath that the

846
00:42:08,960 --> 00:42:11,399
Speaker 12: total income is very high because underneath that the risk

847
00:42:11,480 --> 00:42:12,840
Speaker 12: free rate is very high.

848
00:42:12,960 --> 00:42:14,120
Speaker 1: That's the treasury rate.

849
00:42:14,520 --> 00:42:17,560
Speaker 12: So if you own it for income, then I think

850
00:42:17,640 --> 00:42:20,640
Speaker 12: it's it's it could be lucrative for you if you're

851
00:42:20,640 --> 00:42:24,160
Speaker 12: owning it for income. Now with stocks, earlier, I said

852
00:42:24,239 --> 00:42:27,560
Speaker 12: valuations are high, stocks are irrational. You're just going to

853
00:42:27,680 --> 00:42:30,520
Speaker 12: end You're going to encounter irrationality in the markets. The

854
00:42:30,520 --> 00:42:33,879
Speaker 12: best practice here really is to rebalance regularly, so you're

855
00:42:33,920 --> 00:42:37,040
Speaker 12: taking advantage of the irrationality of the stock market when

856
00:42:37,040 --> 00:42:40,600
Speaker 12: it goes up, take the gains and rebalance your portfolio,

857
00:42:40,800 --> 00:42:43,520
Speaker 12: and if you have that discipline, over the long run,

858
00:42:43,840 --> 00:42:46,480
Speaker 12: you can have much better risk adjusted returns.

859
00:42:47,320 --> 00:42:50,120
Speaker 3: So, you know, a lot of folks are kind of

860
00:42:50,160 --> 00:42:54,520
Speaker 3: feeling like if they're long tech, they're in a good

861
00:42:54,560 --> 00:42:56,840
Speaker 3: place because tech is going to lead this market. Do

862
00:42:56,840 --> 00:42:58,080
Speaker 3: you share that view or do you feel like you

863
00:42:58,160 --> 00:43:00,480
Speaker 3: need to be more diversifiedquities.

864
00:43:00,920 --> 00:43:04,640
Speaker 12: We're very diversified, but we do have.

865
00:43:05,640 --> 00:43:08,719
Speaker 1: We do have exposure to tech. I think that tech

866
00:43:08,800 --> 00:43:09,440
Speaker 1: is exciting.

867
00:43:09,640 --> 00:43:12,279
Speaker 12: I mean there's a little bit of push toward AI

868
00:43:12,360 --> 00:43:15,439
Speaker 12: and AI exuberance and a little bit of it being

869
00:43:15,440 --> 00:43:16,160
Speaker 12: punished today.

870
00:43:17,280 --> 00:43:19,600
Speaker 1: But I think AI is a real deal. Right now

871
00:43:19,640 --> 00:43:20,680
Speaker 1: we have proof of concept.

872
00:43:20,760 --> 00:43:23,160
Speaker 12: We have to see how it actually manifests itself in

873
00:43:23,239 --> 00:43:25,719
Speaker 12: different areas of the economy. We're not there yet, but

874
00:43:25,800 --> 00:43:27,920
Speaker 12: it is going to be a real deal. And a

875
00:43:27,960 --> 00:43:30,040
Speaker 12: lot of these companies, especially in the S and P

876
00:43:30,120 --> 00:43:32,879
Speaker 12: five hundred and large companies, they're not betting.

877
00:43:32,600 --> 00:43:33,960
Speaker 1: The farm on AI.

878
00:43:34,120 --> 00:43:36,680
Speaker 12: They have an actual business with a lot of cash

879
00:43:36,719 --> 00:43:40,880
Speaker 12: flow and frankly, very little debt. So when they're actually

880
00:43:40,960 --> 00:43:44,319
Speaker 12: incubating AI and see how they can be incorporated into

881
00:43:44,320 --> 00:43:46,400
Speaker 12: the rest of the business. I think that is actually

882
00:43:46,440 --> 00:43:49,080
Speaker 12: a worthy venture and if you're a long term investors,

883
00:43:49,080 --> 00:43:51,560
Speaker 12: it actually will pay off to hold onto tech.

884
00:43:52,200 --> 00:43:54,200
Speaker 6: All right, thank you so much. We really appreciate Anna.

885
00:43:54,280 --> 00:43:57,680
Speaker 6: Thank you Anna Rathburn see iow of it cebiz Investment

886
00:43:57,719 --> 00:44:01,239
Speaker 6: Advisory Services giving us her perspective on the market. I

887
00:44:01,280 --> 00:44:03,720
Speaker 6: do not envy being a money manager at this time.

888
00:44:04,120 --> 00:44:08,640
Speaker 2: This is the Bloomberg Intelligence podcast, available on apples, Spotify,

889
00:44:08,840 --> 00:44:11,960
Speaker 2: and anywhere else you get your podcasts. Listen live each

890
00:44:12,040 --> 00:44:15,440
Speaker 2: weekday ten am to noon Eastern on Bloomberg dot com,

891
00:44:15,520 --> 00:44:18,919
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.

892
00:44:19,040 --> 00:44:22,040
Speaker 2: You can also watch us live every weekday on YouTube

893
00:44:22,280 --> 00:44:24,160
Speaker 2: and always on the Bloomberg terminal.