00:00:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:00:24
Speaker 2: Chip stocks are heading for their best quarter ever, driven by demand for artificial intelligence equipment, but investors are wondering how much further the rally can go. So let's put it to an expert. Man Deep Sing, global head of tech research for Bloomberg Intelligence Joints, is here. I mean, what's going on with the world chips.
00:00:42
Speaker 3: I don't get it.
00:00:43
Speaker 2: I mean, is it just a supplying demand and there's not enough supply and so anybody who's got them and is in the driver's seat in terms of pricing.
00:00:52
Speaker 4: I mean more so, I would characterize it as a lot of these companies have huge backlog numbers, notably in video, which is said they have, you know, up to a trillion dollars in revenue visibility through the next six seven quarters. So when you have companies guiding like that and all the hyperscalers which are spending money on these chips, they have an aggregate backlog of two trillion. Now, when Jensen says we will have three to four trillion dollars in spend by twenty thirty, I think, you know, when you look at that backlog number, you start to believe that may actually come true. And video is at the forefront of monetizing that sort of demand. So there is no doubt that AI has had an inflection point in terms of usage and inference. Demand has been off the charts. But how quickly it's realizing into top line growth for some of these companies. I think that's where the market has been positively surprised, and that's why you see estimates continue to go up.
00:01:59
Speaker 5: The Philly Stock Change Semiconductor Index up ninety nine percent year to date. Is there any don't mean to put you on the spot here many, but if anybody's going to know what it's you. Is there any company here that's not participating in this chip party?
00:02:15
Speaker 4: I mean a lot of the hyperscaler stocks haven't done well. Microsoft, even I would say Meta, Google, and look, some of it is because these are the companies that are actually spending the money. Even though I cited that backlog number, the market is still not giving them the credit for that backlog because they want to see real revenues. Who has real revenues. It's your in videos, the you know, tsmcs, the semicap guys. And so from that perspective, that picks and shovels straight has worked phenomenally well over the past two years, and it continues to do well just because of the duration of this cycle, and you know how big this technology cycle is proving to be. At some point, I don't think this memory price increases that we just saw from Micron or sustainable. In fact, Samsung and Eskhiiniz talked about investing, you know, eight hundred billion plus in Korea, so there is talks about adding more supply and then doing those long term agreements to cap the pricing. So I feel that pricing lift is not sustainable and it's a matter of a quarter or two before we start to see you know, some tapering of that.
00:03:30
Speaker 2: Microsoft down twenty three and a half percent year to date. What's the street what's the street call on this? Why is this street marking this one down?
00:03:39
Speaker 4: Well, because Microsoft had that exclusive tie up with open ai, which is not there anymore. Open Ai, as you know, is now on Amazon. They really partnering with any and everyone, and open Eye is not the leading model anymore. So it's entropic, and entropic was predominantly Google and Amazon, and now they have started to use Nvidia. So from that perspective, Microsoft not having their own LLM like Google, which has got Gemini, has put them at a disadvantage. And the narrative right now is the cloud. Azure growth is also trailing Google Cloud, and so they seem to be slipping behind when it comes to the hyperscalers. Now, I think, you know, for a company of Microsoft size to grow high teens, that twenty percent is still phenomenal growth. And you still have office three sixty five that will be a net beneficiary of Agent Takai. So look, narratives get formed. That's where we had the SaaS pockellips. Microsoft was caught into the ald as well, and come the earning season they'll probably prove the naysayer's wrong in terms of you know, their top line momentum.
00:04:53
Speaker 5: Now are you talking about a two point seven trillion dollar company when you're talking about Microsoft? So what's the word on the street at about three hundred and seve bucks is there value here, you know, getting in at this level with Microsoft?
00:05:04
Speaker 4: I mean from a valuation perspective, all these hyperscalers are trading at probably below their average multiples that they've traded over the last three years. So from that perspective, if you factor that backlog number in for someone like Microsoft, which has a five hundred billion dollar plus backlog number for their cloud, if that backlog translates into revenue growth, you know, nice, this company will be much bigger in revenue than it currently is and probably surpassing five hundred billion dollars in revenue at some point. So if you believe in that growth story, then yes, the multiple is cheap. But if you think and Tropic and open Ai are going to take a share of Microsoft's on prem revenue and you know, disrupt cause a much bigger disruption, then I think that's where you model for the downside.
00:05:54
Speaker 1: Stay with us.
00:05:55
Speaker 2: More from Bloomberg Intelligence coming up after this.
00:06:01
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:06:15
Speaker 2: Let's talk about Nike. They're going to be reporting some earnings here. They've got to turn around. I think it's been a lot bumpier than they thought than a lot of investors thought. I'm a Nike, you know, endorser. I wear my Nike's all over the place. But apparently there's a lot more competition out there. Put them Goyle joins us senior US E e Commerce and retail analysts at Bloomberg Intelligence put give us the latest on the Nike story. Where is the company these days?
00:06:43
Speaker 6: The company is still under a turnaround. North America is back on its feet. We're expecting positive sales when they report this evening. However, the rest of the world is not, notably China, where we're expecting a high teens sales decline when they report. The China focus is the largest focus Monday report earnings. When will China turn is the biggest question. We don't think it'll turn any time soon, but we do think that they'll make progress over their fiscal twenty twenty seven year and hopefully in twelve months it will be in the same place as North America is today.
00:07:18
Speaker 5: Talk to us about Nike as it pertains to the World Cup. Are they still sort of the force they once were when it comes to the sport?
00:07:28
Speaker 6: So they are, you know, I'd say they're on equal grounds with Adidas with the exception that Adidas has the ball, so they do have some elevation to Nike when it comes to the World Cup. You know, when you think of Nike, World Cup has become more adjacent to when you think of Nike. Then I'd say it wasn't the past where you would associate Nike more with basketball. Aditas has definitely lost some share over the prior years before the current CEO to Nike right now, I'd say their neck and neck and they're definitely still in the game.
00:08:02
Speaker 2: What is the issue for Nike in China? What was what's going on over there?
00:08:08
Speaker 6: So there's a lot happening in China that they need to fix. The first thing that they need to fix is the inventory. There's too much inventory on the floor in China. They need to do exactly what they did in the US, which is clear that inventory, get it out of the market, and then bring in more new inventory that resonates with the consumer that's seen to be more what the consumer wants. How they do that in the US. When they did that, they did it more through their direct to consumer channels, which is probably the right approach. And the second thing that they need to do is cut back on the discounting. For the longest time in China, Nike has been seen as a discount brand, and that's not the case here. When we think of Nike, we do not think of a discount at leisure brand. So they need to turn that image and they need to use local endorsers, local athletes, local celebrities to bring the brand heat back into the China marketplace with the new products that they launch.
00:09:03
Speaker 5: I'm looking at year to date numbers for Nike and they're not pretty down thirty six percent, one year return down forty two percent. The stock is down more than one percent here ahead of its earnings after the bell. What do investors need to hear from this company to start to turn the stock around and get people to want to buy again.
00:09:21
Speaker 6: I think China. It's a China story.
00:09:24
Speaker 4: You know.
00:09:24
Speaker 6: The turnaround is taking a lot longer than anyone has expected. It is true that they turned the biggest ship around, which is North America, but China is their most profitable region and there is no line in sight on one China will improve. It's still very early days. We're awaiting their investorday in the fall to really get a better idea of their own outline for the next three to five years. I think right now the question is will they still have that investorday. So there's two things that I'm looking for when they report today, update on China and an update on their investorday. They just hired a new c so while that, you know, investries are asking, well they still have their analyst.
00:10:05
Speaker 2: Has Nike lost its mojo in terms of product development, knowing what's hit, what will sell, all that kind of stuff that I think a lot of people associate with the brand.
00:10:17
Speaker 6: I don't think it's that Nike's lost its mojua. I think that like Nike has allowed competition to encrypten their space and now they have to win it back, whereas before they just had it. So they definitely are pressing the pedal on innovation. We do see that what they're launching is working and it's doing really well. They just have to move faster.
00:10:36
Speaker 5: Who are some of their biggest endorse who do they have deals with right now? In terms of endorsements?
00:10:42
Speaker 6: Nike, do you know, so they have you know, the biggest Their biggest franchise is still the Jordan franchise, right, so we know we know that's the biggest. Caitlin Clark, I think it's the one name that's new to them, and I think it's an interesting one because it helps them gain momentum in the women's category. So when you think of Nike, it's profoundly been a men's business, seen lots of endorsers across the men's line up, basketball, et cetera. So having Caitlin Clark added to their roster, I think is a nice win for them. Also, Kim Kardashian right with the Skims brand, so that line that they partnered with Nike on. I think these are some new and great partnerships that will help them not just gain visibility in the sports rare market, but also with women, an area where there is no large lead the Nike has like it has in the men's world.
00:11:29
Speaker 4: Right.
00:11:29
Speaker 5: You know, you were talking about letting the competition sort of encroach, and Paul, you and I were talking about og An Andovi on the knicks wearing sketchers that during that pivotal moment, right and came four. I mean, now you've got another brand in there. I guess put him that. Maybe Nike wasn't you know, didn't see coming. Oh boy, now we have to compete against Sketchers.
00:11:47
Speaker 6: I'll tell you I definitely didn't see that coming. It was. It was definitely. When I saw that, I thought, Wow, Sketchers did it. I think, Look, I think Sketchers is in the value lineup right, So when you think of Sketchers, I'd say it competes with Nike's shoes that are priced under one hundred dollars. But when you think of the Nike's premium line like the Pegasus Premium and others, they do have a stronger foot there. And I do think that as long as they continue to push innovation and not fall back like they did in the past, I think Nike still has mind share amongst the consumers. When we run our biannual survey on sneakers, Nike is still the top preferred sneaker brand of choice amongst consumers.
00:12:33
Speaker 2: So, you know, we don't talk to much about anymore Punum, and we used to talk to you a lot about it is tariffs. Is that just in the rear room mirror for your retailers that they've kind of just figured it out and it's all kind of in the soup right.
00:12:46
Speaker 6: Now, so they figured it out. But the nice thing, Paul, and what we're watching for in earnings is the refunds, So the refins, they're starting to come in, and Nike quietly and its CFO announcement also announced that it'll get a benefit from refunds, a one time benefit. We don't know the amount yet, so that's another thing that we'll be watching for. But we do expect retailers in the back half to start talking about these apa refunds and what they plan to do with that cash. Are they going to reinvest it in the business. Are they going to give it back to the consumers, because as we know, Nike did raise prices due to tariffs, So do the prices go back to the consumer or do they get reinvested in innovation.
00:13:27
Speaker 1: Stay with us more from Bloomberg Intelligence coming up after this. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am. E's durned on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
00:13:48
Speaker 2: Earnings continue to kind of trickle in here coming up there for the close today. Constellation Brands, I think beverages, think booze, all that kind of good stuff. They're reporting after the close today. Stocks off a couple of percent today, flat.
00:14:01
Speaker 7: On the year.
00:14:02
Speaker 2: It's got a market cap about twenty three and a half billion dollars. Ken Shay joins us here, senior at Consumer Products analyst at Bloomberg Intelligence. Ken remind us of what Constellation Brands is and kind of what are you expecting after the close today?
00:14:14
Speaker 7: Yeah, hi, Paul, Well, Constellation Brands is best known for its family of Medello Corona beers. Yeah, they've been slowly downsizing their one of spirits division, Beer now comprised about ninety three percent of their sales. So it's all about beer right now for this company.
00:14:31
Speaker 5: It's so funny. We were just talking this morning on surveillance about beer sales going through the roof in places like Massachusetts because of the World Cup. So I have to think that's you know, that's a good thing for some of these beer companies. But overall, is Constellation Brands suffering from I think what a lot of these alcohol companies are suffering from. Is just a change in consumer behavior, especially younger folks just not drinking as much as we've seen other generations do.
00:14:57
Speaker 7: Yeah, I think you're right, Alexi. So that's certainly a big piece of it. It's hard to quantify how much of it is, but I think the companies are slowly conceding that demographic changes are occurring in this country. You know, gen z is not drinking as much as their parents. Illegal cannabis is now easily available from in most places around the country, you know, a zepic and the GLP one drugs users have cut back. All those things continue to pressure this industry. But also yet, can't you can't forget also the cumative effective inflation. I mean, the beer prices have gone pretty significantly over the last few years, to the point where a lot of beer drinkers are getting sticker shock when they go to pick up a six pack or a twelve pack or whatever. All those things are conspiring to put pressure on this industry, and we think this is going to be a quarter with a company will say, you know, we're dealt with a challenging industry. We're doing well within this, you know, tough group, But nevertheless, it's hard to overcome those kind of pressures.
00:15:59
Speaker 2: Modello and some of those beer brands at appeal to minority Hispanic community. How's that being impacted by the change in immigration.
00:16:09
Speaker 7: Well, we're going to get a good barometer of that today. Over the last year or so, you know, the immigration crackdowns and a lot of these communities have put a real damper on you know, that group's willingness to socialize, and beer is a big part of that. But now we're facing comparisons versus that last year. I think probably on a comp basis, well probably it's almost less of a factor. I think more of a factor will be some of the items that I mentioned before. Also, we see the Hispanic demographic employment rates have improved over the last few months and quarters, so I don't think that's going to be as much of a drag as the last few quarters.
00:16:51
Speaker 5: Ken what about tariffs? Are they a story for constellation brands?
00:16:56
Speaker 7: You know it had been up until about April six was the day that they no longer apply. Now this quarter ends May thirty first, so they're not going to get the full benefit of the end of those aluminum can tariffs. But it will be better than a year ago. I want to look at it that way. Unfortunately, though, to a degree, you know, their big new brewery down in Mexico of Avera Cruz is going to take up higher depreciation charges. Siver an accounting sense, you're going to get higher depreciation charges off setting a lot of the benefit of the tariff costs. So it's going to be a lot of mixed messages in this quarter. But when the dust settles, I think you're they're going to eke out of modest margin improvement in this quarter, which I think will be perceived positively.
00:17:43
Speaker 2: Ken We've seen a lot of consolidation in the beer business. Is Constellation potential target?
00:17:48
Speaker 7: I don't think they are, Paul. You've seen so much consolidation in the beer market to the point where I don't really envision it going forward in a big way. I don't think this is going to be a play. This is the number two and a number two company. They have twenty almost twenty three percent dollars share of the beer markets, behind only anheusard Bush's thirty three percent, So I don't see it's already pretty consolidated.
00:18:13
Speaker 1: Stay with us.
00:18:14
Speaker 2: More from Bloomberg Intelligence coming up after this.
00:18:20
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:18:35
Speaker 2: Let's go to this economic data. The Conference Board came out Confidence ninety one point two was the reading. The consentus was ninety four point four, so that's a little bit disappointment, but it's better than last month, which was revised down to ninety point six here, so maybe or gas help there. Aaron McLaughlin, she's a senior Condoms at the Conference Board. Aaron, what do you make of some of the data you guys put out today?
00:19:00
Speaker 3: Paul, Well, you know it is tacked up a little bit consumer confidence of zero point six percent, and we're really thinking that the consumer was feeling some optimism because gas prices have been trending down for six weeks. Our consumer confidence survey was taken June first through twenty third, so they felt some optimism with the Iran war perhaps getting a deal coming to the end. So we think that that's really what helped the survey.
00:19:30
Speaker 5: Yeap gas price is down twelve percent in just the past month now at around three eighty five. I believe a gallon for a gallon of unleaded very good. So after you know, spending quite a bit of time above four dollars a gallon, Aaron, tell us about how folks are feeling when it comes to six months from now, because I know you also look at expectations for what's happening in the not too distant future. Are people feeling more optimistic about the future.
00:19:58
Speaker 3: They are, so ourations index it went up three percent, and that is looking you know, asking consumers to look forward six percent, I'm sorry, six months from now, and you know, I think that they really speaks to the consumer being very, very resilient and they don't imagine that things are going to get worse perhaps in six months, and so we don't anticipate any big changes of that. And overall, you know, the what we saw in the consumer confidence index is typical to what has been the last year or so overall.
00:20:33
Speaker 2: So when you think about consumer confidence, what are the key key drivers there?
00:20:37
Speaker 7: Aaron?
00:20:38
Speaker 2: For your model as it relates to maybe employment, inflation, outlooks things like that.
00:20:42
Speaker 6: Right, So with the present situation.
00:20:45
Speaker 3: They are sort of measuring business and labor market conditions and same thing for themselves when they think about their own employment. And I will say that's really the only sort of negative that's coming up is that consumers are thinking that the labor market that maybe there aren't as many jobs that are going to be open in the future. It might be a little bit more difficult to get a job. So that is sort of the negative that's sort of coming through.
00:21:11
Speaker 5: Because yeah, I mean, are you were just talking about your measure of expectations actually rising three percent. I think that's pretty that's a pretty big jump, but the indicator of present conditions actually fell. And is it concern over jobs that sort of led that.
00:21:25
Speaker 3: Drop, Yes, it is so consumers felt, you know, that they see that business conditions and labor market conditions are a little bit weaker, and that could be them speaking to higher prices and also labor market conditions. Is also interesting to see that consumers do expect higher interest rates over the next twelve months, and that is something that we ask and so that's sixty one and a half percent expect in twelve months that interest rates could be higher. So I think the consumers know that inflation is persist they hear that, they understand it, and they see it themselves at the grocery store, at the gas pump, and with their own utilities.
00:22:07
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:00:24
Speaker 2: Chip stocks are heading for their best quarter ever, driven by demand for artificial intelligence equipment, but investors are wondering how much further the rally can go. So let's put it to an expert. Man Deep Sing, global head of tech research for Bloomberg Intelligence Joints, is here. I mean, what's going on with the world chips.
00:00:42
Speaker 3: I don't get it.
00:00:43
Speaker 2: I mean, is it just a supplying demand and there's not enough supply and so anybody who's got them and is in the driver's seat in terms of pricing.
00:00:52
Speaker 4: I mean more so, I would characterize it as a lot of these companies have huge backlog numbers, notably in video, which is said they have, you know, up to a trillion dollars in revenue visibility through the next six seven quarters. So when you have companies guiding like that and all the hyperscalers which are spending money on these chips, they have an aggregate backlog of two trillion. Now, when Jensen says we will have three to four trillion dollars in spend by twenty thirty, I think, you know, when you look at that backlog number, you start to believe that may actually come true. And video is at the forefront of monetizing that sort of demand. So there is no doubt that AI has had an inflection point in terms of usage and inference. Demand has been off the charts. But how quickly it's realizing into top line growth for some of these companies. I think that's where the market has been positively surprised, and that's why you see estimates continue to go up.
00:01:59
Speaker 5: The Philly Stock Change Semiconductor Index up ninety nine percent year to date. Is there any don't mean to put you on the spot here many, but if anybody's going to know what it's you. Is there any company here that's not participating in this chip party?
00:02:15
Speaker 4: I mean a lot of the hyperscaler stocks haven't done well. Microsoft, even I would say Meta, Google, and look, some of it is because these are the companies that are actually spending the money. Even though I cited that backlog number, the market is still not giving them the credit for that backlog because they want to see real revenues. Who has real revenues. It's your in videos, the you know, tsmcs, the semicap guys. And so from that perspective, that picks and shovels straight has worked phenomenally well over the past two years, and it continues to do well just because of the duration of this cycle, and you know how big this technology cycle is proving to be. At some point, I don't think this memory price increases that we just saw from Micron or sustainable. In fact, Samsung and Eskhiiniz talked about investing, you know, eight hundred billion plus in Korea, so there is talks about adding more supply and then doing those long term agreements to cap the pricing. So I feel that pricing lift is not sustainable and it's a matter of a quarter or two before we start to see you know, some tapering of that.
00:03:30
Speaker 2: Microsoft down twenty three and a half percent year to date. What's the street what's the street call on this? Why is this street marking this one down?
00:03:39
Speaker 4: Well, because Microsoft had that exclusive tie up with open ai, which is not there anymore. Open Ai, as you know, is now on Amazon. They really partnering with any and everyone, and open Eye is not the leading model anymore. So it's entropic, and entropic was predominantly Google and Amazon, and now they have started to use Nvidia. So from that perspective, Microsoft not having their own LLM like Google, which has got Gemini, has put them at a disadvantage. And the narrative right now is the cloud. Azure growth is also trailing Google Cloud, and so they seem to be slipping behind when it comes to the hyperscalers. Now, I think, you know, for a company of Microsoft size to grow high teens, that twenty percent is still phenomenal growth. And you still have office three sixty five that will be a net beneficiary of Agent Takai. So look, narratives get formed. That's where we had the SaaS pockellips. Microsoft was caught into the ald as well, and come the earning season they'll probably prove the naysayer's wrong in terms of you know, their top line momentum.
00:04:53
Speaker 5: Now are you talking about a two point seven trillion dollar company when you're talking about Microsoft? So what's the word on the street at about three hundred and seve bucks is there value here, you know, getting in at this level with Microsoft?
00:05:04
Speaker 4: I mean from a valuation perspective, all these hyperscalers are trading at probably below their average multiples that they've traded over the last three years. So from that perspective, if you factor that backlog number in for someone like Microsoft, which has a five hundred billion dollar plus backlog number for their cloud, if that backlog translates into revenue growth, you know, nice, this company will be much bigger in revenue than it currently is and probably surpassing five hundred billion dollars in revenue at some point. So if you believe in that growth story, then yes, the multiple is cheap. But if you think and Tropic and open Ai are going to take a share of Microsoft's on prem revenue and you know, disrupt cause a much bigger disruption, then I think that's where you model for the downside.
00:05:54
Speaker 1: Stay with us.
00:05:55
Speaker 2: More from Bloomberg Intelligence coming up after this.
00:06:01
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:06:15
Speaker 2: Let's talk about Nike. They're going to be reporting some earnings here. They've got to turn around. I think it's been a lot bumpier than they thought than a lot of investors thought. I'm a Nike, you know, endorser. I wear my Nike's all over the place. But apparently there's a lot more competition out there. Put them Goyle joins us senior US E e Commerce and retail analysts at Bloomberg Intelligence put give us the latest on the Nike story. Where is the company these days?
00:06:43
Speaker 6: The company is still under a turnaround. North America is back on its feet. We're expecting positive sales when they report this evening. However, the rest of the world is not, notably China, where we're expecting a high teens sales decline when they report. The China focus is the largest focus Monday report earnings. When will China turn is the biggest question. We don't think it'll turn any time soon, but we do think that they'll make progress over their fiscal twenty twenty seven year and hopefully in twelve months it will be in the same place as North America is today.
00:07:18
Speaker 5: Talk to us about Nike as it pertains to the World Cup. Are they still sort of the force they once were when it comes to the sport?
00:07:28
Speaker 6: So they are, you know, I'd say they're on equal grounds with Adidas with the exception that Adidas has the ball, so they do have some elevation to Nike when it comes to the World Cup. You know, when you think of Nike, World Cup has become more adjacent to when you think of Nike. Then I'd say it wasn't the past where you would associate Nike more with basketball. Aditas has definitely lost some share over the prior years before the current CEO to Nike right now, I'd say their neck and neck and they're definitely still in the game.
00:08:02
Speaker 2: What is the issue for Nike in China? What was what's going on over there?
00:08:08
Speaker 6: So there's a lot happening in China that they need to fix. The first thing that they need to fix is the inventory. There's too much inventory on the floor in China. They need to do exactly what they did in the US, which is clear that inventory, get it out of the market, and then bring in more new inventory that resonates with the consumer that's seen to be more what the consumer wants. How they do that in the US. When they did that, they did it more through their direct to consumer channels, which is probably the right approach. And the second thing that they need to do is cut back on the discounting. For the longest time in China, Nike has been seen as a discount brand, and that's not the case here. When we think of Nike, we do not think of a discount at leisure brand. So they need to turn that image and they need to use local endorsers, local athletes, local celebrities to bring the brand heat back into the China marketplace with the new products that they launch.
00:09:03
Speaker 5: I'm looking at year to date numbers for Nike and they're not pretty down thirty six percent, one year return down forty two percent. The stock is down more than one percent here ahead of its earnings after the bell. What do investors need to hear from this company to start to turn the stock around and get people to want to buy again.
00:09:21
Speaker 6: I think China. It's a China story.
00:09:24
Speaker 4: You know.
00:09:24
Speaker 6: The turnaround is taking a lot longer than anyone has expected. It is true that they turned the biggest ship around, which is North America, but China is their most profitable region and there is no line in sight on one China will improve. It's still very early days. We're awaiting their investorday in the fall to really get a better idea of their own outline for the next three to five years. I think right now the question is will they still have that investorday. So there's two things that I'm looking for when they report today, update on China and an update on their investorday. They just hired a new c so while that, you know, investries are asking, well they still have their analyst.
00:10:05
Speaker 2: Has Nike lost its mojo in terms of product development, knowing what's hit, what will sell, all that kind of stuff that I think a lot of people associate with the brand.
00:10:17
Speaker 6: I don't think it's that Nike's lost its mojua. I think that like Nike has allowed competition to encrypten their space and now they have to win it back, whereas before they just had it. So they definitely are pressing the pedal on innovation. We do see that what they're launching is working and it's doing really well. They just have to move faster.
00:10:36
Speaker 5: Who are some of their biggest endorse who do they have deals with right now? In terms of endorsements?
00:10:42
Speaker 6: Nike, do you know, so they have you know, the biggest Their biggest franchise is still the Jordan franchise, right, so we know we know that's the biggest. Caitlin Clark, I think it's the one name that's new to them, and I think it's an interesting one because it helps them gain momentum in the women's category. So when you think of Nike, it's profoundly been a men's business, seen lots of endorsers across the men's line up, basketball, et cetera. So having Caitlin Clark added to their roster, I think is a nice win for them. Also, Kim Kardashian right with the Skims brand, so that line that they partnered with Nike on. I think these are some new and great partnerships that will help them not just gain visibility in the sports rare market, but also with women, an area where there is no large lead the Nike has like it has in the men's world.
00:11:29
Speaker 4: Right.
00:11:29
Speaker 5: You know, you were talking about letting the competition sort of encroach, and Paul, you and I were talking about og An Andovi on the knicks wearing sketchers that during that pivotal moment, right and came four. I mean, now you've got another brand in there. I guess put him that. Maybe Nike wasn't you know, didn't see coming. Oh boy, now we have to compete against Sketchers.
00:11:47
Speaker 6: I'll tell you I definitely didn't see that coming. It was. It was definitely. When I saw that, I thought, Wow, Sketchers did it. I think, Look, I think Sketchers is in the value lineup right, So when you think of Sketchers, I'd say it competes with Nike's shoes that are priced under one hundred dollars. But when you think of the Nike's premium line like the Pegasus Premium and others, they do have a stronger foot there. And I do think that as long as they continue to push innovation and not fall back like they did in the past, I think Nike still has mind share amongst the consumers. When we run our biannual survey on sneakers, Nike is still the top preferred sneaker brand of choice amongst consumers.
00:12:33
Speaker 2: So, you know, we don't talk to much about anymore Punum, and we used to talk to you a lot about it is tariffs. Is that just in the rear room mirror for your retailers that they've kind of just figured it out and it's all kind of in the soup right.
00:12:46
Speaker 6: Now, so they figured it out. But the nice thing, Paul, and what we're watching for in earnings is the refunds, So the refins, they're starting to come in, and Nike quietly and its CFO announcement also announced that it'll get a benefit from refunds, a one time benefit. We don't know the amount yet, so that's another thing that we'll be watching for. But we do expect retailers in the back half to start talking about these apa refunds and what they plan to do with that cash. Are they going to reinvest it in the business. Are they going to give it back to the consumers, because as we know, Nike did raise prices due to tariffs, So do the prices go back to the consumer or do they get reinvested in innovation.
00:13:27
Speaker 1: Stay with us more from Bloomberg Intelligence coming up after this. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am. E's durned on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
00:13:48
Speaker 2: Earnings continue to kind of trickle in here coming up there for the close today. Constellation Brands, I think beverages, think booze, all that kind of good stuff. They're reporting after the close today. Stocks off a couple of percent today, flat.
00:14:01
Speaker 7: On the year.
00:14:02
Speaker 2: It's got a market cap about twenty three and a half billion dollars. Ken Shay joins us here, senior at Consumer Products analyst at Bloomberg Intelligence. Ken remind us of what Constellation Brands is and kind of what are you expecting after the close today?
00:14:14
Speaker 7: Yeah, hi, Paul, Well, Constellation Brands is best known for its family of Medello Corona beers. Yeah, they've been slowly downsizing their one of spirits division, Beer now comprised about ninety three percent of their sales. So it's all about beer right now for this company.
00:14:31
Speaker 5: It's so funny. We were just talking this morning on surveillance about beer sales going through the roof in places like Massachusetts because of the World Cup. So I have to think that's you know, that's a good thing for some of these beer companies. But overall, is Constellation Brands suffering from I think what a lot of these alcohol companies are suffering from. Is just a change in consumer behavior, especially younger folks just not drinking as much as we've seen other generations do.
00:14:57
Speaker 7: Yeah, I think you're right, Alexi. So that's certainly a big piece of it. It's hard to quantify how much of it is, but I think the companies are slowly conceding that demographic changes are occurring in this country. You know, gen z is not drinking as much as their parents. Illegal cannabis is now easily available from in most places around the country, you know, a zepic and the GLP one drugs users have cut back. All those things continue to pressure this industry. But also yet, can't you can't forget also the cumative effective inflation. I mean, the beer prices have gone pretty significantly over the last few years, to the point where a lot of beer drinkers are getting sticker shock when they go to pick up a six pack or a twelve pack or whatever. All those things are conspiring to put pressure on this industry, and we think this is going to be a quarter with a company will say, you know, we're dealt with a challenging industry. We're doing well within this, you know, tough group, But nevertheless, it's hard to overcome those kind of pressures.
00:15:59
Speaker 2: Modello and some of those beer brands at appeal to minority Hispanic community. How's that being impacted by the change in immigration.
00:16:09
Speaker 7: Well, we're going to get a good barometer of that today. Over the last year or so, you know, the immigration crackdowns and a lot of these communities have put a real damper on you know, that group's willingness to socialize, and beer is a big part of that. But now we're facing comparisons versus that last year. I think probably on a comp basis, well probably it's almost less of a factor. I think more of a factor will be some of the items that I mentioned before. Also, we see the Hispanic demographic employment rates have improved over the last few months and quarters, so I don't think that's going to be as much of a drag as the last few quarters.
00:16:51
Speaker 5: Ken what about tariffs? Are they a story for constellation brands?
00:16:56
Speaker 7: You know it had been up until about April six was the day that they no longer apply. Now this quarter ends May thirty first, so they're not going to get the full benefit of the end of those aluminum can tariffs. But it will be better than a year ago. I want to look at it that way. Unfortunately, though, to a degree, you know, their big new brewery down in Mexico of Avera Cruz is going to take up higher depreciation charges. Siver an accounting sense, you're going to get higher depreciation charges off setting a lot of the benefit of the tariff costs. So it's going to be a lot of mixed messages in this quarter. But when the dust settles, I think you're they're going to eke out of modest margin improvement in this quarter, which I think will be perceived positively.
00:17:43
Speaker 2: Ken We've seen a lot of consolidation in the beer business. Is Constellation potential target?
00:17:48
Speaker 7: I don't think they are, Paul. You've seen so much consolidation in the beer market to the point where I don't really envision it going forward in a big way. I don't think this is going to be a play. This is the number two and a number two company. They have twenty almost twenty three percent dollars share of the beer markets, behind only anheusard Bush's thirty three percent, So I don't see it's already pretty consolidated.
00:18:13
Speaker 1: Stay with us.
00:18:14
Speaker 2: More from Bloomberg Intelligence coming up after this.
00:18:20
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
00:18:35
Speaker 2: Let's go to this economic data. The Conference Board came out Confidence ninety one point two was the reading. The consentus was ninety four point four, so that's a little bit disappointment, but it's better than last month, which was revised down to ninety point six here, so maybe or gas help there. Aaron McLaughlin, she's a senior Condoms at the Conference Board. Aaron, what do you make of some of the data you guys put out today?
00:19:00
Speaker 3: Paul, Well, you know it is tacked up a little bit consumer confidence of zero point six percent, and we're really thinking that the consumer was feeling some optimism because gas prices have been trending down for six weeks. Our consumer confidence survey was taken June first through twenty third, so they felt some optimism with the Iran war perhaps getting a deal coming to the end. So we think that that's really what helped the survey.
00:19:30
Speaker 5: Yeap gas price is down twelve percent in just the past month now at around three eighty five. I believe a gallon for a gallon of unleaded very good. So after you know, spending quite a bit of time above four dollars a gallon, Aaron, tell us about how folks are feeling when it comes to six months from now, because I know you also look at expectations for what's happening in the not too distant future. Are people feeling more optimistic about the future.
00:19:58
Speaker 3: They are, so ourations index it went up three percent, and that is looking you know, asking consumers to look forward six percent, I'm sorry, six months from now, and you know, I think that they really speaks to the consumer being very, very resilient and they don't imagine that things are going to get worse perhaps in six months, and so we don't anticipate any big changes of that. And overall, you know, the what we saw in the consumer confidence index is typical to what has been the last year or so overall.
00:20:33
Speaker 2: So when you think about consumer confidence, what are the key key drivers there?
00:20:37
Speaker 7: Aaron?
00:20:38
Speaker 2: For your model as it relates to maybe employment, inflation, outlooks things like that.
00:20:42
Speaker 6: Right, So with the present situation.
00:20:45
Speaker 3: They are sort of measuring business and labor market conditions and same thing for themselves when they think about their own employment. And I will say that's really the only sort of negative that's coming up is that consumers are thinking that the labor market that maybe there aren't as many jobs that are going to be open in the future. It might be a little bit more difficult to get a job. So that is sort of the negative that's sort of coming through.
00:21:11
Speaker 5: Because yeah, I mean, are you were just talking about your measure of expectations actually rising three percent. I think that's pretty that's a pretty big jump, but the indicator of present conditions actually fell. And is it concern over jobs that sort of led that.
00:21:25
Speaker 3: Drop, Yes, it is so consumers felt, you know, that they see that business conditions and labor market conditions are a little bit weaker, and that could be them speaking to higher prices and also labor market conditions. Is also interesting to see that consumers do expect higher interest rates over the next twelve months, and that is something that we ask and so that's sixty one and a half percent expect in twelve months that interest rates could be higher. So I think the consumers know that inflation is persist they hear that, they understand it, and they see it themselves at the grocery store, at the gas pump, and with their own utilities.
00:22:07
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal
