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One of the stocks in the news is Delta Airlines. Stocks up thirteen point eight percent here today. Delta Airlines reinstated profit outlook for the year, and they say that the travel in the US is climbing back, corporate travel is strengthening, so looks pretty good, and consumers have become a little numb to the ongoing trade disputes.
That's, according to the CEO, is.
Being numb good though exactly maybe relative to where you're flying exactly.
George Ferguson he does this stuff for a living.
He files all the airlines and all the aerospace companies for Bloomberg Intelligence joins us. Now, George, what did you take away from kind of Delta? What's changed since they pulled guidance and now they're reinstating their guidance.
Well, I think what's changed since they pulled guidance is that guidance got lower. But they didn't mention that right, so they reinstated guidance, but at a lower EPs than they had initiated at the end of the year. I think the market still looks a little bit soft to us.
For sure, fuel.
Prices are giving airlines a bit of a bolster on the bottom line. But I think, you know, what we heard today was on the demand side was more of the continuing story, and that is that premium is holding up really well and Delta's going to do very well
there because of their loyalty programs and such. Basic economy isn't And if you look at Delta's you know, price paid per mile flown for customer, it was down and every single market that they served or maybe flatish in Latin America, but all the rest of the markets down during the quarters. So to us, it looks like a market that still needs to have capacity come out. Some of it will see.
The CEO pointed to progress in trade talks between the US and other countries and the potential for some geopolitical conflicts to abate. I mean the flying public, really, I don't know, are they really thinking about this when they book a flight on Delta or any other airline.
Yeah, I mean, so when I think of that, I think that's going to largely benefit his international business. I don't know, you know, I was polis to pick him because I get to Paris for Paris Air Show, you know, every other summer, and when I was in Paris, it was teaming with Americans. So it didn't seem like, even with protests going on around, it didn't seem like demand was off for international travel at least you know, anecdotally and some of the places I've been to.
So I don't know.
I mean, I think it takes a little bit of demand off, maybe a very little bit, but right now the international traveler seems to be rolling right over top of that and going anyways.
George, how does an airline take capacity out of the system? Is that just going from like ten flights between Newark and Miami a day to I don't know, seven or eight.
I mean, I think ultimately you gotta park airplanes. I mean, you know, it's a capital intensive business. You don't want to buy those airplanes and not utilize them. You take your old stuff, you park it, you maybe retire it, sell it off. But what I mean, what we're seeing as three Q develops and so we'll watch as closely to see what it does to demand. Is we're seeing that the low cost carriers Spirit Frontier look like they're taking large portions out of their plan for three Q.
Now it may not hold.
They may add some of those those routes back, some of those seats back, but we're seeing numbers down twenty percent in some of their capacity. On the full service side, United and Delta is still adding. United adding the most I think, I want to say, five is six is percent when I looked at earlier today, Delta adding two three ish percent, an economy that's not growing that fast. American look kind of flat, meaning the economy is growing
at rates, you know, some two percent. So it feels like the big full service are going to push through here and try to push through and continued to subsidize the front of the cabin, sorry, subsidized the back of the cabin. That basic economy with the front of the cabin strength. I feel like at some point they'll break that front of the cabin. I think that's sort of how the industry always works.
We'll see in none of these reports do I see anything mentioned about jet field prices. Should we be concerned about that.
Well, I mean, right now it's a tailwind, and if that reverses could be a problem. Right, But I mean jet fuel prices are down because of slower global growth, right, I mean, I think the geopolitical backdrop doesn't help it, but it doesn't seem to have pushed prices up.
Firmer.
I think I saw today Saudi's are talking potentially about reducing some of the capacity ads they're coming on. I don't know if that sounds strong enough yet, but if jet fuel turns, that would be that would work against them, because again, we've got an airline business. If you look at Delta, they added three ish percent capacity or around there for this quarter and revenues were flat. Right, So they're adding capacity and revenues are flat. I generally don't like that kind of.
Backdrop business travel.
Delta actually kind of called that out as perhaps corporate travel is quote unquote strengthening.
Are you seeing that across the industry?
And where I guess where's corporate travel versus pre pandemic.
Yeah, so they're not telling us anymore, right, and usually you tell us when you're really excited about where it is. Look, I think the summer flying seasons are all about leisure. What I heard was that they that they were having weakening, weaker pricing power in sort of the off peak demand times. And my read through on that is that summer leisure
traveler where they know they got you right. All my friends call me, they go, hey, George, I hear airfares are down, but I'm trying to travel over July fourth week on vacation with the family, and I'm paying a crazy price. And I'm like, yeah, because you're going when everyone else in the world wants to go somewhere, right, So when I read off peak, I also think that's probably a little bit of business travel, and so I don't know that it's going swimmingly and they're not. They're
not giving us numbers. What I heard was kind of stabilized, but I didn't hear to me, I didn't hear something that sounded like it was getting much better. And again, summer's about leisure.
I live in the flight path of I guess it's candy well everything. Yeah. Sometimes I look up and I'm like, oh, wow, Jed, it's amazing to me George that I guess the engine technology has advanced so much that I barely hear them. Should I get excited about the advancements in jet engine technology? Thirty seconds?
Yeah. Look, first, I'm jealous because you're in the flight path of everything.
And yeah, you come over an.
I'll sit there with a lawn chair and we'll watch them. Jeff, jet engine technology is outstanding. It is probably even getting quieter and more fuel efficient. It'll cost more to it'll cost more to maintain over the long run, but going the right direction.
Years ago, George turned me onto this app flight Radar twenty five.
It's great.
Yeah, so you can track every plane in now and you could.
There's also a button where you can push where you can get the cockpit view. Yes, like pretend you're flying.
Great. So now I'm completely addicted to that.
George Ferguson's senior aerospace, defense and Airlines analyst of Bloomberg Intelligence, giving us the latest here on Delta and again Delta stock up about thirteen percent here today on news that they are putting out guidance which they had pulled their guidance, so Street taking that as a positive sign that the company has some confidence in their business allegory.
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.
Speaking of technology, we like talking to men Deep Singing. He's a senior tech and also Bloomberg Intelligence. All right, you've scoled us on AI over the last several years. I think I now understand what it is. I understand that it's big. It's a big business. But four trillion dollar market cap for NVIDI are you kidding me?
What's going on? I mean, tell me that's overvalued.
Well, when you see a company that's growing fifty percent and is able to generate almost one hundred billion dollars in free cash flow, then it's not. And that's where you know you have to look at it from the lens of what is sustainable versus what is happening right now now. Typically chip companies, we know they have that cyclical element where you know, after a period of rapid growth, there is a digestion period. I don't think this time
is any different. But what we are witnessing now is the super cycle in terms of the buildout of AI infrastructure, so you are not going to see a very quick slowdown simply because right now we are in AI land grab mode. Everyone is. I mean, we talked about picks and shovels for the longest time, you know, in the past twelve months. That trade is still ongoing simply because the demand for GPU compute really continues to rise. Because
you have this explosion in coding agents now. I mean, think of what has coding agents done in the past six months. That is the use case that every hyperscaler is using now, every enterprise is looking to deploy. In fact, Microsoft set thirty five percent of their new code is written by a coding agent. That's all AIGPU based And that's why there is so much exciting.
And if I'm in a company with earnings coming up, I don't have to wait very long to show the results of my big investments in AI do It's already there right well?
I think for hyperscalers, especially Microsoft.
Send users, I mean the regular Joe's out there.
Yeah, I think again depends on w sector you are in and how far along you are in terms of deploying those I mean, what these companies have shown is not only are they investing in AI data center build out, they're actually deploying it in house. And Microsoft is the prime example of that, where they've done a couple of restructurings. They've set thirty five percent of their code is written by AI. So it's hard to argue against the proof
points that they're giving us. And look at open Aiy's growth. They've almost doubled their revenue in the first six months of the year, and Tropic has foxed its revenue from one to four billion, and in the first six months of the year. That kind of growth, it's hard to argue. Again said, you're right. I mean some of it will be visible and you know the companies that are using
it as end customers. But really there is so much runway because these use cases are all new and everyone is looking at the productivity aspect, and that's what everyone is excited about.
All right, let's switch gears to something near and dear to my heart, which is paying huge compensation packages for people. It used to be like in my Wall Street, this is like sports teams. He did it for bankers and traders. Now in your world, the geek engineers are getting pay
packages of a couple hundred million dollars. I'm seeing Meta Platforms has made high compensation offers to new members of its super intelligence team, including more than a two hundred million dollar package for a former Apple executive.
What's going on here.
Well, I mean with this AI wave specifically, when you think about the transformer model and the subsequent development, a lot of it has been pioneered by I would say, you know one hundred to two hundred AI researchers that were at the forefoil. So if you are one of those, and everyone knows you're either working at open Ai or Entropic or Google DeepMind, that's where you know. Meta was like, we are lacking behind in our large angline model efforts.
We have really got all the compute and the data. What is it that we can do to fill up that gap in terms of whire model is not being as heavily used as an open ai model.
So they have.
Brought in all the researchers. I doubt they'll be able to fix all the problems with their model by bringing in all the researchers over the next six months, but what it could do is slow down open ai because open ai was shipping product you know pretty much every month. Now suddenly, if you lose two or three of your key people, then maybe cheap doesn't get shipped in the
second half. So I think what Meta has done is really made every attempt to slow others down and then in the process they'll have more time to catch up. And I think that seems to be the strategy.
It's a show Hey O Tani type contract man Deep saying thank you so much because you guys can't do lave exactly.
We're going to see it and lead go exactly.
Yeah, you wait it on the way out of.
The door, men Deep seeing senior tech analysts for the moment. Bloomberg Intelligence. Here in our Bloomberg Inactive Broker's.
Studio, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Corplay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
All right, John Tucker Ball Sweeney, We're live.
Here on Bloomberg Directive Broker Studio.
Or streaming live on YouTube as well as to check us out there Amazon Prime Day. I know you're all over John, It's actually Prime Days plural. I think there's four of them.
So you spread it out and things are I don't know.
But it just gets you just buy stuff in July. I guess you wouldn't ordinarily be thinking about buying stuff. But let's see how it's going out there in the world of retail and etail.
Put them.
Goyle, senior US e commerce and retail analysts, joins us here, she's at Bloomberg Intelligence. She's down there in prinstance, put what are we learning about Amazon and Amazon Prime Days and maybe how the consumers do in these days?
Sure, so you know the days. It's four days this year versus two days last year, so longer, which means that people have more time to shop. So early reads from different third party vendors suggest that sales were down in its first day, and I'm not surprised by that because there's no urgency, right you have till Friday midnight to shop, so I think people are taking their time. Overall, we do expect a Prime Day versus last year will
be up by the end of it. Consumers are looking for deals, Prices are are going to go up with the terriff situation and the best time until block Friday to get deals is this week?
Okay, you always leave it to me to ask the stupid question, Well, what are the big sellers on the AM on the amasode.
So what they're pushing is exactly what they've pushed before. You have electronics, you have home products, you have the vacuum cleaners, you have the devices that they have, whether it's the Alexa, it's really a little bit of everything
is on sale. The average discount that I've seen, you know, there are clearly some things that are fifty to sixty percent off, but I'd say the average discount is probably in the twenty to thirty five percent range from just the products that I've seen as I've been tracking it.
But that's the stuff they're pushing. What is this stuff people are actually buying.
I think they're buying what they're pushing because people want to buy what's on sale, right, So if it's not on sale, why do I need to buy it today? I can wait till I need it, all right?
So next Wednesday we are picking up our new puppy, and so we've spent the last couple of days taking advantage of Amazon Prime buying a lot of dog stuff.
Is that dog stuff? Manufactured overseas where you're now paying like.
I don't know teriffs, and that's kind of where I wanted to go poon them. If we haven't seen the tariff impact yet, or maybe we have, I don't know. When do you and the retail companies you talk to, when do you think the tariff price increases? If any come through to the consumer, they may not. When do your companies think we'll see it?
So I can tell you that I think they're there, but they're selectively there. Companies have already started to raise prices. Nike, for example, has raised the price of its sneakers that are over one hundred and forty dollars by five dollars. And that's that the ten percent pause teriff rate. When I'd say, it depends where these rates settle. Right now, we're hearing Vietnam twenty percent, and that's ten percent versus twenty percent. So now Nike will it have to increase
its rates further? I think so they will act they have to do that. They said the ten percent is costing them an additional billion dollars in costs this year in their physical twenty twenty six. If it goes to twenty percent, Vietnam is a big sourcing country for footwear especially, They're definitely going to have to take prices up unless they're going to let the margin.
Take a hit.
Do these companies like Puma do they have to reinvent themselves in light to all this, So to.
A certain extent, they have to think about their cost structure a little more. But what I would say is Puma is a little more diversified. Right, It's a European name, so the exposure to the US is less than what it is for a Nike, so they do benefit from that. Even ADDIAUS, for example, their exposure to the US is less the Nike, so they can take what they make in the higher tariff countries and use that for everywhere else but the US. So they do have some strategies
that they can deploy and are already deploying. But strategies will have to change, right, will materials get compromise if the consumers not willing to pay for the added costs. These retailers cannot absorb a twenty percent tariff, They just cannot. Their margins are in the single digits, so it's just not something they can afford.
So what Yeah, interesting, So Bloomberg News is out with the stories saying that talking about the running category, and that's critical for a lot of these sneaker makers in how competitive it is. How do you think about that part of the retail space.
So running is a very important category for all the at leisure brands. I would say probably since the pandemic, it's grown and important. So there have been more people that choose to run. Now, is it going to be easy for any of them to win the running race? No? Because really the clear standouts in running today are the Adds, the Asex, the Brooks, and the Nikes. Those are the names that you kind of think of when you think
about running. And while Puma has its own shoe and Sodas Adidas, it's going to be hard to penetrate in that market because the others aren't slowing down. Everyone layser focused on this category and we'll just have to see who bites that what because it is a very very competitive category in the leisure space.
And I'll quote Calvin Coolidge here, I choose not to run.
That's exactly right. I don't know though, I'll walk on the warlock.
There we go, All right, let'll stick with.
That all right, put them goil. Thank you so much for we appreciate that putting Goile.
She covers all the retail stuff for Bloomberg Intelligence.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Coarcklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Fall swing you live here on Bloomberg and Active Broker Studio streaming live on YouTube.
Well.
A lot of investors trying to get a sense of how the consumer is faring during this time of uncertainty brought about in part by all this discussion of tariffs and what I might mean for the economy. One of the areas they look at is the retailers. What are the retailers well?
Today?
On Bloomberg Television, Ralph Lauren, CEO Patrese Louvey said that demand for its signature clothing such as cable knit sweaters remain strong even as the fashion industry is buffetted by terras and an economic slowed down.
Let's break that down a little bit. Mary Ross Gilbert joins us.
She's a senior equity analy's covered in the retail space for Bloomberg Intelligence. She joins us from La via Zoom. So, Mary, we heard from the Ralph Lauren CEO says he still sees demand kind of pretty solid. What do you make of his comments and what are you seeing across your retail coverage.
Yeah, so, Paul, we're seeing strength clearly with Ralph Lauren. When we look at the data for the June quarter, which they're going to report in early August, their sales are trending up about twenty percent, and that's just for the US market, and the US is about forty two to forty three percent of their sales, and when you look at the consensus third at six percent, so they're really hitting it out of the ballpark. And it's not just in the US, it's actually around the globe.
So when you think about.
China, China is supposed to be having a slowdown, but not for Ralph Lauren. There are sales in the last quarter, which was the March quarter, it was up twenty percent. So they're really seeing some strength. And when you look at some of the other brands out there, I think you'll see some variability, You'll see some retailers kind of struggling.
So on the value side, we saw American Eagle shows some struggles there, but part of it had to do with some fashion misses, So there it was really associated with execution. And then the other companies that are executing, we're seeing good sales trends and so we're seeing off price is still showing resilience. So we think the consumer really is showing resilience.
Where does Ralph Lauren make it stuff?
That is a good question, John, So about twenty percent comes from Vietnam. China is probably around seven or eight percent is what we estimate, So they've been diversifying, and of course we just got the news about a week or so ago that Vietnam tariffs are going up to twenty percent, possibly by August first, they haven't set an
exact date yet, and that's up from ten percent. So when you think about non China tariffs for apparel retailers, that's about ten percent, and so then does this mean Vietnam at twenty percent is sort of the new We're going up to twenty percent for non China, and China right now is at thirty percent, so we estimate that would be an incremental twenty six basis points impact. But if anything, Ralph Lauren has the ability to pass on price increases and to be less impacted. They have pricing
power with their consumers. Their average price point has been marching up, and consumers are willing to pay full price. If you look at their Wimbledon collection, good luck trying to find something because a lot of it has been sold out.
So is that how you're approaching tariffs here?
Mary?
As you look across your research coverage of retail companies, is the higher end will have a better chance of passing along price increases versus maybe something towards the middle lower end.
Yeah, it's going to be a combination of how these companies are able to mitigate the impact. I mean, we certainly saw in two thousand and nineteen, you remember twenty eighteen, twenty nineteen Trump one point zero it most of these companies were able to sort of cycle past it. So even companies on the value side will look for strategic price increases, so they'll be very pointed in that. But they're also sharing the costs with their suppliers, so the
suppliers are absorbing some of it. In that Trump one point zero scenario, they actually absorbed half the cost, So there are ways to mitigate it obviously, you know, focusing on your cost, continuing to redo your costs, so all
of those things. So there will be an impact this year, mainly in the second half, but then as we get you know, into twenty twenty six, most of these companies will be able to cycle past that and hopefully see some margin improve it depending on how final negotiations come out on tariffs.
In the meantime, does Resilient demand more than makeup for any hit top margins. And by the way, parenthetically, I have to tell everybody I think that's Ralph Lauren.
She's wearing I'm wearing Ralph Lauren.
I'm not going to say it's a content of entry.
I had no idea I came in, but I guess I'm an example, but it's not really, it's not me. When you look at the fact that they added five point nine million.
Cousins, they need to put you on the defensive.
It's mainly younger consumers, so millennials and gen z love the brand, so you will be seeing it more and more on them, all.
Right, be talking to you more and more because this retaillers report, it is gonna be really a good view as to how much they're taking in their margin versus how much you and I are going to be.
The CEO also cited for Ralph Lauren increased demand, not just like from the tennis set, but from what's that other sport that's kind of okay, No, the one that's kind of like baseball, Yes.
Slight set, like exactly.
Thank you so much.
Mary Ross, Gilbertie's senior equanalys covering retail for Bloomberg Intelligence.
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