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- [00:01]
Anne Barry
So good, so good, so good.
- [00:03]
John Curto
Give big, save big with RAC Friday deals at Nordstrom Rack. For a limited time, take an extra 40% off red tag clearance for everyone on your list. All sales final and restrictions apply. So bring your gift list and your wish list to your nearest Nordstrom Rack today. Olive Garden says when you're here, we're profitable and Carmax stalls out our take on earnings. We microns a rocket ship, the airlines are in deal mode and inflation calms down. We roll through the headlines and we follow the money to the fan favorite retailer. The activists are shaking up next for Thursday, December 18th, this blue market daily. And I'm Anne Barry. More market details to come. But first, in this record breaking market, finding value has gotten even harder. Which is why I'm following the money of one group in particular and that's activist investors. Now these can be individuals, but are usually funds that buy significant stakes in public companies to pressure management for changes, all in a push to boost shareholder returns. Now, at times when valuations are already high, finding ways to create new value through changes to operations can be even more impactful through switching out executive teams, selling or buying divisions, shuttering or launching new products. And finding these gems, these unlocked opportunities, takes even more hunting and even more work. So when established activists take big stakes, often after months of meticulous research and preparation, I sit up and I pay attention, including to the likes of Elliot Management, which has over $75 billion of assets under management and nearly 50 years of investing under its belt. While the firm's certainly been active this year, disclosing a stake in BP in February before pressuring the energy giant to cut costs, shares are up about 14% year to date. In August, Medtronic, the $126 billion market cap medical equipment maker, announced a board shakeup with two new directors joining at the behest of Elliot and two new board committees, one to focus on revving up growth through tuck in acquisitions and organic initiatives and one to drive margin expansion. Elliot, by the way, had taken a stake in Medtron just that month. Elliot's also made high profile moves this year into PepsiCo, a 4 billion dollar stake and 74 page turnaround playbook, which they published. Yes, I read it all. And into Workday, where Elliot put $2 billion where its mouth is with calls for the software company to level up a multi year strategy for growth. Well, if that's anything to go by, I'm almost out of breath describing all that activity. Lululemon is in for a ride. The stock jumped up over 6% today on reports that Elliott has taken a dollar stake in the retailer. The $26 billion market cap athleisure OG has seen a 40% stock price decline over the past year with challenges every which way it looks soft US Consumer demand tariff hits to textile supplies, competition from newer brands like Fiori and Lulu's founder Chip Wilson complaining from the sidelines that the brand is, quote, losing its soul while the struggling retailer announced last week that CEO Calvin McDonald would step down in January. It's been a lot to deal with and the board has said it' working with a recruiter to replace him. But Elliot reportedly already has set its sights on a potential successor and that's Jane Nielsen. She was chief operating officer and CFO at Ralph Lauren from 2016 until April of this year and before that was the chief financial officer at Coach for five years and at both retailers, Nielsen was key to driving a turnaround and profitability. And she's certainly no stranger to operational complexity, having spent nearly 17 years rising through the ranks in strategy and finance at PepsiCo. While we're going to keep watching not just Lulu, but activist movements a lot more broadly because in 2026 it's one person's view with lower interest rates supporting deal activity and public companies facing pressure to prove out even more growth off the back of this year, I expect to see a lot more of them coming up. Comex is getting lapped by the competition and customers fed up with beef prices may be heading to Darden restaurants. We look at today's earnings, but first a word from our sponsor. Vanguard producer John do you feel strongly about bonds?
- [04:28]
Anne Barry
Yeah, I think the one you and I have is pretty good.
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John Curto
I meant bond markets.
- [04:31]
Anne Barry
Ah, yes, of course.
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John Curto
Well, bond markets are massive and sometimes can feel murky, but Vanguard bonds are institutional quality.
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Anne Barry
Institutional quality isn't a tagline. It's a commitment to your clients. It means top grade products across the board.
- [04:43]
John Curto
Well, the Lineup includes over 80 bond funds. They're actively managed by a 200 person global squad of sector specialists, analysts and traders.
- [04:51]
Anne Barry
Vanguard specializes in a steady approach. They don't go all in on risky bets. Instead, they focus on reliability and consistency. Keep it's not always flashy, but it sets the standard for what dependable investing should look like.
- [05:01]
John Curto
So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio. That's vanguard.com audio all investing is subject to risk.
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Anne Barry
Vanguard Marketing Corporation Distributor well, earnings reports.
- [05:15]
John Curto
Have slowed down to A really weak trickle before the holidays. But we do try and stay on top of it. We know some of you are holding some of these stocks. And today we heard from two companies that are ubiquitous on one, seeing its shares up today and one that's hit the skids. So let's start with the fun one, and that's Darden Restaurant Group. And if you're not sure exactly which restaurant chains Darden operates, I'll give you a clue on their biggest property when you're here. Your family, John.
- [05:43]
Anne Barry
That's right. You're talking about Darden, the parent company of Olive Garden and nine other properties. Longhorn Steakhouse, Yard House, Cheddar's Scratch Kitchen. I've never been there. And the company acquired Chewy's Mexican in July.
- [05:57]
John Curto
Not to be confused with Chewy, the pet food company that we talk about quite frequently.
- [06:01]
Anne Barry
Yes, that's right. C H U Y And Darden operates 2100 restaurants and has a market cap of $23 billion. And I'll just add in to the restaurants they have a fine dining division which includes the Capital Grill and Ruth's Chris Steakhouse.
- [06:15]
John Curto
So the key thread there is, I think about these brands and the thing that really pops into my head is steak, which and we should probably hold that thought because that was a critical part of the message we got out of Darden today. Well, the company reported 3.1 billion DOL dollars in total sales, up 7% year over year. And that magic metric, Same restaurant sales, 4.3% growth. So pretty good. And Ebitda, that's a measure of profit at $466 million for the quarter. Now here is where Darden really pleased its investors. It did something that we've been watching out for and it's been a recurring theme this earnings season to sort the wheat from the chaff or to sort out those that the markets responded the most favorably to versus have gotten a little bit left behind. And that's those companies that have actually increased their full year forecasts. And Darden today did exactly that. Raised its full year sales growth forecast to 8 and a half percent to 9.3%. Previously that outlook had been 7 and a half to 8 and a half percent growth. So again, up to at the top end, almost a whole percentage point more of growth being guided to and in terms of same store, same restaurant sales growth guidance used to be at two and a half to three and a half percent for the year, now at three and a half to 4.3%. So that's just a really terrific outcome for this business. And then the cherry on top, the icing on the cake. The company plans to open 65 restaurants in fiscal year 2026. So it's not just growing organically, which is effectively what same store sales measures. It's also investing in sort of new locations. Think of that as almost acquisition led, but basically putting money into the ground to open up new doors and some.
- [07:54]
Anne Barry
More numbers in context, just to put it. So Olive Garden is their biggest brand, and that accounted for $1.4 billion in sales. That was up 5.4% year over year. And Longhorn Steakhouse, that's their second biggest brand, brought in 776 million, up over 9% year over year.
- [08:11]
John Curto
Yeah, great outcome. Can I just say Olive Garden. When I first moved to America and I was in, I was here for grad school, actually, and folks raved about Olive Garden. And they were sort of all. All you can eat sort of salads and lots of emphasis on getting lots of big bread baskets. I really have fond memories of Olive Garden being part of my United States onboarding experience.
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Anne Barry
And I wasn't going to mention this. This just came to me that five years ago, I won one of these golden tickets. Put out like a hundred of them.
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John Curto
Okay.
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Anne Barry
I had all. You could eat olive garden for 10 weeks.
- [08:43]
John Curto
10 weeks. I just thought of it, every dish. So not just the pasta, not just a salad. You could choose anything you wanted for.
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Anne Barry
Yes. I spent like a hundred dollars, and I got whatever I wanted at Olive Garden for weeks and weeks.
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John Curto
Okay, so how often each week would you go?
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Anne Barry
I started out and I went two days in a row. And this isn't disparaging the company, but I couldn't do it more than that. And so I started just sending friends in every day.
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John Curto
I was gonna say, did you just become the most popular person because you had all of this food offering that you could sort of share the love with?
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Anne Barry
I became popular at the Olive Garden because the manager was excited that one of the national promotions had occurred at his restaurant.
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John Curto
Did you have to get your picture taken and sort of papered up around the rest? No, I'm serious.
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Anne Barry
Oh, I wish I could have signed some signatures.
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John Curto
You'd be that guy who's going to win the lottery ticket and you're going to remain anonymous. That's what I foresee. Powerball winner producer John over here, staying low key, potentially fine dining, more of a laggard, which is really interesting, basically flat year over year. And very curious about that, too, because we keep talking about this K shaped economy, which has suggested that those in the higher income demographic that we associate with fine dining have been holding up a little bit better than other consumers. So the lagging effect there in fine dining, probably just the one mark on this otherwise fantastic earnings report that raised a bit of a flag. So let's talk a little bit about what specifically was working at Olive Garden. For those of us who have not won the golden ticket, the all you can eat there is nevertheless still the never ending possible. It's 13.99 and the CEO Rick Cardenas said on the air, on the call, refill rates reached a record high, demonstrating that guests continue to find abundance and meaningful value. I got to tell you, I can't help it. As a finance person. I read refill rates reach a record high and I hear cost going.
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Anne Barry
Yes, that's what I was thinking that that would be a ding against. But I guess it's repeat customers back for that whole experience.
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John Curto
Exactly. The company also highlighted its partnership with Uber Direct, which quote, attracts younger, more affluent guests who crave Olive Garden at home. And it's also been testing smaller portion entrees at lower prices based on quote, significant interest. And it's going to be rolling that out system wide next month. We're going to have to touch John on GLP1s.
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Anne Barry
Yes, exactly. Because that is the response to GLP1 and it's sort of the opposite to the never ending pasta.
- [11:02]
John Curto
It is the opposite to never end. But I am definitely a never ending pasta bowl person. I can eat pasta for breakfast, lunch and dinner. Now amongst all of this, let's go back to beef and let's go back to steak, which I can always eat a lot of. There was a lot of mention on of commodities on today's earnings release.
- [11:18]
Anne Barry
That's right. Because even though the company sells a lot of pasta, beef accounts for 25% of food spend at Darden. You mentioned all the Steakhous.
- [11:26]
John Curto
Yeah.
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Anne Barry
And so CFO Raj Vendman said on the call today that near record beef costs have sustained longer than we anticipated and are likely to stay elevated in the next quarter. But the markets were getting under this. There is some release expected after that.
- [11:40]
John Curto
Also remember that there were tariffs that were being placed on beef imports from South America. Those have since been lifted. One of 200 food groups that the administration has rolled back some tariffs on in certain levels to try to address cost of living issues. From the CPI inflation data that came in today, we're going to touch on a little bit later. We did see that food Prices in November came in 2.6% higher than last year. The cost of dining was up 3.7%. So you do tend to see it in these same store sales numbers because the ticket price is going up.
- [12:09]
Anne Barry
Yes. And so interesting. There was a concept that some analysts put out today that if the price of beef at home you're getting at the grocery store is up 16% year over year, you might say forget it, I'm not going to buy some ground beef for 16% more than last year. I'm going to go out to a steakhouse where it might only be 3% more expensive. Right.
- [12:27]
John Curto
And it's a treat. Right. It becomes a treat. Luxury item. Well, in terms of seeing consumers choose sit down meals. So this is a much more sort of premium dining experience versus casual. We're seeing that on the other side of this, which was Chipotle for example, recently forcing forecasting declines in same store sales this year. And we've seen a really mixed bag in fast casual in general. Darden though Shares finished up nearly 2% today. Shares up 21% over the year and doing pretty well. We'll continue to watch that one. It's always fun to dig into some of these brands that we're familiar with. Well, let's switch gears. Haha and talk about CarMax. Competition has been heating up in the used car market and it appears that one company is starting to get lapped. We are full of the puns today. We obviously had a lot of coffee before hopping on in front of the mics. Well, CarMax identifies as the nation's largest retailer of used cars but it is losing market share and the stock is really struggling at the moment. So let's take a quick whiz through those earnings today. Right.
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Anne Barry
Ticker KMX. With a market cap of $6 billion, the company operates 250 stores nationwide. The company posted earnings of 43 cents a share today which beat expectations by 13 cents.
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John Curto
A lot.
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Anne Barry
Yeah, but that's in the bucket of not as bad as perhaps expected. Revenue totaled $5.8 billion which also beat expectations. But it was 7% decrease from year over year. And comparable store unit sales were down 9% year over year.
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John Curto
Right. That's the same as a sort of same store or same restaurant type of metric that Darden just performed on down as you said, 9% year over year here. I think the key thing to hone in on is the emphasis on the 250 stores nationwide because here's what's really at the heart of this problem. This is a bricks and mortar business that has seen Carvana come in and basically do to this industry what Amazon did to retail. It's the e commerce disruption moment that we've seen and they know it. CarMax actually owns this and says in their earnings report that they need to get their digital experience to get a lot better. So let's talk about some of the stone, you know, stinkers frankly that were in this earnings press release. The retail used unit sales were down 8%. The wholesale units were down just over 6%. We saw a nearly 12% decrease in the number of vehicles that were purchased from consumers and also from dealers. But a big chunk of that being the consumer element. Only 208,000 vehicles were bought from the consumer segment. So it was really across the board very clear that the company is in contraction mode and they're seeking a turnaround.
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Anne Barry
Last month the board fired CarMax CEO Bill Nash is classified as a termination without cause and the new board member, David McCreet was brought in as interim CEO. And on the call today, he said based on recent results, it's clear CarMax needs change.
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John Curto
Yeah. So what are they going to do? That's the key question. Well, what they've been talking about is lower prices, more marketing spend, just to get more folks through the door. And McCrate said, quote, Our average selling prices have drifted upwards and appear to be low, less attractive to customers. So it looks as though if they're going to do that, which is spend more on ads and also lower prices, it's clear that it's going to be near term pressure on earnings. And this is really what sort of packs a punch here. If you look at the used vehicle market overall for the year, it's actually been pretty stable despite rising prices. Volumes across this industry have been above 2024 levels in 9 out of 11 months this year. So this is really a challenge of CarMax losing market share.
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Anne Barry
And you mentioned Carvana, back from the dead. And it's going to join the s and P500 on Monday and shares are up over 3% today. Part of that S and P anticipation. Shares are up 127% year to date.
- [16:09]
John Curto
Incredible run. That business was really on the cusp. Do you remember it looked like it was going to through risking bankruptcy. Certainly a restructuring. Lots of questions around the integrity of the numbers at the point of its lowest share price. But Carvana, who would have thunk it now going in to the elite club that represents the United States, that's the s and P500 again starting from Monday well, let's just touch on Amazon because it's hard not to discuss disruption online without looking at what the OG is doing. And we've talked about how Amazon has been nipping away a little bit at the used vehicle market on its marketplace. In November, Amazon introduced a partnership with Ford dealers to sell certified pre owned vehicles. Earlier this year, which I thought was fascinating, Amazon partnered with Hertz to sell used cars from its fleet. So it looks as though, and this is pure speculation on my part, I do think that Amazon has a pattern of testing the waters in ways like this in these clever partnerships, getting tons of data, seeing what's working and if it does work, doubling down. So I would keep eyes on Amazon if I were Carvana right now.
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Anne Barry
And Amazon can operate this marketplace without those 250 stores.
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John Curto
Yes, that.
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Anne Barry
Having to pay all that rent.
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John Curto
Exactly. All that overhead.
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Anne Barry
Yeah.
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John Curto
So interesting. We're going to keep on watching this one. CarMax shares down three and a quarter percent today. Frankly, it could have been more so that being said, already down 50% year to date. So going to keep watching this one. We talked a bit actually about other big ticket items that consumers have almost been trained into buying online because the trust level's gone up. Remember we talked about diamonds being purchased online. So this is a really interesting one. It's, it's a real shift towards client customers, saying I'm going to have so much trust and faith in the brand that something as important as a vehicle is something I'm willing to take a flyer on.
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Anne Barry
And I think a new vehicle versus a used vehicle makes a big difference because I want to kick the tires of a used vehicle.
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John Curto
Well, there you go. You have to take a look at the returns policy because that seems to be what drives so much else around this. Well, let's take a quick break and when we come back, Micron customers say thanks for the memory. And we get our hands on some fresh inflation data. Close your eyes. Exhale, Feel your body relax and let go of whatever you're carrying today. Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-contacts. Oh my gosh, they're so fast. And breathe.
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- [18:37]
John Curto
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- [18:45]
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- [19:17]
John Curto
Well, it's 4pm on the east Coast. The markets have closed. There's the bell wrapping us up for the day, and we don't have a ticker tape, but we'll throw it over to our human ticker.
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Anne Barry
John The S&P 500 finished up 0.8%, the Dow was up a tenth of a percent, and the Nasdaq finished up 14 tenths of a percent. Some market headlines the big macro mover of the day was the hotly anticipated and delayed inflation data. The Consumer Price Index came out this morning. November consumer prices rose at a 2.7% annual rate, lower than expected and lifting the market spirits. Economists polled by Dow Jones had expected the CPI to have risen 3.1%.
- [19:53]
John Curto
So this was meaningfully better than had been expected. But it was noisy and so much so that if you track the headlines over the course of the day, it went from the market breathing this huge sigh of relief, which by the way did carry on through a lot of the reason for why we see the markets that John just laid out closing up for today. But we did see a number of economists saying, you know, just be a little bit cautious. This is just one data point. Some of it of course, very good. Core cpi, which strips out more volatile food and energy prices, came in cooler than expected 2.6% over 12 months. But the problem is that the October data is still missing and that's because of the government shutdown. Which means that looking at month over month, a sequential comparison is hard and actually quite critical at this point to see if the trend is truly changing. Nevertheless, one positive data point that is helping to assuage fears of stagflation and.
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Anne Barry
Onto the biggest movers today. Micron technology stock up 12% after blowing past expectations. Let's take a moment to break down what the company does. Actual products can easily get lost in all this tech coverage. Micron microcon is a leader in manufacturing storage technologies like dram, which holds data your computer needs to access fast when running applications. So it's crucial for Systems performance in PCs, phones and tablets.
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John Curto
And stay with us because personally I just find it helpful to actually Try and describe what these tech companies really do. So John just laid out one product that Micron produces. They also make NAND products and amd and you would use them as a consumer. Things like USB drives and SSDs you put inside your fancy camera if you still have one, and memory cards. And then there's another kind of memory product they manufacture which is called nor flash memory. And you find that in devices, both things like the phones, but also automotive electronics, medical devices. And its superpower is retaining data without actually having electric power flowing through it. Now AI and 5G capabilities are gobbling up memory capability because we just want faster, smarter devices. You could only imagine the demand for Micron projects products exploding. And in its earnings results today, Micron did actually lay out what that market growth looks like saying expects the market for high bandwidth memory to hit a hundred billion dollars by 2028, growing at a massive 40% compounded growth rate annually. I got to tell you, that is pretty healthy. And to give you a sense for how that translates into expansion as an opportunity for Micron specifically, let's just go through the revenue numbers it reported today for the latest quarter. Revenue hit over 13.6 billion dollars, up 2.3 billion from just the quarter previously and up 60% versus the same period last year. And P.S. all that growth coming also with margin expansion over 50 growth, gross profit margins on that revenue. I'm nerding out. This is the kind of profile I love to see. There was more capex. It isn't having to invest to grow. But that was a very strong print coming out of Micron Technologies today. We're going to wrap up with a quick flyby of the airlines because we love talking about air travel and look, holiday travel. It is coming up quickly, so why not? Well, Spirit and Frontier are rumored to be in merger talks again. And just to go back in history, in 2022, they announced plans to merge in a deal then valued at about $6.6 billion. Now, shortly after that news came out, JetBlue made a competing offer to buy Spirit, who broke up with Frontier. They terminated the deal to pursue an alternative romance with JetBlue, only to have that tie up then blocked by regulators in 2024. So we'll see if this report picks up some more steam. It's been sort of percolating now for about 24 hours. And we'll see if the second time is a charm for Spirit and Frontier. And then the headline that caught our eye today, not so much as investors, but as consumers. American Airlines no longer, letting customers earn frequent flyer miles or points toward elite status on basic economy fares. Now personally look a bit of a Grinch move before the holidays. American Airlines could this have waited till January a little bit like that fed rate cut. But it is a move that's in keeping with other airlines because so all trying to rein in costs and really shift perks to premium tickets to make those expensive ticket holders just feel a little bit more special. We're going to keep on watching. That's it for today's Brew Markets Daily.
- [24:17]
Anne Barry
Brew Markets Daily is hosted by Anne Barry and produced by John Curto, Taka, Bella Teef and Emily Milliron. Our technical director is Lonnie Fiskus and the president of Morning Brew Inc. Is Devin Emery. We'd love to hear from you. If you have feedback or a company you'd like us to COVID leave a comment or send an email to BrewMarketShoworning Bukom.
- [24:32]
John Curto
Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomor tomorrow, same time, same place, with a very special episode.
- [24:47]
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