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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts covered worldwide.
Today, we'll take a look at how the beverage make it Kirk doctor Pepper looking to strengthen its struggling coffee.
Business, plus Echo Star agrees to sell spectrum licenses to at and T. We'll discuss what the deal means for the telecommunications companies, but.
First we begin with earnings from the chip giant and video. This week, the world's most valuable publicly traded company reported second quarter earnings that beat an allo.
Expectations, but investors were disappointed after in Vidia gave a lukewarm revenue forecast for the current quarter. And this is fueling concerns a massive run up and artificial intelligence spending is slowing.
For more.
Scarlet and I were joined by Ku John Sabani, Bloomberg Intelligence Senior semiconductor analysts, first to ask Kun John for his take on Invidious results.
Yeah, like you said, it was once again a solid sprinting guide. It checked all the fundamental key boxes, but as has been the case with this name, you know, the expectations always run higher, and maybe not all the numbers were able to clear that high hurdle of expectations. Specifically the data center compute numbers in two Q. You would have liked to see that come in a little bit high, but there were still a lot of strong
positive underlyings. One the networking was a significant beat, which shows the strength and the attachment that they're getting from their networking switches and chips in the Blackwell ramp. Second, like you mentioned, the three Q consensus had China included, and they still beat their three Q guide Without China. If you add in the China guide of two to five billion, they would have handsomely beaten the three Q numbers.
So that noisy sort of consensus shadowed the goodness that is coming out of the guide of Nvidia.
All right, so what's the company telling us now about China? Goes quite frankly, I just I'm reading the press. I don't know whether they're going to be able to sell stuff in the China or when, or whether they're gonna have to give a fifteen percent cut to the US government. How's that going to play out?
Yeah, so China still remains, you know, after learning sort of that overhang in terms of uncertainty. The company did guide to a two to five billion revenues from the age twenty in China next quarter. Positive. That means they feel confident that they'll at least be able to ship
some and get some of the revenues back. But yes, you know, the spark here for the China story will not appear until we have a clarity, and we believe until they have a blackwell version of a China chip, which they get approval from the government, that will end up really open up a massive amount of revenues coming from China. And there's a lot of hurdles you need to clear. Right there's the government, which has nothing to
do with in media. The US China relationship needs to get sorted out because now even China can put in a roadblock from Nvidia selling or allowing their companies in China from buying in media chip. So there is work to be done. As you mentioned, the fifteen percent cut is not ironed out in terms of laws. There is
we have heard new stories about potential lawsuits. So those two government and geopolitical angle needs to be cleared before we can start seeing billions of dollars of data center China revenue coming in.
What's the competitive landscape here for these chip companies visa v in Nvidia and just kind of positioning for AI. I assume in Vidia's position A, who's kind of B and C.
Yeah, So you know, the space is divided into two categories. One is the merchant GPUs, which is what in media sells and dominates that landscape. The sort of second competitor there or the b is AMD, which is a very far distant. You know, Nvidia today has about over ninety percent in terms of revenue share and the remaining is going to a very small to AMD. But there's another piece, which is we call what we call A six, which is what these big hyperscalers and cloud providers like Amazon
and Google designed their own chips. So that's sort of the other competitive landscape where there's a risk of the A six taking sort of share away from merchant GPUs even though they don't compete directly for the same socket, they could take away the wallet share.
And so does that mean companies like Nvidia have to pour money into R and D for that next chip to stay on front because I know in your business technology changes quickly.
Yeah, definitely. I mean, look and Media has been even before the AI event happened, and Media has been the biggest R and D spender. They have continued and this is what really got them to the stage of being ahead of everyone else, and they have to continue spending out spending everyone else to sort of keep that lead. Their roadmap for the next two and a half years does suggest that they should be able to keep this lead handsomely, and for that it will definitely require high R and D spending.
So this name to me who I'm used to stocks trading in much lower multiples in my world, But this seems like a stock that can actually earn its way, and we have seen it earn its way into its multiple. I mean, you can make an argument this is not an expensive stock.
You're right. I mean, if you look at from a historical perspective, it's actually the multiple is much more lower than what we have seen in media trade in the past two years. So given that fact, and also when we look at the relative comparison, when you think about a company growing at fifty percent and making revenue in the hundreds of billions, that is unprecedented, especially growing with
gross margins of seventy mits or low seventy percent. I mean, you're talking about a financial profile for software company, not a semic network company here. So definitely, when you take into those two things into account, it does seem that it might not be really highly valued.
Our thanks to Kunjoan Shobani, Bloomberg Intelligence Senior semiconductor analyst, we move next to.
The anti trust space as anti trust enforcement policies for President Donald Trump's administration takes shape, dealmakers and large businesses could see a glimmer of hope in some.
Areas, and one area is Media. Last week, next to Our Media agreed to buy the TV station operator Tegna for three and a half billion dollars, and this deal will likely win FCC approval, according to Bloomberg Intelligence.
For more guests, Alexis Christophers and I were joined by Jennifer ree Burg Intelligence senior litigation analyst. First asked jen if the next Star Tegni deal will be approved by the FCC.
I think in the end yes, because the timing was right. You know, this isn't a deal. I think that these companies could have gotten through a few years ago during the Biden administration. But both of the rules that the FCC has that would get in the way are in the process of being changed as we speak, and Republican Commissioners have for a long time wanted to change these rules. So the first one is the thirty nine percent ownership cap.
You know that one company can't own or operate TV stations that reach more than thirty nine percent of US households. These companies say they'll reach eighty percent. So it's just clear on its face that there's a problem there. But the FCC is in a rule making process. They'll probably have this rule, get rid of it, vacate it. We think by the end of the year. You know, my colleague Matt Chattenhelm is an expert on the FCC, and we've talked about this quite a bit. That's probably going
to clear out of their way. There could be litigation, of course, but we do think the rule will move out of the way. The other issue is owning more than one of what's called the Big four broadcast stations ABC, CBS, NBC, Fox. That rule would also get in the way here probably in a number of local areas. Does it called designated market areas by Nielsen. That rule has also been vacated
by the Eighth Circuit Court of Appeals. It will also probably be in litigation, but it seems like the road is clearing for the FCC.
There.
It's a whole new world.
Yes, it's a whole new world. But we have Department of Justice also, so we can't forget that right and we always think about the FCC. The Department of Justice is going to be looking at this too, but I do think they can probably get it cleared through that agency as well.
All we really care about is President Trump, that he have voiced any opinion one way or the other about this type of deal or these types of deals.
You know, I haven't heard anything from him. You know, it would be reported in the news. I haven't heard him say anything about these deals. We are beginning to see a trend though, in the merger world, Paul, where if the companies do and say the right things for the Trump administration, they're getting assistants and getting their deal through.
And they're all pretty well aware of that. So as long as they do and say the right things, hey, we won't block political ads, will be neutral in you know, our censorship of content things like that that resonate with Trump, that's going to help them.
Sinclair did come in here with an eleventh hour deal, did they not?
Yeah?
I think so, but you know they rebuff what it seemed like on a per share basis, it was better than the next Star deal for Tegna, So why rebuffet.
You know, I can't speak to that. You know, that's much more Tegna and Tegna's strategy maybe they think from an anti trust perspective, there's less overlap here. I mean, it is thirty five of fifty one of their DMAs, That's what TECHNA says. But in those thirty five, depending on what stations they own, that overlap may not be problematic. It may only be problematic into few. They may still have to divest some stations in order to get Department
of Justice approval. I haven't done that comparison analysis, but it may be that they have to divest fewer stations. This deal perhaps done a different one.
Yeah, how is the Department of Justice looking at mergers and equisisms generally defined? Has it maturely changed under the Trump administration versus the Biden administration?
You know, it's so interesting. The rhetoric at the beginning was that it wouldn't change, that there would be this read through, and that there was more commonality with the Biden administrators than differences. But it has changed. You know, they have gone back to settling problematic deals with you know, structural even one behavioral remedy that was omnicom interpublic with divestitures. This is something that wasn't happening during the Biden administration.
They just said, if it deals problematic, we're going to sue this. Doja in this FTC said no, we're going to work it out. If we have problems, we'll work out the problems with a fix. We'll have a settlement and will allow the broader deal to close. And that's a big difference.
What does this deal tell you, though, just about the larger landscape of television, especially local TV, which we know has been losing revenue share. They're struggling just because there are too many places the eyeballs can go right and competing with streaming and with the big guys. So is this really a merger of necessity for these local TV stations?
You know, I would think it is, and I think we're going to see more, you know, that kind of consolidation has slowly there's been quite a bit of consolidation, actually it has over the years. It kind of slowed down during the Biden administration, but you know, I think it's going to pick back up again because they are so challenged by cord cutters, by people who never you know, younger people who never watch TV at all.
You know, what's that?
What is cable exactly so.
Broad looking broader here I mean, over the next year or two, do you expect to see more deal activity just because companies and boards and private and all the forces in out in the marketplace. I feel like this is the time to do it. This is an administration that will support deals.
I think so, and I think it would have already picked up if we didn't have so much teriff uncertainty. I think that has slowed things down. But as those things sort of work themselves out, I think we're going to see a lot more deal activity because you can see a path to getting these deals done without having to go to court and without dragging it out for two years.
So this is sort of a litmus test, then, isn't it. This next Star Techna deal. I think for the rest of the industry. Really yeah, I think we have a few litmus tests out there. You know, the Google Whiz deal that's pending is a litmus test for sure, to see what this administration will do with a big tech platform merger.
I think this next Star Techna deal is a litmus test because they're breaking all these old rules that were the orthodoxy for years. We're going to see where that goes. And then you know, you have Dick's footlocker, and you've got Charter Cox. And there are a lot of big deals pending right now, and I think they all are deals that would have had trouble during the Biden administration, but I think can get cleared now.
Our thanks to Jennifer Reeb, Bloomberg Intelligence senior litigation analyst. Coming up, we'll look at the results of a second obesity pill trial for the pharmaceutical giant Eli Lilly.
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Next to some M and A news in the consumer space. This week, the beverage company Currick Doctor Pepper announced it would buy the coffee and tea company JD. E. Pete.
The goal is for Currick Doctor Pepper to strengthen its struggling coffee business. The company also says that plans to separate its coffee and soft drinks unit into two independent US listed companies next year once the deal is completed.
For more on all of this, guests host Alexis Christophers and I were joined by Ken Shay, Bloomberg Intelligence senior consumer products analyst. First ask Ken to explain what this deal would do for Kurk Doctor Pepper.
This two step deal basically addresses a lagging division they've had the Carrig coffee business, you know, it's it's cold beverage business, namely Dr Pepper, Mott's Canada Dry is doing it really well, whereas the cure coffee business really has
been a laggered over the last couple of years. Now that you have higher green coffee costs, you have you know, fifty percent tariffs coming in from Brazil, namely coffee beans, slow demand for at home you know pod business, you know, the ubiquitous ca cups, and it really is painted a dismal picture for that division of the second half. So rather than try to sell it, and I don't know if they try to do that, but rather than try to do that at a low multiple. What they're trying
to do cleverly is team it up with JD. E. Peets, which is the number two coffee producer in the world, behind only Nesley, but mostly big in Europe, and you know, attached the US essentially US business, the CA cup business together and you have a pretty good, pretty good entity.
You know what struck me when I was reading about this deal, Guys, Doctor Pepper was the second most popular soda in the US last year.
Is that?
Right behind coke and a head of PEPSI did not know that. I can't remember the last time I drank a Doctor Pepper.
Well, if you're in Texas, that's like the state drink, then.
Is it now?
Yes? All right?
So but Ken, the question here is talk to me about the beverage side, the soda side here, because I know bottled water has sort of been eating their lunch the overall industry right for years now, outpacing the sales of soda. So how what's the health of that side of the business.
Oh, it's doing very well, lexis the cold beverage side is doing really well, whether it's coke or Pepsi or cuity, Doctor Pepper, particularly those three companies because distribution is everything. These three companies have national footprints so they can reach all the outlets, you know, whether it's fountain drinks or traditional supermarkets, you know, vending, whatever, they can reach it.
And they all had powerful brands. As you said, Doctor Pepper has really been coming on strong over the last couple of years. And they have other powerful brands. And unfortunately there are somewhat mini conglomerate business structure is being dragged down by a you know, Carrig the coffee business. So that business is doing really well. Carrik has shown that it's also flexible and willing to pivot to fast growing niche coal beverages. You know, it's a business that
continually changes with consumer tastes. Over the last year or so, for instance, energy drinks have taken off, so what they do. They went out and bought Ghost Energy. You know, for even a younger demographic that typically drinks beverage, energy beverages. They are bigger into the sports, the sports drink category. They talked about on the last call a few weeks ago. To get stronger in the protein space. Everybody wants protein,
you know, the GLP one folks need protein, replenishment. So they've shown a willingness to branch out and tap into anywhere where fast growing coal beverages are you know, doing well.
So I look on like global commodity screen and I see the price of coffee. It's up like twenty five percent this year. I mean, what's going on with that? Talk to us about coffe and just the cost of the beans and all that kind of stuff.
Well, you know, coffee beans are essentially sourced from Brazil, so to some degree, the roasters are hostage to good crops, and over the last year or so you really haven't had great crops. I think some of the sellers in Brazil are also holding back knowing that towers are coming and you're not going to get what you know they would like to get. And that's exacerbating the run up that you've seen over the past six months a year
in coffee beans. If you went back over the last couple of years, through two or three years, you would see that the retail price of coffee, whether it's rate to drink or hot coffee at your you know, local coffee shop, have increased faster than most other beverages soft drinks. I'm talking about so you've even seeing some consumers bypower or switching from say like cold brew cold coffee to move to energy drinks. It's more cost effective. So the
coffee producers have a condundrum. Do they continue to raise prices and get flatter lower volumes or do they eat that margin? And so what CURRG has decided to do is kind of divest it in a tax efficient way.
Our thanks to Ken Shay, Bloomberg Intelligence, senior Consumer products analyst.
Move next to the biotech space. This week, the pharmaceutical company Eli Lilly said its second obesity pill trial help patients was almost ten percent of their body weight, and the success of this weight loss trial moves Eli Lilly one step closer to the potential approval of its weight loss pill form wrong. On this guest hosts Lise Matteo and Alexis Christopherus were joined by Sam Fizzelli, Bloomberg Intelligence director of Research for Global Industries and senior pharmaceuticals analysts.
They first asked Sam how the most recent obesity pill trial is different.
This is a large trial in diabetic patients, but it obese diabetic patients, so they're looking at the impact in that popular that population tends to have less of a
weight loss for a variety of reasons. But it's come out exactly where we thought it would come out, actually maybe a little bit better than people's lowered expectations after that first trial read out a couple of weeks ago, if you remember when the stock got hit severely lily stock, and so we're seeing about ten percent weight loss and still the same high levels of discontinuations. This is a long trial, so you even find a whole bunch of
people on placeboud discontinue because they get bored. They want to go and get wed loss from another drug. So it's actually pretty decent data because it's a small molecular pill. It's a pilly can take, relatively easily manufactured, and you can take without too much complications in terms of don't eat, to eat, take in the morning, take in the evening, that sort of stuff.
And that's the key. Sam, and I'm wondering how much of a game changer this is because it's not an injection, right, it's a p You're looking at an industry that by twenty thirty is projected to be ninety five billion dollars. So if this goes Eli Lilly's way. Is it a game changer for the company.
Yeah, I mean it has gone their way. This is unless something shows up in the enormous number of files that they file to the FDA, or side effects or something. This is a drug that's likely to get approved. The question is how do you use it. You've got the injectibles once a week, once a week, not a big ask, very fine needle people even tell me they don't even notice the needle going in and out. But still you don't see the needle, So what is It's it ten
percent weight loss versus twenty odd percent weight loss? So what is the right way forward here? Some people are needlephobic. It's going to be helpful for those. Some people can't get access to the drug because it's hard to manufacture. The other ones that are injectibles sterile manufacturing. So there's
lots of room for this. And of course there's this other thing that I think a lot of people keep thinking about, is you've got your big weight loss with your injectables six months, in nine months, in twelve months, in switch to this and help you maintain. You might not even need the higher doses which are causing some side effects, maybe you can get away with a lower dose and maintain that weight loss. They would have to do a trial to prove that.
Though, as you're talking, a question kind of popped into my head. You're talking about all the different advantages to it. What about has there been any talk about price, like how much could this pill cost compare to an injection?
I mean, it would be an error for these companies to start competing with themselves on price with their products. If you find that actually you can go with the lower dose of this, your margins are a bit better, definitely because there's no device involved. But I don't know what the small molecule manufacturing because they're not all small molecules are easy to make, right. It may be small discount perhaps, I don't know, but I doubt that this
will come out at a level that's significantly low. On the other hand, it does have lower weight loss, so maybe if there is an opportunity to kind of I see it, PARI pass whu if whatever, If that's the right phrase in line with its weight loss, that you're.
Getting our Thanks to Sam Vizzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceuticals analyst.
We moved next to news from the consumer retail company william Sonoma.
This week, the company raised its full your sales growth target after a strong second quarter showing across all its brands. However, Wall Street's reaction to this was mixed. Williams Sonoma has seen its incremental terror F rate double to twenty eight percent.
For more on this guest host Alexis Christophers and I were joined by Lindsay Dutch Bloomberg Intelligence Consumer Hardline senior analysts. We first asked Lindsay to break down Williams Sonoma's earnings and how its business is doing.
Williamsinoma had another really good quarter. We're seeing continued momentum and sales, which is a positive for them, especially given higher interest rates and new home sales being soft. And more importantly, they held the guidance for operating margin flat even though they're facing tremendous costs headwinds from tariffs.
Why not a better reaction from Wall Street?
You know, I'm also puzzled by that. I think that there's not much more that you can ask for from a company like this. You know, they are working on getting to some sales growth goals. They're showing progress there. They are leveraging their scale, negotiating with suppliers. They're basically mitigating all of the costs from the tariffs that they're experiencing this year, which was basically a doubling in the tariff rate than they were expecting from the first quarter,
so it's a significant headwind. They're basically planning to offset all of it with all of their mitigation efforts, and they're going to continue to see some profit growth this year. Long term goals are intact.
So how are they mitigating it? So they're not going to pass anything along to consumers? How are they mitigating So.
They are doing select price increases. They have multiple less that they are pulling, so they are negotiating with their suppliers sort of managing the cost sort of on the supply side, they're shifting sourcing, you know, with a new threat of an additional tariff just on furniture imports, they're looking to increase US made inventory heading into next year.
They are also increasing the prices and the fact that demand is showing momentum, you know, that's a positive sign that they can execute those price increases successfully and continue to get a good margin on those products.
So Williams Sonoma is a company that also owns the Pottery Barn brand West Elm. Curious if there were strengths sort of across the board across its brand.
Yes, So this was a second consecutive quarter that we saw same source sales growth across all brands. Pottery Barn and West Elm are the two big ones that we've been watching over the past say, four to six quarters, and that's because there really has been a bit of a challenge when it comes to demand for furniture coming into this year, we saw some positive momentum in that business.
William Sonoma has continued to outperform, So we saw growth in those two brands again in this second quarter while the industry was still down for the quarter. So they are seeing, you know, good demand with those two big brands, and they're saying that a lot of that is coming from the new products that they're launching.
Our thanks to Lindsay Dutch Bloomberg Intelligence Consumer Hardlines senior analyst coming up a look at earnings from the retailers Coles and Abercromme and Fitch.
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If we move next to news on the telecommunications companies EchoStar and AT and T. This week, EchoStar agreed to sell spectrum licenses to AT and T for about twenty three billion dollars in an all cash transactions.
The sale will expand AT and d's network. It'll also help EchoStar state out of bankruptcy and fend off regulatory concerns about its airwave use. The deals expected to close by mid twenty twenty six, pending regulatory approval for more.
Guest host Lisa Mittel and Alexis Christopherus were joined by John Butler, Bloomberg Intelligence senior telecom analysts. They first has John with this Ecostar AT and T deal means it is.
Huge for EchoStar, and I think at issue for them is they have they've been trying to build their own five G network to compete with the big guys, and they have the spectrum to do it, but they didn't have the capital to do it. They really have an outsized debtload that they've really been struggling this service. And the FCC intervened here and they've been pressuring ahead of Echo Star Charlie Ergan to either use this spectrum and
start to fill those airwaves or to sell it. And so I think this is maybe the first of maybe even more moves to sell more Spectrum on the part of the company. But given the price tag, it alleviates that capital crunch and so any risk of default here I think is minimized now in the wake of this deal, and so investors are breathing a big sire relief.
Talk to me a little bit, John about this price. Twenty three billion dollars nine billion more than EchoStar paid for the spectrum, five billion more than the appraised value is at and t getting value out out of this twenty three billion dollar deal? Are they grossly overpaying?
So I'll say Spectrum is like houses on Nantucket. You know, the price, it just continues to go up over the years, you know, particularly with the advent of AI now and the need for more capacity to carry that added traffic. It's really not a concern on my part as to whether or not AT and T is going to get a good return on this investment. And again all kitting aside, I go back to that analogy that really Spectrum does.
It tends to increase in value over time. It's a very ill liquid market, so it's hard to really get a good feel for their fair value of different frequencies. But I have no doubt that at the end of the day, even expensive is going to prove cheap here for them.
Hey, John, can you dig a little bit into how this is going to expand AT and T's network.
So if you look at this spectrum holdings of Verizon, T Mobile and AT and T and Spectrum, I'll just take a step back for listeners that don't know, when you're making a caller transmitting data over the area, you're doing it using spectrum. And the more you have think of it like the width of a pipe. The more you have, the fatter the pipe, the faster the download speeds.
And so AT and T intends to put this spectrum to use almost immediately to really enhance the download speeds of the network, and so network quality gets better, word gets around, people begin to say AT and T has a better network. So from a branding standpoint, there's a real benefit here. And then longer term again, as AI continues to scale up and imprinting those queries that we
make and the answers we get back. Now, a lot of that's going to be done at the edge of the network where you need that big fat pipe to support that traffic. So I think in their minds, those are the two things there, after improving the network quality and the brand image and having the pipes to move the traffic that's coming down the road here.
On a call with investors, AT and t's CEO Stanky said that, you know, regulators shouldn't be concerned that this transaction was going to put too much wireless spectrum, I guess in the hands of one of the largest telecom carriers. That's what he told investors. But do you think regulators are going to bulk at this No.
I think regulators have been behind prompting the sale. If that's the right way to put it so again, the FCC was really on Echo Star to sell some of that spectrum. They're educated and well educated and wireless as regulators to know that it was probably going to be one of the big guys that would step up and buy it. If I look at at and T spectrum holdings the whole, they had a competitive disadvantage or less holdings in the band or the frequencies that they purchased
from Echo Star here. So I don't think there's any sort of regulatory argument against the deal here, but I would defer to our legislative analysts in Washington to really make the call there. But I'm not concerned.
Are Thanks to John Butler, Bloomberg Intelligence senior telecom analyst, moved.
Next to earnings from the retailers Coals and Abercrombie and.
Fitch this week, coleshare surging after the company offered a more optimistic full Your Sales outlook.
The company now expects comparable sales to fall no more than five percent this year. It's prior forecast was six percent.
Separately, Abercommy and Fitch raised it's full Your Sales guidance following us stronger than expected quarter at its teen focused Hollister brand.
More on all of this. Guest hosts Alexis, Christopherus and I were joined by Mary Ross Gilbert Bloomberg Intelligence senior equity analyst who covers retail. We first asked Mary for her key takeaways on coals earnings.
Coles.
Okay, look, they reported comp sales down still and as you pointed out, fourteen consecutive quarters of declines or another way to look at it, over the past three years. They're cycling three years of declines. So but what really we're looking at in the news that came out with Cole's one is that on the call, the company said
July sales were flat. That was really encouraging. And when you look at the third quarter and the guidance for the third quarter again still looking for declines for the balance of the year, down four to five percent on a comp sales basis, but for the third quarter they're going to cycle a nine point three percent decline last year. So that means that comparisons are easier and they're off
to a good start. So it's encouraging. And what we're finding is that they're bringing back the core private brands that are really resonating the their core consumer, which is that sort of load to low middle income consumer. They're really pressed by inflation still, and so they are really looking for the value and is they've brought that back in and they brought back fashion jewelry and you know, they're working on refining fine jewelry, but that's all resonating
now with the customer. And so that's where they're seeing some strength. And so we're seeing encouraging signs there. But they're not out of the woods yet, right because you know, again three years of sales declines and you know, they're still their sales are still declining. So we'll see if they actually reach stabilization by the end of the year. They're saying, no, we're not, but we're thinking they're providing conservative guidance so that they can be.
Hey, Mary, what are Coals and some of the other companies saying about, I don't know, their strategies for dealing with tariffs in terms of a passing along to consumers, b taking it maybe even their margin or c. I don't know, kind of pushing back on some of their suppliers. Is there a consensus building about how some of these retailers are dealing with it.
Yeah, Paul, that's a really good question because tariffs is absolutely top of mind. And with Coals, Coals really sources most of their product from other brands and companies. They do have their own private brand business. It's probably somewhere around a third of the business. You know, they're getting it back in order because of course they went too low last year. And what they're finding is they're sharing
with their vendors. This is what we're finding across the board, and they're finding an ability to raise prices on select items. So with Coals, we did see a margin improvement in the quarter. And so because the private brands do deliver a higher margin on an overall basis versus the third party brands, they're getting that benefit and that's helping to
offset a bit of the tariffs. And again they're less impacted versus some of the specialty apparel brands like Abercrombie and PVH and those companies reporting which they did disclose what kind of exposure they have. But we are seeing across the board that there is sharing. It's usually about fifty percent, where their suppliers will say we'll absorb fifty percent of the cost, and then the other fifty percent
is taken by that brand. Then they will do strategic price increases on certain items that they feel will be less noticeable to the consumer.
Mary.
Before we get to Abercrombie, one more question here on Cole's Bloomberg News is reporting that Coles is having trouble paying its vendors on time. What do we know about that.
Alexis I'm really glad you brought that up, because that was never brought up on the call. Nothing came up
in that conversation. When we saw that article, we said, what I mean, that's kind of like a warning sign, and it basically says, look, they're just trying to manage their working capital needs because we're in a period right now where they're taking in all of the inventory that for the holiday season that's coming in right now, and so that's a big cash use and that's kind of where we are in the third quarters where they're going to have to, you know, raise their revolver borrowings to
fund those needs. And so there was a bit of a concern, but nobody on the earnings call brought that up with the company. But we we kind of were watching that closely like I said, Cole's is not out of the woods yet.
All right, Ambercrombie, what's the story there.
So on Abercrombie, generally they beat but okay, and it was all led by Hollister, which we could see in the transaction data, and it was something that we saw in the first quarter. And they're cycling some big comparable sales increases in the prior year period for their namesake Abercrombie brand. But the decline in comp sales, you know, it is down about eleven percent, was way worse than what analysts were looking for. They were looking for a
decline of you know, something like down seven percent. The reason for that is they had some carryover inventory at lower average price points that they were selling through in the quarter and that's what really took the comp sales down. But they were very optimistic about you know, third quarter start with their denim program, with their NFL collaboration, and so they feel like that's going to really benefit all of the initiatives that they have to benefit the Abercrombie
brand going forward. So they feel like, no, this is just a little bit of a hiccup, nothing to be alarmed about. And I think what we're seeing generally when we think about all these earnings reports so far, is that the consumer is resilient. We have the lower income being a little more strained and being very careful and choosing what they're going to buy. But when they see
the value, they're spending. And then, of course, you know, when you get the consumer that's in a better position, they're definitely spending.
Are thanks to Mary Ross Gilbert Bloomberg Intelligence, senior equity analysts for Retail.
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