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>> Officials urged banks to limit purchases

of US government bonds and instructed

those with high exposure to pair down

their positions. The directive, though,

does not apply to China state holdings

of US treasuries. And this move, Carol,

framed around diversifying market risk

rather than anything to do with

geopolitical maneuvering or a

fundamental loss of confidence in US

creditworthiness. Yeah, it makes me

think about this idea and this argument

that the US is increasingly becoming

uninvestable. But let's see what Stuart

Kaiser has to say about all this. He's

head of equity trading uh strategy over

at City. He joins us here in studio.

Stuart, good to have you here. Welcome

back.

>> Thank you. Good to be here.

>> Hey, we were just talking with our

Stuart Paul about Kevin Walsh's past

support of a new accord between the

Treasury and the Fed. And this has to do

with uh the balance sheet, which sounds

like increased cooperation. We know in

the past that Kevin Walsh has wanted the

Fed to shrink its balance sheet. So,

we're trying to make sense of what it

is. And then we just talked about the

Chinese regulators advising their

financial institutions to reign in the

holding of US government bonds. Are

treasuries undergoing a re a reboot uh

in your view on the world stage when it

comes to you know the United States

being kind of a a sure thing if you will

in the financial world and and if so

what are the implications of that? I

mean look I don't know if there's any

real alternative for a lot of these you

know countries to invest their reserves

>> because of the size and the liquidity

right like hands down

>> and and look there are there is a a risk

out there in the long end of the the

government bond curves I think but

that's globally we've seen that happen

in UK guilts we've seen that happen in

German bones we've seen it happen in in

in Japanese JGBs so I don't think really

concern about the impact of fiscal

spending on the long end of the yield

curve is unique to the US nor is it

something that's kind of snuck up on

people but it is a risk and if you look

at what has triggered those kind of

events in other countries. It's

generally been things related to fiscal

policy, tax cuts, things of that nature.

So, it's something that's on our radar.

It's probably been on our radar since

about last July when all of those

30-year bonds globally got above 3%.

>> Um, you know, as an equity guy, I'm

going to let the bond markets tell me,

you know, when and if this becomes a

risk. But for now,

>> but the equity guys, keep a watch on the

bond market.

>> We [laughter] we do, but I would say if

an equity guy knows when the bond

auction is, you're in trouble. Um but

but big picture in this case I think you

know we have not seen the long end of

the curve move significantly. We haven't

seen bond volatility increase materially

either. So for now people seem pretty

comfortable with things.

>> Well speaking of the equity side of

things you were plenty busy last week

with the rotation that we saw the

volatility that we saw the moves down

then the moves up a week that sort of

ended really close to where it started

but a lot happened in between with some

big moves lower when it comes to

companies like software. what what is

your view on on where where to be

optimistic right now and where to stay

away from?

>> Yeah, I mean, so we're still pretty

positive US equity risks in general. Um,

we've been pretty bullish on the

cyclical parts of the of the equity

market since the beginning of the year.

I think if you took a little bit of a

step back though, you'd see that this

quote unquote rotation sort of out of

tech and growth and into value and

cyclicals actually started back in

November. It's it's not a new

phenomenon. What happened last week is

the moves accelerated and it got quite

volatile and I think that impacted the

way that folks manage risk. Um and it's

also to be honest with you a pretty

simple math question right you know if

you take the mag 7 plus Broadcom and a

few others you pretty quickly get get

close to about 50% of S&P market cap

right

>> so when you're selling those stocks you

have to find a home for them and and I

think just the absolute size of the

moves is is really what concerned people

last week rather than a change to like

the underlying US equity outlook. I

mean, US GDP according to the Fed is

tracking kind of mid four mid-4% range.

Our economic surprise index is kind of

off the chart. Earnings were solid.

You're expecting some good tax refunds

coming up. So, the sort of fundamental

underpinnings of the market look pretty

good. What you're going through is some

indigestion after 2 years of buying tech

and growth stocks. You're now kind of

repositioning not whether you want to

own US equities, but how. And that

process has been a little bumpy, you

know, to say the least. Well, we talked

too about the uh overperformance or um

performance of uh small caps. Last week

they were up about 2.2%. Uh certainly uh

outperforming uh the large cap uh

indices. The other thing is, you know,

if you look at the equal weight S&P, it

is easily outperforming the S&P 500. 5

a.5% year-to date for the equal weight

to just under 2% for the widely quoted

S&P 500. So again, that plays into what

you're saying that we're seeing money go

elsewhere. But what's to stop the money

going back to big cap tech or those

hyperscalers because it feels like the

last two or three years everyone's like

no no no no time to diversify and yet

that's where the overperformance has

been or outperformance.

>> I mean I think back in in sort of

October and and November earning season

you started to see a little bit of a

change in this reaction function. Meta

back then was was the key one where they

announced this very large capex spending

program and the stock sold off and that

was probably the first time in the last

couple years where a company had been

punished for spending more on AI and

look lo and behold this quarter we saw

that repeat with a number of companies.

So, but Meta did well, right, off of

their earnings because they're showing

the, you know, the ROI on on this AI

spend.

>> They are. And that and that's the that's

the key, right? This capex spending is

undergoing an audit or or some other

form of very invasive invasive

examination. And but, you know,

Microsoft and Amazon were both kind of

punished for more capex spending this

quarter. So, I think what you're really

seeing is within the tech trade, the

shift has moved kind of away from the

spenders and to the beneficiaries of

that spending. We like power generation

and the AI data center buildout as the

way to express that. And then more

broadly to your point, you're also

getting a little bit of a rotation out

of growth into these cyclical. So again,

these things aren't necessarily negative

for the market collectively, but they do

cause a lot of pain in some in some

positions that people have had in their

portfolios for 24 months minimum.

Alphabet embarks on a global bond spree

to fund record spending, borrowing far

and wide to finance unprecedented

spending plan on its AI ambitions. $20

billion a US dollar bond offering on

Monday more than $15 billion than

initially expected. Is this a signal of

something?

>> I mean it's a signal

>> same thing you're just talking about.

>> You know it's a signal that they have a

lot of spending to do. I think you know

you might

>> they also have a lot of money.

>> They do but you know Amazon though looks

like free cash negative free cash flow

after their announcement. So I think

what folks are doing is you can

generally carve out the mag seven and

say their balance sheets are so big and

strong that they can sustain the

spending. they're all double A rated or

better. You take a step, even a slight

step down in credit rating to let's say

an Oracle that's triple B, right? And

and that examination is is is is a

little more harsh. So, I think what

you're seeing from Google, frankly, is

look, they're viewed as the current

winner in the AI trade. Now, clearly

that those winners are are changing

quarter to quarter. So, I think folks

are maybe a little more comfortable with

them spending to because to your point,

they have the ROI. They currently have

the best AI model. If you can

demonstrate a acceptable return on the

investment, the markets are okay with

this. If it looks like it's going to be

roe destructive, then right now you're

getting punished for that a little bit.

And I wouldn't expect that to change as

this year goes on. I mean, there's a

higher bar right now for what you're

going to spend this money on.

>> Stay with us. [music] More from

Bloomberg Business Week Daily coming up

after this.

>> You're listening to the Bloomberg

Business [music] Week Daily podcast.

Catch us live weekday afternoons from

2:00 to 5 Eastern.

>> Listen on Apple CarPlay and Android Auto

with [music] the Bloomberg Business App

or watch us live on YouTube

>> with a rundown on the latest headlines

and sizing up the competitive landscape

on GLP1. Our guru, Bloomberg News Health

reporter [music] Madison Miller joins us

here in the studio. I just want to start

with the lawsuit because I I was pretty

surprised last week when we got the news

that they were going to do this because

I thought there was no more it wasn't

legally allowed by the FDA to compound

for companies to compound medicine

anymore for well not any medicine but

GLP1s because there's no longer a

shortage. Wasn't that the loophole that

these companies were using?

>> Exactly. So it was a big I mean kind of

a risky bet that HIMS was taking that

the FDA just wouldn't do anything about

it. But that is sort of what we've seen

happen the last couple of years since

the shortage ended. Um there's been

really very little action from the FDA

in terms of cracking down on this

proliferation of compounded GLP-1 drugs.

And so HIMS has continued doing it. A

lot of other companies have continued.

>> So they're breaking the law by doing it.

>> That is the assumption. Yes. That they

but the problem is that the FDA really

hasn't said much of anything. So it was

kind of up to these companies to like

interpret the law themselves. So in this

gray area, they've continued doing it.

And that's part of the problem is that

it was a little bit unclear at least to

maybe the general public or um to some

people like what the FDA was really

going to do. And so they've just

continued to do it. Some companies have

pulled back like Row for example stopped

compounding after the shortages ended

and HIMS has kept doing it. And so far I

mean until now there has been really

little action either from Novo from the

FDA and finally I think both of them

said enough is enough.

>> All right. So NOVA files this lawsuit.

All right. So I guess it's going to play

out in the courts or there's going to be

negotiating or what?

>> We don't really know.

>> Does the FDA have to come in here and

make a ruling to like figure out what

the real ruler law is?

>> Right. So the Novo is suing on the

grounds of patent infringement, which is

something we haven't seen before. Novo

and Lily have both filed lawsuits

against compoundingies, telealth

companies, med spas that are selling

these knockoff versions of the drugs,

but they haven't gone after anyone for

patent infringement yet. So this is

actually the drug semiglutide which is

the active ingredient in both ompic and

waggoi. Um Novo is saying that HIMS is

violating that patent in the United

States. So that's a big deal. That's a

big escalation and it sort of shows the

more aggressive strategy that Novo is

taking because they really are um under

a lot of pressure right now.

>> Why are they under pressure and Eli Liy

is not as under much pressure as much

pressure?

>> I mean Novo so

>> and we're going to talk about some deal

news a little later but

>> Yeah. Yeah. Yeah. Novo, they've had

different problems even though the

market, you know, they're the only two

players really in this market. Um, Novo

has had more difficulty because one,

their drugs are a little bit older,

meaning that they do come off of patent

outside of the US sooner, whereas Lily

has another decade of um, patent life on

its drugs. Novo also has had more

difficulties with these compounders

because it did not get a handle on this

supply shortage as soon as Lily did. So,

both companies drugs were in short

supply. Novo had more issues, couldn't

get a handle on it. Lily got a handle on

it more quickly and was more aggressive

really right off the bat going after

these compounders. Um whereas Novo sort

of I mean they're Danish, they're a

little bit more less aggressive I think

than an American pharmaceutical company,

but they've had to change that recently.

Um and then in terms of next generation

drugs, their pipeline is not quite as

exciting as Lily's and so that doesn't

set them up for the future quite as

well. I am shocked that we're already

talking about like maybe a move towards

generics or their patents coming off.

When did they start? I'm like I feel

like it was just a few years ago,

>> right? I mean that's the thing. So

Novo's drug ompic was approved I think

in 2017 20 launched in 2018. And so

that's the same drug technically as WGO.

WGO is just a a higher uh dose version

of that. So it's that was the thing. It

didn't really come onto the scene.

People didn't start talking about it

until a couple of years ago, but really

the drug's been around for a while. And

so the clock has been ticking in that

time.

>> Should we talk about the Eli Liy deal?

>> Yeah, let's do that.

>> Okay, so this is not a nonGLP1 deal

which kind of speaks to the idea of of

these companies diversifying. The

company agreeing to buy the closely held

US biotech orna therapeutics to up to 24

billion in cash. Second deal in as many

days as the country looked to expand its

pipeline beyond Zapbound. What does this

do?

>> I mean this drug zound or this

>> deal like it kind of speaks to this idea

of of going beyond. Yes.

>> of going beyond this industry

>> because I kind of thought they were

going to be living off this a long time.

>> But I guess we're that's why we're not

running a drug company.

>> That's exactly why [laughter] we're not

>> because I had the same reaction as you

did. I thought like, okay, they're they

got it.

>> They're going to tweak it. They're going

to [clears throat] make a pill. They're

going to just kind of keep going.

>> Well, Lily has learned the hard way that

resting on your laurels, which is sort

of the problem that Novo is facing right

now, doesn't work. I mean drug companies

are always should always be looking

toward the next big thing because

patents expire and that's the problem

with you know the drug industry is you

always have to be thinking about the

next thing. Lily is the one that brought

Prozac to the market back in the 1990s.

That was a massive drug. And for a

while, Lily was in a similar position

where it was riding high on the Prozac

fortune. And then after that, they

really were so ultra focused on like

we're going to be a company that

develops neurossychiatric drugs and and

for psychiatric conditions, whatever.

We're going to this is what we're going

to do. And then they didn't have a

second act to follow it up. And so I've

talked to the executives at Lily who

have said they're really being

purposeful about we have to be thinking

outside of just obesity. They're looking

at immunology, cancer, genetic

medicines. A third of their portfolio is

gene therapies now. Um so they're trying

to they're still extremely focused on

obesity and they have they're testing

drugs for basically like everything in

the obesity landscape. You know, from 5%

weight loss to 30% weight loss. They

want to have something for everyone, but

they're also looking outside of obesity

and that's a really important part of

their strategy.

>> Can I ask you something going back to

because Novo is going to come off patent

sooner. So, should we assume that so

then there'll be all these copycats that

folks that maybe were taking Zepbound or

something like we've talked with you

that they're not all the same that

they're just going to run to, you know,

the generics because they'll be cheaper

or they're not going to be able to

medically because things are different.

Not every drug is the same. they

hypothetically would be able to I mean

consulting with their doctor if their

doctor's like yeah you know generic

semiglutide is fine for you sure that's

great if that's the most affordable

option that's what your insurance covers

um but we also have this other side of

this industry where there's a huge cash

pay component and the drug makers Novo

and Lily have both worked with the Trump

administration to bring down prices for

patients in Medicare and al also cash

pay prices I think it's something like a

third of patients in this market in

general right now in the US at least are

cash pay patients. So they're not going

through insurance and they're paying

these lower discounted prices that the

drug makers offer through direct to

consumer websites. And so the prices

have come down much much faster than we

would normally see um in such an ultra

competitive market usually that it

doesn't happen this way. So patients

maybe are already used to paying $200 a

month for their Zepbound and they don't

want to switch because that's what works

for them. um even though there's a

cheaper option on the market, it's sort

of a question mark as to what happens

next.

>> So, we're talking about this in the

context of the way that Americans have

um are looking for uh ways to to lose

weight. We'd be remiss if we didn't talk

about some of the messaging in the Super

Bowl last night. Mike Tyson ad from um

it was like a maha ad out there talking

about how how processed food kills and

he's eating an apple at the end and he

talks about his own struggle, his sister

struggle.

>> Uh

>> is there any I mean I know it's kind of

a crazy question, but is there any

chance that that the messaging with that

starts to work

>> and it attacks the problem that some

argue is is where it starts, right? this

idea that we're not necessarily eating

healthy

>> and therefore there won't be as much of

a demand for these drugs moving forward.

>> I mean it would be great if [laughter]

I think like everyone hopes even Lily

and Novo say that they hope that people

will eat healthier, move more like they

say that that's an important part of

these drugs too. Um, but I think it's

hard because it does there. Obesity is a

disease and and that's the the message

that these drug makers are also putting

out is that like this is a thing that

for some people eating healthy doesn't

fix. And even if you eat eat healthy,

exercise, whatever, for some people that

just doesn't they they have a certain

genetic makeup or it's whatever like

they they can't lose weight or it's

really really difficult for them to lose

weight. So I think it's like not an

eitheror situation. both things should

be happening and hopefully both things

will help bring down the obesity rates

in this country. But I wanted to ask you

because I feel like when we started

talking with you that we you know are

like this is the drug that's going to

solve everything. Can these drug makers

get initial indications for the

medications that expands their patents

or something like like does that help?

>> I mean it it helps with getting more

insurance companies to cover it so to

pay for it. There are some things like

if you have a different formulation for

the drug like those types of things

sometimes pediatric indications will

help give you a couple more years on of

patent life but at the same time it's

like it's always the clock is always

ticking it's not going to add much at

this point and you have patents at least

for semaglutide formpic and goi falling

sort of all over the world within the

next year and so you will have those

generic generics out there in the world

even if the US patent hasn't expired

ired yet. It's kind of only a matter of

time before we get there.

>> I almost feel sorry. Like I know with

like the R&D that goes into this stuff

like you kind of understand that

argument having a brother that used to

be in farmer like we should talk about

this all the time but you know

>> right and and that's what I think

they're also like they've really had a

hard time with the compounding because

it it sort of circumvented that a little

bit.

>> You're listening to the Bloomberg

Business Week daily podcast. Catch us

live weekday afternoons from 2:00 to

5:00 Eastern. Listen on Apple CarPlay

and Android Auto with the Bloomberg

Business App [music] or watch us live on

YouTube.

>> I want to bring in Joyce Wong, senior

client portfolio manager at American

Century Investments. The firm has about

$315 billion in assets under management.

She's back here in our Bloomberg

Interactive Brokers studio. We haven't

had a chance to speak to you since uh

Kevin Walsh was announced as President

Trump's pick to chair the Fed. Uh

perhaps he gets confirmed, perhaps he

does replace Jay Powell. How does that

change your outlook for the central

bank?

>> It doesn't really change your outlook

because we did believe that it probably

would have been one of the Kevin's and

you know the other one was kind of

eliminated a few weeks ago. So we did

have a strong feeling that it would be

Kevin W. And the good thing is is unlike

some of the other candidates he does

have a pretty long public history of his

views and things like that. So, if we

anticipate that he continues to follow

some of those paths with maybe a little

bit more of a dovish bias given

>> Yeah, I was going to say [laughter] his

history doesn't necessarily align with

what he said over the last couple of

years.

>> Yes. But I do think that he is a

pragmatic banker, right? He has

experience on both sides. So, I do think

that he will understand how the Fed does

have a pretty narrow tight rope to walk.

So we do believe that with him being

confirmed as Fed chair, he is likely to

cause yield curves steepening. So we are

cautious about being very long in the

yield curve. But at the same time, I

think the last time I was here, we were

talking about being on the short end

given that we do think even with uh

Kevin Walsh being confirmed, there

probably won't be as many cuts as people

are thinking. I think what was

interesting is um we were been talking

about this most read story on the

Bloomberg um about Kevin Walsh and maybe

kind of redefining um the accord between

the Fed and the Treasury and that has

been a little bit unsettling to the bond

market. But what's interesting is it

would basically involve you know the Fed

balance sheet and maybe being kind of a

buyer when the Treasury needed the Fed

to do that. At the same time, Kevin

Worsh has been out there as you say,

there's a history where he has looked to

reduce the Fed balance sheet. So like

which is it? How do you read between the

tea leaves about really what kind of a

Fed share he ultimately will be?

>> Yes. And also we have to put forth the

fact that you know since ' 08 the Fed's

balance sheet has grown many many times,

right? So it's not even just cutting

back a little bit to precoid. even going

into co the balance sheet was very

bloated right so that's why it's kind of

like I can see his point where

previously he said some things now he's

saying something else it kind of makes

sense um so I think it's to be

determined exactly how it's going to

play out but overall I think it is still

positive for yields they should remain

higher and so from the investors

perspective it's a great time to buy

bonds

>> higher because inflationary pressures

>> some inflationary pressures um we do

think that inflation while it's down,

you know, there's a chance it could

remain closer to three than two. Um,

we'll see how January CPI comes out.

Historically, that's been a hot month.

So, you know, we'll see how that plays

out, but we do think yields are going to

stay higher for longer.

>> Um, is it also some of it has to do with

I feel like people keep coming in and

talking about the US economy doing okay.

um and that with some of the stimulus

that's coming as a result of um

President Trump's the tax cuts and so on

and so forth that that's just going to

provide more stimulus into the economy

which also means probably some

inflationary pressures but an economy

that's doing okay.

>> Yes, it's actually shockingly okay. It's

better than okay. In fact, it's pretty

strong.

>> It's not what we expected probably a

year ago, right?

>> It is not. So this time last year, um

American Centry was definitely thinking

more of a slowdown. Now we are sort of

on the more positive side like we see

like you pointed out a lot of tailwinds

for this reaceleration story. I mean

especially you know it's tax season

soon. I think a lot of people are

starting to calculate how big of a

refund they're getting. Um [laughter]

>> I don't think I'm in that camp but um

some people are. Um so those tax effects

from one big beautiful bill should start

to flow through and towards the second

half of this year I think there will be

stronger growth. How do you look at

companies such as Alphabet today

embarking on this uh global bond spree

to fund record spending? So, Alphabet

borrowing far and wide to finance the

unprecedented spending plan to its AI

ambitions set to raise $20 billion from

a US bond offering on Monday. More than

$15 billion initially expected. It's

also due to a rare sale of a of 100-year

bonds. It's the first time a tech

company has tried such an offering in

the dot since the dotcom frenzy at the

late 1990s. How do you how do you look

at that? I think that speaks to the fact

that companies also see yields possibly

moving up, right? Because they want to

lock their issuing and coming to the

market now because they anticipate in a

year, two, three years it'll be higher.

>> Um, and one thing that we're thinking

about is certainly Alphabet has the

business and the cash flows to repay

these bonds. However, we have seen a lot

of AI related names making loans in the

um CLLO market in the private debt

market. A lot of those loans are going

to technology companies which may not be

as solid.

>> I don't know. Maybe you can convince me

just $20 billion. It's it's a lot of

money, but if you're spending last week,

Alphabet said it's planning as much as

$185 billion on capex this year. So,

that's like

>> it doesn't

>> such a small part. Well, it just shows

that they're using, right, the debt

market to do a little bit of it.

>> It's kind of like during COVID when

yields were basically at zero, Apple

went to the bond market, borrowed. They

had plenty of cash on hand, but when the

market is going to reward you, you might

as well borrow.

>> Well, when money costs so little, right?

Like, why not not why not tap into it?

What do you think is the best play in

the fixed income world right now? And I

am also curious, you we were talking

before we got going, you're traveling. I

am curious what clients and investors

are kind of saying here's what I want to

know about right now.

>> A lot of investors are being

opportunistic. So while I think passive

investing has made significant headwinds

in the fixed income space, a lot of

investors are seeing historically tight

spreads across investment grade

corporates, high yield corporates,

securitized credit. It's all very tight.

So active managers really have the edge

here. Um, we're thinking this year

you're not going to see a big credit

event where you're going to have this

obvious opportunity to add lots of risk.

So, we're being strategic and when you

get little blips, we have a shopping

list ready to go. So, our portfolio

managers are being active. They're being

opportunistic at these small spread

widenings because like we said, over the

course of this year, I think that will

be rewarded. So are they largely in a

wait and see mode at this point ready to

act if things start to whatever their

targets or scenarios

>> but we still favor higher quality

corporates over high yields but

strategically adding to some of the high

yield names

>> SAS names do you like

>> if no I mean look if a SAS company goes

to the debt market are you a little bit

more suspect

>> yes yes for sure um now it doesn't have

the same effect we haven't seen the same

spread widening as on the equity side

but of course again there are tech names

we feel comfortable with and there are

some that we don't.

>> Stay with us. More from Bloomberg

Business Week Daily coming up after

[music] this.

>> You're listening to the Bloomberg

Business Week Daily podcast. Catch us

live weekday afternoons from 2:00 to

5:00 Eastern. Listen on Apple CarPlay

and Android Auto with the Bloomberg

Business [music] App or watch us live on

YouTube.

>> I'm looking at shares of Sally Beauty.

They climbed as much as 9.3% earlier in

the session, closed higher by 5.2%. 2%.

[music]

This after the company reported adjusted

earnings per share. Net sales for the

first quarter that beat the average

analyst estimate. Gross margin came in

at 51.2%. That's what analysts were

expecting. Uh we got with us Denise

Palonus, president and CEO of Sally

Beauty Holdings. It's the 1.7 billion

market cap company. She joins us from

Plano, Texas. Denise, welcome back.

Welcome back. We spoke to you a few

months ago. Just to remind everybody,

uh, professional beauty supplies,

products for hair color, uh, hair care,

skincare, nails, and more. You've got a

team that does direct sales. You've got

stores, too. Armstrong McCall, uh,

Cosmorr. We like talking to you because

you've got a really good idea of what

this economy looks like in in many parts

of the country. Just give us what you're

seeing.

>> Yeah, thanks for having me back on. You

know, first of all, I think we're seeing

a very resilient customer base, right?

For all the trials and tribulations,

they are they are still spending. And in

our world, they're buying a lot of hair

color. Hair color was up 8% for us in

our Sally business, so our retail

business in the quarter. And campaigns

like save some money, skip the salon are

really resonating with customers out

there who are trying to stretch their

dollar.

>> That's interesting. So you said revenue

was up because there's more being

purchased or because the cost is higher

or is a little bit of both?

>> No, on this on the color front it's

actually more being purchased. Units are

up. It it's not an AUR uh challenge.

It's more people are out there and

engaging. We see growth in vivid colors

as well as gray coverage and a lot of

people figuring out that they can DIY it

themselves and save some money versus a

salon.

>> I am curious, does the weather does

weather matter for you guys? Like do

people then order stuff and say I'm just

going to do stuff at home?

>> Yeah, we don't get we don't get a lot of

help from the weather. We get some hurt

from the weather when our stores are

closed. So, you know, we're not one of

those big benefits, but we we do see a

little bit of mix of of maybe people

getting ready to do their treatments

while they're stuck at home.

Can you explain um the proprietary

brands you have and sort of the

relationship that you have with the

companies that that sell that make the

other products that you sell because you

have this interesting model where you do

you have your own brands um ION Bond Bar

Strawberry Leopard and others but then

you also sell some of the other name

brands that that people recognize in

your stores like what's the relationship

there and and and what are you seeing

with what people are buying? Are they

trading up? Are they trading down? You

say they're resilient, but but talk to

us about like actually what they're

buying.

>> Yeah. On the O brands front, about 38%

of our business is our own proprietary

brands. You just listed a few of them.

And so then the rest of our branded

business on our retail side. Uh

certainly comes from great partners like

Wella and others. Um it's a good

relationship. you know, we play in a

specific uh niche and space where we can

bring value um and give people a

convenient set of solutions with some

great products, great prices. Uh but we

grow with our with our vendor partners

as well. So they when they bring great

innovation, we love getting behind that

and growing that. Um for us, the benefit

with our own brands, it's a nice gross

margin business for us that comes

through and our stores really know those

products well to sell them to our

customer and offer value. You know, we

see customers really sticking with most

of their routines. The one place where

we've seen them trading down a bit is

shampoo and conditioner. When you're

that lower middle- inome consumer, you

might not trade out hair color. It's

really important to you, but you might

trade out a little bit more uh the

basics where you can fill in with other

things.

>> Where's the growth in the business the

most? And I'm just curious because

right, you play into the commercial

side. You have your stores. I'm just I'm

trying to understand exactly where the

growth is.

>> Yeah, the growth is on the retail

business right now. Our pro business

that we operate is a great steady

business, great business, great

profitability. Um, also saw nice growth

in color, but the outsiz performance

really was with our Sally US business.

It grew 1.3% in the quarter, which might

not sound like a lot, but we did go

through a government shutdown. That

wasn't the easiest time period for some

of our customers. So, that growth in

Sally is strong. We see it. We also

entered the fragrance category in Sally

and a thousand stores last quarter. Our

e-commerce business at Sally is up 20%

uh in the quarter. And then we continue

to grow on programs like Licensed

Colorist on Demand, which is really a

free one-on-one consultation to get the

right color for your hair. And we saw

color customer count up 3% in the

quarter. So, lots of great strength on

on that Sally uh retail side.

>> So, the pro biz is just like a nice

steady Eddie, right? And you just like

what percentage is that of the business?

You said outside is the the retail,

correct?

>> Yeah. So, so the pro business is about

45% of our business. Steady Eddie being

nice singledigit grower, good uh good

profitability, a lot of innovation

there. So, our stylists really love hair

care innovation in particular. So, we

continue to see growth with brands like

K18 as well as strongholds like Moroccan

Oil and ColorWow where that set of of

product and portfolio and newness is

really important to them. But you again,

you don't own Moroccan Oil. You you you

team up, you know, you distribute or or

sell their products.

>> We do on the pro side of our business.

It's 100% uh vendor supported. That own

brand is only on the retail side of our

business. What it's interesting is like

color wow where full full transparency

it's something we use in our makeup room

like but you know and it's certainly

something I've used um I feel like a

newer product but these products are

constantly changing and I see it like I

said in our makeup hair room like things

just kind of all right we're in this and

we're that for a couple of months or

something and then something new comes

out you know how competitive this this

landscape is. I mean the business too

though in retail is having relationship

with your suppliers but are you

constantly having to kind of flip and

change and just go kind of where the

consumer is going?

>> We always are following the consumer.

You know the great news is is many of

our suppliers are the suppliers who keep

bringing out new innovation. So

Schwarzoff, one of our our great color

suppliers on the pro side has fantastic

product lineup has been growing like

crazy with us and we're really excited

to keep that partnership going. We

certainly introduce new brands and new

partners whether that be through a color

wow or a Moroccan Oil or K18 and the

parent companies behind all of those. So

it is a constant chasing of innovation

just like you think across uh the

cosmetic space that that exists in hair

as well. Um and the key the key is

maintaining great partnerships. It's

win-win relationships. When we grow they

grow and and all of that uh translates

into good business. you know, looking at

the the FAGO page on the Bloomberg

terminal where I can see a breakdown of

geographies in terms of revenue. Um, the

US and and other countries has really

stood kind of uh totally stable really

since 2018. 81.8%

of revenue last year came from the US.

18.1

18.2 coming from outside of of the US.

Are you looking to grow your business

outside of the US?

>> Maybe. you know, we have good business

outside of our our outside the US that

we're looking to grow where we are. So,

we have a great business in Mexico and

in Chile uh that we continue to grow and

we see store expansion uh in our Mexico

market in particular. And then our

European business uh we play mainly in

uh the UK, Belgium, France uh and we

like those businesses quite a lot. That

business is very different where the pro

and the retail customer shop in the same

store for the same product. a very

different uh demand profile than the US.

You know, we'll keep we'll keep growing

those businesses in place um versus

necessarily expanding into more

countries.

>> Hey, just got about 20 30 seconds here.

I'm just curious um Denise, uh I'm

looking at about 18% of your float is

short. So, it looks like investors are

betting that your stock's going to go

down. It's up almost 20% year to date.

What do investors kind of press you on

the most just quickly?

>> Yeah, I think they're looking for

topline growth. They they absolutely

want to see a slow mid singledigit

growth. That's what we're very focused

on driving and and what we want to

deliver in the coming quarters and

years.

>> This is the Bloomberg Business Week

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