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A
Bloomberg Audio Studios podcasts Radio news you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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C
Alix Steel Paul Sweeney we're live here in our Bloomberg Interactive Broker Studio. We are Streaming live on YouTube so head over to Bloomberg, head over to YouTube.com and search Bloomberg Podcast Live and that's where you'll find us. As John was just reporting some disappointing numbers out of Nike out of FedEx and I'm going to approach the analysts that we have from BI kind of the same way in my questioning. And let's start with poonam Goyal, senior U.S. retail E commerce Analyst and we'll start with the Nike and Poonam. The question I have for you is kind of the same one I'm going to have for Lee Klaskow about FedEx and how much of the kind of the weaker than expected results was company specific. That is not executing well versus maybe just a weakening consumer out there. How does it apply to Nike?
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D
So Nike was all company specific and I would say that you know a Lot of this we expected. Nike results will stay weak until they get their inventory realigned with sales. And that's not going to happen overnight. Take at least 2 to 3 quarters at the minimum. So we do have some downside or some weak results for the next few quarters. But I will say that they are making the right moves. The new CEO Elliot Hill has a plan that we think will work. It will drive Nike back to be the lead and get the mind share that it has held for so many decades.
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E
In that case, have we seen the bottom in the stock price?
- [03:03]
D
Well, I mean the shares have clearly come off from their highs and they're down again today, 7%. I'd say the bad news is out. So from here they should continue to realign inventory. This upcoming fiscal fourth quarters of theirs is when they'll probably make the biggest push and we should hopefully see inventory begin to normalize over the next two.
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C
To three quarters compared to their competitors. This inventory issue, this I would argue mismanagement of inventory, it feels to me. Is it materially different than its competitors?
- [03:36]
D
Yeah, absolutely. This is a Nike specific issue. So what happened here is that Nike has a lot of classic inventory that just isn't resonating with customers and therefore they have to find ways to clear that which they'll do through their outlets and the value wholesale channels. The other competitors, if you're talking about Adidas, Puma or others, they don't have this issue because they have the right inventory for most part in place and therefore they don't. They will not have as many discounts as Nike will have over the coming three to nine months.
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E
At the same time though, they talked about gross margins being also impacted by tariffs. That would be an industry issue, right?
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D
The tariffs is an industry issue, but the decline that they guided to the 400 to 500 basis point decline in fiscal fourth quarter, the bulk of it is due to the markdowns that they will face as they clear this unwanted inventory. So tariffs does have an impact, but it's a very small part of that margin compression that they're forecasting put them.
- [04:29]
C
How did the company get in this position where they had this, this inventory that wasn't resonating with customers? Because I think of Nike as like really on top of knowing what the customers want and delivering some really cool products. What happened?
- [04:43]
D
I think this all happened with the previous leadership when John Donahoe came on board right around the pandemic and he had a strategy to go digital. So essentially pulling out of many wholesale channels in a meaningful way where Nike was really focused on driving growth in digital, the product was changing, but it wasn't changing enough. You know, you saw for example, they used a shoe and they just rolled out multiple color waves in it. There wasn't as much innovation as what the consumer is used to from Nike. So it was execution. It was just not having the right product. And I think they're back on their game now. They have a leader at home that knows the product that was a merchant. So they do have some work to do, but I think they're moving in the right direction.
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E
Who took their share while they were stumbling? And can they get it back?
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D
Everyone. The Hokas, Adidas, you name it. I mean, you know, when I went to a Foot Locker, let's say seven years ago, it was largely Nike. Today, when I walk into a Foot Locker, I see everything in there. I see Nike, I see on, I see Hoka. So everyone took a little bit of it.
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C
Yeah, Hoka's. I don't even know what they, where they came from, but I see a lot of the kids around here wearing them.
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E
Well, and the adults too are starting to wear them. They're super.
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C
Well, they're adults, but they're kids to me here at Bloomberg.
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E
But even like.
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C
And they're wearing them to work, by.
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E
The way, the older kids are still doing it.
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C
Are they?
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E
Yeah. This is not just like a 25 year old thing.
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C
Okay.
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E
This is a broader. I think that David Westin has worn off.
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C
That's. That was so disappointing to me.
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E
I don't know if that's 100% true. I could be spreading false rumors, but it could be true. All right, put him. Thanks a lot. Really appreciate it. Putin Goyal, senior U.S. e Commerce and retail analyst at Bloomberg Intelligence.
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A
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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E
This is Bloomberg Intelligence Radio. Still a tough tape for the market. S and p is off by 710 of 1%. The Nasdaq's off by about 610 of 1%. It just feels like a steady as she goes. Yesterday during the close, you could see the S and P desperately wanting to turn green. Could not do it. And we just continue to kind of roll over. We also have about $4.5 trillion worth of options expiring too. So what do you do? Like is it safety? Is it run for the hills? Is it just wait till the second Is it just hold everything until the back half of the year?
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C
Yeah, it feels like April 2nd seems like it's just going to be a bigger and bigger date for some folks in this marketplace who are just looking for a little sense of clarity on maybe one of these big issues being the tariffs and you know, how broad they will be and whether and who will they be placed upon. Take if you can take that out of the equation a little bit, maybe that will be a positive catalyst. The uncertainty was called out by a lot of companies. We heard Nike earlier in the day, FedEx also and their stock trading off 9% on some weaker than expected earnings. That's a 52 week low for that stock. Lee Klaskow joins us. He's a senior transport logistics and shipping analyst who follows FedEx for Bloomberg Intelligence. Lee, I'm going to ask kind of the same question I asked Apunam Goyal about Nike, which is how much of the underperformance in FedEx results was due to just maybe the market being a little softer, the consumer being a little softer or FedEx specific issues.
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F
Hey Paul, I think it's a lot has to do with the fact that the macro is a little weaker than they thought and the weakness that they were seeing is in the business to business volumes as well as the industrial economy. They have a lot of exposure to the industrial economy in their FedEx Freight business, which is their less than truckload business. That business kind of disappointed on the earnings while its parcel business express business slightly beat expectations. The company is going through a major transformation. It's been operated as a kind of bloated concern for a number of years and over the last couple of years they've been taking proactive steps into kind of writing that and reducing costs. They're also doing things that management thought was kind of taboo, if you will. They're now combining their ground and express networks in certain regions and they're going to eventually do that in the United States. Right now it's being done in Canada. They're restructuring their air network and the really goal is to build profitable density. And the problem is that they've generated a lot of cost savings. But some of that cost savings has gotten lost because the macro just isn't as strong as maybe they thought it's going to be. And looking forward, I think it's very difficult for FedEx or really anyone that deals with the economy to kind of forecast where they think volumes are going to go because we really don't know. There's so much uncertainty as you mentioned earlier whether it's the risk from tariffs, whether it's the inflationary risk that could come from tariffs and whether it's getting rid of the de minimis exemptions for low valued freight out of China. There's a lot of things that, that, that could weigh on results at least. Looking into the near future for companies.
- [09:53]
E
Like these, what winds up being their base case when it comes to tariffs and trade? Like they got to do something, they got to say something. So what's their base case?
- [10:04]
F
I don't really know if they have a base case. The base case is that we're going to operate in the, in the environment that is given to us and it's not going to be special to us because you know, our major competitor UPS is going to have to deal with a similar situation. So I think they just want to know what the rules of the road are so then they can kind of operate. You know, as you know, a lot of companies are holding back on CapEx because they just don't know, you know, are we going to, is investing in Mexico a good thing or a bad thing for US Manufacturers? It just, there's really a lot of things that are up in the air.
- [10:40]
C
Yeah, it's interesting. I'm looking at the kind of the earnings estimates out there on the Bloomberg Terminal. The streets kind of got 15% earnings growth starting in their fiscal 26th year, their May 26 year. Over the next couple years the stock trades at like 11, I don't know, 12 times multiple earnings multiple. That looks pretty attractive. But I guess you have to buy off on management's ability to execute, right?
- [11:05]
F
Yeah, we don't do buy, hold, sell here at Bloomberg Intelligence, as you know. But at the end of the day, the things that they are doing today, when the demand environment is less volatile and more predictable will be very good for margins. It's just like, you know, how long are you willing to wait for that to happen? You know, is it going to be four years until things normalize or is it going to be in six months when things normalize? We just really don't know. And there's a lot of other things that can happen as well. You know, the Trump administration has talked about, you know, adding fees and fines to, you know, ships that are not made in the US that come to dock in the US that could happen, have an impact on air freight, could move stuff to air freight because it becomes, I guess, more reasonable for certain items. So there's a lot of different things that can happen. We just don't know, as I mentioned earlier, what the rules of the road are, which are critical for us to figure out where things are headed from here. Because, you know, GDP expectations have been moderating, as you know, and these companies, FedEx and UPS are tied to that.
- [12:09]
D
Hey Lee.
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E
We really appreciate it, Lee Class Gal Bloomberg Intelligence Senior Transport Logistics and Shipping.
- [12:13]
A
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- [14:06]
A
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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E
Remember when we were all going to get this rate cutting cycle and it was me really great for commercial real estate and everything was going to level out and stabilize? Well, that seems to be definitely put on pause. Add in the economic uncertainty and it raises a Lot of questions as to what happens to that sector. Hassan Najee is CEO of Marcus Millichap. They are a commercial real estate firm. They're based in California. But he's here in the studio. A lot of economic uncertainty and the Fed on pause. What does that mean for cre?
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B
Good morning. Great to be with you. Thanks for having me back. It means the fundamentals are very well intact. It means the enthusiasm that we saw post election because of the election outcome being favorable to economic growth and especially real estate tax treatment with the 2017 Tax Reduction and Jobs act more likely to be extended is still there. But you're absolutely right in the knee. In the near term we've seen a lot of our clients just pause for a minute to see what happens with tariffs, to see what happens with the economy. The slowdown is now beginning to sound more like a potential recession, although the data doesn't quite support that just yet. But there is more near term concern once the dust settles with all of these kind of a week to week disruptions and the headlines and so on. I think those positive fundamentals and then and the essential enthusiasm that our clients feel will come back into the marketplace.
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C
But the lending market for commercial real estate today. If I wanted to go build a multi, you know, apartment building in Middletown America, will my local bank lend to me or do I have to go to alternative sources?
- [15:59]
B
It depends on very much by the project. So if we're talking about construction financing, that was the, that is the most difficult to get right now because there is so much more caution by lenders than we've seen in normal times. However, on the flip side of it, there's way too much worry about distress, sales and distress becoming contagion and banks having to mark down lots of portfolios. Have not seen it, haven't seen it because of the fundamentals being healthy and lenders not being motivated by marking to market and dumping a bunch of product at a big discount. And you have to remember commercial real estate is vast. It's not just office space, it's, it's retail, it's apartments, it's self storage units.
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E
Well, let's talk about the apartment part because in terms of building new supply, talk about uncertainty. It's a labor issue, it's a lumber issue, it's a steel issue, it's a supply issue. I mean that is material risk for that sector.
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B
Very much so. But any more constraint on new development is actually positive for the industry because we've been building a lot of apartments over the last few years before all of this tariff talk, we saw a 50 to 70% decline in permits and new construction starts in the last, let's say six months or so, which is very positive for the industry because there was some overbuilding going on in about five or six metros. On the office front, I have to say, especially here in New York, most of your audience probably is unaware that the office market is actually coming back is a lot faster than people would have expected. Just here in New York, the second half of 2024 showed the most absorption of office space we've seen since the pandemic recovery. Actually, about 8 million square feet between downtown and midtown Manhattan were absorbed in the second half of 2024. Vacancies came down more than a full percentage point because companies are making such a push to bring people back and the economy still expanding.
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C
Have we seen any real distressed sales in New York or Boston or San Francisco? A building that we'd all know and oh boy, it just sold at 50 cents on the dollar. I haven't seen too many of those stories.
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E
Just to point out he really wants to see these stories.
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C
I want to see these stories. Me will be.
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B
You've asked me about that before. The market, sure, there, there have been, but it's limited to obsolete older office space. Usually in urban markets that cannot be reused. Anything that has a chance of retenanting being renovated is not in the category of bargain basement pricing. It's only the true obsolete office product that we've seen. Some older shopping centers too, but not.
- [18:39]
C
I get pitched by friends. My real estate friends got a new fund, we're going out. We think we're close to the bottom. I'm like, I'm not, I'm not giving you anything because I'm not sure where we are. I haven't seen that story that's going to mark the bottom.
- [18:50]
E
Well, that's the thing is that we always wait for it. I know it's a good opportunity and then all of a sudden just never seems to materialize. Or is that one off that we didn't.
- [18:58]
B
I'll have to tell you, the opportunity funds that have been formed in the last two, three years in anticipation of this big buying opportunity have been very frustrated.
- [19:05]
E
Yeah.
- [19:06]
B
So there's situational distress, but there is no systemic distress.
- [19:09]
E
Also, distressed debt buyers from 2016, they've had those funds ready to go for the turn and nope. Where is that distressed debt turn regionally? Where do you. What do you guys like right now?
- [19:20]
B
Well, the growth markets such as Texas, Arizona, Florida, Georgia, I was just in Atlanta yesterday. We had a presentation to about 400 of our clients in that market. Those continue to lead in demographics and job creation. I think California is getting a bad rap and it's a diamond in the rough. A lot of those real estate prices have adjusted to the point where if you look at replacement cost, it makes this window of time a very attractive one to get into commercial real estate if you can stomach the near term, you know, uncertainty around interest rates and so on. And we're seeing record capital on the sideline wanting to get back in. There is a bid ask spread still in the marketplace, but it's narrowing.
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C
Hasan, thank you so much for joining us. We always appreciate getting some of your time. Hassan Najee, CEO of Marcus and Millichap, joining us here in our Bloomberg Interactive Broker studio where he was like talking about commercial real estate. And again, as I mentioned before, it's not what I used to think. I used to think it's just one big monolithic commercial real estate. But so many subsectors, some are doing better than others here. But you know, I have seen a couple of stories about San Francisco, Louisiana. Some big market buildings do change hands at a big discount, but interesting.
- [20:29]
A
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