P&L: This Holiday May Be the Best in a Decade for Retailers

and then we'll get to other stores in a second. Yeah. Um, So, anyway, Nike is having a little bit of a rebound, and not that they've been in bad shape, but Nike remains, you know, one of the two or three strongest, most recognized brands in the world, very very powerful, and so they had a you know, they had a perfectly solid quarter and uh, both profits and top line up. I think the top line was about eight percent or so. So they're they're doing okay. Um now in the meantime,

uh under armor. You know, we don't do stock prices, but you know, the stock has got a pulled back for this year. But it's not that they're having any you know, great giant troubles. You know, their sales are up over profits up I think fift at their last quarter they reported maybe a month month and a half ago. And then the UH the folks whould really come on quite strong as Audi doc and UH and that brand has been as by the way people do anyway, they they they a D S let's call it that because

it's called by the symbol. So they they've been doing fine. And in fact, you've had night's rebound in the in the marketplace. Customers like them, and they've they've moved their R and D effort locally in the US from Germany to be more current with a kind of US taste and interests in the preferences. And of course for those who lived in New York area, they've opened this huge, rually magnificent flagship on Fifth Abo right about about a

forty six trade. It's really spectacular, quite quite something. You know, Craig, you in your in your outlook that so far, the retail UH scene seems to be the best in many years. This has been the best season for shopping in a long time. UM. And yet we're still seeing stories about stories like J J Crew, which just can't seem to get out of its death spiral. You know, what do you expect as far as the bankruptcy is going, is uh this year's positive development enough to stave off bankruptcy

for some of these firms. Well, Um, what we're seeing overall is is kind of a two giant migrations in retail. One is the migration from a channel point of view from from store based retail to online and online we're predicting is going to be about eighteen percent of total sales over the holiday season and and that's really quite something, is growing in about four plus a year of a

year UM. And the second migration is internally within within within stores and there's there has been a migration away from apparel stores including J Crew, but not only J Crew UM to UH non apparel uses of spending and UH and that's just that's a long term trun it's been exacerbated to in recent years. And UM, and that means there's going to be a raft of both winners and losers in apparel land. And that's just it's the world we live in. Craig, Let's talk about bed Beth

and beyond. They are going to report their results after the close of trading today. How's their business faring well. It's kind of interesting. Now there is a tale of two cities in the third quarter of being much different than in the fourth quarter. We've seen quarters to date. Um. And you know, their quarter wrapped right after the Black Friday U weekend I think in November, and the third quarter will be not that great, and they were very soft for for much of the fall um and then

but things did pick up across retail. Things picked up after the election about by mid about November, mid November, and so they were able to capture because they have that you know, delayed quarter that they're going into November twenty eight UM. Uh, so they're able to capture some of the rebound then and then months to date, I mean, you know this is they're still very early into the into the Q four UM. They have been doing uh

really quite well. Along with the almost the entirety of the home sector, whether it's home improvement guys like Depo and Lows or weather home furnishings. Where we've seen a lot of strength across the board, uh is restoration hardware an asterisk. I would call that a little bit of an exception that may prove the rule. They've they've had

some challenges. Um. Uh. You know, we think they're getting their their ducks in a row together, but they they've been a little bit challenged for for many months now with some supply chain issues. You know. One thing I'm struck by is that in the corporate credit world, we're definitely are a lot of people think we're getting to a later stage where it's a lot of these companies are starting to build on leverage and they've already overextended.

Looking into consumer credit, I'm trying to figure out as you talk about the different sectors uh, and then and then better than expected shopping season, where what does this indicate about where we are in the consumer credit cycle. Well, there we're seeing a situation where personal savings rates are still quite high, about five and a half plus percent.

We think that starting to come down consumer credits. Household balance sheets are much much are the healthiest they've been in years, um, and so with incomes gradually rising over the last year or so, things are looking better now. The implications though for distressed uh that retailers, Um, that's a little bit of a different animal because there were seeing some people that are having strong performance, such as

like toys or US. And then we have other folks, whether it's UH crew you mentioned, whether it's players UM and some of the other players out there that that have had UH we'll just say a few more challenges. Craig, just can we go back to UH Adidas or Audidas and their success because they've now got the number two position, they've surpassed under Armour I believe is this rebound from

where they were? Is this for real? Because they noticed the Stan Smith, the heritage brands, UH partnerships with Kanye West. Is that going to mean that Adidas is going to just continue to go to another strength. Well, they have, you know, we we think they really have stepped on the gas and as you might know, they have a new CEO in there. UM over the past year and UH,

we've already seen an improvement there. Now most of their strength has been you know, again on the footwear side of things under oarm Our Apparel, we think, we we believe is still very very strong. H The performance where UM but UH A d S has been has been really coming on quite strong, and we think a lot of reflection, you know, the new managements that's on board and the fact that they're becoming much more in tune

with the US market. Originally some market research they've done, and now as I mentioned that they've they've cited that in an R and d UH center right here in the US versus trying to monitor the US market from back in Germany. Thank you so much for joining us. Craig Johnson, president of Customer Growth Partners, coming to us from New Canaan, Connecticut. Just want to mention Adida's shares of fifty so far this year, Nike shares down, this

is bloom. The shares of FedEx are down about two and a half percent after profit at the air freight carrier that took a hit from rising investment in its ground delivery business. And here to tell us more is to teach Jin. Though he is the president of s J Consulting Group, he joins us from Swickly, Pennsylvania, So teach always a pleasure tell us about FedEx and the challenges that the company faces, not necessarily just from ups

but from the likes of Amazon as well as Uber. Well, this is a very interesting time for watching this company and the industry. And as you commented, Uh, people think there's a lot of investment. The growth of Farcel business is of a kind that in my being in it

for twenty plus years, I have not seen. And the peak is becoming higher and higher and more difficult because when you have packaged volume increasing in the B two B space, you don't add extra stuffs, but when you do it for consumers, you're going to new addresses, and that affects performance and productivity in service of a kind that people can't understand and who are used looking at annual statements and ten case for FedEx to have incorporated

and built hundred and five facilities, and I've been involved with them, it is a remarkable edition. And if they don't do it, then they continue to risk losing the business of these big online retailers that they are handling. And people don't realize they think Amazon doesn't use few pious and FedEx. They still move millions of packages for

Amazon and other online retailers. And if they're going to stay as a good option for them for these online retailers, they have to be able to handle it throughout the year, but more importantly, during a peak that is also not becoming bigger but also getting spread out over several weeks. I wanted to go back you made an interesting point.

You know, people think that Amazon and other online retailers have their own channels for distributing packages other than FedEx or ups, but they are really reliant on uh these companies. What about drones? I mean, we've heard plenty about delivery drones and sort of Amazon trying to create their own horde of these flying self self flying vehicles. Is this it all threat? You know, not for at least a

few years, for various reasons. I do believe that the next five years, or maybe a little longer, we will ourselves has seen them with our eyes, packages being dropped off at people or places that we know of. However, there are few limitations. One is the regulatory that moves at a very slow pace and can't keep up with

the pace that twist technologies moving. But the other thing is that drones are first going to be only used in rural areas where they don't have to deal with all the wires and everything else that comes in the way of coming down to the lower level to drop a package in someone's front out. The other thing is that they are still limited in handling certain items that have to be small, that have to be lightweight, and all that is going to take time to evolve, and

then some things required signature. You can't get a signature from a drone, not yet. I think that's the quote of the day. You can't get a signature from a drone. I love it. So I was just going to give you some detail, just to put this into perspective because FedEx, as you just describe this massive six hundred and fifty aircraft, a hundred and fifty thousand vehicles, moves twelve million packages a day. UPS moves even more more than eighteen million

packages a day. Can you explain this saying in the world of supply chain that density equals profitability. Well, you know what that is true, There is an element of density. But when you've got in the twelve million you set for FedEx and about seventeen for UPS, that is in

the normal day to February March April. During this month of December, fed X is handling seventeen million and UPS is handling millions, okay, And to put it in perspective, that is in between one billion origin destra nation points. And for people who are listening when they fly, they don't realize the airlines perform at on time when they only have to fly between four airports, that comes to only eighteen thousand days. So that is the complexity you're

talking about. And they have a network that is unique, and which is why you find that other people can't create a network like that and they can't compete with them. Which is why ups, fed X and Post Office, between three of them, deliver ninety seven of all the packages for all the shippers. And it seems like there's a pretty big barrier to entry for the Amazons of the world to create their own fleet, a huge and I

don't think Amazon people will talk about it. Amazon has no interest in being a transporation company because of the market that you cater to. Start to think of them as a transportation company. There be ratio, it's going to plummet, and it's start off with trading at seven dollars, it's going to trade it hundred dollars. Sat Jindell, president of s J Consulting Group from Siwickly, Pennsylvania, Thank you so

much for being with us. A story caught my I from Fox that highlights the difficulties the U. S. Government is facing as it tries to tackle the massive amount of student loans outstanding, including some that perhaps were extended under fraudulent assumptions. I want to bring in Shahin Nasira Poor, Bloomberg News reporter the for US core cases and crime. He is here in our Bloomberg eleven three oh studio. Thank you for joining us. Uh, So, can you talk to us a little bit about what the core issue

is here? For the US government? They have said they would forgive some student loans that were underwritten under false pretenses, right, Uh, but then they're going out they're actively pursuing uh, the debt collections from those students at this point. What's going on here? Well, thanks for having me on. It's a it's a hard it's a hard question to ask. You know.

The thing that I keep coming back to is this, you know, apparent conflict of interest within the US Apartment of Education, where they are both you know, the lender um as well as a servicer. And so their job on one hand is to maximize collections and minimize the cost of the federal student loan program two taxpayers. But on the other hand they're running the largest student debt forgiveness scheme in US history. And so that that apparent

conflict man infests itself in ways. You know, in one way in which where the federal government has decided that by and large, tens of thousands of you know, former students who attended schools owned by Corinthian Colleges, Inc. Were defrauded with false job placement rates and they were duped into taking out these loans, and therefore these loans should be canceled. But on the other hand, the department and the Education Department is not proactively canceling this debt. It's

not proactively reaching out to these borrowers. And you could argue that if they were a private sector creditor, that their collection tactics would amount to a violation of laws banning unfair and deceptive acts and practices because they are collecting on debt that they have reason to believe need not be repaid um. And so far they're they're not really saying much about it. If you are an eligible UH borrower, what is the process by which you would

have your fraudulent or allegedly fraudulent loan forgiven? What's the process? It's actually really simple. There is a form that the Education Department is created where all you need to do is fill out you know some biographical information, name, address, telephone number, etcetera. UM, you say you know, you list the campus that you attended in the program you were

enrolled in in the dates of your attendants. UM, and you simply check a box where you attest to the fact, under penalty of perjury, that you relied on these job placement rates when you enrolled. You sign your name at the bottom of the form, you return it, and your loans should be forgiven. That is what the Education Department has said the process. That's how it's supposed to work. But it's not working that way. No, it's not. They are sending they've sent a few letters and a few

emails to borrowers informing them of this. Right, But they also send these folks monthly bills in which there is no disclosure of any kind. Same same department, same depart Well, but you're right, and this is an important point. So Corinthian College has filed for bankruptcy after being accused of fraud. UM. If the US were to eliminate debt of all of those who are potentially eligible for debt really from justice Corinthian College, right, it could cost the federal government nearly

four billion dollars. This sort of speaks to your point checking about the sort of push pull element of the same agency overseeing both the forgiveness as well as the debt collection, of managing the collection exactly. And and here's the thing about it is, you know, look, the education departments run by a lot of political appointees. If they were to forgive this debt, there would be a ton

of outcry about the cost to taxpayers. And the question evitably would be, well, how did the department allow this learning to go on in the first place? Where were they when all these loans were being made? There were all these warning signs that this chain of schools was engaged in suspect behavior and suspect practices. They had previously been sued by state Attorney's General over you know, there

allegedly deceptive advertising to students. And so they make all these loans, they book you know, expected revenues off these loans, and then they come back and cancel them later at this huge cost of taxpayers, and folks will inevitably say, where were you when these loans are being made? Thanks very much for enlightening us. Shaheen Nasirapor he is a US court cases and crime reporter for Bloomberg News. Much appreciated. It is my honor now to bring in Dan Fuss,

vice chairman of Loomis Sales. Uh. Dan, I'm grateful for you joining us today, and I have an important question to ask you. We've been hearing from a lot of big bond fund managers, whether it's Jeff Gunlock, whether it's Mark uisil Over at Pimco, now is the time to be building cash and de risking. Do you agree? No, not completely. I understand why, you know from reading your column and others least, Um, I understand why they're doing it.

I share the general view that the odds are that in the US dollar, uh, interest rates are starting their seclical rise. I agree with that, how far how long? There you get a wide spectrum of guessing, because that's all you can do about the future. But um, there's a sort of a fatal flaw if if you go to the let's build a lot of cash, and then in some cases people might say I've heard it, Uh that just in case, they'll they'll bar bellow it, and

uh they'll they'll you know, buy some long whatever. Um that that gets away from the theme that you're supposed to make money. UM. As cash returns rise, and they've risen somewhat to be fair, um, it gets easier to do the short end of that because you're rolling over every three months or whatever you're doing, and your yield is going up. That's the general idea, But you have to take into account the shape of the yield curve and the dispersion the yield spreads around the old curve.

And more importantly than either one of those is the fact that the world is now filling up with discount bonds as opposed to premium bonds. And that's a world of difference when you put those things together. Um. If if you're not concerned about day to day or week to week or even months to month, you say, well I'm going to do then is I'm going to go ride the old curve just like the Meuning people to Uh. And that is a very very good idea. Well, hold

on a sect. So since November eighth, a lot of people we've talked to have said that they've pretty significantly changed their thesis or even started to change how they invest. Have you not since November eight? Uh? Actually, uh, we sort of unfortunately beat the rush uh and build up some cash. I'm talking now in reference to the mutual funds because we're anticipating withdrawals. Is this indexation thing and et F goes on UM, so we we built it

for that. And but the rest of the portfolio is the basic structure of it is shorter and it used to be ex the cash shorter iteration in other words, looking for a shorter maturity of the shorter and average maturity. No, I'm going to confuse uh all the cf A students with this. Do you have to be careful on using duration when you're in a period of time where interest rates are are moving rather strong or you know, directionally, it may not be a lot of uh, you know,

a multi your move. But if your rates are trending up and you're pretty sure the central bank has the same idea or trending down, UM, then you you have to say, whoops win Uh. Duration that's fine for liability matching. But let's use average maturity and let's look at our dispersion around the mean uh. And essentially to put into math forms, UH, what we're doing is we're fattening the middle uh, just like the waist lines around Christmas time

there with all the good ease. So otherwise you like the sort of five to ten year treasury No, oh yeah, you can do it with treasuries you have now treasuries, you don't have any excess spread. So you like it for like five to ten year corporates. Yes, and uh, if it's a taxable account with a high incriminal tax. Uh, you know, once you had the state onto it. Uh. You do the same thing in muni's and uh it's easier to see over there. But you do the same

thing in corporates. And you you know your fear when rates go up as you say, oh my god, we're at the end of all the credit cycles now, you know, and get the parachutes out we go. No, no, no, you don't do that. You do have to be much

more careful on the credit side. That's a given you have to be because people who are financing are going to have more trouble as rates go up if they're not a fairly strong uh you know business and uh, but if they've handled refinance already and the basic business is a good business, not dependent on borrowing a ton of money at lower rates, it's an important qualifier. Um, then your best place to be is with the most spread and call protection. And uh, this is where high

yield comes into play. Normally, high yield, when rates have gone down quite a bit, is a loser's game because if it works, you get called, and if it doesn't, you get stuck. Uh and uh, Now you're in a different setting because an early call gets more and more expensive if you're buying this stuff, saying the eighties or low nineties in the issue, who decides to call it one oh four? Well, that's all right, you're not shedding

any tears. You wish you hadn't done that because you have to, you know, work a little late the next night. But uh, and that's it's a different market when the direction is up. Now, the flaw on this whole thing is you can say, I'll say to myself in the mirror in the morning, right after I've cut myself shaving, I'll say, now, listen, listen up. That's a good warning. We're talking US dollar base. Everything I've set up to

now is US dollar base. Let's not forget the rest of the world because that's going to impact what the FED does. So don't buy any you know, don't draw any straight lines here. Well, we're gonna all be uh watching our fattening medals, and perhaps that is the way to go for a bun fund uh him. I'm just taking notes. That's the last point, Dan, Can you answer this in ten seconds? Lisa Brahmins wants to know do you still like energy? How you debt some of it? All? Right,

well there's an answer for you. Thank you very much, Dan fuzz Is, Vice chairman of Loomis Sales. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.