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Speaker 3: One of the movers today is Salesforce dot Com. I
Speaker 3: thought it was just one of those stocks that can
Speaker 3: do no wrong. But the stock's down twenty percent last
Speaker 3: this morning kind of reported some numbers so disappointing to
Speaker 3: the street, so I wanted to break it down and
Speaker 3: al so we can do that with the on Rock
Speaker 3: from Chicago on rog Rana. He's a senior tech analyst
Speaker 3: for Bloomberg Intelligence. Honorrock Mark Bennioff here, I thought everything
Speaker 3: he touches turns of gold. What happened to Salesforce and
Speaker 3: the results last night?
Speaker 4: Yeah, the macro spending is not good right now, and
Speaker 4: we saw that good work day a week ago. People
Speaker 4: are push out contracts so large deals. They're not signing
Speaker 4: at the same pace they did before. So a little
Speaker 4: bit of you know, tale of two tech stories. One
Speaker 4: is companies are spending more on AI, but then they're
Speaker 4: taking spending away from other areas such as, you know.
Speaker 5: Buying new software or consulting and things like that.
Speaker 6: Does Salesforce not have an AI product yet? And why.
Speaker 5: No?
Speaker 4: They have one particular productl data cloud and that twenty
Speaker 4: five percent.
Speaker 5: But frankly speaking, remember, if you have a revenue based
Speaker 5: this size, you know, thirty five forty billion dollars.
Speaker 4: You know that a few million is not going to
Speaker 4: move the needle if all the other spending starts to
Speaker 4: slow down.
Speaker 7: All right, here's Alex, here's the group.
Speaker 3: An example, just a great Wall Street inefficiency, one of
Speaker 3: the reasons that many firms on Wall Street just can't
Speaker 3: generate decent returns. There are fifty six analysts covering Salesforce
Speaker 3: dot com. I'm going to say a lot. I'm thinking
Speaker 3: five get paid, five make aprofit off of bride and
Speaker 3: read research on that name.
Speaker 7: You know, just absolutely crazy.
Speaker 3: Forty buys, fifteen holds one cell, forty buys yep. So
Speaker 3: what's the the forty buys out there?
Speaker 7: Anna Rod?
Speaker 3: Did they fundamentally change their view of Salesforce dot Com
Speaker 3: after these results?
Speaker 4: No, no, no, there's no reason to do that, because
Speaker 4: this is just elongation of the sales cycle. It's not
Speaker 4: that people aren't buying cloud products. It's just a matter
Speaker 4: of there not signing large deals. People are basically saying,
Speaker 4: you know, I can live with what I have right now,
Speaker 4: and I'll wait for next year to go back and
Speaker 4: buy this stuff. It's not that it's not things are
Speaker 4: not that horrible. I mean, they're still growing at ten
Speaker 4: percent or so. It's not the end of the world.
Speaker 4: But what really happened is three quarters ago their new
Speaker 4: bookings rate was slowing down and started to take a
Speaker 4: u turn, so they went from eleven percent to thirteen percent,
Speaker 4: and they were at thirteen percent for two quarters in
Speaker 4: a row.
Speaker 5: This quarter, we were.
Speaker 4: Expecting it to be around twelve percent or so, twelve
Speaker 4: to thirteen percent, and they came at ten. So these
Speaker 4: deals being pushed out, it's it's just a matter of time,
Speaker 4: whether it's.
Speaker 5: Two quarters away, whether it's three, but they will close.
Speaker 4: People are looking to move more things to the cloud
Speaker 4: on the application side also, so it's just I would
Speaker 4: say a little bit of delay, but that delay is
Speaker 4: now takes you into twenty twenty five rather than being
Speaker 4: a middle of the you know, this year's story. So
Speaker 4: that's partially the reason of people are saying, you know, well,
Speaker 4: we'll come back to the story six months from now.
Speaker 6: Are you surprised at the severity of this dock drop though,
Speaker 6: based on this because this is also just a law
Speaker 6: of large numbers, right, You're growing at double digits and
Speaker 6: then eventually that double digits slows. That's like life, right.
Speaker 5: Yeah, Alex, absolutely right.
Speaker 4: I mean, if you look at salesforce on the on
Speaker 4: the rosy side, their free cash flow this year is
Speaker 4: going to grow twenty percent, with the likelihood of another
Speaker 4: fifteen to twenty percent growing next year. This company has
Speaker 4: now changed the narrative from high sales growth or growth
Speaker 4: at any cost, to growing with a lot of margin expansion.
Speaker 5: This company has a long.
Speaker 4: Way to go before the margins reach I would call maturity.
Speaker 4: They still tend turn to a twelve percent away from
Speaker 4: that stage. So there is a lot of free cash
Speaker 4: flow that needs to come out of this company. So,
Speaker 4: you know, I think I am surprised about the severity
Speaker 4: of their reaction.
Speaker 3: You know, an, I guess this kind of goes to
Speaker 3: a question I've been asking since this whole AI scam,
Speaker 3: I mean discussion began eighteen months ago. How much of
Speaker 3: this is really incremental new spending for this new thing
Speaker 3: called AI versus just taking some tech spending from other
Speaker 3: parts of the stack, whether it's software or hardware applications.
Speaker 7: And does I talked to us about that.
Speaker 5: Yeah, I completely agree with you.
Speaker 4: This has been our case because one of the things
Speaker 4: we saw was one of the most important companies in
Speaker 4: the space for leading indicators is Accenture, and their consulting
Speaker 4: revenue has been declining for the last three quarters because
Speaker 4: of exactly what you said.
Speaker 5: People are not.
Speaker 4: You know, if you have a consulting project, you put
Speaker 4: that on hold and you use that money to buy
Speaker 4: you know, few chips new servers trying to figure out
Speaker 4: if your infrastructure is.
Speaker 5: Ready for the next phase of AI development.
Speaker 4: You're actually experimenting with new products and trying to figure
Speaker 4: out and the big question for a lot of them
Speaker 4: is do I really need to buy a brand new
Speaker 4: software product where my next generation CRM product could look
Speaker 4: a little bit different or some other product could look
Speaker 4: at a little bit different.
Speaker 5: What we are.
Speaker 4: Seeing right now is text spending flat from last year,
Speaker 4: no new increment, but we're hopeful that you know, the
Speaker 4: typical waterfall is you have hardware semiconductor spending first, then
Speaker 4: it trickles down to software, then it trickled downs to services.
Speaker 5: So we are optimistic that.
Speaker 4: Next year we should see some improvement in software spending,
Speaker 4: and perhaps the second half of next year into the
Speaker 4: year after something on the consulting and then the services side.
Speaker 6: Do we learn anything from Dell in terms of AI
Speaker 6: and spend from Salesforce?
Speaker 4: Yeah, but that's the same exact thing that they are
Speaker 4: buying more AI servers, but at the expense of some
Speaker 4: thing perhaps like a salesforce or for that matter, workday.
Speaker 6: Okay, so a woe for salesforce is good for Dell.
Speaker 4: Yeah, it's good for all the semiconductor names and the
Speaker 4: GPO players. People are basically saying, Okay, if I have
Speaker 4: to go experiment on AI, I gotta find that money somewhere.
Speaker 4: Net Net, I'm still spending the same amount on technology
Speaker 4: that I did last year. It's a question of reallocation
Speaker 4: of those resources. Another place where seeing an improvement in
Speaker 4: spending is companies outsourcing a lot more work because that
Speaker 4: they're saying is I got to find cost savings in
Speaker 4: order to deploy it into these AI products.
Speaker 3: So just stepping back even further for tech spending. What
Speaker 3: are the likes of IDC saying about tech spending over
Speaker 3: the next couple three years on RUG?
Speaker 4: So the next three is I think almost everybody unanimously
Speaker 4: believes that it is going to be a good number
Speaker 4: because frankly speaking, and I've said this a number of times,
Speaker 4: when you look at it is as a percentage of GDP,
Speaker 4: tech spending is still a small portion.
Speaker 5: When I look at just the US alone, and we.
Speaker 4: Have somewhere around enterprise technology spending, you know, excluding smartphones,
Speaker 4: somewhere around one and a half trillion or so. When
Speaker 4: you look at healthcare spending, it's not a four trillion.
Speaker 5: So we we.
Speaker 4: Talk a lot about tech, but as a percentage of
Speaker 4: total GDP in the US, it's still a small number.
Speaker 4: And software is even a smaller portion of that. So
Speaker 4: you know, we are I'm pretty optimistic to bullish that
Speaker 4: in the long run, I'm happy with, you know, with
Speaker 4: the tech space in you know, in terms of growth rate,
Speaker 4: in terms of profitability, in terms of sustainability compared to
Speaker 4: other sectors.
Speaker 6: What else? What else is on your radar right now
Speaker 6: on our AGAs we're almost done with all the big
Speaker 6: tech guys.
Speaker 5: Yeah.
Speaker 4: So now when you look at it, Workday and Salesforce
Speaker 4: are the first companies to report in the next cycle
Speaker 4: of earning. So when you look at, you know, results
Speaker 4: that coming out in July, we're going to head a
Speaker 4: lot of the same what we have heard from these
Speaker 4: two companies. Now, the two exceptions from that in our
Speaker 4: view would could be Microsoft and perhaps even SAP. But
Speaker 4: other than that, every other you know, software company we anticipate,
Speaker 4: and even services companies we anticipate, we'll talk about the
Speaker 4: same thing. Deal delays elongation of that, and this is
Speaker 4: partially the reason. You know, if you look at somebody
Speaker 4: like a service now he's getting really hammered today, or
Speaker 4: article getting hammered, and then that makes sense because this
Speaker 4: is a leading indicator that things are not going to
Speaker 4: be good when results come out come out in July.
Speaker 6: Great stuff, I likes the best of course, right, thanks
Speaker 6: a lot on a rock run a Bloomberg Intelligence a
Speaker 6: senior technology analyst. Salesforce is getting totally creamed. I mean
Speaker 6: it's down like twenty percent. It's a raise in like
Speaker 6: three hundred and seventy points from the now like this
Speaker 6: serious decliner here today.
Speaker 3: And Mark Pennioff. You know he's the before today. The
Speaker 3: net worth of according to Rich Gover, about ten billion
Speaker 3: dollars to take a little.
Speaker 6: Bit of it, a little bit of a head there.
Speaker 2: Today you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 3: Cole's Way, The stock is down the most on record,
Speaker 3: huge miss on earnings, cut the guidance, and the street
Speaker 3: sending this stock down twenty seven percent, the most on
Speaker 3: records is extraordinary. Let's check in with the Bloomberg Intelligence
Speaker 3: analyst that covers this stock in this sector. Mary Ross Gilbert,
Speaker 3: Senior Equity analyst for Retail for Bloomberg Intelligence, joining us
Speaker 3: from La via zoom So, Mary, thanks so much for
Speaker 3: joining us here. Twenty seven percent reduction in this stock price. Here,
Speaker 3: what does a market not like from the earnings?
Speaker 8: Yeah, so we sort of knew going into earnings that
Speaker 8: they have a wonderful data measure that we use called
Speaker 8: Bloomberg's Second Measure. And it basically tracks consumer transactions ATM
Speaker 8: and credit card transactions, and so based on that data,
Speaker 8: we had a feeling that they might miss by two
Speaker 8: hundred to three hundred basis points, which they did. Comp
Speaker 8: sales fell four point four percent. That was below analysts
Speaker 8: one point seven percent estimate. And really what was happening
Speaker 8: there for the company is that they were going against
Speaker 8: a significant clearance activity in the first quarter of twenty three.
Speaker 8: Now they knew that going into the quarter, and that's
Speaker 8: why they expected sales to be flat. But they expected
Speaker 8: their new category initiatives. This means like Home de Corps
Speaker 8: of course so Fa, which continues to do really well.
Speaker 8: The key was so FORA bringing in all the customers
Speaker 8: and generating real sales and very profitable sales is the
Speaker 8: fact that those customers are not buying enough of the
Speaker 8: adjacent categories. So that's where they sort of came up short.
Speaker 8: So they did show that their initiatives are working, but
Speaker 8: just not enough and it's not across the whole store,
Speaker 8: and that's what they need to do, and so this
Speaker 8: is going to take some time for them to really
Speaker 8: get category mixed throughout the store and really be executing
Speaker 8: so it just delays this potential turnaround for the company.
Speaker 6: Okay, so let me just break that down. So, one,
Speaker 6: you got tough comps because it was really promotional last year,
Speaker 6: so that was stressful. But all the stuff that they're
Speaker 6: doing to entice people to buy stuff also isn't working
Speaker 6: in the way that they thought. Is that a consumer
Speaker 6: problem or is that a Coohle's execution problem.
Speaker 8: Yeah, so actually I'm going to reword what you just
Speaker 8: said there because it is working those new categories. So
Speaker 8: for example, their home seasonal and eight Everyday Decore, those
Speaker 8: sales were up thirty percent, Impulse items were up sixty percent,
Speaker 8: women's full price sales were up three percent, gifting of
Speaker 8: thirty percent. So we're seeing that they're working, but it's
Speaker 8: just not enough up to offset, you know, the weakness
Speaker 8: that they're experiencing. For example, in active wear, even though
Speaker 8: they're private brand, private brands within active are doing well.
Speaker 8: They need to have a better mix of some of
Speaker 8: some national brands in there to really rejuvenate the sales
Speaker 8: in that category. Also, when they brought in so far
Speaker 8: As shops, they got rid of jewelry and so they
Speaker 8: sort of missed out on gifting in the jewelry area,
Speaker 8: so they're planning to bring that back. They're also hoping
Speaker 8: to boost conversion of those so for a shoppers by
Speaker 8: bringing in more relevant junior brands, and that's going to
Speaker 8: come later this year, and that includes Aero Coal, Stall, Roxy,
Speaker 8: Madden World, Quicksilver for example. And then of course they're
Speaker 8: going to be adding babies shops, which could also help
Speaker 8: them later in the year. So we do expect to
Speaker 8: see some improvement and these categories are working, it's just
Speaker 8: going to take a lot longer to get the overall
Speaker 8: mix right, That's what we think is happening.
Speaker 3: Mary Again, a twenty seven percent decline in the stock
Speaker 3: press on a piece of news like this, to me,
Speaker 3: it calls into question how investors are viewing this management team.
Speaker 3: I look on the MGMT function on the Bloomberg terminal
Speaker 3: and I see most of the senior managers are only
Speaker 3: there less than a couple of years.
Speaker 7: So this is a relatively new management team.
Speaker 3: Is this Wall Street saying we don't have much confidence
Speaker 3: in you guys?
Speaker 8: It could be temporary, That's the way I look at it,
Speaker 8: because frankly, Tom Kingsbury, who's the CEO here, he is
Speaker 8: the one responsible for turning Burlington Stores into the successful,
Speaker 8: fast growing off price retailer that it is. It's very
Speaker 8: focused on the low end consumer. So he, I think
Speaker 8: is the right person and all of the initiatives that
Speaker 8: he's been doing. We've noticed the changes dramatically since he
Speaker 8: came on board in the stores. In fact, even the
Speaker 8: culture of the environment you go in there and you
Speaker 8: talk to the salespeople. Year over year, once he came
Speaker 8: on board, we observed a huge change, a huge lift
Speaker 8: in the culture where everyone is more excited about the business. So,
Speaker 8: you know, it's the first quarter. They had tough comparisons,
Speaker 8: and we'll have to see as more and more of
Speaker 8: these initiatives come into play. We think it's really just
Speaker 8: going to be a delay in the turnaround rather than hey,
Speaker 8: this is a failure for management, because these things, when
Speaker 8: you're doing a complete redo of a business, it really
Speaker 8: takes time to gain traction, especially in an intense segment
Speaker 8: which they play in.
Speaker 6: We also get Nordstrom's gap costco out after the closing
Speaker 6: bell that that's a pretty random mix. It's going to
Speaker 6: be interesting to see the macro read for that. What
Speaker 6: are you going to be paying most attention.
Speaker 8: To well, a lot of exciting things happening with Gap,
Speaker 8: and we're expecting to, you know, hear some pot of
Speaker 8: positive results coming out of Gap. Nordstrom. I think they're
Speaker 8: seeing an improvement overall in the business, but most of
Speaker 8: it is being driven on the rack side, so again
Speaker 8: that's their off price model and that's really sort of
Speaker 8: the big story for Nordstrom. But we think the full
Speaker 8: line store is seeing some improvement as well. And if
Speaker 8: you look at other retailers that are really executing well
Speaker 8: like Abercrombie, which their numbers are out yesterday and just
Speaker 8: bluep same with urban outfitters with their free people and
Speaker 8: anthropology brands once again just blew past estimates. So it's
Speaker 8: really a case where if you're really executing, then you're
Speaker 8: coming out and head of plan and then of course
Speaker 8: the shares react accordingly.
Speaker 3: So, Mary, what are you hearing from your companies, your contexts.
Speaker 3: How about the health of the consumer these days?
Speaker 7: What are we seeing?
Speaker 8: You know, it's a good question. I would say overall,
Speaker 8: the consumer is very resilient, so of course, you know,
Speaker 8: within off price or value, the low end consumer is
Speaker 8: still being challenged with inflation. But the good news is
Speaker 8: they're employed, and so being employed I think is one
Speaker 8: of the biggest factors out there. And of course we
Speaker 8: just saw so that all bodes well for retail generally,
Speaker 8: but again it's really going to be segmented, with those
Speaker 8: earning a higher income being able to spend more and
Speaker 8: those with lower income being even more discerning.
Speaker 6: When I find so interesting and you bought up Abercrombie,
Speaker 6: is it and we're talking to the Red Robin CEO. Also,
Speaker 6: if you know your customer and I want to say niche,
Speaker 6: because like Gap is a niche, but like you know
Speaker 6: who you're designing for and that's the business that you're doing,
Speaker 6: and you're not going to try and chase all the
Speaker 6: things you can actually outperform in this market across the board,
Speaker 6: whether you're super high end to take a look at LVMH,
Speaker 6: whether you're looking at Swiss Watches, or whether you're looking
Speaker 6: at Gap, or whether you're looking say ad best Buy,
Speaker 6: and I find that to be a really striking difference
Speaker 6: maybe than what we've seen before.
Speaker 8: I would agree with you. So if Abercrombie, you raised
Speaker 8: a good point, they're sort of poor millennial customer with
Speaker 8: the Abercrombi brand will continuing to introduce new categories. So
Speaker 8: for example, they brought out, you know, the wedding shop
Speaker 8: and that was sort of an add on to the
Speaker 8: best Dressed Guests, and it was just so well received
Speaker 8: because they were listening to their customer and they're giving
Speaker 8: them more and more of what that customer wants. And
Speaker 8: it's also extending the age range sort of beyond the
Speaker 8: millennial poor consumer that they go after, and so that's
Speaker 8: also helping to bring in new customers. And then they're
Speaker 8: starting to look at the adjacent categories and buying there.
Speaker 8: So they're really showing how they can continue to execute
Speaker 8: against very difficult comparisons where they're already showing double digit
Speaker 8: lifts in comp sales. So that's a sign of great
Speaker 8: execution right there.
Speaker 7: All right, Mary, thanks so much for joining us.
Speaker 3: Mary Ross Gilbert, she's a senior Ecadannaals covering the retail
Speaker 3: space for Bloomberg Intelligence, joining us from Los Angeles via
Speaker 3: zoom Here looking at Coles again, that's stock down twenty
Speaker 3: five percent plus on some week numbers.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 6: I'm Alex the alongside Paul Sweeny. This is Bloomberg Intelligence Radio.
Speaker 6: We bring you all the top news and economics and
Speaker 6: finance through our lens of Bloomberg Intelligence analysts. They cover
Speaker 6: two thousand companies and one hundred and thirty industries all
Speaker 6: around the world. We're also taking a look here at
Speaker 6: some stocks really on the move after earnings, and one
Speaker 6: is Red Robin Gourmet Bergers. That stock is up a
Speaker 6: whopping twenty percent. If you look inside the numbers, you're
Speaker 6: looking to adjusted loss per share at eighty cents, revenue down
Speaker 6: seven point one percent year on year, comm sales down
Speaker 6: six point five percent, average check is a little higher
Speaker 6: by about three percent, and mark operating margin was eleven percent.
Speaker 6: But the street loves it. Let's get a read on why. GJ.
Speaker 6: Hart is president's CEO and director of Red Robin Gormet
Speaker 6: Berger's and he joins us now DJ great to get
Speaker 6: your perspective. What do you think the street is loving
Speaker 6: so much about these earnings when the numbers and the
Speaker 6: comps feel a little weak on the numbers.
Speaker 9: Well, I think what they like is our strategic plan
Speaker 9: to move this company forward. We call it the North
Speaker 9: Star Plan. And we reported that in the first five
Speaker 9: weeks of the second quarter that our comps that turned positive,
Speaker 9: and I think that that surprised them a bit because
Speaker 9: I think they all had us slightly negative. And I
Speaker 9: think we're making great progress. Our teams have done amazing
Speaker 9: work and we're really proud of where we are today.
Speaker 9: And we sequentially really proved in the first quarter in
Speaker 9: spite of a very tough start. So we feel great
Speaker 9: about where we're going. And I think they see that,
Speaker 9: and it's great to see.
Speaker 3: GJ talk to us about your consumer, your customer, Who
Speaker 3: is your customer and kind What are you seeing from
Speaker 3: your customer's behavior these days?
Speaker 9: Sure, well, our customer is basically Middle America and families
Speaker 9: and all over the United States. And what we're seeing,
Speaker 9: interestingly enough, is in our premium burgers, in our premium
Speaker 9: gourmet burgers that we promote, we're seeing a real high
Speaker 9: take rate.
Speaker 10: We're also seeing that on the value in the.
Speaker 9: Tavern burgers are actually having a high take grade as well.
Speaker 9: And so what we are seeing is some trade down
Speaker 9: from some of our guests, but then it's still surprising
Speaker 9: to see that our gourmet lines are still doing as
Speaker 9: well as they are. The other indicator is that things
Speaker 9: like add ons, appetizers, desserts, those take grates are about
Speaker 9: the same. So net we're feeling relatively about the consumer
Speaker 9: when you.
Speaker 6: Take a look at who is coming through your doors.
Speaker 6: Has that changed at all as the economic environment has
Speaker 6: become more challenging.
Speaker 9: Well, you know, put aside to the economy for a minute.
Speaker 9: Our comeback plan in the North Star plan is all
Speaker 9: about engagement with our guests, bringing back fun value and
Speaker 9: really taking this ic, iconic brand back to where it was.
Speaker 9: And so we're seeing a lot of laps guests come
Speaker 9: back in. We're seeing a lot of new guests. Our
Speaker 9: loyalty platform that we just relaunched, we're seeing numbers like
Speaker 9: we've never seen before in terms of sign up. So
Speaker 9: we're getting a good base of people and we're doing
Speaker 9: exactly what we wanted to do is just send a message, Hey,
Speaker 9: come back into Red Robin, give us a try, and
Speaker 9: I think you'll be pleased. And we're seeing that so
Speaker 9: that feels great.
Speaker 3: Inflation, how does that impact your business to what extent
Speaker 3: can you pass along to your customer base.
Speaker 7: How are you guys dealing with that?
Speaker 9: So, as we've said, inflation for us is sort of
Speaker 9: in that three to five percent for the for the year,
Speaker 9: and we're staying true to that. So certainly it's still
Speaker 9: there in terms of pricing power. You know, we've lagged
Speaker 9: others in the industry over the last couple of years,
Speaker 9: but we still feel like, you know, pricing is going
Speaker 9: to be tough, and we have a great value compared
Speaker 9: to pretty much everybody out there with a seventeen dollars
Speaker 9: check average in a full service experience. So you know,
Speaker 9: again we're positioned well. We are trying to screen value
Speaker 9: with our thirty bottomless sides and our tavern Berger lineup,
Speaker 9: and I think that's starting to resonate with the guests
Speaker 9: that were everyday value and hey, you can come in
Speaker 9: and have a lot.
Speaker 10: Of fun at Red Route.
Speaker 6: What about labor.
Speaker 9: Labor is always a challenge right around the around the
Speaker 9: United States.
Speaker 10: It's we're seeing increases all over the place.
Speaker 9: But you know, the good news is there's more labor available,
Speaker 9: So our our team member base is strong at this point,
Speaker 9: and certainly it's a challenge. We have to be as
Speaker 9: efficient as possible. We've invested a lot back into the
Speaker 9: overall experience by putting labor back into the restaurants. Management
Speaker 9: teams are appropriate now and so yes, it's going to
Speaker 9: be an ongoing challenge, but we're not alone in that
Speaker 9: and we're going to continue to stay the course because
Speaker 9: we believe long term it's the right thing to do
Speaker 9: for the brand, to bring it back to the iconic
Speaker 9: brand and it's been for almost fifty years.
Speaker 3: So GJ kind of on that front, give us a
Speaker 3: sense of the history of Red Robin, you know, kind
Speaker 3: of where, how did it get started, what's the where
Speaker 3: do you guys kind of find yourself in the competitive landscape.
Speaker 7: And where do you need to get to.
Speaker 9: Sure well, Red Robin started up in the state of
Speaker 9: Washington outside of Seattle, and it really started as a
Speaker 9: tavern and it's and it's humble beginnings have gone to
Speaker 9: over five hundred restaurants all over the United States. We
Speaker 9: have fit fit a really nice niche within casual dining.
Speaker 9: We are family friendly, we are a bunch of fun
Speaker 9: in the restaurant.
Speaker 10: We have great value, great.
Speaker 9: Hospitality, and great food and that niche sort of has
Speaker 9: been one that when Red Robin really started to go
Speaker 9: a little bit astray, that no one's really filled that gap.
Speaker 9: So we're really believed that debt positioning still holds true today.
Speaker 9: We just need to bring things relevant. So whether it's
Speaker 9: the food offerings or the hospitality or the fun environment,
Speaker 9: we need to bring it relevant, which is what we're doing,
Speaker 9: which is why we're investing so much into this plan.
Speaker 9: But if we do that well, we think there's plenty
Speaker 9: of room for us to continue to grow and we're
Speaker 9: going to continue to work hard to make that happen.
Speaker 6: And your resume is quite long, right, you're the former
Speaker 6: CEO of California Pizza Kitchen Texas Roadhouse. I love KPC
Speaker 6: no CPKA.
Speaker 3: Well, if you're in Monterey, California, there ain't no pizza
Speaker 3: and so CPK is it. So it's not bad, the
Speaker 3: kids are happy, it's all good.
Speaker 6: No, it's good. And the barbecue chicken part of it
Speaker 6: it was really good too. I mean, yeah, I do.
Speaker 3: I'm sorry.
Speaker 6: You've done a lot and you've seen a lot, and
Speaker 6: you've operated these kind of restaurants through many different environments.
Speaker 6: Can you just give me your sort of career perspective
Speaker 6: on what you see now and trends developing and how
Speaker 6: things have changed.
Speaker 10: Well, sure, I'll be happy to look.
Speaker 9: I think at the end of the day, in this
Speaker 9: restaurant business, you have to stay the course and really
Speaker 9: know who you are and who you are trying to be.
Speaker 9: And as long as you do that day in and
Speaker 9: debt execute at a very high level.
Speaker 10: You're going to be successful. It's going to ebb and flow.
Speaker 9: The ups and downs are going to be there, and
Speaker 9: you need to stay true to who you want to be.
Speaker 9: And I think that's that's the big opportunity for us here.
Speaker 9: You know, in spite of a tougher economic backdrop, if
Speaker 9: you will, we're starting to see good success and great
Speaker 9: momentum for a plan that we put in place. So
Speaker 9: what I've seen over the years, you know, Texas Roadhouse,
Speaker 9: we grew, it was a real high growth company.
Speaker 10: Still loved the company.
Speaker 9: CPK was a turnaround and we had a lot of
Speaker 9: great success there as well. But again, you know, it's
Speaker 9: really staying true to who you are and making sure
Speaker 9: you align every single team member in the organization around
Speaker 9: your mission, vision and values.
Speaker 10: Where it is you want to get to.
Speaker 9: And so as long as you do that, stay the course,
Speaker 9: and you provide the leadership that's steadfast in that commitment,
Speaker 9: you'll be okay. And that's what my experience of almost
Speaker 9: forty years now gosh, getting old, you know, that's what
Speaker 9: it tells me.
Speaker 3: So, GJA, talk to us about the footprint for Red Robin.
Speaker 3: How many units do you have now? How many restaurants
Speaker 3: have now? And maybe where do you want to go?
Speaker 9: Sure, well, we have five hundred and ten restaurants and
Speaker 9: you know, look at this point, we like to say,
Speaker 9: first things first, we need to get this North Star
Speaker 9: plan in place and start to have growth within our
Speaker 9: existing restaurant base. It's a little too early to talk
Speaker 9: about growth.
Speaker 10: Again. There is plenty of white space in America.
Speaker 9: For more Red Robins, but we need to do first
Speaker 9: things first, and that's what we're doing. And you know,
Speaker 9: it's a couple of years away in terms of thinking
Speaker 9: about growth.
Speaker 6: Really interesting stuff. When you're gonna get him in New York.
Speaker 6: I've never been to one. Are you thinking about it?
Speaker 9: Well, you probably in Manhattan right so, no, we're not
Speaker 9: thinking about Manhattan right now, but we certainly would love
Speaker 9: to host you in.
Speaker 10: Any one of our restaurants.
Speaker 7: I know there's one.
Speaker 6: I know something you said, there's one field trip there
Speaker 6: than John Tucker's Beach Club. Of course, make the rounds
Speaker 6: and this all makes GJ. Thanks a lot. We really
Speaker 6: appreciate it, really good perspective. Congrats on the good outlook
Speaker 6: and the stock pop today. J. J. Hart, President and
Speaker 6: CEO and director of Red Robin Gourmet Burgers. I mean,
Speaker 6: you know, we've been eating out a lot more and
Speaker 6: as the weather got nicer and a man, you see
Speaker 6: that on your credit card bill, so I can definitely
Speaker 6: see how sort of a different kind of place would
Speaker 6: be really helpful to go to and still be able
Speaker 6: to have fun and eat good food and also not
Speaker 6: pay three hundred dollars for three people.
Speaker 7: But you had a glass of prosecco.
Speaker 6: Yeah, but just one androun like Panda and back like before.
Speaker 6: It's very different.
Speaker 10: Where did you do that was three hundred dollars for
Speaker 10: three people?
Speaker 6: Brooklyn?
Speaker 4: Really?
Speaker 3: Yes?
Speaker 6: And one of those three people is nine and a half,
Speaker 6: so anyway a half people, yeah, exactly two and a
Speaker 6: half people.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 6: Him Alex see you alongside Paul Sweeney. Not only do
Speaker 6: we cover all the news and finance with our great
Speaker 6: analysts of Bloomberg Intelligence, we also tap our huge amount
Speaker 6: of reporters over at Bloomberg News and every day they
Speaker 6: have a Big Take, and it really delves into the
Speaker 6: topics that we're talking about every day and is an
Speaker 6: amazing deep dive to get a true sense of what's
Speaker 6: going on out there. And today's big takes about none
Speaker 6: other an Elon Musk, and it talks about Elon's orbit,
Speaker 6: that Musk's galaxy of companies is basically under threat as
Speaker 6: Tesla continues to spiral, and it takes a look at
Speaker 6: the people in his orbit that try and keep things running,
Speaker 6: even though many accuse him of being distracted by all
Speaker 6: of his ventures. One of the writers is Kurt Wagner,
Speaker 6: Bloomberg Tech reporter, and he joins us. Now, Kurt, does
Speaker 6: walk us through what you learned in this piece.
Speaker 11: I mean a big part of what you know, working
Speaker 11: for Elon is all about, is sort of working for
Speaker 11: Elon everywhere he needs you, right, So you might be
Speaker 11: employed technically by Tesla, but you might show up on
Speaker 11: you know, a SpaceX project or an X project. And
Speaker 11: I think, you know, not only are the people that
Speaker 11: he works with sort of hovering around and all these
Speaker 11: various roles, but I think his companies are becoming closer
Speaker 11: and closer together. And that's why it's so important that
Speaker 11: you know, when Tesla is struggling, it has this trickle
Speaker 11: effect because that's where he gets his wealth to fund XAI,
Speaker 11: to to you know, deal with X, to deal with SpaceX.
Speaker 11: And so, you know, what we wanted to sort of
Speaker 11: do is show people that all of these different companies
Speaker 11: and all the people who work them are interconnected. And
Speaker 11: we try to do that with a pretty cool visual
Speaker 11: graphic that folks can see on the on the website today.
Speaker 7: Kurt, what is the musconomy to find that?
Speaker 11: Yeah, it's a term that represents or reflects these six
Speaker 11: different businesses that he's running at any given time, and
Speaker 11: again sort of this idea that they all work together.
Speaker 11: They you know, in X's case, the data from X,
Speaker 11: which used to be called Twitter, is now sort of
Speaker 11: powering XAI his startup.
Speaker 10: Right.
Speaker 11: The money from Tesla has historically been used to help
Speaker 11: fund SpaceX and his purchase of X. And again you
Speaker 11: see the musconomy as this collection of businesses that Elon
Speaker 11: runs and how they are all intertwined with one another.
Speaker 6: Do the people in his orbit do they like this?
Speaker 6: Like that to me sounds terrible, Like I like predictability,
Speaker 6: which I know as funny as I work in news.
Speaker 6: I like predictability. I like to know what I'm doing.
Speaker 6: I do not want to be pulled in seventeen thousand directions.
Speaker 6: Do people in his orbit like that?
Speaker 5: Well?
Speaker 11: I think the people at the very you know, center
Speaker 11: of this universe, the people who are closest to Elon.
Speaker 11: Whether they like it or not, it's sort of a necessity, right,
Speaker 11: because that's what it takes to be close to that
Speaker 11: center of power. And so we've seen, for example, his
Speaker 11: business manager Jared Birchall shows up pretty much across all
Speaker 11: these different companies. His lawyer, Alex Spiro shows up across
Speaker 11: all of these companies. So if you want to be
Speaker 11: at the center of this universe, you have to be
Speaker 11: willing to go where Elon goes. And as we know,
Speaker 11: he not only has these six companies, but he's doing
Speaker 11: a million other things as well. And so whether they
Speaker 11: like it or not, I'm not sure if it really matters,
Speaker 11: because that's just what it takes to work for Elon.
Speaker 7: Musk and Kurt the center at all.
Speaker 3: As you mentioned, from an economic financial perspective, is Tesla
Speaker 3: stocks off twenty eight percent year to date? Is that
Speaker 3: exerting any pressure on musconomy.
Speaker 11: Well, it is because we've started to hear rumblings that
Speaker 11: Tesla's board is, you know, on happy with Elon being
Speaker 11: distracted with these other companies, right, And so I think
Speaker 11: when things are going well, when the stock is up,
Speaker 11: when business is booming, you know, the idea of him
Speaker 11: spending you know, several hours a day over at Twitter
Speaker 11: or now X is not as big of a deal, right,
Speaker 11: But when suddenly the stock is down, when business is struggling,
Speaker 11: those hours feel like a huge distraction and it feels
Speaker 11: like he's not plugged into the money making part of
Speaker 11: this machine, which is Tesla. And so I think the
Speaker 11: business there is a huge indicator of what he's able
Speaker 11: to do with his time. Elsewhere, and that's what we're
Speaker 11: seeing right now. I think that tension is as Tesla's
Speaker 11: business is struggling, is creating pressure on him to focus
Speaker 11: more of his time at the carmaker.
Speaker 6: How do they all? How do all the businesses though intersect?
Speaker 6: Because from a broad look they don't. But then if
Speaker 6: you dive a little deeper, like they do, like X
Speaker 6: you can use all that stuff for large language models
Speaker 6: for his AI stuff, and the AI stuff goes into
Speaker 6: the car stuff, and the car stuff, I guess goes
Speaker 6: into the rocket ship stuff.
Speaker 10: Yeah, I mean you kind of hit on it.
Speaker 11: Like the connective tissue between these companies can be somewhat small.
Speaker 11: In X's case, as you pointed out, the data there
Speaker 11: is being used to train a chatbot called Grock within XAI.
Speaker 11: We know that, for example, the corporate plane, like small things,
Speaker 11: the corporate plane that Elon uses that Tesla is the
Speaker 11: same one that's used at SpaceX. We know that they
Speaker 11: share certain employees, so you know, I mentioned Jared Burchell,
Speaker 11: his business manager, Alex Biro, his lawyer, Like these are
Speaker 11: the types of connective things that bring these companies together.
Speaker 11: Is the people and and sort of you know, the
Speaker 11: smaller parts of their business that are intertwined. And I
Speaker 11: feel like, again I already talked about it, but Tesla
Speaker 11: is sort of the engine behind this whole thing. If
Speaker 11: Tesla is humming and doing well, it kind of enables
Speaker 11: everything else to grow too.
Speaker 7: How about Twitter?
Speaker 3: You bought that for forty four billion dollars. Kurt and
Speaker 3: a lot of analysts says the value of Twitter's declined
Speaker 3: dramatically as advertisers have Is there any pushback from anybody
Speaker 3: or folks just saying, hey, it was his money, you
Speaker 3: can do.
Speaker 7: With it what he wants.
Speaker 11: Yeah. I mean, I do think it poses a challenge
Speaker 11: because of this distraction I was talking about with Elon's time, right,
Speaker 11: I think, especially if you're a Tesla investor, you have
Speaker 11: to be scratching your head and saying, what are you doing?
Speaker 11: You know, why are you spending money on this, on
Speaker 11: this or excuse me, spending time on this money losing
Speaker 11: business when you could be sort of you know, making
Speaker 11: money for shareholders over here. And I think it's, you know,
Speaker 11: becoming a bit of a problem. I think what will
Speaker 11: be interesting is to see whether x sort of gets
Speaker 11: folded into x AI at some point, I could see
Speaker 11: those two companies sort of emerging so that you know,
Speaker 11: again X provides the data for these large language models,
Speaker 11: but it sort of gives him some cover to spend
Speaker 11: time in X because now it's part of the AI business,
Speaker 11: which is much more exciting, I think, for people than
Speaker 11: the free speech business, which hasn't been very lucrative for him.
Speaker 6: The free speech business. Wo's in the free speech business? Like,
Speaker 6: what is that mental wires?
Speaker 10: That is Elon?
Speaker 11: Elon is the is in the free speech business.
Speaker 10: I guess.
Speaker 6: So what do you think the biggest question then is
Speaker 6: going in your reporting? What emerges the biggest problem or
Speaker 6: the biggest question?
Speaker 11: Yeah, I think really it comes down to kind of this.
Speaker 11: We haven't really talked much about this yet, but Elon's
Speaker 11: pay package at Tesla is sort of up for debate.
Speaker 10: Right.
Speaker 11: You may remember he was supposed to be paid I
Speaker 11: believe it was fifty six billion dollars and that pay
Speaker 11: package was I believe set up in twenty eighteen. It's
Speaker 11: been challenged in court and a judge basically said this
Speaker 11: isn't a fair compensation, and Elon is fighting this in court.
Speaker 11: But it's a huge deal, not only because it's you know,
Speaker 11: his own net worth, but because that money is then
Speaker 11: used to fund so many of these other projects. So
Speaker 11: if he's not able to secure this this pay package
Speaker 11: that he thought he had, it impacts the loans that
Speaker 11: he takes out and impacts his liquidity to be able
Speaker 11: to use on these other companies. And I do wonder
Speaker 11: if he starts to lose a lot of his net worth,
Speaker 11: his value, if that's going to have an impact on Xai, Twitter,
Speaker 11: SpaceX and others.
Speaker 6: All Right, thanks so much, Kret. We really appreciate it's
Speaker 6: a great read. You guys. You should definitely check it out.
Speaker 6: Kurt Wagner, Bloomberg type reporter standing by there for us.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on applecard Play and Android
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Speaker 2: live on Amazon Alexa from our flagship New York station.
Speaker 2: Just say Alexa, play Bloomberg eleven thirty.
Speaker 3: Let's check in on these markets. I get a little
Speaker 3: bit of a sell off here today. Anna Rothbund joins us.
Speaker 3: She is the chief investment Officer SEBIZ Investment Advisory Services,
Speaker 3: joining us from Cleveland Ohio via zoom here on a
Speaker 3: You know, it seems like we've kind of cycled through
Speaker 3: these earnings. Although we've got some retailers this week, the
Speaker 3: earnings framework seems pretty solid out there for the market.
Speaker 3: I think we've got a FED that's going to be
Speaker 3: on the margin cutting rates going forward. Does that set
Speaker 3: us up for pretty constructive outlook here?
Speaker 7: For risk assets? How do you guys think about it?
Speaker 1: Well, good morning. The valuations are still high.
Speaker 12: I mean from an entry point, it isn't that attractive.
Speaker 12: I mean, it's been exciting, and if you've been holding stocks,
Speaker 12: it has been exciting. But if you're trying to put
Speaker 12: cash to work, it is kind of a nervous environment.
Speaker 12: So earnings great, is about six percent year over year?
Speaker 12: Guidance not so great, And underlying that guidance really is
Speaker 12: the economic activity. The GDP number came in this morning.
Speaker 12: Forget the first quarter, because if we want to compare
Speaker 12: it to earnings, which is year over year, you have
Speaker 12: to compare the GDP year over year, and that number
Speaker 12: is two point nine percent better than one point three
Speaker 12: but two point nine percent GDP growth to six percent
Speaker 12: earnings growth year over year, that basically tells you the
Speaker 12: stock market isn't the economy, but that is the economic backdrop,
Speaker 12: and those are the fundamentals that the companies have to
Speaker 12: work with support guidance. Weaker growth prospects, these don't really
Speaker 12: excite us at this point, especially when the valuations are high.
Speaker 6: You had Bill Dudley writing a column for Bloomberg today
Speaker 6: that you know, it was fun. I was talking about
Speaker 6: the neutral rate. Maybe the neutral rate is a lot higher.
Speaker 6: So it's not sort of higher for longer, it's higher
Speaker 6: like forever. Now we're going to be in a totally
Speaker 6: different kind of normalized environment. What do you think about that?
Speaker 12: Well, so I do think that neutral rate is probably higher.
Speaker 12: It doesn't mean that the rate right now isn't restrictive enough.
Speaker 12: Right so, right now, I do think that it is
Speaker 12: restrictive because the rate sensitive areas of the economy and
Speaker 12: the markets they have responded.
Speaker 1: It's the not so rate sensitive areas that have been
Speaker 1: really booming.
Speaker 12: If you think about the sixty six percent of Americans
Speaker 12: that have that own home, most of which grand majority
Speaker 12: of which have locked in low rates. That's not rate sensitive,
Speaker 12: right So in thirty four percent of Americans who are
Speaker 12: renting their rents are super high because there are that
Speaker 12: many homes out there for them to buy, so the
Speaker 12: rent keeps going up.
Speaker 1: So from that.
Speaker 12: Perspective, the majority of Americans actually are not rate sensitive, right,
Speaker 12: So to me, raising rates from this point on, or
Speaker 12: keeping rates super high for indefinitely isn't really going to
Speaker 12: help us with the inflation, bringing inflation down to what
Speaker 12: I think.
Speaker 1: Is an arbitrary two percent, because it's.
Speaker 12: Not going to affect those people who have low rates, right.
Speaker 12: So I think thinking about neutral where the neutral rate
Speaker 12: might might be, which, by the way, nobody really knows,
Speaker 12: and thinking that the air on the side of higher
Speaker 12: forever or higher indefinitely, I think is a little bit
Speaker 12: too restrictive.
Speaker 1: I do think that we need to be on the
Speaker 1: path for normalization.
Speaker 3: So on a given it sounds a little bit more
Speaker 3: of a conservative bent for you kind of how do
Speaker 3: you guys think about asset allocation these days?
Speaker 7: A little bit more defensive?
Speaker 12: Yeah, I mean, so we're long term investors and we're
Speaker 12: diversified investors, and for.
Speaker 1: A lot of us, it's it hasn't been easy for
Speaker 1: a while now. For about two years.
Speaker 12: Stocks and bonds have not been correlated. I mean, they
Speaker 12: have been highly correlated. Maybe not today because of tech,
Speaker 12: but the correlation has been really high. And that environment
Speaker 12: diversified portfolios are really difficult to manage. So a lot
Speaker 12: of our investors have gone into alternative investments. So here
Speaker 12: we're talking about absolute return type of strategies like hedge funds.
Speaker 1: Hedge funds run the gamut, so you really have to
Speaker 1: be not careful, but very selective and.
Speaker 12: What you choose, and certainly managers matter, and a lot
Speaker 12: of people have gone into private credit and private equity.
Speaker 1: But I will remind people.
Speaker 12: That despite the fact that you don't experience that day
Speaker 12: to day intra day volatility in those instruments because they
Speaker 12: are not marked to market more frequently as frequently as
Speaker 12: the public markets, the underlying exposure to the economy is
Speaker 12: exactly the same. So you're either going to feel it
Speaker 12: now or you're going to feel it later.
Speaker 1: So you really have to be choosy.
Speaker 12: But certainly diversifying away from stocks and bonds, we've seen
Speaker 12: a lot of that happening.
Speaker 6: What should your allocation be to bonds? The narrative of
Speaker 6: the last couple of days is higher rates herting stocks,
Speaker 6: and then today it's like, Okay, maybe we've seen the
Speaker 6: run up and yields, go ahead and buy some bonds,
Speaker 6: but stocks are still training heavy. What do you make
Speaker 6: all that?
Speaker 1: Yeah, so if you're investing in bonds, certainly bonds.
Speaker 12: If you lose bonds and stocks, stocks are going to
Speaker 12: lose more, right, I mean, it's just a more volatile
Speaker 12: asset class and it's lower.
Speaker 1: On the capstack. Right.
Speaker 12: If you own bonds, yes, we're in a very difficult environment.
Speaker 1: But you have to own it for income. If you
Speaker 1: own it for total.
Speaker 12: Return, or if you own it your price sensitive, it's
Speaker 12: not going to be a fun ride for you.
Speaker 1: So if you're.
Speaker 12: Owning it for income, and if let's say credit for example, investment,
Speaker 12: great credit spreads are super tight, but underneath that the
Speaker 12: total income is very high because underneath that the risk
Speaker 12: free rate is very high.
Speaker 1: That's the treasury rate.
Speaker 12: So if you own it for income, then I think
Speaker 12: it's it's it could be lucrative for you if you're
Speaker 12: owning it for income. Now with stocks, earlier, I said
Speaker 12: valuations are high, stocks are irrational. You're just going to
Speaker 12: end You're going to encounter irrationality in the markets. The
Speaker 12: best practice here really is to rebalance regularly, so you're
Speaker 12: taking advantage of the irrationality of the stock market when
Speaker 12: it goes up, take the gains and rebalance your portfolio,
Speaker 12: and if you have that discipline, over the long run,
Speaker 12: you can have much better risk adjusted returns.
Speaker 3: So, you know, a lot of folks are kind of
Speaker 3: feeling like if they're long tech, they're in a good
Speaker 3: place because tech is going to lead this market. Do
Speaker 3: you share that view or do you feel like you
Speaker 3: need to be more diversifiedquities.
Speaker 12: We're very diversified, but we do have.
Speaker 1: We do have exposure to tech. I think that tech
Speaker 1: is exciting.
Speaker 12: I mean there's a little bit of push toward AI
Speaker 12: and AI exuberance and a little bit of it being
Speaker 12: punished today.
Speaker 1: But I think AI is a real deal. Right now
Speaker 1: we have proof of concept.
Speaker 12: We have to see how it actually manifests itself in
Speaker 12: different areas of the economy. We're not there yet, but
Speaker 12: it is going to be a real deal. And a
Speaker 12: lot of these companies, especially in the S and P
Speaker 12: five hundred and large companies, they're not betting.
Speaker 1: The farm on AI.
Speaker 12: They have an actual business with a lot of cash
Speaker 12: flow and frankly, very little debt. So when they're actually
Speaker 12: incubating AI and see how they can be incorporated into
Speaker 12: the rest of the business. I think that is actually
Speaker 12: a worthy venture and if you're a long term investors,
Speaker 12: it actually will pay off to hold onto tech.
Speaker 6: All right, thank you so much. We really appreciate Anna.
Speaker 6: Thank you Anna Rathburn see iow of it cebiz Investment
Speaker 6: Advisory Services giving us her perspective on the market. I
Speaker 6: do not envy being a money manager at this time.
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