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Speaker 2: John is just reporting some disupporting numbers out of Nike,
Speaker 2: out of FedEx. And I'm going to approach the analysts
Speaker 2: we have from BI kind of the same way of
Speaker 2: my questioning, and let's start with Punham Goyle, senior US
Speaker 2: retail and e commerce analysts, and we'll start with the
Speaker 2: Nike and put them The question I have for you
Speaker 2: is kind of the same one I'm going to have
Speaker 2: for Lee Klascal about FedEx and how much of the
Speaker 2: were kind of the weaker than expected results was company specific,
Speaker 2: i e. Not executing well versus maybe just a weakening
Speaker 2: consumer out there. How does their applot in Nike, so Nike.
Speaker 3: With all companies specific and I would say that you
Speaker 3: know a lot of this. We expected Nike's results will
Speaker 3: stay weak until they get their inventory realigned with sales,
Speaker 3: and that's not going to happen overnight. It will take
Speaker 3: at least two to three quarters at the minimum. So
Speaker 3: we do have some downside or some weak results for
Speaker 3: the next few quarters. But I will say that they
Speaker 3: are making the right moves. The new CEO, Elliott Hill,
Speaker 3: has a plan that we think will work. It will
Speaker 3: drive Nike back to be the lead and get the
Speaker 3: mind share that it has held for so many decades.
Speaker 4: In that case, have we seen the bottom in the
Speaker 4: stock praise?
Speaker 3: Well, I mean the shares have clearly come off from
Speaker 3: their highs and they're down again today seven percent. I'd
Speaker 3: say the bad news is out. So from here they
Speaker 3: should continue to realign inventory. This upcoming fiscal fourth quarters
Speaker 3: of theirs is when they'll probably make the biggest push
Speaker 3: and we should hopefully see inventory begin to normalize over
Speaker 3: the next two to three quarters.
Speaker 2: Compared to their competitors. This inventory issue, this I would argue,
Speaker 2: mismanagement of inventory. It feels to me, is it maturely
Speaker 2: different than its competitors.
Speaker 3: Yeah, absolutely, this is a Nike specific issue. So what
Speaker 3: happened here is that Nike has a lot of classic
Speaker 3: inventory that just isn't resonating with customers, and therefore they
Speaker 3: have to find ways to clear that, which they'll do
Speaker 3: through their outlets and the value wholesale channels. The other competitors,
Speaker 3: if you're talking about Adidas, whom or others, they don't
Speaker 3: have this issue because they have the right inventory for
Speaker 3: the most part in place, and therefore they will not
Speaker 3: have as many discounts as Nike will have over the
Speaker 3: coming three to nine months.
Speaker 4: At the same time, though, they talked about gross margins
Speaker 4: being also impacted by tariffs, and that would be an
Speaker 4: industry issue.
Speaker 3: Right, the tariffs isn't an industry issue, but the decline
Speaker 3: that they guide it to, the four hundred to five
Speaker 3: hundred basis point decline and fiscal fourth quarter, the bulk
Speaker 3: of it is due to the markdowns that they will
Speaker 3: face as they clear this unwanted inventory. So terra stouts
Speaker 3: have an impact, but it's a very small part of
Speaker 3: that margin compression that they're forecasting.
Speaker 5: Put them.
Speaker 2: How did the company get in this position where they
Speaker 2: had this inventory that wasn't resonating with customers because I
Speaker 2: think of Nike as like really on top of knowing
Speaker 2: what the customers want and delivering some really cool products.
Speaker 1: What happened?
Speaker 3: I think this all happened with the previous leadership when
Speaker 3: John Donaho came on board right around the pandemic, and
Speaker 3: he had a strategy to go digital, so essentially pulling
Speaker 3: out of many wholesale channels in a meaningful way where
Speaker 3: Nike was really focused on driving growth in digital. The
Speaker 3: product was changing, but it wasn't changing enough. You know.
Speaker 3: You saw, for example, they used a shoe and they
Speaker 3: just rolled out multiple color waves in it. There wasn't
Speaker 3: as much innovation as what the consumer is used to
Speaker 3: it from Nike. So it was execution. It was just
Speaker 3: not having the right product. And I think they're back
Speaker 3: on their game now. They have a leader at home
Speaker 3: that knows the product that was a merchant. So they
Speaker 3: do have some work to do, but I think they're
Speaker 3: moving in the right direction.
Speaker 4: Who took their share while they were stumbling and can
Speaker 4: they get it back?
Speaker 3: Everyone beyond the Hokah's, Adidas, you name it. I mean,
Speaker 3: you know, when I went to a foot locker. Let's
Speaker 3: say seven years ago, it was largely Nike. Today, when
Speaker 3: I walk into a foot locker, I see everything in there.
Speaker 3: I see Nike, I see ya, and I see hokah.
Speaker 3: So everyone took a little bit of it.
Speaker 2: Yeah, hokas. I didn't even know what where they came from.
Speaker 2: But I see a lot of the kids around here
Speaker 2: wearing them well.
Speaker 4: And the adults too are starting to wear them. They're
Speaker 4: super cool.
Speaker 2: Well they're adults, but they're kids to me here at
Speaker 2: Bloomberg But even like the and they're wearing them to work,
Speaker 2: by the way, the.
Speaker 4: Older kids are still doing it, are they. Yeah, this
Speaker 4: is not just like a twenty five year old thing.
Speaker 4: This is a broader I think that David Weston has
Speaker 4: worn up.
Speaker 2: That's that was so disappointing to me on.
Speaker 4: So I don't know if that's one hundred percent true.
Speaker 4: It could be spending false rumors, but it could be true.
Speaker 4: All I put them, thanks, not really appreciate it. Put them. Goyle,
Speaker 4: Senior US e Commerce some retail analysts at Bloomberg Intelligence.
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Speaker 4: This is Bloomberg Intelligence Radio. Still a top tay for
Speaker 4: the market. SMP is off by seven tenths of one percent,
Speaker 4: of nastacs off by about six tenths of one percent.
Speaker 4: It just feels like a steady as she goes. Yesterday
Speaker 4: during the close, you could see the SMP desperately wanting
Speaker 4: to turn green, could not do it, and we just
Speaker 4: continue to kind of roll over. We also have about
Speaker 4: four point five trillion dollars worth of options expiring too,
Speaker 4: So what do you do? Like, is it safety? Is
Speaker 4: it run for the hills? Is it just wait till
Speaker 4: the second? Is it just hold everything until the back
Speaker 4: half of the year.
Speaker 2: Yeah, it feels like April second seems like it's just
Speaker 2: gonna be a bigger and bigger date for some folks
Speaker 2: in this marketplace that we're just looking for a little
Speaker 2: sense of clarity on maybe one of these big issues
Speaker 2: being the tariffs, and you know how broad they will
Speaker 2: be and whether and who will they be placed upon
Speaker 2: and take if you can take that out of the
Speaker 2: equation a little bit. Maybe that will be a positive catalyst.
Speaker 2: The uncertainty was called out by a lot of companies.
Speaker 2: We heard Nike earlier in the day. FedEx also in
Speaker 2: their stock trading off nine percent on some weaker than
Speaker 2: expected earnings. That's a fifty two week low for that stock.
Speaker 2: Lee Klascal joins is he's a senior transport logistics and
Speaker 2: shipping analysts who follows FedEx for Bloomberg Intelligence. Lee, I'm
Speaker 2: gonna ask kind of the same question I asked of
Speaker 2: Putnam Goyle about Nike, which is how much of the
Speaker 2: underperformance in FedEx results was due to just maybe the
Speaker 2: market being a little softer, with the consumer being a
Speaker 2: little softer, or FedEx specific issues.
Speaker 5: Hey, Paul, I think it's a lot has to do
Speaker 5: with the fact that the macros is a little weaker
Speaker 5: than they thought. And you know, the weakness that they
Speaker 5: were seeing is in the business to business biomes as
Speaker 5: well as the industrial economy. You know, they have a
Speaker 5: lot of exposure to the industrial economy, and their FedEx
Speaker 5: free business just are less than truckload business. Uh. That
Speaker 5: business kind of disappointed on the earnings while it's a
Speaker 5: parcel business express business. Uh, slightly bet expectations. You know,
Speaker 5: the company is going through a major transformation. It's been
Speaker 5: operated as a uh kind of bloated concern for a
Speaker 5: number of years. Uh. I know, over the last couple
Speaker 5: of years, they've been taking proactive steps into kind of
Speaker 5: writing that and reducing costs. They're also you know, doing
Speaker 5: things that that that management thought was kind of taboo,
Speaker 5: if you will. They're now uh uh combining their ground
Speaker 5: and express networks in certain regions, and they're gonna, you know,
Speaker 5: eventually do that in the United States. Right now, it's
Speaker 5: being done in Canada. Uh they're re uh uh restructuring
Speaker 5: their their air network uh and and the and and
Speaker 5: the really goal is to is to to build profitable density.
Speaker 5: And the problem is that they've you know, they've generated
Speaker 5: a lot of cost savings, but some of that cost
Speaker 5: savings has gotten lost because the macro just isn't as
Speaker 5: strong as maybe they thought it's going to be. And
Speaker 5: looking forward, I think it's very difficult for FedEx or
Speaker 5: really anyone that deals with the economy to kind of
Speaker 5: forecast where they think volumes are going to go, because
Speaker 5: we really don't know. There's so much uncertainty. As you
Speaker 5: mentioned earlier, whether it's you know, the risk from tariffs,
Speaker 5: whether it's the inflationary risk that could come from tariff,
Speaker 5: whether it's getting rid of the dominimus exemptions for low
Speaker 5: valued freight out of China. There's a lot of things
Speaker 5: that could weigh on results, at least looking into the
Speaker 5: near future.
Speaker 4: For companies like these, what winds up being their base
Speaker 4: case when it comes to tariffs and trade, Like, they've
Speaker 4: got to do something, they got to say something. So
Speaker 4: what's their base case?
Speaker 5: I don't really know if they have a base case.
Speaker 5: The base case is that we're going to operate in
Speaker 5: the in the environment that is given to us, and
Speaker 5: it's not going to be special to us because you know,
Speaker 5: our major competitor or EUPS is going to have to
Speaker 5: deal with a similar situation. And so I think they
Speaker 5: just want to know what the rules of the road
Speaker 5: are so then they can kind of operate, you know.
Speaker 5: As you know, a lot of companies are holding back
Speaker 5: on CAPEX because they just don't know, you know, are
Speaker 5: we going to is investing in Mexico a good thing
Speaker 5: or a bad thing for US manufacturers? It just there's
Speaker 5: really a lot of things that are up in the air.
Speaker 2: Yeah, it's interesting. I'm looking at the kind of the
Speaker 2: earnings estaments out there LYE on the Bloomberg terminal, and
Speaker 2: you know, the streets kind of got fifteen percent earnings
Speaker 2: growth starting in their fiscal twenty six year. They're may
Speaker 2: twenty six year. Over the next couple of years, there's
Speaker 2: stock trades are like eleven, i know, twelve times multiple
Speaker 2: earnings multiple. That looks pretty attractive, But I guess you
Speaker 2: have to buy off on management's ability to execute, right.
Speaker 5: Yeah, we don't do buyhole sell here at Bloomberg Intelligence,
Speaker 5: as you know. But you know, at the end of
Speaker 5: the day, the thing that they are doing today, when
Speaker 5: the demand environment will be is less volatile and more predictable,
Speaker 5: will be very good for margins. It's just like, you know,
Speaker 5: how long are you willing to wait for that to happen?
Speaker 5: You know, is it going to be four years until
Speaker 5: things normalized or is it going to be in six
Speaker 5: months when things normalize. We just really don't know. And
Speaker 5: there's a lot of other things that can happen as well.
Speaker 5: You know, the Trump administration has talked about, you know,
Speaker 5: adding fees and fines to you know, ships that are
Speaker 5: not made in the US that come to dock in
Speaker 5: the US that could have an impact on air freight,
Speaker 5: could move stuff to air freight because it becomes I
Speaker 5: guess more reasonable for certain items. So there's a lot
Speaker 5: of different things that can happen. We just don't know.
Speaker 5: As I mentioned earlier, with the rules of the road
Speaker 5: are which are critical for us to figure out where
Speaker 5: things are headed from here because you know, GDP expectations
Speaker 5: have been moderating as you know, and these companies FedEx
Speaker 5: and ups are tied to that.
Speaker 4: Hayley, we really appreciate it ly classic Albumb're intelligence and
Speaker 4: your transport logistics and shipping analysts.
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Speaker 4: Remember when we were all going to get this rate
Speaker 4: cutting cycle and it was going to be really great
Speaker 4: for commercial real estate and everything was going to level
Speaker 4: out and stabilize, Well, that seems to be definitely put
Speaker 4: on pause. Add in the economic uncertainty and it raises
Speaker 4: a lot of questions as to what happens to that sector.
Speaker 4: Hassan naj is a CEO of Marcus Millichap. They are
Speaker 4: a commercial real estate firm. They're based in California. But
Speaker 4: he's here in the studio. A lot of economic uncertainty
Speaker 4: and the fed on pause. What does that mean for Cire, Good.
Speaker 6: Morning, great to be with you, thanks for having me back.
Speaker 6: It means the fundamentals are very well intact. It means
Speaker 6: the enthusiasm that we saw post election because of the
Speaker 6: election outcome being favorable to economic growth and especially real
Speaker 6: estate tax treatment with the twenty seventeen tax reduction and
Speaker 6: Jobs Act, more likely to be extended still, but you're
Speaker 6: absolutely right. In the near term, we've seen a lot
Speaker 6: of our clients just pause for a minute to see
Speaker 6: what happens with tariffs, to see what happens with the economy.
Speaker 6: The slowdown is now beginning to sound more like a
Speaker 6: potential recession, although the data doesn't quite support that just yet.
Speaker 6: But there is more near term concern once the dust
Speaker 6: settles with all of these kind of a week to
Speaker 6: week disruptions and the headlines and so on, I think
Speaker 6: those positive fundamentals and the essential enthusiasm that our clients
Speaker 6: feel will come back into the marketplace.
Speaker 2: I thought the lending market for commercial real estate today,
Speaker 2: if I wanted to go build a multi apartment building
Speaker 2: in Middletown, America, will my local bank lend to me
Speaker 2: or do I have to go to alternative sources?
Speaker 6: Well, it depends very much by the project. So if
Speaker 6: we're talking about construction financing, that was the that is
Speaker 6: the most difficult to get right now because there is
Speaker 6: so much more more cautioned by lenders than we've seen
Speaker 6: in normal times. However, on the flip side of it,
Speaker 6: there's way too much worry about distress sales and distress
Speaker 6: becoming contagion and banks having to mark down on lots
Speaker 6: of portfolios. Have not seen it, haven't seen it because
Speaker 6: of the fundamentals being healthy and lenders not being motivated
Speaker 6: by marking to market and dumping a bunch of product
Speaker 6: at a big discount. And you have to remember, commercial
Speaker 6: real estate is vast. It's not just office space, it's retail,
Speaker 6: it's apartments, it's self storage units.
Speaker 4: Well, well, let's talk about the apartment part because in terms
Speaker 4: of building new supply, talk about uncertainty. It's a labor issue.
Speaker 4: It's a lumber issue, it's a steal issue, it's a
Speaker 4: supply issue. I mean, that is material risk for that sector,
Speaker 4: very much so.
Speaker 6: But any more constraint on new development is actually positive
Speaker 6: for the industry because we've been building a lot of
Speaker 6: apartments over the last few years. Before all of this
Speaker 6: tariff talk. We saw a fifty to seventy percent decline
Speaker 6: in permits and new construction starts in the last let's
Speaker 6: say six months or so, which is very positive for
Speaker 6: the industry because there was some overbuilding going on in
Speaker 6: about five or six metros. On the office front, I
Speaker 6: have to say, especially here in New York, most of
Speaker 6: your audience probably is unaware that the office market is
Speaker 6: actually coming back a lot faster than people would have expected.
Speaker 6: Just here in New York, the second half of twenty
Speaker 6: twenty four showed the most absorption of office space we've
Speaker 6: seen since the pandemic recovery. Actually, about eight million square
Speaker 6: feet between downtown and Midtown Manhattan were absorbed in the
Speaker 6: second half of twenty twenty four. Vacancies came down more
Speaker 6: than a full percentage point because companies are making such
Speaker 6: a push to bring people back and the economy still expanding.
Speaker 2: Have we seen any real distress sales in New York
Speaker 2: or Boston or San Francisco a building that we'd all
Speaker 2: know and oh boy, it just sold it fifty cents
Speaker 2: on the dollar. I haven't seen too many of those stories.
Speaker 4: Just to point out, he really want to see these stories.
Speaker 2: I want to see these stories.
Speaker 6: You've asked me about that before bottom of the market.
Speaker 6: Sure there have been, but it's limited to obsolete, older
Speaker 6: office space, usually in urban markets, that cannot be reused.
Speaker 6: Anything that has a chance of retenanting being renovated is
Speaker 6: not in the category of bargain basement pricing. It's only
Speaker 6: the true obsolete office product that we've seen some older
Speaker 6: shopping centers too, but not I get.
Speaker 2: Pitched by Frans. My real estate friends got a new fund.
Speaker 2: We're going out. We think we're close to the bottom.
Speaker 2: I'm like, I'm not giving you anything because I'm not
Speaker 2: sure where we are. I haven't seen that story that's
Speaker 2: going to mark the bottom.
Speaker 4: Well, that's the thing is that we always wait for it.
Speaker 4: I know says it's a good opportunity, and then all
Speaker 4: of a sudden, it's never seems to materializers that one
Speaker 4: off that we didn't.
Speaker 6: I'll have to tell you opportunity funds that have been
Speaker 6: formed in the last two three years in anticipation of
Speaker 6: this big buying opportunity have been very frustrated. So there's
Speaker 6: situational distress, but there is no systemic.
Speaker 4: Distress death buyers. From twenty sixteen, it had those funds
Speaker 4: ready to go for the turn and get Nope, where's
Speaker 4: that distressed debt turn? Regionally, what do you guys like
Speaker 4: right now?
Speaker 6: Well, the growth markets such as Texas, Arizona, Florida, Georgia.
Speaker 6: I was just in Atlanta yesterday. We had a presentation
Speaker 6: to about four hundred of our clients in that market.
Speaker 6: Those continued to lead in demographics and job creation. I
Speaker 6: think California is getting a bad rap and it's a
Speaker 6: diamond in the rough. A lot of those real estate
Speaker 6: prices have adjusted to the point where if you look
Speaker 6: at the replacement cost, it makes this window off time
Speaker 6: a very attractive one to get into commercial real estate
Speaker 6: if you can stomach the near term, you know, oncertainty
Speaker 6: around interest rates and so on. And we're seeing a
Speaker 6: record capital on the sideline wanting to get back in.
Speaker 6: There is a bit ask spread still in the marketplace,
Speaker 6: but it's narrowing.
Speaker 2: Yesan, thank you so much for joining us. We always
Speaker 2: appreciate getting some of your time. I saw Naji, CEO
Speaker 2: of Marcus and Milichep joining us here in our Bloomberg
Speaker 2: in Directive Broker studio. He was like talking about commercial
Speaker 2: real estate, and again, as I mentioned before, it's not
Speaker 2: what I used to think. I used to think it's
Speaker 2: just one big, monolithic marcial real estate, but so many subsectors.
Speaker 2: Some are doing better than others here. But you know,
Speaker 2: I have seen a couple of stories about San Francisco, LA.
Speaker 2: Some big market buildings do change hands at a big discount,
Speaker 2: but interesting.
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