October 13, 2025 • 40 mins
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President Donald Trump pressed world leaders gathered at a summit on Gaza’s future to ensure the US-led truce between Israel and Hamas turns into a lasting peace, hailing the agreement as a “new beginning” for the war-torn region.
“Today, for the first time anyone can remember, we have a once-in-a-lifetime chance to put the old feuds and bitter hatreds behind us,” Trump said in the Egyptian resort town of Sharm El-Sheikh.” “Together we’re going to forge a magnificent, great and enduring peace.”
Trump’s whirlwind trip, which also included a stop in Israel, heightened optimism for ending the two-year-long war between Israel and Hamas.
“Together, we’ve achieved what everybody said was impossible. At long last we have peace in the Middle East,” Trump said. “Now the rebuilding begins.”
Yet the nascent ceasefire remains fragile, with many key details left to be worked out. Trump said food and aid has begun to flow into Gaza, which has been devastated by the conflict. “Numerous countries of great wealth” have pledged reconstruction funds, Trump added, though he did not name them.
Today's show features:
- Mona Yacoubian, Director and Senior Adviser, Middle East Program at the Center for Strategic and International Studies, on President Donald Trump’s Middle East visit and the fragile Gaza ceasefire
- Daniel Florness, CEO of Fastenal on earnings and the state of US manufacturing
- Harmit Singh, Chief Financial and Growth Officer and Levi Strauss & Co, on the retailer’s latest quarterly earnings and the impact of tariffs
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business, finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:32):
All right, we want to stay on this story. Joining
us right now is Mona Yakubian. She's director and Senior
Advisor Middle East Program at the Center for Strategic and
International Studies. She joins us from Washington, d C. Mona,
should President Trump be taking a victory lap here?
Speaker 3 (00:47):
I think the President does deserve to take a victory
lap considering what has been accomplished today. The release of
the last twenty remaining hostages who are alive are a
live in Gaza, the cessation of hostilities for now, the
flowing in of much needed assistance into Gaza.
Speaker 4 (01:10):
These are important milestones.
Speaker 3 (01:14):
However, I think the President is perhaps premature in saying
the war is over. The difficult steps ahead are the
ones that we will have to watch closely to see
if in fact his aspirations become reality and.
Speaker 5 (01:30):
Noon, how does that play out?
Speaker 6 (01:32):
If you were going to say that this is presumably
some form of a stop gap and not necessarily conclusion
and marking the next chapter, what plays out? How does
this play out and kind of what's your view on that?
Speaker 1 (01:44):
Well.
Speaker 3 (01:45):
What will distinguish what happened today from ceasefires in the
past is if the various points that are laid down
in President Trump's twenty point plan are in fact implemented.
Critical am them is the disarming of Hamas. Hard to
know how exactly that's going to happen. The agreement itself
(02:09):
is very short on details. There's also the envisioning of
an international stabilization force that would surge into Gaza and
be responsible for security, not at all clear how that's
going to happen, and of course questions around governance and
the constituting of a committee of Palestinian technocrats to be
(02:30):
overseen by former British Prime Minister Tony Blair.
Speaker 4 (02:34):
I mean, there are so many.
Speaker 3 (02:36):
Details that have yet to be ironed out, let alone implemented,
and I think these are the key potential sticking points
in the coming days and weeks and likely months.
Speaker 2 (02:48):
Mona, and I think it's fair to say write a
conflict like this that has gone on not just in
the last two years of a war, but it's been
going on for a long time between Israel and Gaza
and Hamas. What is Hamas though in a world where
there is no conflict between Hamas and Israel, I mean,
(03:11):
they have been designated terrorist groups. So I'm just curious
what is Hamas potentially going forward in if there's real
peace in this region.
Speaker 4 (03:20):
Well point to a really important issue here.
Speaker 3 (03:23):
I mean Hamas's reison debt is resistance, resistance against Israel
and against Israeli occupation. Now, presumably if all of the
various elements that would bring actual peace between Israelis and
Palestinians come into fruition, then that would indeed sort of
(03:44):
I think, dramatically undermine the rationale for Hamas to continue
to exist. But I do think it's really important Carol
to note this agreement talks about and calls for the
disarming of Hemas. It does not call for the destruction
of Hamas, as Prime Minister Netanyahu has called for and
made a centerpiece of his policies on Gaza.
Speaker 2 (04:06):
So okay, So that's an important distinction. Correct, very much.
Speaker 1 (04:13):
So.
Speaker 3 (04:14):
I mean we're already seeing reporting that as Israeli troops
withdrawal from limited areas of Gaza, there is reporting that
MS is filling in and is taking over. And so
again this just gives you a sense of how daunting
this challenge is going to be going forward.
Speaker 6 (04:35):
Amara, you have about you have more than thirty years
of experience in the Middle East and North Africa. With
that in mind, what do the next weeks, in months,
years look like?
Speaker 3 (04:47):
Well, I think immediately what's going to need to happen
is more meat on the bones of exactly how it
is that this agreement that all of these various leaders
just signed off on in Charmeltsha, how will those points
actually be implemented? So, I think the first order of
the day is going to be figuring out how to
(05:08):
establish security on the ground as Israeli troops.
Speaker 4 (05:12):
Withdraw and not at all clear how that's going to happen.
Speaker 3 (05:15):
What are the mechanisms by which Hamas is going to
be disarmed and to whom whom will they give their
arms to? And then, of course the other key element
of any post conflict stabilization is governance. You've got to
have governance, You've got to have authorities on the ground.
Speaker 4 (05:31):
Who will they be, How will that structure be set up?
Speaker 3 (05:35):
Those are really critical questions, and we're a long ways
from understanding what the details are that will govern those
various arrangements.
Speaker 2 (05:44):
Does a disarmed Hamas, just to kind of tie this up,
do they want a Gaza a Palestinian state that actually thrives.
Speaker 3 (05:56):
Presumably they have called and would be in agreement with that,
But as always, the devil is in the details. For example,
they are saying that Israel must withdraw one hundred percent
from Gaza. That is not envisioned by the plan. And ultimately,
what does a Palestinian state look like? Is there a
way to actually build a Palestinian state from the current
(06:20):
set of circumstances that we see on the ground. That
is also going to be extraordinarily difficult. As long as
these questions remain, there will be space for resistance, there
will be space for groups like Comas or its successor
to cause trouble.
Speaker 2 (06:37):
Yeah, it's fascinating, right, and you talk about the building
of a Palestinian state, and then there's just the actual
build of a land that has just been devastated, so
much more to come, and I know we'll lean on
you in the future because I'm sure there'll be more
to come. Amona Yakubi and she's Director and Senior Advisor
Middle East Program at the Center for Strategic and International Studies.
(06:57):
Stay with us more from Bloomberg Business Week Daily coming
up after this.
Speaker 1 (07:05):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five East. During
that listen on Applecarplay and Android Auto with the Bloomberg
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Speaker 2 (07:19):
Well, Big a On is a big market story as
well today once again driving the trade, pushing Semi as
a group semiconductors that is hired today led by Broadcom,
who stock jumped after open Ai agreed to buy the
company's custom chips and network equipment in a multi year deal,
part of an ambitious plan by the startup to add
AI infrastructure. So we wanted to just dig a little
(07:40):
bit deeper into it. Amy talked about it. We certainly
are seeing it playing out in the market. Got a
great voice though, Billy to walk us through.
Speaker 7 (07:45):
One of my favorite people, I will say Bailey must
have said man Deep's name about five times on the call.
This more immediately was like we need to get him
at the studio, So perfect timing, and that's why we're
joined now by Bloomberg Intelligence Global head of Technology Research,
Man Deep saying here in the studio, MANDI walks through
this deal because it feels like every other day open
(08:06):
ai has a new agreement with some chip manufacturer and
the terms are slightly different, whether it's an ownership stake
or front buying chips. What's up with this broad compact?
Speaker 8 (08:16):
I mean, they are really going after you know, data
center capacity right now, and the way they are doing
it is by diversifying their supplier base. So it's not
just relying on Nvidia, which everyone does right now for compute,
but really leveraging Broadcom, which is a custom silicon maker.
(08:36):
So think about, you know, Nvidia giving you a generic
chip where you can run your AI workloads, whether it's
training or inferencing. Custom silicon is used just for you know,
the specific workload that open ai has to run for
its proprietary model. So no one else has any benefit
of using a custom silicon because open ai is not
(08:59):
looking to sell its own chips to compete with Nvidia,
it's looking to use its chips for its own chatgipt app,
or any other custom app that it has developed in house.
And Google is a prime example of what a custom
silicon looks like because they have their own TPUs, which,
when you compare it to n Video GPUs, is more
(09:20):
customized in nature, but it does a terrific job of
running YouTube or any other ai workloads that Google wants
to run on as chips. So that's what open aiye
is doing, and it has a tremendous cost advantage because
it costs a lot lower than the nvidio price tag
of thirty thousand dollars on an average for a GPU.
Speaker 2 (09:39):
TPU tensor processing unit. I so make sure I understand
what's interesting though, is I do feel like there's this
move trend to get chips that maybe don't cost as much,
maybe don't use as much power, but do exactly what
we need. Is that fair?
Speaker 5 (09:53):
Yeah?
Speaker 8 (09:53):
I mean, look one part, one gigawatt requires up to
five hundred to six hundred thousand accelerator chips. So we're
talking point five two point six million chips for one
gigawat data center. Imagine if you can save up to
five thousand dollars. How it multiplies, you know, in terms
of cost savings. The real constraint right now is power.
(10:15):
It's not as if you get a cheaper chip and
you are all good. You still need the performance per what,
which is why in video is so good because it
gives you five to ten x more performance per what
than the submers competitor.
Speaker 5 (10:27):
Right exactly, I want.
Speaker 2 (10:29):
To show there's a graphic and h one of our
producers made it, Elizabeth Cedron, and I think you know
we've all been looking at this. It's about open AI
and all of the companies that they're doing deals with.
And it's not even been a month, but they have
done deals with Nvidia, Oracle, Core, Weave, AMD now Broadcom
and again it's just late September to mid October. So
(10:52):
is that what this is is just giving them a
smarter supply chain and having access to what they need.
Is it as simple as.
Speaker 8 (10:58):
That, Well, it's not simple because they're going across the stacks.
Think of you know how AI applications are deployed. You
need the chip, you need the infrastructure, you need the
cloud because that's where you're doing your inferencing. So they've
cut deals with different parts of the stack here, not
just the chip makers, not just the power guys, also
(11:20):
the cloud guys. So from that perspective, we exactly and look,
I mean, to my mind, they are going aggressive in
terms of adding more capacity than they probably need because
they think if they get market share, they get the
companies or users to use their product, then they will
(11:40):
be able to monetize and probably drive some companies out
of you know, competing with them because of the scale
involved here.
Speaker 6 (11:47):
Well, our Xai andthropics striking similar deals or is this
the open Ai show?
Speaker 8 (11:52):
I think right now Xai must be thinking and they
are doing a twenty billion dollar deal with some private financing.
But look and open Ei announces a ten gigabord deal.
We're talking five hundred billion, not twenty billion anymore.
Speaker 5 (12:06):
So it's the numbers are getting bigger and bigger.
Speaker 6 (12:09):
Is open Ai in this moment in time on October
thirteenth the most important company in the world.
Speaker 8 (12:14):
Well, when I look at MAG seven, your broadcom is
not in MAG seven, it's a one point six million
dollar company. You know, open Ai it's probably you know,
it's what they're up ten percent because of this.
Speaker 6 (12:26):
I mean also the whole space sold off on Friday,
So don't want to downplay that too much.
Speaker 5 (12:30):
But like they're not.
Speaker 2 (12:31):
Even public, they're not even profitable as much as we know, right.
Speaker 8 (12:35):
No, No, I mean look ay I so right now
their gross margins would be negative if you factor in
the training costs, inferencing wise, yes, they are making some money,
but clearly if you include everything, and just to compare
it with Google, Google has an annual cost of revenue
of around one hundred billion that powers all of their apps,
(12:56):
you know, Google, YouTube, everything that they run. Open ai
is compute costs are probably north of twenty billion right now,
and if they're adding twenty six gigawt more capacity, we're
talking you know, compute costs to multiply at least twenty fivefold.
So from that perspective, you have to ask yourself how
much incremental revenue do you want to see from open
(13:18):
ai to justify this? You know, one trillion, potentially one
trillion dollars in compute infrastructure spend. And that's where Google's
infrastructure is so efficient because just you know, less than
five gigaworte of compute gets you to over four hundred
billion in revenue.
Speaker 2 (13:34):
That's pretty cool, you know, to say the least in
a non financial analysis terminology. Mandy, thank you always a gem.
Bloomberg Intelligence Global ahead of Technology research man de Deep saying,
AI spend in the buildout is one read on the
US economy and certainly the tech economy. Now to another
great read, Billy on US economic activity. And we're talking
(13:55):
about the industrial supplier fasten All, which reported earnings earlier
this morning. Shares. I think they were the worst performing
the S and P five hundred at one point.
Speaker 5 (14:03):
Yeah right now down about six percent.
Speaker 6 (14:06):
And keep in mind this is a fifty billion dollar company,
so this is no small small fish in the again,
in the industrial space. One of the first reads we
get every quarterly earning season, missing Wall Street views broadly speaking.
So interesting, what's driving that?
Speaker 2 (14:21):
Well, let's ask the CEO. Daniel Flores is with us.
He is chief executive officer of Fastinally joins us from Winnona, Minnesota. Dan,
it is great to have you back with us. Talk
to us about the quarter, because it does seem like
analysts were noting that the pricing during the quarter was
weaker than expected and marks the second straight quarter of
(14:42):
softer pricing and maybe that's why we're seeing the stock down.
What do you want to say to investors.
Speaker 9 (14:48):
Well, part of the reason our stock's down is its
priced perfection. If you look at what it's done, you know,
year to date and where the multiple is gone. But
you know, we had we had a really good quarter.
We had we had a double digit quarder. We hadn't
seen that for a couple of years. Double digit growth. Sorry,
and please with the outcome of the one of the
(15:12):
challenges we had this year was there's a lot of
fluidity around tariffs and what it means for pricing. And
we will raise price to address costs in our customers
supply chain. We really don't want to raise more than
that because we believe it impairs our ability to grow
as fast as we'd like. And you know, coming into
(15:34):
the quarter, we estimated you know X for impact of
pricing came a little bit less.
Speaker 10 (15:40):
We lowered our number for the fourth fourth quarter.
Speaker 9 (15:42):
But the most important aspect is on a price cost basis,
we are neutral and that's what we aspire to be.
Speaker 10 (15:50):
We'd rather just grow.
Speaker 6 (15:52):
And dan to your point, fasten all. Even with the
pull back today, returning twenty two percent year to date,
so out performing the S and P five hundred and
comparable stocks in the industrial space. But just one more
question on pricing in terms of expectations, would you want
to raise pricing? Like, do you get the sense that
consumers and customers would push back, just given how you've
(16:12):
been shifting into bigger customers spending much more money.
Speaker 9 (16:16):
Yeah, Customers always push back on pricing, It doesn't matter
the size customer. We will we are having conversations with
our customer.
Speaker 10 (16:26):
We will be.
Speaker 9 (16:26):
Doing some price increases in the Q four I suspect
we'll be doing some price increases as we move into
twenty twenty six. But again, our first discussion with the customer,
they understand it, they're willing to move on price. Our
first discussion is always what are alternatives to this product?
That maybe doesn't mean we have to raise your prices
(16:47):
five percent. Maybe it means it only has to be
two and we'd rather go to two because that's what
a supply chain partner does.
Speaker 5 (16:55):
Well, Dan, how do Terris fit into this?
Speaker 6 (16:57):
Just given that, according to analysts across the street, when
we look at certain industries, now is when we're going
to see tariff showing up in the third quarter in
guidance as it relates to twenty twenty six, What are
you seeing and how are you kind of attacking or
addressing any pressures from tariffs.
Speaker 9 (17:13):
Yeah, so for US, tariff's been in the in the
equation since the early part of the second quarter, a
little bit of first quarter. I think in the individual
that handles pricing historically he will provide us an update
once a month. He'd gotten the point where he was
down only providing us updates. He was up to video
number fourteen as of July that he was serving out
(17:36):
to the field giving them guidance into what we were
seeing in our supply chain. And so we've been adding
price as we've gone through the year, and these have
been discussions with customers.
Speaker 10 (17:48):
And I hope that answers your question.
Speaker 5 (17:51):
No, I think it does.
Speaker 6 (17:52):
But I think the big thing is are you mitigating
the impact of tariffs? Are you shifting your supply chain?
Is the expectation that you can have some kind of
knock on effect as it relates to pricing. If we
do continue to see threats from the President going after
countries like China or others, we are going to talk
to what are the members of Levi's management team, and
(18:12):
they called out that they had to dial up their
expectations for the impact of tariffs from other countries. So
how is that impacting when you look at your supply chain,
when you look at the potential for pricing impacts.
Speaker 5 (18:22):
In twenty twenty six.
Speaker 9 (18:24):
We've been moving to supply chain around the planet in
earnest since twenty seventeen, twenty eighteen time print. As our
name would imply, we sell a lot of fasters, and
most of the fasters in North America come from either
mainland China or Taiwan, and the automotive industry took the
(18:46):
production there back in the fifties and sixties, actually took
it to Japan and South Korea and then migrated from there.
If I look at our resources, we now have a
sourcing team in Shanghai, but we have a sourcing team
in Bangkok. We have a sourcing team in Northern India.
And we have worked to diversify our supplier base around
(19:07):
the planet and a little bit more in North America,
but really around the planet, so to have diversity and
supply so you're not caught off guard by some price
change or a tariff change In addition to that, we've
taken supply chains coming into North America, which traditionally came
in through the West coast the United States and then
(19:28):
we would redistribute from there. We have moved supply chains
so they're bringing product directly into the West coast of
Canada or the West coast of Mexico because those two
countries represent about fourteen percent of our revenue. Now you
bypass the tariff. However, it's more expensive to break shipments
down over in Asia and bring them in, but it's
(19:49):
a lot less than a tariff.
Speaker 2 (19:51):
One of the things I want to ask you you
talked about supply chains is the endgame, Dan, we're talking
abou Dan Flornes, He's chief executive officer Fastenal. Is it about,
though largely reducing your exposure to China, which has been
a pretty big one.
Speaker 9 (20:05):
It's reducing our customers exposure to any market, in this
case China and or Taiwan, but to any market that
are on the receiving end of some of the political
wins and create an unstable supply base for our customer.
Here it happens to be China another month, it might
(20:26):
be a different country another year.
Speaker 10 (20:27):
It might be a different country.
Speaker 9 (20:29):
It's diversifying your supply chain, so your inks are not
all in one basket.
Speaker 2 (20:33):
Gotta be ready so much ever our customer, Yeah, whichever
way the winds blow. Hey, one of the things I
want to ask you, just big broadly the earnings up
day today, you talked about the industrial environment still sluggish.
We've heard similar commentary on this persistent sluggishness elsewhere from
manufacturers as well as caution around project delays. At what
point does this become something more worrying than just sluggishness
(20:55):
for us?
Speaker 10 (20:56):
It's been sluggish since November of twenty twenty two.
Speaker 5 (20:59):
Okay, when.
Speaker 9 (21:01):
We really key on what the industrial is still for
supply management puts out the PMI index, and that's been
sub fifty, which really plays into our customer base. Other
than January and February of this year, that's been sub
fifty since November of twenty twenty two. So we've been
in a sluggish economy for a long time from our perspective,
(21:23):
and other than living through the first part of it
where you had customers that were downshifting, what reason our
growth is shining through a different way?
Speaker 10 (21:31):
A I think we're executing at a higher level.
Speaker 9 (21:34):
But b once you get through that downshifting, now you're
just even if your customers are at a subdued level,
you can grow in that kind of environment.
Speaker 10 (21:43):
And that's what's shining through in our numbers right now.
Speaker 2 (21:45):
All right, One thing I want to ask you, because
as you would imagine, I don't know how much of
this is pervasive in your world, but AI is like
the NonStop conversation that we are having, certainly when it
comes to activity and market impact. To what extent is
AI maybe sucking up the oxygen in the economy? Are
you seeing any signs of that or your world, They're
(22:06):
going to still need what you guys supply no matter
what's going on with the AI spend and enthusiasm.
Speaker 9 (22:12):
Well, first off, we have a lot of We have
a meaningful improvement in our revenue as it relates to
things like data centers because we sell into a wide
range of customer needs and end market needs, whether that
is the actual construction. I've visited many data centers being
built where we have people on site. There after it's built,
(22:33):
we're supplying into that facility with things like air handling
and maintenance equipment. In the case of a customers that
sell into that sector. That's actually a strong business for
us right now. And then as an organization, we're increasingly
making use of AI in our own business and how
we go to market and how we help our employees
(22:53):
be more efficient in what they do.
Speaker 6 (22:55):
And Dan about forty five seconds here with keeping in
mind data center construction, where are those products sourced from?
Are those also heavily sourced from China and exposed to
tariffs or are they different supply chainnel together they're.
Speaker 9 (23:09):
You know there, it's mostly different supply chain source, but
it depends on the component. If it's facility maintenance type
of products, they're coming from anywhere on the globe and
so they're subject to the same type of issues any
product would have. But a lot of the components I
know a lot of the manufacturers that we selled into.
(23:29):
I visited one about a year ago in Michigan where
they were purposely avoiding China and they're selling directly into
the data centers.
Speaker 2 (23:38):
You've been at fast enow for a long time, You've
seen different cycles. How do you describe this one? And again,
just got about twenty seconds. If you could be very quickly, very.
Speaker 9 (23:47):
Quick ooh, odd in the fact that you know similar
we saw on eighteen, but odd with the fact of
it's just something fluid, and there's so many things that
occur from week to week, month to month that are
outside the norm.
Speaker 10 (24:02):
But the fundamentals still work, all right. So start your
customer at high level, you grow your business.
Speaker 2 (24:06):
Love talking with you. Dan floresc CEO of Fastenal. Stay
with us. More from Bloomberg Business Week Daily coming up
after this.
Speaker 1 (24:19):
You're listening to the Bloomberg Business Week Daily podcast. Catch
us live weekday afternoons from two to five ES during
this listen on Applecarplay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 2 (24:33):
All right, both Levi's straftshares. They are trading slightly lower
today after dropping as much as fourteen percent on Friday.
This is after the company's upgraded earnings guide and still
fell short of higher investor expectations following the stocks more
than forty percent rally heading into that earnings print. Now.
One key disappointment, at least according to analysts out on
the Street, is earnings growth failing to match the pace
(24:55):
of sales expansion due to tariff and distribution costs. Me
time gotta say, Bailey, have TDC. I'm raising its price
target on the stock to twenty six from twenty two
is share and they've got their by rating.
Speaker 6 (25:05):
Yeah, staying bullish. And you look at the street thirteen analysts,
ten of them buys. So is it a sell the
news event price to perfection?
Speaker 2 (25:13):
We see it's a really good part. So let's see
what one of the companies members of the C suite
have to say. Harmit Singh is with us, chief financial
and growth officer at Levi Stras. He joins us from
our San Francisco bureau. Harmy, it's so good to have
you here with us. How are you and how is
the consumer doing well?
Speaker 11 (25:30):
Thanks for having me, Carol and Bailey, it's great to
be here again. You know, we had a real strong
quarter for consecutive quarters of high single digit growth and
record gross margins, as well as the fact that we
were able to raise up fully of guidance as well
as gross margin and EPs expectations. Overall, as a company,
(25:54):
we're a stronger and a higher performing company defined by
accelerat growth, expanding margins, and higher return on invested capital.
Your question about the consumer. The consumer is largely being resilient.
You know, our products are really well segmented. You know,
we have Blue Tap, which which is our premium high
(26:16):
pinnacle product, and that's doing well. We've introduced that in
the US, so far, so good. We have a Red
Tap product that is basically marketed to consumers who earn
between one hundred thousand and over, and that's, you know,
based on our results, really done well. And then we
have you know, our signature product sold through Walmart that
(26:39):
again had a banner coda and that's for you know,
lower income consumers. So consumer strength really strong. That's where
we were able to raise the fullier guidance and our
product pipeline hasn't been stronger. Now if you go outside
the US and international business was up in the high
signal digit and so Asia had a strong, colder consumer strong.
(27:00):
Europe had a decent corda consumer in a better place
than so is Latin America.
Speaker 2 (27:05):
Well, I'm just going to lay it after you. I
think I bought my first pair of Levi's in a
long time, just a couple of months ago. My daughter,
who's twenty two, so much younger than me, has been
buying Levi's for a while so Bailly, I mean they're back.
I go into the store in downtown in the village
and yeah, it's packed.
Speaker 6 (27:21):
Well, you get a partnership with Beyonce, all the marketing
you guys are spending in terms of targeting both young
and older generations. But harmeyt I want to ask about tariffs.
So Levi expects tariffs from China about thirty percent, but
increase expectations of twenty percent from the rest of the world.
Where are you sourcing your genes materials? Is it more
are you more exposed to that doubling in terms of
(27:44):
are you getting materials from Vietnam in place of China?
Speaker 12 (27:48):
Yeah?
Speaker 11 (27:49):
So, or we're taking a holistic approach as we are
able to offset the tariff impact. You know, as you
think about this year, we raise guidance in the top
line and the bottom and angross margin. So you know
we've been able to withstand that. Your specific question, Bailey,
we source about one percent we import into the US
(28:11):
from China, a little over a percent from India most
of and Vietnam is in the mid to high single digits.
So most of our imports are from the Southeast Asian countries.
Think Bangladesh, think Pakistan and the rest of Asia. The
way we think about our supply chain is fairly well diversified.
(28:34):
We import from about twenty countries into the US. Sixty
percent of our businesses outside the US, and so we're
well positioned to mitigate and offset tariffs. And the way
we are thinking about the holistic approach given that volume
is driving a big piece of our you know, revenue momentum,
(28:55):
and we have tenured vendor relationships, we're working with our vends.
We're looking at different cost efficiencies across our organization as
well as you know, being very thoughtful about pricing.
Speaker 2 (29:09):
So let me just ask you though you guys, did
you know you mentioned you raised your full year outlook.
You did warrant that tariffs are starting to bite profit
profitability to measure by gross margins improves. So these are
the good stuff, but again that tariffs are starting to bite, Armie,
can you tell us what that means? What the bite
of tariffs? When?
Speaker 5 (29:30):
When?
Speaker 2 (29:30):
How much you know any color around that?
Speaker 12 (29:33):
Sure?
Speaker 11 (29:34):
So you know overall, you know, we were able to
raise top line and bottom line guidance despite absorbing tariffs,
and so we are able to mitigate it to the
question about tariffs. Uh, you know, tariffs were introduced on
Liberation Day. We normally buy our products, you know, six
months in advance, and so you know, we're working through
(29:58):
you know, our efforts and we've got different leavers to
kind of position it. So you take quarter three, the
quarter which has reported gross margins a record, so we're
able to offset taffs because we've got other things working
for us, you know, as we grow our women's business,
our direct to consumer business, and international, all of which
(30:19):
are accretive to gross margins and allow us to you know,
mitigate and offset some of the terriff exposure.
Speaker 12 (30:28):
Quarter four, we did guide.
Speaker 11 (30:29):
Gross margins to be slightly down versus a year ago,
and had it not been for tartiffs, you know, we'd
have grown gross margins. But overall, as we think about
the year, we'll report again another year of record gross margins.
So we're working on leavers for twenty twenty six. The
good news is we'll end the year stronger and we
believe a well positioned to have another strong year in
(30:53):
twenty twenty six.
Speaker 6 (30:54):
And Kara, we've talked with a good friend Peter Atwater
for quite some time about that key shaped recovery where
people who are well off are doing much better than
those really in the bottom quintile harmie. When you look
at your goods, when you look at the ability to
raise prices from the impact of tariffs, which products are
you able to more easily raise prices where you aren't
(31:14):
going to see consumers push away? And how are you
thinking about that strategy as it relates to say, the
genes that you do sell through a Walmar where you
don't have that gross market going direct to consumer, and
you do have likely at least when we look at
the data consumer who's feeling the pinch of inflation.
Speaker 11 (31:29):
Broadly speaking, Yeah, and so the first thing Baily to
your question is our products are well segmented depending on
the income profile of different consumers. I talk blue tab,
red tab and signature signature is what's sold into the
lower income consumer. We've been very thoughtful about pricing. We're
(31:52):
leading with product innovation rather than price, and so we're
doing what we can to maintain a price point. It
is evident in Core three Signature, for example, I think
is up in the load double digits for the year.
As we think about, you know, our other products, the
good news for us is our product pipeline has never
been stronger.
Speaker 12 (32:12):
You know, we're leading with loose and baggy while.
Speaker 11 (32:15):
At the same time selling a lot of slim and
skinny both.
Speaker 12 (32:19):
For him and her.
Speaker 11 (32:21):
You know, we've got wonderful you know, waist up products
to think trucker jackets, think linen shirts, et cetera, et cetera.
And so as a company, we're making this pivot to
be more of a denim lifestyle retailer going forward. Our
past was all about denim. Our future is going to
(32:42):
be about denim lifestyle.
Speaker 2 (32:44):
I just want to know, do you really have a
pair of baggy barrel jeans. I can't get my head
around them. I'm trying, I'm trying. I'm just I haven't
done it. I haven't done it. Rmid What I do
want to ask you to is you guys have had
kind of a mission, a goal to get to ten
billion in sales by twenty twenty seven. I think you
may have just a little bit. I think also a
fifteen percent EBIT margin. Could you reach fifteen percent in
(33:04):
the next few years even if sales have not hit
that ten billion? You know, talk to us a little
bit about that mission.
Speaker 12 (33:11):
Yeah, no.
Speaker 11 (33:12):
You know, we gave out the expectation of ten billion
and fifteen percent on I Invested Day in the middle
of June twenty twenty two. Since then, you know, there's
been a lot of change and a lot of uncertainty.
As a company, we've kind of you know, navigated.
Speaker 12 (33:29):
Our way through uncertainty.
Speaker 11 (33:31):
We haven't given a new date on the ten billion
and the twenty and the fifteen percent. Our thinking is
we'll probably do that sometime next year. But your question,
the company that we are building and the company that
has got the foundation given way were ending this year,
so you take twenty twenty five will end about six
(33:53):
percent organic growth. Last year it was three percent. The
year before that it was flat. You we're thinking ebit margins.
This year we lend about mid levens. Last year it
was in the mid tens. The previous year it was
about nine. So we've seen a steady progress and our
view is we probably get to the fifteen percent faster
than we get to the ten billion. But really a
(34:16):
company that is steadily delivering mid single digit growth in
a category that probably grows a little, you know, south
of that, So our view is that we will we
are market leaders now in the US, number one in men's,
number one in women's, and rarely resonating with the youth.
Speaker 12 (34:36):
And so the question is if.
Speaker 11 (34:37):
You're able to stay at you know, and implement our strategies.
Our view is we can continue to be a market
leader and probably pick up a little bit of share,
especially because the denim category is accelerating. We've seen the
acceleration in the US, We've seen the acceleration outside and
that's largely driven by the world becoming more casual.
Speaker 2 (34:59):
Yeah, I have more gene in my wardrobe than I've
ever had in like since high school. Like, it's really
kind of wild. Anyway, Bailly and I can got another question.
Speaker 6 (35:05):
I was just gonna ask in terms of geographic expansion,
when you think about China, what's going on with China
and also what products do the Chinese consumers want? Is
it that high end good or is it more of
a bargain purchase.
Speaker 11 (35:19):
Yeah, so China for US is still underpenetrated. China represents
about two or three percent of our business. You know,
our business in China has been slow and soft. The
Chinese consumer right now is going through a bit of
a macro on certain climate but the good news for
(35:42):
us is they love the brand. Brand equity scores are
really solid. We think China can be, you know, a
business that grows double digit over the long term. But
your specific question, the Chinese consumer is fairly discerning on
the brands he or she too. There is a high
end consumer as well as a consumer that the mid
(36:06):
market consumer.
Speaker 12 (36:07):
What we call the co products.
Speaker 11 (36:09):
So if we think about our Asia strategy, we really
you know, our products are relevant for the mid market consumer,
while we also offer products for the higher premium and consumer.
Thirty percent of the Asian denim category is premium and
you know premium. For example, our highest spinnacle product is
(36:31):
largely Japanese you know, fabric, Japanese denim and inspired by Selvision.
So that's what we are selling and I think over
time we'll be able to start growing our China business
back in the load double digit rain.
Speaker 6 (36:49):
Yeah interesting, Steth, I will say, Carol, I know you
mentioned you have more genes than ever. I have been
buying the Sherpa jackets, the denim jackets like crazy.
Speaker 5 (36:56):
I don't know why. I have three of.
Speaker 7 (36:58):
Them in different colors to denim jackets.
Speaker 5 (37:00):
That's what I'm in I'm like, I.
Speaker 6 (37:01):
Don't wear jeans, I wear chinos, but I wear the
denim jackets like crazy.
Speaker 2 (37:05):
I know, I just I don't know. I love it.
I love it. It's like everybody. I work and Baile
jeans every morning.
Speaker 11 (37:10):
Yeah, and Bailey and Carol. Now we've got the blue tab.
It's it's it's a full of jacket. You can definitely
wear two off its depending on the on the on
the uh you know, uh dress environment at Bloomberg. I
walked in here fairly casual, so you know it's something
that we are not bringing to offer. We should make
(37:31):
your wardrobe at some stage.
Speaker 2 (37:33):
Hey, one last question, does it feel like God HAMI
the It's been a crazy year, uh, and a lot
of stuff coming at everybody, investors, the world at large.
Does it feel like things are starting to calm down
on a day when we've talked about what seems like
progress in a ceasefire between Israel and Hamas.
Speaker 11 (37:52):
Yeah, you know, as I mentioned earlier, you know we
have lived through uncertainty.
Speaker 1 (37:59):
You know.
Speaker 11 (37:59):
The good news for us is the category strong. We
have real business momentum, The brand's never been stronger, and
we have a product pipeline that has never been full,
especially as we head towards holiday. You know, our focus
right now is making sure our product is on the
on the floor because of what we have seen, Carol
(38:22):
is consumers gravitate to newness and gravitate toward's relevant. And
you know, and you know, our view is if we
can offer the right product and build a brand experience,
and that's why we've got real focus on our direct
to consumer business while complementing growth with our wholesale business.
(38:43):
So this quarder, you know, both DDC and wholesalevers up.
We had in the US five consecutive quarders of high
growth and it's fueled by both the channels.
Speaker 2 (38:54):
Alright, O, Harmie, when you talk with your design team,
I like high waist buttons, kind of slim through the
legs and then a little flair. I'm just gonna put
it out there, a little stretch in there too. It's
kind of my favorite, my favorite, my favorite, And you're Jeb,
thank you.
Speaker 12 (39:07):
Yeah.
Speaker 11 (39:08):
And I'll take that feedback, Karen, I know, I sincerely
believe feedback is a gift, and getting feedback from consumers
like yourself is something that I'll take upon myself to
feedback to our designers.
Speaker 2 (39:21):
All right, I'm gonna hold you to it. All right,
good stuff, Armie, thank you so much for me, It's saying,
chief financial and Growth officer at Levi Strauss, joining us
from our bureau in San Francisco.
Speaker 1 (39:31):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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(39:52):
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Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business, finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:32):
All right, we want to stay on this story. Joining
us right now is Mona Yakubian. She's director and Senior
Advisor Middle East Program at the Center for Strategic and
International Studies. She joins us from Washington, d C. Mona,
should President Trump be taking a victory lap here?
Speaker 3 (00:47):
I think the President does deserve to take a victory
lap considering what has been accomplished today. The release of
the last twenty remaining hostages who are alive are a
live in Gaza, the cessation of hostilities for now, the
flowing in of much needed assistance into Gaza.
Speaker 4 (01:10):
These are important milestones.
Speaker 3 (01:14):
However, I think the President is perhaps premature in saying
the war is over. The difficult steps ahead are the
ones that we will have to watch closely to see
if in fact his aspirations become reality and.
Speaker 5 (01:30):
Noon, how does that play out?
Speaker 6 (01:32):
If you were going to say that this is presumably
some form of a stop gap and not necessarily conclusion
and marking the next chapter, what plays out? How does
this play out and kind of what's your view on that?
Speaker 1 (01:44):
Well.
Speaker 3 (01:45):
What will distinguish what happened today from ceasefires in the
past is if the various points that are laid down
in President Trump's twenty point plan are in fact implemented.
Critical am them is the disarming of Hamas. Hard to
know how exactly that's going to happen. The agreement itself
(02:09):
is very short on details. There's also the envisioning of
an international stabilization force that would surge into Gaza and
be responsible for security, not at all clear how that's
going to happen, and of course questions around governance and
the constituting of a committee of Palestinian technocrats to be
(02:30):
overseen by former British Prime Minister Tony Blair.
Speaker 4 (02:34):
I mean, there are so many.
Speaker 3 (02:36):
Details that have yet to be ironed out, let alone implemented,
and I think these are the key potential sticking points
in the coming days and weeks and likely months.
Speaker 2 (02:48):
Mona, and I think it's fair to say write a
conflict like this that has gone on not just in
the last two years of a war, but it's been
going on for a long time between Israel and Gaza
and Hamas. What is Hamas though in a world where
there is no conflict between Hamas and Israel, I mean,
(03:11):
they have been designated terrorist groups. So I'm just curious
what is Hamas potentially going forward in if there's real
peace in this region.
Speaker 4 (03:20):
Well point to a really important issue here.
Speaker 3 (03:23):
I mean Hamas's reison debt is resistance, resistance against Israel
and against Israeli occupation. Now, presumably if all of the
various elements that would bring actual peace between Israelis and
Palestinians come into fruition, then that would indeed sort of
(03:44):
I think, dramatically undermine the rationale for Hamas to continue
to exist. But I do think it's really important Carol
to note this agreement talks about and calls for the
disarming of Hemas. It does not call for the destruction
of Hamas, as Prime Minister Netanyahu has called for and
made a centerpiece of his policies on Gaza.
Speaker 2 (04:06):
So okay, So that's an important distinction. Correct, very much.
Speaker 1 (04:13):
So.
Speaker 3 (04:14):
I mean we're already seeing reporting that as Israeli troops
withdrawal from limited areas of Gaza, there is reporting that
MS is filling in and is taking over. And so
again this just gives you a sense of how daunting
this challenge is going to be going forward.
Speaker 6 (04:35):
Amara, you have about you have more than thirty years
of experience in the Middle East and North Africa. With
that in mind, what do the next weeks, in months,
years look like?
Speaker 3 (04:47):
Well, I think immediately what's going to need to happen
is more meat on the bones of exactly how it
is that this agreement that all of these various leaders
just signed off on in Charmeltsha, how will those points
actually be implemented? So, I think the first order of
the day is going to be figuring out how to
(05:08):
establish security on the ground as Israeli troops.
Speaker 4 (05:12):
Withdraw and not at all clear how that's going to happen.
Speaker 3 (05:15):
What are the mechanisms by which Hamas is going to
be disarmed and to whom whom will they give their
arms to? And then, of course the other key element
of any post conflict stabilization is governance. You've got to
have governance, You've got to have authorities on the ground.
Speaker 4 (05:31):
Who will they be, How will that structure be set up?
Speaker 3 (05:35):
Those are really critical questions, and we're a long ways
from understanding what the details are that will govern those
various arrangements.
Speaker 2 (05:44):
Does a disarmed Hamas, just to kind of tie this up,
do they want a Gaza a Palestinian state that actually thrives.
Speaker 3 (05:56):
Presumably they have called and would be in agreement with that,
But as always, the devil is in the details. For example,
they are saying that Israel must withdraw one hundred percent
from Gaza. That is not envisioned by the plan. And ultimately,
what does a Palestinian state look like? Is there a
way to actually build a Palestinian state from the current
(06:20):
set of circumstances that we see on the ground. That
is also going to be extraordinarily difficult. As long as
these questions remain, there will be space for resistance, there
will be space for groups like Comas or its successor
to cause trouble.
Speaker 2 (06:37):
Yeah, it's fascinating, right, and you talk about the building
of a Palestinian state, and then there's just the actual
build of a land that has just been devastated, so
much more to come, and I know we'll lean on
you in the future because I'm sure there'll be more
to come. Amona Yakubi and she's Director and Senior Advisor
Middle East Program at the Center for Strategic and International Studies.
(06:57):
Stay with us more from Bloomberg Business Week Daily coming
up after this.
Speaker 1 (07:05):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five East. During
that listen on Applecarplay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 2 (07:19):
Well, Big a On is a big market story as
well today once again driving the trade, pushing Semi as
a group semiconductors that is hired today led by Broadcom,
who stock jumped after open Ai agreed to buy the
company's custom chips and network equipment in a multi year deal,
part of an ambitious plan by the startup to add
AI infrastructure. So we wanted to just dig a little
(07:40):
bit deeper into it. Amy talked about it. We certainly
are seeing it playing out in the market. Got a
great voice though, Billy to walk us through.
Speaker 7 (07:45):
One of my favorite people, I will say Bailey must
have said man Deep's name about five times on the call.
This more immediately was like we need to get him
at the studio, So perfect timing, and that's why we're
joined now by Bloomberg Intelligence Global head of Technology Research,
Man Deep saying here in the studio, MANDI walks through
this deal because it feels like every other day open
(08:06):
ai has a new agreement with some chip manufacturer and
the terms are slightly different, whether it's an ownership stake
or front buying chips. What's up with this broad compact?
Speaker 8 (08:16):
I mean, they are really going after you know, data
center capacity right now, and the way they are doing
it is by diversifying their supplier base. So it's not
just relying on Nvidia, which everyone does right now for compute,
but really leveraging Broadcom, which is a custom silicon maker.
(08:36):
So think about, you know, Nvidia giving you a generic
chip where you can run your AI workloads, whether it's
training or inferencing. Custom silicon is used just for you know,
the specific workload that open ai has to run for
its proprietary model. So no one else has any benefit
of using a custom silicon because open ai is not
(08:59):
looking to sell its own chips to compete with Nvidia,
it's looking to use its chips for its own chatgipt app,
or any other custom app that it has developed in house.
And Google is a prime example of what a custom
silicon looks like because they have their own TPUs, which,
when you compare it to n Video GPUs, is more
(09:20):
customized in nature, but it does a terrific job of
running YouTube or any other ai workloads that Google wants
to run on as chips. So that's what open aiye
is doing, and it has a tremendous cost advantage because
it costs a lot lower than the nvidio price tag
of thirty thousand dollars on an average for a GPU.
Speaker 2 (09:39):
TPU tensor processing unit. I so make sure I understand
what's interesting though, is I do feel like there's this
move trend to get chips that maybe don't cost as much,
maybe don't use as much power, but do exactly what
we need. Is that fair?
Speaker 5 (09:53):
Yeah?
Speaker 8 (09:53):
I mean, look one part, one gigawatt requires up to
five hundred to six hundred thousand accelerator chips. So we're
talking point five two point six million chips for one
gigawat data center. Imagine if you can save up to
five thousand dollars. How it multiplies, you know, in terms
of cost savings. The real constraint right now is power.
(10:15):
It's not as if you get a cheaper chip and
you are all good. You still need the performance per what,
which is why in video is so good because it
gives you five to ten x more performance per what
than the submers competitor.
Speaker 5 (10:27):
Right exactly, I want.
Speaker 2 (10:29):
To show there's a graphic and h one of our
producers made it, Elizabeth Cedron, and I think you know
we've all been looking at this. It's about open AI
and all of the companies that they're doing deals with.
And it's not even been a month, but they have
done deals with Nvidia, Oracle, Core, Weave, AMD now Broadcom
and again it's just late September to mid October. So
(10:52):
is that what this is is just giving them a
smarter supply chain and having access to what they need.
Is it as simple as.
Speaker 8 (10:58):
That, Well, it's not simple because they're going across the stacks.
Think of you know how AI applications are deployed. You
need the chip, you need the infrastructure, you need the
cloud because that's where you're doing your inferencing. So they've
cut deals with different parts of the stack here, not
just the chip makers, not just the power guys, also
(11:20):
the cloud guys. So from that perspective, we exactly and look,
I mean, to my mind, they are going aggressive in
terms of adding more capacity than they probably need because
they think if they get market share, they get the
companies or users to use their product, then they will
(11:40):
be able to monetize and probably drive some companies out
of you know, competing with them because of the scale
involved here.
Speaker 6 (11:47):
Well, our Xai andthropics striking similar deals or is this
the open Ai show?
Speaker 8 (11:52):
I think right now Xai must be thinking and they
are doing a twenty billion dollar deal with some private financing.
But look and open Ei announces a ten gigabord deal.
We're talking five hundred billion, not twenty billion anymore.
Speaker 5 (12:06):
So it's the numbers are getting bigger and bigger.
Speaker 6 (12:09):
Is open Ai in this moment in time on October
thirteenth the most important company in the world.
Speaker 8 (12:14):
Well, when I look at MAG seven, your broadcom is
not in MAG seven, it's a one point six million
dollar company. You know, open Ai it's probably you know,
it's what they're up ten percent because of this.
Speaker 6 (12:26):
I mean also the whole space sold off on Friday,
So don't want to downplay that too much.
Speaker 5 (12:30):
But like they're not.
Speaker 2 (12:31):
Even public, they're not even profitable as much as we know, right.
Speaker 8 (12:35):
No, No, I mean look ay I so right now
their gross margins would be negative if you factor in
the training costs, inferencing wise, yes, they are making some money,
but clearly if you include everything, and just to compare
it with Google, Google has an annual cost of revenue
of around one hundred billion that powers all of their apps,
(12:56):
you know, Google, YouTube, everything that they run. Open ai
is compute costs are probably north of twenty billion right now,
and if they're adding twenty six gigawt more capacity, we're
talking you know, compute costs to multiply at least twenty fivefold.
So from that perspective, you have to ask yourself how
much incremental revenue do you want to see from open
(13:18):
ai to justify this? You know, one trillion, potentially one
trillion dollars in compute infrastructure spend. And that's where Google's
infrastructure is so efficient because just you know, less than
five gigaworte of compute gets you to over four hundred
billion in revenue.
Speaker 2 (13:34):
That's pretty cool, you know, to say the least in
a non financial analysis terminology. Mandy, thank you always a gem.
Bloomberg Intelligence Global ahead of Technology research man de Deep saying,
AI spend in the buildout is one read on the
US economy and certainly the tech economy. Now to another
great read, Billy on US economic activity. And we're talking
(13:55):
about the industrial supplier fasten All, which reported earnings earlier
this morning. Shares. I think they were the worst performing
the S and P five hundred at one point.
Speaker 5 (14:03):
Yeah right now down about six percent.
Speaker 6 (14:06):
And keep in mind this is a fifty billion dollar company,
so this is no small small fish in the again,
in the industrial space. One of the first reads we
get every quarterly earning season, missing Wall Street views broadly speaking.
So interesting, what's driving that?
Speaker 2 (14:21):
Well, let's ask the CEO. Daniel Flores is with us.
He is chief executive officer of Fastinally joins us from Winnona, Minnesota. Dan,
it is great to have you back with us. Talk
to us about the quarter, because it does seem like
analysts were noting that the pricing during the quarter was
weaker than expected and marks the second straight quarter of
(14:42):
softer pricing and maybe that's why we're seeing the stock down.
What do you want to say to investors.
Speaker 9 (14:48):
Well, part of the reason our stock's down is its
priced perfection. If you look at what it's done, you know,
year to date and where the multiple is gone. But
you know, we had we had a really good quarter.
We had we had a double digit quarder. We hadn't
seen that for a couple of years. Double digit growth. Sorry,
and please with the outcome of the one of the
(15:12):
challenges we had this year was there's a lot of
fluidity around tariffs and what it means for pricing. And
we will raise price to address costs in our customers
supply chain. We really don't want to raise more than
that because we believe it impairs our ability to grow
as fast as we'd like. And you know, coming into
(15:34):
the quarter, we estimated you know X for impact of
pricing came a little bit less.
Speaker 10 (15:40):
We lowered our number for the fourth fourth quarter.
Speaker 9 (15:42):
But the most important aspect is on a price cost basis,
we are neutral and that's what we aspire to be.
Speaker 10 (15:50):
We'd rather just grow.
Speaker 6 (15:52):
And dan to your point, fasten all. Even with the
pull back today, returning twenty two percent year to date,
so out performing the S and P five hundred and
comparable stocks in the industrial space. But just one more
question on pricing in terms of expectations, would you want
to raise pricing? Like, do you get the sense that
consumers and customers would push back, just given how you've
(16:12):
been shifting into bigger customers spending much more money.
Speaker 9 (16:16):
Yeah, Customers always push back on pricing, It doesn't matter
the size customer. We will we are having conversations with
our customer.
Speaker 10 (16:26):
We will be.
Speaker 9 (16:26):
Doing some price increases in the Q four I suspect
we'll be doing some price increases as we move into
twenty twenty six. But again, our first discussion with the customer,
they understand it, they're willing to move on price. Our
first discussion is always what are alternatives to this product?
That maybe doesn't mean we have to raise your prices
(16:47):
five percent. Maybe it means it only has to be
two and we'd rather go to two because that's what
a supply chain partner does.
Speaker 5 (16:55):
Well, Dan, how do Terris fit into this?
Speaker 6 (16:57):
Just given that, according to analysts across the street, when
we look at certain industries, now is when we're going
to see tariff showing up in the third quarter in
guidance as it relates to twenty twenty six, What are
you seeing and how are you kind of attacking or
addressing any pressures from tariffs.
Speaker 9 (17:13):
Yeah, so for US, tariff's been in the in the
equation since the early part of the second quarter, a
little bit of first quarter. I think in the individual
that handles pricing historically he will provide us an update
once a month. He'd gotten the point where he was
down only providing us updates. He was up to video
number fourteen as of July that he was serving out
(17:36):
to the field giving them guidance into what we were
seeing in our supply chain. And so we've been adding
price as we've gone through the year, and these have
been discussions with customers.
Speaker 10 (17:48):
And I hope that answers your question.
Speaker 5 (17:51):
No, I think it does.
Speaker 6 (17:52):
But I think the big thing is are you mitigating
the impact of tariffs? Are you shifting your supply chain?
Is the expectation that you can have some kind of
knock on effect as it relates to pricing. If we
do continue to see threats from the President going after
countries like China or others, we are going to talk
to what are the members of Levi's management team, and
(18:12):
they called out that they had to dial up their
expectations for the impact of tariffs from other countries. So
how is that impacting when you look at your supply chain,
when you look at the potential for pricing impacts.
Speaker 5 (18:22):
In twenty twenty six.
Speaker 9 (18:24):
We've been moving to supply chain around the planet in
earnest since twenty seventeen, twenty eighteen time print. As our
name would imply, we sell a lot of fasters, and
most of the fasters in North America come from either
mainland China or Taiwan, and the automotive industry took the
(18:46):
production there back in the fifties and sixties, actually took
it to Japan and South Korea and then migrated from there.
If I look at our resources, we now have a
sourcing team in Shanghai, but we have a sourcing team
in Bangkok. We have a sourcing team in Northern India.
And we have worked to diversify our supplier base around
(19:07):
the planet and a little bit more in North America,
but really around the planet, so to have diversity and
supply so you're not caught off guard by some price
change or a tariff change In addition to that, we've
taken supply chains coming into North America, which traditionally came
in through the West coast the United States and then
(19:28):
we would redistribute from there. We have moved supply chains
so they're bringing product directly into the West coast of
Canada or the West coast of Mexico because those two
countries represent about fourteen percent of our revenue. Now you
bypass the tariff. However, it's more expensive to break shipments
down over in Asia and bring them in, but it's
(19:49):
a lot less than a tariff.
Speaker 2 (19:51):
One of the things I want to ask you you
talked about supply chains is the endgame, Dan, we're talking
abou Dan Flornes, He's chief executive officer Fastenal. Is it about,
though largely reducing your exposure to China, which has been
a pretty big one.
Speaker 9 (20:05):
It's reducing our customers exposure to any market, in this
case China and or Taiwan, but to any market that
are on the receiving end of some of the political
wins and create an unstable supply base for our customer.
Here it happens to be China another month, it might
(20:26):
be a different country another year.
Speaker 10 (20:27):
It might be a different country.
Speaker 9 (20:29):
It's diversifying your supply chain, so your inks are not
all in one basket.
Speaker 2 (20:33):
Gotta be ready so much ever our customer, Yeah, whichever
way the winds blow. Hey, one of the things I
want to ask you, just big broadly the earnings up
day today, you talked about the industrial environment still sluggish.
We've heard similar commentary on this persistent sluggishness elsewhere from
manufacturers as well as caution around project delays. At what
point does this become something more worrying than just sluggishness
(20:55):
for us?
Speaker 10 (20:56):
It's been sluggish since November of twenty twenty two.
Speaker 5 (20:59):
Okay, when.
Speaker 9 (21:01):
We really key on what the industrial is still for
supply management puts out the PMI index, and that's been
sub fifty, which really plays into our customer base. Other
than January and February of this year, that's been sub
fifty since November of twenty twenty two. So we've been
in a sluggish economy for a long time from our perspective,
(21:23):
and other than living through the first part of it
where you had customers that were downshifting, what reason our
growth is shining through a different way?
Speaker 10 (21:31):
A I think we're executing at a higher level.
Speaker 9 (21:34):
But b once you get through that downshifting, now you're
just even if your customers are at a subdued level,
you can grow in that kind of environment.
Speaker 10 (21:43):
And that's what's shining through in our numbers right now.
Speaker 2 (21:45):
All right, One thing I want to ask you, because
as you would imagine, I don't know how much of
this is pervasive in your world, but AI is like
the NonStop conversation that we are having, certainly when it
comes to activity and market impact. To what extent is
AI maybe sucking up the oxygen in the economy? Are
you seeing any signs of that or your world, They're
(22:06):
going to still need what you guys supply no matter
what's going on with the AI spend and enthusiasm.
Speaker 9 (22:12):
Well, first off, we have a lot of We have
a meaningful improvement in our revenue as it relates to
things like data centers because we sell into a wide
range of customer needs and end market needs, whether that
is the actual construction. I've visited many data centers being
built where we have people on site. There after it's built,
(22:33):
we're supplying into that facility with things like air handling
and maintenance equipment. In the case of a customers that
sell into that sector. That's actually a strong business for
us right now. And then as an organization, we're increasingly
making use of AI in our own business and how
we go to market and how we help our employees
(22:53):
be more efficient in what they do.
Speaker 6 (22:55):
And Dan about forty five seconds here with keeping in
mind data center construction, where are those products sourced from?
Are those also heavily sourced from China and exposed to
tariffs or are they different supply chainnel together they're.
Speaker 9 (23:09):
You know there, it's mostly different supply chain source, but
it depends on the component. If it's facility maintenance type
of products, they're coming from anywhere on the globe and
so they're subject to the same type of issues any
product would have. But a lot of the components I
know a lot of the manufacturers that we selled into.
(23:29):
I visited one about a year ago in Michigan where
they were purposely avoiding China and they're selling directly into
the data centers.
Speaker 2 (23:38):
You've been at fast enow for a long time, You've
seen different cycles. How do you describe this one? And again,
just got about twenty seconds. If you could be very quickly, very.
Speaker 9 (23:47):
Quick ooh, odd in the fact that you know similar
we saw on eighteen, but odd with the fact of
it's just something fluid, and there's so many things that
occur from week to week, month to month that are
outside the norm.
Speaker 10 (24:02):
But the fundamentals still work, all right. So start your
customer at high level, you grow your business.
Speaker 2 (24:06):
Love talking with you. Dan floresc CEO of Fastenal. Stay
with us. More from Bloomberg Business Week Daily coming up
after this.
Speaker 1 (24:19):
You're listening to the Bloomberg Business Week Daily podcast. Catch
us live weekday afternoons from two to five ES during
this listen on Applecarplay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 2 (24:33):
All right, both Levi's straftshares. They are trading slightly lower
today after dropping as much as fourteen percent on Friday.
This is after the company's upgraded earnings guide and still
fell short of higher investor expectations following the stocks more
than forty percent rally heading into that earnings print. Now.
One key disappointment, at least according to analysts out on
the Street, is earnings growth failing to match the pace
(24:55):
of sales expansion due to tariff and distribution costs. Me
time gotta say, Bailey, have TDC. I'm raising its price
target on the stock to twenty six from twenty two
is share and they've got their by rating.
Speaker 6 (25:05):
Yeah, staying bullish. And you look at the street thirteen analysts,
ten of them buys. So is it a sell the
news event price to perfection?
Speaker 2 (25:13):
We see it's a really good part. So let's see
what one of the companies members of the C suite
have to say. Harmit Singh is with us, chief financial
and growth officer at Levi Stras. He joins us from
our San Francisco bureau. Harmy, it's so good to have
you here with us. How are you and how is
the consumer doing well?
Speaker 11 (25:30):
Thanks for having me, Carol and Bailey, it's great to
be here again. You know, we had a real strong
quarter for consecutive quarters of high single digit growth and
record gross margins, as well as the fact that we
were able to raise up fully of guidance as well
as gross margin and EPs expectations. Overall, as a company,
(25:54):
we're a stronger and a higher performing company defined by
accelerat growth, expanding margins, and higher return on invested capital.
Your question about the consumer. The consumer is largely being resilient.
You know, our products are really well segmented. You know,
we have Blue Tap, which which is our premium high
(26:16):
pinnacle product, and that's doing well. We've introduced that in
the US, so far, so good. We have a Red
Tap product that is basically marketed to consumers who earn
between one hundred thousand and over, and that's, you know,
based on our results, really done well. And then we
have you know, our signature product sold through Walmart that
(26:39):
again had a banner coda and that's for you know,
lower income consumers. So consumer strength really strong. That's where
we were able to raise the fullier guidance and our
product pipeline hasn't been stronger. Now if you go outside
the US and international business was up in the high
signal digit and so Asia had a strong, colder consumer strong.
(27:00):
Europe had a decent corda consumer in a better place
than so is Latin America.
Speaker 2 (27:05):
Well, I'm just going to lay it after you. I
think I bought my first pair of Levi's in a
long time, just a couple of months ago. My daughter,
who's twenty two, so much younger than me, has been
buying Levi's for a while so Bailly, I mean they're back.
I go into the store in downtown in the village
and yeah, it's packed.
Speaker 6 (27:21):
Well, you get a partnership with Beyonce, all the marketing
you guys are spending in terms of targeting both young
and older generations. But harmeyt I want to ask about tariffs.
So Levi expects tariffs from China about thirty percent, but
increase expectations of twenty percent from the rest of the world.
Where are you sourcing your genes materials? Is it more
are you more exposed to that doubling in terms of
(27:44):
are you getting materials from Vietnam in place of China?
Speaker 12 (27:48):
Yeah?
Speaker 11 (27:49):
So, or we're taking a holistic approach as we are
able to offset the tariff impact. You know, as you
think about this year, we raise guidance in the top
line and the bottom and angross margin. So you know
we've been able to withstand that. Your specific question, Bailey,
we source about one percent we import into the US
(28:11):
from China, a little over a percent from India most
of and Vietnam is in the mid to high single digits.
So most of our imports are from the Southeast Asian countries.
Think Bangladesh, think Pakistan and the rest of Asia. The
way we think about our supply chain is fairly well diversified.
(28:34):
We import from about twenty countries into the US. Sixty
percent of our businesses outside the US, and so we're
well positioned to mitigate and offset tariffs. And the way
we are thinking about the holistic approach given that volume
is driving a big piece of our you know, revenue momentum,
(28:55):
and we have tenured vendor relationships, we're working with our vends.
We're looking at different cost efficiencies across our organization as
well as you know, being very thoughtful about pricing.
Speaker 2 (29:09):
So let me just ask you though you guys, did
you know you mentioned you raised your full year outlook.
You did warrant that tariffs are starting to bite profit
profitability to measure by gross margins improves. So these are
the good stuff, but again that tariffs are starting to bite, Armie,
can you tell us what that means? What the bite
of tariffs? When?
Speaker 5 (29:30):
When?
Speaker 2 (29:30):
How much you know any color around that?
Speaker 12 (29:33):
Sure?
Speaker 11 (29:34):
So you know overall, you know, we were able to
raise top line and bottom line guidance despite absorbing tariffs,
and so we are able to mitigate it to the
question about tariffs. Uh, you know, tariffs were introduced on
Liberation Day. We normally buy our products, you know, six
months in advance, and so you know, we're working through
(29:58):
you know, our efforts and we've got different leavers to
kind of position it. So you take quarter three, the
quarter which has reported gross margins a record, so we're
able to offset taffs because we've got other things working
for us, you know, as we grow our women's business,
our direct to consumer business, and international, all of which
(30:19):
are accretive to gross margins and allow us to you know,
mitigate and offset some of the terriff exposure.
Speaker 12 (30:28):
Quarter four, we did guide.
Speaker 11 (30:29):
Gross margins to be slightly down versus a year ago,
and had it not been for tartiffs, you know, we'd
have grown gross margins. But overall, as we think about
the year, we'll report again another year of record gross margins.
So we're working on leavers for twenty twenty six. The
good news is we'll end the year stronger and we
believe a well positioned to have another strong year in
(30:53):
twenty twenty six.
Speaker 6 (30:54):
And Kara, we've talked with a good friend Peter Atwater
for quite some time about that key shaped recovery where
people who are well off are doing much better than
those really in the bottom quintile harmie. When you look
at your goods, when you look at the ability to
raise prices from the impact of tariffs, which products are
you able to more easily raise prices where you aren't
(31:14):
going to see consumers push away? And how are you
thinking about that strategy as it relates to say, the
genes that you do sell through a Walmar where you
don't have that gross market going direct to consumer, and
you do have likely at least when we look at
the data consumer who's feeling the pinch of inflation.
Speaker 11 (31:29):
Broadly speaking, Yeah, and so the first thing Baily to
your question is our products are well segmented depending on
the income profile of different consumers. I talk blue tab,
red tab and signature signature is what's sold into the
lower income consumer. We've been very thoughtful about pricing. We're
(31:52):
leading with product innovation rather than price, and so we're
doing what we can to maintain a price point. It
is evident in Core three Signature, for example, I think
is up in the load double digits for the year.
As we think about, you know, our other products, the
good news for us is our product pipeline has never
been stronger.
Speaker 12 (32:12):
You know, we're leading with loose and baggy while.
Speaker 11 (32:15):
At the same time selling a lot of slim and
skinny both.
Speaker 12 (32:19):
For him and her.
Speaker 11 (32:21):
You know, we've got wonderful you know, waist up products
to think trucker jackets, think linen shirts, et cetera, et cetera.
And so as a company, we're making this pivot to
be more of a denim lifestyle retailer going forward. Our
past was all about denim. Our future is going to
(32:42):
be about denim lifestyle.
Speaker 2 (32:44):
I just want to know, do you really have a
pair of baggy barrel jeans. I can't get my head
around them. I'm trying, I'm trying. I'm just I haven't
done it. I haven't done it. Rmid What I do
want to ask you to is you guys have had
kind of a mission, a goal to get to ten
billion in sales by twenty twenty seven. I think you
may have just a little bit. I think also a
fifteen percent EBIT margin. Could you reach fifteen percent in
(33:04):
the next few years even if sales have not hit
that ten billion? You know, talk to us a little
bit about that mission.
Speaker 12 (33:11):
Yeah, no.
Speaker 11 (33:12):
You know, we gave out the expectation of ten billion
and fifteen percent on I Invested Day in the middle
of June twenty twenty two. Since then, you know, there's
been a lot of change and a lot of uncertainty.
As a company, we've kind of you know, navigated.
Speaker 12 (33:29):
Our way through uncertainty.
Speaker 11 (33:31):
We haven't given a new date on the ten billion
and the twenty and the fifteen percent. Our thinking is
we'll probably do that sometime next year. But your question,
the company that we are building and the company that
has got the foundation given way were ending this year,
so you take twenty twenty five will end about six
(33:53):
percent organic growth. Last year it was three percent. The
year before that it was flat. You we're thinking ebit margins.
This year we lend about mid levens. Last year it
was in the mid tens. The previous year it was
about nine. So we've seen a steady progress and our
view is we probably get to the fifteen percent faster
than we get to the ten billion. But really a
(34:16):
company that is steadily delivering mid single digit growth in
a category that probably grows a little, you know, south
of that, So our view is that we will we
are market leaders now in the US, number one in men's,
number one in women's, and rarely resonating with the youth.
Speaker 12 (34:36):
And so the question is if.
Speaker 11 (34:37):
You're able to stay at you know, and implement our strategies.
Our view is we can continue to be a market
leader and probably pick up a little bit of share,
especially because the denim category is accelerating. We've seen the
acceleration in the US, We've seen the acceleration outside and
that's largely driven by the world becoming more casual.
Speaker 2 (34:59):
Yeah, I have more gene in my wardrobe than I've
ever had in like since high school. Like, it's really
kind of wild. Anyway, Bailly and I can got another question.
Speaker 6 (35:05):
I was just gonna ask in terms of geographic expansion,
when you think about China, what's going on with China
and also what products do the Chinese consumers want? Is
it that high end good or is it more of
a bargain purchase.
Speaker 11 (35:19):
Yeah, so China for US is still underpenetrated. China represents
about two or three percent of our business. You know,
our business in China has been slow and soft. The
Chinese consumer right now is going through a bit of
a macro on certain climate but the good news for
(35:42):
us is they love the brand. Brand equity scores are
really solid. We think China can be, you know, a
business that grows double digit over the long term. But
your specific question, the Chinese consumer is fairly discerning on
the brands he or she too. There is a high
end consumer as well as a consumer that the mid
(36:06):
market consumer.
Speaker 12 (36:07):
What we call the co products.
Speaker 11 (36:09):
So if we think about our Asia strategy, we really
you know, our products are relevant for the mid market consumer,
while we also offer products for the higher premium and consumer.
Thirty percent of the Asian denim category is premium and
you know premium. For example, our highest spinnacle product is
(36:31):
largely Japanese you know, fabric, Japanese denim and inspired by Selvision.
So that's what we are selling and I think over
time we'll be able to start growing our China business
back in the load double digit rain.
Speaker 6 (36:49):
Yeah interesting, Steth, I will say, Carol, I know you
mentioned you have more genes than ever. I have been
buying the Sherpa jackets, the denim jackets like crazy.
Speaker 5 (36:56):
I don't know why. I have three of.
Speaker 7 (36:58):
Them in different colors to denim jackets.
Speaker 5 (37:00):
That's what I'm in I'm like, I.
Speaker 6 (37:01):
Don't wear jeans, I wear chinos, but I wear the
denim jackets like crazy.
Speaker 2 (37:05):
I know, I just I don't know. I love it.
I love it. It's like everybody. I work and Baile
jeans every morning.
Speaker 11 (37:10):
Yeah, and Bailey and Carol. Now we've got the blue tab.
It's it's it's a full of jacket. You can definitely
wear two off its depending on the on the on
the uh you know, uh dress environment at Bloomberg. I
walked in here fairly casual, so you know it's something
that we are not bringing to offer. We should make
(37:31):
your wardrobe at some stage.
Speaker 2 (37:33):
Hey, one last question, does it feel like God HAMI
the It's been a crazy year, uh, and a lot
of stuff coming at everybody, investors, the world at large.
Does it feel like things are starting to calm down
on a day when we've talked about what seems like
progress in a ceasefire between Israel and Hamas.
Speaker 11 (37:52):
Yeah, you know, as I mentioned earlier, you know we
have lived through uncertainty.
Speaker 1 (37:59):
You know.
Speaker 11 (37:59):
The good news for us is the category strong. We
have real business momentum, The brand's never been stronger, and
we have a product pipeline that has never been full,
especially as we head towards holiday. You know, our focus
right now is making sure our product is on the
on the floor because of what we have seen, Carol
(38:22):
is consumers gravitate to newness and gravitate toward's relevant. And
you know, and you know, our view is if we
can offer the right product and build a brand experience,
and that's why we've got real focus on our direct
to consumer business while complementing growth with our wholesale business.
(38:43):
So this quarder, you know, both DDC and wholesalevers up.
We had in the US five consecutive quarders of high
growth and it's fueled by both the channels.
Speaker 2 (38:54):
Alright, O, Harmie, when you talk with your design team,
I like high waist buttons, kind of slim through the
legs and then a little flair. I'm just gonna put
it out there, a little stretch in there too. It's
kind of my favorite, my favorite, my favorite, And you're Jeb,
thank you.
Speaker 12 (39:07):
Yeah.
Speaker 11 (39:08):
And I'll take that feedback, Karen, I know, I sincerely
believe feedback is a gift, and getting feedback from consumers
like yourself is something that I'll take upon myself to
feedback to our designers.
Speaker 2 (39:21):
All right, I'm gonna hold you to it. All right,
good stuff, Armie, thank you so much for me, It's saying,
chief financial and Growth officer at Levi Strauss, joining us
from our bureau in San Francisco.
Speaker 1 (39:31):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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(39:52):
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