WEBVTT - Nike, FedEx Latest to Pull Back Forecasts on Trump's Tariffs

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<v Speaker 2>John is just reporting some disupporting numbers out of Nike,

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<v Speaker 2>out of FedEx. And I'm going to approach the analysts

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<v Speaker 2>we have from BI kind of the same way of

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<v Speaker 2>my questioning, and let's start with Punham Goyle, senior US

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<v Speaker 2>retail and e commerce analysts, and we'll start with the

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<v Speaker 2>Nike and put them The question I have for you

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<v Speaker 2>is kind of the same one I'm going to have

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<v Speaker 2>for Lee Klascal about FedEx and how much of the

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<v Speaker 2>were kind of the weaker than expected results was company specific,

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<v Speaker 2>i e. Not executing well versus maybe just a weakening

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<v Speaker 2>consumer out there. How does their applot in Nike, so Nike.

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<v Speaker 3>With all companies specific and I would say that you

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<v Speaker 3>know a lot of this. We expected Nike's results will

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<v Speaker 3>stay weak until they get their inventory realigned with sales,

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<v Speaker 3>and that's not going to happen overnight. It will take

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<v Speaker 3>at least two to three quarters at the minimum. So

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<v Speaker 3>we do have some downside or some weak results for

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<v Speaker 3>the next few quarters. But I will say that they

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<v Speaker 3>are making the right moves. The new CEO, Elliott Hill,

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<v Speaker 3>has a plan that we think will work. It will

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<v Speaker 3>drive Nike back to be the lead and get the

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<v Speaker 3>mind share that it has held for so many decades.

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<v Speaker 4>In that case, have we seen the bottom in the

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<v Speaker 4>stock praise?

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<v Speaker 3>Well, I mean the shares have clearly come off from

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<v Speaker 3>their highs and they're down again today seven percent. I'd

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<v Speaker 3>say the bad news is out. So from here they

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<v Speaker 3>should continue to realign inventory. This upcoming fiscal fourth quarters

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<v Speaker 3>of theirs is when they'll probably make the biggest push

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<v Speaker 3>and we should hopefully see inventory begin to normalize over

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<v Speaker 3>the next two to three quarters.

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<v Speaker 2>Compared to their competitors. This inventory issue, this I would argue,

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<v Speaker 2>mismanagement of inventory. It feels to me, is it maturely

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<v Speaker 2>different than its competitors.

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<v Speaker 3>Yeah, absolutely, this is a Nike specific issue. So what

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<v Speaker 3>happened here is that Nike has a lot of classic

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<v Speaker 3>inventory that just isn't resonating with customers, and therefore they

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<v Speaker 3>have to find ways to clear that, which they'll do

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<v Speaker 3>through their outlets and the value wholesale channels. The other competitors,

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<v Speaker 3>if you're talking about Adidas, whom or others, they don't

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<v Speaker 3>have this issue because they have the right inventory for

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<v Speaker 3>the most part in place, and therefore they will not

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<v Speaker 3>have as many discounts as Nike will have over the

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<v Speaker 3>coming three to nine months.

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<v Speaker 4>At the same time, though, they talked about gross margins

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<v Speaker 4>being also impacted by tariffs, and that would be an

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<v Speaker 4>industry issue.

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<v Speaker 3>Right, the tariffs isn't an industry issue, but the decline

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<v Speaker 3>that they guide it to, the four hundred to five

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<v Speaker 3>hundred basis point decline and fiscal fourth quarter, the bulk

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<v Speaker 3>of it is due to the markdowns that they will

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<v Speaker 3>face as they clear this unwanted inventory. So terra stouts

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<v Speaker 3>have an impact, but it's a very small part of

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<v Speaker 3>that margin compression that they're forecasting.

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<v Speaker 5>Put them.

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<v Speaker 2>How did the company get in this position where they

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<v Speaker 2>had this inventory that wasn't resonating with customers because I

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<v Speaker 2>think of Nike as like really on top of knowing

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<v Speaker 2>what the customers want and delivering some really cool products.

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<v Speaker 1>What happened?

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<v Speaker 3>I think this all happened with the previous leadership when

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<v Speaker 3>John Donaho came on board right around the pandemic, and

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<v Speaker 3>he had a strategy to go digital, so essentially pulling

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<v Speaker 3>out of many wholesale channels in a meaningful way where

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<v Speaker 3>Nike was really focused on driving growth in digital. The

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<v Speaker 3>product was changing, but it wasn't changing enough. You know.

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<v Speaker 3>You saw, for example, they used a shoe and they

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<v Speaker 3>just rolled out multiple color waves in it. There wasn't

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<v Speaker 3>as much innovation as what the consumer is used to

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<v Speaker 3>it from Nike. So it was execution. It was just

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<v Speaker 3>not having the right product. And I think they're back

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<v Speaker 3>on their game now. They have a leader at home

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<v Speaker 3>that knows the product that was a merchant. So they

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<v Speaker 3>do have some work to do, but I think they're

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<v Speaker 3>moving in the right direction.

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<v Speaker 4>Who took their share while they were stumbling and can

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<v Speaker 4>they get it back?

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<v Speaker 3>Everyone beyond the Hokah's, Adidas, you name it. I mean,

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<v Speaker 3>you know, when I went to a foot locker. Let's

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<v Speaker 3>say seven years ago, it was largely Nike. Today, when

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<v Speaker 3>I walk into a foot locker, I see everything in there.

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<v Speaker 3>I see Nike, I see ya, and I see hokah.

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<v Speaker 3>So everyone took a little bit of it.

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<v Speaker 2>Yeah, hokas. I didn't even know what where they came from.

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<v Speaker 2>But I see a lot of the kids around here

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<v Speaker 2>wearing them well.

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<v Speaker 4>And the adults too are starting to wear them. They're

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<v Speaker 4>super cool.

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<v Speaker 2>Well they're adults, but they're kids to me here at

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<v Speaker 2>Bloomberg But even like the and they're wearing them to work,

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<v Speaker 2>by the way, the.

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<v Speaker 4>Older kids are still doing it, are they. Yeah, this

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<v Speaker 4>is not just like a twenty five year old thing.

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<v Speaker 4>This is a broader I think that David Weston has

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<v Speaker 4>worn up.

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<v Speaker 2>That's that was so disappointing to me on.

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<v Speaker 4>So I don't know if that's one hundred percent true.

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<v Speaker 4>It could be spending false rumors, but it could be true.

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<v Speaker 4>All I put them, thanks, not really appreciate it. Put them. Goyle,

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<v Speaker 4>Senior US e Commerce some retail analysts at Bloomberg Intelligence.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

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<v Speaker 4>This is Bloomberg Intelligence Radio. Still a top tay for

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<v Speaker 4>the market. SMP is off by seven tenths of one percent,

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<v Speaker 4>of nastacs off by about six tenths of one percent.

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<v Speaker 4>It just feels like a steady as she goes. Yesterday

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<v Speaker 4>during the close, you could see the SMP desperately wanting

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<v Speaker 4>to turn green, could not do it, and we just

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<v Speaker 4>continue to kind of roll over. We also have about

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<v Speaker 4>four point five trillion dollars worth of options expiring too,

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<v Speaker 4>So what do you do? Like, is it safety? Is

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<v Speaker 4>it run for the hills? Is it just wait till

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<v Speaker 4>the second? Is it just hold everything until the back

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<v Speaker 4>half of the year.

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<v Speaker 2>Yeah, it feels like April second seems like it's just

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<v Speaker 2>gonna be a bigger and bigger date for some folks

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<v Speaker 2>in this marketplace that we're just looking for a little

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<v Speaker 2>sense of clarity on maybe one of these big issues

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<v Speaker 2>being the tariffs, and you know how broad they will

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<v Speaker 2>be and whether and who will they be placed upon

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<v Speaker 2>and take if you can take that out of the

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<v Speaker 2>equation a little bit. Maybe that will be a positive catalyst.

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<v Speaker 2>The uncertainty was called out by a lot of companies.

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<v Speaker 2>We heard Nike earlier in the day. FedEx also in

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<v Speaker 2>their stock trading off nine percent on some weaker than

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<v Speaker 2>expected earnings. That's a fifty two week low for that stock.

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<v Speaker 2>Lee Klascal joins is he's a senior transport logistics and

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<v Speaker 2>shipping analysts who follows FedEx for Bloomberg Intelligence. Lee, I'm

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<v Speaker 2>gonna ask kind of the same question I asked of

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<v Speaker 2>Putnam Goyle about Nike, which is how much of the

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<v Speaker 2>underperformance in FedEx results was due to just maybe the

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<v Speaker 2>market being a little softer, with the consumer being a

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<v Speaker 2>little softer, or FedEx specific issues.

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<v Speaker 5>Hey, Paul, I think it's a lot has to do

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<v Speaker 5>with the fact that the macros is a little weaker

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<v Speaker 5>than they thought. And you know, the weakness that they

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<v Speaker 5>were seeing is in the business to business biomes as

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<v Speaker 5>well as the industrial economy. You know, they have a

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<v Speaker 5>lot of exposure to the industrial economy, and their FedEx

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<v Speaker 5>free business just are less than truckload business. Uh. That

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<v Speaker 5>business kind of disappointed on the earnings while it's a

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<v Speaker 5>parcel business express business. Uh, slightly bet expectations. You know,

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<v Speaker 5>the company is going through a major transformation. It's been

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<v Speaker 5>operated as a uh kind of bloated concern for a

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<v Speaker 5>number of years. Uh. I know, over the last couple

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<v Speaker 5>of years, they've been taking proactive steps into kind of

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<v Speaker 5>writing that and reducing costs. They're also you know, doing

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<v Speaker 5>things that that that management thought was kind of taboo,

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<v Speaker 5>if you will. They're now uh uh combining their ground

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<v Speaker 5>and express networks in certain regions, and they're gonna, you know,

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<v Speaker 5>eventually do that in the United States. Right now, it's

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<v Speaker 5>being done in Canada. Uh they're re uh uh restructuring

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<v Speaker 5>their their air network uh and and the and and

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<v Speaker 5>the really goal is to is to to build profitable density.

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<v Speaker 5>And the problem is that they've you know, they've generated

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<v Speaker 5>a lot of cost savings, but some of that cost

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<v Speaker 5>savings has gotten lost because the macro just isn't as

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<v Speaker 5>strong as maybe they thought it's going to be. And

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<v Speaker 5>looking forward, I think it's very difficult for FedEx or

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<v Speaker 5>really anyone that deals with the economy to kind of

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<v Speaker 5>forecast where they think volumes are going to go, because

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<v Speaker 5>we really don't know. There's so much uncertainty. As you

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<v Speaker 5>mentioned earlier, whether it's you know, the risk from tariffs,

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<v Speaker 5>whether it's the inflationary risk that could come from tariff,

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<v Speaker 5>whether it's getting rid of the dominimus exemptions for low

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<v Speaker 5>valued freight out of China. There's a lot of things

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<v Speaker 5>that could weigh on results, at least looking into the

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<v Speaker 5>near future.

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<v Speaker 4>For companies like these, what winds up being their base

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<v Speaker 4>case when it comes to tariffs and trade, Like, they've

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<v Speaker 4>got to do something, they got to say something. So

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<v Speaker 4>what's their base case?

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<v Speaker 5>I don't really know if they have a base case.

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<v Speaker 5>The base case is that we're going to operate in

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<v Speaker 5>the in the environment that is given to us, and

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<v Speaker 5>it's not going to be special to us because you know,

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<v Speaker 5>our major competitor or EUPS is going to have to

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<v Speaker 5>deal with a similar situation. And so I think they

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<v Speaker 5>just want to know what the rules of the road

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<v Speaker 5>are so then they can kind of operate, you know.

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<v Speaker 5>As you know, a lot of companies are holding back

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<v Speaker 5>on CAPEX because they just don't know, you know, are

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<v Speaker 5>we going to is investing in Mexico a good thing

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<v Speaker 5>or a bad thing for US manufacturers? It just there's

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<v Speaker 5>really a lot of things that are up in the air.

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<v Speaker 2>Yeah, it's interesting. I'm looking at the kind of the

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<v Speaker 2>earnings estaments out there LYE on the Bloomberg terminal, and

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<v Speaker 2>you know, the streets kind of got fifteen percent earnings

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<v Speaker 2>growth starting in their fiscal twenty six year. They're may

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<v Speaker 2>twenty six year. Over the next couple of years, there's

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<v Speaker 2>stock trades are like eleven, i know, twelve times multiple

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<v Speaker 2>earnings multiple. That looks pretty attractive, But I guess you

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<v Speaker 2>have to buy off on management's ability to execute, right.

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<v Speaker 5>Yeah, we don't do buyhole sell here at Bloomberg Intelligence,

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<v Speaker 5>as you know. But you know, at the end of

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<v Speaker 5>the day, the thing that they are doing today, when

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<v Speaker 5>the demand environment will be is less volatile and more predictable,

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<v Speaker 5>will be very good for margins. It's just like, you know,

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<v Speaker 5>how long are you willing to wait for that to happen?

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<v Speaker 5>You know, is it going to be four years until

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<v Speaker 5>things normalized or is it going to be in six

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<v Speaker 5>months when things normalize. We just really don't know. And

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<v Speaker 5>there's a lot of other things that can happen as well.

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<v Speaker 5>You know, the Trump administration has talked about, you know,

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<v Speaker 5>adding fees and fines to you know, ships that are

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<v Speaker 5>not made in the US that come to dock in

0:10:25.080 --> 0:10:27.520
<v Speaker 5>the US that could have an impact on air freight,

0:10:27.960 --> 0:10:31.240
<v Speaker 5>could move stuff to air freight because it becomes I

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<v Speaker 5>guess more reasonable for certain items. So there's a lot

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<v Speaker 5>of different things that can happen. We just don't know.

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<v Speaker 5>As I mentioned earlier, with the rules of the road

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<v Speaker 5>are which are critical for us to figure out where

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<v Speaker 5>things are headed from here because you know, GDP expectations

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<v Speaker 5>have been moderating as you know, and these companies FedEx

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<v Speaker 5>and ups are tied to that.

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<v Speaker 4>Hayley, we really appreciate it ly classic Albumb're intelligence and

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<v Speaker 4>your transport logistics and shipping analysts.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast just live weekdays

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<v Speaker 4>Remember when we were all going to get this rate

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<v Speaker 4>cutting cycle and it was going to be really great

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<v Speaker 4>for commercial real estate and everything was going to level

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<v Speaker 4>out and stabilize, Well, that seems to be definitely put

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<v Speaker 4>on pause. Add in the economic uncertainty and it raises

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<v Speaker 4>a lot of questions as to what happens to that sector.

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<v Speaker 4>Hassan naj is a CEO of Marcus Millichap. They are

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<v Speaker 4>a commercial real estate firm. They're based in California. But

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<v Speaker 4>he's here in the studio. A lot of economic uncertainty

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<v Speaker 4>and the fed on pause. What does that mean for Cire, Good.

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<v Speaker 6>Morning, great to be with you, thanks for having me back.

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<v Speaker 6>It means the fundamentals are very well intact. It means

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<v Speaker 6>the enthusiasm that we saw post election because of the

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<v Speaker 6>election outcome being favorable to economic growth and especially real

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<v Speaker 6>estate tax treatment with the twenty seventeen tax reduction and

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<v Speaker 6>Jobs Act, more likely to be extended still, but you're

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<v Speaker 6>absolutely right. In the near term, we've seen a lot

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<v Speaker 6>of our clients just pause for a minute to see

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<v Speaker 6>what happens with tariffs, to see what happens with the economy.

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<v Speaker 6>The slowdown is now beginning to sound more like a

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<v Speaker 6>potential recession, although the data doesn't quite support that just yet.

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<v Speaker 6>But there is more near term concern once the dust

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<v Speaker 6>settles with all of these kind of a week to

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<v Speaker 6>week disruptions and the headlines and so on, I think

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<v Speaker 6>those positive fundamentals and the essential enthusiasm that our clients

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<v Speaker 6>feel will come back into the marketplace.

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<v Speaker 2>I thought the lending market for commercial real estate today,

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<v Speaker 2>if I wanted to go build a multi apartment building

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<v Speaker 2>in Middletown, America, will my local bank lend to me

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<v Speaker 2>or do I have to go to alternative sources?

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<v Speaker 6>Well, it depends very much by the project. So if

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<v Speaker 6>we're talking about construction financing, that was the that is

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<v Speaker 6>the most difficult to get right now because there is

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<v Speaker 6>so much more more cautioned by lenders than we've seen

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<v Speaker 6>in normal times. However, on the flip side of it,

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<v Speaker 6>there's way too much worry about distress sales and distress

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<v Speaker 6>becoming contagion and banks having to mark down on lots

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<v Speaker 6>of portfolios. Have not seen it, haven't seen it because

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<v Speaker 6>of the fundamentals being healthy and lenders not being motivated

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<v Speaker 6>by marking to market and dumping a bunch of product

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<v Speaker 6>at a big discount. And you have to remember, commercial

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<v Speaker 6>real estate is vast. It's not just office space, it's retail,

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<v Speaker 6>it's apartments, it's self storage units.

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<v Speaker 4>Well, well, let's talk about the apartment part because in terms

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<v Speaker 4>of building new supply, talk about uncertainty. It's a labor issue.

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<v Speaker 4>It's a lumber issue, it's a steal issue, it's a

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<v Speaker 4>supply issue. I mean, that is material risk for that sector,

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<v Speaker 4>very much so.

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<v Speaker 6>But any more constraint on new development is actually positive

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<v Speaker 6>for the industry because we've been building a lot of

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<v Speaker 6>apartments over the last few years. Before all of this

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<v Speaker 6>tariff talk. We saw a fifty to seventy percent decline

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<v Speaker 6>in permits and new construction starts in the last let's

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<v Speaker 6>say six months or so, which is very positive for

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<v Speaker 6>the industry because there was some overbuilding going on in

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<v Speaker 6>about five or six metros. On the office front, I

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<v Speaker 6>have to say, especially here in New York, most of

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<v Speaker 6>your audience probably is unaware that the office market is

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<v Speaker 6>actually coming back a lot faster than people would have expected.

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<v Speaker 6>Just here in New York, the second half of twenty

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<v Speaker 6>twenty four showed the most absorption of office space we've

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<v Speaker 6>seen since the pandemic recovery. Actually, about eight million square

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<v Speaker 6>feet between downtown and Midtown Manhattan were absorbed in the

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<v Speaker 6>second half of twenty twenty four. Vacancies came down more

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<v Speaker 6>than a full percentage point because companies are making such

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<v Speaker 6>a push to bring people back and the economy still expanding.

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<v Speaker 2>Have we seen any real distress sales in New York

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<v Speaker 2>or Boston or San Francisco a building that we'd all

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<v Speaker 2>know and oh boy, it just sold it fifty cents

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<v Speaker 2>on the dollar. I haven't seen too many of those stories.

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<v Speaker 4>Just to point out, he really want to see these stories.

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<v Speaker 2>I want to see these stories.

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<v Speaker 6>You've asked me about that before bottom of the market.

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<v Speaker 6>Sure there have been, but it's limited to obsolete, older

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<v Speaker 6>office space, usually in urban markets, that cannot be reused.

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<v Speaker 6>Anything that has a chance of retenanting being renovated is

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<v Speaker 6>not in the category of bargain basement pricing. It's only

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<v Speaker 6>the true obsolete office product that we've seen some older

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<v Speaker 6>shopping centers too, but not I get.

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<v Speaker 2>Pitched by Frans. My real estate friends got a new fund.

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<v Speaker 2>We're going out. We think we're close to the bottom.

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<v Speaker 2>I'm like, I'm not giving you anything because I'm not

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<v Speaker 2>sure where we are. I haven't seen that story that's

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<v Speaker 2>going to mark the bottom.

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<v Speaker 4>Well, that's the thing is that we always wait for it.

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<v Speaker 4>I know says it's a good opportunity, and then all

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<v Speaker 4>of a sudden, it's never seems to materializers that one

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<v Speaker 4>off that we didn't.

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<v Speaker 6>I'll have to tell you opportunity funds that have been

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<v Speaker 6>formed in the last two three years in anticipation of

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<v Speaker 6>this big buying opportunity have been very frustrated. So there's

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<v Speaker 6>situational distress, but there is no systemic.

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<v Speaker 4>Distress death buyers. From twenty sixteen, it had those funds

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<v Speaker 4>ready to go for the turn and get Nope, where's

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<v Speaker 4>that distressed debt turn? Regionally, what do you guys like

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<v Speaker 4>right now?

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<v Speaker 6>Well, the growth markets such as Texas, Arizona, Florida, Georgia.

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<v Speaker 6>I was just in Atlanta yesterday. We had a presentation

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<v Speaker 6>to about four hundred of our clients in that market.

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<v Speaker 6>Those continued to lead in demographics and job creation. I

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<v Speaker 6>think California is getting a bad rap and it's a

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<v Speaker 6>diamond in the rough. A lot of those real estate

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<v Speaker 6>prices have adjusted to the point where if you look

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<v Speaker 6>at the replacement cost, it makes this window off time

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<v Speaker 6>a very attractive one to get into commercial real estate

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<v Speaker 6>if you can stomach the near term, you know, oncertainty

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<v Speaker 6>around interest rates and so on. And we're seeing a

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<v Speaker 6>record capital on the sideline wanting to get back in.

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<v Speaker 6>There is a bit ask spread still in the marketplace,

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<v Speaker 6>but it's narrowing.

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<v Speaker 2>Yesan, thank you so much for joining us. We always

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<v Speaker 2>appreciate getting some of your time. I saw Naji, CEO

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<v Speaker 2>of Marcus and Milichep joining us here in our Bloomberg

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<v Speaker 2>in Directive Broker studio. He was like talking about commercial

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<v Speaker 2>real estate, and again, as I mentioned before, it's not

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<v Speaker 2>what I used to think. I used to think it's

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<v Speaker 2>just one big, monolithic marcial real estate, but so many subsectors.

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<v Speaker 2>Some are doing better than others here. But you know,

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<v Speaker 2>I have seen a couple of stories about San Francisco, LA.

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<v Speaker 2>Some big market buildings do change hands at a big discount,

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<v Speaker 2>but interesting.

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