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One of the big losers in today's sessions so far is Nike, down nine and a half percent right now. Quite a bit going on there, so let's bring in put inm. Goyel, the senior US e commerce and retail analyst at Bloomberg Intelligence.
Nike is in turnaround mode.
Elliott Hill is no longer a new CEO, He's just the CEO because he's been there for about a year. How is his effort to turn this company around shaping up?
I think his efforts to turn the US businesses shaping up quite nicely. We are seeing momentum rebuild it in the US. The issue is outside of the United States and China US to where sales have really plunged, and we don't think that they can, you know, quickly rebound those sales anytime soon. It may be a twenty twenty seven story to see any resurgence in China.
If that, what is the issue in China? Is it their brand specific? Is it the Chinese consumer? What's going on there?
I think the biggest issue is brand specific. So unlike in the US, the Nike brand isn't perceived as a higher and athletic brand. In fact, it's way too much an off price and at discount. So the brand needs to build brand momentum and brand heat. And yes, the Chinese consumer isn't particularly you know, on its best feet right now. But if you compare what's happening in China and you look at Liulle Lemon, Liulle Lemon has had outstanding results in China, much smaller, but you know, they've
been able to do really well there. So Nike really just needs to get stuff together when it comes to product, branding and marketing in that region.
What is the playbook for that? Have they detailed, have they outlined something that sounds reasonable or is it kind of still throwing things at the wall.
I think the playbook will be similar to what they did in the US. The first thing that they've done so far and we'll see how that works out, is changed the reporting structure, so now all regions report directly into Elliott Hill, so I guess he just has more authority over those regions, seeing things you know firsthand. The other thing that they're going to try to do is just clean house there, right. They have to get rid of the inventory that's just not speaking to the customers
and has been aged for some time. They have to get out of off price, and they have to stop discounting. And then once you get a new product to flow in, you get the right brand message across. It's retail playbook one oh one. They just need to execute. So execution is huge here.
Talk to us about the Converse brand within the Nike household there, so.
The yes, you know, the commerce brand, Yes, it's struggling, but to me, it's less of a concern than China. The brand is less than ten percent of their total revenues from what we see, and while sales are down, and while it is a brand that we'd like Nike to see step up, especially when it comes to lifestyle, other companies have done particularly well there. We'd say the focus.
You know, if I needed them to put focus on one thing first, it would be China right now, Converse after that, And that's what we're looking for.
And I know that there's been a lot of discussion between performance and lifestyle over at Nike. What is the path forward for Nike? I mean, has it chosen performance across all of its markets or are some markets better for performance versus lifestyle.
So they're sticking to performance, and I think that's the right choice because performance is what Nike is about. It is what drives the sports momentum. What we'd like to see happen is that performance turns into lifestyle. So a lot of shoes that are worn for the sport, for the game have become lifestyle shoes too. So that's the natural shift that we'd like to see with the new innovation that Nike is launching.
So we have some experience now nine months, ten months, eleven months of just teriff discussion.
Woon.
I think you were one of the first analysts we talked to to say, oh boy, what's this going to mean for various industries? What does it mean for the at your business, the ath leisure business, kind of the Nikes of the world, the Adidas is of the world.
Yeah, so footwear is largely important into the US, and so are the peril When you think the athletic work space, notably the footwear. It's predominantly made in Vietnam, and the current tariff there is twenty percent. It will have an impact on margins. In fact, Nike's gross margin if you look at it, even what was recently reported, more than half of it was due to tariffs and saying with their guidance, So I think twenty percent exposure. They are
increasing prices selectively. They probably will have more efforts and play in twenty twenty six, that's calendar twenty twenty six to mitigate some of this, but it's not going entirely away. It is a headband to margin.
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All right, a bell Weather for some including myself, for the US economy is FedEx f d X is the ticker they reported some numbers stock trading a little bit lower here. They have some issues with some of their aircraft, but I don't know. I kind of think it's just an awesome company. The stock is up about that's about flat this year. Hasn't really done anything here, but it's got a market cap of sixty seven billion dollars. I've
always been a big fan of FedEx. The MD eleven is a great aircraft, but it's an old aircraft and they have and reliance on that. Leek Clasgow does this stuff for a living, Senior Transport Logistics and Chipping analys for Bloomberg Intelligence Lee.
Now, FedEx reported some numbers. What did you learn?
Well, I mean their second quarter they performed pretty well, and you know, they gave us some color about the peak season peak season from an average daily volume growth, they're looking at mid single digits that could increase too high single digits because there's one extra operating day in the quarter or during a peak.
Season, I should say.
So, you know, they seem to be executing on their restructuring plan. The problem is is that in their second half they're going to be having a lot of headwinds that they're going to have to deal with. And those headwinds relate to, you know, higher variable compensation expenses and a less than truckload market. Which they're the biggest player in that market that has been pretty depressed over the last couple of quarters.
And it's can probably continue to be depressed.
And then you have, as you mentioned, the grounding of their MD eleven fleet following the tragic accident of a UPS plane.
A couple of weeks ago.
So you know, you add those three things up plus some other things, it's about a six hundred million headwind to its earning. So they have to deal with that in some of the restructuring that they've done. Probably you know, you're probably not going to see hit the bottom line at least really directly until they're twenty twenty seven.
So the six hundred million dollar charge clearly not impressing investors, even with the beat in the quarter that ended. Is this a one time thing or is this something that could drag out beyond the second half of this year next year?
Excuse me?
Yeah, So on the MD elevens, I think expectations are, you know, they should be back in service sometime.
Early next year. I don't really know.
Exactly when that's going to happen, but so you could view that as a kind of a year term headwindable compensation. You know that also is against difficult comparisons, so that's also short term in nature and not something that can continue. The biggest unknown for me, at least is the less
than truckload demand. The ISM Manufacturing index, which has been contraction territory for thirty five at the last thirty seven months, is indicating that less than truckload demand, which is mostly industrial manufacturing, is going to continue to be weak in the coming months ahead because that index, the ISM index, is really a bell weather to an early indicator of where LTL demand is heading.
Lee.
As you know, I am an expert on trucking. I know what LTL means and TL means. I was I had no idea that FedEx was the largest LTL provider. Do you like them that they're in that business or would you rather them farm it out to somebody.
Well that's a great question, Paul, because they're planning on spinning that.
Out in June of next year. Uh yeah, there you go.
You know. They the argument always was that, you know, maybe they could cross L their lt L and get more profitable parcel business. That model really might have not played out as much as as as they hoped, and so they also hope to get a better valuation because that lt L business, while it's been pretty depressed, they it does trade at a higher higher multiples, uh, and so they're trying to unlock kind of some.
Of the value there.
So you know, it'll be pretty interesting to see how that company operates as a standalone provider. That industry is pretty consolidated and has a lot of pricing discipline, and we just hope that, you know, once FedEx Freight gets out there and they're on their own, they're not going to try to use pricing to to you know, gain share.
But we would note they.
Are still the largest player, so it's not like they're looking to uh to gain a lot of share anyway. So but you know, it will be an interest thing to see once that once that gets spun.
Out in June.
You know, I'm looking Paul, excuse me, Lee and looking at Paul and talking to Lee. In the past six months, FedEx chairs up about twenty nine percent total return versus ups up up almost six percent. Can you compare and contrast their approach to some of the macro challenges that faces the industry.
Yeah, so they're both in the process of restructuring their networks to deal with the new realities that you know, B two C or e commerce is really where the
growth is going to come from. And these networks were created a long, long time ago with the idea that you know, a carrier would go to a lawyer's office with one hundred envelopes, drop off those envelopes and pick up fifty envelopes, and that density really can drive profitability where you know, as you know, if you get like you know, if you order rubber bands from Amazon, that one package that goes to your doorstep is a lot
more expensive to deliver. So they're just dealing with that reality and they've been slow to kind of change their networks. And UPS and FedEx are both in that process. You know, UPS has done things a little earlier, I would say, and you know whether it is you they spun out or I should say, sold their less than truckloaw business, the TFI, a Canadian provider, you know.
A couple of years ago.
They're all looking to try to gain more share of the small and medium size shippers and get away from the large shippers like Amazon, which really aren't that profitable.
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Scarlette, I have breaking news. You may want to get the red headline ready for this one.
Okay, tell me today.
I put a deposit down on my first cruise ever.
What called to this?
Well, my partner, my girlfriend, she's we're going, we're.
Doing it in Fallwell, I just told you Viking Cruise. Yeah, basically, Viking Cruise is your France in the fall.
And how are you feeling about this?
I'm a little nervous.
But it's baby steps, she says. It's not like a big carnival cruise. We got like five thousand people on. It's a little riverboat, you know, kind of cruise.
Okay, so in two years we should look for you on a carnival crue could.
Be, could be. But that brings us to our next guest. I mean, Brian Egger.
He's writing the research note right now as we speak. Sweeney in the cruise business. Brian Eigger, he's a senior gaming and lodging analysts for Bloomberg Intelligence, Brian, we had Carnival Cruise Lines reported some numbers today.
What did they have to say?
Yeah, So, I mean the fourth quarter, the fiscal fourth quarter editor Vember three, was a pretty decent quarter in truth of yeel growth. And I think more importantly, going to next year, they are expecting to see about two percent the yield growth or so with good cost control. And that's encouraging because there were some concerns that industry growth of supply, particularly in the Caribbean, not by Carnival but by its competitors, might dampen your growth going to
next year. So while there's still some uncertainty, I think overall, the takeaway was fairly encouraging on that front.
How much of their business depends on converting people like Paul Sweeney from a never cruiser to a maybe cruiser to a you know, a reliable cruiser, basically increasing their market share with bringing in new customers.
Yeah, Historically it's been a big factor in North America, trying to track that first time cruise customer. It's far less penetrated than other forms of vacationing. That's even more true if you go into other parts of the world like Europe and Asia, but it's definitely part of that that first time customer. On the other hand, you know much what they do depends on loyalty programs and getting repeat business as well.
So Brian give us that the consumer's kind of wavering a little bit there. I mean, the ke shaped economy. How does a cruise industry deal with that? Because I know there's different tiers of cruising out there. How do you see that in the cruise business?
I mean, if you go.
Back historically, the cruise industry is moderate recyclical who probably yield to be more resilient than for example, business travel oriented hotel room rates. So you know, there was some obviously some vulnerability. But that being said, the leisure consumer, the leisure consumer of travel, has been really resilient. It held up extremely well throughout this period of economic uncertainty. Historically,
passenger growth has kept up with supply. I mean, the goodness for Carnival, they've only looking at about one percent supply growth in twenty twenty six. There's certainly more coming from their competitors, but you know that's ply out for them specifically, is a healthy backdrop even if we do see a step back and consumer spend.
Speaking of their competitors, I'm just looking at a comparison chart of all the big cruise operators, and Paul's Viking is up about sixty four percent so far this year, Carnival up about twenty three percent, Norwegian Cruise Line down eleven percent, and roll Career being up thirty percent.
How are their strategies different?
I mean, for those who don't cruise, it might seem like they're all one and the same.
Yeah, I think there are different ways you could interpret those disparities in stock price performance. But I think the way I think about it is Viking is certainly very focused on the luxury kind of niche cruz segment.
Paul fancy.
Good good for Paul, and I think generally speaking that part of the business is held up well. You know, Carnival probably is maybe gained some note because it's done a good job at achieving its return on investment capital goals, done so sooner to get to that twelve percent range than they expected, and because they've got so little supply growth, that does provide a little bit more conservativism. But you know, there are certainly some differences across the brands.
All right, Brian, how are my friends on the strip in Vegas doing these days?
Yeah, I mean Vegas is finishing up the year with modest growth, but it's been a tough It was a tough summer period in Las Vegas, particularly kind of the
mid market segment. Much like I said about cruising, the high end business, high end hotel business, what oriented demand is held up better, but the mid market, midweek demand during kind of shoulder periods, and the mid market has experienced some disruption, probably because of construction, probably because of difficult comparisons, probably because we are saying that luxury into the market holding up a bit better.
So is everyone then going to double down on chasing after the luxury customer.
It really depends on what part of the business companies are in. On balance win, which is more high end has performed better in terms of its rep part, let's say, in Las Vegas, than some of its rivals. But you
know those are these Obviously these trends shift. But I think that's been notable across the leisure travel sector is the relative out performance of luxury high end with perhaps a little bit more challenging comparisons and difficult conditions for kind of the the mass market or those dependent on other sources of business.
And we know that these gaming companies, these casino companies rely a lot more on China than they do on the strip. Overall, how's Macau looking for them?
So, I mean mcaw has been recovering, you know, the particularly the what we call kind of the mass business in Macau that has some mantle ory effect on Lallas Vegas as well, although you know, low luck levels and back right in Vegas have been a bit bit soft in some periods this year. But you know that business is certainly coming back in Macow. It's coming back a lot after obviously the pandemic. It's a different type of business.
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A news story that's got a lot of people's attention, like my kids are paying attention. TikTok is being bought by a group of buyers led by Oracle Corporation, with the company and byte Dance signing binding agreements to create a US joint venture. I don't care, but a lot of people do. Man Deeve Sing, senior tech analysts for Bloomberg Intelligence, joins us Mandy talk to us about.
This structure here.
I know that the government was either to bite Dance, which the Chinese company either sell this sing or shut it down. Does this is satisfying kind of the requirement here?
I think so. And look, the main point of contention was the algorithm, so clearly you know there is a decoupling of that versus the app. And you know, in terms of the ownership, Oracle was the most likely sort of candidate when it comes to leading this joint venture, and that turned out to be the case. So from that perspective, I do think this should be palatable to both the US and the Chinese government.
Although we don't know if the Chinese regulators will definitely prove it right. They have yet to say whether they'll be this transaction.
I mean, we've seen that many times a lut can go wrong, but in this case, at least, you know, the joint venture that was formed here had the blessing of the US government. So it sounds like, you know, this was the intended proposal, and that's how it turned out to be in terms of by dance, you know, agreeing to sell the app to this joint venture.
What I like about this is it includes silver Like and from my money, the baseball my career, the smartest technology pe money out there by far is Silverlake.
Some really smart folks there, So if they're involved, it's got to be a good deal. That's how I look at it.
Mandy talk to us about like what the competitors are thinking here. Is TikTok still as formidable going forward? Do you think as it has been?
Not really? I mean, if you look at the rund rate of Instagram reels, they have surpassed fifty billion dollars in run rate. That would have been unimaginable given the kind of lead TikTok had over Instagram, and Instagram reels came from behind, and now they have a fifty billion dollar rundrate. Same thing with YouTube shorts. They have an
engagement share that's almost surpassed TikTok at this point of time. So, you know, the last couple of years, TikTok seems to have lost them when it comes to the pace at which they were adding users and the engagement growth, et cetera. And if I had to ballpark, you know, the US revenue of TikTok would not be you know, over twelve to fifteen billion dollars. So Reels being fifty billion dollars just goes to show what kind of a missed opportunity that was for TikTok.
Interesting.
So what does this mean for Meta, which owns Instagram and Reels and of course is now firmly in the lead and is no longer playing catchup to TikTok.
I mean a lot of this, you know, revenue ramp up for Reels was driven by the fact that you know, Facebook or Meta had a better AD stack and they kept you know, improving that with more personalization. Now with applying generative AI on top of that, that has helped them with ad pricing. So these are incremental things where
TikTok you know, couldn't even keep its algorithm. So the fact that you know, they have to redo the algorithm, redo the ad part, the personalization part, is likely the reason why their AD revenue hasn't ramped up and it's going to take them a while. Even if you know this joint venture would start putting money into the company to you know, improve its algorithm and personalization. I don't think it's going to happen that quickly in terms of where they were, you know, two three years back.
Should we expect this new joint venture to maybe go public at some point.
Still early days, I would say, given the algorithm changes a big one. I mean, you have to even though you know users are used to coming to the app, you have the traffic, but we know in the world of AI, it's about personalization, It's about that recommendation system, and you know, rewriting the algorithm. I do think it's going to take a while, and it comes down to, you know, what kind of talent they can attract into
this new entity. So a lot has to go right before you know, we can look at this joint venture going public anytime soon.
That would be really interesting.
I'm still going to go make the pitch if I'm our bank ground, be right on the doorstep today, no doubt. I want to be the first guy there and saying let's take this in public.
Here's what you need to do.
And you think they're ready. This is something that they want to do.
I don't know. I would think so. I mean I can bring a lot of money.
The administration ORCO would focus a lot more on their cloud business right now in the ramp up there they I don't think they have the time to focus on reviving TikTok.
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