Hey, it's Steve Eisman and welcome to

another episode of the Real Eisman

Playbook. So, you know, for many, many

months we've been talking about the

health of the consumer, the K-shaped

economy. We've talked to economists.

We've talked to Lakshmi Ganapathi. And I

thought this would be a good opportunity

to talk to some sell-side analysts who

really cover the consumers companies in

depth. And so, you're going to meet

three analysts today. Michael Binetti,

they're all at Evercore, by the way.

Michael Binetti who covers the

department stores and specialty retail.

David Palmer who covers the restaurants

and the food companies like Kraft Heinz.

And Greg Melich who covers basically the

big box retailers, Home Depots, Lowe's,

Costco, Walmart, Target. And between the

three of them, I think we're going to

get a real picture of the consumer and

we're going to dig down into the

sectors. And we're going to dig down

into individual companies so that you're

going to see some stock picking, which

companies are good and which companies

are not so good. I hope you enjoy the

the interview and afterwards I'm going

to come back with some closing thoughts.

Hi, this is Steve Eisman and this is

another episode of the Real Eisman

Playbook. And today, we're going to do

something that we probably should have

done a long time ago, which is do a

really deep dive

into the health of the consumer and the

companies that service the consumer.

And to do this, I really needed some

reinforcements. So, you know, normally I

just interview one analyst. Today, I'm

going to interview

three consumer analysts who span the

gamut really of the entire consumer

sector. So, today we have Michael

Binetti who covers department stores and

specialty retail. Michael, say hello.

>> Hello.

>> We have David Palmer who covers food and

restaurants. David, say hello.

>> Hello.

>> And Greg Melich who covers department

stores,

big box retailers, some of the really

big guns out there. Greg, say hello.

>> Hello, Steve.

>> All right, guys. Let's Let's start with

a very general question. You all cover

different subsectors

of the consumer.

What are each of you seeing in terms of

just health of the consumer? Upper

level, middle level, lower level from

from where you sit. David, let's start

with you. You cover restaurants and

food.

>> Sure. Yeah. I I cover wherever you eat,

so to speak. And that that really

involves all Americans. And I feel like

I'm

>> Cuz we all need to eat.

>> Yes. And and and And when it comes to

restaurants, for example, you could

divide restaurant spending or restaurant

consumption into three buckets, each by

income cohort, under 50,000, 50,000 to

100,000, 100,000 up. And those are equal

thirds.

>> Those

So that is which is pretty remarkable.

divides a third, a third, a third that

way.

>> for restaurants, which

>> For restaurants.

>> A lot of people are taken aback by that

because they think

that seems rather low income, to be

honest with you, that a third would be

under 50,000, for example. And and

that's the third that has really been

dropping out. Fast food over indexes to

that bottom third by about 25%. So a

typical McDonald's, for example, would

be 40% of their business goes from that

under 50,000.

>> As opposed to a third.

>> As as opposed to a third. And and the

over 100,000 for them is the opposite.

It's more like an 80% index. So for

them, they unfortunately,

in contrast to say casual dining or fast

casual, which might have an over index

to over 100,000, they they have to

really keep those people in the game.

And coming out of COVID,

the those people have been dropping out.

The The prices

>> define what you mean by dropping out.

What does that mean?

>> Yeah, they've been going back home. And

and then you're seeing high single digit

percent declines in restaurant, you

know, if we go go right down the middle

by 100,000 and up versus 100,000 below,

you're talking about high single digit

dropout percent year-over-year dropout

in traffic for under 100,000. So, for

and so basically what's happening is the

K economy is playing out in a big way.

>> And then by the way, so if it's 100,000

and below, that that's 2/3

of the way you segmented it.

>> For for like a fast food guy, that would

be upward upwards of 60% say, you know,

but for the typical for all of

restaurants, it would be a half. The

fact is that is that is unfortunately

for fast food a problem just not of just

the income levels, but you have to say

well let's double click on that. Why is

that? A lot of it comes down to the

price shock. We're just dealing with

this residual price shock of a high

frequency occasion where people are just

saying, "Gosh, that is a lot of money

for that meal at McDonald's after 40%

increases in the fast food.

Kind of like some of of of Greg's

uh big box retailers that were allowed

to be open during this during the COVID,

the drive-thrus were open.

And when they were open, they had

unbelievable pricing power and they took

their liberties. They went 40% up on

pricing. The average wages increase on

that time was 24 or so. So, they are

paying the price for that and they and

some players

>> They got greedy. But they also weren't

greedy at the time. They just they

stacked inflation. People woke up to

>> Mhm.

>> And so if you're say Taco Bell, you've

adjusted to that with some appropriate

amount of value menu adjustments, but

many of them have not and they're paying

the price today. The the the fast food

same-store sales trends are negative 1%

on average right now.

Uh casual dining's doing much better.

They only took pricing of about 20%

because they weren't open as long and

they didn't have the pricing power and

they didn't have the minimum wage

pressure on there because they have tip

wages. So, they didn't feel the pressure

to do so and those guys are doing a much

better and you're seeing way more

winning stories particularly the steak

chains.

>> Okay.

>> Um so that was

>> wondering why Texas Roadhouse has done

so well.

>> Right. And so you right exactly

LongHorn's done even better than them.

Um they have their own issues right now

with screwworm and other issues but it's

no nobody it's nobody's perfect. But to

show to talk about the consumer through

the lens of restaurants is to really

acknowledge the fact that there is a lot

of people out there that are rejecting

the pricing and or hurting in general

with disposable personal income

particularly the gas price issue now.

>> Okay. Hold that thought. Michael.

>> Yes.

>> Tell us you cover department stores,

specialty retail

>> Specialty retail.

>> which is a lot of different types of

companies.

>> Yes. Umbrella would be soft lines with

any of the apparel footwear names, the

brands that you that you think about

Nike, Lululemon.

>> cover like an Ulta which is makeup. So

what what

We'll get to your companies in a bit.

Just [clears throat] what are you seeing

in terms of the of the consumer overall?

>> So

>> To Dave's point the high income consumer

drives a very high percent over over 70%

of the spending in the public companies

that that trade. So

>> That you cover.

>> That I cover, yeah. Right. And it is a

much more discretionary shopping

occasion than we'll get to Greg who you

know he'll he'll he'll tell you about

Walmart who's selling things staples and

everything everybody.

For for our for our company for my

companies they they're further down on

the or on the discretionary ladder. So

it's not as high priority. So they

typically for 20 years have had no

pricing power. They didn't

>> They had no pricing power.

>> they've there's been no pricing power.

They're also pretty good at chasing

sourcing to lower cost parts of the

world.

>> why would they have no pricing power if

they're servicing an upper end the upper

end consumer?

>> So there's a there's a couple things

going on. You the the success stories in

the space are either servicing the high

income consumer and they have moved

their prices up. Think about Ralph

Lauren and and and Coach brands like

that that can attract a luxury consumer

or you're super super strong on value

like a TJ Max, right? So you are

servicing a low consumer low-income

consumer and you're doing well. There's

this huge middle in between that's

struggling. There's department stores

that are doing

Kohl's doing negative one comps, Macy's

doing plus one comps at Macy's.

Not doing much. So as you think about

they didn't gouge on pricing as much as

some of Dave's companies or the

consumers navigated themselves to just

lower prices via an off-price occasion.

So you're either selling things

and you're you're fine with a

high-income consumer. Ralph Lauren,

Coach, they they're doing fine.

Or you're a

a killer value equation at off-price

where you get these brands for much

cheaper than a department store or

there's ocean in the middle that's not

doing so well. Like the middle's not

doing so well.

>> And when you say not doing so well,

define not doing so well.

>> Well, you just went through So the tax

refund season was was huge. So we came

into this year thinking this is going to

be great. We've got big beautiful bill.

We've got a big tax refund season in

which people like to go and spend on

apparel and footwear.

>> Right.

>> You had the best tax season since since

[clears throat] COVID when we're handing

out a lot of a lot of money to

consumers. And you had stores like TJ

Maxx and and

TJ Maxx doing 6% growth through that.

Same store sales Same store sales

growth. You had Macy's banner doing a

plus one, Kohl's doing a minus one.

Right? So those they don't have the

value advantage that that the

off-pricers do. They're selling to a

middle or a middle lower income consumer

and they're not as strong of value. So

they're in the middle. You have a Ross

stores which is an off-pricer as well

doing 17% same store sales. So where did

those tax refund dollars go?

If you're a high-income person, you

didn't notice you were spending before,

during, and after all of that. If you're

a low-income and you got a boot, you're

still keeping an eye on value and you're

you're going to a place where you can

stretch that dollar probably because

you're having to spend more on your

essentials in places like Dave and and

Greg cover in the food restaurants and

some of the big box retailers.

>> Greg, what do you what are you seeing

and and can you weave in

um

what impact you're seeing on the

consumer because of higher oil prices?

>> Yeah, I'd love to do that. So, the way

I'd frame it is I cover Walmart and

Amazon and Costco and those names.

>> boys.

>> The big boys. And so the and Home Depot

and all that. So, our TAM is about 5 and

1/2 trillion.

And and

>> So, between the the the three of you,

you cover the companies that are the big

the biggest.

>> They tend to be the biggest. I mean, you

they've got some some great ones, too.

But but they I would say mine are the

ones that see it all. Right. So, in

terms of thinking about what's

discretionary, what's staples, what's

something in between cuz one person's

discretionary can be another person's

staple.

>> Right.

>> Uh

all of that we've seen playing out and I

think just listening to Dave and and

Michael reminds me that you know, what

we saw in COVID, I think we learned that

the consumer uh learned that inflation,

which we hadn't seen like that, right?

For decades.

>> Decades.

>> Hadn't I'd seen it. And frankly, most of

the companies retailers running their

businesses hadn't seen it. So, they

didn't necessarily know how to manage

their pricing algorithms to figure out

what AUR to go after in different price

points. So, that inflation became

cumulative.

And what you found at various points

over the last two or three years is a a

shock. Just a push back. Like, "Whoa,

how did that Egg McMuffin meal get to

that?" Not to pick on McDonald's, but

I'm just using that as a as a reference.

>> And the fact that inflation has slowed

until recently doesn't exactly help you

given the fact that, you know, you were

here.

Now you're here.

And if you're only going up 2% from

here, you're still here.

>> Yeah, price of eggs doubles and then it

goes back down 30%. People don't say,

"Wow, isn't it nice it's down 30%?" They

go, "Wow, it's still up 20% from a from

5 years ago."

>> Right.

>> That's that's the way people sort of

work out their budget. So,

>> So, people are in shock still.

>> Yeah, I think they're still there's

still some unwinding and that's why I

think we've seen it across categories.

This isn't true in one sector. There's a

focus on value and that focus on value

frankly, which has always been there on

the lower end consumer, I would say in

the past 2 years as real wages have come

under pressure,

has seeped up into the middle. So when

people talk about the K economy,

I mean I get it. The low end's always

under more pressure than the high end,

but but the top quintile of American

households are almost 40% of the

spending.

And so when we think about the dollars

running through retail in my companies

and sort of to Michael's point, like

that's that's really what what drives

that comp or doesn't. And what we've

seen in the last couple of years is I I

call it a limping E. Don't don't the low

end is is under pressure but has been

under pressure. The high end's fine,

especially with the wealth effect.

>> And the middle?

>> And the middle is limping. That's where

the pressure's being felt. That's where

and you're probably seeing in some of

the the credit card delinquency data and

stuff like that. It's like and that's

the thing to watch is like when does the

the great middle

uh start to feel pressure?

>> you're saying the middle is starting to

feel stressed?

>> Yes, I think that's that's been true

probably for 12 months now. Uh

>> And how do you see from in your

companies, how do you see that?

>> Well, we see it in terms of the ones

that can serve that that middle end

consumer well with a great value and

price assortment, convenience, all the

things you win in retail.

Uh they're gaining share and they're

starting to even win trade-in from

higher income consumers.

>> What do you mean trade-in?

>> Trade-in. So maybe a $150,000 household

that would have never considered

shopping at Walmart.

>> Right.

>> Signs up for Walmart Plus and realizes,

wait a second, I can get Cheerios

delivered for

$2 a box less than somewhere else.

>> I'm in.

>> And I'm in. Right. So that's that's

value, right?

>> So trade-in or trade down or uh uh

>> historically, we would call that trade

down. But

am I trading down? No. I'm getting the

product I want.

>> of cereal.

>> I'm getting the product I want. I'm

getting it faster than Amazon can get it

to me right and I don't have to pay

Instacart all their fees to bring it in

an hour.

>> Okay.

>> So So

>> how you're seeing it.

>> That's how we're seeing it.

>> who you would never have seen in your

companies be in your companies.

>> Yes. They're They're winning new

customers and getting more of their

share of wallet.

>> Okay.

All right. So before we dig down into

some of your companies, let let's let's

talk about the the topic

du jour, du week, du year, um AI.

Is AI

impacting any of your companies in terms

of the way they operate?

Let

Michael, you start.

>> They're starting to talk about it in

softlines a little bit. They're in two

areas. The All these companies are

moving physical goods around the world.

>> Mhm.

>> Being able to tighten up use use

technology to help you move things from

Asia to your DC in the US out to the

stores.

They're starting to talk about that a

little bit. I would call it very early.

Where you're hearing them talk about it

a little bit more is on the marketing

side and and personalization. When you

go to Macy's website, by the time you

get there, it always knows It already

knows a little bit about you and it's

showing you things that it's pretty darn

sure are going to catch your eye instead

of catch everybody's eye. So they're

they're able to do quite a bit more with

um with data. And they And honestly,

they didn't have the playbooks to do

that. Luckily, they do now. COVID forced

them to get much more serious about

their big data that they do collect.

There's a lot of data consumer data

floating around in these stores. They're

measuring where they go, what they look

at,

>> They just didn't have it in a way that

they could deal with it.

>> So all the power was in the hand of the

brands for a long time and the retailers

were just They didn't really figure it

out. They made the investments through

COVID. They have good data systems now,

thank god. And as agenda comes around,

they're able to say, "Hey, let's put

this to work." And really, like when you

get to this website, here's a pretty

high hit rate

vending machine of things that you

specifically will like versus just a

jump ball in the past. So

>> But it's But it's early.

>> It's early. It's early. It's They have

the systems now to to start. But it's

but still early. David?

>> Anything good with pizza?

>> Yeah. Well, that

when it comes to delivery

one of the things that we've had is

third-party delivery sites have come to

the space and they've been technology

leaders in restaurants and big

disruptors because that all of a sudden

is the most convenient thing. The

drive-thru players had great pricing

power, but what if a fast-casual

restaurant like a Chipotle can now has

access through the ultimate convenience.

You press a button and it arrives to

your house. So, the upper end of the gig

economy is all of a sudden finding the

brains they want through that. And not

only that, but they've been the best at

doing customer segmentation and

switching people to whatever they want.

So,

the DoorDashes of the world have been

leaders there. But now we have voice AI

at the drive-thru.

There's going to be the world of agentic

AI and companies like Chipotle are

thinking about that and saying, "How do

I make sure that Chipotle is the answer

to the question you're going to ask your

phone

in the future?"

>> So, what's the question?

>> Well, the question might be, "I'm

looking for some sort of wellness thing.

I'm looking for something fresh Mexican

food for me." And they And your agentic

AI may even know your dietary

restrictions.

>> Mhm.

>> And so, that they have to make sure that

the answer is Chipotle. And so, there's

actually there's games to make sure that

you that moves up the charts. And right

now, they were disturbed to find out

that they were not the answer when they

should have been

in many of those questions, but they're

going to make sure that they are in the

future.

>> Okay.

>> Greg?

>> Well, it's certainly being used, but

it's still very early days. I'd say

there's two elements that my companies

are looking at. One is the productivity

lift that you could get in terms of

making their own operations more

efficient, labor scheduling, you name

it. Um but then customer-facing is

really answering that question of

whatever need that person has, right?

So, if I'm doing a home improvement

project, asking Magic Apron it Depot,

"What are all the things I need to get

this done? That's it's sort of being on

the cutting edge of that I think is how

how people are winning. We just did an

agenic survey and again it's very early

days. Half of consumers still say that

they won't trust agenic AI to shop for

them. They will not. They will not. They

want they want to click the button for

buy. It was shockingly similar to the

answer we got that if 12 years ago we

got a similar survey. Half of Americans

said they would never use their phone to

buy stuff cuz they didn't want to put

their credit card

>> Did that change?

>> Yeah, changed a lot. Right? That's

[laughter]

That's the joke. Right? So like right

now I don't think consumers are still

testing. They're not sure how to use it.

But it's certainly a way that it'll help

collect the data that I think the the

lot of the retailers really really

value.

>> All right, let's dig down into your

groups. This should This should be fun.

All right, Michael, you're up you're on

the hot seat first.

>> All right, so let's

>> [clears throat]

>> let's talk about some bad ones.

You got Lulu,

>> Mhm.

>> Ulta,

Gap,

Kohl's, Canada Goose. Like like It's

like Murderer's Row.

>> Murderer's Row.

>> Like Tell us what's wrong with I mean

Ulta's a very good company, but let's go

one at a time. Lu- Lulu,

Ulta, Gap, Kohl's, Canada Goose. These

stocks are all down a lot this year.

Like what's going on?

>> Hi, Steve Eisman here. I've used Keeper

for years. Between work, banking, and

shopping, I have too many logins to keep

track of. My passwords were scattered

across my notes app, browser, and

memory, and I was always hitting forgot

password. Keeper stores everything

securely in one place and organizes it

so I can log in within seconds. Keeper

is a password manager that creates

strong unique passwords for all your

accounts, stores them securely in one

place, and logs you in automatically

across all your devices. So you never

have to remember, guess, or worry about

your login credentials again. For

businesses, Keeper takes the chaos out

of managing access for teams so they can

securely share logins, control

permissions, and protect sensitive data

without slowing down day-to-day work.

What people really notice is how simple

it feels. Security features like

auto-fill and Face ID or fingerprint

login quietly make things easier, so

best-in-class protection doesn't feel

like extra work. It just happens in the

background. From individuals to large

organizations, millions of people

worldwide rely on Keeper to keep

passwords organized and accounts

protected. Keeper helps you to stop

thinking about passwords altogether and

just get on with your day. Right now,

Keeper is offering our listeners 60% off

personal and family plans at

keepersecurity.com/eisman.

This offer is only for podcast

listeners. That's

keepersecurity.com/eisman

for 60% off personal and family plans.

Make sure you use our link so they know

we sent you. That's

keepersecurity.com/eisman.

If you've been a real Eisenmann Playbook

follower for a while, you know that I

recently finished treatment for cancer,

and I feel very lucky to be in recovery.

A cancer diagnosis is a lightning bolt I

did not see coming. Breast cancer is a

man was definitely not in my life's

bingo card. As a podcaster and a cancer

patient, I have learned that too many

people affected by cancer don't have

access to the care they need. This is

why I feel very strongly about the most

recent sponsor for our show, Color

Health. Color has created the first

ASCO-certified virtual cancer center of

excellence that is available all over

the nation. Certification by the highly

esteemed American Society for Clinical

Oncology matters a lot. Color's goal?

Reinvent how we all manage cancer, from

screening to diagnosis through treatment

and all the way back to the life you

thought you lost. You no longer have to

live near the world's top cancer

centers. Color has created the first

cancer center of excellence that is

available all over the nation. The best

possible care for everyone, everywhere.

Color works with employers, unions, and

health plans to lead the way through the

human, clinical, and financial impact of

cancer. You've all seen some of my

recent episodes about the state of

American health care. Getting the care

you need is too often unaffordable.

Almost half of all cancer patients lose

their entire life savings within 2 years

of being diagnosed. Catching cancer

early saves lives and money. This is why

Color's work is so important. The facts

are that Color delivers the speed needed

to get from suspecting cancer to

treating a cancer 66% faster than the

average in-person clinic visit. As a

virtual cancer clinic, it's accessible

across all 50 states 24/7 working with

local providers. If your rising cancer

costs for your company feel out of

control, you have to check out Color

because there is a better way to get

strong member use, better health

outcomes, and real control of cancer

costs. Learn more about Color as a

partner to overhaul your cancer strategy

at color.com/eisman.

And while you're at it, get screened.

>> I think Ulta is more I would I would put

Ulta in a very different bucket for the

stock reason than the other ones. Ulta

is a very good company in a very good

category.

>> company.

>> It started the year

very strong. Like they had a good end of

the year, so it's down off of that high.

The rest of these are

>> So you don't think it's just like uh

>> Yeah.

>> treading water, building a base type

type thing. But there's nothing wrong

with the company.

>> Fantastic new CEO, uh been there a

little more than a year.

You know, if you're a brand in beauty

and you want to launch, they're kind of

the kingmaker. They have one major

competitor in Sephora, Amazon, and

Walmart, and Target

threats, but there where you really want

to go and discover beauty, that's Ulta.

>> That's where you go.

>> I really don't think there's a a major

problem. There's always competition

coming at you. These stocks go through

little pulses cuz it's an awesome

category. Great margins, everything like

that. I would say that's more of just a

you're looking at short-term dynamics

there.

With the brands that you mentioned, you

got to connect to a whole new generation

and they don't respond to the same

things that millennials and

>> Well, let's start with Lulu.

>> They have specific product's

>> problems.

>> Tell us a little bit about

>> what's going on in Lulu.

>> Yeah. They started chasing their own

success with hit products in a way that

was very unsustainable. They We When we

When COVID hit, we all had to sit around

in yoga pants.

>> Right.

>> So, everybody bought Lulu pants.

>> had to So, you got these sales numbers

up there and you're like, all right, how

do we chase that with some growth? And

we started doing things like uh belt

bags and, you know,

where you need hit product after hit

product after hit product.

>> Which in fashion is very difficult to

sustain.

>> difficult. It's very difficult. Instead

of people coming here for the brand and

seeing what the brand's got to offer

today, I'm here to line up for that

product and then if you got the next

one, fine. If you don't, you're

>> I'm I'm out of there.

>> down the street. Their designer left a

few years ago. She She did very good job

with the brand for a long time.

Um the product hasn't looked the same

since. You'll see arguments around the

quality of the product. So, you'll see

them from a very high base after a lot

of success, very, very high sales per

foot metrics in their stores and

everything like that.

It's very You don't have a birthright to

that market share. You're a fashion

company. You wake up, you have zero

customers January 1st.

>> Right.

>> You got to earn them all back. Right?

When they come in and slowly over time,

the last two or three times I came in

here, the stuff's not as good as Alo or

Vuori, some of the

new competitors in the space.

Eventually, you just kind of start going

to those other places and that's where

they are right now and it's starting to

accelerate to the downside.

>> The downside.

>> Yeah. We're really starting to see the

It takes about a year and a half or two

years between designers. So, their

designer left a year and a half ago,

you're really starting to see

the stores empty out of the product that

she had developed that was very well

liked, and the new design team's product

in and it's just not clicking as well.

At the same time, we've got a lot of

competition. Alo in particular is a very

strong competitor coming for this

customer. So,

>> How about Gap? What's going on with Gap?

>> Gap's interesting. They've got a really

good CEO. They've He's They It's a

portfolio. They They own Gap, they own

Old Navy, they own um Banana Republic,

and they own Athleta. And the Gap chain

>> Mhm.

>> is doing fantastic. [clears throat]

They've reconnected with

>> part?

>> The Gap part. The The The oldest part of

the business, the Gap. Uh they they had

a

a really cool like pop culture event out

at at Coachella, you know, this really

cool music festival. They're doing

really cool stuff. Same-store sales are

high single digits. They're They're

doing great.

The belly of the EBIT of this company is

Old Navy.

>> What do you mean the belly of the EBIT?

>> It's their It's half the sales.

>> Half the sales?

>> More than half More than half the

profit.

>> How's Old Navy doing?

>> Old Navy's struggling a little bit.

Okay. Not not a ton,

but a little bit.

>> Okay.

>> Right? They're doing low single digit

comps in a world where, you know, people

they compete with like TJ Maxx and Ross

are doing high singles or teens.

And you're just you're looking at this

like it it's

they they've landed the the message on

the the Gap brand. They've got it cool

again. When I grew up, Gap had the

coolest people in the world in their

commercials. They had Run-DMC and

>> Right.

>> L Cool J. You remember like really cool

people. And they lost their way for a

little bit. They've got really cool

people in their ads again. The same

formula is not really working at Old

Navy or at least not working just yet.

And you have a very you have a you have

the customer that we've been talking

about. You've got a much lower income

customer who's coming in looking for

things for

>> So, Old Navy is a lower end customer?

>> Much lower, yeah.

>> Okay. So, they're competing with with

Burlington and TJ.

>> with off-price, yeah.

>> Okay. Those are tough competitors.

>> Those are tough competitors. It's

crowded. And if you can get the family,

if you can get mom to come in and buy

for her kids, that's a really big

ticket. That's a really valuable thing.

So, there's a lot of competition and

they're you know, they're they're

competing very hard for it, but

it's it's tougher to figure out how to

service that lower income consumer right

now and their comps are just not keeping

up. That's all the opportunity. We

already know Gap's good. So, what's

going on from here?

>> can be fixed, this would be a good

stock.

>> Oh, yeah. Oh, yeah.

>> Okay.

>> But, you don't see a sign yet that Old

Navy's being fixed.

>> a little early. They're making some

changes with leadership and they you

know, most recently they just to hear

them diagnose it this said, you know, it

was very specific. We we missed we

didn't bring the right dresses for her

in the spring.

>> For mom?

>> Yeah. Thank god they said that, right?

Cuz if it was a macro issue, you can't

fix that.

>> Right.

>> Right? But, it look, we messed up on I

think they did a good job. They took

ownership of it. They said we messed up

on fashion. We're going to put our noses

down and going to get back to work.

>> Okay.

>> So, not off of not off their radar yet.

>> Let's talk Nike.

>> Sure.

>> Is it fixable?

And what is And what is the disease?

Let's Let's Let's do an analysis. What's

the disease of Nike? Cuz it's not clear

to me what the Nate exactly the nature

of the problem is.

>> Sure. Very very very successful brand.

Dow component.

Right? Big big brand.

>> It has the biggest market cap of all the

companies you cover. It was.

>> It was.

>> It was.

>> Okay.

>> Big word.

>> That says was. Okay.

>> now. Yeah.

>> Okay.

>> So, [snorts] they very successful and

they sat down and said, "How do we

grow?" Well, instead of growing through

a wholesale channel or we'll take a shoe

and sell it to Foot Locker for 50 bucks.

Let's sell it in our own stores and our

own website for 100 and we'll get the

whole thing and that's how we'll grow.

>> Right.

>> And they brought in a CEO.

>> to do direct to consumer.

>> And and they all started to direct to

consumer online.

>> Correct. Online, they have some stores

online.

>> And that did not work.

>> It didn't work. They they brought in a

CEO from from the tech industry in 2019.

Maybe didn't have this the experience in

the fashion world to navigate this. He

lurched a little bit out of direct to

consumer. I think the old management

team who always also talked about going

more into DTC. They realized as they

were

approaching their strategy, we should go

slower than we said cuz this can cause

some problems.

And sure enough, it sure did. It sure

did. Right? Think Think about this, when

you go into a multi-brand retailer,

you when you're Nike, you don't know

what the customer who picked up a Nike

in one hand and an Adidas in the other

hand and put one of them down, you don't

know why. When they come into your store

and they just pick up Nike, you can fall

asleep and say, "Look how these people

love Nike." All you have is information

on your brand.

>> Right.

>> You don't You lose a lot of competitive

information.

>> Well, that's all interesting.

>> They brought back a veteran.

It's He's working on it. It's taking a

lot longer.

>> That actually begs the question that

maybe something was wrong with the

product.

>> I think something became wrong with the

product when competitors seized on the

opportunity and saw them messing with

their distribution and brought very

modern footwear in. You think about On

Running, you think about Hoka, brands

like Salomon now. And then you've got

old brands who are doing a really good

job.

>> by Hoka.

>> People swear by Hoka. You know what's

really easy? Is for your pediatrician to

tell you to just go to the running store

and get some Hoka.

Right? And guess what's really easy for

the the worker at the running store? He

He He can

try to pitch you on or the things that

he's supposed to prioritize today, but

it's really easy for him to just go and

back, grab the Hoka you asked for cuz

your pediatrician sent you in here.

>> So, that's the reputation of Hoka is

that it's good for your feet.

>> It's really good. Yeah. Maximum cushion,

really big, right? So, that became a big

big trend.

>> Okay.

>> Yeah.

And they said they did well.

>> So, what does Nike have to do?

>> Well, they So, Nike's a huge

>> has been going on for a long time.

>> on. The CEO's been there about a year

and a half. They brought back a veteran,

30-year guy. He knows the business cold.

He's trying very hard to diagnose where

all the fires are in the company. They

got a little ahead of their skis on

thinking how fast they could turn it

around. And then the competition is

still bringing a very good uh pipeline

of innovation. They're not letting up.

>> Right.

>> On Running is bringing excellent

footwear. Adidas is doing great. And New

Balance is bringing back retros. So,

you've got competition

>> jumping on that of flat feet.

>> So, I I I do it well.

>> I do do the list. That's That's the only

sneaker I can wear.

>> And they have cool looking stuff and

they have cool stuff from the '80s and

the '90s.

>> You know, the the statement that New

Balance is cool

is not is not is not a statement that I

ever heard before.

>> How big you think New Balance is?

>> I have no idea. How big is New Balance?

>> It's over a billion dollar company now.

>> 8 billion in revenue?

>> Yeah, it's private.

>> Really?

>> And it got it's bigger than On, it's

bigger than it's huge.

>> I just buy New Balances only because

it's the only sneaker I can wear.

>> There's a lot of people

>> But they look good now.

>> They look good. They got a great retro

catalog, cool old school stuff, you

know. This is what Nike's dealing with.

They gave up some shelf space.

>> And the competition got much much

harder.

>> They jumped on it.

>> Right. Okay.

>> Yeah.

>> Let's look about Macy's for a second. Is

there any hope for the department

stores?

>> You know what?

I'm glad you asked today because for

about 10 years it was the four-letter

word in the space. You want to short a

stock, just come along, pick a

department store, short it. And short

it.

Now they're all like, you know, under

eight times PE, you know, like very low

PEs. It's like almost not even worth

shorting anymore market cap. Well,

Macy's had a pretty good earnings report

last week.

>> I noticed that. I did the stock didn't

go up.

>> Didn't go up a lot. I think it probably

should have been up a little more. And

we're we're neutral. It's only a 6

billion market cap company.

>> billion. They own some real estate. They

own Bloomingdale's.

>> Yes.

>> Guess who their big competitor is? Saks

and Neiman's just declared bankruptcy.

>> That helps.

>> Right. Bloomingdale's comp to 10, that

pulls everything up. Macy's itself, the

core Macy's banner, they comp to 1% in

the first quarter, not heroic. But

what's interesting is when I first

started covering these guys 15 years

ago, they had 800 stores around the

country and we just looked at it and

said there's probably room for about 400

of those

to do like high quality profitable

sales. They're getting pretty close.

So I was with one of their competitors,

one of the off-pricers CEOs a couple

weeks ago, leave it unnamed.

Where the question came up, "Hey, you're

still going to take a lot of share from

department stores?" It's the It's the

existential thesis for the off-pricers.

They're just going to take all the

department store

>> Forever.

>> Forever.

And guess what they said.

You know, they may not be that much

market share left there. We're focusing

on other things. We're going to go after

e-commerce players and things like that.

That kind of sounds like Macy's is

getting close to that 400 stores

that are survivable go-forward store.

We've been waiting a long time to get

here. It doesn't look as bad as it used

to for the department stores. And again,

they've for a while the brands you sold

had all the power. They were dictating

why the consumer came in. You didn't

have any any way to collect the data in

your own store to drive an offense and

they do now.

They all got religion around their

supply chains and code. They used to

just traffic would suck. Let's just

start marking stuff down to bring people

in and it end up in too much inventory,

too much markdown. It was just this race

to the bottom every time. They all got

pretty good on their inventories during

COVID. They all got pretty good on their

supply chains around tariffs. Right? You

got to figure out where everything's

coming from.

They're driving a better deal now.

They're running better operations and

they're down to a base of stores that

are truly in places where a lot of

people go.

>> Mhm.

>> So, they may not be the punching bag

that they've been in the stock market

for the last 10 years.

>> actually be warming up a little bit to

Macy's.

>> bit. It's It's It's hard for me to tell

you there's this bright bright future

cuz it's not like the the share price

>> to conquer the world.

>> Yeah, the TJ Maxx's and Ross's are huge

companies that are awesome. And you can

get similar brands 50, 60% less.

>> Right.

>> Right? That's always going to draw a

customer. But they're not They're not as

big a punching bags as they used to be.

Kohl's has got a lot of cash.

Kohl's has got 30% of their Kohl's is

doing 30% of their market cap in free

cash this year.

>> Wow. Okay.

>> Right?

>> All right, David. Let's talk restaurants

first and then food.

>> Yes. So,

>> Right.

>> Walk me through what's like you know,

what's going on in the restaurant space?

And I And we got to talk Starbucks.

>> You sure.

>> We got to talk Starbucks.

>> We're going to have them tomorrow at our

conference and yeah.

>> with Starbucks because we where where we

live, we had a Starbucks literally on

the corner, which was very important to

me. And they closed it down. I was so I

was so upset. I almost wrote a letter to

management.

>> Yeah. Oh man. Well, I'm sorry. They

closed the one in the lobby of the

headquarters. If that if

>> headquarters.

>> shows how serious those guys were. So

>> famous routine by Steve Black where he

says, I know it's the I knew it was the

end of the world because I was standing

on a corner and there was a Starbucks

and across the street there was not the

Starbucks.

>> Right, right.

>> Yeah, that's right. It's like the couple

the couple that met each other at a

Starbucks but but they were at different

Starbucks's looking at each other across

the street.

>> Has it turned?

>> Um yeah. Starbucks is

has turned, yes. I mean, the question is

how powerfully and when when will the

profitability kick in?

>> Okay.

>> They they they they comped they had same

store sales growth of 7% in the US and

North America last quarter. This

quarter, you know, there's an argument

whether it's going to be six or seven,

but it's still humming along. Uh and you

know, there's been a lot of slowing down

across the consumer, but these guys are

still doing very good comps.

Beverages in general, I mean, there are

so many other dynamics that we didn't

talk about in the opener and you know,

young people versus old people, GLP-1

and beverage versus food. It's good to

be beverage. It's usually good to be old

people, too. You know, that's the asset

class. These guys appeal to the young

people, but they're beverages and

they're leaning in on the wellness stuff

and protein and energy and hydration.

Those are the three big things that

people want. They got them all there and

they're stepping up the service and now

they have to show the incremental

margins are going to be what they think

they're going to be, which is 60 to 65%

and that has to really start basically

next quarter. But the December quarter

is really what has to really be full

throat. If that it starts to happen,

that's when the stock can work. This

already has a recovery premium in it

because Brian Nickel came over from

Chipotle. He's the he's the guy and so

he has to do not just the sales, but the

earnings have to start showing up.

Fiscal 28, they have to be do be doing

over four bucks in earnings like

probably, you know, low to mid fours.

>> And where do you think they'll be this

year? What's your estimate for like what

it's

>> below three

it's under three. So, yeah. So, they

they they're The bottom line is they're

going to be doing

well they're going to have a huge

growth.

Um but they should off of these

depressed earnings. They did a lot huge

labor investment.

>> is how profitable they're going to be.

>> Right. And then it's a very very So,

bottom line is that's a name that I

think is poised to finally work. But

it's not easy off that valuation. A

little bit more of a scary one is

Chipotle because there you have a

>> It's down over 20% this year.

>> Yes, it's been down.

>> is that?

>> Well, because they haven't comps. They

have not had same-store sales growth and

they have a management that's not

believed in to the degree that

Starbucks's is. And so, there's no

management premium there, either. That

management has had huge turnover under

Scott Boatright. He's got his team now

together. He just hired a new head of

marketing who did great things over at

Restaurant Brands in the old days. The

people that had Burger King, that had

half Burger King.

Uh and that guy, together with Kirk

Garner, the guy I was citing before,

um will round out with with Scott uh and

another guy, Jason Kidd. That He's got

his team now. Innovation's picking up.

They're getting new equip- equipment

that's going to help them in catering.

And so, all of a sudden there's a

there's

possibility basically that uh that the

comps will ramp into the fourth quarter.

It's early. But people are why anytime

you're you have name like this that's

trading at something like mid-20s on 27,

that's a very reasonable valuation for

Chipotle. So, the riskier play, but

people don't feel like they want to

stick their neck out on Chipotle right

now. The investment the the large-scale

investors

because the consumer scary enough. Why

do I need to take on this risk? Okay.

People are four times overweight on

Starbucks at a huge premium because they

have momentum and they have a good

management that they trust. This one is

it's not going to be bought until they

see the whites of the eyes of the

recovery. They're going to they're going

to need to see it.

>> Walk me through like one or two names

that you really like. One or two names

and we're still talking restaurants. One

or two names that you really dislike.

>> Yeah. I would just you know, right now

there are ugly parts of this sector. So

the Wendy's of the of the world are

having a really really rough go and you

would stay away from them. Um you know,

there's others that are dealing with

pressure right now.

Domino's, Darden is has Olive Garden.

They're they're having some issues with

their same-store sales.

Everything's a pro-protein world. If

you're not on team protein, it's harder

for you. They're LongHorn Brands doing

it probably at 10 or 11 same-store sales

growth, whereas Olive Garden struggling

to do zero.

>> Okay.

>> So there's there's those. The easier

names are Yum! Brands on the long side.

Taco Bell's killing it. They're going to

spin off Pizza side and if the dilution

isn't crazy bad, which probably will not

not be, but it might be 10% dilutive,

but the rest of that business is going

to be a global growth brand with KFC

overseas and Taco Bell. It's going to be

a beautiful mid-teens grower.

I I can't wait for that name to be the

clean story that's going to be probably

later this month. And so we like that

one. Starbucks we like and for the

reasons we mentioned, we think the the

flow-through is going to improve.

Brinker, very cheap for what it is. 10

times free cash flow

for a company that's comping mid-single

digits. One of the best managements in

the space that's Chili's is 90% of the

business.

>> So Brinker is another name that we like.

I would probably stop there in terms of

my enthusiasm.

>> Let's let's look about you also cover

food companies and can you weave in the

whole what's what's our GLP-1s are

impacting,

>> you know, my good old friend Campbell

Soup that I grew up with.

>> Yeah. So there's a lot of things going

on with with food and it's all bad,

basically.

>> It's all bad.

>> Yeah. So, um basically

basically cheap

>> What about Smucker's? I mean, everybody

needs jam.

>> Yeah. Yeah, uh I mean, the here's the

good news on food. There's food names

like uh that the the cocoa exposed

companies,

which are obviously the chocolate

companies, which is Mondelēz and

Hershey.

>> Right.

>> Those are our

longs. Those are our outperforms. Why?

Because they're getting a cliff

flow-through of cocoa relief into '27

and you

>> cocoa relief prices

>> Cocoa relief prices and prices.

>> Okay.

>> And though that's a windfall that you

need in a world of energy and all the

downstream input costs. We just had

Campbell Soup report this morning. What

did they say? Well, they're of July and

fiscal year.

They said, "Our inflation uh should be

uh 2 to 3% in fiscal '27

before we include the energy." I'm like,

"Okay, what's the all-in number?" That's

another three points. So, great. So,

we're talking upwards of 6% inflation

for Campbell Soup.

>> their costs.

>> Their costs.

Good luck.

>> Good luck passing that on to the

consumer.

>> Good luck. Yeah, you all the best.

Meanwhile, they're they Somebody said,

"Well, what about the

>> People might want soup, but they don't

want it that bad.

>> Somebody said on the call, "What what

about the terri- What about the tariff

rebate?" And they're like, "Oh, yeah,

that's in That's now in our guidance for

this year. We're getting 4¢ in the

fourth quarter.

Uh will Walmart ask for that back? Well,

they won't. I mean, look at our gross

margins. I mean, we don't It's not

exactly like we we're doing great. You

know, it's sort of like one of those

type of It's just brutal.

>> have been some call.

>> Brut- brutal. Brutal. [laughter]

So,

>> There's like nothing uplifting on this

call.

>> No, there's nothing uplifting. But, the

fact is you have you have GLP-1s, which

are upper It's It's probably a half a

percent headwind. It's not a huge thing,

but just add to the list, SNAP

reductions. Which we just had

>> What's that?

>> Is that What it's food stamps.

>> Oh, food

that

those subsidy reductions are hurting

consumption by one to one and a half

percent in the states that have already

done it. So

roll that out. That's 20, 30 basis

points already as it gets to Texas and

Florida. So you're just adding it up and

then the and then but the biggest thing

is all my big food companies are losing

share.

>> They're low.

>> To little brands you yes, little brands

that are finding it easier to get on the

shelf because the Walmarts want to do

the get the rich people and the rich

people want the new thing. The the small

brands are finding a Tik Tok influencer

to get on and and wellness trends are

all more expensive and proteinish and

our companies lean to get kind of carb.

>> And so your company traditional

companies lean carb.

>> Not only that, but like even within

their categories they're being disrupted

by protein versions of their category.

So for example so for example,

>> [laughter]

>> there is high protein cereals and

granolas and if you're General Mills,

you under index on granola.

>> And so you're just hurting my Fruit

Loops.

>> Yeah, the cereal right

>> [laughter]

>> yeah, your Lucky Charms in their case.

Yeah, they're the Lucky Charms guys and

so they're you know

>> I grew up on Fruit Loops.

>> Cinnamon Toast Crunch or

>> Right. So in other words, healthy cereal

cereals versus the traditional sugar

cereal.

>> Well, the worst thing to be of of all is

for the yesteryears wellness, you know,

so if you're your Cheerios and Special K

you were kind of wellness

>> within the category.

>> your person is cheating on you with the

new version of wellness.

>> I see.

>> You know.

>> Granola.

>> Granola or it might be about satiety.

You it doesn't matter what your or my

version of wellness is. It's just all

about what people are looking for in

their food. And so it might be satiety

and in a world the other thing about

GLP-1 is it's not just about the people

that are do using the drugs. Everybody

is catching on to this. We're coming out

of COVID. Everyone

saw the value of being fit and they're

seeing other people on the drugs.

Everyone's looking for smaller portions,

even in restaurants. You know,

people are looking for that low entry

price point often in a smaller package.

For beverages, you know, calorie

consumption is down 2% in America right

now, year-over-year.

>> Wow.

>> of it's due to alcohol. Alcohol's

declined

>> Alcohol's declined tremendously.

>> tremendously. And so you're seeing, you

know,

away from sugar and carbs, which are

calorie dense, to protein. So people are

spending money on food, but often it's

to this wellness stuff and away from the

big legacy brands in carbish type stuff.

>> That doesn't sound like a trend that's

going to end anytime soon.

>> Probably not, but there and but so that

makes you not want to mean revert. And

so you're seeing food companies, food

stocks,

the sad thing for food stocks is their

their dividend payout ratios are

reaching 80% and their balance their

balance sheets are, you know, are coming

to a point where they don't have enough

room to do a big bold reinvestment to

kind of

try to bend the trend. So they're in a

tough spot.

Their PEs are getting to be under 10

times.

So it's a very it's it's just a very

dark time for a lot of legacy food

companies and big brands that you grew

up with basically.

>> Right.

Doesn't sound good.

>> [laughter]

>> Wow.

>> But her but like names like Hershey and

Mondelez are relatively I mean they're

they're they're actually pretty good. I

mean they're they're going to be

>> like a Kraft Heinz? That's in the that's

tough.

>> tough. Yeah, they were in that zone. I

mean the Kraft Heinz is the General

Mills, you know, they're they're

Conagra. These are companies that are

Campbell, we just talked about. These

are companies that are the prototypical

names that we're just talking about,

legacy categories.

>> Okay. All right. You're up, Greg.

>> All right, Steve. Let's start with

my good friend Best Buy that just

installed a television for me.

>> How did it go?

>> Why? Good.

I can't complain. I mean the buying the

TVs uh two televisions was seamless. The

guy showed up, they put it up.

Can't complain. My simple question start

to start the discussion is

Best Buy's earnings have been flat for

years. Why?

>> On Premium Wednesday, June 24th, we will

post an interview with the management of

Glass House Brands, a cannabis company.

The reclassification by the Trump

administration of medical cannabis

[music]

from a schedule one to a schedule three

drug will improve growth and earnings. I

own stock and on Wednesday, July 1st, I

will share my long positions

>> [music]

>> in my personal portfolio and how I think

about managing my investments. This is

for educational purposes only [music]

and is not a recommendation.

>> Well, they've they've done a very good

job of shrinking themselves into

survivability.

And when I say that is

>> there was I didn't know there was a

survival problem.

>> Well, this is the point and I think

they're trying their best and Corie's

done a great job over the last 7 years

of, you know, trimming a dozen or so

stores a year and really focusing on

service and categories where it can

matter. So, your TV example's a

heartening one, right? Cuz that's

something where they can still

differentiate

a big screen TV with the proper home

theater surround sound system installed.

That's something that you can't get at

Costco, you can't get at Walmart, you

can't get online, right? So, that is

seeing them lean into that

is is positive. Unfortunately, is that

probably three-quarters, at least

two-thirds of their store, it's easily

disintermediated online, right? So, if

I'm an Apple freak, I'm just going to

buy my next Apple product at the Apple

store online.

>> Right.

>> Right. If I'm if I'm dedicated to

Microsoft, I might go somewhere just to

feel the keyboard on a Dell or a

different computer. But, I'm going to

ultimately make the decision online. And

so, that's that's the the trickiest

part, especially if those other avenues

of getting product get a chat cheaper

and faster to the consumer.

>> So, you're not a fan at this point of

the stock.

>> We're not. I mean, I I root for them

every day, honestly. I've covered them

for a long time, and I I like what

they're trying to do. Uh and I think the

fact that they've been able to survive

this long and still be profitable and

have a decent dividend yield is actually

a testament to pretty good management.

>> Let's talk Home Depot and Lowe's.

>> Yep.

>> So, A, let's talk about the whole

category. And B, you're recommending

Home Depot and you're not recommending

Lowe's, which which is to me, as an

outsider, was like saying, I like baby A

and but it's twin baby B, I don't like.

I like like they look exactly the same

to me.

>> Yeah. Well, look, there's there's some

>> the category first.

>> Yeah, let's talk about the category is

um we're we're entering our fourth year

of uh

of bad uh and it's a frozen, locked-up

housing market. We can go through all

the reasons for that. Until that

unlocks, I think that we're basically

going to see home improvement uh run uh

growth

positive this year, which is the only

plus I can say, still below retail

sales. So, now we have cumulative growth

of the home improvement category that's

been running several hundred basis

points less than overall retail going

back to 2019.

>> Okay.

>> So, I just we have a lead indicator of

demand that looks at that, and when we

estimate there are about 30 million

homes that are locked up, 20 million

from rates, having a mortgage that's

under 3 and 1/2, or uh the fact that we

haven't indexed capital gains taxes is

it locked up another 10 million homes.

Uh those that's basically why existing

home sales are very depressed. There's a

shortage of supply, and prices are up,

and therefore

>> Because there is a shortage of supply.

>> Yeah. Right. But

>> It's it's it's ironic in that the

market's locked.

You would have thought to unlock it, we

need housing prices to go down, but

because there's so little supply, what's

what's on supply, housing prices are up.

>> Yeah, I wouldn't have a PhD in it, but I

do economics undergrad, and law of

supply and demand is if a price goes up,

what what it's either excess demand or a

lack of supply. And I would argue

there's plenty of demand. We see it from

household formations. The problem is

lack of supply.

>> Correct.

>> So, what does that mean for Home Depot

and Lowe's to sort of transition it, you

know, from the market? I would say I

think the one area where we we do see

some growth

potentially is in pro. We still have an

aging population.

>> To find just so everybody knows, what's

pro?

>> Oh, the pro side of of home and pro.

>> Professional.

>> Professional, right? So, somebody

>> and buy stuff to to figure they got to

put in your to put in your house cuz you

hired.

>> Right. And and so

of a $500 billion market, roughly

40% of it would be pro

>> Mhm.

>> and 60% DIY. And Home Depot has done

something that I think is could be

transformative, which is starting 6, 7,

8 years ago, they started going after

the pro that wasn't going into their

store. So, they built distribution

centers. They started making

acquisitions. It's a controversial

topic. It's basically helped drag the

stock down to only 20 times what I think

are depressed earnings. So, the reason

we like Home Depot is actually the

investments they've been making to

expand the TAM to 1.2 trillion. That

when ultimately demand comes back, and

yes, you do have to believe that

ultimately we will have a, you know,

housing turnover in the US and

>> So, because they've expanded their TAM,

you like it because once it turns, they

will do very well.

>> I like that. Yes, I like the leverage

that they could have out of that both

from top line, but then also operating

profit and margin.

>> And what about Lowe's? They did not do

that?

>> Well, they they

they spent many years sort of fixing

their own core business and getting

their margins from 8% to 12, which is

the right thing to do. Remember, it's

run by Marvin Ellison and a bunch of

ex-Home Depot people. So, they were

basically running the playbook that Home

Depot ran 10, 15 years ago to fix the

business sort of bottom up and improve

profitability.

Uh but in the last 12 months, they've

sort of pivoted. They've I think they've

they've said that that they want to go

after a pro more aggressively. They've

made a couple acquisitions. They've

levered up to over three times debt to

EBITDA.

So they're not buying back stock the way

they used to

and they're basically doing what Home

Depot started doing six or seven years

ago. And so to me between the two I'd

rather just get the one that has the

better balance sheet, less leverage and

potentially more upside and is when

things turn.

>> Big box question.

What's the difference between the

business models of Walmart and Costco?

Or is there a business difference in the

business models?

>> There's a Yes, there's one fundamental

different one and that's that Costco

grew up as a

as a limited SKU membership model,

right? So I had to join to belong and

that meant you could carry just 4,000

stock keeping units.

>> Why does a membership model restrict a

SKU number of SKUs?

>> Well, if you want to stay cost

efficient.

>> Okay.

>> That's what you're doing. You I I would

say Costco looks at themselves from the

beginning as a commissioned buying agent

for their members. They're basically

taking, you know, now $65 from you to be

a member and saying, you know what? I'm

going to scour the world for the 4,000

best items but I'm never going to charge

you more than an 11% gross margin

markup. The rule is actually 15 but it

averages out to about 11 if you look

across the store.

>> Okay.

>> And I think that's what makes that

shocking value that that makes the

renewal rates 92% at Costco and really

creates a nice moat compared to Amazon

or Walmart. Yeah, Walmart started as a

as a discount store with 120,000 SKUs or

at least once it had a supercenter. So

again, they're just the broadest

assortment that Walmart has makes it a

very different model. The thing they do

have in common is a focus on driving

down costs to drive down price

consistently.

>> To take share.

>> To take share. Yes, that is the common

theme you will see between both of them.

Just doing it with a membership model

versus a a more broad general

merchandise retailer.

>> And let's just finish up with the auto

companies that you cover. What's going

on cuz it's of those stocks are down

>> Yeah.

>> huge.

>> A lot of them gotten hit hard this year.

I mean, what's going on is

>> Just tell Name some names and just like

what do they do?

>> Yeah, these they distribute auto parts

in the aftermarket. So, O'Reilly

Automotive, AutoZone, Genuine Parts,

Advance Auto Parts. These are the

companies that

you you see them if you go in as a

consumer I want to buy some Prestone

antifreeze and wiper blades

>> Right.

>> or a new battery.

But, a majority of that industry

actually goes through professionals. So,

in other words, I go to my garage and

the mechanic says, "Greg, you need new

brakes."

And they'll call up O'Reilly, get the

brakes, and get me my car back later in

the day.

>> Okay, so why have these stocks gone down

this year?

>> it basically they had a great year last

year. They were seen as a very good

tariff protected companies. So, it's so

as tariffs came in across all different

categories including new cars, that has

only extended the age that the existing

vehicle fleet has has has up to now 13

years old.

>> Right.

>> So, a lot of people said, "Well, if my

new car's going to cost more and I've

got a perfectly good operating old car,

why don't I just fix it up and make it

run for another year?" And it it goes

back to as a consumer across income

levels that has been stretched.

>> Right.

>> And so, they did a very good year last

year.

The tariff inflation generally passed

through and the concern the market has

is that as that as we cycle all that

tariff price hikes, the comps are just

going to decelerate from say 8% at

O'Reilly to four or five later in the

year. AutoZone, you know, potentially

down to 3%. happened is good companies,

the stocks are on sale now because of

the second derivative of their comp

store sales.

>> I got you. Okay. Uh what questions have

I not asked you guys?

>> Well, you had a question before for me

on energy costs. I think it's something

that we debate as a team every week. I

mean, I think this year started out we

spent so much time trying to figure out

where the tax cuts were going to help or

not help.

>> Right.

>> And frankly, they helped. But then when

the conflict broke out and gas prices

went up,

the refunds were basically went to the

gas tank.

>> Okay.

>> But they were big enough to cover that

pressure for the first couple months.

>> Okay.

>> And when the refunds just ended about a

month ago, that's when you started to

see some deceleration, I would say,

generally across the consumer. I don't

think it's a disaster. And in fact, with

the jobs growth that we've had, and this

is again a question, that's why I'm

answering this way, we get it every day,

five times a day.

I think the the healthy jobs numbers

mean that we're probably not going to

crack, that the consumer should get

through this. But that's the key thing

we're watching as to how this plays out,

not just from a macro standpoint, but

whether you want to buy auto parts, or

whether you want to buy

Walmart or Costco.

>> Okay.

Let's let's talk about Ralph Lauren,

which we've all shopped at

at some point in our lives.

>> Yes.

>> Um what's going on? Why are they doing

well?

>> We're going to see them tomorrow at our

conference, too. They're doing a

fantastic job. They That's an old brand

that has figured out how to connect with

the new consumer, and it's one of a very

few.

They took a look around a few years ago

and said, "You know what? There's too

much of this stuff on sale, there's too

much inventory, we're selling too much

to TJ Maxx, we're selling too much

through our factory outlets, we're

couponing too much, we we have no grip

on how much we're couponing on our

website. Let's clean this up." Our

founder is still alive.

He's His dream was always for this to be

a luxury company, or to aspire to be

one. I shouldn't say be a luxury

company, but to aspire to be one, and

get that on their way up aspirational

consumer who likes luxury brands.

>> Right.

>> And we somehow ended up down here in

this promotional

>> world.

>> morass, yeah. So, they came in 2018,

they really came in, CEO Patrice came

in, and really said, "Let's just start

slowly and methodically, unlike what

Nike did, slowly and methodically

taking off one or two days a year on

sale in the department stores, taking

out a little bit of this inventory that

would end up on sale.

And what we've seen, as you see in their

average unit price, their prices have

driven this they're up 60%

>> Wow.

>> since 2018. Part of that is

we made the brand more luxurious. We

have flagships on Madison Avenue,

Saint-Germain in Paris, Bond Street. So,

we've got these luxury assets. We can

say, "Look at us. We're doing this.

We're selling some things to luxury

people." So, we've got this aspirational

image to it. Let's slowly pull back on

how much stuff's on sale at Macy's, and

let's go slow

and just chip away and pull back on

stores we shouldn't be in slowly over