WEBVTT - Bloomberg Intelligence: Nvidia Earnings, Bank Merger 0:00:02.920 --> 0:00:07.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.560 --> 0:00:14.360 This is Bloomberg Intelligence with Alex Steinhl and Paul'sweeny. 0:00:14.520 --> 0:00:17.720 The real app performance has been in US corporate high yield. 0:00:17.880 --> 0:00:20.280 Are the companies lean enough? Have they trimmed all the fats? 0:00:20.320 --> 0:00:24.119 The semiconductor business is a really cyclical business. 0:00:23.600 --> 0:00:27.200 Breaking market headlines and corporate news from across the globe. 0:00:27.240 --> 0:00:29.880 Do investors like the M and A that we've seen? 0:00:30.080 --> 0:00:31.000 These are two. 0:00:31.000 --> 0:00:33.120 Big time blue chip companies. 0:00:33.320 --> 0:00:36.920 The window between the peak and cut changing super fast. 0:00:37.080 --> 0:00:41.680 Bloomberg Intelligence with Alex Steinhl and Paul'sweeny on Bloomberg Radio. 0:00:43.000 --> 0:00:45.840 Today's Bloomberg Intelligence Show, we dig inside the big business 0:00:45.840 --> 0:00:47.080 stories impacting Wall Street and. 0:00:47.040 --> 0:00:47.839 The global markets. 0:00:47.960 --> 0:00:50.160 Each and every week, we provided that research and data 0:00:50.159 --> 0:00:52.520 on some of the two thousand companies and one hundred 0:00:52.520 --> 0:00:55.440 and thirty industries of our analysts cover worldwide. Today, we'll 0:00:55.440 --> 0:00:58.600 look at why restaurants are confronting a slowdown in consumer spending. 0:00:58.840 --> 0:01:01.080 Plus we'll discuss why home post sales fell for a 0:01:01.120 --> 0:01:04.560 fifth consecutive quarter. For first, we dive into earnings from 0:01:04.600 --> 0:01:07.240 the world's most valuable chip maker, in Nvidia reported fourth 0:01:07.280 --> 0:01:11.240 quarter revenue that sailed past analyst expectations. It also delivered 0:01:11.240 --> 0:01:14.000 another eye popping sales forecast for the current quarter. This 0:01:14.080 --> 0:01:18.160 is thanks to insatiable demand for Nvidia's artificial intelligence accelerators. 0:01:18.200 --> 0:01:20.559 For more, co hosts Emily Grafeyo and I were joined 0:01:20.560 --> 0:01:24.919 by Kunjohn Sabani, Bloomberg Intelligence Senior semiconductor analyst. We first 0:01:25.000 --> 0:01:27.480 asked for his take on in Nvidia's earnings results. 0:01:27.800 --> 0:01:30.640 Any earning surprise from Nvidia is no longer a surprise. 0:01:30.720 --> 0:01:32.520 We have come to sort of expect this to be 0:01:32.560 --> 0:01:34.920 a new norm. But there were a lot of positive 0:01:35.240 --> 0:01:38.839 reassuring things on the supply side. We saw supply coming 0:01:38.920 --> 0:01:43.160 up really strong. More importantly, supply getting diversified and the 0:01:43.200 --> 0:01:46.199 benefits for which we're seen in their gross margin, which 0:01:46.280 --> 0:01:49.360 beat the estimates. But more important was the assurance that 0:01:49.480 --> 0:01:52.560 demand continues to stay strong, and not just from the 0:01:52.720 --> 0:01:55.160 large cloud players. We all are aware of how much 0:01:55.160 --> 0:01:58.520 money they're spending, but demand strength was broad based across 0:01:58.560 --> 0:02:03.320 their enterprise. Customers are different verticals, so that really reassures us. 0:02:03.320 --> 0:02:04.920 For the twenty twenty four what did. 0:02:04.840 --> 0:02:08.480 You make of the CEO's statement that Generative AI has 0:02:08.600 --> 0:02:11.360 hit the tipping point. I saw that headline, and I 0:02:11.400 --> 0:02:14.400 didn't actually really understand what that meant. So what did 0:02:14.440 --> 0:02:15.000 you think of that? 0:02:15.360 --> 0:02:18.440 I mean, look, it's really Jensen. If you have been 0:02:18.440 --> 0:02:20.840 following the company for the lat past ten years, at 0:02:20.880 --> 0:02:24.640 every junction, that's what his messaging always is in whatever 0:02:24.680 --> 0:02:27.720 they're working on. So but apart from that, I would really, 0:02:27.800 --> 0:02:30.720 you know, ask investors to look into the end data 0:02:30.720 --> 0:02:33.280 points rather than what just he's saying. I mean, he's 0:02:33.280 --> 0:02:35.840 a very important person right now, but we look at 0:02:35.880 --> 0:02:38.680 the end data points. The customers are really increasing their 0:02:38.680 --> 0:02:42.799 AI spen right the IT total capex budgets are increasing, 0:02:42.960 --> 0:02:45.560 but the AI portion within that is also increasing. And 0:02:45.600 --> 0:02:47.960 it's not just at the chip level. The contracts that 0:02:47.960 --> 0:02:50.920 they have with their software customers, even those customers are 0:02:50.960 --> 0:02:52.679 guiding up their revenue targets. 0:02:52.840 --> 0:02:55.200 Hey, Kun John, I love their customer list that they 0:02:55.200 --> 0:02:55.480 read off. 0:02:55.520 --> 0:02:58.640 It's kind of a who's who of Silicon Valley, you know, Facebook, Google, 0:02:58.840 --> 0:02:59.959 whatever their new names are. 0:03:00.560 --> 0:03:01.440 What's the next? 0:03:01.760 --> 0:03:05.040 Is there a next set of customers out there above 0:03:05.080 --> 0:03:07.480 and beyond kind of the household names that we all 0:03:07.520 --> 0:03:08.800 know that maybe they're targeting. 0:03:09.080 --> 0:03:12.040 Yes, an enterprise segment is sort of the new the 0:03:12.080 --> 0:03:15.000 next area that they're really targeting. Right, They already have 0:03:15.280 --> 0:03:19.200 the big large spenders, but now they want to diversify 0:03:19.520 --> 0:03:23.400 and expand the reach across enterprises. And the second big 0:03:23.440 --> 0:03:27.079 target now is sort of governments and sovereign governments and 0:03:27.120 --> 0:03:30.720 sovereign wells. Right, that's what they're targeting that they believe 0:03:30.960 --> 0:03:34.160 AI will be, you know, because of geopolitical and trade 0:03:34.200 --> 0:03:37.640 issues will be more regional and every big economy will 0:03:37.680 --> 0:03:38.560 need to spend on that. 0:03:38.960 --> 0:03:41.880 Are there any headwinds that investors need to be looking 0:03:41.920 --> 0:03:44.600 out for because I just looked on the A and 0:03:44.800 --> 0:03:48.200 R function on Bloomberg and there are zero cells for 0:03:48.320 --> 0:03:50.480 in video. There was one last thing from morning Star 0:03:50.560 --> 0:03:52.720 and now he's upgraded to a hold. 0:03:53.080 --> 0:03:53.280 Yeah. 0:03:53.280 --> 0:03:55.320 I mean, look, if you look at just what the 0:03:55.400 --> 0:03:59.880 data says, usually the stock price follows the analyst price. 0:04:00.680 --> 0:04:03.360 It seems here the price targets are following the stock pride. 0:04:03.600 --> 0:04:06.040 When we look at the fundamentals, right, there was really 0:04:06.120 --> 0:04:09.760 nothing that to highlight as a risk factor in the 0:04:09.800 --> 0:04:12.640 earnings and really in the near term for twenty twenty four. 0:04:12.920 --> 0:04:14.800 But if we were to form a bare thesis, a 0:04:14.800 --> 0:04:16.680 couple of things that would we would look at as 0:04:16.800 --> 0:04:19.600 risk factors for the long term. One is the China risk. 0:04:19.800 --> 0:04:23.360 We did see China revenue almost reduced by half versus 0:04:23.400 --> 0:04:26.080 three q in this quarter, right and we know this 0:04:26.200 --> 0:04:28.760 problem is not going away, if at all, getting worse. 0:04:28.839 --> 0:04:31.640 So right now they are easily able to offset what 0:04:31.680 --> 0:04:34.280 they could have shipped to China while shipping to other 0:04:34.320 --> 0:04:37.280 customers in US and other regions. But at some point 0:04:37.400 --> 0:04:40.640 when the demand supply sort of normalizes and the growth 0:04:40.680 --> 0:04:43.960 rates become more of a normal run rate, you know, 0:04:44.000 --> 0:04:47.200 this is taking out a bite out of that opportunity 0:04:47.240 --> 0:04:49.440 that they could have served in China. So that's one 0:04:49.520 --> 0:04:52.040 risk factor on the long term. The second being their 0:04:52.120 --> 0:04:55.080 largest customers, which are the cloud players, have started to 0:04:55.120 --> 0:04:57.840 design their own ships. So again this is far out, 0:04:58.120 --> 0:05:00.920 but at some point this still take a bite out 0:05:01.000 --> 0:05:03.039 of the apple that N media could have served. 0:05:03.200 --> 0:05:05.040 So that's kind of where I wanted to go, John, 0:05:05.120 --> 0:05:07.839 I mean, just the competitive environment. Can you explain why 0:05:08.320 --> 0:05:10.560 these guys are the only game in town? That seems 0:05:10.600 --> 0:05:11.080 odd to me. 0:05:11.680 --> 0:05:14.599 I mean, it's not by an accident. These guys were 0:05:14.640 --> 0:05:17.200 sort of the inventor, if you will, for the GPU. 0:05:17.520 --> 0:05:20.520 They have been working on a GPU for decades and 0:05:20.640 --> 0:05:24.000 out investing everyone being at the leading edge. So this 0:05:24.160 --> 0:05:26.440 was the same question when we talked about gaming and 0:05:26.480 --> 0:05:28.839 when we talked about crypto, right, the last two waves 0:05:28.839 --> 0:05:31.000 which drove the growth for this company. It was not 0:05:31.080 --> 0:05:33.839 by accident. They have been at this forefront of these 0:05:33.960 --> 0:05:38.040 new applications where the application suddenly realized, well, GPU is 0:05:38.080 --> 0:05:41.800 the best case compute platform, and that's why they adopted GP. 0:05:41.920 --> 0:05:44.440 Same thing what we're saying with AI. So this was 0:05:44.480 --> 0:05:46.120 not by accident. If you look at that R and 0:05:46.160 --> 0:05:49.440 D spend, which they guided to be growing by mid 0:05:49.520 --> 0:05:52.240 thirties next year, that's a significant amount of rn NE 0:05:52.320 --> 0:05:55.800 dollars they continue to spend and to keep again being 0:05:55.839 --> 0:05:58.080 at the leading edge of the next cycle of innovation. 0:05:58.360 --> 0:06:00.920 Can you talk a little bit also about the gaming 0:06:01.160 --> 0:06:03.880 revenue here, because I'm looking at your report you said 0:06:03.920 --> 0:06:07.080 gamings better than seasonal top line, But what was really 0:06:07.480 --> 0:06:09.560 driving that because I actually don't really know if I 0:06:09.800 --> 0:06:12.400 know anything about in Video's gaming involvement. 0:06:12.640 --> 0:06:15.080 Yeah, so the last quarter was if you look at 0:06:15.120 --> 0:06:17.719 typical seasonality, we we expected it to be a down 0:06:17.800 --> 0:06:21.040 quarter at least by mid single digits, but it came 0:06:21.080 --> 0:06:23.840 in flat right, So and the strength the reason driver 0:06:24.000 --> 0:06:27.800 for there was better demand for their RTX products. These 0:06:27.800 --> 0:06:30.760 are their gaming cards you know in dex stops and 0:06:30.800 --> 0:06:33.400 what gamers get. So this is what came in better 0:06:33.440 --> 0:06:35.680 than they had expected due to the holiday season. Now 0:06:35.680 --> 0:06:38.279 this is again a temporary move and sort of not 0:06:38.640 --> 0:06:41.240 no longer a big focus for investors, but that was 0:06:41.279 --> 0:06:44.120 still good to see that in a typical down seasonal 0:06:44.160 --> 0:06:46.520 quarters they were still able to do better than seasonality. 0:06:46.839 --> 0:06:50.800 Thanks to Kunjan Sobani, Bloomberg Intelligence Senior Semiconductor analyst, we 0:06:50.839 --> 0:06:52.120 move next to a big M and a deal in 0:06:52.160 --> 0:06:54.599 the banking industry. Earlier in a week, Capital Won agreed 0:06:54.640 --> 0:06:58.120 to buy Discover Financial Services in a thirty five billion. 0:06:57.800 --> 0:06:58.920 Dollars all stock deal. 0:06:59.120 --> 0:07:01.400 This will create the large US credit card company by 0:07:01.480 --> 0:07:04.120 loan volume. To discuss this deal and the latest and 0:07:04.160 --> 0:07:06.800 consumer finance space, co host Bailly Lipschaltz and I were 0:07:06.880 --> 0:07:09.680 joined by Ben Elliott. He's a consumer finance analyst for 0:07:09.680 --> 0:07:12.440 Bloomberg Intelligence. Well asked him what Capital One is thinking 0:07:12.480 --> 0:07:13.360 with its latest deal. 0:07:13.720 --> 0:07:16.000 So everything's driven by scale and the credit card business. 0:07:16.200 --> 0:07:19.000 And the big thought here from Capital One is that 0:07:19.640 --> 0:07:22.280 if they can acquire this sort of rare and valuable 0:07:22.320 --> 0:07:27.120 thing that Discover has, which is a discrete, proprietary payments network. 0:07:27.400 --> 0:07:29.600 Then they can sort of start to compete with the 0:07:29.680 --> 0:07:32.480 Visa and MasterCard on a much bigger scale over time, 0:07:32.560 --> 0:07:34.240 and they're paying a premium for it. 0:07:34.400 --> 0:07:37.240 Ben is the timing at all surprise just given kind 0:07:37.280 --> 0:07:40.400 of the issues that Discover had towards the end of 0:07:40.400 --> 0:07:41.160 twenty twenty three. 0:07:41.560 --> 0:07:45.560 It leaves Capital One with a potential legal overhang. The 0:07:45.640 --> 0:07:48.560 legal issues are not settled yet at Discover. They've had 0:07:48.560 --> 0:07:50.800 a couple of new issues that are sort of outside 0:07:50.800 --> 0:07:52.320 of the scope of of what they've been dealing with 0:07:52.360 --> 0:07:55.240 over the past couple of years. Discover's been talking about 0:07:55.240 --> 0:07:57.080 sort of a five hundred million dollar a year run 0:07:57.200 --> 0:08:00.840 rate of additional compliance expense. It's sort of a burden 0:08:00.840 --> 0:08:02.680 that Capital One is going to have to take on 0:08:02.840 --> 0:08:05.720 with this acquisition. But I think it's probably pretty well 0:08:05.760 --> 0:08:07.760 understood the scope of that, and I think it's it's 0:08:07.760 --> 0:08:09.200 probably priced into the deal. 0:08:09.400 --> 0:08:09.760 All right. 0:08:09.800 --> 0:08:13.360 So give us a sense of the size of Visa. 0:08:13.600 --> 0:08:15.840 I guess the Visa network, the master Card network, and 0:08:15.880 --> 0:08:19.160 now this new combined network. Is it competitive to Visa 0:08:19.520 --> 0:08:21.640 and MasterCard? I guess even amics, So. 0:08:21.720 --> 0:08:27.000 Historically it's completely non competitive. Visa and MasterCard together are about 0:08:27.040 --> 0:08:30.760 ten trillion in domestic US credit and debit card volume, 0:08:31.040 --> 0:08:34.800 and Discover is about five hundred and fifty billion. So 0:08:34.840 --> 0:08:37.000 it's always been this sort of the tiny, you know, 0:08:37.160 --> 0:08:39.840 red headed stepchild of the of the large payment networks. 0:08:39.880 --> 0:08:42.640 But you know, if you add to that Capital One's 0:08:42.800 --> 0:08:45.480 hundreds of billions of dollars of credit card loans and 0:08:45.840 --> 0:08:48.400 you sort of extrapolate future growth there, it has the 0:08:48.400 --> 0:08:51.079 potential to sort of compete more like an American Express, 0:08:51.080 --> 0:08:53.120 which is closer to one and a half trillion. 0:08:53.400 --> 0:08:55.920 Ben I feel like we can't talk about deals without 0:08:56.040 --> 0:08:59.800 the threat of regulatory scrutiny. What does this bring and 0:08:59.800 --> 0:09:03.600 what could the FTC raise any red flags about? 0:09:03.920 --> 0:09:07.000 Overall, this deal I think will be relatively sort of 0:09:07.000 --> 0:09:11.240 non offensive to regulators. Discover is historically not been very 0:09:11.240 --> 0:09:14.840 competitive with the large networks, so actually bringing sort of 0:09:14.880 --> 0:09:17.360 the power of Capital One to bear will make it 0:09:17.520 --> 0:09:20.240 more competitive with the large networks, as the potential to 0:09:20.240 --> 0:09:23.920 give customers a real sort of fourth alternative, whereas in 0:09:23.960 --> 0:09:25.960 the past you really only had one option, Right you 0:09:25.960 --> 0:09:28.120 get a Discover card, it only has one sort of 0:09:28.120 --> 0:09:31.640 set of rewards. It's got a relatively low credit line 0:09:31.720 --> 0:09:34.000 versus some of the other offerings. It doesn't have sort of, 0:09:34.160 --> 0:09:37.800 you know, high end travel rewards offerings. So I think 0:09:37.800 --> 0:09:39.640 if Capital One can start to issue some of its 0:09:39.640 --> 0:09:42.440 sort of higher end cards on the Discover network, that 0:09:42.480 --> 0:09:45.160 could be pro competitive and that might make the deal 0:09:45.240 --> 0:09:47.120 somewhat more attractive to regulators. 0:09:47.720 --> 0:09:51.360 Ben in terms of kind of what these credit cards 0:09:51.600 --> 0:09:54.800 offer Discover from my understanding, mainly cash back. Capital One 0:09:54.920 --> 0:09:56.000 has a range of some of. 0:09:55.920 --> 0:09:56.800 Those rewards cards. 0:09:56.840 --> 0:10:00.600 How does that impact potentially acquiring new customers, new users 0:10:00.600 --> 0:10:03.040 of for both companies or I guess the folded end company. 0:10:03.760 --> 0:10:06.199 Yeah, So I think that will make it a challenge 0:10:06.320 --> 0:10:08.920 for Capital One to issue some of its sort of 0:10:09.400 --> 0:10:13.160 high fee, high reward cards on the Discover network because 0:10:13.240 --> 0:10:16.280 historically the Discover network's only been used for a very 0:10:16.320 --> 0:10:19.199 limited cash back card with caps that I think it's 0:10:19.200 --> 0:10:21.800 like fifteen hundred dollars a quarter of cash back. So 0:10:21.880 --> 0:10:24.240 for your high spenders, people who are putting tens of 0:10:24.280 --> 0:10:26.640 thousands of dollars on a credit card, that's not a 0:10:26.679 --> 0:10:29.880 very attractive offering. So that means that the brand has 0:10:29.920 --> 0:10:32.680 not been sort of in their minds as you know, 0:10:32.720 --> 0:10:35.600 a potential credit card they med aquire. So Capital One 0:10:35.640 --> 0:10:37.600 is going to have to do some relatively heavy lifting. 0:10:37.600 --> 0:10:40.080 And you see that in what is a very modest 0:10:40.400 --> 0:10:43.360 run rate synergy assumption in their in their sort of 0:10:43.600 --> 0:10:47.199 deal model which only cuts back discovers marketing costs about 0:10:47.200 --> 0:10:49.760 ten percent. So you know, Capital One is going to 0:10:49.800 --> 0:10:52.120 have to do some pretty heavy marketing I think, to 0:10:52.360 --> 0:10:54.040 start to leverage that network on the credit card. 0:10:54.000 --> 0:10:57.319 Side, the American Express. What's the investment call there these days? 0:10:57.480 --> 0:10:57.680 Ben? 0:10:57.720 --> 0:10:59.679 What are investors thinking about MS? 0:11:00.160 --> 0:11:03.360 You know, MX is the super premium fashion of the 0:11:03.440 --> 0:11:08.280 highest spending sort of most financially sound customers. So that 0:11:08.679 --> 0:11:12.160 is a sort of a recession safe trade, if you will. 0:11:12.400 --> 0:11:15.240 So you know, when people are looking at the forward 0:11:15.280 --> 0:11:17.480 curve and they're seeing rate cuts, you know they're expecting 0:11:17.480 --> 0:11:20.480 a recession. Potentially they look at the AMS spender and 0:11:20.520 --> 0:11:23.760 think that this person will last the longest and have 0:11:23.880 --> 0:11:26.920 the sort of lowest level of charge offs through a 0:11:26.920 --> 0:11:30.239 potential recession. So that makes it very attractive. And additionally, 0:11:31.040 --> 0:11:35.120 MS has a ton of momentum in acquiring millennial and 0:11:35.160 --> 0:11:39.080 gen z high earning customers, which is the most valuable 0:11:39.400 --> 0:11:41.439 sort of wallet chair that's out there, and MX does 0:11:41.440 --> 0:11:43.599 it better than anyone else, so that also kind of 0:11:43.600 --> 0:11:44.920 makes them attractive to investors. 0:11:45.200 --> 0:11:49.640 What is the big competitive overview of kind of consumer finance? 0:11:49.679 --> 0:11:54.840 Are we using more credit, more debit, more venmo what 0:11:54.880 --> 0:11:56.040 a kind of the big trends there. 0:11:56.320 --> 0:11:59.920 Yeah, so there's been a huge growth in credit volume 0:12:00.040 --> 0:12:02.840 over the last couple of years, especially sort of in 0:12:02.880 --> 0:12:05.240 the post pandemic period. There's been even more of a 0:12:05.280 --> 0:12:09.120 secular shift away from cash as for the various sort 0:12:09.120 --> 0:12:14.559 of channels. Right, credit is really attractive to higher end consumers, 0:12:14.559 --> 0:12:18.240 people with more discretionary income, because that offers the huge 0:12:18.320 --> 0:12:21.160 valuable reward potential. And then if you step down to 0:12:21.480 --> 0:12:23.840 debit cards, there's some cash back, but for the most part, 0:12:24.280 --> 0:12:26.760 not a lot of rewards there, but there's some convenience. 0:12:27.200 --> 0:12:30.320 And then sort of the lower tier kind of fintech 0:12:30.400 --> 0:12:33.520 payments systems, you know, they offer they're sort of targeted 0:12:33.520 --> 0:12:37.280 at sort of youngers or gen Z lower spenders, and 0:12:37.320 --> 0:12:39.640 they are the people who are exploring things like buy now, 0:12:39.679 --> 0:12:41.360 pay later, which is sort of a way to give 0:12:41.400 --> 0:12:43.000 credit to people who don't really have a lot of 0:12:43.160 --> 0:12:45.920 credit history or substantial earnings. 0:12:45.520 --> 0:12:49.280 History thanks to Ben Elliott, Bloomberg Intelligence consumer finance analysts 0:12:49.280 --> 0:12:52.480 coming up a conversation with Geens Soroka, Executive director of 0:12:52.480 --> 0:12:54.840 the Port of Los Angeles, on why cargo volumes are 0:12:54.920 --> 0:12:58.000 picking up. You're listening to Bloomberg Intelligence on Bloomberg Radio, 0:12:58.120 --> 0:13:00.720 providing in depth research and data on two that companies and. 0:13:00.720 --> 0:13:01.959 One hundred and thirty industries. 0:13:02.280 --> 0:13:05.040 You can access Bloomberg Intelligence via Bigo in the terminal. 0:13:05.200 --> 0:13:07.360 I'm Paul Sweeney, and this is Bloomberg. 0:13:11.760 --> 0:13:15.640 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:15.720 --> 0:13:19.040 weekdays at ten am Eastern on Applecarplaying and broud Auto 0:13:19.160 --> 0:13:22.080 with the Bloomberg Business app. Listen on demand wherever you 0:13:22.120 --> 0:13:25.800 get your podcasts, or watch us live on YouTube. 0:13:26.960 --> 0:13:29.880 Let's turn out to the restaurant business. Restaurants are confronting 0:13:29.920 --> 0:13:33.160 a slow down in consumer spending. January same store sales 0:13:33.240 --> 0:13:35.600 fell across the restaurant industry, tough year of a year 0:13:35.640 --> 0:13:37.040 comparisons and cold weather. 0:13:36.880 --> 0:13:37.920 Hurt customer traffic. 0:13:38.120 --> 0:13:40.600 Co host Belly Lipschutz and I were joined by Michael Halen, 0:13:40.800 --> 0:13:43.720 Bloomberg Intelligence Senior Restaurant and Food service analyst. 0:13:44.040 --> 0:13:44.959 We asked them about some. 0:13:44.920 --> 0:13:47.040 Of the trends coming out of the pandemic and how 0:13:47.120 --> 0:13:49.240 much people are spending on restaurants these days. 0:13:49.679 --> 0:13:51.800 Yeah, you know, obviously there's a couple of tough years 0:13:52.400 --> 0:13:54.960 due to the pandemic, mainly for the full service restaurants, 0:13:55.000 --> 0:14:00.199 due to you know, limitations on hours and different regulations 0:14:00.520 --> 0:14:05.600 on indoor dining rooms. Also just apprehension by customers. But 0:14:06.240 --> 0:14:09.640 there was a pretty strong bounce back in restaurant sales 0:14:09.920 --> 0:14:11.719 in twenty twenty two, and then they kind of got 0:14:11.760 --> 0:14:15.360 hit with that margin pressure, right, twenty twenty three started 0:14:15.400 --> 0:14:19.680 off pretty strong in early twenty twenty three, or lapping Omicron, 0:14:19.920 --> 0:14:23.240 so the comparisons were very easy. So early twenty twenty 0:14:23.240 --> 0:14:26.960 three was very good. Sales started to slide in the 0:14:27.000 --> 0:14:30.320 second half of last year, and now that they're lapping 0:14:30.360 --> 0:14:33.320 those strong comps from a year ago. We saw some 0:14:33.360 --> 0:14:37.520 real weakness in January and so far in early February. 0:14:38.320 --> 0:14:40.040 And when I look at Michael, when I go to 0:14:40.080 --> 0:14:42.240 the fast food restaurants, when I do eat out ball, 0:14:42.480 --> 0:14:45.560 I'm a cheap guy. Prices are high. I go to 0:14:45.640 --> 0:14:49.840 Chipotle and it's cost me seventeen bucks. How do price 0:14:49.880 --> 0:14:54.400 hikes in expanding margins. How are those things playing out 0:14:54.480 --> 0:14:56.200 and how are those going to continue to play out 0:14:56.200 --> 0:14:59.600 in twenty twenty four given this uncertainty around consumers, maybe 0:15:00.400 --> 0:15:01.040 some of the spending. 0:15:01.560 --> 0:15:03.600 Yeah, you know, that's a great question. There was a 0:15:03.640 --> 0:15:07.960 lot of you know, Ruckus really online over the eighteen dollars, 0:15:07.960 --> 0:15:11.360 big mac meal and in some locations last week. So 0:15:11.720 --> 0:15:13.400 you know, this is something that we're looking at. And 0:15:13.440 --> 0:15:15.600 you know, same sort of sales were so weak in January. 0:15:15.640 --> 0:15:18.240 They were down over two percent for fast food, which 0:15:18.280 --> 0:15:21.200 we typically don't see unless we're in a recession. They 0:15:21.200 --> 0:15:24.960 were down seven point seven percent at casual dining. Investors 0:15:25.000 --> 0:15:26.760 are kind of looking past it, saying that the weather 0:15:26.880 --> 0:15:29.680 was really cold, but people still have to eat, right, 0:15:29.760 --> 0:15:32.800 and so so there's kind of some worry here for 0:15:32.880 --> 0:15:35.840 us because like some of the economic indicators we watch 0:15:35.920 --> 0:15:38.600 when you look under the hood aren't looking great. So 0:15:38.720 --> 0:15:40.760 credit card debt is at an all time high one 0:15:40.760 --> 0:15:43.360 point one trillion. Credit card rates are at an all 0:15:43.440 --> 0:15:47.200 time high at twenty one percent APRS. Delinquencies have been 0:15:47.320 --> 0:15:50.320 rising for auto loans as well as credit card loans, 0:15:51.080 --> 0:15:53.360 and they're now above the fifteen year average and pre 0:15:53.480 --> 0:15:56.720 pandemic level. So there is some concern, but right now 0:15:56.720 --> 0:15:59.000 there's just so many variables going on with the weather, 0:15:59.080 --> 0:16:01.760 with the tough comparison, and with these economic indicators to 0:16:01.760 --> 0:16:05.560 figure out exactly how much of this weakness is because 0:16:05.600 --> 0:16:09.160 of what right and so. But one thing we've seen 0:16:09.240 --> 0:16:11.680 is customers are dealing with the higher prices and with 0:16:11.720 --> 0:16:14.000 the higher inflation by putting it on their credit cards, 0:16:14.040 --> 0:16:15.640 which is not a sustainable situation. 0:16:15.920 --> 0:16:17.680 What are some of the names that you cover that 0:16:17.760 --> 0:16:22.200 if we do see the general consumers tightening spending, will 0:16:22.200 --> 0:16:24.920 be better positioned to continue to deliver sales. 0:16:25.280 --> 0:16:27.680 What we've seen one of the weakest segments has actually 0:16:27.760 --> 0:16:30.280 been fine dining. A lot of that has been just 0:16:30.280 --> 0:16:33.560 a pullback and spending. People have been buying less expensive lines, 0:16:34.120 --> 0:16:38.000 you know, cutting back maybe on appetizers. In a real 0:16:38.040 --> 0:16:42.120 economic slowdown, fast food and quick service tend to do 0:16:42.160 --> 0:16:46.720 better because they'll have value menu items, discountsable will be 0:16:46.760 --> 0:16:49.760 more prevalent, and so although you'll see a lot of 0:16:49.760 --> 0:16:52.920 low income consumers kind of trade down to the grocery store, 0:16:53.520 --> 0:16:55.760 the quick service change will see a lot of you know, 0:16:55.880 --> 0:16:58.920 middle and higher income consumers trade away from a higher 0:16:58.920 --> 0:17:02.760 price full service Asian and maybe dying at McDonald's a 0:17:02.760 --> 0:17:03.640 little bit more often. 0:17:04.359 --> 0:17:07.119 Hey, Michael talked to us about the labor situation in 0:17:07.160 --> 0:17:10.320 the restaurant business. I know, for a long time, like 0:17:10.359 --> 0:17:12.439 a lot of industries, you know, the restaurant industry had 0:17:12.480 --> 0:17:13.960 trouble getting labor. 0:17:14.000 --> 0:17:14.680 Where is it now? 0:17:15.200 --> 0:17:17.879 Full service is pretty much where it was prior to 0:17:17.920 --> 0:17:22.000 the pandemic, So you know, think of Chili's and Applebee's 0:17:22.040 --> 0:17:24.680 and most of those casual dining chains that we cover. 0:17:24.760 --> 0:17:28.480 Cheesecake Factory, they're fully staffed right now, so they've recovered 0:17:28.480 --> 0:17:33.359 pretty nicely. Quick service has been slower. Turnover remains a 0:17:33.400 --> 0:17:35.800 lot higher, which is crazy to say, because it's probably 0:17:35.800 --> 0:17:38.640 one hundred and forty percent for hourly turnover heading into 0:17:38.680 --> 0:17:40.840 the pandemic. Now it's it's probably about one hundred and 0:17:40.880 --> 0:17:43.639 seventy percent, So they're having a lot more of a 0:17:43.680 --> 0:17:47.120 difficult time holding onto employees. That being said, it's been 0:17:47.240 --> 0:17:51.000 improving and improved throughout the year. Last year, one of 0:17:50.680 --> 0:17:54.280 the toughest times to staff the store was that late 0:17:54.359 --> 0:17:57.639 night portion. But chains figured out it's supplying demand and 0:17:57.680 --> 0:18:00.360 they have to offer more a higher way to those 0:18:00.359 --> 0:18:03.800 employees to attract good workers, and they've been doing that, 0:18:03.840 --> 0:18:06.960 and so that last kind of part of the day 0:18:07.000 --> 0:18:09.040 that was really struggling to hire is starting to come 0:18:09.080 --> 0:18:11.920 back to. So it's getting better. It's not where it was. 0:18:11.840 --> 0:18:12.400 Two years ago. 0:18:12.440 --> 0:18:14.400 Two years ago, it is very difficult. You know, there's 0:18:14.400 --> 0:18:16.920 a lot of people concerned that restaurant workers would never 0:18:16.960 --> 0:18:19.480 come back, but a lot of them have and it's 0:18:19.560 --> 0:18:20.359 much better than it was. 0:18:20.600 --> 0:18:23.440 Michael to take the labor conversation and twisted just a bit. 0:18:23.480 --> 0:18:25.320 I was just in California for the last two weeks 0:18:25.560 --> 0:18:28.560 where minimum wage is going to be twenty boots in April. First, 0:18:28.640 --> 0:18:30.760 Oh went in and out twice, don't you worry. But 0:18:30.840 --> 0:18:33.520 so twenty dollars minimum wage. I'm seeing a lot of 0:18:33.560 --> 0:18:36.800 these self service kiosks getting rid of the kind of 0:18:36.840 --> 0:18:38.880 front of house, if you will, at some of these 0:18:38.920 --> 0:18:42.120 fast food chains. How does a higher minimum wage impact 0:18:42.320 --> 0:18:44.320 what these companies are going to do and impact their 0:18:44.320 --> 0:18:45.160 margins in turn? 0:18:45.680 --> 0:18:47.040 Yeah, I mean you hit the nail on the head. 0:18:47.080 --> 0:18:50.640 It's going to be more technology. And it's no coincidence 0:18:50.680 --> 0:18:52.760 that the companies that we cover that have the highest 0:18:52.760 --> 0:18:56.600 exposure to California. So that's Jack in the Box, that's Chapotle. 0:18:57.200 --> 0:19:00.000 They're leading the charge when it comes to automation technology. 0:19:00.480 --> 0:19:03.919 Right now, Jack in the Box is testing AI automated friars. 0:19:04.280 --> 0:19:07.840 Chipotle has an automated makeline that they're hoping to roll 0:19:07.880 --> 0:19:11.680 out in the coming years, as well as automated AI 0:19:11.960 --> 0:19:15.040 tortilla chip friars. Right, so, it's going to be more 0:19:15.560 --> 0:19:19.159 automation in the restaurant, but it takes time for that 0:19:19.200 --> 0:19:22.280 to be implemented because right now the cost for that 0:19:22.359 --> 0:19:25.920 automation technology is very high. Right but as the wage 0:19:25.960 --> 0:19:29.920 rates continue to rise and as the price of technology falls, 0:19:29.920 --> 0:19:32.159