August 8, 2025 • 25 mins
Watch Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence hosted by Lisa Mateo and Isabelle Lee
-Poonam Goyal, Senior U.S. E-Commerce and Retail Analyst at Bloomberg Intelligence, discusses Under Armour earnings. Under Armour forecasted worse-than-expected sales and profit for the current quarter, stalling a turnaround plan that was taking hold.
-Michael Halen, Bloomberg Intelligence Senior Restaurant and Foodservice Analyst, discusses Wendy’s earnings. Wendy’s Co. cut its full-year sales guidance after posting a bigger-than-expected quarterly decline, highlighting the economic pressures weighing on the chain’s US business.
-Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst, discusses the latest tech news. Meta Platforms Inc. has selected Pacific Investment Management Co. and Blue Owl Capital Inc. to lead a $29 billion financing for its data center expansion in rural Louisiana. Meantime, SoftBank Group Corp. is the buyer of Foxconn Technology Group's electric vehicle plant in Ohio, a move aimed at kick-starting the Japanese company's $500 billion Stargate data center project with OpenAI and Oracle Corp.
-Tom Orlik, Bloomberg Economics Chief Economist, discusses the new book 'The Price of Money: A Guide to the Past, Present and Future of the Natural Rate of Interest.'
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Eastern on Applecarplay and Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (00:23):
Back to earnings under Armour shares. Let's take a look.
They are down eighteen percent. They forecast worse than expected
sales and profit for the current quarter. Here to break
it all down for us, as Poohim Goyle, senior US
e commerce and retail analysts at Bloomberg Intelligence poon em
thanks for coming out this morning. So weren't they just
I'm confused because it wasn't under Armour just starting to
(00:45):
make this turnaround planned.
Speaker 3 (00:47):
Yeah, you know what, We've seen under Armour make several
attempts at a turnaround in the last decade. So this
is another attempt. And they do have the right pillars
in place, you know, focusing on brand equity, forocusing on
full price sales. The issue is that the macro's not cooperating.
We have one hundred million dollar impact on their costs
(01:08):
from tariffs that they're expecting. We're seeing that they want
to push full price in an environment where promotions are
picking up, so that's going to cost them sales net net. Basically,
that means that sales are going to be down mid
to high single digits in the next fiscal quarter, and
North America, which is a clear key region for them,
(01:29):
could be down low double digits. So the turnaround isn't
shaping up like we expected, and I just think it
needs a lot more time right now.
Speaker 4 (01:37):
That is actually what caught my eye to the weak
North America outlook. I think they're forecasting a fourteen percent
to sixteen percent drop in North America sales, which is massive.
So what then, is your view of under Armour's strategy,
especially compared to its peers like Nike or Adidas or
Adidas depending on who you're speaking with.
Speaker 3 (01:55):
Yeah, so I think each of them are pursuing the
strategy in a similar way in that they're focusing on
the profitable channels to drive growth. So when you look
at Adidas, you know they've been doing really well for
the last few years, and it's in part by their
effort to really push innovation and product to the consumer
in the right channels, and really they've done a great
(02:16):
job When it comes to Nike, they're clearly in turnaround mode.
They are moving forward with their turnaround. We are starting
to see signs of you know, things getting better, especially
on their new products. That said, Nike hasn't reported yet.
And Nike too has exposure to Vietnam when it comes
to their production, so they will to be under pressure.
(02:36):
But we don't think that promotions go away completely.
Speaker 2 (02:39):
Right.
Speaker 3 (02:39):
Nike is liquidating a lot of inventory throats direct channel
and the promotions are very high. So when you think
about the customer, they're going to see Nike being discounted
aggressively because they're trying to liquidate inventory, and then you
see under Armour going at full price what our customer
is going to buy, right, it just means that under
Armour isn't going to be able to delay over the
(03:00):
growth that they're expecting to because of the current promotional environment.
Speaker 2 (03:04):
So with that said, I mean, the CEO was talking
and said that they want to focus on strengthening the brand,
positioning right premium products. They came out with this U
a halo footwear you know line, is that the answer
for them?
Speaker 3 (03:17):
The answer is, in part, yes, you need to have
you know what he talked about on the call, which
I think every brand needs to do, is they need
to have a good, better, best positioning within their product lineup.
So yes, you can go ahead and introduce premium product,
but remember under Armour isn't really viewed as a premium
brand like Nike is, right, So you're trying to change
customer perception here, and that doesn't happen overnight, so it'll
(03:39):
take time. I think the value chained that under Our
plays and is still very very important to their brand
and their ability to keep prices low there is going
to be critical. It'll be nice to see what they
do on the premium side, but I don't think they
can hang their hat on that for a turnaround just yet.
Speaker 2 (03:57):
All right, you said it all. Under Armour share still
down nineteen percent. That's Punam Gooyle, senior US e Commerce
and retail analysts Over at Bloomberg Intelligence.
Speaker 1 (04:08):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (04:21):
And welcome back to Bloomberg Intelligence. I'm Lisa Matteo sitting
alongside Isabelle Lee. Paul Sweeney has the day off. All right,
we're going to get back to earnings. Wendy's cut their
full year sales guidance. They posted a bigger than expected
quarterly decline. So what is going on at the burger chain. Well,
let's bring in Michael Hallin. He's Bloomberg Intelligence senior restaurant
and food service analysts joining us live from Princeton. Mike's
(04:46):
thanks for coming in. What can you tell us about Wendy's.
What was the big sticking point for them?
Speaker 5 (04:53):
Oh, listen, the previous management team through a lot of
promotions at the wall and none of them are really stuck.
So you know, the danger of you know, promoting a
lot of different products is twofold.
Speaker 2 (05:10):
You know.
Speaker 5 (05:10):
Number one, it makes the operations suffer, right, So it's
it's harder to execute in the kitchens, it's harder to
execute at the front of the house. Speed of service
ends up slipping, you know, quality of the food could
suffer because it's it's not served hot, right, and then
marketing so consumers get confused, right, Like what we saw
at McDonald's was run two promotions over the quarter, right,
(05:33):
Wendy's ran a handful. So when you're putting what do
you put the marketing dollars behind?
Speaker 6 (05:39):
Right?
Speaker 5 (05:39):
But if you start promoting something for a couple of
weeks and then switch your message, people don't really know
why they're coming to your store, don't have a good
reason to come to your stores. And so that's why
we saw this massive underperformance in the second quarter, about
four hundred basis points versus the rest of quick service restaurants.
Speaker 4 (05:57):
And what is your take on when they's decision to
cut it's twenty twenty five EPs outlook below the prior
range and analyst expectation. Is it more structural weakness like
consumer trends or is it really more one off pressures
and how long do you think those issues might last?
Speaker 5 (06:13):
So this is one off pressures. I mean you saw
McDonald's outperform the market by two hundred basis points, right,
and so this is primarily self inflicted. You know, restaurant
consumers are spending money. They're more discerning, however, right, and
so the chains that are providing a good, consistent experience,
good value for the money, that's where people are spending
(06:34):
their money. They don't want to go out and spend
a lot of money and have a bad night, a
bad lunch, a bad dinner, whatever it is, right, And
so that's why we're seeing this huge bifurcation and there's
a widening gap between winners and losers. And so for Wendys,
when you have bad operations, right, and when you have
bad service, it takes time to regain that customer trust. So,
(06:58):
you know, they got it to pretty terrible SAMSAR sales
here in the US for the rest of the year.
They were down five to six percent in July, which
is a horrific number, you know, way underperforming. The street,
which is over was just about a one and a
half percent increase. So this is going to take time to.
Speaker 2 (07:18):
Fix now, Mike. One of the things you mentioned these promotions, right,
but Wendy's has also done things like expanded their operating hours.
Speaker 4 (07:25):
Right.
Speaker 2 (07:25):
They're making this push for breakfast late night business. I'm
guessing that's not working. I don't think breakfast when I
think Wendy's.
Speaker 5 (07:34):
I don't know, Well, this breakfast has been an issue
for years now since they debuted it right there, and
they debuted breakfast into it, you know, at a time
when breakfast sales have been slipping, and they're slipping even
more this year because it's just an easy meal to skip.
You can grab a bagel and a coffee and easily
make it to lunch, right, And so they've been trying
(07:58):
to gain steam in this daypart, and so they've been
actually spending corporate dollars in addition to the franchise e
dollars to try to expand that day part at a
time when people are pulling back at breakfast and it's
been a disaster for their lunch and their dinner business.
Speaker 4 (08:14):
And Wendy has also reduced his dividends significantly, and it's
CEO is also stepping down. So how do you think
these capital allocation and leadership changes might affect the strategy
moving forward?
Speaker 5 (08:26):
Yeah, Kirk Tanner basically lit this thing on fire and
ran for the exits. It's you know, he made a
lot of management switches, moved a lot of people around
the organization, fired people, brought new people in, you know,
and then left right before things fell apart. Right, And
now they have an interim CEO who said the right
(08:47):
things on the call, right, But he comes from ups
and he's only been in the restaurant industry since December, right,
so there's definitely a void at the top. We would
love to see them find a good, strong restaurant operator
slash marketer to run this business going forward.
Speaker 2 (09:04):
So what's the winning formula for them? What do they
have to do?
Speaker 6 (09:06):
Is it?
Speaker 2 (09:06):
Is it more promotions and more collaborations.
Speaker 5 (09:11):
No, there's too many of those, So they're going to
cut They're going to cut back on them and get
the operations right right. And once you get the operations right,
meaning people go and they have a good experience, speed
of service is on point right, the food gets to
you hot right, you have a good, enjoyable experience. Once
they get that stuff nailed, then they can start pushing
(09:33):
on the marketing right, because you don't want people to
come back to your restaurants and then have another bad experience.
Then you're really going to be up the creek without
a paddle, right, And so that that's what it's going
to be about. It's going to be about nailing the operations.
Then once they're confident in that, then they can start
pressing more, do some more collaborations, whatever, institute more menu items,
(09:56):
and that's what management talked about on the call, they
said they're going to push a lot of the initiatives
they had original only planned for the second half into
twenty twenty six. But you know, it was a crazy call.
I mean they were talking about how a lot of
these initiatives they were just basically pushing out with very
little testing, which is not how you run a restaurant business.
Speaker 2 (10:13):
It's not I remember that Taki's collapse. They just didn't
work out. Thank you Michael Hammon for joining us, the
Bloomberg Intelligence senior Restaurant and food service analyst.
Speaker 1 (10:25):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app, Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (10:39):
There has been a ton of stories in tech and
the news flow is continuing. I want to start with
this first one, Meta picking up Pimko blue out for
a twenty nine billion dollar data center deal. So here
to talk more about it, Man Deep Sink, Bloomberg Intelligence
senior Tech industry analysts, Mandy, thanks for joining us. So
twenty nine billion dollar data center deal. I mean that's
that's pretty big.
Speaker 6 (10:58):
No, it's only if you don't look at their twenty
twenty six CAPEX number, which could be north of one
hundred billion. So look, the numbers are getting bigger and
bigger in the world of AI infrastructure. And for a
company like Meta, which was spending maybe thirty billion dollars
in capex every year and has tripled its capex probably
(11:21):
two one hundred plus next year, they need some external
help when it comes to you know, procuring the land,
getting power twenty four to seven. I mean, at the
end of the day, Meta is an application company that
you know does ads, and they're trying to get in
their own chips as well, but that's not their core competency.
(11:44):
So it makes sense that you know, they're partnering with
these large players on the infrastructure side because it will
turn out to be a supercycle, and you know, the
more partners they have in terms of these AI infrastructure buildouts,
I think it will help them in the long term.
Speaker 4 (12:05):
But is this kind of public private financial structure common
for large tech infrastructures like Meta? Are they pushing into
new ground and what are the benefits of using debt
versus equity?
Speaker 6 (12:15):
Well, I mean now with one hundred billion dollar CAPEX,
it's more than their free cash flow every year. So
up until now, you know, we were in that thirty
to sixty billion dollar range. Metas annual free cash flow
is around seventy billions. So from that perspective, they could
afford to fund it on their own, I mean, because
(12:38):
the scale keeps getting bigger and bigger every year. And look,
others may have the same problem. Microsoft has also talked
about one hundred and twenty billion dollars run rate probably
in twenty twenty six as well. So external financing will
come into play because, as I said, these companies have
the lllms, they have the data, the algorithm, the applications,
(13:04):
but they don't have the expertise in terms of procuring
power twenty four to seven, and you need a lot
more power when it comes to AI scale that everyone
is imagining, you know, twelve months from now, twenty four
months from now. So from that perspective, also external expertise
in terms of procuring land, setting up large clusters, how
(13:26):
to power them, it does make sense that they have
a private partnership there.
Speaker 2 (13:31):
Now, I always hear you're talking about capex, that's so
much je, But when are we going to rese that
point where peop are going to start saying, you know what,
where's my return on investment? Like, I see you're spending
you know this much? But when are people going to
start to turn the question a little bit?
Speaker 6 (13:45):
So I mean, look at how far open ai and
Nthropic have come. Right, So we know with open ai
they are at a twelve billion dollar and we'll run
rate now revenue run rate, and Thropic has five x.
It went from one billion at the start of the
year to five billion dollar rund rate. Look at Microsoft's
cloud growth number. They went to thirty nine percent growth
(14:09):
in Azure, seventeen percent left from AI. So look, you're
not going to see a very clear distinction between what
is the AI contribution. In the case of Microsoft, it's
very clear. But for Meta, they talked about their ads
getting better, and when you look at the growth rates,
(14:30):
Meta grew twenty two percent in the quarter. Compare that
to Snapchat four percent Pinterest and these are companies that
are fifty times smaller in scale than Meta. So the
fact that Meta is growing that fast, they're sort of
proving to everyone that, look, there is an advantage to
owning the infrastructure to investment in AI. And even though
(14:54):
the model is not similar to a Microsoft where they
are renting the cloud capacity and it's an old reredictable
revenue stream meta, I think has a higher bar to
prove in terms of your ROI question. But clearly, I
think the fact that they did so well this earnings
they already have an upper hand when it comes to
(15:15):
digital ads.
Speaker 4 (15:16):
What about when it comes to soft Bank and the
Stargate AI push. What's significance of soft Bank buying the
fox Con plant in Ohio and can you talk about
their bigger ambitions for AI?
Speaker 6 (15:27):
I mean soft Bank also has a big announcement from
earlier in the year, you know, five hundred billion up
to five hundred billion dollars in investment. So all these
companies have to figure out how is it that they're
going to deploy the money. So in the case of
soft Bank, I mean, they either partner with TSMC or
fox Con because they don't assemble their own chips. They
(15:51):
don't do, you know, semiconductor manufacturing, So partnering makes a
ton of sense here in the United States. And that's
where that five hundred billion dollar number you can show
that this is how much I deployed this year, and
it kind of shows your roadmap for the following years
as well, because now that you're investing in one facility,
chances are you'll probably add to that next year and
(16:14):
so on.
Speaker 2 (16:15):
All right, man deep Sing, Always a pleasure. Glad to
have you here in the studio. Bloomberg Intelligence, senior tech
industry analyst on the latest tech announcement.
Speaker 1 (16:24):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business App. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (16:38):
All eyes have been on the Central Bank and interest rates, right,
but there's a new book out. It's taking a look
into how decisions behind the fit, the ECB, etc. They're
constrained by the natural rate of interest. So what exactly
is this? What we're going to do is go to
the expert. Is Tom Orlick, Bloomberg Economists chief ecomomist joins
us from DC. Thanks for joining us, tom So. The
(17:00):
book is called The Price of Money, A Guide to
the past, present and future of the rate Natural rate
of Interest. I got to start by asking you, what
exactly is this, this natural rate of interest?
Speaker 7 (17:12):
So thanks for having me on, Lisa. So the natural
rate of interest, it's kind of a won key concept, right,
but if you're an investor in the treasury market, if
you're an investor in the equity market, if you're an
investor in the real estate market, it's pretty important. The
natural rate of interest is the rate of interest which
(17:34):
balances the supply of saving and the demand for investment
in the economy. And for a long time, from the
nineteen eighties through the twenty tens, it was falling, right.
That's why Larry Summers was talking about secular stagnation. That's
why the US Treasury was borrowing at such low rates
(17:55):
for much of the last decade. The big argument that
we make in our book, a book with essays by
my colleagues at Bloomberg Economics, edited by Stephanie Flanders, Jamie Rush,
and myself, The big argument we make is that the
forces that were dragging interest rates down for much of
(18:16):
the last four decades have now reversed, and we now
have gone from a world where there's too much saving,
not enough investment, and so low interest rates to a
world where there's not enough saving, too much investment, and
so the US Treasury and everybody else is going to
be paying much more to borrow.
Speaker 4 (18:37):
So what are the big forces among demographics, technology, and
geopolitics that you think will drive the natural rate higher
in the coming decade.
Speaker 7 (18:47):
So it's a great question, Isabelle. So let's think about
what was dragging interest rates down. So first of all,
you had too much saving. The baby boomers were working
and saving money for their retirement. China, Saudi Arabia, other
petro states were pumping their savings into the US treasury market.
(19:10):
And then on the investment side, well, governments had their
debt under control, government deficits were low, and growth was weak,
which meant the private sector didn't have a huge incentive
to invest. So for a long time, from the nineteen
eighties to the twenty tens, the pattern was too much saving,
not enough investment, and falling interest rates. In the last decade,
(19:35):
all of those trends have started to reverse. The baby
boomers have retired, so they're not adding to their pensions,
they're spending their pensions down. China, Saudi Arabia, they're not
putting any money in the US treasury market anymore, and
US treasury borrowing has exploded. President Trump inherited a deficit
(19:57):
of six point four percent of GDP in twenty four
and with his One Big Beautiful Bill, threatens to send
that deficit higher. So the pattern is shifted from too
much saving, not enough investment, and falling interest rates to
not enough saving, too much investment and rising interest rates.
(20:21):
Donald Trump wants a new FED chair to cut the
short term policy rate. Even if he does that, we
think these big structural forces are going to keep longer
term borrowing costs elevated in the years ahead.
Speaker 2 (20:35):
Yeah, and you mentioned that, So your book suggests that
it's not going to be that simple to just, you know,
get a new FED chair.
Speaker 7 (20:40):
Correct, Yeah, that's right. So there's there's so much excitement
around the question of who the next FED chair is
going to be. Yesterday we had Stephen Myron, the head
of the Counsel of Economic Advisors, nominated to the FED Board.
There's talk that perhaps Kevin Hassett, the head of the NEEC,
(21:01):
perhaps Kevin Walsh, former member of the FMC, could be
the new FED chair. And the market is betting that
whoever it is is going to move the dial and
start delivering a lower FED policy rate. But guess what,
it's not the FED which has the determining force on
(21:21):
the cost of borrowing across the US economy. It's actually
those bigger dynamics, the balance between saving and investment. And
the big argument we make in our book is that
that balance has shifted, and so it doesn't matter who
the FED chair is, borrowing costs are going to be
structurally higher.
Speaker 4 (21:39):
And you mentioned this earlier that if the cost of
money keep rising, what then should governments, businesses, and individuals
do differently to maybe adapt.
Speaker 7 (21:50):
So let's think about what impact very low borrowing costs
have had in past decades. So first for governments, when
borrowing is cheap, then governments can keep on piling on
debt and it's still sustainable. Think about equity market investors
or property market investors. If you've put money to work
(22:13):
in the US stock market or in US real estate
pretty much anytime over the last four decades, you've made
quite a lot of money. And part of the reason
for that is that interest rates have been low, So
your cost of borrowing to make stock or property investments
has been low. Now, with interest rates rising, all of
(22:33):
those dynamics swing into reverse for the US, the US
Treasury could be facing a world in the years ahead
where the cost of interest payments on their debt is
more than total US spending on the military, on defense,
on the Pentagon. For investors in the stock market or
the equity market, that upward pressure on asset prices from
(22:56):
low interest rates, well, at a minimum, I think we
can say that's not going to be guaranteed going forwards,
and we could well be moving into a world where
structurally higher borrowing costs actually mean downward pressure on stocks,
downward pressure on real estate.
Speaker 2 (23:13):
So, Tom, what can you tell us about You know,
where is the natural rate of injuries? Where is it headed?
Speaker 7 (23:20):
So the focus of our book is on the natural
rate of the ten year horizon. Now we think it's
headed up from a low of below two percent in
the mid twenty tens to around two and a half
percent today, and it's going to continue edging higher in
(23:45):
the months and years ahead. Now, what does that mean
for the ten year treasury the rate, which is probably
the most important one in the whole global financial system. Well,
we think something in the four to five percent range,
something around four point five percent is going to be
the new normal in the years ahead, doesn't mean there
(24:07):
isn't going to be huge variation around that. If the
Fed cuts policy rates, if that becomes the narrative for
the next few months, it's going to impact long term
borrowing costs. But we think the new normal around which
we're going to be fluctuating in the months and years
ahead for the ten year treasury is around four point five.
Speaker 4 (24:27):
Percent and we have less than one minute left. But
you mentioned risks like AI war and climate. Give us
a sense on how exactly those might drive up the
natural rate.
Speaker 7 (24:37):
So maybe we'll just talk about the AI piece of it. So, AI,
if it delivers on its promise, is going to be
a game changer for growth. And if the economy starts
growing faster, well that's going to create all kinds of
investment opportunities. Investment in the data centers to power AI,
(24:58):
investment in re configuration of factories and offices to take
advantage of the new technology. And if investment demand goes up,
well that changes the saving investment balance and that will
be another force which adds pressure for interest rates to
rise higher.
Speaker 2 (25:17):
All right, tom Orlick, thank you so much. Good look
at the book Boomberg Economics, Chief economist here at Bloomberg.
Speaker 1 (25:24):
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (00:23):
Back to earnings under Armour shares. Let's take a look.
They are down eighteen percent. They forecast worse than expected
sales and profit for the current quarter. Here to break
it all down for us, as Poohim Goyle, senior US
e commerce and retail analysts at Bloomberg Intelligence poon em
thanks for coming out this morning. So weren't they just
I'm confused because it wasn't under Armour just starting to
(00:45):
make this turnaround planned.
Speaker 3 (00:47):
Yeah, you know what, We've seen under Armour make several
attempts at a turnaround in the last decade. So this
is another attempt. And they do have the right pillars
in place, you know, focusing on brand equity, forocusing on
full price sales. The issue is that the macro's not cooperating.
We have one hundred million dollar impact on their costs
(01:08):
from tariffs that they're expecting. We're seeing that they want
to push full price in an environment where promotions are
picking up, so that's going to cost them sales net net. Basically,
that means that sales are going to be down mid
to high single digits in the next fiscal quarter, and
North America, which is a clear key region for them,
(01:29):
could be down low double digits. So the turnaround isn't
shaping up like we expected, and I just think it
needs a lot more time right now.
Speaker 4 (01:37):
That is actually what caught my eye to the weak
North America outlook. I think they're forecasting a fourteen percent
to sixteen percent drop in North America sales, which is massive.
So what then, is your view of under Armour's strategy,
especially compared to its peers like Nike or Adidas or
Adidas depending on who you're speaking with.
Speaker 3 (01:55):
Yeah, so I think each of them are pursuing the
strategy in a similar way in that they're focusing on
the profitable channels to drive growth. So when you look
at Adidas, you know they've been doing really well for
the last few years, and it's in part by their
effort to really push innovation and product to the consumer
in the right channels, and really they've done a great
(02:16):
job When it comes to Nike, they're clearly in turnaround mode.
They are moving forward with their turnaround. We are starting
to see signs of you know, things getting better, especially
on their new products. That said, Nike hasn't reported yet.
And Nike too has exposure to Vietnam when it comes
to their production, so they will to be under pressure.
(02:36):
But we don't think that promotions go away completely.
Speaker 2 (02:39):
Right.
Speaker 3 (02:39):
Nike is liquidating a lot of inventory throats direct channel
and the promotions are very high. So when you think
about the customer, they're going to see Nike being discounted
aggressively because they're trying to liquidate inventory, and then you
see under Armour going at full price what our customer
is going to buy, right, it just means that under
Armour isn't going to be able to delay over the
(03:00):
growth that they're expecting to because of the current promotional environment.
Speaker 2 (03:04):
So with that said, I mean, the CEO was talking
and said that they want to focus on strengthening the brand,
positioning right premium products. They came out with this U
a halo footwear you know line, is that the answer
for them?
Speaker 3 (03:17):
The answer is, in part, yes, you need to have
you know what he talked about on the call, which
I think every brand needs to do, is they need
to have a good, better, best positioning within their product lineup.
So yes, you can go ahead and introduce premium product,
but remember under Armour isn't really viewed as a premium
brand like Nike is, right, So you're trying to change
customer perception here, and that doesn't happen overnight, so it'll
(03:39):
take time. I think the value chained that under Our
plays and is still very very important to their brand
and their ability to keep prices low there is going
to be critical. It'll be nice to see what they
do on the premium side, but I don't think they
can hang their hat on that for a turnaround just yet.
Speaker 2 (03:57):
All right, you said it all. Under Armour share still
down nineteen percent. That's Punam Gooyle, senior US e Commerce
and retail analysts Over at Bloomberg Intelligence.
Speaker 1 (04:08):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (04:21):
And welcome back to Bloomberg Intelligence. I'm Lisa Matteo sitting
alongside Isabelle Lee. Paul Sweeney has the day off. All right,
we're going to get back to earnings. Wendy's cut their
full year sales guidance. They posted a bigger than expected
quarterly decline. So what is going on at the burger chain. Well,
let's bring in Michael Hallin. He's Bloomberg Intelligence senior restaurant
and food service analysts joining us live from Princeton. Mike's
(04:46):
thanks for coming in. What can you tell us about Wendy's.
What was the big sticking point for them?
Speaker 5 (04:53):
Oh, listen, the previous management team through a lot of
promotions at the wall and none of them are really stuck.
So you know, the danger of you know, promoting a
lot of different products is twofold.
Speaker 2 (05:10):
You know.
Speaker 5 (05:10):
Number one, it makes the operations suffer, right, So it's
it's harder to execute in the kitchens, it's harder to
execute at the front of the house. Speed of service
ends up slipping, you know, quality of the food could
suffer because it's it's not served hot, right, and then
marketing so consumers get confused, right, Like what we saw
at McDonald's was run two promotions over the quarter, right,
(05:33):
Wendy's ran a handful. So when you're putting what do
you put the marketing dollars behind?
Speaker 6 (05:39):
Right?
Speaker 5 (05:39):
But if you start promoting something for a couple of
weeks and then switch your message, people don't really know
why they're coming to your store, don't have a good
reason to come to your stores. And so that's why
we saw this massive underperformance in the second quarter, about
four hundred basis points versus the rest of quick service restaurants.
Speaker 4 (05:57):
And what is your take on when they's decision to
cut it's twenty twenty five EPs outlook below the prior
range and analyst expectation. Is it more structural weakness like
consumer trends or is it really more one off pressures
and how long do you think those issues might last?
Speaker 5 (06:13):
So this is one off pressures. I mean you saw
McDonald's outperform the market by two hundred basis points, right,
and so this is primarily self inflicted. You know, restaurant
consumers are spending money. They're more discerning, however, right, and
so the chains that are providing a good, consistent experience,
good value for the money, that's where people are spending
(06:34):
their money. They don't want to go out and spend
a lot of money and have a bad night, a
bad lunch, a bad dinner, whatever it is, right, And
so that's why we're seeing this huge bifurcation and there's
a widening gap between winners and losers. And so for Wendys,
when you have bad operations, right, and when you have
bad service, it takes time to regain that customer trust. So,
(06:58):
you know, they got it to pretty terrible SAMSAR sales
here in the US for the rest of the year.
They were down five to six percent in July, which
is a horrific number, you know, way underperforming. The street,
which is over was just about a one and a
half percent increase. So this is going to take time to.
Speaker 2 (07:18):
Fix now, Mike. One of the things you mentioned these promotions, right,
but Wendy's has also done things like expanded their operating hours.
Speaker 4 (07:25):
Right.
Speaker 2 (07:25):
They're making this push for breakfast late night business. I'm
guessing that's not working. I don't think breakfast when I
think Wendy's.
Speaker 5 (07:34):
I don't know, Well, this breakfast has been an issue
for years now since they debuted it right there, and
they debuted breakfast into it, you know, at a time
when breakfast sales have been slipping, and they're slipping even
more this year because it's just an easy meal to skip.
You can grab a bagel and a coffee and easily
make it to lunch, right, And so they've been trying
(07:58):
to gain steam in this daypart, and so they've been
actually spending corporate dollars in addition to the franchise e
dollars to try to expand that day part at a
time when people are pulling back at breakfast and it's
been a disaster for their lunch and their dinner business.
Speaker 4 (08:14):
And Wendy has also reduced his dividends significantly, and it's
CEO is also stepping down. So how do you think
these capital allocation and leadership changes might affect the strategy
moving forward?
Speaker 5 (08:26):
Yeah, Kirk Tanner basically lit this thing on fire and
ran for the exits. It's you know, he made a
lot of management switches, moved a lot of people around
the organization, fired people, brought new people in, you know,
and then left right before things fell apart. Right, And
now they have an interim CEO who said the right
(08:47):
things on the call, right, But he comes from ups
and he's only been in the restaurant industry since December, right,
so there's definitely a void at the top. We would
love to see them find a good, strong restaurant operator
slash marketer to run this business going forward.
Speaker 2 (09:04):
So what's the winning formula for them? What do they
have to do?
Speaker 6 (09:06):
Is it?
Speaker 2 (09:06):
Is it more promotions and more collaborations.
Speaker 5 (09:11):
No, there's too many of those, So they're going to
cut They're going to cut back on them and get
the operations right right. And once you get the operations right,
meaning people go and they have a good experience, speed
of service is on point right, the food gets to
you hot right, you have a good, enjoyable experience. Once
they get that stuff nailed, then they can start pushing
(09:33):
on the marketing right, because you don't want people to
come back to your restaurants and then have another bad experience.
Then you're really going to be up the creek without
a paddle, right, And so that that's what it's going
to be about. It's going to be about nailing the operations.
Then once they're confident in that, then they can start
pressing more, do some more collaborations, whatever, institute more menu items,
(09:56):
and that's what management talked about on the call, they
said they're going to push a lot of the initiatives
they had original only planned for the second half into
twenty twenty six. But you know, it was a crazy call.
I mean they were talking about how a lot of
these initiatives they were just basically pushing out with very
little testing, which is not how you run a restaurant business.
Speaker 2 (10:13):
It's not I remember that Taki's collapse. They just didn't
work out. Thank you Michael Hammon for joining us, the
Bloomberg Intelligence senior Restaurant and food service analyst.
Speaker 1 (10:25):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app, Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (10:39):
There has been a ton of stories in tech and
the news flow is continuing. I want to start with
this first one, Meta picking up Pimko blue out for
a twenty nine billion dollar data center deal. So here
to talk more about it, Man Deep Sink, Bloomberg Intelligence
senior Tech industry analysts, Mandy, thanks for joining us. So
twenty nine billion dollar data center deal. I mean that's
that's pretty big.
Speaker 6 (10:58):
No, it's only if you don't look at their twenty
twenty six CAPEX number, which could be north of one
hundred billion. So look, the numbers are getting bigger and
bigger in the world of AI infrastructure. And for a
company like Meta, which was spending maybe thirty billion dollars
in capex every year and has tripled its capex probably
(11:21):
two one hundred plus next year, they need some external
help when it comes to you know, procuring the land,
getting power twenty four to seven. I mean, at the
end of the day, Meta is an application company that
you know does ads, and they're trying to get in
their own chips as well, but that's not their core competency.
(11:44):
So it makes sense that you know, they're partnering with
these large players on the infrastructure side because it will
turn out to be a supercycle, and you know, the
more partners they have in terms of these AI infrastructure buildouts,
I think it will help them in the long term.
Speaker 4 (12:05):
But is this kind of public private financial structure common
for large tech infrastructures like Meta? Are they pushing into
new ground and what are the benefits of using debt
versus equity?
Speaker 6 (12:15):
Well, I mean now with one hundred billion dollar CAPEX,
it's more than their free cash flow every year. So
up until now, you know, we were in that thirty
to sixty billion dollar range. Metas annual free cash flow
is around seventy billions. So from that perspective, they could
afford to fund it on their own, I mean, because
(12:38):
the scale keeps getting bigger and bigger every year. And look,
others may have the same problem. Microsoft has also talked
about one hundred and twenty billion dollars run rate probably
in twenty twenty six as well. So external financing will
come into play because, as I said, these companies have
the lllms, they have the data, the algorithm, the applications,
(13:04):
but they don't have the expertise in terms of procuring
power twenty four to seven, and you need a lot
more power when it comes to AI scale that everyone
is imagining, you know, twelve months from now, twenty four
months from now. So from that perspective, also external expertise
in terms of procuring land, setting up large clusters, how
(13:26):
to power them, it does make sense that they have
a private partnership there.
Speaker 2 (13:31):
Now, I always hear you're talking about capex, that's so
much je, But when are we going to rese that
point where peop are going to start saying, you know what,
where's my return on investment? Like, I see you're spending
you know this much? But when are people going to
start to turn the question a little bit?
Speaker 6 (13:45):
So I mean, look at how far open ai and
Nthropic have come. Right, So we know with open ai
they are at a twelve billion dollar and we'll run
rate now revenue run rate, and Thropic has five x.
It went from one billion at the start of the
year to five billion dollar rund rate. Look at Microsoft's
cloud growth number. They went to thirty nine percent growth
(14:09):
in Azure, seventeen percent left from AI. So look, you're
not going to see a very clear distinction between what
is the AI contribution. In the case of Microsoft, it's
very clear. But for Meta, they talked about their ads
getting better, and when you look at the growth rates,
(14:30):
Meta grew twenty two percent in the quarter. Compare that
to Snapchat four percent Pinterest and these are companies that
are fifty times smaller in scale than Meta. So the
fact that Meta is growing that fast, they're sort of
proving to everyone that, look, there is an advantage to
owning the infrastructure to investment in AI. And even though
(14:54):
the model is not similar to a Microsoft where they
are renting the cloud capacity and it's an old reredictable
revenue stream meta, I think has a higher bar to
prove in terms of your ROI question. But clearly, I
think the fact that they did so well this earnings
they already have an upper hand when it comes to
(15:15):
digital ads.
Speaker 4 (15:16):
What about when it comes to soft Bank and the
Stargate AI push. What's significance of soft Bank buying the
fox Con plant in Ohio and can you talk about
their bigger ambitions for AI?
Speaker 6 (15:27):
I mean soft Bank also has a big announcement from
earlier in the year, you know, five hundred billion up
to five hundred billion dollars in investment. So all these
companies have to figure out how is it that they're
going to deploy the money. So in the case of
soft Bank, I mean, they either partner with TSMC or
fox Con because they don't assemble their own chips. They
(15:51):
don't do, you know, semiconductor manufacturing, So partnering makes a
ton of sense here in the United States. And that's
where that five hundred billion dollar number you can show
that this is how much I deployed this year, and
it kind of shows your roadmap for the following years
as well, because now that you're investing in one facility,
chances are you'll probably add to that next year and
(16:14):
so on.
Speaker 2 (16:15):
All right, man deep Sing, Always a pleasure. Glad to
have you here in the studio. Bloomberg Intelligence, senior tech
industry analyst on the latest tech announcement.
Speaker 1 (16:24):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business App. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (16:38):
All eyes have been on the Central Bank and interest rates, right,
but there's a new book out. It's taking a look
into how decisions behind the fit, the ECB, etc. They're
constrained by the natural rate of interest. So what exactly
is this? What we're going to do is go to
the expert. Is Tom Orlick, Bloomberg Economists chief ecomomist joins
us from DC. Thanks for joining us, tom So. The
(17:00):
book is called The Price of Money, A Guide to
the past, present and future of the rate Natural rate
of Interest. I got to start by asking you, what
exactly is this, this natural rate of interest?
Speaker 7 (17:12):
So thanks for having me on, Lisa. So the natural
rate of interest, it's kind of a won key concept, right,
but if you're an investor in the treasury market, if
you're an investor in the equity market, if you're an
investor in the real estate market, it's pretty important. The
natural rate of interest is the rate of interest which
(17:34):
balances the supply of saving and the demand for investment
in the economy. And for a long time, from the
nineteen eighties through the twenty tens, it was falling, right.
That's why Larry Summers was talking about secular stagnation. That's
why the US Treasury was borrowing at such low rates
(17:55):
for much of the last decade. The big argument that
we make in our book, a book with essays by
my colleagues at Bloomberg Economics, edited by Stephanie Flanders, Jamie Rush,
and myself, The big argument we make is that the
forces that were dragging interest rates down for much of
(18:16):
the last four decades have now reversed, and we now
have gone from a world where there's too much saving,
not enough investment, and so low interest rates to a
world where there's not enough saving, too much investment, and
so the US Treasury and everybody else is going to
be paying much more to borrow.
Speaker 4 (18:37):
So what are the big forces among demographics, technology, and
geopolitics that you think will drive the natural rate higher
in the coming decade.
Speaker 7 (18:47):
So it's a great question, Isabelle. So let's think about
what was dragging interest rates down. So first of all,
you had too much saving. The baby boomers were working
and saving money for their retirement. China, Saudi Arabia, other
petro states were pumping their savings into the US treasury market.
(19:10):
And then on the investment side, well, governments had their
debt under control, government deficits were low, and growth was weak,
which meant the private sector didn't have a huge incentive
to invest. So for a long time, from the nineteen
eighties to the twenty tens, the pattern was too much saving,
not enough investment, and falling interest rates. In the last decade,
(19:35):
all of those trends have started to reverse. The baby
boomers have retired, so they're not adding to their pensions,
they're spending their pensions down. China, Saudi Arabia, they're not
putting any money in the US treasury market anymore, and
US treasury borrowing has exploded. President Trump inherited a deficit
(19:57):
of six point four percent of GDP in twenty four
and with his One Big Beautiful Bill, threatens to send
that deficit higher. So the pattern is shifted from too
much saving, not enough investment, and falling interest rates to
not enough saving, too much investment and rising interest rates.
(20:21):
Donald Trump wants a new FED chair to cut the
short term policy rate. Even if he does that, we
think these big structural forces are going to keep longer
term borrowing costs elevated in the years ahead.
Speaker 2 (20:35):
Yeah, and you mentioned that, So your book suggests that
it's not going to be that simple to just, you know,
get a new FED chair.
Speaker 7 (20:40):
Correct, Yeah, that's right. So there's there's so much excitement
around the question of who the next FED chair is
going to be. Yesterday we had Stephen Myron, the head
of the Counsel of Economic Advisors, nominated to the FED Board.
There's talk that perhaps Kevin Hassett, the head of the NEEC,
(21:01):
perhaps Kevin Walsh, former member of the FMC, could be
the new FED chair. And the market is betting that
whoever it is is going to move the dial and
start delivering a lower FED policy rate. But guess what,
it's not the FED which has the determining force on
(21:21):
the cost of borrowing across the US economy. It's actually
those bigger dynamics, the balance between saving and investment. And
the big argument we make in our book is that
that balance has shifted, and so it doesn't matter who
the FED chair is, borrowing costs are going to be
structurally higher.
Speaker 4 (21:39):
And you mentioned this earlier that if the cost of
money keep rising, what then should governments, businesses, and individuals
do differently to maybe adapt.
Speaker 7 (21:50):
So let's think about what impact very low borrowing costs
have had in past decades. So first for governments, when
borrowing is cheap, then governments can keep on piling on
debt and it's still sustainable. Think about equity market investors
or property market investors. If you've put money to work
(22:13):
in the US stock market or in US real estate
pretty much anytime over the last four decades, you've made
quite a lot of money. And part of the reason
for that is that interest rates have been low, So
your cost of borrowing to make stock or property investments
has been low. Now, with interest rates rising, all of
(22:33):
those dynamics swing into reverse for the US, the US
Treasury could be facing a world in the years ahead
where the cost of interest payments on their debt is
more than total US spending on the military, on defense,
on the Pentagon. For investors in the stock market or
the equity market, that upward pressure on asset prices from
(22:56):
low interest rates, well, at a minimum, I think we
can say that's not going to be guaranteed going forwards,
and we could well be moving into a world where
structurally higher borrowing costs actually mean downward pressure on stocks,
downward pressure on real estate.
Speaker 2 (23:13):
So, Tom, what can you tell us about You know,
where is the natural rate of injuries? Where is it headed?
Speaker 7 (23:20):
So the focus of our book is on the natural
rate of the ten year horizon. Now we think it's
headed up from a low of below two percent in
the mid twenty tens to around two and a half
percent today, and it's going to continue edging higher in
(23:45):
the months and years ahead. Now, what does that mean
for the ten year treasury the rate, which is probably
the most important one in the whole global financial system. Well,
we think something in the four to five percent range,
something around four point five percent is going to be
the new normal in the years ahead, doesn't mean there
(24:07):
isn't going to be huge variation around that. If the
Fed cuts policy rates, if that becomes the narrative for
the next few months, it's going to impact long term
borrowing costs. But we think the new normal around which
we're going to be fluctuating in the months and years
ahead for the ten year treasury is around four point five.
Speaker 4 (24:27):
Percent and we have less than one minute left. But
you mentioned risks like AI war and climate. Give us
a sense on how exactly those might drive up the
natural rate.
Speaker 7 (24:37):
So maybe we'll just talk about the AI piece of it. So, AI,
if it delivers on its promise, is going to be
a game changer for growth. And if the economy starts
growing faster, well that's going to create all kinds of
investment opportunities. Investment in the data centers to power AI,
(24:58):
investment in re configuration of factories and offices to take
advantage of the new technology. And if investment demand goes up,
well that changes the saving investment balance and that will
be another force which adds pressure for interest rates to
rise higher.
Speaker 2 (25:17):
All right, tom Orlick, thank you so much. Good look
at the book Boomberg Economics, Chief economist here at Bloomberg.
Speaker 1 (25:24):
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
ten am to noon Eastern on Bloomberg dot com, the
iHeartRadio app tune In, and the Bloomberg Business app. You
can also watch us live every weekday on YouTube and
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