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- [00:01]
Ann Barry
JP Morgan has teams to support you at every stage of your growth. As former founders who have worked in local markets themselves, the bankers at JP Morgan bring deep sector knowledge and lived experience to their clients. JP Morgan can help you navigate complexity with confidence backed by real world insights and an entrepreneurial perspective. Get what your startup needs now@jpmorgan.com growwithoutlimits JP Morgan is the bank of the innovation economy.
- [00:29]
John Cotto
Pepsi Lower chip prices haven't brought back shoppers we have the latest on what leadership says is keeping customers at Bay pawn shops, their shares trading at all time highs. We explore the boom and what it might tell us about the state of the American consumer and Uniqlo, the retailer's parent, just posted yet another blockbuster quarter. We examine why the clothier is zipping past the rest of the apparel industry for Thursday, July 9th is Brew Markets Daily and Diamondbury. More market details to come. But first, fast retailing. That's not a theme, that is a company and it's showing investors how it's done in a global market with supply chain uncertainty and patchy consumer sentiment. The Japanese company which owns Uniqlo and has ADR ticker FRCO Y just reported a blowout. Fiscal third quarter revenue jumped 22% to just over 1 trillion yen. That's about $7 billion while operating profit jumped a whopping 46%. Well, to top it all off, management raised full year guidance for the third straight quarter in a row and is expecting record operating profit for the year. While the standout from even all of these great numbers, the nugget is that profit is growing much faster than sales, which for finance nerds like me is a sign of something called operating leverage. On top of which there's clear disciplined inventory management, two elements of strong execution that investors have rewarded in what's otherwise been a pretty challenging environment for global apparel. And when you compare fast retailing to its peers, divergence is notable. Gap, the US clothes staple stalwart, remains focused on its turnaround that's been a little bit bumpy stock recently hitting a 52 week low. Meanwhile, Inditex, the owner of Zara, has been growing sales at half the rate of fast retailing, while while over at sluggish H and M, that business relying heavily on promotions to move inventory, which speaks to fast retailing strategy. Despite the name, it's actually focusing on premium everyday basics instead of chasing fast fashion cycles. And there's more to the company than just Uniqlo market cap of around $168 billion. That's the parent company about the same size as TJX. There are other brands in there because Fast Retailing also owns Gu, a lower priced trendy fashion brand aimed at younger consum humors along with the author's favorite theory, one of my staples, PLST and Princess Tam Tam amongst others. Though Uniqlo is still the growth engine and accounts for the vast majority of revenue and earnings. And just where that growth is coming from also caught our eye because North America and Europe are becoming real growth engines for this company that again is headquartered in Japan. And then let's talk about China, which has been so tough for so many competitors. For Uniqlo, it's stabilizing consumer spending. Overall there remaining uneven, something that's hit global apparel brands hard. But Fast Retailing has improved profitability by closing its weaker stores and managing its inventory tightly. While there are still some headwinds, a weaker yen is pushing up import costs, leading to a roughly 4% price increase on fall and winter products in Japan. And then let's talk about Europe, which saw softer traffic in its stores during June's heat wave. Meanwhile, of course, geopolitical tensions continuing to create uncertainty around the supply chain. But it's a fun one we're going to keep on watching. And it also is one that we're putting up there in front of people because just like SK Hynix, it's an Asian name that is getting more attention here in the United States, a trend that we think is likely to continue. Well, in a moment we answer a listener who's curious as to why shares in publicly traded pawn shops are at an all time high. But first, a few headlines from the day's trading session.
- [04:29]
Tarka Bella
You kicked off the show with Uniqlo, so let's stick with earnings this time out of PepsiCo, shares in the food and beverage giant ticker PEP fell more than 5% this morning after the company reported results that missed earnings estimates. Its North American food business saw revenue decline 2%, which the company blamed on higher gas prices keeping consumers away from convenience stores.
- [04:49]
John Cotto
Pepsi is still trying to revive its snack division through lower prices. And earlier this year the company cut prices on brands including Lays, Doritos, Cheetos and Tostitos by as much as 15% in an effort to win back shoppers. Well, that strategy did deliver an initial improvement. Volumes did increase, but this latest quarter suggests the turnaround still has work to do. And a lot of discussion today as the management team went out there to talk about these results, about the consumer continuing to be pressured. While despite all this, Pepsi did reaffirm its full year 2026 guidance. Instead, it expects those lower prices to support the business gradually as the year progresses.
- [05:28]
Tarka Bella
And talking about consumer pressure, at my grocery store, the price of chips has plummeted for name brands but also for the generics. And so there's oftentimes a cheaper alternative.
- [05:37]
John Cotto
By the way, Wal Mart saying that it's actually going to go out there and cut food prices as well. So what you're seeing in your grocery store, you know, the OGs and the Giants are getting all over that, trying to keep up. Yeah, well.
- [05:46]
Tarka Bella
Moving from earnings to pharmaceuticals, shares in AstraZeneca tumbled nearly 6% after its experimental heart disease drugs failed a late stage clinical trial. Wainua, which AstraZeneca has been developing alongside Ionis Pharmaceuticals, did not meet its primary goal of reducing deaths and serious heart related events compared with a placebo.
- [06:05]
John Cotto
While disappointing trial results aren't unusual in drug development, this is a high risk industry. AstraZeneca has had more hits than misses so far this year, so expectations on this one were coming in high. And overall investors have been waiting for news on pipeline drugs outside the company's core cancer treatment business in order to open up new sales opportunities. Shares in development partner Ionis pharmaceuticals fell almost 24% on the news. And finally we're bringing it back to retail. Shares in Levi Strauss jumping nearly 2%. That's after the company beat Wall street expectations on both revenue and earnings. The denim giant posted growth across every geographic region with Asia leading the way. There it is seeing what we saw with Uniqlo revenue there climbing 10% in the quarter. Management also raised its full year outlook and the expects annual sales growth of up to 7.5%. Extraordinary story over there with the denim OG.
- [07:03]
Tarka Bella
Absolutely. And Levi's CEO Michelle Gass credited the gains to the company's continued push into direct to consumer sales, saying that the strategy is driving both faster growth and higher profitability. And to put some numbers behind that, DTC made up 51% of net revenue in the most recent quarter. And E Commerce sales over at Levi's jumped 19%. Shares in the company ticker Levi are up around 15% this year.
- [07:28]
John Cotto
Well, let's take a break and when we come back, porn shops.
- [07:32]
Tarka Bella
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- [07:45]
Ann Barry
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- [07:52]
Tarka Bella
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- [07:57]
Ann Barry
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- [08:04]
Tarka Bella
Get started@aflac.com BrewMarkets that's aflac.com BrewMarkets
- [08:12]
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- [08:38]
John Cotto
John once again this week we got an email from a listener.
- [08:41]
Tarka Bella
That's right, dylan wrote in an email. Hi Ann and John, I wanted to reach out to hear your thoughts about First Cash Holding Inc. That's FCFS and its steady rise over the past four years. Should we take this as an example of the K shaped economy or is this a worrying trend for the durability of the American consumer?
- [08:59]
John Cotto
Well Dylan, thank you for the email and in a moment we'll get into your questions about the consumer and the economy. But first, John, give us some background on First Cash Holdings. Many people may not have heard of it.
- [09:10]
Tarka Bella
I hadn't heard of it by name. First Cash Holdings Ticker FCFS on the NASDAQ market cap of nine and a half billion dollars. It's the largest publicly traded pawn shop company in the world with more than 3,000 stores across the the US, Latin America, and as of last summer, the UK after it bought H&T Group, the UK's largest pawn broker, which was founded in 1897. So they're expanding globally. The company makes money in two ways. I think we have a general sense of how pawn shops work, but we should talk about it. There's pawn lending. Someone brings in an item, let's say a piece of jewelry or sports equipment, and Fast Cash loans the customer money and holds onto that item, let's say the jewelry as collateral. If the customer repays the cash, they get the item back, but they pay some fees and interest. If they don't repay the cash, Fast Cash can then sell that item and that accounts for about 90% of the company's revenue is selling these items. Then they also operate a subsidiary called American First Finance and that does lease to own or other sort of buy now pay later purchases. It facilitates them for bigger ticket items like furniture or appliances. And so that's different than the pawn traditional because it exposes the company to bigger risk. In that BNPL scenario, the company doesn't hold on to anything for collateral. And so sometimes the customer stops making payments.
- [10:32]
John Cotto
So much smaller part of that business, that sort of buy now, pay later element. But interesting that they're looking to try to diversify.
- [10:38]
Ann Barry
Now.
- [10:39]
John Cotto
As Dylan mentioned when he wrote in First, Cash's share price has been on the up and up. It's risen 62% over the past 12 months. It's up 180% over the past five years. First quarter of 2026, revenue hit over $1 billion, up 26% year over year, earnings per share up 30%. And the CEO, Rick Wessel, called demand both unprecedented and accelerating. So full year 2026 guidance was also raised.
- [11:08]
Tarka Bella
Right. And we also see a lot of analysts with their recommendations. There's five covering the stock right now, and three of them are a buy and two are a hold. I just wanted to mention one thing. With those quarterly results, I thought this was one interesting nuance. And then we' into the broader picture. These pawn shops deal with a lot of gold. There's jewelry coming in and out point, and both as collateral and then as resale and gold prices having almost doubled in the last two years. That could have some impact on these numbers beyond just the accelerating demand that the CEO mentioned.
- [11:37]
John Cotto
Well, absolutely. Now just take a big step back in the earlier this year in the spring, we had Danielle DiMartino Booth on the show, sort of friend, just show she's an economist, she's a former Fed insider, and when she came on, she actually pointed to the pawn shop sector in a very different way. Because here we are, John, you and I, talking about the news, which is great from the actual company perspective about revenue being up and earnings per share being up, which for investors is good news.
- [12:05]
Tarka Bella
Right.
- [12:05]
John Cotto
But the point that Danielle made was if you look at this as an indicator of the state of the American consumer, this is not such great news. Right through that lens. She actually cited the rise in the share prices in this sector as evidence of stress on the American consumer. Let's just pull up what she had to say and listen to the way that she described it.
- [12:26]
Ann Barry
Companies have been slammed by higher energy prices. And when you have perceptions of the job market where they are, when you have pawn shop publicly traded stocks at all time highs, when you have buy now, pay later, publicly traded stocks tanking, collapsing, that's telling you something about the ability to pass through higher input costs.
- [12:50]
John Cotto
And so it's interesting and timely that we're talking about this again today. Again, that interview is in the spring, but here we are in this moment, John, with energy prices, guess what, nudging up again because of the situation in Iran, you know, the tensions there being taken up a notch. And we just had the weekly job report which showed that new job creation was not as strong as had been anticipated. So it just goes to show, even within the last six months, we're seeing almost sort of mini cycle come back around.
- [13:17]
Tarka Bella
But another company, Easy Corp, that's another pawn shop company ticker EZPW on the NASDAQ market cap of 2 billion. It's seen its share price up over 150% year over year. So another pawn shop company that's doing well. And I saw an article in the Wall Street Journal this week that profiles some of ezcorp's pawn properties around Las Vegas. Some of them are similar to what we were talking about where someone might need a bridge loan or some other way to get access to by pawning something. But also the company operates Max Pawn Luxury near the Strip. And the Wall Street Journal painted the picture this way. I'm going to quote. Roughly 20 pre owned Birkin bags sit locked in a glass showcase lining one wall. Elsewhere displays are stocked with secondhand Chanel bags, Rolex watches and luxury footwear from Louis Vuitton and Gucci. Price tags surpass $30,000 for some used Birkins. So this is attracting consumers who are looking to splurge. But also is it the K shaped economy because you figured the folks at the top of the K shape can afford luxury items without looking for a discount. So these are folks that are looking to buy used luxury items still that they might have $30,000 to spend. But it's an interesting way that these pawn shops are getting folks looking for a discount either way.
- [14:32]
John Cotto
Yeah. I wonder actually if you have just unwittingly or the Wall Street Journal just wittically unwittingly identified for folks who are looking to buy luxury products actually another source to go and find them. There are places like ebay that have seen treme success and becoming the go to source of, you know, luxury products where it has been, where they've been validated, where they've it's been clear that they're originals, they aren't fakes. So it's an interesting is this another source of of that kind of product?
- [15:00]
Tarka Bella
And it might be why we're seeing pawn shops do so well across the board on both sides.
- [15:04]
John Cotto
Well, it's. That's definitely located. I got it. I think the Vegas is a particularly unique place. Having having lived there for several months, have stared into the belly of the beast and the fact that people would go there and actually perhaps por some of their luxury goods, take that cash and perhaps go play blackjack to try and sort of double down on that, you know, who knows? The behaviors there are very unique.
- [15:24]
Tarka Bella
It's also a city for visitors from around the world and the United States. And so they might not have access to these kind of luxury items that they can see in person and purchase. And so maybe they want to splurge on a trip when they have that opportunity.
- [15:36]
John Cotto
Unconventional shopping and unconventional behaviors in general, I would say in Las Vegas.
- [15:41]
Ann Barry
Agree.
- [15:41]
John Cotto
But just one final Note. Last month, First Cash announced that it was buying a second UK pawn chain, Ramsden's holdings, for $273 million, which would add 174 UK locations to the portfolio. So we've been framing the story as one about the American consumer. Danielle DiMartino Booth certainly pointed to the sector as one that tells us something about the K shaped economy. But interesting to see that First Cash is clearly seeing opportunities abroad as well to go and take its core competency and continue to expand into those across the pond. Well, thank you so much to Dylan for sending in that question. Also, another thanks to Danielle for joining the show earlier on this year. Do keep sending us your questions. We love to receive them. You can send them by homing Pigeon, you can send them by snail mail, email us, drop some comments on YouTube or on any of the places you get your podcasts. We read them all. Well, it's 4:00pm on the east Coast. The market's wrapping up for the day. There's the closing bell and we don't have a ticker tape. Let's throw it over to our human ticker John.
- [16:41]
Tarka Bella
That's right, the market shook off growing tensions in the Middle East. The S&P 500 finished the day up 0.8%. The Dow was up a quarter of a percent, and the NASDAQ finished up one and a third of a percent for the day.
- [16:53]
John Cotto
Well, just as a final thought, there has been so much coverage of South Korean memory chip giant SK Hynix ahead of the company's upcoming launch on the Nasdaq. Well, we talked about it earlier this week, but there has been an update because according to a report from Bloomberg, that listing is now apparently more than seven times oversubscribed. Now, I've been tracking this story all day and I was glued to CNBC this morning because there was a lot of skepticism on CNBC that that number was actually correct. Nevertheless, it's clearly oversubscribed. Whether it's two times or seven times, there's a lot of appetite here. So the punchline is that despite AI jitters, investor appetite for memory chip companies clearly remains strong. Now, this offering is expected to be the largest ever foreign stock listing on a US Exchange, and it's coming tomorrow. So starting tomorrow, the stock will initially trade on a when issued basis under the ticker SK H Y V before the regular trading under its permanent ticker SK H Y begins on Monday. We're going to keep on watching SK Hynix right at the core of this memory trade. Lots going on. That's it for today's Brew Markets Daily.
- [17:59]
Tarka Bella
Brew Markets Daily is hosted by Anne Barry and produced by John Cotto, Tarka Bella, Chief Avenue La Roya and Emily Millarn. Our technical director is Uchenawa Ogu. Brittany To Taco is our audio engineer and the president of Morning Brew Inc. Is Devin Emery.
- [18:10]
John Cotto
Wake up tomorrow with the Morning Brew newsletter and tune in to Neel Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.