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- [00:00]
Paul Sweeney
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- [00:19]
Podcast Host
Bloomberg Audio Studios Podcasts Radio news. 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.
- [00:41]
Scarlett Fu
Starbucks reported some pretty darn good numbers today. Mike, tell us about what's going on in Starbucks.
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Brian Nowak
You know, the, the turnaround plans are starting to really take a whole take a hold right now. And results really improved, rising, you know, 4% system wide. Same store sales US as well. China was up 7%. You know, here in the US it's, you know, mainly about better operations. Right. They, they rolled out new operating standards late last year and that they seem to be really boosting the speed of service, which is creating happier customers that come back more frequently. Right. Some food innovation including protein, cold foam seems to be hitting the mark. Right. And they're doing a better job on the marketing side. So all those are driving drove better same star sales than expected.
- [01:38]
Scarlett Fu
Yeah, I don't know the one. I go to the Starbucks, Route 35, Wall Township, New Jersey. They do a great job for me and I've noticed the change. Little things like writing your name back on the cup like they used to back in the early days, in addition to that sticker, which was a little antiseptic, I guess. Talk to us about costs there. Are they looking at their costs as well?
- [02:02]
Brian Nowak
Yeah, they've identified $2 billion in annual costs that they want to get after over the next one to two years. You know, right now margins have been impacted. They've gotten those same store sales and traffic numbers up by adding labor to the stores. Right. And so they're seeing margin compression still. So now that they got people coming back to the stores, now that the operations are more dialed in, you know, CEO Brian Nichols said they're not quite where they need to be throughout the day. They're great at peak, but they have some improvements still to do. But you know, now that people are coming back to the stores, they're gonna, you know, focus a little bit more on where, where they can can save some money because, you know, it was a smart move, reallocating labor into the stores, but costly.
- [02:46]
Scarlett Fu
Talk to us about the competitive environment because you go to like, I don't see small towns. Seems like there's A coffee joint on every corner these days. What's the competitive landscape for Starbucks these days?
- [02:58]
Brian Nowak
Well you know it's as, it's as competitive as it's ever been. You know they, they, you have some of these younger chains that seem to do really well with Gen Z like Dutch Bros. And seven Brew and, and they're, they're opening up these drive thru cans you know throughout the suburbs across America. You know, in the cities. You know there's a lot of competition with these you know, very high end coffee shops that, that are you know using very, you know, very high quality coffee and, and an elevate and offering an elevated food experience. So competition is tough and that's why you know Starbucks is, is making some changes. You know they're focusing on, on health and wellness. Right. They're looking to improve the food in the bake case. They're looking to improve the food throughout the day. They're looking innovative drink offerings to boost that that afternoon day part. And so you know this, this is just the beginning of, of what Starbucks, you know thinks they need to do for long term. Continued same store sales growth.
- [04:02]
Scarlett Fu
Also Brinker International, another big restaurant holding company here boosted its full year profit outlook. What's going on at Brinker?
- [04:12]
Brian Nowak
More of the same. And you know CEO Kevin Hockman worked at Yum Brands with Brian N. So it shouldn't be a surprise that they have had similar turnaround plans. Obviously Kevin started his a little bit earlier than Brian's but it's, it was about operations then improving the marketing. Right now it's about continuing to work on the food and the food quality. So they started by you know, taking menu items off of the menu to make it easier to execute, make sure people are getting their food hot and fast. But now this year the story is really about improving the quality quality and the portions. Nacho sales jumped 170% on a, on a relaunch. They improved the bacon, bacon burger sales are up 30 or 40%. They had a queso relaunch. You know those sales are up 20%. Right. So, so you know they're the, the money that they're spending which is going to impact their cost of sales negatively. You know customers are seeing the improvements and they're, they're, it's resulting in higher satisfaction and customers are coming back and that's a great story man. They're, they did a you know, eight plus percent same store sales comp at Chili's comp and over a 30 plus percent. You know I've never seen this in the restaurant business. Absolutely incredible.
- [05:33]
Scarlett Fu
I saw the company did call out the chili's. All right, 30 seconds left. Cracker barrel, my fave. It's up 18% year to date. We got a little bit of life there.
- [05:42]
Brian Nowak
Listen, I think there's life throughout the restaurant industry. I think same store sales are gonna increase. They were strong in January up until winter storm Fern. But I think, I think, you know, tax relief and cheaper gas prices and just a better economy and less inflation are all going to help restaurant spending this year.
- [06:03]
Scarlett Fu
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- [07:07]
Podcast Host
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.
- [07:21]
Paul Sweeney
It is earnings season as well and AT&T has reported earnings. Its revenue beat estimates thanks to broadband strength. Let's bring in John Butler. He is our go to guy when it comes to the telecoms names. He's our Senior Telecom Analyst on Bloomberg Intelligence covering AT&T, covering Verizon, covering T Mobile. Where does AT&T stand relative to its competitors? Because as much as it's getting a boost from customers who subscribe to its broadband services, this is a saturated market and it's competing against big players and small players alike.
- [07:55]
John Butler
Yeah, it's a great question, Scarlet. You know, post the earnings call, they held a breakout session with investor relations with the sell side and there were a lot of questions about how broadband or how competition is now shifting from wireless over to broadband. I actually think AT and T is in A great position relative to their competitors because they're the fiber leader and they're about to buy lumens fiber business and add another million fiber subscribers there. So in terms of their ability to sell what are called converged packages or wireless to together with broadband, they're in a great position there because they have both fiber and they have a smaller fixed wireless access business which is that wireless broadband product.
- [08:48]
Scarlett Fu
John this is a company AT and t that spends 20, 22 billion dollars in CapEx every year. What is that capex for? Typically.
- [08:58]
John Butler
A lot of it Paul, is going towards wireless network upgrades as well as the deployment of fiber. So this year for example, they're going to add 5 million new fiber homes but it costs about $2,000, maybe twice that in some markets to build a new what's called a fiber homes pass. So a lot of capital is getting spent this year, next year and maybe to a little bit of a lesser degree in 28 that's sort of laying the foundation to build out that fiber network and that 5G wireless network. Beyond that AT&T has said we're going to cut our capex, we're going to lower our capital intense city and you're going to see a lot more free cash flow flow through and they're going to be able to fund hopefully some dividend growth after that and increase the share buyback.
- [09:51]
Paul Sweeney
Yeah, I'm looking at the dividend yield for AT&T, 4.6%. For Verizon it's almost 7%. For T Mobile a little bit less at 2.19%. John, where did the telecom stand when it comes to this rotation out of big tech looking for some cyclicals, looking for parts of the market that haven't been overbought.
- [10:15]
John Butler
So it's a good question Scarlett. I always say telecoms, particularly the dividend payers like AT&T and Verizon are our bond proxies to a degree. I think sentiment has been pushed around a little bit by the fact that we have new CEOs of both Verizon and T Mobile and these guys are going to be looking to make their mark. Verizon on Friday is going to set out a new strategy set by Dan Shulman who is the new CEO there. So there's been a little bit of concern or more than a little bit of concern that the competitive intensity in wireless is going to pick up as these new CEOs look to make their mark. And I think that has led to some of the pressure, particularly on AT&T though again this morning, I think they put a lot of those concerns to rest by reiterating their fiber plans and laying out new free cash flow guidance.
- [11:13]
Scarlett Fu
John, on the competitive land front, where are the cable companies these days?
- [11:18]
John Butler
They're struggling, Paul. I mean, they're at a technology disadvantage in that they're offering broadband over those legacy coaxial cable networks. They're doing what they can to upgrade the technology and increase speeds on those networks. But at the end of the day, fiber really is a superior product to everything else on the market. And fixed wireless access, which has been offered by the telcos has been a very popular choice given the fact that it's an easy setup, it's over the air, so there's very little problems with it. It's pretty much problem free. As broadband goes over time, it sort of has a headroom problem. It can offer the same speeds as fiber, but through it all, cable is sort of flying underneath those two, two products, sort of, you know, trying to compete with what is a legacy product in the market.
- [12:15]
Paul Sweeney
John, did we learn anything from AT&T's results regarding iPhones and, you know, consumers signing on for the latest version of the iPhone?
- [12:25]
John Butler
So great question. It's very interesting. AT&T over indexes to the iPhone. They have a lot more users than Verizon or T mobile because they had an early exclusivity deal when the iPhone first launched. They were asked about the foldable iPhone that's rumored to be coming out next year and whether that's really going to move the dial for them. Their answer to me was interesting. I didn't expect it. Which is they've been tracking in the performance and the sales of the foldables that they have available on the network today on the Android side. And their expectation is that we won't see a huge bump in iPhone sales next year with a foldable model. Model. I think time will tell. I actually think foldables are going to resonate well with people and Android isn't always the best read through there. I think it's a different kind of user that's on the Android phone versus iPhone, but we'll have to see in the fall.
- [13:27]
Scarlett Fu
Stay with us. More from Bloomberg Intelligence coming up after this.
- [13:32]
Podcast Host
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- [14:44]
Scarlett Fu
Caroline Hyde joins us here because there's a lot going on in the world of tech and Caroline Hyde is the B Tech co anchor. I'm going to start with asml some really big numbers over night. Caroline from this big chip maker that I guess that bodes well for folks that want to see continued momentum in AI spending.
- [15:00]
Caroline Hyde
If nothing else, might not bode well for a few of their employees.
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Scarlett Fu
That was odd to see a company put out such a strong earnings and then at the same time combine it with headcut something. This is AI folks.
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Caroline Hyde
This is AI. This is efficiency. This is agility as the CEO calls it is actually shares that have now turned red. Which is interesting we're trying to delve into is the reasoning why? Because they booked record orders, 13.2 billion euros worth. In fact, they're trying to point us to the fact that orders aren't the big tell anymore and don't always look at our backlog. But more broadly, this is a company that has lit a fire underneath European peers. Today. SMI is up an awful lot. The semiconductor is up a lot. You've seen lam research here in the United States, Applied Materials, because this is the chip equipment maker to the world, in particular to China. In fact, most of its sales still go to China even though I will tell you they sell their 8th generation lithography. Not even, not even allowed to ship lithography. But their chip equipment is so old. But still China needs that deprecated chip equipment manufacturing ability because they want to make their own domestic chips. Now we're also seeing the fact that they're good in Taiwan. They're seeing strength in the United States as we build out domestic chip manufacturing here as well. And that's why intel has been so much higher to Dell as well because it really is just a tell like TSMC was that this is an AI bubble, this is real orders for real chip manufacturing. And the CEO had said look, we got a lot of clarity in the last three months, so much clarity in fact that they are making those 1700 job cuts where they're trying to be more agile with their innovation and they're cutting out from the IT and the tech part of the business.
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Paul Sweeney
Okay, well speaking of job cuts, another big name announcing job cuts is Amazon.
- [16:39]
Caroline Hyde
16,000 corporate jobs and that's 30,000 in the last three months that they've announced. So this is a company that signal this. Look, Andy Jassy in his letter to his shareholders it said I am going to make AI work for me, but what does that mean? I'm going to have a smaller employee base. He's trying to strip out that layer of management and bureaucracy that built up during COVID where many would say big companies over hired in that period and therefore we're starting to still see the areas of being fixated on where they will rehire is areas of AI, of areas of, of AGI and areas of LM and all the areas of growth for the business. So they are going to try over the 90 days find new homes for some of these laid off employees. But 14,000 of them, they're not going to find homes for all of those. But this is again about efficiency for the company.
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Scarlett Fu
Yep, absolutely. SoftBank in talks to invest $30 billion more into open Air. The numbers are just monstrous but the valuation, you know, about $750 billion. I mean SoftBank's all in on this I think.
- [17:46]
Caroline Hyde
Yeah. And Masa is really committing to Open Air in particular. The number one holding for SoftBank thus far has been Ark and that is all about chip design in the future of artificial intelligence in that direction. But this would actually probably bring their number one exposure, the number one stake to being OpenAI if they put this 30 billion to work. And this is why Masa has been selling down his Nvidia stake, has been trying to free up capital to get in on the generative AI move that in many ways people would say SoftBank kind of missed from its own business model perspective. But he's really tried to lay claim to betting on some of the biggest makers. Remember they just bought Ampere as well, which is another chip manufacturing company which was backed by Oracle previously. But Massa all in. You know, he's a guy who makes big bets. Sometimes they work really well, like Alibaba. Sometimes they work less well like we work more broadly. He's a man with commitment.
- [18:37]
Scarlett Fu
Stay with us. More from Bloomberg Intelligence coming up after this.
- [18:44]
Podcast Host
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Aut with the Bloomberg Business app Listen on Demand, wherever you get your podcasts or watch us live on YouTube.
- [18:58]
Scarlett Fu
LVMH kicking off some earnings here for luxury brands. Not particularly good numbers, talking about a tough Christmas period. And that was kind of the tail of the tape there. Andrea Felstead joins us, a Bloomberg opinion columnist from London. Andrea, what can you tell us from LVMH and their results?
- [19:17]
Andrea Felstead
Well, this was kind of there were two reasons, I think, for the really strong share price reaction we've had today. One is, you know, these weren't really there was nothing really terrible about these results apart from the drinks division, which was much worse. But investors, after being far too gloomy about luxury sort of in the first half middle of last year, they thought no one was ever going to buy luxury goods again, which was ridiculous. But now they sort of came back last and they started to get really excited about luxury and they push one of the indexes up 30% between, you know, August and earlier in January. And that was just like ahead of where we are. So where we are at the moment is China has stabilized, but it's not, it's not a V shaped recovery. The US Is pretty good thanks to stock markets, but the US Compared with the period a year ago, which was also pretty good before we had the tariff trauma after the election, there was a real boom in luxury goods after the election unleashed a lot of spending. So you've got the numbers that weren't great but weren't terrible. But investors had got far too excited about luxury. So anything other than a be a big earnings upgrade, they were always going to be disappointed. And Richemont, which owns Cartier, which is absolutely on fire at the moment, they had some pretty good numbers a couple of weeks ago, but they were, you know, they say they weren't any better than anyone expected. We knew they were going to be good, they were going to be good and they were good. The shares failed. We're in a very funny sort of environment at the moment.
- [21:01]
Paul Sweeney
I really like the way you put that, the tariff trauma, because I'm sure that's a big, big problem for these luxury purveyors. Three of the five divisions at LVMH missed estimates and what is traditionally the strongest period so that does not help either. What, which divisions, which part of the LVMH empire are doing well? Which one are really lagging? You mentioned wines and spirits. We know that's kind of been a problem child all along now. But what's doing well? What's not doing so well?
- [21:28]
Andrea Felstead
Jewelry is absolutely sparkling. There's a few reasons for that. So over the past five years, handbags particularly have gone up in price. So, you know, a large flap Chanel bag, you are looking at around $10,000. Most nice handbags are about £3,000 plus. I'm not sure what that is. Dollars, maybe. You know, I'll let you know. You work that out too much. Exactly. So, but actually jewelry, which everyone always thought is really expensive because those leather goods have gone up so much. So something like a Cartier love bangle that you can wear again and again and again, and it's made of gold, it's got residual value that's actually seen as better value for money than a handbag. Plus, you know, the luxury industry's really matured. You know, 20 years ago we were all buying our first it bag. Now, you know, many people have got a wardrobe full of IT bags and they've moved on to jewelry. There's been a democratisation of jewellery, a shift from unbranded jewelry to Tiffany, Cartier, Bulgari, and that's really helped the jewelry sector.
- [22:45]
Scarlett Fu
Andrew, what, what is the company saying about the Chinese consumer these days? Are they buying on mainland? Are they going to Japan to buy? Are they coming to Europe or the us? What's going on?
- [22:56]
Andrea Felstead
They were going to Japan and then they came back to China. Now with the currency moves, I wouldn't be surprised if they went back to Japan again. Now, the thing about Japan is really interesting. It's not a great. The economics of selling in Japan aren't great. It tends to be less profitable. So if we do get that big Japan trade, that's not going to be great for profitability going forward.
- [23:23]
Podcast Host
Okay.
- [23:24]
Paul Sweeney
We also have the dispute between China, Japan certainly not helping things either with, you know, Chinese tourists going to Japan to buy luxury goods. Nevertheless, if you wanted to, you know, arb the currency difference, that possibility exists. What about American consumers? You mentioned the stock market doing well and certainly that helps the 1% and the 0.1%. Where are we seeing the American consumer pick up slack?
- [23:48]
Andrea Felstead
Well, the US consumer has picked up slack all the way through, while China has. Has been in the doldrums. US luxury demand tends to be very correlated with stock markets and also bitcoin I know we've had a wobble on Bitco Point, but the fact that, you know, we're testing new highs on markets that is very good for luxury demand. Now where it's where we're really seeing is those very wealthy consumers, the middle class customer, you know, they felt more pressure from inflation, from tariffs, perhaps the weakening job market. That is the sector where, you know, we would, the industry would really like to see them come back. And they were also the segment of the market that was probably priced out the most by those price increases. So, you know, luxury really needs its middle class customers back.
- [24:37]
Podcast Host
This is the Bloomberg Intelligence podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.