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Speaker 2: One of the big losers in today's sessions so far
Speaker 2: is Nike, down nine and a half percent right now.
Speaker 2: Quite a bit going on there, so let's bring in
Speaker 2: put inm. Goyel, the senior US e commerce and retail
Speaker 2: analyst at Bloomberg Intelligence.
Speaker 3: Nike is in turnaround mode.
Speaker 2: Elliott Hill is no longer a new CEO, He's just
Speaker 2: the CEO because he's been there for about a year.
Speaker 2: How is his effort to turn this company around shaping up?
Speaker 4: I think his efforts to turn the US businesses shaping
Speaker 4: up quite nicely. We are seeing momentum rebuild it in
Speaker 4: the US. The issue is outside of the United States
Speaker 4: and China US to where sales have really plunged, and
Speaker 4: we don't think that they can, you know, quickly rebound
Speaker 4: those sales anytime soon. It may be a twenty twenty
Speaker 4: seven story to see any resurgence in China.
Speaker 5: If that, what is the issue in China? Is it
Speaker 5: their brand specific? Is it the Chinese consumer? What's going
Speaker 5: on there?
Speaker 4: I think the biggest issue is brand specific. So unlike
Speaker 4: in the US, the Nike brand isn't perceived as a
Speaker 4: higher and athletic brand. In fact, it's way too much
Speaker 4: an off price and at discount. So the brand needs
Speaker 4: to build brand momentum and brand heat. And yes, the
Speaker 4: Chinese consumer isn't particularly you know, on its best feet
Speaker 4: right now. But if you compare what's happening in China
Speaker 4: and you look at Liulle Lemon, Liulle Lemon has had
Speaker 4: outstanding results in China, much smaller, but you know, they've
Speaker 4: been able to do really well there. So Nike really
Speaker 4: just needs to get stuff together when it comes to product,
Speaker 4: branding and marketing in that region.
Speaker 2: What is the playbook for that? Have they detailed, have
Speaker 2: they outlined something that sounds reasonable or is it kind
Speaker 2: of still throwing things at the wall.
Speaker 4: I think the playbook will be similar to what they
Speaker 4: did in the US. The first thing that they've done
Speaker 4: so far and we'll see how that works out, is
Speaker 4: changed the reporting structure, so now all regions report directly
Speaker 4: into Elliott Hill, so I guess he just has more
Speaker 4: authority over those regions, seeing things you know firsthand. The
Speaker 4: other thing that they're going to try to do is
Speaker 4: just clean house there, right. They have to get rid
Speaker 4: of the inventory that's just not speaking to the customers
Speaker 4: and has been aged for some time. They have to
Speaker 4: get out of off price, and they have to stop discounting.
Speaker 4: And then once you get a new product to flow in,
Speaker 4: you get the right brand message across. It's retail playbook
Speaker 4: one oh one. They just need to execute. So execution
Speaker 4: is huge here.
Speaker 5: Talk to us about the Converse brand within the Nike
Speaker 5: household there, so.
Speaker 4: The yes, you know, the commerce brand, Yes, it's struggling,
Speaker 4: but to me, it's less of a concern than China.
Speaker 4: The brand is less than ten percent of their total
Speaker 4: revenues from what we see, and while sales are down,
Speaker 4: and while it is a brand that we'd like Nike
Speaker 4: to see step up, especially when it comes to lifestyle,
Speaker 4: other companies have done particularly well there. We'd say the focus.
Speaker 4: You know, if I needed them to put focus on
Speaker 4: one thing first, it would be China right now, Converse
Speaker 4: after that, And that's what we're looking for.
Speaker 2: And I know that there's been a lot of discussion
Speaker 2: between performance and lifestyle over at Nike. What is the
Speaker 2: path forward for Nike? I mean, has it chosen performance
Speaker 2: across all of its markets or are some markets better
Speaker 2: for performance versus lifestyle.
Speaker 4: So they're sticking to performance, and I think that's the
Speaker 4: right choice because performance is what Nike is about. It
Speaker 4: is what drives the sports momentum. What we'd like to
Speaker 4: see happen is that performance turns into lifestyle. So a
Speaker 4: lot of shoes that are worn for the sport, for
Speaker 4: the game have become lifestyle shoes too. So that's the
Speaker 4: natural shift that we'd like to see with the new
Speaker 4: innovation that Nike is launching.
Speaker 5: So we have some experience now nine months, ten months,
Speaker 5: eleven months of just teriff discussion.
Speaker 6: Woon.
Speaker 5: I think you were one of the first analysts we
Speaker 5: talked to to say, oh boy, what's this going to
Speaker 5: mean for various industries? What does it mean for the
Speaker 5: at your business, the ath leisure business, kind of the
Speaker 5: Nikes of the world, the Adidas is of the world.
Speaker 4: Yeah, so footwear is largely important into the US, and
Speaker 4: so are the peril When you think the athletic work space,
Speaker 4: notably the footwear. It's predominantly made in Vietnam, and the
Speaker 4: current tariff there is twenty percent. It will have an
Speaker 4: impact on margins. In fact, Nike's gross margin if you
Speaker 4: look at it, even what was recently reported, more than
Speaker 4: half of it was due to tariffs and saying with
Speaker 4: their guidance, So I think twenty percent exposure. They are
Speaker 4: increasing prices selectively. They probably will have more efforts and
Speaker 4: play in twenty twenty six, that's calendar twenty twenty six
Speaker 4: to mitigate some of this, but it's not going entirely away.
Speaker 4: It is a headband to margin.
Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: All right, a bell Weather for some including myself, for
Speaker 5: the US economy is FedEx f d X is the
Speaker 5: ticker they reported some numbers stock trading a little bit
Speaker 5: lower here. They have some issues with some of their aircraft,
Speaker 5: but I don't know. I kind of think it's just
Speaker 5: an awesome company. The stock is up about that's about
Speaker 5: flat this year. Hasn't really done anything here, but it's
Speaker 5: got a market cap of sixty seven billion dollars. I've
Speaker 5: always been a big fan of FedEx. The MD eleven
Speaker 5: is a great aircraft, but it's an old aircraft and
Speaker 5: they have and reliance on that. Leek Clasgow does this
Speaker 5: stuff for a living, Senior Transport Logistics and Chipping analys
Speaker 5: for Bloomberg Intelligence Lee.
Speaker 7: Now, FedEx reported some numbers. What did you learn?
Speaker 8: Well, I mean their second quarter they performed pretty well,
Speaker 8: and you know, they gave us some color about the
Speaker 8: peak season peak season from an average daily volume growth,
Speaker 8: they're looking at mid single digits that could increase too
Speaker 8: high single digits because there's one extra operating day in
Speaker 8: the quarter or during a peak.
Speaker 6: Season, I should say.
Speaker 8: So, you know, they seem to be executing on their
Speaker 8: restructuring plan. The problem is is that in their second
Speaker 8: half they're going to be having a lot of headwinds
Speaker 8: that they're going to have to deal with. And those
Speaker 8: headwinds relate to, you know, higher variable compensation expenses and
Speaker 8: a less than truckload market. Which they're the biggest player
Speaker 8: in that market that has been pretty depressed over the
Speaker 8: last couple of quarters.
Speaker 6: And it's can probably continue to be depressed.
Speaker 8: And then you have, as you mentioned, the grounding of
Speaker 8: their MD eleven fleet following the tragic accident of a
Speaker 8: UPS plane.
Speaker 6: A couple of weeks ago.
Speaker 8: So you know, you add those three things up plus
Speaker 8: some other things, it's about a six hundred million headwind
Speaker 8: to its earning. So they have to deal with that
Speaker 8: in some of the restructuring that they've done. Probably you know,
Speaker 8: you're probably not going to see hit the bottom line
Speaker 8: at least really directly until they're twenty twenty seven.
Speaker 2: So the six hundred million dollar charge clearly not impressing investors,
Speaker 2: even with the beat in the quarter that ended. Is
Speaker 2: this a one time thing or is this something that
Speaker 2: could drag out beyond the second half of this year
Speaker 2: next year?
Speaker 7: Excuse me?
Speaker 8: Yeah, So on the MD elevens, I think expectations are,
Speaker 8: you know, they should be back in service sometime.
Speaker 6: Early next year. I don't really know.
Speaker 8: Exactly when that's going to happen, but so you could
Speaker 8: view that as a kind of a year term headwindable compensation.
Speaker 8: You know that also is against difficult comparisons, so that's
Speaker 8: also short term in nature and not something that can continue.
Speaker 8: The biggest unknown for me, at least is the less
Speaker 8: than truckload demand. The ISM Manufacturing index, which has been
Speaker 8: contraction territory for thirty five at the last thirty seven months,
Speaker 8: is indicating that less than truckload demand, which is mostly
Speaker 8: industrial manufacturing, is going to continue to be weak in
Speaker 8: the coming months ahead because that index, the ISM index,
Speaker 8: is really a bell weather to an early indicator of
Speaker 8: where LTL demand is heading.
Speaker 9: Lee.
Speaker 5: As you know, I am an expert on trucking. I
Speaker 5: know what LTL means and TL means. I was I
Speaker 5: had no idea that FedEx was the largest LTL provider.
Speaker 5: Do you like them that they're in that business or
Speaker 5: would you rather them farm it out to somebody.
Speaker 8: Well that's a great question, Paul, because they're planning on
Speaker 8: spinning that.
Speaker 6: Out in June of next year. Uh yeah, there you go.
Speaker 8: You know. They the argument always was that, you know,
Speaker 8: maybe they could cross L their lt L and get
Speaker 8: more profitable parcel business. That model really might have not
Speaker 8: played out as much as as as they hoped, and
Speaker 8: so they also hope to get a better valuation because
Speaker 8: that lt L business, while it's been pretty depressed, they
Speaker 8: it does trade at a higher higher multiples, uh, and
Speaker 8: so they're trying to unlock kind of some.
Speaker 6: Of the value there.
Speaker 8: So you know, it'll be pretty interesting to see how
Speaker 8: that company operates as a standalone provider. That industry is
Speaker 8: pretty consolidated and has a lot of pricing discipline, and
Speaker 8: we just hope that, you know, once FedEx Freight gets
Speaker 8: out there and they're on their own, they're not going
Speaker 8: to try to use pricing to to you know, gain share.
Speaker 6: But we would note they.
Speaker 8: Are still the largest player, so it's not like they're
Speaker 8: looking to uh to gain a lot of share anyway.
Speaker 8: So but you know, it will be an interest thing
Speaker 8: to see once that once that gets spun.
Speaker 6: Out in June.
Speaker 2: You know, I'm looking Paul, excuse me, Lee and looking
Speaker 2: at Paul and talking to Lee. In the past six months,
Speaker 2: FedEx chairs up about twenty nine percent total return versus
Speaker 2: ups up up almost six percent. Can you compare and
Speaker 2: contrast their approach to some of the macro challenges that
Speaker 2: faces the industry.
Speaker 8: Yeah, so they're both in the process of restructuring their
Speaker 8: networks to deal with the new realities that you know,
Speaker 8: B two C or e commerce is really where the
Speaker 8: growth is going to come from. And these networks were
Speaker 8: created a long, long time ago with the idea that
Speaker 8: you know, a carrier would go to a lawyer's office
Speaker 8: with one hundred envelopes, drop off those envelopes and pick
Speaker 8: up fifty envelopes, and that density really can drive profitability
Speaker 8: where you know, as you know, if you get like
Speaker 8: you know, if you order rubber bands from Amazon, that
Speaker 8: one package that goes to your doorstep is a lot
Speaker 8: more expensive to deliver. So they're just dealing with that
Speaker 8: reality and they've been slow to kind of change their networks.
Speaker 8: And UPS and FedEx are both in that process. You know,
Speaker 8: UPS has done things a little earlier, I would say,
Speaker 8: and you know whether it is you they spun out
Speaker 8: or I should say, sold their less than truckloaw business,
Speaker 8: the TFI, a Canadian provider, you know.
Speaker 6: A couple of years ago.
Speaker 8: They're all looking to try to gain more share of
Speaker 8: the small and medium size shippers and get away from
Speaker 8: the large shippers like Amazon, which really aren't that profitable.
Speaker 7: Stay with us. More from Bloomberg Intelligence coming up.
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Speaker 7: Scarlette, I have breaking news. You may want to get
Speaker 7: the red headline ready for this one.
Speaker 3: Okay, tell me today.
Speaker 7: I put a deposit down on my first cruise ever.
Speaker 3: What called to this?
Speaker 7: Well, my partner, my girlfriend, she's we're going, we're.
Speaker 5: Doing it in Fallwell, I just told you Viking Cruise. Yeah, basically,
Speaker 5: Viking Cruise is your France in the fall.
Speaker 3: And how are you feeling about this?
Speaker 7: I'm a little nervous.
Speaker 5: But it's baby steps, she says. It's not like a
Speaker 5: big carnival cruise. We got like five thousand people on.
Speaker 5: It's a little riverboat, you know, kind of cruise.
Speaker 2: Okay, so in two years we should look for you
Speaker 2: on a carnival crue could.
Speaker 7: Be, could be. But that brings us to our next guest.
Speaker 7: I mean, Brian Egger.
Speaker 5: He's writing the research note right now as we speak.
Speaker 5: Sweeney in the cruise business. Brian Eigger, he's a senior
Speaker 5: gaming and lodging analysts for Bloomberg Intelligence, Brian, we had
Speaker 5: Carnival Cruise Lines reported some numbers today.
Speaker 7: What did they have to say?
Speaker 10: Yeah, So, I mean the fourth quarter, the fiscal fourth
Speaker 10: quarter editor Vember three, was a pretty decent quarter in
Speaker 10: truth of yeel growth. And I think more importantly, going
Speaker 10: to next year, they are expecting to see about two
Speaker 10: percent the yield growth or so with good cost control.
Speaker 10: And that's encouraging because there were some concerns that industry
Speaker 10: growth of supply, particularly in the Caribbean, not by Carnival
Speaker 10: but by its competitors, might dampen your growth going to
Speaker 10: next year. So while there's still some uncertainty, I think overall,
Speaker 10: the takeaway was fairly encouraging on that front.
Speaker 2: How much of their business depends on converting people like
Speaker 2: Paul Sweeney from a never cruiser to a maybe cruiser
Speaker 2: to a you know, a reliable cruiser, basically increasing their
Speaker 2: market share with bringing in new customers.
Speaker 10: Yeah, Historically it's been a big factor in North America,
Speaker 10: trying to track that first time cruise customer. It's far
Speaker 10: less penetrated than other forms of vacationing. That's even more
Speaker 10: true if you go into other parts of the world
Speaker 10: like Europe and Asia, but it's definitely part of that
Speaker 10: that first time customer. On the other hand, you know
Speaker 10: much what they do depends on loyalty programs and getting
Speaker 10: repeat business as well.
Speaker 5: So Brian give us that the consumer's kind of wavering
Speaker 5: a little bit there. I mean, the ke shaped economy.
Speaker 5: How does a cruise industry deal with that? Because I
Speaker 5: know there's different tiers of cruising out there. How do
Speaker 5: you see that in the cruise business?
Speaker 6: I mean, if you go.
Speaker 10: Back historically, the cruise industry is moderate recyclical who probably
Speaker 10: yield to be more resilient than for example, business travel
Speaker 10: oriented hotel room rates. So you know, there was some
Speaker 10: obviously some vulnerability. But that being said, the leisure consumer,
Speaker 10: the leisure consumer of travel, has been really resilient. It
Speaker 10: held up extremely well throughout this period of economic uncertainty. Historically,
Speaker 10: passenger growth has kept up with supply. I mean, the
Speaker 10: goodness for Carnival, they've only looking at about one percent
Speaker 10: supply growth in twenty twenty six. There's certainly more coming
Speaker 10: from their competitors, but you know that's ply out for
Speaker 10: them specifically, is a healthy backdrop even if we do
Speaker 10: see a step back and consumer spend.
Speaker 2: Speaking of their competitors, I'm just looking at a comparison chart
Speaker 2: of all the big cruise operators, and Paul's Viking is
Speaker 2: up about sixty four percent so far this year, Carnival
Speaker 2: up about twenty three percent, Norwegian Cruise Line down eleven percent,
Speaker 2: and roll Career being up thirty percent.
Speaker 3: How are their strategies different?
Speaker 2: I mean, for those who don't cruise, it might seem
Speaker 2: like they're all one and the same.
Speaker 10: Yeah, I think there are different ways you could interpret
Speaker 10: those disparities in stock price performance. But I think the
Speaker 10: way I think about it is Viking is certainly very
Speaker 10: focused on the luxury kind of niche cruz segment.
Speaker 3: Paul fancy.
Speaker 10: Good good for Paul, and I think generally speaking that
Speaker 10: part of the business is held up well. You know,
Speaker 10: Carnival probably is maybe gained some note because it's done
Speaker 10: a good job at achieving its return on investment capital goals,
Speaker 10: done so sooner to get to that twelve percent range
Speaker 10: than they expected, and because they've got so little supply growth,
Speaker 10: that does provide a little bit more conservativism. But you know,
Speaker 10: there are certainly some differences across the brands.
Speaker 5: All right, Brian, how are my friends on the strip
Speaker 5: in Vegas doing these days?
Speaker 10: Yeah, I mean Vegas is finishing up the year with
Speaker 10: modest growth, but it's been a tough It was a
Speaker 10: tough summer period in Las Vegas, particularly kind of the
Speaker 10: mid market segment. Much like I said about cruising, the
Speaker 10: high end business, high end hotel business, what oriented demand
Speaker 10: is held up better, but the mid market, midweek demand
Speaker 10: during kind of shoulder periods, and the mid market has
Speaker 10: experienced some disruption, probably because of construction, probably because of
Speaker 10: difficult comparisons, probably because we are saying that luxury into
Speaker 10: the market holding up a bit better.
Speaker 2: So is everyone then going to double down on chasing
Speaker 2: after the luxury customer.
Speaker 10: It really depends on what part of the business companies
Speaker 10: are in. On balance win, which is more high end
Speaker 10: has performed better in terms of its rep part, let's say,
Speaker 10: in Las Vegas, than some of its rivals. But you
Speaker 10: know those are these Obviously these trends shift. But I
Speaker 10: think that's been notable across the leisure travel sector is
Speaker 10: the relative out performance of luxury high end with perhaps
Speaker 10: a little bit more challenging comparisons and difficult conditions for
Speaker 10: kind of the the mass market or those dependent on
Speaker 10: other sources of business.
Speaker 2: And we know that these gaming companies, these casino companies
Speaker 2: rely a lot more on China than they do on
Speaker 2: the strip. Overall, how's Macau looking for them?
Speaker 10: So, I mean mcaw has been recovering, you know, the
Speaker 10: particularly the what we call kind of the mass business
Speaker 10: in Macau that has some mantle ory effect on Lallas
Speaker 10: Vegas as well, although you know, low luck levels and
Speaker 10: back right in Vegas have been a bit bit soft
Speaker 10: in some periods this year. But you know that business
Speaker 10: is certainly coming back in Macow. It's coming back a
Speaker 10: lot after obviously the pandemic. It's a different type of business.
Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: A news story that's got a lot of people's attention,
Speaker 5: like my kids are paying attention. TikTok is being bought
Speaker 5: by a group of buyers led by Oracle Corporation, with
Speaker 5: the company and byte Dance signing binding agreements to create
Speaker 5: a US joint venture. I don't care, but a lot
Speaker 5: of people do. Man Deeve Sing, senior tech analysts for
Speaker 5: Bloomberg Intelligence, joins us Mandy talk to us about.
Speaker 7: This structure here.
Speaker 5: I know that the government was either to bite Dance,
Speaker 5: which the Chinese company either sell this sing or shut
Speaker 5: it down. Does this is satisfying kind of the requirement here?
Speaker 9: I think so. And look, the main point of contention
Speaker 9: was the algorithm, so clearly you know there is a
Speaker 9: decoupling of that versus the app. And you know, in
Speaker 9: terms of the ownership, Oracle was the most likely sort
Speaker 9: of candidate when it comes to leading this joint venture,
Speaker 9: and that turned out to be the case. So from
Speaker 9: that perspective, I do think this should be palatable to
Speaker 9: both the US and the Chinese government.
Speaker 2: Although we don't know if the Chinese regulators will definitely
Speaker 2: prove it right. They have yet to say whether they'll
Speaker 2: be this transaction.
Speaker 9: I mean, we've seen that many times a lut can
Speaker 9: go wrong, but in this case, at least, you know,
Speaker 9: the joint venture that was formed here had the blessing
Speaker 9: of the US government. So it sounds like, you know,
Speaker 9: this was the intended proposal, and that's how it turned
Speaker 9: out to be in terms of by dance, you know,
Speaker 9: agreeing to sell the app to this joint venture.
Speaker 5: What I like about this is it includes silver Like
Speaker 5: and from my money, the baseball my career, the smartest
Speaker 5: technology pe money out there by far is Silverlake.
Speaker 7: Some really smart folks there, So if they're involved, it's
Speaker 7: got to be a good deal. That's how I look
Speaker 7: at it.
Speaker 5: Mandy talk to us about like what the competitors are
Speaker 5: thinking here. Is TikTok still as formidable going forward? Do
Speaker 5: you think as it has been?
Speaker 9: Not really? I mean, if you look at the rund
Speaker 9: rate of Instagram reels, they have surpassed fifty billion dollars
Speaker 9: in run rate. That would have been unimaginable given the
Speaker 9: kind of lead TikTok had over Instagram, and Instagram reels
Speaker 9: came from behind, and now they have a fifty billion
Speaker 9: dollar rundrate. Same thing with YouTube shorts. They have an
Speaker 9: engagement share that's almost surpassed TikTok at this point of time. So,
Speaker 9: you know, the last couple of years, TikTok seems to
Speaker 9: have lost them when it comes to the pace at
Speaker 9: which they were adding users and the engagement growth, et cetera.
Speaker 9: And if I had to ballpark, you know, the US
Speaker 9: revenue of TikTok would not be you know, over twelve
Speaker 9: to fifteen billion dollars. So Reels being fifty billion dollars
Speaker 9: just goes to show what kind of a missed opportunity
Speaker 9: that was for TikTok.
Speaker 3: Interesting.
Speaker 2: So what does this mean for Meta, which owns Instagram
Speaker 2: and Reels and of course is now firmly in the
Speaker 2: lead and is no longer playing catchup to TikTok.
Speaker 9: I mean a lot of this, you know, revenue ramp
Speaker 9: up for Reels was driven by the fact that you know,
Speaker 9: Facebook or Meta had a better AD stack and they
Speaker 9: kept you know, improving that with more personalization. Now with
Speaker 9: applying generative AI on top of that, that has helped
Speaker 9: them with ad pricing. So these are incremental things where
Speaker 9: TikTok you know, couldn't even keep its algorithm. So the
Speaker 9: fact that you know, they have to redo the algorithm,
Speaker 9: redo the ad part, the personalization part, is likely the
Speaker 9: reason why their AD revenue hasn't ramped up and it's
Speaker 9: going to take them a while. Even if you know
Speaker 9: this joint venture would start putting money into the company
Speaker 9: to you know, improve its algorithm and personalization. I don't
Speaker 9: think it's going to happen that quickly in terms of
Speaker 9: where they were, you know, two three years back.
Speaker 5: Should we expect this new joint venture to maybe go
Speaker 5: public at some point.
Speaker 9: Still early days, I would say, given the algorithm changes
Speaker 9: a big one. I mean, you have to even though
Speaker 9: you know users are used to coming to the app,
Speaker 9: you have the traffic, but we know in the world
Speaker 9: of AI, it's about personalization, It's about that recommendation system,
Speaker 9: and you know, rewriting the algorithm. I do think it's
Speaker 9: going to take a while, and it comes down to,
Speaker 9: you know, what kind of talent they can attract into
Speaker 9: this new entity. So a lot has to go right
Speaker 9: before you know, we can look at this joint venture
Speaker 9: going public anytime soon.
Speaker 3: That would be really interesting.
Speaker 5: I'm still going to go make the pitch if I'm
Speaker 5: our bank ground, be right on the doorstep today, no doubt.
Speaker 5: I want to be the first guy there and saying
Speaker 5: let's take this in public.
Speaker 7: Here's what you need to do.
Speaker 3: And you think they're ready. This is something that they
Speaker 3: want to do.
Speaker 7: I don't know. I would think so. I mean I
Speaker 7: can bring a lot of money.
Speaker 9: The administration ORCO would focus a lot more on their
Speaker 9: cloud business right now in the ramp up there they
Speaker 9: I don't think they have the time to focus on
Speaker 9: reviving TikTok.
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