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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 our analysts cover worldwide.
Today we'll look at why Ford Motor is recalibrating its electrification strategy yet again.
Plus we're going to discuss the M and A space and the potential for what could be the biggest foreign takeover of a Japanese company.
But first we dive into the biotech space. This week, a three year study showed that patients taken ELI Lilly's blockbuster weight loss shot were ninety four percent less likely to develop diabetes.
ELI Lily said that this is the longest continuous study of a zep bound drug to date, and the company's shares rose to an all time high after the news.
For more, Alex and I were joined by Sam Fazzelli, Bloomberg Intelligence Director of Research for Global Industries and senior pharmaceuticals analyst.
We first asked Sam, what numbers we mean that literly study jumped out.
Let me take you back a little bit where we not always told we went to the doctor and we started our glucose was going up. Not you guys, obviously you're a fascinatingly amazingly healthy and fit, but those who weren't and told you need to lose some weight to my friend, because you have risk of developing diabetes. So where is the shock? If you reduce weight and manage the obesity, you lose all these you know, I'll be suppeating this thing, sleep APNA, risk of developing diabetes, everything
that we're talking about here. You eat less, you lose weight, let's could developing diabetes. So not exactly a shock. Nevertheless, it's great to see that it actually does what it says on the tin that by reducing weight you do manage all these side effects. But before we get too excited,
I want to highlight one little wrinkle here. It's no wrinkle with the data if you read the press release, and I've got it right up here on my terminal eli Lei coming announced positive top line results from this amount one a three year study, one hundred and seventy six week treatment period. Find me somebody who stayed in the real world on this drug for one hundred and seventy six weeks, So we survey physicians. But if we find forty weeks, I'm sure it's going to go up.
But that's very different settings. So how much of a real world will this actually translate into in terms of preventing diabetes. Time will tell.
So you're not saying that the study was bogus. You're saying the study was real. But in reality, people don't stay that long on the drug. Therefore the result won't be as magical for them.
Right in clinical trials, you get the best possible data basically because it's highly controlled. People are followed, you make sure that they stay on. There would probably have been people who have dropped off here, So maybe the actual average treatment period wasn't exactly one hundred and seventy six weeks for everybody, because people do drop off. And I'm assuming in this trial the data they're reporting to us is what's called intent to treat. I e. I've intended
to treat that patience. Whatever happens to them, you still count them, even if they've fallen off the drug. Nevertheless, we need to see the detail. But in a trial
setting things always look better than in real world. So here we have to remember average stay time, according to our surveys that Mark show my colleague runs every six months, is about forty weeks, similar to what we get for we go VI and people, and even the press release they say as soon as they came off, weight went back up and the risks started going up again of developing diabetes. So this is not something that you've cleaned. I can stop now at one hundred and seventy six
and I'm done. It's the same story over again.
Right exactly. So I look at the stock for Eli Lily Sam. How much of this stock performance is these glps?
Oh gosh, if you know, if you look at the chart and look at the flow of information and news and the upgrades, et cetera that are coming to every quarter result, et cetera. Sales. I would say a meaningful chunk of this. I can't quantify it exactly because this is a company that's got other stuff going on. Alzheimer's disease, oncology, is skin diseases, et cetera. So this is not a one trick pony, but a large amount of this story.
And you can tell by when somebody reports a positive results in a competitor setting, these stocks sell off four or five percent, right You remember the days with rash only three or four weeks ago, I think, right. So, and let's not forget in a few weeks time, we have the European Association for the Study of Diabetes rush's data is coming out. Somebody's going to be up three or four two percent that day, and somebody's going to
be down three or four percent. Who it is, we'll see what the data says.
The point that you made that if people come off it and they gain the weight back, so in that sense, it's not like everlastingly magical. Will there be iterations though, where that won't be the case.
And there's two ways of dealing with this. So you go on the drug, you come off the drug, you go back on the drug, you come off the drug, and you just do your cycling every few years after you've got to a point where you think, I don't know why people come off the drug necessarily on an average is it side effect tends to get a lot better over time, and maybe it's cost. Maybe it's because
they're fed up taking an injection every week. So if you put all those things together, as they get cheaper and injections become once a month, maybe or they become oral for the maintenance phase of the dose, and that oral doesn't make you feel ill every time you take it in terms of gastric intestinal maybe that's the future. Maybe there are other modalities. Amilin is one that no One and Zealand Farm are developing as a target that
seems to have less side effect issues. Maybe you can maintain your weight loss by those drugs which don't have the same side effect issue. So that has to be the way that you see it, But nobody ever complies with the drug forever our.
Thanks to Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceuticals analysts.
This week, the department store chain Macy's reported quarterly revenue that missed analyst expectations.
Macy's also lowered its yearly outlook for sales. It's cited increase discounting by competitors and a more cautious consumer.
On the other hand, you had TJX increasing its full year projections for comparable sales and profit. This show the company's brand choices and execution are working.
For more on all of this, guest hosts Jessemett and I were joined by Mary Ross Gilbert Bloomberg Intelligence, senior equity analysts covering retail. We first asked Mary for key takeaways from Macy's most recent results.
As with any turnaround, and here we are in another iteration of trying to get growth back for this. It's the largest department store Macy's. They did show traction in the first fifty stores. The comps were up one percent, and that was an improvement from the first quarter, which was up just less than one percent. But the fact is that the rest of the go forward stores were down three point seven percent. This is on a comparable basis, and it's owned plus license, so it includes license brands
that they'll have you know, within the mix there. So they're showing traction in those little stores, but with the rest of the base, you know, being very weak and as they pointed out, they weren't really getting the conversion.
What they're finding is you bring in sales people. Wow, that's really what if you think about department stores and where they came from, that's what they were known for in the past with service, but over the last couple of decades, the service and the salespeople have sort of
left the stores. Now they're finding if they bring them back and they bring back the real brands, because one of the things that Tony Spring, CEO of the company, indicated is having newness and having the relevant brands that consumers care about. That's where you can get the impulse purchases. And so they're finding bringing in like a Carl Logger Field or a Veclove Fee, which is it's like a Parisian,
a chic Parisian type brand. It's a US brand, but it has that Paris streetwear aesthetic and that's resonating really well, and they're getting very strong conversion. So bringing back service levels, bringing back the relevant brands is really making a difference in those fifty stores. So they're going to add another one hundred stores where they're going to bring in service and handbags. They did see some strong sales with handbags again in those stores with the Lauren Ralph Mourn brand.
So that's where I think you're going to see some improvements. Is just really better signage, cleaner stores. We've been seeing those moments in the store that we frequent. They just need to take it across the rest of the base.
And it seems like an about face because justin May, when we had heard from Macy's previously in their prior earnings report, they had beat estimates also raised the company's outlook for the remainder of the year. But as you know, this Ladist report comes on the heels of the company turning down that close to seven billion dollars buyout to offer from one of its shareholders, our Cows and of
course it's partner Bridgegade Capital Management. Do we have any indication of whether or not that could be back on the table at some point.
I don't know if that'll be back on the table. I really think that they weren't able to demonstrate financing. I think that was the problem with that, and I also think that the price was low because even though Macy's is showing very weak results right now and the market is showing investors don't really like what they're seeing in the quarter, it's one quarter and it's going to
take time before we see real traction. So a year from now, the story could look very different if they're really able to execute on this plan closing the stores. They haven't closed the stores yet. They're going to close the first fifty five it was going to be fifty. They up to another five stores are going to close at the end of the year. They always wait until after the holidays because that's when they generate the most cash. And then of course they're going to close another one
hundred stores over the next couple of years. But again, they might accelerate that, so it's going to take time to show traction. So we'll see how the third quarter and fourth quorder go, especially with some of the changes that they're making to these incremental stores. But nonetheless you can see who's gaining in. It's on the off price side.
Let's go to TJX owner of TJ max stocks, hit An All time high today, what's TJX? What are they getting right?
What they're getting right is they have all those brands. They have the Treasure Hunt. There's fresh merchandise in those stores every week, and the brands range from the very high end, so they'll have Gucci and Chloe handbags, and then they'll also have like Anklin. So they're sort of covering all of the demographics with their assortments and they're making it relevant by store. They have the winning formula. This is an expertise that they have built up for
years and they're the largest out there. It's a fifty six billion dollars in sales company. And so in their quarter, of course they beat with a four percent comp sales and the consensus with two point seven and guidance two point you know, sort of in that one to two percent or low single digit range, and of course they raise their guidance. They're now expecting comp sales to be sort of in that three to four percent range, and they raised their EPs by about six cents.
Our thanks to Mary Ross, Gilbert Bloomberg Intelligence senior ECOD analyst covering retail.
Coming up, we're going to break down how the retailer Target ended a string of quarterly sales declines.
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We move now to earnings from the retailer Target.
This week, Target reported second quarter comparable sales that rose for the first time in more than a year.
This comes as the company has been focusing on cut prices on essential goods to win over inflation hit consumers.
For more, guest hosts Jessman and I were joined by Jennifer Bartash's Bloomberg Intelligence senior analysts retail stables and packaged food. We first asked Jen to tell us what Target is doing right.
With Target, what we're really seeing is that they sort of reaffirmed their strategy around creating newness, reducing prices, and enhancing the value perception they have with customers, and this second quarter results, we really see that that is starting to resonate, especially because they're seeing traffic going back into stores as well as online. So really positive early signs from Target that this momentum might be able to continue.
What about when it comes to consumer package good companies, Because you and I have talked in the past, and we know that Richmond FED President Tom Barkin watches a price to mix very closely, and that's a lot of the data that you crunch over at Bloomberg Intelligence as far as what that means for inflation and also the direction potentially for FED policy. What are you seeing on there as we begin to get more consumer package good companies reporting as well.
What we're seeing is obviously there's political pressure with a lot of rhetoric going on right now about the need to lower prices. We're seeing retailers like Walmart, like Target, like Krger, like Albertson's pushing back on package food companies who are you know, in some instances still looking to push through some selective price increases. So there is that tension that's happening kind of behind the scenes. But overall, we are seeing prices on the shelf starting to come down,
and that spells relief for consumers. It's just a matter of how long it takes for them to actually recognize it and appreciate it and reward it with higher volumes that they're buying.
What's Target saying about the consumer? What are the other retailers that you talk to, Jenny, you follow, what are they saying about the consumer today? Because I'm I think as investors we kind of feel like we're getting mixed messages about the consumer.
Yeah, I think when you're talking about the staple space, which is you know, where these companies that I follow fall, it's that the consumer is not getting worse, They're not necessarily getting better, but they're sort of holding study. And you know, part of that is that we've had some consumers you kind of trade down into those middle tier stores or even to some of the discount stores in
order to save a little bit of money. So the companies in this space are pretty well positioned because they do well no matter what the economic circumstances are. And
I think that's showing through with the results. But they're saying, you know, consumers are spending, but it's still very thoughtfully and so the things that will attract them to spending is your merchandise mix, your newness, your convenience, the quality things that will then tempt them into into spending the dollars that they're managing very carefully.
You've talked a lot about how you're expecting more consumer package good companies to roll out promotions in the second half of the year, like buy one, get one free, buy one, get one fifty percent off. What are you seeing so far with that as far as what companies are saying on these earnings calls.
Yeah, promotions have definitely accelerated and we are back at sort of the levels that we were at before the pandemic. What's interesting is most of these companies say that they're able to be more percone, so that it's not just a blanket offer like you used to see on the front of an insert or a mailer. But they're sort of targeting promotions to customers based on what they buy, so they're able to preserve a little bit of profitability
and still offer higher discounts. And so I think that's that's a pattern that we're expecting to continue through the second half and probably into twenty twenty five as well.
All right, thanks to Jennifer Bartasha's Bloomberg Intelligence Senior analyst. Retail stables and packaged food.
Move next to the automotive industry.
This week, Ford Motors that it is canceling plans for a fully electric sport utility vehicle. It is a shift that may cost the car maker around one point nine billion dollars.
For more of this, guest host Jess Mett and I were joined by Steve Man, Bloomberg Intelligence Global Autos and Industrials research analysts. We first asked Steve, what's going on with legacy auto companies and their transition to evs.
Yeah, it's a huge kind of one eighty.
Turn for Ford.
Remember you know, they were probably one of the first Western automakers to actually introduce evs, your the must Machy, the fort one F Lightning, and you know, they're still selling well, but I think it's they're actually bleeding quite
a bit of money in the last twelve months. They've lost five billion on evs, So you know, I think, you know, they need to revisit and see instead of a market leader in evs, they probably needs to know, step back and maybe become a follower until the market recovers.
All right, Steve, This kind of goes to the heart of the matter. I think for me and probably a lot of investors in this auto industry is what really at the end of the day is consumer demand for evs? Is it fair to say it's not as much today as maybe the industry thought two three years ago.
Yeah, I think the estimates out there in the past were probably a little bit frothy, Like we're actually expecting, you know, penetration to be around twenty five maybe thirty percent by twenty thirty, but other estimates out there, we're like fifty seventy five percent penetration rate by twenty thirty. It's a little bit too aggressive. I think we're just coming back through reality from the hype we have. But the other thing is there's a lot of competition out there, right.
The Chinese are really looking to compete with the legacy auto makers on cost, on technology, and you know that brings up another question that I think investors have in their mind is, you know, is this the right strategy for Ford really to step back at this moment? Should they be doubling down right, investing more and really compete on a global level.
And you've written about too when it comes to Ford and the rising inventories as well as the increasing price competition. When it comes to a profitability headwind here, what as we know as far as what the rest of the year could look like when it comes to those earnings calls that executives have talked about.
Oh, there's a lot of risk in the second half. I think we're heading back to pre COVID levels, you know, with the supply chains booth out, they're ramping up production and at the same time, interest rate is still high. Right, there are talks about cutting interest rates to help out the consumers, but you know, we haven't seen that yet, and you know we you know it probably needs more than a couple of cuts before we get to a
point where consumer gets more excited about buying. You know, a much more expensive vehicle today than it was three years ago. You know, average price for vehicles fifty thousand dollars now is not thirty five, it's not forty, it's fifty thousand. So you know, monthly cost is a lot higher for consumer. The cost of acquisition, the cost of ownership is much higher today than before our.
Thanks to Steve Mann Bloomberg Intelligence Global Auto is an industrial's research analyst.
We now take a deep dive into one of our favorite Bloomberg Big Take stories of the week from Bloomberg News.
It is titled A two trillion dollar Reckoning Looms at Ports Become Pawns and Geopolitics Now. The piece discusses how the world's biggest ports are vital ponds in a new area of geopolitics. They're spending billions to keep up with demand for more.
Guest host j Just Mett and I were joined by Brendan Murray, Bloomberg Global Trade Editor. We first asked Brendan talk to us about the importance of ports around the world, as it seems there's an arms race.
Yeah, exactly.
So maritime ports have been kind of the forgotten cogs of the global economy. They allow countries to export what they produce, and they allow usually developed economies to import lots of you know, cheap goods ideally like the US
does from China. But in a world where we're dealing with a lot of trades commerces going on around the world, that ports have become almost national security assets, where governments and the companies that do business around ports are investing a lot in making sure that they're efficient, that they're running smoothly, and that they're not victims of things like
cyber attacks, which can really paralyze an economy. We've seen ports over the past couple of years go through this transformation from you know, kind of hum drum places where goods, you know, kind of go through turnstiles for trade to become real important assets for economic security.
And I'm glad you brought that up, because economic security
also when it comes to the economy. So, Paul, if you remember back during the peak and the height of COVID and everything that it did on unprecedented impacts when it comes to global supply chains, ports and shipping so I'm curious, Brendan, when it comes to sort of the economic outlook as we've pulled out, obviously coming a couple of years out of what happened with COVID here, what does this tell us about the direction when it comes to the US and compared to its counterparts globally.
Yeah, well this is it's interesting. Just this week, Lloyd's List published its top one hundred list of ports and of the top ten, seven were in China. And guess how many were in Europe and the US none? So wow, exactly so. And now you would think that a big economy like the European Union or the US would would would have, you know, have couple in the top ten, and you know, but but places like Los Angeles Long
Beach have have just steadily fallen down the list. Rotterdam fell out of the top ten for the first time in records going back, you know, a couple of decades. So it's China has been playing this game for a while. And when you know, they are part of the global economy as a playing by the rules and there are no trade wars going on, that's just fine. But if China becomes you know, a strategic rival and geoeconomic rival of the West. Then you're looking at the scales tilted heavily in their favor.
I's so many cool parts of the story. And the folks, if you're sitting on the beach, go read the story. If you're got a long commute today, go read this story. It is unbelievable. What really shocked me as a part of the story talking about in China, how they had the by D, which is electric car maker. They have a plant there. They produce a gajillion of these cars and they export them around the world. So what do
they do. They build a port rate there and then they have their own like they develop their own car shipping fascinating vessel, and they crank out, you know, just tens of thousands of these cars and they export them around the world. Is this a concern for the US government Brendan that perhaps, you know, we're falling behind in global shipping and global trade.
This is the thing that you know, China over the past.
You know, a couple of decades, would have would have been the leader in kind of a low cost manufacturing. So you know, and the's stuff that you know that that American companies don't really want to make anymore. You know, they've moved up the value chain. But now China is moving up the value chain itself and like you said, making things like cars and solar panels and you know, a lot less labor intensive, more technology driven products. So you know that's the stuff that that you know, American
companies want to compete on. And so if you've got a flood of Chinese electric vehicles, say like you mentioned the vi id facility kind of linking up with that large port, you know, that's a real threat to American and European car makers. So it's it's something that is not a direct rivalry to something that that is now you know, in direct competition with Americas and European car companies.
Beyond China, talk to us about India specifically and how it's aiming for a slice of this export pie.
Yeah, exactly. So, so India has a very old, not very well developed port system. A lot of a lot of the big ships can't even pull into India's ports, So they pull into place like Singapore or somewhere else nearby, put it on a smaller ship so they can get into India.
Sports.
But India about a couple hours north of Mumbai is building a nine billion dollars deep water container port that is going to help fix some of those issues. And in the eight in India, you know program under the Modi government will will get a big lift from a port like that. So there are you know, new ports in this story that we talk about, and there are old ones that are being overhauled, but this one in India in particular was an interesting case study to focus on.
Our thanks to Brendan Murray, Bloomberg Global Trade Editor.
Coming up on the program, We're going to take a look at how China's impacting sales the cosmetics giant Esta Lauder.
We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in research and data on two thousand companies in one hundred and thirty industries. You can access Bloomberg Intelligence via b I go on the terminal.
I'm Paul Sweeney and I'm Alex Steele, and this is Bloomberg.
You're listening to Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
We move now to the M and A space.
The Canadian Circle K operator Cooch Tard made a proposal to take over Japanese rival and seven eleven owner seven and I Holdings.
With seven and I is market value exceeding thirty eight billion dollars, it would be the biggest foreign takeover of a Japanese company, and merger would create the world's top operator of roughly one hundred thousand convenience stores.
For more. At guest host, Matt Miller and I were joined by Diana rossetto pena Bloomberg Intelligence consumer staples analyst. We first asked Diana to tell us more about couch Tart and why they're making this purchase.
Kushtard is the second largest convenience store in the United States. They manage Circle K.
Yes, okay, but they're Canadian and that's why they have a French name that sounds funny to American years.
Yes, it took me actually a while to be able to pronounce their name.
But yeah, So they're very inquisitive.
We're not that surprise that they are, you know, their stocks, that they want to buy something. But seven eleven is actually a big name. There's valuations going from like fifty billion dollars to as much as like eighty five billion dollars. So for them to be able to do that, it's it's quite impressive.
If they are able to.
It's always surprising, I think to people who aren't in the know that seven to eleven is owned by a Japanese holding company, and I think they own Speedway as well. These seem like such American brands, So does Circle k and it's owned by a Canadian company. Is there going to be anti trust issues here?
Well, for sure, d FDC. I mean, ask Kroger. They have been trying to purchase Albertson's for a couple of years now, So if they actually come up with the numbers and their's acceptance, I'm sure the FDC will have something to say. Seven eleven has like about fourteen percent of market share in the United States, whereas Pushtar with their Circle K brand, they have about five percent.
So it definitely will be you know, up for again, I'm a wah wah guy, but you know I can see is.
Wah wah just like a New Jersey No.
No, but it what is It's in the Northeast. There's mostly in the Northeast. So but yeah, there's.
Explained to me this convenience store business. What's the economics of a convenience store. I just see people going in and out all the time.
What's the economics, Well, basically, they want you to go in for your gas. They're very competitive in gas prices. Fuel margins have been improven in the past few years. Kushtar actually has about forty cents per gallon in terms of fuel margins. But what they're making money on is when you go into the store, particularly if you buy their sand, which is the margins for that is like fifty percent.
It's true.
I was, by the way, I was filling up on the way there and back for more than four dollars and fifty cents a gallon.
O because you're putting in the super duper high I go.
With ninety three. And then I go in and I pick up a Snickers bar for my kid brother, and I got i don't know, like a TwixT. Each of those candy bars was more than two dollars and fifty cent margin there, And I'm starting to feel like a really old man, you know, because when I was a kid, fifty cents is what you paid for these things.
So are these good businesses?
I mean, oh yeah, if they're buying I'm sure you know, they think that there's some good business. I mean Kushtart has Usually they they do big acquisitions. The last acquisition that they did was for eleven billion dollars for the total energy is in Europe, but they usually in the US they usually buy smaller operators. They announced that they bought Get Go from Giant Eagle. So that's another convenience store which is in the.
You know with a delicious cold pork sandwich by the way.
Oh well, I actually haven't tried it.
Yeah, I had one to go this weekend.
Yeah, where's get Go?
I had them in Pennsylvania.
Yeah, it's regional.
Yeah, okay, all right, it's the Midwest. It's part of the world I don't go to.
I skipped the what's the one you like? The cracker barrel? Cracker Barrel, I declined.
But you probably drove through past like one hundred of them month, Yes, yes, a lot of it.
And I used to always stop because you get a books books on tape at one and then you'd return it at the next but you know.
Longer, what else are we seeing in your space? And then in a retail space, what are some of the key things people are looking at? Cause you cover a lot of retail.
Yeah, I mean, obviously this is like the biggest thing that has happened, one of.
The biggest deals of the year, right, well, yeah, even Dollars puts it like number two.
Yeah, I mean, obviously the Kruger Albertson's acquisition. It's also the talk of the town. There's like likelihood that it might not happen. The FDC might object.
So what are we going to hear about that deal? Because we've been talking about Kruger's and Albertson's for a long time.
Yeah, honestly, like it really depends on, you know, what happens with the election and how you know, M and A friendly the FDC will be afterwards, all.
Right, Well, seven to eleven by the numbers, and this is according to Bloomberger reporting eighty five thousand stores. That's huge, and they've got one hundred and fifty seven thousand employees, so that's a big business. Yeah, you know, and cus charges, I mean, it's Cure Short's got a bigger valuation, fifty eight billion dollars valuation versus thirty eight for the seven and eleven, so much higher valuation using that stock in cash, I guess to get bigger.
Yeah, I think, you know, definitely, I mean obviously I see this as an ASHA play, to be honest.
With you, which we've seen more and more and more of, right, I mean, if you look at activists investors involved in Japanese stocks, for example, it goes from fifteen and twenty twenty two to twenty five last year to twenty eight so far this year.
And we're only in the first half.
Yeah, I mean seven eleven has like thirty one percent of the Asia Pacific market share.
So yeah, now we're talking. Now, we're talking, all right.
Thanks to Diana Rosea Penya, Bloomberg Intelligence consumer staples analyst.
We turned down to the cosmetics company es Day Lauder this week. The company said that it sees annual revenue growth below analyst expectations.
The cosmetics giant sited continued declines in prestige beauty sales in China, and separately, Esda Lauder said it's longtime CEO for Breeze Zeofrida will retire at the end of June twenty twenty five.
For more, guest hosts Michael Reagan and I were joined by Red Brown, a Bloomberg News Earnings reporter. We first they asked Red for his take on this week's news.
This is a clean slate, I think for this company. We saw obviously CEO stepping away at the end of this year. CFO is also leaving around the same time, so you know, a new management team. And also, if we look at the guidance that they gave out for their fiscal twenty twenty five, it came in much lower than what and else we're expecting and else we're expecting to see constant currency growth. They were expecting to see earnings about the whole dollar higher than what the company
guided for. So again just kind of setting a low bar for this company going forward, clean slate, let's go from here, I think is kind of the message that they're going to be trying to change the narrative to going forward.
Red, how big of a deal is China to Estay Lauder. I know they have a pretty decent sized business. There was that part of the sort of disappointing results this quarter.
Yeah, I mean, I think that is the main culprit of the issues that they're going through. I mean, we've seen throughout this earning season, a lot of these companies, especially in the uxury space that have tied their fortunes to China are paying the price of that at the moment.
So China came in really soft again this quarter and als we're expecting for around three or four percent growth in the Asia region, which is dominated by China obviously, and what they saw was a four percent contraction in that market. So yeah, again paying the price for the investment in that region as China, China sales demand for these luxury products, whether it's LVMH's goods or you know, fashion,
anything like that. And then also skincare, fragrance, things like that are also weak as the demand waivers there.
Just reading some of the reporting on this here company in the midst of a turnaround, I'm not sure necessarily what it has to be turned around. So when you get it, presumably a new management team coming in. Did they want somebody from inside or maybe some fresh set of eyes coming from the outside. What's the thinking there.
I think both the CEO CFO have been there for over a decade now, so I mean it's always good to have somebody within the company knows the company, but it might be time for some fresh eyes. The company has missed guidance or cut guidance several times over the last few years. Analysts start to get When that happens, analysts starts to feel they start to lose confidence in that management group's ability to understand or grapple with the business dynamics at the moment. So I think there could
be some calls for an outside look. The company says they're already undertaking the next CEO search. Obviously they are going to say they're considering internal and external candidates. But yeah, definitely might be time for a for a fresh look.
I'm smirking here a little bit looking back on a story we had out in February on Stay Lauder where CEO Fabrizio Freda said, I'm not going anywhere so op president, but Red, you know, I don't know how much of an expert you are on the beauty care market and skincare, But you know, are they an outlier here as far as you know, you go through a million earnings reports
every quarter a year. Are they Are they an outlier as far as that you consumer discretionary space or are we seeing similar stories from other, you know, companies that depend on I don't know whether it's beauty care or you know, high fashion, you know is is is there a theme here?
I don't know what gave it away that I'm not an ex space but you have good skin. No, I don't think they're an outlier. Look, I think it's you see something for me. The similar trend that I'm picking up across all of the retail, even you know, something as far away as home Depot is that people are focused on needs, not once and this luxury space skincare especially is a want, it's not a need. A fragrance
is a want, not a need. So consumers are cutting back where they can, whether it's you know, fixing your house up or yeah, making yourself appear a little bit better, it doesn't matter. That's that's kind of the The macro pressure is gonna win out in this this this scenario.
But as our good friend Samantha writes in Alex Steele has always told us that you have to invest in your face, which she does and Michael and I do not.
So I mean, clearly my face is a value stock, yes right now.
But all I know is during the lockdown across the street to the four stores packed, Yeah, I mean, no matter what, people need to get that stuff.
Yeah, I mean, I guess it's in the pandemic, people had a few extra bucks. They weren't spending on concerts and movies.
It was just it shocked me how strong that category is.
Yeah, and then right after the pandemic as well, they did really well because people were like, I'm emerging from the world, I want to make sure I haven't shaved my face in six months. I might as well get moisturized or something. But yeah, it's there's there's trends have just fallen off now and they haven't really returned to like pre pandemic levels of growth.
You know.
Excuse me. Este later was a was a company that was like really you know, flying into the pandemic and through the pandemic, and then yeah, just the the fall off of China and then the United States as well is kind of not getting a lot of attention at the moment. But like US sales contracted as well this quarter. It's maybe hidden because there's been so much emphasis on China. Yeah, but those are the two biggest markets and both are are underperforming I think at the moment.
So it still seems like China's consumer economy is a bit of a black Box to analyst, do you find a lot of surprises either upside or downside on companies as far as their their business in China goes.
Yeah, it's hard to get a read because if you think, like there was so much worry and again jumping around here, but I just connecting all the different kind of earnings threads, Like there was so much worry going into Apple's report of like where's the Chinese consumer? Are they buying iPhones?
Things like that.
You know, it's the same dollar that's going towards these things. But yeah, it's really hard to get a read because Apple well performs as they Lauder underperforms. Yeah, it is just a kind of you know, most of the analysts, they said here in New York, they're just looking at data points.
So it is kind of a tough read, all right. Thanks to Red Brown, Bloomberg News Earnings Reporter.
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