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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Want to talk retail now, because you've got more numbers

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Speaker 2: out today from some big players, including Coles and Abercrombie.

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Speaker 2: Let's break it all down now with Mary Ross Gilbert,

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Speaker 2: Bloomberg Intelligence's senior equity analyst. She covers retail, so she's

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Speaker 2: the right person to talk to you right now. So Mary,

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Speaker 2: Cole's trying to reverse fourteen straight quarters of declining revenue.

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Speaker 2: How do they do?

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Speaker 3: Yeah?

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Speaker 4: So Lexus Coles, Okay, look, they reported comp sales down

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Speaker 4: still and as you pointed out, fourteen consecutive quarters of

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Speaker 4: declines or another way to look at it, over the

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Speaker 4: past three years. They're cycling three years of declines. So

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Speaker 4: but what really we're looking at in the news that

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Speaker 4: came out with Cole's one is that on the call,

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Speaker 4: the company said July sales were flat.

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Speaker 2: That was really encouraging.

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Speaker 4: And when you look at the third quarter and the

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Speaker 4: guidance for the third quarter again, still looking for declines

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Speaker 4: for the balance of the year, down four to five

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Speaker 4: percent on a comp sales basis, but for the third

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Speaker 4: quarter they're going to cycle a nine point three percent

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Speaker 4: decline last year, so that means the comparisons are easier

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Speaker 4: and they're off to a good start, so it's encouraging.

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Speaker 4: And what we're finding is that they're bringing back the

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Speaker 4: core private brands that are really resonating because of the

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Speaker 4: open price points and their core consumer, which is that

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Speaker 4: sort of load to low middle income consumer. They're really

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Speaker 4: pressed by inflation still and so they are really looking

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Speaker 4: for the value and is they've brought that back in

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Speaker 4: and they brought back fashion jewelry and you know, they're

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Speaker 4: working on refining fine jewelry. But that's all resonating now

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Speaker 4: with the customer and so that's where they're seeing some strength.

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Speaker 4: And so we're seeing encouraging signs there. But they're not

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Speaker 4: out of the woods yet, right because you know, again

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Speaker 4: three years of sales declines and you know, they're still

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Speaker 4: their sales are still declining. So we'll see if they

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Speaker 4: actually reach stabilization by the end of the year. They're

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Speaker 4: saying no, we're not, but we're thinking they're providing conservative

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Speaker 4: guidance so that they can beat. And then with regard

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Speaker 4: to the stock action, part of that reflects short covering.

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Speaker 4: If you look at the shares borrowed, it's about a

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Speaker 4: third of the outstanding shares are borrowed, so it's going

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Speaker 4: to take over five days to cover you know, shorts,

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Speaker 4: and so that's part of the action in there.

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Speaker 5: Hey, Mary, what are Coals and some of the other

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Speaker 5: companies saying about I don't know their strategy for dealing

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Speaker 5: with tariffs in terms of a passing along to consumers,

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Speaker 5: b taking it maybe in their margin or c. I

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Speaker 5: don't know, kind of pushing back on some of their suppliers.

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Speaker 5: Is there a consensus building about how some of these

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Speaker 5: retailers are dealing with it.

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Speaker 4: Yeah, Paul, that's a really good question because tariffs is

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Speaker 4: absolutely top of mind, and with Coals, Coals really sources

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Speaker 4: most of their product from other brands and companies. They

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Speaker 4: do have their own private brand business. It's probably somewhere

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Speaker 4: around a third of the business. You know, they're getting

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Speaker 4: it back in order because of course they went too

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Speaker 4: low last year, and what they're finding is they're sharing

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Speaker 4: with their vendors. This is what we're finding across the board,

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Speaker 4: and they're finding an ability to raise prices on select items.

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Speaker 4: So with Coals, we did see a margin improvement in

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Speaker 4: the quarter, and so with because the private brands do

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Speaker 4: deliver a higher margin for on an overall basis versus

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Speaker 4: the third party brands getting that benefit and that's helping

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Speaker 4: to offset a bit of the tariffs. And again they're

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Speaker 4: less impacted versus some of the specialty apparel brands like

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Speaker 4: Abercrombie and PVH and those companies reporting which they did

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Speaker 4: disclose what kind of exposure they have, But we are

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Speaker 4: seeing across the board that there is sharing. It's usually

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Speaker 4: about fifty percent, where their suppliers will say we'll absorb

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Speaker 4: fifty percent of the cost and then the other fifty

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Speaker 4: percent is taken by that brand. Then they will do

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Speaker 4: strategic price increases on certain items that they feel will

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Speaker 4: be less noticeable to the consumer.

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Speaker 5: Mary.

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Speaker 2: Before we get to Abercrombie, one more question here on Coals.

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Speaker 2: Bloomberg News is reporting that Coles is having trouble paying

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Speaker 2: its vendors on time. What do we know about that,

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Speaker 2: Alexis I'm really glad you brought that up, because that

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Speaker 2: was never brought up on the call.

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Speaker 4: Nothing came up in that conversation. When we saw that

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Speaker 4: article break yesterday, we said, what I mean, that's kind

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Speaker 4: of like a warning sign, and it basically says, look,

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Speaker 4: they're just trying to manage their working capital needs because

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Speaker 4: we're in a period right now where they're taking in

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Speaker 4: all of the inventory that for the holiday season that's

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Speaker 4: coming in right now, and so that's a big cash

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Speaker 4: use and that's kind of where we are in the

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Speaker 4: third quarter is where they're going to have to, you know,

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Speaker 4: raise their revolver borrowings to fund those needs. And so

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Speaker 4: there was a bit of a concern, but nobody on

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Speaker 4: the earnings call brought that up with the company. But

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Speaker 4: we kind of we're watching that closely. Like I said,

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Speaker 4: Cole's is not out of the woods yet.

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Speaker 5: All right, Ambercrombie, what's the story there?

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Speaker 4: So on Abercrombie, generally they beat but okay, and it

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Speaker 4: was all led by Hollister, which we could see in

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Speaker 4: the transaction data, and it was something that we saw

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Speaker 4: in the first quarter, and they're cycling some big comparable

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Speaker 4: sales increases in the prior year period. For their names

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Speaker 4: Abercrombie brand. But the decline in comp sales is down

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Speaker 4: about eleven percent, was way worse than what analysts were

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Speaker 4: looking for. They were looking for a decline of something

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Speaker 4: like down seven percent. The reason for that is they

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Speaker 4: had some carryover inventory at lower average price points that

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Speaker 4: they were selling through in the quarter and that's what

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Speaker 4: really took the comp sales down. But they were very

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Speaker 4: optimistic about third quarter start with their denim program, with

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Speaker 4: their NFL collaboration, and so they feel like that's going

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Speaker 4: to really benefit all of the initiatives that they have

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Speaker 4: to benefit the Abercrombie brand going forward. So they feel like, no,

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Speaker 4: this is just a little bit of a hiccup, nothing

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Speaker 4: to be alarmed about. And I think what we're seeing

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Speaker 4: generally when we think about all these earnings reports so far,

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Speaker 4: is that the consumer is resilient. We have the lower

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Speaker 4: income being a little more strained and being very careful

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Speaker 4: and choosing what they're going to buy, but when they

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Speaker 4: see the value you they're spending.

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Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: Williams Sonoma, I don't know. I don't shop very often.

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Speaker 2: To you, I used to do more. I liked I

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Speaker 2: like your kitchen stuff. I have to say I own

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Speaker 2: quite a bit.

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Speaker 5: Okay, all right, the stock they reported some numbers stalks

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Speaker 5: off about one percent here today Williams Sonoma's sales surprises

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Speaker 5: cost look management. That's the reaction from Bloomberg Intelligence. Let's

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Speaker 5: talk to that analyst. Lindsay Dutch Consumer Hardlines, senior analysts

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Speaker 5: for Bloomberg Intelligence. Lindsay talked to us about Williams Sonoma.

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Speaker 5: What did you learn in their in their earnings release

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Speaker 5: and how's their business doing?

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Speaker 6: Hi, Paul, thanks for having me. William Sinoma had another

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Speaker 6: really good quarter. We're seeing continued momentum and sales, which

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Speaker 6: the positive for them, especially given higher interest rates and

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Speaker 6: new home sales being soft. And more importantly, they held

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Speaker 6: the guidance for operating margin flat even though they're facing

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Speaker 6: tremendous costs headwinds from tariffs.

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Speaker 2: You know, I'm looking at the stock right now, it's

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Speaker 2: not doing much of anything. A down about half a percent.

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Speaker 2: Why not a better reaction from Wall Street?

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Speaker 6: You know, I'm also puzzled by that. I think that

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Speaker 6: there's not much more that you can ask for from

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Speaker 6: a company like this. You know, they are working on

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Speaker 6: getting to some sales growth goals.

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Speaker 7: They're showing progress there.

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Speaker 6: They are leveraging their scale, negotiating with suppliers. They're basically

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Speaker 6: mitigating all of the costs from the tariffs that they're

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Speaker 6: experiencing this year, which was basically a doubling in the

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Speaker 6: tariff rate than they were expecting from the first quarter,

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Speaker 6: so it's a significant headwind. They're basically planning to offset

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Speaker 6: all of it with all of their mitigation efforts, and

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Speaker 6: they're going to continue to see some profit growth this year.

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Speaker 6: Long term goals are intact.

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Speaker 5: So how are they mitigating it? So they're not going

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Speaker 5: to pass anything along to consumers? How are they mitigating it?

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Speaker 6: So they are doing select price increases. They have multiple

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Speaker 6: levelers that they are pulling, so they are negotiating with

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Speaker 6: their suppliers sort of managing the cost sort of on

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Speaker 6: the supply side, they're shifting sourcing, you know, with a

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Speaker 6: new threat of an additional tariff just on furniture imports.

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Speaker 6: They're looking to increase US made inventory heading into next year.

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Speaker 6: They are also increasing the prices and the fact that

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Speaker 6: demand is showing momentum, you know, that's a positive sign

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Speaker 6: that they can execute those price increases successfully and continue

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Speaker 6: to get a good margin on those products.

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Speaker 2: So Williams Nooma is a company that also owns the

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Speaker 2: Pottery Barn brand West Elm. Curious if there were strengths

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Speaker 2: sort of across the board across its brand.

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Speaker 6: Yes, So this was a second consecutive quarter that we

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Speaker 6: saw same sour sales growth across all brands. Pottery Barn

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Speaker 6: and West Elm are the two big ones that we've

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Speaker 6: been watching over the past say four to six quarters,

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Speaker 6: and that's because there really has been a bit of

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Speaker 6: a challenge when it comes to demand for furniture. Coming

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Speaker 6: into this year, we saw some positive momentum in that business.

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Speaker 6: Williams Sonoma has continued to outperform, So we saw growth

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Speaker 6: in those two brands again in this second quarter while

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Speaker 6: the industry was still down for the quarter. So they

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Speaker 6: are seeing, you know, good demand with those two big brands,

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Speaker 6: and they're saying that a lot of that is coming

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Speaker 6: from the new products that they're launching.

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Speaker 5: See, I was on an impression prior to this furniture

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Speaker 5: tariff talk that pretty much all our furniture came from

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Speaker 5: like North Carolina, like Thomasville, North Carolina. That's kind of

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Speaker 5: where I thought it all came from. That's not the case.

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Speaker 5: Talk to us about the furniture supply chains. Where does

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Speaker 5: this stuff come from? And what is the tariff situation

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Speaker 5: there on this stuff?

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Speaker 6: Right, So, the best disclosure I have is from the

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Speaker 6: end of last year, and I do think some of

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Speaker 6: the numbers have moved a little bit. But at the

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Speaker 6: end of fiscal twenty twenty four, Williams Sonoma got about

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Speaker 6: eighteen percent of their cost of goods sold made in

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Speaker 6: the US. You know, They're a little bit higher than

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Speaker 6: a peer like rh which was closer to ten percent

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Speaker 6: at the end of last year. Part of that is

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Speaker 6: because Williams Sonoma has a lot more seasonal items and

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Speaker 6: decore items rather than just plain furniture. I do think

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Speaker 6: that number, you know, probably was is increasing throughout this year,

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Speaker 6: and again I think there will be an accelerated effort

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Speaker 6: to get that number higher for twenty twenty six with

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Speaker 6: a with a threat of a new tariff. When we

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Speaker 6: think about the other countries, you know, exposure to China

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Speaker 6: has drastically come down since twenty eighteen twenty nineteen, that's

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Speaker 6: more closer to the twenty percent range. But there's also

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Speaker 6: exposure to Vietnam, which is a big one, and India

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Speaker 6: where the tariff just went up to fifty percent. So

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Speaker 6: there's still more diversification to be done on the supply

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Speaker 6: chain and I think those efforts will continue heading into

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Speaker 6: the next year.

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Speaker 2: And lindsay in about thirty seconds, connect these dots. How

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Speaker 2: much are Williamson Noma's fortunes tied to the housing market, So.

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Speaker 7: That's a great question. They are.

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Speaker 6: They will see stronger demand with a pickup in housing,

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Speaker 6: but they've been lucky to see that higher income consumer

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Speaker 6: still looking to update, you know, within their kitchens in

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Speaker 6: existing homes, and that is fueling demand over the past

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Speaker 6: year or so.

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Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts or watch us live on YouTube.

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Speaker 2: Cracker Barrel cannot get enough of this story at all, apparently,

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Speaker 2: so I want to bring in Michael Halen. He's Bloomberg

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Speaker 2: Intelligence Senior Restaurant and food service analyst. So has Cracker

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Speaker 2: Barrel not been canceled now, Michael, because they're bringing back

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Speaker 2: the old logo.

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Speaker 8: Well, I checked this morning, and some right wing commentators

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Speaker 8: are not happy about some of their past endorsements of

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Speaker 8: the Nashville LG TBq Parade and some things like that.

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Speaker 8: They have some issue with one of the board members

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Speaker 8: whose whose experiences.

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Speaker 5: As you enjoy the biscuits, is.

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Speaker 8: Owning a DEI company.

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Speaker 5: What's that? Just enjoy the biscuits and gravy. That's where

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Speaker 5: it stops and starts with me. It's awesome.

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Speaker 8: Yeah, yeah, man, it's it's crazy. I mean, Crocker Barrel

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Speaker 8: now has been on both sides of the culture war right.

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Speaker 8: So you know, in the first Trump presidency there the

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Speaker 8: left had taken issue with some people that were dining

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Speaker 8: at Cracker Barrel, right, and now you have the right

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Speaker 8: up in arms. It's kind of sad to see, to

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Speaker 8: be honest with you, I think the right was on

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Speaker 8: the right side of history the first time, and I

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Speaker 8: think you know, now that they're in power, they're you know,

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Speaker 8: you know, the ones engaging in cancel culture. So it's

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Speaker 8: kind of disappointed to see. I think they've been very

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Speaker 8: unfair towards Julie Messino, who's, in our opinion, has done

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Speaker 8: a great job so far.

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Speaker 1: You know.

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Speaker 5: One of the things more substantive that then the logo

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Speaker 5: is kind of the interiors of the restaurants and the menu.

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Speaker 5: There's some big changes there with these new formats. Is

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Speaker 5: are they still moving ahead with that.

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Speaker 8: Mike, Yeah, and we're seeing results. They've been beating and

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Speaker 8: the streets been forced to raise their estimates throughout the year, right,

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Speaker 8: so sales are inflecting higher. We expect traffic to inflect

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Speaker 8: higher in this next fiscal year over the next twelve

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Speaker 8: months or so. So yeah, things are going well. I mean,

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Speaker 8: they've got a lot of shade online about the remodels,

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Speaker 8: obviously about this logo rebrand. But these people complaining clearly

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Speaker 8: weren't going to the stores because Samstar sales and traffic

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Speaker 8: have been in the gutter for years, So you know,

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Speaker 8: to us, I think a lot of the complaining is

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Speaker 8: done by people that really don't frequent click tracker Barrow.

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Speaker 8: They're using it as an excuse to kind of push

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Speaker 8: their ideologies. And it's it's you know, it is what

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Speaker 8: it is. But it's refreshes are working. They're bringing they're

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Speaker 8: bringing in you know, dinner business has improved for five

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Speaker 8: straight quarters, right, and they're trying to bring in younger

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Speaker 8: consumers who really basically left the brand for dead. You know,

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Speaker 8: it wasn't a member of their consideration set, right, And

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Speaker 8: so we think the management team is making the right

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Speaker 8: moves refreshing their stores, just giving them a fresh coat

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Speaker 8: of paint, you know, updating the furniture inside, right, and

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Speaker 8: you know, we we expect these to continue to help

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Speaker 8: boost results.

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Speaker 4: Yeah.

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Speaker 2: Have they had to raise prices at all? Because I

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Speaker 2: know that's a sensitive area for their customer base really

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Speaker 2: for everybody, right, But I mean, how have they able

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Speaker 2: to deal with tariffs and not having to raise prices

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Speaker 2: unless they are.

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Speaker 8: Yeah, so they have a little bit more exposure to

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Speaker 8: tariffs because of their retail stores in their front about

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Speaker 8: twenty percent of those items in that retail store are

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Speaker 8: sourced from China. They have been working hard to work

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Speaker 8: you know, to source products from other countries or within

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Speaker 8: the United States that try to ease that impact, right,

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Speaker 8: But that's a that's a smaller.

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Speaker 5: Part of their sales.

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Speaker 8: The restaurants sales are a much bigger part of their

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Speaker 8: average unit volumes in the restaurants.

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Speaker 5: Right.

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Speaker 8: The good thing for Cracker Barrel is that it's priced

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Speaker 8: so far below it's casual dining competitors. Right. Average checks

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Speaker 8: at dinner are you know, maybe thirty forty percent cheaper

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Speaker 8: than some of their competitors, right, And so they've been

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Speaker 8: able to lean into strategic pricing they relate to the

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Speaker 8: game there and this new management team. This is one

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Speaker 8: of their many initiatives that they've implemented to try to

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Speaker 8: boost top line growth. And so they are strategically raising

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Speaker 8: prices five percent, but it's at the units that can

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Speaker 8: support it based on, you know, demographics in the DMA.

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Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple Cockplay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: Again we've been reporting on Ta jams. Smucker's reported some

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Speaker 5: numbers here, some customers pulling back on some of their

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Speaker 5: purchases here from some of these well known consumer products

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Speaker 5: that we all know and love in the supermarket. Then

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Speaker 5: Openia joins us. Bloomberg Intelligence consumer analysts talk to us

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Speaker 5: about JW. Smuckers. What do you learn on their quarterly earnings?

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Speaker 3: Yes, so, basically they're trying to pass through cost increases

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Speaker 3: from green Coffee into their coffee portfolio. So far it

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Speaker 3: has paid off for them. They have experienced some growth

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Speaker 3: and limited elasticity on that.

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Speaker 7: Going forward.

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Speaker 3: They're getting ready for a third wave of price increase

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Speaker 3: at the end of probably at the end of the year,

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Speaker 3: so that's probably going to test, you know, price and

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Speaker 3: elasticity even further. But you know, there are some bright

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Speaker 3: spots still for the company. You have Miow mix cats

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Speaker 3: seem to be doing well. You have on crossed the

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Speaker 3: bowls that part of their business is particularly strong. But

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Speaker 3: then you have others such as milk Bone, which is

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Speaker 3: not doing that well, and obviously Jif and the like.

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Speaker 2: The dogs don't like the milk bone.

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Speaker 3: I guess, well, it is a little bit of there's

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Speaker 3: there's a discretionary pullback. It seems that even though the

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Speaker 3: pet market has stabilized, there's the owners do not give

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Speaker 3: as many treats to the dogs as they used to.

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Speaker 2: Even the dogs are feeling it, all right. What about

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Speaker 2: their coffee business though, right, because they own brands like

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Speaker 2: well known brands Folgers, Bustello and you know these fifty

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Speaker 2: percent coffee terraffs against Brazil. I mean, how is that impacting?

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Speaker 2: How did it impact last quarter?

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Speaker 7: Yes?

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Speaker 3: So they definitely added some pricing for that, and you

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Speaker 3: can see coffee, like I said, eat increase about fifteen

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Speaker 3: percent due to pricing. They expect terref to be a

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Speaker 3: fifty cent hit two EPs this year, which is an

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Speaker 3: increase compared to twenty five cents.

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Speaker 7: You know that. They said that he was last cert

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Speaker 7: names called.

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Speaker 5: So for the companies you followed, what is there kind

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Speaker 5: of a norm that you're seeing in terms of how

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Speaker 5: much of terraf increases they want to pass along to consumers,

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Speaker 5: how much they want to take in their margin, and

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Speaker 5: maybe how much they want to push back on their distributors.

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Speaker 3: There's any kind of norm so we're seeing, you know,

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Speaker 3: because all of thesempanies have moved pricing to the consumer

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Speaker 3: at a higher level than they used to.

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Speaker 7: They're starting to see.

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Speaker 3: Some pullback in terms of volume not increasing to the

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Speaker 3: way that they expect it to, so they're trying to

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Speaker 3: do other things. They're trying to do cost savings. For example,

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Speaker 3: going back to smocker, they're going to close the Hostess

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Speaker 3: Indianapolis plan. So those kind of cost savings programs seem

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Speaker 3: to be working in terms of giving it to the retailers.

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Speaker 3: They're retailers that are pushing back. I mean, you're talking

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Speaker 3: about Walmart. You know, they're definitely not going to be

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Speaker 3: too police to increase prices even further.

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Speaker 2: Talking about Hostess, they bought Hostess not long ago, right

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Speaker 2: in twenty twenty three, but it's been a drag on

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Speaker 2: the company overall.

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Speaker 3: Yes, and they're doing a lot of pullback. They're estimating

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Speaker 3: they're going to take out about twenty five percent of SKUs.

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Speaker 7: For that brand.

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Speaker 3: They're really going in it in terms of they want

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Speaker 3: to invest in the in the in the in the brand.

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Speaker 7: They think that there's still room to grow.

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Speaker 3: During the call, there was a lot of GLP one

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Speaker 3: reference if that was a little bit of a of

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Speaker 3: a drag due to that, and and they have mentioned

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Speaker 3: that they don't see it as you know, being that reason.

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Speaker 5: What are you seeing from the consumers, how is the

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Speaker 5: consumer doing it?

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Speaker 3: There?

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Speaker 5: From the companies you follow, what are they saying.

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Speaker 3: Yeah, they're pretty much tired of the price increases. They're

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Speaker 3: definitely trading down. You see Walmart mentioning that they're getting

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Speaker 3: more higher income consumers. So that is definitely something that

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Speaker 3: keeps these companies, the package food companies, alert on alert

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Speaker 3: because there's so much room to grow and maneuver.

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Speaker 7: Based off all these things that are happening.

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Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,

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