WEBVTT - BI Weekend: Target, Home Depot, Retail Earnings 0:00:00.280 --> 0:00:11.760 Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence 0:00:11.920 --> 0:00:13.000 with Paul Sweeney. 0:00:13.119 --> 0:00:16.360 The real app performance has been the US corporate high yield. 0:00:16.440 --> 0:00:20.119 These are two big time blue chip companies. One person's 0:00:20.120 --> 0:00:22.960 cast is another person's animal spirits. 0:00:22.600 --> 0:00:26.320 Breaking market headlines and corporate news from across the globe 0:00:26.360 --> 0:00:26.759 our viewer. 0:00:26.800 --> 0:00:28.800 If the economy is slowing down, there. 0:00:28.720 --> 0:00:30.480 Is the possibility of the death spiral. 0:00:30.640 --> 0:00:33.160 Both partum competing and AI are going to power the future. 0:00:33.240 --> 0:00:35.000 People are just buying everything with tex. 0:00:35.040 --> 0:00:39.640 Bloomberg Intelligence with Paul Sweeney on Bloomberg Radio, YouTube and 0:00:39.720 --> 0:00:40.920 Bloomberg Originals. 0:00:42.440 --> 0:00:44.800 I'm Paul Sweeney and I'm Lisa Matteo filling in on 0:00:44.800 --> 0:00:45.920 Bloomberg Intelligence. 0:00:46.040 --> 0:00:48.479 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:48.560 --> 0:00:51.120 business stories impacting Wall Street and at the global markets. 0:00:51.159 --> 0:00:53.400 Each and every week, we provide in depth research and 0:00:53.520 --> 0:00:55.680 data on some of the two thousand companies and one 0:00:55.720 --> 0:00:58.400 hundred and thirty industries our analysts cover worldwide. 0:00:58.600 --> 0:01:00.800 Today you'll look at why retailer Target is naming an 0:01:00.800 --> 0:01:03.080 insider as its next chief executive officer. 0:01:03.240 --> 0:01:05.520 Plus well look at why the Danish drug maker Novo 0:01:05.640 --> 0:01:08.880 Nordisk is slashing the cause of its weight loss drug ozempic. 0:01:09.240 --> 0:01:11.959 First, we begin with the earning from TJX companies. 0:01:12.160 --> 0:01:14.560 This week, the off price retailer raised its full year 0:01:14.600 --> 0:01:17.959 guidance and reported second quarter earnings that beat analyst projections. 0:01:18.200 --> 0:01:21.440 It's a sign that shoppers are currently turning toward discounters 0:01:21.520 --> 0:01:22.960 due to economic uncertainty. 0:01:23.160 --> 0:01:23.480 For more. 0:01:23.600 --> 0:01:26.800 Guest hosts, Alexis Christophers and I were joined by Mary 0:01:26.959 --> 0:01:30.800 Ross Gilbert Bloomberg Intelligence senior retail equity analysts. First asked 0:01:30.880 --> 0:01:32.760 Mary for her take on the company's results. 0:01:33.200 --> 0:01:36.720 TJX is hitting it out of the park. This is 0:01:36.760 --> 0:01:41.080 a company that just executes seamlessly and consistently, something in 0:01:41.160 --> 0:01:45.039 retail that's very, very difficult to do. They saw strength 0:01:45.080 --> 0:01:49.080 across all categories, across all income groups, all age groups, 0:01:49.440 --> 0:01:52.680 and they know how to get the merchandise right by store, 0:01:53.120 --> 0:01:56.680 by region, so they have a terrific planning and allocation. 0:01:56.800 --> 0:02:00.000 They sort of emphasize that and another key point because 0:02:00.120 --> 0:02:02.840 they raise their guidance not only for sales but also 0:02:03.040 --> 0:02:05.360 on the margin side. And there was such a huge 0:02:05.400 --> 0:02:09.040 fear with terraffs. They only source probably less than ten 0:02:09.080 --> 0:02:13.000 percent of their sales come for their merchandise is something 0:02:13.040 --> 0:02:16.560 they directly source. They were able to buy better, which 0:02:16.560 --> 0:02:19.600 means they got better deals. That means there's so much 0:02:19.639 --> 0:02:22.840 availability out there, and it's something we've observed in our 0:02:22.919 --> 0:02:25.400 channel checks and when you look at the shopping halls 0:02:25.440 --> 0:02:29.800 on television, on a YouTube and you see the incredible 0:02:29.919 --> 0:02:34.760 brands that are available, and they really are across good, 0:02:34.840 --> 0:02:38.400 better and best. So you can get anything from Puma, Audi, Doos, 0:02:38.520 --> 0:02:43.960 Nike all the way up to Eve, Saint Laurent and Gucci. 0:02:44.320 --> 0:02:49.120 So it's and TJX really really wins across all that, 0:02:49.360 --> 0:02:55.280 so strength across you know, all their channels and internationally, 0:02:55.520 --> 0:02:58.680 I mean Canada was a nine percent comp sales. 0:02:59.440 --> 0:03:01.880 I want to ask about a possible headwind though, because 0:03:01.919 --> 0:03:04.720 it seems like they're firing on all cylinders. But I 0:03:04.760 --> 0:03:08.720 know that TJX mentioned in the past about a key demographic, 0:03:08.800 --> 0:03:13.320 the Hispanic customer. They were concerned that maybe immigration policy 0:03:13.360 --> 0:03:15.320 was going to keep them home or not spend as much. 0:03:15.360 --> 0:03:16.760 Did they mention anything about that. 0:03:17.560 --> 0:03:21.000 I don't think they saw any weakness as a result 0:03:21.040 --> 0:03:23.240 of that. I know it's been a big concern not 0:03:23.280 --> 0:03:26.919 only for TJX, as you brought up Alexai, but also 0:03:27.000 --> 0:03:29.880 for Ross and for Burlington, and probably even more so 0:03:30.120 --> 0:03:34.000 for Burlington because they really skew to a lower income 0:03:34.080 --> 0:03:37.040 consumer and they're due to report next week, and so 0:03:37.080 --> 0:03:38.280 we should learn more on that. 0:03:39.640 --> 0:03:41.880 Mary, I always think the job of a retail animals 0:03:42.000 --> 0:03:44.040 like you was really tough because not only do you 0:03:44.040 --> 0:03:46.120 have to do the regular stuff as an analyst, like 0:03:46.160 --> 0:03:48.440 get the earnings estimates kind of right and on the 0:03:48.480 --> 0:03:50.320 financial analysis, but you kind of have to have an 0:03:50.400 --> 0:03:54.280 opinion on like who's good at picking out the right 0:03:54.320 --> 0:03:56.240 fashion to even put in the store in the first place. 0:03:56.800 --> 0:03:59.040 What is TJX doing so well? Do you think? 0:04:00.840 --> 0:04:01.880 Well, they have. 0:04:02.400 --> 0:04:05.680 The most amazing buying team, and so they spend they 0:04:05.720 --> 0:04:09.640 have sort of like a buying academy where they teach 0:04:09.680 --> 0:04:12.600 their buyers. You know, they have to go through you know, 0:04:12.640 --> 0:04:15.400 I think it's like three years, maybe even up to 0:04:15.480 --> 0:04:20.080 seven years of work that they do with these buyers. 0:04:20.120 --> 0:04:24.920 So the pricing that they work on and the product 0:04:24.960 --> 0:04:30.080 that they're buying is really something that is steeped in 0:04:30.200 --> 0:04:35.880 experience history. They also invest in systems, you know, so 0:04:35.960 --> 0:04:40.800 that means technology logistics to make sure that they can 0:04:40.839 --> 0:04:42.680 get this all right. Because you can imagine that if 0:04:42.680 --> 0:04:46.720 they're shipping multiple merchandise, you got to have fresh drops 0:04:46.760 --> 0:04:50.839 because these customers will shop multiple times a week because 0:04:50.839 --> 0:04:55.320 it's that freshness that brings them in. So yes, TJX 0:04:55.520 --> 0:04:57.839 is the leader. They're the largest in the world. I mean, 0:04:57.880 --> 0:05:00.720 they'll probably hit sixty billion in revenue this year, up 0:05:00.720 --> 0:05:04.520 from fifty six billion last year. And they keep increasing 0:05:04.560 --> 0:05:08.280 the number of potential store openings they see. Previously they 0:05:08.320 --> 0:05:11.599 said we think we have another twelve hundred stores to open. 0:05:11.760 --> 0:05:15.000 Now they're saying it's another eighteen hundred stores to open 0:05:15.040 --> 0:05:19.040 around the country, just around the globe in their existing markets. 0:05:19.480 --> 0:05:23.600 So yes, this company really has the expertise in doing 0:05:23.600 --> 0:05:26.680 it right. Is there a digital strategy here because I 0:05:26.720 --> 0:05:29.040 remember I'm sure you do too, Mary, when you would 0:05:29.040 --> 0:05:32.000 go online to try to find out what tjmax had 0:05:32.040 --> 0:05:33.800 and there was nothing there because you always had to 0:05:33.839 --> 0:05:36.720 go in the store to find out what they had. 0:05:36.760 --> 0:05:38.280 I think they had to step up their game right 0:05:38.279 --> 0:05:41.080 because of Amazon and others online. But what is the 0:05:41.120 --> 0:05:44.919 digital strategy, if anything, at Tjmax and TJX. That's a 0:05:44.920 --> 0:05:50.760 good question. So actually TJX has a digital strategy. It's 0:05:50.800 --> 0:05:54.560 across all their brands except for home goods, and so 0:05:55.400 --> 0:05:58.200 it's about I think it's I think it's just under 0:05:58.279 --> 0:06:01.120 five percent of sales. So it's very small. But they 0:06:01.160 --> 0:06:04.760 also saw strength in this quarter on their e comm business. 0:06:04.760 --> 0:06:06.480 So they do have an e comm business. You can 0:06:06.520 --> 0:06:10.240 go on it and you can shop anything you want 0:06:10.279 --> 0:06:12.320 on there. Now you can't say that you want to 0:06:12.360 --> 0:06:17.080 shop by brand, but you can select. Let's say, let's 0:06:17.080 --> 0:06:19.760 say that you want to just buy the ultra luxe 0:06:19.960 --> 0:06:23.000 you know, merchandise that they have there, and you'll see 0:06:23.240 --> 0:06:27.880 Christian de or sunglasses. You'll see you know, like I mentioned, 0:06:27.920 --> 0:06:31.560 you know, on the handbag size Balan Chiaga. So you 0:06:31.600 --> 0:06:33.240 will be able to find what you want on the 0:06:33.320 --> 0:06:35.200 high end, also on the low end, but you'll have 0:06:35.240 --> 0:06:37.839 to do it by price points, by sorting that way, 0:06:38.120 --> 0:06:41.719 because they're not allowed to necessarily have that ability to 0:06:41.760 --> 0:06:44.320 sort by brands. So you will see they have a 0:06:44.440 --> 0:06:49.920 robust online business, you know, and it's around the globe. Now, 0:06:49.960 --> 0:06:54.120 the key is that they're a key differentiated in that regard. 0:06:54.440 --> 0:06:57.400 Remember that it's still very small, and that the vast 0:06:57.440 --> 0:07:00.560 majority of their sales, you know, more like ninety six 0:07:00.600 --> 0:07:04.760 percent or so, are being generated in store, but nobody 0:07:04.760 --> 0:07:06.480 else in off price other. 0:07:06.320 --> 0:07:07.719 Than the rack. 0:07:08.120 --> 0:07:12.840 The Nordstorm rack has e commerce capabilities all the rest 0:07:12.920 --> 0:07:14.960 it's strictly a bricks and mortar model. 0:07:15.400 --> 0:07:18.480 Our thanks to Mary Ross, Gilbert Bloomberg Intelligence senior retail 0:07:18.520 --> 0:07:21.400 equity analyst. We move next to news from the cosmetics 0:07:21.400 --> 0:07:23.800 company es Day Lauder. This week, the company issued a 0:07:23.840 --> 0:07:26.320 weak profit outlook for its fiscal year. S Day Lauder 0:07:26.400 --> 0:07:29.040 said it was weighed down by sluggish demand for high 0:07:29.120 --> 0:07:32.160 end goods and an escalating trade war for more guestos. 0:07:32.200 --> 0:07:35.520 Alexis, Christopherus and I were joined by Debate and Bloomberg 0:07:35.520 --> 0:07:38.640 Intelligence luxury goods analysts. We first asked deb what she 0:07:38.720 --> 0:07:40.760 took away from s day latter's earnings. 0:07:41.240 --> 0:07:45.680 They're doing well out of the US improve in there. 0:07:46.280 --> 0:07:48.280 Numbers for the full year are still done, but you 0:07:48.280 --> 0:07:52.640 could see sequential improvement by end of year, and also 0:07:53.440 --> 0:07:57.080 somewhat less soft in China. But for them where they 0:07:57.120 --> 0:08:01.520 still have so much exposure in Asia and still particularly 0:08:01.560 --> 0:08:05.360 in travel retail, inventories to me still look stuffed, even 0:08:05.400 --> 0:08:09.400 though if I think about travel retail overall, it's fifteen 0:08:09.440 --> 0:08:11.920 percent of their business now it was near thirty percent 0:08:12.000 --> 0:08:14.200 four years ago, and they're losing about four points of 0:08:14.280 --> 0:08:18.120 growth annually. For me, when I look at the inventory 0:08:18.760 --> 0:08:23.400 data over two hundred days versus one ninety, it still 0:08:23.400 --> 0:08:26.640 says that there's risk there for me. So they need 0:08:26.680 --> 0:08:29.000 to write size Asia. They need to do more in 0:08:29.040 --> 0:08:32.720 getting out of main stores in the US. They're doing 0:08:32.760 --> 0:08:37.360 a lot positively on things like Amazon Beauty and in 0:08:37.400 --> 0:08:40.400 Asia on TikTok, but it's all moving onlines. It's the 0:08:40.440 --> 0:08:43.679 third of their business online, a lot going on, a 0:08:43.760 --> 0:08:47.920 lot of cost savings, cost cutting, and very low on margin. 0:08:48.000 --> 0:08:51.000 You know, and that the company has actually taken away. 0:08:51.080 --> 0:08:55.520 Quarterly guidance and forecast for EPs on the full year 0:08:55.640 --> 0:09:01.120 are six cents below the two sixteen is expected by 0:09:01.240 --> 0:09:05.599 consensus two ten on guidance at the top end is 0:09:05.679 --> 0:09:09.720 already a little bit below. So shares a week again 0:09:10.120 --> 0:09:12.439 on the back of a couple of years of underperformance. 0:09:13.320 --> 0:09:15.520 You no, dev definitely has you just laid out a 0:09:15.600 --> 0:09:18.480 few tough years for this legacy brand. But explain to 0:09:18.559 --> 0:09:21.240 me why there were some upgrades recently. I was surprised 0:09:21.280 --> 0:09:24.559 to see Deutsche Bank HSBC upgrading from whole to buy. 0:09:24.679 --> 0:09:28.680 You got JPM upgrading to overweight. What do they see 0:09:28.800 --> 0:09:30.679 here that maybe others on Wall Street are not. 0:09:31.480 --> 0:09:34.640 I think, especially as we've headed through the last couple 0:09:34.679 --> 0:09:37.440 of quarters, you can see that there are share gains, 0:09:38.040 --> 0:09:42.640 market share gains in some categories in some countries, so 0:09:42.960 --> 0:09:46.720 Japan positively, some parts of China by the end positively, 0:09:47.120 --> 0:09:51.000 some categories in the US positively as well. And there 0:09:51.040 --> 0:09:53.640 are very easy comps that they will cycle through in 0:09:53.720 --> 0:09:57.400 the next year ahead, and certainly under the CEO and 0:09:57.520 --> 0:10:00.640 the CFO, there feels just a lot more entum and 0:10:00.920 --> 0:10:04.000 energy to come. So I think that's what the market 0:10:04.040 --> 0:10:07.600 are buying into, as well as the underperformance that we've seen. 0:10:07.920 --> 0:10:11.000 But we must remember in terms of them being competitive 0:10:11.040 --> 0:10:14.560 and what they're doing, they talk about a solid double 0:10:14.640 --> 0:10:17.640 digital just the EBIT margin, you know, this will will 0:10:17.760 --> 0:10:22.040 back their investment and then being in front of the consumer, 0:10:22.080 --> 0:10:25.760 their innovation pipeline and others. They're only eight percent of 0:10:25.840 --> 0:10:28.040 the end of fiscal twenty twenty five and they say 0:10:28.360 --> 0:10:31.600 they get to a double double digitald just a EBIT 0:10:31.720 --> 0:10:35.640 margin over the next few years. That to me says 0:10:35.640 --> 0:10:38.319 they're still a bumpy ride. So I understand why why 0:10:38.400 --> 0:10:40.640 those quarterly numbers have gone right. 0:10:40.920 --> 0:10:44.160 Hey, deb sde Lauder said, the terriff's going to cost 0:10:44.160 --> 0:10:48.000 them about one hundred million dollars to profitability this year. 0:10:48.800 --> 0:10:51.800 What do you what are some of the luxury companies, 0:10:52.040 --> 0:10:54.960 the brands that you follow. Are they taking these terriff 0:10:55.200 --> 0:10:57.199 costs into their p and L or they're trying to 0:10:57.240 --> 0:10:58.959 pass them along to customers. 0:10:59.040 --> 0:11:03.120 What's been the strategy for Yeah, and certainly for the 0:11:03.240 --> 0:11:06.959 very high end. We saw even at the beginning of 0:11:07.000 --> 0:11:10.480 the year pre tariff announcements. The very high end like 0:11:10.720 --> 0:11:14.440 MS would say, because the wage costs and others, we'll 0:11:14.440 --> 0:11:17.080 be looking at five to six percent price increases, start 0:11:17.120 --> 0:11:18.959 to passing those through the beginning of the year, and 0:11:19.080 --> 0:11:22.079 then in May when the spring summer collections came through. 0:11:22.720 --> 0:11:26.679 They then have commented generally for the luxury space, and 0:11:26.760 --> 0:11:29.200 from the work we've done that some may need up 0:11:29.240 --> 0:11:32.199 to four five percent price to be passed through, and 0:11:32.320 --> 0:11:34.400 the plan is that they pass most of it through. 0:11:34.480 --> 0:11:36.880 I don't think very much of it goes up put 0:11:36.920 --> 0:11:40.080 down the supply chain, and it's going to be done 0:11:40.679 --> 0:11:45.320 gradually in some categories rather than you know, some completely 0:11:45.400 --> 0:11:49.040 pass it through more visibly than others. And some will 0:11:49.040 --> 0:11:52.319 struggle more. And then we heard the news from Switzerland 0:11:52.400 --> 0:11:56.360 with the thirty nine percent tariff, So companies like Swatch 0:11:56.440 --> 0:11:59.880 for US will find it difficult. Companies like I still 0:12:00.400 --> 0:12:03.200 it's not every brand that is resonating with the consumer 0:12:03.240 --> 0:12:06.520 will find it difficult in some brands in some categories. 0:12:06.920 --> 0:12:09.240 So that's why I think we wait quart by quarter 0:12:09.840 --> 0:12:11.559 and across the rest of the year to see what 0:12:11.760 --> 0:12:13.679 companies do need to take a little bit of that 0:12:13.800 --> 0:12:16.480 on board. But most of them are finding cost cutting 0:12:16.520 --> 0:12:19.199 as part of that, and certainly on the gross we 0:12:19.280 --> 0:12:22.599 did see for full years forty basis points improvement on 0:12:22.720 --> 0:12:25.400 gross margin for US to order with a little bit 0:12:25.440 --> 0:12:29.280 of that tariff impact mixed in there, and that they're 0:12:29.360 --> 0:12:32.880 expecting further gross margin improvement in twenty twenty six. 0:12:33.480 --> 0:12:36.760 All right, thanks a Debic and Bloomberg Intelligence Luxury goods analysts. 0:12:37.000 --> 0:12:39.360 Coming up, I'll look at earnings from the world's largest 0:12:39.360 --> 0:12:41.120 home improvement retailer, home Depot. 0:12:41.240 --> 0:12:43.959 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:44.040 --> 0:12:46.320 depth research and data on two thousand companies and one 0:12:46.440 --> 0:12:47.400 hundred and thirty industries. 0:12:47.520 --> 0:12:50.720 You can access Bloomberg Intelligence via Bi go on the terminal. 0:12:50.800 --> 0:12:53.960 I'm Lis Matheo and I'm Paul Sweeney. This is Bloomberg. 0:12:58.280 --> 0:13:01.760 You're listening to Bloomberg and tell Legends with Paul Sweeney 0:13:02.160 --> 0:13:03.480 on Bloomberg Radio. 0:13:04.080 --> 0:13:06.400 I'm Paul Sweeney and I'm Lisa Matteo filling in on 0:13:06.440 --> 0:13:09.680 Bloomberg Intelligence. We moved next to news from the merchandise 0:13:09.760 --> 0:13:10.600 retailer Target. 0:13:10.960 --> 0:13:14.200 This week, Target named insider Michael Fidelki as its next 0:13:14.400 --> 0:13:17.800 chief executive officer. Shares of Target fell after the appointment, 0:13:17.800 --> 0:13:20.240 indicating that Wall Street had been hoping for an outsider 0:13:20.360 --> 0:13:21.760 to take over the company's leadership. 0:13:21.880 --> 0:13:24.640 This all comes after the company reported second quarter earnings 0:13:24.640 --> 0:13:28.920 that only narrowly surpass analysts expectations. Target also maintained its 0:13:28.960 --> 0:13:31.120 outlook for the full year after slashing it a few 0:13:31.160 --> 0:13:31.640 months back. 0:13:31.880 --> 0:13:34.480 For more guest hosts, Alexis Christopheros and I were joined 0:13:34.520 --> 0:13:37.920 by Jen bartashis Bloomberg Intelligence senior retail analyst. We first 0:13:37.960 --> 0:13:39.760 asked Jen for her take on the new CEO and 0:13:39.840 --> 0:13:41.959 whether Target should have gone with an outsider. 0:13:42.559 --> 0:13:45.600 It's an interesting choice, and I think there are investors. 0:13:45.720 --> 0:13:48.120 For a little while now, I've been interested in seeing 0:13:48.120 --> 0:13:51.120 a CEO change Brian Cornell has done a great job 0:13:51.360 --> 0:13:54.600 during his tenure, at least initially in terms of really 0:13:54.720 --> 0:13:57.880 driving growth for Target. But an internal choice really implies 0:13:58.120 --> 0:14:00.599 much of the same strategy, and I think there was 0:14:00.640 --> 0:14:02.720 some hopes that there would be something a little different 0:14:02.760 --> 0:14:05.160 and maybe shake things up and bring something new to 0:14:05.240 --> 0:14:05.680 the company. 0:14:06.840 --> 0:14:09.160 You know, I'm wondering if Target is going through an 0:14:09.200 --> 0:14:13.719 existential crisis right for this identity crisis because you feel like, 0:14:13.920 --> 0:14:15.400 I don't know about upon and the last time you 0:14:15.440 --> 0:14:18.240 went into a Target, Sure, but you feel like they've 0:14:18.360 --> 0:14:21.240 lost their mojo, Jennifer, because the last time I was 0:14:21.280 --> 0:14:23.600 in there, the store shelves were not stocked very well, 0:14:23.760 --> 0:14:27.120 felt disorganized, couldn't find a sales associate to help me. 0:14:27.600 --> 0:14:31.200 What does this new CEO have to do to help 0:14:31.240 --> 0:14:33.800 this company get back on track. Well, you know, it's 0:14:33.920 --> 0:14:37.560 very interesting. He's highlighted three priorities, but they're not really 0:14:38.120 --> 0:14:40.800 new priorities. But if they can bring focus to it, 0:14:40.920 --> 0:14:43.800 maybe that will help. And that's you know, re energizing 0:14:43.880 --> 0:14:48.240 the assortment, bringing back some of that style and you 0:14:48.320 --> 0:14:52.000 know value that people crave. It's about having a very good, 0:14:52.320 --> 0:14:56.000 consistent in store execution. And experience, which is what you 0:14:56.080 --> 0:14:56.800 were actually. 0:14:56.640 --> 0:14:59.840 Just talking about, having things in stock, having you know 0:15:00.320 --> 0:15:03.520 you associates available. And then the third is an acceleration 0:15:03.600 --> 0:15:07.480 in the deployment of technology to maybe you know, make 0:15:07.560 --> 0:15:12.080 processes faster, improve efficiency, that sort of thing. So we'll 0:15:12.120 --> 0:15:14.360 see if that, you know, if that happens. But it's 0:15:14.480 --> 0:15:16.920 really about getting back to what is it that consumers 0:15:17.160 --> 0:15:19.720 loved about Target and how do you get them back 0:15:19.760 --> 0:15:21.360 in that frame of mind so that they come to 0:15:21.440 --> 0:15:22.560 stores and spend there. 0:15:22.960 --> 0:15:24.920 Well, you're the expitt here, like I don't have a 0:15:24.960 --> 0:15:27.000 sense of what people go to Target for. What do 0:15:27.080 --> 0:15:28.120 you think they go to Target for? 0:15:29.400 --> 0:15:31.840 Well, what they traditionally have gone to Target for was 0:15:31.880 --> 0:15:33.920 that sense of discovery. Right, you had a couple of 0:15:33.960 --> 0:15:36.760 things on your list, you got in and you were inspired. 0:15:36.880 --> 0:15:40.200 You saw home decoration items that you just were like, oh, 0:15:40.280 --> 0:15:42.400 that would look great in my living room. Or you 0:15:42.440 --> 0:15:45.360 would go through apparel and you would see something very 0:15:45.440 --> 0:15:48.800 stylish and you know value that you thought, oh, that's 0:15:48.840 --> 0:15:50.600 a great thing to add to my basket. And so 0:15:51.800 --> 0:15:54.200 that's what's a little bit missing. And part of that 0:15:54.320 --> 0:15:56.920 may be because of just the rise in digital orders. 0:15:57.760 --> 0:16:01.600 It's a less conducive to those impromptu purchases. But it's 0:16:01.680 --> 0:16:04.920 also inspired by the assortment and by what people experience 0:16:05.000 --> 0:16:07.680 when they're in the stores, and that's really where they 0:16:07.800 --> 0:16:10.120 have to focus to get that magic back. 0:16:10.600 --> 0:16:12.840 And Jennifer correct me if I'm wrong. I think Target 0:16:12.960 --> 0:16:16.360 has more exposure to tariffs than say, Walmart because of 0:16:16.440 --> 0:16:18.840 its mix of products. It doesn't have as much exposure 0:16:18.880 --> 0:16:21.120 to groceries as Walmart does, but it gets a lot 0:16:21.200 --> 0:16:23.400 of its products from overseas places that are getting hit 0:16:23.840 --> 0:16:26.280 by these tariffs. How did that play out in this 0:16:26.400 --> 0:16:28.120 quarter and how will it play out going forward. 0:16:29.240 --> 0:16:31.320 Yeah, it's a great question, and it is one of 0:16:31.360 --> 0:16:33.920 the things that's sort of been bogging down Target ever 0:16:34.000 --> 0:16:38.280 since we've had very high food inflation. The willingness to 0:16:38.280 --> 0:16:41.160 spend on discretionary categories has been a little bit more limited. 0:16:41.240 --> 0:16:43.960 And that's really the area that Target has always excelled, 0:16:44.400 --> 0:16:48.560 things like apparel and electronics and toys and home decor 0:16:49.400 --> 0:16:51.640 and so you know, right now, the company is saying 0:16:51.640 --> 0:16:54.720 they're doing a pretty good job of mitigating tariffs, but 0:16:54.840 --> 0:16:58.360 they are more exposed because of the merchandise mix that 0:16:58.440 --> 0:17:02.480 they have. They said they've done some right sizing. They've 0:17:02.520 --> 0:17:04.960 they've paid off kind of the one time cancellation charges 0:17:05.000 --> 0:17:07.000 they had while they were waiting on the terra verdicts. 0:17:07.760 --> 0:17:11.320 We'll see what unfolds in third quarter, and especially because 0:17:11.359 --> 0:17:13.480 it's back to school, which is a really important quarter 0:17:13.560 --> 0:17:14.000 for Target. 0:17:15.040 --> 0:17:17.280 What's always well? I guess what's recently in the last 0:17:17.320 --> 0:17:19.280 ten fifteen years really amazed me about Walmart is it 0:17:19.440 --> 0:17:22.800 how's effective their digital strategy was, and they actually went 0:17:22.840 --> 0:17:24.359 toe to toe with Amazon, and I think they more 0:17:24.440 --> 0:17:27.280 than hold their own, not just about Target in their 0:17:27.320 --> 0:17:29.000 digital strategy. How's that performing? 0:17:30.359 --> 0:17:33.560 Overall? Target's digital strategy has been doing pretty well. They've 0:17:33.680 --> 0:17:36.240 done a They've made a conscious decision to not go 0:17:36.400 --> 0:17:38.840 head to head with Walmart and Target. So, for example, 0:17:38.880 --> 0:17:43.639 in their marketplace, it's not just an endless aisle of sellers. 0:17:43.760 --> 0:17:46.480 They have a very close criteria of who they let 0:17:46.560 --> 0:17:49.080 onto their platform and that's worked well for them because 0:17:49.119 --> 0:17:51.800 it helps keep the product selection closer to what people 0:17:51.920 --> 0:17:55.400 expect from Target. Their digital sales were up in terms 0:17:55.440 --> 0:17:58.400 of same star sales this quarter, well uppaced the visit 0:17:58.960 --> 0:18:03.560 visits to stores, and so they've been executing pretty well there. 0:18:03.720 --> 0:18:05.480 It's just a matter of how do they marry the 0:18:05.520 --> 0:18:08.160 two parts of the business to grow simultaneously. 0:18:08.440 --> 0:18:12.080 Aur Thanks to Jen Bartashi's Bloomberg Intelligence Senior retail analyst. 0:18:12.320 --> 0:18:14.159 We move next to news from the world's largest home 0:18:14.200 --> 0:18:15.600 improvem in retail or home Depot. 0:18:15.800 --> 0:18:18.080 This week, Home Depot said sales return to growth in 0:18:18.119 --> 0:18:20.800 the second quarter. This comes as shoppers invested in smaller 0:18:20.840 --> 0:18:23.040 projects such as lighting and gardening. 0:18:23.280 --> 0:18:23.560 For more. 0:18:23.680 --> 0:18:25.920 Lisa and I were joined by Drew Redding, Bloomberg Intelligence 0:18:26.080 --> 0:18:27.119 US home building analyst. 0:18:27.440 --> 0:18:30.320 We first asked Drew for his take on Home Depot's earnings. 0:18:30.760 --> 0:18:34.119 It was actually a pretty much inline quarter for home Depot. 0:18:34.160 --> 0:18:37.520 Today comps up about one little shy consensus, but if 0:18:37.560 --> 0:18:40.080 you back out some of the four X impact, it 0:18:40.200 --> 0:18:43.920 was pretty much in line. Now. Of course, growth isn't 0:18:43.960 --> 0:18:45.960 as strong as you would like to see, and a 0:18:46.000 --> 0:18:47.800 lot of that, as you mentioned, has to do with 0:18:48.000 --> 0:18:51.639 where rates are, both rates on home equity loans and 0:18:51.720 --> 0:18:54.919 mortgage rates. You have to remember, housing turnover is at 0:18:54.960 --> 0:18:57.720 the lowest level since the financial crisis, and what we've 0:18:57.760 --> 0:19:00.920 heard consistently from Home Depot over the last quarters is 0:19:00.960 --> 0:19:04.480 that consumers are pulling back on big ticket discretionary categories, 0:19:04.560 --> 0:19:07.399 So think of things like kitchen and bathroom models are 0:19:07.440 --> 0:19:10.440 flooring And the reason is because these tend to be 0:19:10.560 --> 0:19:13.320 financed with that and with rates where they are, and 0:19:13.600 --> 0:19:16.600 consumers with the expectation that rates are going to pull back, 0:19:16.680 --> 0:19:19.359 they're taking a wait and see approach and deciding to 0:19:19.600 --> 0:19:21.720 opt for their smaller ticket to projects instead. 0:19:22.600 --> 0:19:26.680 Drew, What what does home depots say about terr risk 0:19:26.920 --> 0:19:28.639 for them? How did they quantify for the street? 0:19:29.040 --> 0:19:31.640 Yeah, good question obviously on you know, top of mind 0:19:31.680 --> 0:19:34.120 for a lot of investors. So home Depot has done 0:19:34.160 --> 0:19:37.359 well to diversify that are sourcing over the last several years. 0:19:37.920 --> 0:19:40.800 They get about fifty percent of their products from the US, 0:19:40.920 --> 0:19:43.520 so they are in pretty good shape from that regard. 0:19:44.359 --> 0:19:47.280 We would estimate, you know, products coming from China somewhere 0:19:47.320 --> 0:19:50.080 around fifteen to twenty percent. And there's a couple of 0:19:50.119 --> 0:19:52.000 ways that they're going to manage this. One, given the 0:19:52.080 --> 0:19:54.800 scale that they have, they're able to push back against suppliers. 0:19:55.680 --> 0:19:58.800 The second they continue to diversify their supply chain. On 0:19:58.920 --> 0:20:01.919 their last quarter call, they mentioned that no single country 0:20:01.960 --> 0:20:04.080 outside of the US will be more than ten percent 0:20:04.240 --> 0:20:07.399 of sourcing. And then lastly, I think We're going to 0:20:07.440 --> 0:20:10.840 start to see some selective price increases coming through in 0:20:10.960 --> 0:20:13.520 the next several quarters. Now, they've done a little bit 0:20:13.840 --> 0:20:15.880 of pre buy on the inventory side to make sure 0:20:15.920 --> 0:20:18.280 that they had some of that lower cost product on 0:20:18.440 --> 0:20:20.919 the shelves for consumers. But I think, you know, as 0:20:20.960 --> 0:20:22.320 we get to the end of this year and into 0:20:22.400 --> 0:20:23.960 next year, you're going to start to see a little 0:20:24.000 --> 0:20:26.840 bit of pricing. Now, we wouldn't expect it to be 0:20:27.080 --> 0:20:30.960 to be widespread or significant. Remember, home Depot sales about 0:20:31.040 --> 0:20:33.720 thirty to forty thousand products on their shelves, so they 0:20:33.760 --> 0:20:36.960 tend to take a portfolio approach and manage pricing really 0:20:37.000 --> 0:20:41.800 across the entire project, rather than raising prices across the board. 0:20:42.080 --> 0:20:44.679 Sure, so are you telling me my next home Depot 0:20:44.760 --> 0:20:47.080 run is going to be more expensive? It's going to 0:20:47.119 --> 0:20:49.080 cost me more, Drew, I have painting, I have a 0:20:49.200 --> 0:20:51.879