Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We wanted to remind you that tomorrow investors will focus
Speaker 2: on Berkshire Hathaway's annual meeting with shareholders. It's quite an
Speaker 2: affair in the past. This year it will be the
Speaker 2: first where the highlight is not the man himself, Warren Buffett,
Speaker 2: having passed the reins now to CEO greg Abel.
Speaker 1: Hey, greg Abel in that position, he's facing a problem
Speaker 1: that seldom confronted his legendary predecessor, and that has to
Speaker 1: do with a floundering stock price shares, a lag the
Speaker 1: S and P five hundred index by more than thirty
Speaker 1: seven percentage points over the past twelve months. Carol, That
Speaker 1: is the worst stretch for one year going back to
Speaker 1: the year two thousand.
Speaker 2: All right, so a little bit of pressure. Perhaps it
Speaker 2: makes this year even more interesting. As investors are always
Speaker 2: consumed by the Berkshire universe. It's public holdings as well,
Speaker 2: it's it's private ones, it's subsidiary companies. One of those
Speaker 2: independent subsidiaries under the Berkshire portfolio is Brooks running long
Speaker 2: time affiliated with Berkshire Hathaway. Toty is from the Lord,
Speaker 2: the Berkshire shareholder conference in Omaha is Dan Sheridan. He's
Speaker 2: the CEO of Brooks Running. Dan, it is so nice
Speaker 2: to have you back with Tim and me.
Speaker 1: We tell you are pretty busy there.
Speaker 2: I know that what's going on around you tell us
Speaker 2: tell us.
Speaker 3: Well, Hi Tim, Hi Carol. I'm happy to join you
Speaker 3: here from Omaha. You can see behind me. We're at
Speaker 3: the shareholder trade show and we're we're packed here in
Speaker 3: our booth. We're selling product here to all the shareholders
Speaker 3: and their family And how fortunate are we to be
Speaker 3: here this weekend?
Speaker 1: What's selling right now, not just at the shareholder meeting,
Speaker 1: but all around the country and especially in China right now?
Speaker 3: Yeah, Tim, we just finished our first quarter. We're up
Speaker 3: twenty three percent as a company globally, and it's a
Speaker 3: broad based growth story. All regions for Brooks are growing
Speaker 3: double digit. You mentioned China up one hundred and thirty
Speaker 3: six percent. For US, we're really resonating with the Chinese runner.
Speaker 3: But are our core business here in the US grew
Speaker 3: twenty percent, our European business grew thirty percent, and it's
Speaker 3: just an outcome of this strategy that we've been on
Speaker 3: for twenty five years. Pinnacle premium performance products with great
Speaker 3: execution and a brand that continues to strengthen in the market.
Speaker 4: So I think we're just getting started. To be honest
Speaker 4: with you, Well.
Speaker 2: Give me some context and perspective, if you would, Dan
Speaker 2: when it comes to China specifically, you mentioned sales growing
Speaker 2: one hundred and thirty six percent year over year. How
Speaker 2: much of top line is actually China right now?
Speaker 3: Yeah, China's still a very small percentage of our business.
Speaker 3: We entered the China market in twenty twenty two, so
Speaker 3: we're a new entry into the market. But what we're
Speaker 3: seeing both online and offline is just great resonance with
Speaker 3: the Chinese runner and the running boom that we've talked
Speaker 3: about the last few times I've been on continues to
Speaker 3: gain momentum in the China market, and we're seeing that
Speaker 3: around the world. As I said, Europe for is just
Speaker 3: becoming a very strong engine.
Speaker 4: And it's not just foot where our Peril.
Speaker 3: Business grew thirty four percent globally too, So we're hitting
Speaker 3: it on all fronts, and it's a global story.
Speaker 1: For us from a marketing perspective in China, and then
Speaker 1: we'll go more global in a second. But while we're
Speaker 1: on China. I want to get some details from you
Speaker 1: on marketing there. What is the strategy, the communication strategy
Speaker 1: with the Chinese consumer because it comes at a time
Speaker 1: when America is not necessarily viewed I think many people
Speaker 1: would argue is viewed as an adversary of China right now.
Speaker 1: So what's the brand positioning and how do you communicate
Speaker 1: the brand to that consumer?
Speaker 3: Yeah, it's really clear for us, Tim, our brand positioning
Speaker 3: is simply put as we believe everyone's a runner and
Speaker 3: our jobs are to awaken aliveness in every runner through
Speaker 3: the transformative power of the run. And what we know
Speaker 3: based on how we've expanded is that resonates with the
Speaker 3: Chinese consumer. It's matched with incredible performance products that are
Speaker 3: merchandised and colored in a way where they can wear
Speaker 3: it off the run and on the run, and our
Speaker 3: brand seems to resonate really well with that consumer. So
Speaker 3: the mix of marketing is pretty similar by country, and
Speaker 3: China is a bit more online than some of our
Speaker 3: other markets, but ultimately our brand is expressed the same
Speaker 3: way and the consumers receiving it really well.
Speaker 2: I have to say, Dan, I actually bought some sneakers
Speaker 2: this week I'm not going to say what sneakers I bought.
Speaker 2: I'm just going to be a little far right. But
Speaker 2: what's interesting is I am not a runner. I do
Speaker 2: other things, but I've never been a runner. But it's
Speaker 2: just you go into one of these stores and everybody's
Speaker 2: buying sneakers. That's what they want to walk around in,
Speaker 2: That's what they want to live in, that's what they
Speaker 2: want to wear to work. I see it here. Is
Speaker 2: that really the growth? I mean, you guys have such
Speaker 2: a great running shoe and we know runners love it,
Speaker 2: but is that continuing to be also a strong dynamic
Speaker 2: that fuels top and bottom line?
Speaker 3: Yeah, I mean trends come and go right and right now.
Speaker 3: Performance is a trend that we're rooted in. But also
Speaker 3: the casualization of the workforce and how we show up
Speaker 3: to work in casual footwork is benefiting Brooks as well.
Speaker 3: And that's why design matters matched with this performance angle
Speaker 3: and you can see the beauty in our product as
Speaker 3: well as the technical benefits.
Speaker 4: So we're benefiting from that trend. Carol, for sure.
Speaker 2: I'm just going to tell you Elizabeth, one of our
Speaker 2: producers and managers, she says, I have their nylon plate,
Speaker 2: nylon plated line. So she is a big user.
Speaker 4: Well, we have that hyperion and it.
Speaker 1: Does speak to loyalty. Yeah, we talked about this in
Speaker 1: the past with you, Dan. This this idea that once
Speaker 1: a runner finds a pair of shoes that they like,
Speaker 1: they stick with it. That's that's good news and bad
Speaker 1: news for companies that produce this stuff because they need
Speaker 1: to make sure they continue to satisfy that person who
Speaker 1: wants that brander model. But you also want to innovate,
Speaker 1: and when you innovate, you have to get rid of,
Speaker 1: you know, of different lines of shoes. How do you
Speaker 1: make sure that the person who's loyal to a certain shoe,
Speaker 1: we'll get that next version of the shoe when you
Speaker 1: innovate on it.
Speaker 3: Yeah, Tim, you're on it. This is the puzzle we
Speaker 3: have to solve every single year. We have to retain
Speaker 3: customers that love our products, and we have to innovate
Speaker 3: for new customers to come into our brand. And we've
Speaker 3: been able to do that twenty five years of fourteen
Speaker 3: percent compounded annual growth rate. That comes from understanding the
Speaker 3: biomechanics of human motion and making sure that when you
Speaker 3: buy a Brooks that you are in a safe product
Speaker 3: and a performance product. We do that every single season,
Speaker 3: and then you have to match it with innovation and materials,
Speaker 3: both in the upper and the mid soul. And right
Speaker 3: now in our space, we've got three styles that are
Speaker 3: winning around the world. The Glycerin, the Ghost, and the Adrenaline.
Speaker 3: These are massive styles. They're in the top ten here
Speaker 3: in the US and the top ten in Europe as well.
Speaker 3: So it's a franchise style model, but it's retention and
Speaker 3: attaining new customers that is our mission.
Speaker 2: Hey remind us and the audience dan about the supply
Speaker 2: chain and how that's going. We had we kicked off
Speaker 2: our hour to talking about the President imposing I think
Speaker 2: twenty five percent tariffs on EU autos. But stuff continues
Speaker 2: to come out of Washington that certainly impacts things, the war,
Speaker 2: the cost of things, customers paying more for gasoline here
Speaker 2: in the United States and around the globe, any of
Speaker 2: that kind of a follow through for you guys, and
Speaker 2: you're filling an impact.
Speaker 3: Yeah, I think the last time we spoke, we really
Speaker 3: felt like we knew where we were heading in terms
Speaker 3: of tariffs and the impact on our supply chain. Now,
Speaker 3: obviously we have some other disruption in the Iran war,
Speaker 3: and you know, we're taking the same approach. We're trying
Speaker 3: to be very thoughtful in how we manage through price
Speaker 3: increases to the consumer. We've been very thoughtful in that
Speaker 3: and you know, we're hopeful that this will resolve in
Speaker 3: the next couple of months.
Speaker 4: If we can get resolution.
Speaker 3: You know, we believe the balance of this year will
Speaker 3: will smooth out for us. But you know, it's another
Speaker 3: disruption to supply chains, and supply chains hate disruption, as
Speaker 3: you know.
Speaker 1: What if it's not resolved in the next couple of months.
Speaker 3: Yeah, So we're working on scenarios right now. Tim, I
Speaker 3: tell you that the framework we have is, you know,
Speaker 3: we will have cost increases on raw materials in our products,
Speaker 3: so we're starting to model that out, and we'll probably
Speaker 3: have cost increases on moving our product from the manufacturing
Speaker 3: sites to the ports and to the markets, and and
Speaker 3: so it's a it's a dynamic time for us. And
Speaker 3: you know, the worst thing again for supply chains is
Speaker 3: this disruption and and unpredictability in what we can plan for.
Speaker 3: But our team's really good at it and we've been
Speaker 3: able to weather.
Speaker 4: Some of these disruptions over the last few years.
Speaker 1: Well, how do you quantify it? Is it? Is it
Speaker 1: worse than tariffs? Is it worse than COVID disruption? What
Speaker 1: is it?
Speaker 3: Where?
Speaker 1: Where does it fall with with what we've seen over
Speaker 1: the last few years.
Speaker 3: I think it's still to be determined, to be honest
Speaker 3: with you, you know, I think there's just so many
Speaker 3: unknowns on what the inputs into the raw materials will
Speaker 3: be at an oil based level, and so I would
Speaker 3: say that it's not any better than those two.
Speaker 4: It's probably on par.
Speaker 1: Yeah, on par with those disruptions. Those were huge and
Speaker 1: are huge, I think for you know, continuing with tariffs.
Speaker 2: Any sign of a consumer weakness. It sounds like you
Speaker 2: guys are doing really well, but any signs as the
Speaker 2: consumer is hesitating or pulling.
Speaker 3: Back, Yeah, not in our category. You know, here's what
Speaker 3: we know about the run category. Historically, it's pretty resilient,
Speaker 3: it's durable, and if you think about it in comparison
Speaker 3: to other sports or categories, this is a pretty affordable sport.
Speaker 3: You know, for one hundred and fifty dollars, you can
Speaker 3: buy a pair of running shoes and those will last
Speaker 3: you for some people up to six months. You compare
Speaker 3: that to golf or skiing or any outdoor sport. It's
Speaker 3: still a very affordable sport. So our consumers during times
Speaker 3: of economic disruption are pretty durable and stick with it
Speaker 3: and may trade out some other things, but they'll buy
Speaker 3: running shoes in apparel.
Speaker 2: Hey, one thing we wanted to dig a little deeper
Speaker 2: into too, is apparel. Your collaboration with Disney powis Fashion Week.
Speaker 1: You've got specualization, Carol, That's what I said.
Speaker 2: Now, I love it. Just go where you want.
Speaker 3: Yeah, Look, you know what we have built this brand
Speaker 3: on is partnerships, partnerships with some of the best retailers
Speaker 3: around the world, partnerships and manufacturing, and on the marketing side,
Speaker 3: we're really leaning into partnerships where we can attach our
Speaker 3: brand to some of the most epic brands in the world.
Speaker 3: Disney is super unique, as you know, and we sponsor
Speaker 3: their race series. I was in Orlando two weeks ago
Speaker 3: running the five K Springtime Surprise.
Speaker 4: It was great.
Speaker 3: And we also are matching that pushing into a lifestyle brand,
Speaker 3: our brand in the lifestyle category. So there's dimensions of
Speaker 3: your brand as you build your marketing mix, and we
Speaker 3: think we've got a recipe right now that's going to
Speaker 3: invite more people into this brand.
Speaker 2: Hey, just twenty seconds, real quick, Dan, going to be
Speaker 2: a little bit of a different meeting this year around.
Speaker 4: It really is. You know, I'm excited.
Speaker 3: First time in sixty years at Warren's not going to
Speaker 3: be on the stage, and what a time for Greg
Speaker 3: to step in. I have so much confidence in his
Speaker 3: leadership and the leadership of the Berkshire Board.
Speaker 4: And we're just thrilled to be here.
Speaker 3: And as you can see, there's a lot of people
Speaker 3: behind me that were thrilled to be here.
Speaker 2: All right, well, we were thrilled to have you here, Dan,
Speaker 2: Good luck this weekend, have fun. Dan Sheridan, CEO Brooks
Speaker 2: Running joining us from Omaha.