Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: I'm Jessaminton, deputy team leader for the Acts team, and
Speaker 1: up here again with a Doug Prisoner of Bloomberg News.
Speaker 1: So I'm looking forward to looking more under the hood, Doug.
Speaker 1: When we're talking about Lulu Lemon, which did category well,
Speaker 1: how would you categorize this company? I mean, is it up. Yes,
Speaker 1: it's definitely upper end ath leisure. And so it did
Speaker 1: report earnings yesterday that came in a lot better than expected.
Speaker 1: So it does kind of make you wonder what does
Speaker 1: that say about the trajectory of the economy right when
Speaker 1: people potentially are still spending upwards of over one hundred
Speaker 1: dollars also of this athletic wear. Let's take a closer look.
Speaker 1: We have Bloomberg Intelligence Senior analyst Poonham Goyle. She's in
Speaker 1: Las Vegas, and Zachary Waring is with us. He's an
Speaker 1: analyst at a cf ARE, a research joining from Williamsburg
Speaker 1: Virginia Puno. Let me start with you unpacked the numbers
Speaker 1: that we had yesterday after the bell from Lulu, how
Speaker 1: would you characterize them? Overall? Very very strong, especially on topline.
Speaker 1: You know, their sales came in ahead of their own
Speaker 1: estimate and concentsus growing thirty percent growth, margins word down
Speaker 1: but still pretty encouraging. And the inventory is high. Yes,
Speaker 1: fifteen percent the year over a year, but still you
Speaker 1: know they're bringing that number to Really I think it
Speaker 1: was key here was the guidance. The guidance came in
Speaker 1: well ahead of expectation fifteen percent growth for the year
Speaker 1: and eighteen percent for the first quarter, versus conscensus in
Speaker 1: the low to mid teens. So I think you know,
Speaker 1: the key takeaway here is that Lulemon did well in
Speaker 1: before its quarter, but it's just not the four its quarter.
Speaker 1: They're expected to continue to do well in the coming year,
Speaker 1: where the math economic environment is a little bit uncertain, right,
Speaker 1: you don't know and where consumers will pull back, but
Speaker 1: it doesn't seem like they'll be on athletes or anytime soon. Zach.
Speaker 1: I want to bring you into this conversation because as
Speaker 1: far as looking ahead and its outlook, what are you
Speaker 1: seeing there and where are the promising signs and where
Speaker 1: there's still some weakness as far as when it comes
Speaker 1: to this as leisure maker. Yeah, thanks for having me, Jess.
Speaker 1: So you know, we really like Lulu Women, you know,
Speaker 1: we think it's a great company, really strong brand. We
Speaker 1: do have an issue with inventory still, it's still a
Speaker 1: little bit elevated. So over the past three years, you know,
Speaker 1: inventories up forty one percent annually, which is much higher
Speaker 1: than the sales up twenty seven percent over the same period.
Speaker 1: So we'd like to see that down below one point
Speaker 1: three billion by the end of the year. If they
Speaker 1: can get it down to one point three billion by
Speaker 1: the end of the year, we say that's pretty much
Speaker 1: in line with where it should be. So, Zach, does
Speaker 1: that necessarily mean cost cutting? No, so we yeah, I
Speaker 1: think it. They'll have to have some promotional activity to
Speaker 1: get ready of it. I think part of it will
Speaker 1: be they'll order left. They're doing that now that they
Speaker 1: did that in the last quarter, they ordered you know,
Speaker 1: less than they normally do before the holidays, and then
Speaker 1: you know, ordering less for spring, you know, because they
Speaker 1: have a large they say almost fifty percent of their
Speaker 1: inventory is core inventory that they can sell year around,
Speaker 1: so you know they've got a little bit of work
Speaker 1: to do on inventory Outside of that, though, obviously the
Speaker 1: brand and revenue growth is unmatched in apparel retail, so
Speaker 1: we do like shares. It's just it's tough to get
Speaker 1: really bullish with inventory levels aside and put I wanted
Speaker 1: to bring you back in because looking at Lulu Limon
Speaker 1: stock this year up thirteen percent, but when you draw
Speaker 1: it out over the past, you're kind of hasn't gone
Speaker 1: too far. But I mean, who do you consider to
Speaker 1: be more of a competitor when it comes to Lulu Limon,
Speaker 1: And I mean, how were some of its competitors holding
Speaker 1: up compared to how it has sure, So you know
Speaker 1: one competitor that come into mind is Nike, right. Nike
Speaker 1: clearly is also making a big push in two I
Speaker 1: think more stylish, right, because they both fell active where
Speaker 1: But where lu women kind of wind is on the
Speaker 1: styles and the comfort and the fits. So we've seen
Speaker 1: Nike make a bigger push especially with women. Luleman does
Speaker 1: have a men's business that is planning to double, but
Speaker 1: it's on the woman's side where it really resonates really well,
Speaker 1: and Nike has been pushing up its women's businesses all
Speaker 1: so I think both equally focused on driving sales about leisure,
Speaker 1: with Nike making a big push on woman and Lu
Speaker 1: women making a big push on men. So zach to
Speaker 1: what extent is their risk and the companies like Lulu
Speaker 1: getting it wrong when they look at the outlook that
Speaker 1: the macro could turn south so quickly and impact all
Speaker 1: categories of retail that the market may not fully appreciate
Speaker 1: at this point. Yeah. So you know, looking at some
Speaker 1: of the other apparel retailers in their fourth quarter and
Speaker 1: their guidance for twenty twenty three, that comes in a
Speaker 1: lot lower, but that's to be expected. So Lulu has
Speaker 1: been growing, you know, at twenty five plus percent now
Speaker 1: the last three years, like I mentioned earlier, So that
Speaker 1: would you say, that's a pretty mature market though for them,
Speaker 1: I meant of that growth rate sustained over time, at
Speaker 1: some point you hit a wall. Yeah, Well, so they're
Speaker 1: they're expanding into China. So they had thirty percent revenue
Speaker 1: growth in China this quarter, fifty percent on a three
Speaker 1: year annual basis. So China growth is strong, and that's
Speaker 1: kind of where they're looking to get a lot of
Speaker 1: their high growth internationally, but China specific. Management talked about
Speaker 1: that on the call a lot, you know, and we
Speaker 1: think that's possible. It's obviously got its risk in China
Speaker 1: obviously with the government and how they handled that, you know,
Speaker 1: us businesses, but you know, we think it's it's doable
Speaker 1: for them. You know, they guided for fifteen fifteen percent
Speaker 1: revenue growth in twenty twenty three, which was in line
Speaker 1: with what we expected. You know, we think maybe not
Speaker 1: quite twenty five percent annually for the next few years.
Speaker 1: The fifteen percent sounds pretty much in line. Hey, Puonam,
Speaker 1: I want to get your thoughts as far as when
Speaker 1: we were just talking about this, Doug and I, as
Speaker 1: far as the tell this could mean for the economy
Speaker 1: when you see Lululemen's performance versus when you're thinking about say,
Speaker 1: completely different retailers. Right when you're looking at so the
Speaker 1: Walmarts of the world me sees targets. What does Lulemen's
Speaker 1: performance say it's for us, what it can means for
Speaker 1: the trajectory of the economy. I think it comes back
Speaker 1: to the product. Product is king when you have the
Speaker 1: right products you will sell it when you resonate with
Speaker 1: your customer, or the customer will keep coming back to you.
Speaker 1: Those are the brands that are winning today in retail,
Speaker 1: and lu Lemon is clearly making inroads with its customers. Also,
Speaker 1: you know, it's still a small company when you compare
Speaker 1: it to someone like Nike. L Lemon is expected to
Speaker 1: grow to twelve billion dollars by twenty twenty six and
Speaker 1: top line Nike almost four times outside. Right, So when
Speaker 1: you talk about runway, is there a runway for lule
Speaker 1: Lemon to expand? Absolutely, and real runway is internationally as
Speaker 1: you just heard about China and also digitally, I think
Speaker 1: I think you know, those are two big opportunities for
Speaker 1: lu Lemen to keep plowing through and being really outside strowth. Zach,
Speaker 1: we were talking earlier about inventory levels being slightly bloated,
Speaker 1: the need to kind of cut prices to move that
Speaker 1: product out in terms of cost cuts on the manufacturing side,
Speaker 1: Is this something that the company needs to address to you.
Speaker 1: I don't know to what extent they're exposed to manufacturing China.
Speaker 1: Maybe they're more diversified, maybe they're in Vietnam right now,
Speaker 1: or even India. Is this something that you think has
Speaker 1: to be top of mind for company management, getting a
Speaker 1: more diversified supply chain in place. Yeah, so Lululum it's
Speaker 1: got a pretty diversified you know, logistics system in place.
Speaker 1: You know, we think that you know, they're out of Canada.
Speaker 1: Obviously they've got manufacturing all over the place, but they're
Speaker 1: high end, so they're not so they're not too worried
Speaker 1: about that part of the business. You know, managements talked
Speaker 1: a little bit about not they don't have a lot
Speaker 1: of promotional activity, so they're they're probably going to just
Speaker 1: order less as my guests the next few quarters until
Speaker 1: that inventory comes down. But you know, management, the CEO
Speaker 1: talked about it in this quarter that it you know,
Speaker 1: inventory wasn't an issue, so he doesn't see it as
Speaker 1: an issue, even though you know, we think it's probably
Speaker 1: still a little bloated. You know, they do grow into
Speaker 1: their inventory usually, but it's still even for Lululemon, Elevated
Speaker 1: and pun. We only have about a minute left, but
Speaker 1: I want to get your thoughts going back to what
Speaker 1: I was saying, it's for the trajectory of the economy.
Speaker 1: I mean, can we have a potential recession when consumers
Speaker 1: are still spending on discretionary items like Lulu Limon No.
Speaker 1: I think if we actually go into a meaning fullback
Speaker 1: in consumer expending, the discretionary sector will too be impacted.
Speaker 1: Prior recessions have showed us that there will be a
Speaker 1: material pullback. The question is when does that full fullback
Speaker 1: come and what's really going to drive it? Its currently
Speaker 1: inflation and a falling savings rate, you know, a slight
Speaker 1: pick up, an unemployment, debt levels rising. It has a
Speaker 1: done it. So are we going to enter into a
Speaker 1: deep recession? Then? In that case, I would expect discussionary
Speaker 1: fund to pull back even across app nature. Hey, Zach,
Speaker 1: very quickly, as stocks trading around three sixty two and change.
Speaker 1: Do you have a price target here? I did, so
Speaker 1: my price targets for twenty five. That's a twelve month
Speaker 1: price starry. Wow, So there's some upside, I'd say. So
Speaker 1: we have it as a whole currently okay, and it's
Speaker 1: strictly from an inventory standpoint, We're a little bit worried
Speaker 1: about maybe the margin compression in the next few quarters.
Speaker 1: Good talking to you, Zach. Thanks for joining us. Zach
Speaker 1: Waring there as an analyst at cfr A Research from Williamsburg,
Speaker 1: Virginia and Punham Goyle, Bloomberg Intelligence, Senior Analyst for Retail.
Speaker 1: Joining from Las Vegas. You're listening to the Bloomberg Business
Speaker 1: Week podcast. Catch us live week afternoons from three to
Speaker 1: six Eastern Listen on Bloomberg dot com, the Ion Radio app,
Speaker 1: and the Bloomberg Business App, or watch us live on YouTube.
Speaker 1: Itchen a ride, whether it's Lift or one of its competitors,
Speaker 1: Let's take a closer look now at what is happening
Speaker 1: with ride sharing company. Our guest now is David Rischer.
Speaker 1: He is the CEO of Lift and he is new
Speaker 1: to the job from what I understand. David, pleasure to
Speaker 1: have you on the program. Thanks so much for joining us. Oh,
Speaker 1: thank you, Doug. It's really great to be here. So
Speaker 1: the challenge is that you're facing right now is a
Speaker 1: ride sharing company when you're dealing with a rival like
Speaker 1: Uber that has such a large footprint. First, give me
Speaker 1: your view of the macro. How do you see things
Speaker 1: right now? Look, the macro is we're number two. And
Speaker 1: here's what's interesting is even being number two is still
Speaker 1: a big deal, by which I mean, you know, hundreds
Speaker 1: of millions of people, you know, hundreds of thousands of drivers,
Speaker 1: billions of dollars earned over the last you know, fifteen years.
Speaker 1: So it's a big category. This is a trillion dollars
Speaker 1: plus category. But we're number two, and so we need
Speaker 1: to fight pretty hard, and we need to remind customers
Speaker 1: we're going to pick you up on time, that we're
Speaker 1: going to charge you a price that's you know, in
Speaker 1: line with what you would get with the other guys.
Speaker 1: Are we're going to drop you off on time, and
Speaker 1: really kind of focus on those basics to try to
Speaker 1: turbo charge our business again. And I know you're officially
Speaker 1: taking over the chief executive role on April seventeenth, and
Speaker 1: you hinted yesterday's to some of our colleague leagues on
Speaker 1: Bloomberg TV that the sale potential sale for Lift you're saying,
Speaker 1: was potentially off the table. So I want to know
Speaker 1: what is the path moving forward? What is your outlook
Speaker 1: here as far as how to turn things around. Yeah,
Speaker 1: I mean to be clear, it wasn't so much that
Speaker 1: it's off the table. It's simply not our focus. You know,
Speaker 1: people buyers come all the time, and they know kick
Speaker 1: the tires and so forth. But from our perspective, the
Speaker 1: best thing we can do right now to maximize value
Speaker 1: for our shareholders is really build a great, great business.
Speaker 1: And it really does start with those basics. And if
Speaker 1: you compare our strategy to Ubers for a second, you
Speaker 1: know they've sort of gone this diversification route. You know,
Speaker 1: it sort of made some sense within the pandemic when
Speaker 1: rod share was so far down, but with rodshare coming
Speaker 1: back so strong, and it really is coming back strong.
Speaker 1: And I'm not making an earnings projector any crazy thing
Speaker 1: like that, but simply to say that, like people are
Speaker 1: getting back out and and kind of together again. So
Speaker 1: with that happening, you know, you want to ask yourself
Speaker 1: a question, do you want to be focused on that
Speaker 1: opportunity or not? And we think being focused is great.
Speaker 1: We don't want, you know, tun a sandwich deliverers, you know,
Speaker 1: also picking people up. We think that might be an
Speaker 1: interesting business model or at least an arranged marriage that
Speaker 1: worked for all for a while, but it's not going
Speaker 1: to be how we go. So you've got a strong
Speaker 1: background in technology. We're at Amazon for a while, you
Speaker 1: were also at Microsoft. Do you understand well the architecture
Speaker 1: of some of these platforms, these technology systems. Is there
Speaker 1: a way that Lift innovates its way out of this
Speaker 1: situation right now to try to capture more market share.
Speaker 1: And let me just throw one thing out, is it
Speaker 1: time to rethink dynamic pricing? Just as one point. I mean,
Speaker 1: that's a super interesting question. I won't go into the
Speaker 1: details on that, but for sure, there is an enormous
Speaker 1: amount of innovation left. And I think this is it's
Speaker 1: such an important point, and it gets forgotten because we
Speaker 1: think that somehow we're on the tail end of this.
Speaker 1: We're at the beginning of the ride share journey, and
Speaker 1: there are so many ideas here that our teams are
Speaker 1: coming up with on ways to really differentiate. I'll say,
Speaker 1: if you talk to drivers, I mean, aside from saying
Speaker 1: they love the control over their earnings and love the
Speaker 1: control over their time, they'll also say they really like
Speaker 1: lifts platform as a driving platform. The mapping is easy.
Speaker 1: It tells you where to pick or passengers up, where
Speaker 1: to drop them off outside the street, and so on
Speaker 1: and so on. These are kind of under the surface things,
Speaker 1: but there's a lot of innovation left in the market,
Speaker 1: for sure. So one of the things we've been talking
Speaker 1: a lot about and I'm sure it's fun of mine
Speaker 1: for you, the role of artificial intelligence and everything that
Speaker 1: we're doing these days. Is there a way to give
Speaker 1: the consumer right now in a ride sharing space greater
Speaker 1: preductability in terms of hooking up with a ride so
Speaker 1: that maybe wait times are reduced. Are you thinking about
Speaker 1: ways to use the latest technology to service the customer,
Speaker 1: to service your client in a way that can maybe
Speaker 1: enhance the experience, Yeah, but also less in the way
Speaker 1: time as one example. Absolutely absolutely, And I'm really glad
Speaker 1: you brought it up, because, Yeah, I mean, imagine a
Speaker 1: world where you tell us a little bit about you know,
Speaker 1: the trip you're going to take, maybe that involves going
Speaker 1: to the airport and when you're going to come back,
Speaker 1: and we sort of arrange everything around that. Right We
Speaker 1: pick you up when we know you need to be
Speaker 1: picked up, and we don't, you know, threaten to leave
Speaker 1: as soon as we're you know, arrived at the door,
Speaker 1: you know, we drop you off with the airport, and
Speaker 1: then of course we know on the other side you're
Speaker 1: going to need a ride too, and you're gonna need
Speaker 1: to ride to the hotel, and then you're going to
Speaker 1: do that whole thing in reverse, you know, maybe in
Speaker 1: a couple of days. So and that's basic, but even there,
Speaker 1: that just shows you how rides your service is going
Speaker 1: to really make themselves a lot easier and frankly more
Speaker 1: kind of compelling over time, and that'll be a big
Speaker 1: focus of ours. And David, you did bring up Uber earlier,
Speaker 1: and so I was curious as far as because with
Speaker 1: Uber and they have Uber Eats, it's typically more of
Speaker 1: a high margin business. You haven't when it comes to
Speaker 1: live expanded into those types of segments. I'm curious if
Speaker 1: that's something you're thinking about, and if so, what those
Speaker 1: plans could potentially be. Yeah, I mean again, our focus
Speaker 1: right now really will be on the right stare basics,
Speaker 1: because we think there's so much to do there. But
Speaker 1: it's interesting. You have to be, you know, cautious when
Speaker 1: you think about, like every the grass always looks green
Speaker 1: on the other side, and so you think, you know,
Speaker 1: maybe the food deliveries a higher margin business, but then
Speaker 1: you feel the onion back a little bit and you
Speaker 1: start to see you know, Instagram, you know, photos of
Speaker 1: you know, seventy two dollars deliveries for you know, a
Speaker 1: couple of slices and you think, gosh, someone's not really
Speaker 1: working super well there, particularly when the drivers are not
Speaker 1: saying I love the experience of the food delivery. I
Speaker 1: double park, I get a ticket, you know, maybe I
Speaker 1: get a tip, but I don't really get very much
Speaker 1: in base pay so compared to Ritter Even so, I
Speaker 1: don't know. I think a lot of this is much
Speaker 1: more to be determined than it looks like right now.
Speaker 1: And I think when we look back in five years,
Speaker 1: we'll think, gosh, you know, what an interesting early stage
Speaker 1: that those companies were in. And now look at how
Speaker 1: how much more, just how much better they've they've gotten
Speaker 1: because they've really focused on us as passengers and drivers. David,
Speaker 1: we're talking to you from here in New York City
Speaker 1: where the yellow cab drivers when Uber showed up into
Speaker 1: this marketplace, we're really struggling, and I'm wondering whether or
Speaker 1: not a similar strategy may be adopted by your company.
Speaker 1: When you talk about trying to grab more market share,
Speaker 1: do you purposely undercut a competitor to try to capture
Speaker 1: more market Is that part of a strategy too. I
Speaker 1: don't think that's a very good strategy to be honest,
Speaker 1: because that sounds like a race to the bottom, and
Speaker 1: that means somebody gets squeezed and that ends up being
Speaker 1: the drivers, and that's not where you end up with
Speaker 1: a healthy market. I think it's better to think a
Speaker 1: bit as you know, if you have two or three
Speaker 1: players in a market, you kind of want them all
Speaker 1: sort of fighting them out on kind of best behavior,
Speaker 1: you know. And I say that because you know, you
Speaker 1: really want as a consumer and as a driver, you
Speaker 1: want some choice, and you don't want a knife fight
Speaker 1: that ends up with one guy in the end having
Speaker 1: a monopoly. I think that's very, very dangerous. You know,
Speaker 1: we've sort of seen what that kind of looked like
Speaker 1: back in the old days with taxis, where maybe that
Speaker 1: wasn't the service the people really loved. And I don't
Speaker 1: think anyone really wants to go back to sort of
Speaker 1: a one party system. David, Are we going to continue
Speaker 1: to see higher prices on the lift app? I hope
Speaker 1: not concern there as far as how to grapple with them.
Speaker 1: I mean, look there, you know, of course our costs,
Speaker 1: you know, go up, you know, just like everybody else's.
Speaker 1: But at the same time, we're very aware of the
Speaker 1: macro environment, and the macro environment is really trying to
Speaker 1: push the other way. In other words, of consumers are saying, gosh,
Speaker 1: we don't have a lot of extra money right now.
Speaker 1: You know, you were talking about this a little bit before,
Speaker 1: and and it's a real question, you know, how flush
Speaker 1: your consumers feeling versus how you know, sort of more
Speaker 1: constrained are there economically. So we're trying to set ourselves
Speaker 1: up that we can offer a great value and not
Speaker 1: to the extent we can not pass those sorts of
Speaker 1: cost increases along to customers. David, very quickly here, I
Speaker 1: just need you to weigh in on autonomous driving in
Speaker 1: about thirty seconds. Too much hype here or or do
Speaker 1: you believe it's the future? Too much hype now? But
Speaker 1: it's definitely the future. It's not happening tomorrow. It's a
Speaker 1: very complicated problem. And even optimists from two or three
Speaker 1: years ago are now being you know, having their own
Speaker 1: expectations reset about what's possible in the near term. But man,
Speaker 1: I mean I have ten years from now. Imagine you
Speaker 1: know it's a karaoke experience. Yeah, I mean, there's so
Speaker 1: much money you can have where person in the front
Speaker 1: seat and not to be driving, can be showing you
Speaker 1: around town. Boy, I wonder if I'll live that long. David,
Speaker 1: Thank you so much. Yeah so, David Rich, CEO, the
Speaker 1: new CEO for Lift, joining us here on Bloomberg Business Week.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business App, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa play Bloomberg eleven thirty. We are back
Speaker 1: here on a Bloomberg BusinessWeek. You know, I think we
Speaker 1: talk a lot these days about taking care of the planet,
Speaker 1: the environment. What does that look like when it comes
Speaker 1: to building products. Well, Treks is a company, a leading
Speaker 1: producer of outdoor decking and railing that has a sustainable model,
Speaker 1: and the company's CEO, Brian Fairbanks, joins us now ian
Speaker 1: the Bloomberg Interactive Broker Studio in New York. Thank you
Speaker 1: so much for being with us. Give me a history
Speaker 1: of this company. How did it come into being? It's
Speaker 1: really unique about Treks is our sustainability journey started over
Speaker 1: thirty years ago when our founders looked for ways to
Speaker 1: use At that time, it was excess bread bags and
Speaker 1: waste wood and understand how could that material be used
Speaker 1: in a way that could generate value for the company,
Speaker 1: And they landed on a product that ended up being
Speaker 1: our first generation deckboard. And to this day we still
Speaker 1: use many of those same principles. We mix the polyethylene,
Speaker 1: plastic and wood together with a number of other additives
Speaker 1: to turn out a world class deckboard. And you've been
Speaker 1: at the company for close to do decades now, right,
Speaker 1: started back in two thousand and four. I've seen a
Speaker 1: lot over those years along the way, obviously the two
Speaker 1: thousand and eight recession that we've gone through, but a
Speaker 1: lot of growth since that time and a lot of
Speaker 1: changes in the organization, the vast majority of them for
Speaker 1: being the better. Talk to me a little bit about
Speaker 1: the process of making this composite. You mentioned it involves polymers,
Speaker 1: synthetic polymers, and wood. They're combined. I would imagine that
Speaker 1: there is a bit of mulching when it comes to
Speaker 1: the wood. Things are heated and compressed. Is that pretty
Speaker 1: much how it works. Yeah, Simplistically, we're taking the wood,
Speaker 1: the plastic, mixing it together, adding heat to it, adding
Speaker 1: some additives to make sure that we're going to have
Speaker 1: the longevity. We have an up to a fifty year
Speaker 1: durability warranty on our products. Through that it goes through
Speaker 1: an extrusion process, We cool it, we cut it, and
Speaker 1: then it gets packaged. And how exactly because you were
Speaker 1: talking to us about wood decks versus going into composite
Speaker 1: decks tell us a difference about how that works. Yeah,
Speaker 1: so the great part about trecks composite decks is going
Speaker 1: to be the reduced maintenance and of course the lifespan Today,
Speaker 1: pressure treated lumber is not particularly high quality. So your
Speaker 1: deck that you build you could last ten years, maybe
Speaker 1: fifteen years, depending upon the environment. But also every year
Speaker 1: in the spring, you're going to be spending time cleaning, standing,
Speaker 1: staining the deck, and nobody wants to spend their valuable
Speaker 1: time on their outdoor living area doing those sort of things.
Speaker 1: Bloomberg Intelligence, our in house team of analysts and researchers,
Speaker 1: was pointing out that growth in composite decking has slowed
Speaker 1: lately relative to the growth that we saw last year.
Speaker 1: When you look at the market right now, whether it's
Speaker 1: adoption for the home kind of fixer upper that goes
Speaker 1: to a store like a Lows or a home depot,
Speaker 1: or it's the professional contractor that's looking for materials to
Speaker 1: use in a lot of the renovation projects. Where is
Speaker 1: your focus right now? How do you want to grow?
Speaker 1: We continue to see good activity both from the DIY
Speaker 1: channel as well as our pro channel and speaking with
Speaker 1: their contractors. Their backlogs moving into the season are all
Speaker 1: at reasonable levels. They're not elevated like they were the
Speaker 1: past couple of years, or they could have been out
Speaker 1: twelve or sixteen weeks, but they're more normalized. We're they're
Speaker 1: four to six weeks. That's healthy for the marketplace. And
Speaker 1: we're still seeing health especially at the high end of
Speaker 1: the market, and most of our customers do tend towards
Speaker 1: the higher end and thinking about decks, especially in the
Speaker 1: pandemic right where people wanted to build more of them.
Speaker 1: But then we saw the surge in lumber prices and
Speaker 1: so that was a hectic for a lot of people
Speaker 1: and obviously very pricey, and then those prices came back
Speaker 1: down on the lumber side. But it was curious your
Speaker 1: thoughts on with your business, how it's doing and what
Speaker 1: the tell is about the economy right now. Yeah. One
Speaker 1: of the keys when we started really going after the
Speaker 1: wood conversion opportunity was launching a product that was two
Speaker 1: times the price of wood, also with a trade up
Speaker 1: opportunity to a product that has a little bit better
Speaker 1: aesthetics for about three times the price of wood. And
Speaker 1: with that product, we saw the opportunity to be able
Speaker 1: to bring more people into the marketplace. It's something that
Speaker 1: we've really been driving since twenty nineteen and we have
Speaker 1: a long runway with that. When it comes to the esthetic,
Speaker 1: is that something that you have to overcome? The resistance
Speaker 1: to a product that may not look like a natural
Speaker 1: wood or some type of wood product. Has that been
Speaker 1: kind of a point of resistance. The vast majority of
Speaker 1: the market loves the look of composites, and every time
Speaker 1: we come out with a new product, there's more and
Speaker 1: more realism with wood. Beginning of this year, we launched
Speaker 1: our signature product. We launched it on a regional basis
Speaker 1: and this product has all of the performance characteristics everybody
Speaker 1: has come to expect with treks, but has that real
Speaker 1: look of hardwood. If you were to take a piece
Speaker 1: of epay, which is a Brazilian hardwood from endangered rainforests
Speaker 1: and put a piece of Treks signature next to it,
Speaker 1: you'd have a hard time telling the difference. So there
Speaker 1: is a market that's clearly looking for that esthetic. Something
Speaker 1: I was curious about as far as the housing component
Speaker 1: of this, is it more people are building new depths
Speaker 1: for existing homes that they're already in or as far
Speaker 1: as comparing that to say new home builds, and that's
Speaker 1: something that they're looking for. The vast majority of our
Speaker 1: market is repair and remodel ninety to ninety five percent.
Speaker 1: So the new home build side of things obviously is
Speaker 1: a key indicator from an overall economic perspective, but the
Speaker 1: primary driver for our business is that repair and remodel
Speaker 1: sector manufactured here in the US. Right, how are you
Speaker 1: doing that? All of our product gifts manufactured in Virginia
Speaker 1: and Nevada. We also have a third site that will
Speaker 1: be coming up probably in the twenty five twenty six
Speaker 1: time frame down in Little Rock, Arkansas. We've always been
Speaker 1: a US based company. We can be very efficient in
Speaker 1: our manufacturing production here, and we also have very unique
Speaker 1: ways of using the recycled material. It's not something that
Speaker 1: every organization can do. We have built a culture which
Speaker 1: accepts a highly variable raw material stream and then converting
Speaker 1: it to a high value end use in our deckboard
Speaker 1: and railing any thoughts about going offshore, No, not really
Speaker 1: when we from a manufacturing perspective, everything's done here in
Speaker 1: the US now. Longer term, there's a great opportunity international marketplaces.
Speaker 1: Today we sell in over forty countries, but the vast
Speaker 1: majority of those overseas sales are done into mainland in
Speaker 1: Europe as well as Australia. We look for countries that
Speaker 1: have a higher GDP and an interest in outdoor living,
Speaker 1: and we're really just in the first inning of that opportunity. Eventually,
Speaker 1: when I'm back here in a good number of years,
Speaker 1: we'll be talking about international expansion. So when it comes
Speaker 1: to sourcing raw materials, let's talk to synthetic polymers, whether
Speaker 1: they're used plastic jugs, things that are being pulled out
Speaker 1: of the ocean by the bucket load. I mean, is
Speaker 1: there a a network that you're tapped into right now,
Speaker 1: whether it's with some of the trash hauling companies, whether
Speaker 1: it's with local municipalities that have been involved in these
Speaker 1: recycling programs that maybe up until this point, had been
Speaker 1: exporting a lot of that to China. For us some
Speaker 1: kind of recapture. How are you tapped into the network
Speaker 1: for let's say the synthetic polymer our sourcing is home built,
Speaker 1: so we are buying direct from the generators. So we'll
Speaker 1: have a contract with a parent organization and buy material
Speaker 1: out of their distribution centers or their manufacturing centers. For example,
Speaker 1: material manufacturing materials that have protective films that are included
Speaker 1: on it. They'll pull that film off, throw it into
Speaker 1: a Baylor. Once they get forty thousand pounds, we'll go ahead,
Speaker 1: we'll pick that up and we do that all across
Speaker 1: the country. It's very good to talk to you. Thank
Speaker 1: you so much for being with us. That's Brian Fairbanks,
Speaker 1: the CEO of Treks, joining us here on Bloomberg Business Week.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six. Listen on Bloomberg
Speaker 1: dot com, the iHeart Radio app, and the Bloomberg Business App,
Speaker 1: or watch us live on YouTube. I'm brother Mac a
Speaker 1: journal Yeah, but you let me drive? Oh no, no, no no, no, honey,
Speaker 1: please I'll do the riding revels. I want to drive.
Speaker 1: It's good question. This is the drive to the closet commune.
Speaker 1: Thank well, up down on Bloomberg Radio. Yeah, we have
Speaker 1: about eighteen minutes until the closing bell the Wednesday session.
Speaker 1: Fair amount of appetite for risk, and we're gonna take
Speaker 1: some of these numbers apart with our guest Bill Smead.
Speaker 1: He is the chief investment officer at Smead Capital Management.
Speaker 1: He joins from Scottsdale, Arizona's bell it's always a pleasure.
Speaker 1: Do you buy into this rally today or not? Well,
Speaker 1: you know, we own the oil and gas area and
Speaker 1: those stocks have had a pretty good week this week.
Speaker 1: But no, I would say that I find it illogical
Speaker 1: that the companies who are the vendors to the startups
Speaker 1: and the private equity people that are most damaged by
Speaker 1: these bankrupt the bankruptcies in the bank world are tied
Speaker 1: very closely to what vendors feed off of the venture
Speaker 1: capital and private equity world. Guessing you're not buying the
Speaker 1: dip on these pullbacks that we're seeing in banks, whether
Speaker 1: regional banks in particular, Well, no, the bank issue is
Speaker 1: a separate issue. Created by the FED tightening, and we
Speaker 1: happen to think at some point in time, the FED
Speaker 1: will blink and they will not want to go through
Speaker 1: the amount of economic difficulty it would take to kill
Speaker 1: the inflation that was created by the Treasury borrowing too
Speaker 1: much money and monetizing it. So that's that's a separate subject.
Speaker 1: What really is more important to this bear market that
Speaker 1: started in late twenty one is it's got to cure
Speaker 1: the sins of the prior financial euphoria episode, which Charlie
Speaker 1: Munger called the biggest he'd ever seen because the totality
Speaker 1: of it. But based on what I'm hearing you say,
Speaker 1: you don't expect that you expect the FED to capitulate
Speaker 1: and have to cut Is that before the end of
Speaker 1: the year. And then if we are looking at rate cuts,
Speaker 1: is that a reason enough just to trade the market
Speaker 1: and to go long US equities? Well, not by index basis,
Speaker 1: we believe it's not. You know, there's not very much
Speaker 1: upside in a bear market rally from here, because you
Speaker 1: had one heck of a great bear market rally. I mean,
Speaker 1: the things that went down the most have gone up
Speaker 1: the most, but they're up to way below where they started.
Speaker 1: So that's what bear market rallies do. They're trying to
Speaker 1: suck people into believing that you can get the old
Speaker 1: game going again. So what are they buying. They're buying
Speaker 1: fang stocks, They're buying you know, they're buying very aggressive
Speaker 1: stocks and looking for imagining that that we're somewhere close
Speaker 1: to the bottom of a bear market with some of
Speaker 1: the highest equity ownership of households in history, and just
Speaker 1: trying to put Humpty Dumpty back together again. Yeah, if
Speaker 1: you're looking under the hood for the S and P
Speaker 1: five hundred for this quarter, the infotech index up about
Speaker 1: nineteen percent over the past three months. Also communication services
Speaker 1: up about seventeen percent, and then of course right after that,
Speaker 1: consumer discretionary up about twelve percent in that span. So, Doug,
Speaker 1: I know you were highlighting as far as when it
Speaker 1: comes to specific energy stocks, But what are your top
Speaker 1: picks right now on the energy side? Bill? What do
Speaker 1: you like energy? Yeah, of course, we're a very large
Speaker 1: owner of oxy and we love the fact that Warren
Speaker 1: Buffett is coming in at higher prices, way higher prices
Speaker 1: than us. We think he's on the right track. We
Speaker 1: like Conical quite a bit. We like Oventive and Apache
Speaker 1: as well. Those stocks are being penalized by having a
Speaker 1: certain part of the revenue coming from natural gas. And
Speaker 1: unless something is missing, there's only two dollars downside in
Speaker 1: natural gas because it trades two dollars, So there's two
Speaker 1: dollars of downside, and I think the high was ten dollars.
Speaker 1: So somewhere in here, it's going to get cold somewhere
Speaker 1: and the supply of natural gas that has flooded the
Speaker 1: market will will fade. And it's one of the cleanest
Speaker 1: forms of energy, so it actually it kind of fits
Speaker 1: in with the you know, the environmental movement to use
Speaker 1: natural gas, and that's one of the things you make
Speaker 1: electricity out of in California. So would you be attempted
Speaker 1: to play a fixed income right now, particularly in the
Speaker 1: corporate space you mentioned energy, I'm wondering whether or not
Speaker 1: the credit markets provide you some opportunity for energy names.
Speaker 1: We're stock pickers only and are not asset allocators other
Speaker 1: than deciding which stocks we want to own. But I
Speaker 1: will say this, if we do have a recession and
Speaker 1: long term rates continue to stay low, the spread between
Speaker 1: the ten year Treasury and the thirty year mortgage rate
Speaker 1: is completely out of whack right now, there's like nearly
Speaker 1: three hundred basis points spread between the two. It would
Speaker 1: be much more normal for that spread to be one
Speaker 1: point seven percent, and if that were the case, you'd
Speaker 1: have about a five point three five percent mortgage right now.
Speaker 1: And we own Horton, LNAR and NVR, three of the
Speaker 1: five largest home builders. There are ninety two million millennials
Speaker 1: out there and most of them would like to buy
Speaker 1: a house if they could get a mortgage below six percent.
Speaker 1: And we think we're headed there. Well, if the economy
Speaker 1: is headed to a level where the feed is forced
Speaker 1: to cut, and I'm wondering whether or not people are
Speaker 1: going to feel like buying a home. No, no, no,
Speaker 1: you just made the classic mistake. You never feel like
Speaker 1: buying a home. You buy a home because you it's
Speaker 1: a necessity. When there's ninety two million millennials, and even
Speaker 1: though they're different many ways than past generations, they are
Speaker 1: getting married in droves last year and this year, which
Speaker 1: means they want a house and so far, so that
Speaker 1: is a that's kind of an urban myth that that
Speaker 1: ninety two million people aren't going to provide a lot
Speaker 1: of demand where it was seventy five million boomers and
Speaker 1: sixty five million Gen xer. So even if things are
Speaker 1: different than they used to be there we have a
Speaker 1: huge lack of housing. That's the biggest economic need we
Speaker 1: have right now, is that an inexpensive carbon energy. One
Speaker 1: of the things we've been talking about in terms of
Speaker 1: the impact of this meltdown and some of the regional
Speaker 1: banks's tighter lending standards, is that not going to carry
Speaker 1: over onto the mortgage side as well. You're going to
Speaker 1: worry about financing of some of these homes. No, Because
Speaker 1: here's the great irony. We call this a rich session
Speaker 1: ri C S s io N. People below the top
Speaker 1: twenty percent of incomes don't own much in common stocks,
Speaker 1: so when that gets bashed, it doesn't change their life much.
Speaker 1: And wages at average and below average people are soaring.
Speaker 1: You name any restaurant or any business establishment you interact
Speaker 1: with that doesn't have a sign up say hiring at
Speaker 1: the best wages you've ever seen at the entry level
Speaker 1: in your lifetime, and I'll put in with you all right,
Speaker 1: final thoughts. You know, I was taking a look at
Speaker 1: the XHB, the ETF tracking homebuilders in the SMP five hundred.
Speaker 1: It's up about ten percent this year's It's interesting when
Speaker 1: he's talking about Lenar and some of these other names,
Speaker 1: it seems like that trade is in. But Bill, I
Speaker 1: would imagine you're going to remain long that trade for
Speaker 1: a while longer, right, very quickly. Yeah, that's a that's
Speaker 1: a five to ten year thing we're working on. And
Speaker 1: again there's plenty of corrections along the way in what
Speaker 1: we do as well as the other parts of the market.
Speaker 1: The difference is things we don't are not coming out
Speaker 1: of a ten yeal Okaymnia. Bill smeat from a smeet
Speaker 1: Capital Here on Bloomberg Business Week. This is the Bloomberg
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