AI Trade Worries, Oil & Treasury Yields Pressure Markets

>> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS "THE CLOSE." ROMAINE: THERE IS THE PAYOFF FROM THE AI TRADE AND THE DECISION AS TO WHETHER IT IS ENOUGH. LIVE FROM STUDIO 2, I'M ROMAINE BOSTICK. >> AND I'M JUST MINTON. LOOKING AT THE S&P 500 DOWN 0.6%. TODAY COULD BE THE 50TH STRAIGHT SESSION TREASURY YIELDS A LITTLE BIT LOWER COMING OFF THE MULTIYEAR HIGHS. LOOKING AT BRENT FUTURES UP ABOUT 4% ON IRAN POTENTIAL ATTACK CLAIMS IN ENERGY STOCKS HIGHER ON THE BACK WITH BRENT PRICES HIGHER. OVER MIDDLE EAST TENSIONS AND THOSE CONCERNS ABOUT HURRICANE APPROACHING FLORIDA. SOME OF THOSE INSURERS AND STOCKS MOVING. ROMAINE: I WANT TO GO BACK TO THE NASDAQ DOWN MORE ON THE DAY. THE STORY ABOUT OPENAI'S ANNUALIZED REVENUE RUNNING ABOUT 30% LESS IN THE $70 BILLION NUMBER BANDIED ABOUT. THAT TOOK A LITTLE BIT OF WIND OUT OF THE SALES FOR THE MARKET IN THE SPIKED LOWER WE SAW IN THE NASDAQ 100. YOU ALREADY HAVE GOVERNMENTS OUT WEST CONTINUING TO CRACK DOWN EVEN MORE ON DATA CENTERS. YOU HAD THE IPO FALTER. YOU HAD A RECORD-BREAKING SAMSUNG AND A PROMPTED A LOT OF NAVELGAZING ABOUT WHETHER WE HAVE SEEN THE PEAK IN THIS TRADE. THE RISE IN ENERGY PRICES CORRELATED TO THE EQUITY/BUT KEEP AN EYE ON OF THE DOLLAR. THE DOLLAR SPOT INDEX COMING AWAY FROM ITS 52-WEEK HIGH. THE GROWTH STORY IS HOLDING UP BUT IT MEANS THE INTEREST RATES COULD POINT HIGHER. >> IF THE ECONOMIC DATA CONTINUES TO COME IN AS EXPECTED I EXPECT ADDITIONAL HIKES TO SUPPORT IT TIMELY RETURNED TO INFLATION TO OUR 2% GOAL. THERE IS FLEXIBILITY ABOUT WHEN THOSE HIKES WILL OCCUR. THE HIKES DO NOT EAT -- NEED TO COME AT CONSECUTIVE MEETINGS, BUT THEY SHOULD BE PLACED IN AN ACCEPTABLE PERIOD OF TIME. ROMAINE: OF COURSE THE DOMINANT DRIVER AND CURRENCIES AS OF LATE HAS BEEN THE BOND MARKET CONTINUING TO TEST THE RIGHT PRICE TO BRING BUYERS BACK. INVESTORS CERTAINLY WILLING TO STEP IN. RICK RIEDER SAYS CLICK THE COUPON AND BE HAPPY WHILE MORGAN STANLEY, THEY ARE DOING THE MATH MAKING THE CASE FOR GREATER UPSIDE PRICE RELATIVE TO THE FURTHER DOWNSIDE RISK. WE GIFT -- KICK YOU OFF TO THE CLOSE WITH THAT DISCUSSION. NEIL SUTHERLAND JOINS US TO GIVE US A VIEW OF FIXED INCOME OVER AT SCHROEDER'S. I WANT TO START OFF ON THE FED ISSUE AND THE IDEA OF WHAT IS BEING PRICED IN WITH REGARD TO INTEREST RATES. DO YOU THINK THE MARKET RIGHT NOW IS BEING A LITTLE BIT TOO AGGRESSIVE IN PRICING AND FOR THE RATE HIKES? >> I BELIEVE SO. INCLUDING LAST MONTH'S HIKE WE HAVE CLOSE TO ANOTHER FOUR. I THINK MAYBE THEY GET THREE OFF AND ONE THING TO BE CLEAR, THIS IS NOT 2022. THIS IS NOT GOING FROM ZERO TO NORTH OF 5%. ROMAINE: IT GETS TO THIS IDEA THAT IF WE DO BELIEVE THAT, DO YOU ADD DURATION IN THIS ENVIRONMENT AND DO YOU TAKE A LOOK AT 5.6%, 5.7% AND SAY TO YOURSELF ON A PRICE BASIS, IS THIS A GOOD ENTRY POINT? NEIL: I THINK SO. IF YOU ARE LOOKING AT A 3, 6, 12 MONTH BASIS YOU WILL BE WELL REWARDED. ROMAINE: LONG-DURATION? NEIL: IT IS A LITTLE BIT TRICKIER. WE ARE A LITTLE BIT MORE COMFORTABLE WITH FIVE AND 10 YEAR. I THINK YOU ARE VERY WELL REWARDED FOR THAT. JESS: HAVE YIELDS PEAKED YET? NEIL: I CAN'T TELL YOU EVEN ANNOY TO MONTH BASIS BUT I DO THINK YIELDS WILL BE LOWER 6-12 MONTHS OUT SO WE REMAIN PRETTY CORRELATED WITH ENERGY IN THE SHORT TERM BUT ON ANY MEDIUM-TERM BASIS I THINK WE ARE CLOSER TO THE PEAK. JESS: WHAT ABOUT OIL AND FISCAL CONCERNS THAT REMAIN UNRESOLVED? NEIL: THAT IS ONE THING WEIGHING ONE OF THE MARKET AND PEOPLE ARE PRICING THAT OUT IN PURPOSE BE HAVE TO ASK THIS TIME NEXT YEAR'S ENERGY STILL GOING TO BE NORTH OF 100? THAT ALSO HELPS IN OF THE FISCAL SIDE AS WE MOVE FORWARD. ROMAINE: WHEN WE TALK ABOUT THE FIXED INCOME MARKET AND LET'S TAKE SOVEREIGN DEBT FOR RIGHT NOW, WHO IS THE MARGINAL BUYER RIGHT NOW? I TOOK A LOOK AT THE TWO OPTIONS AND YOU SAW THE INDIRECT BIDDERS BACK AND PLAY RELATIVE TO THE DEALERS WHICH IS A FLIP FROM WHAT WE HAVE SEEN IN SOME OF THE OPTIONS WE SAW A FEW WEEKS AGO. WHAT IS CHANGING, WHO IS THAT MARGINAL BUYER? NEIL: I THINK YOU HAVE CHANGED A GOOD AMOUNT. YOU HAVE GONE FROM PRICE INSENSITIVE BUYERS TO PRICE-SENSITIVE BUYERS AND A LOT OF THAT IS RETAIL. WHEN YOU ARE TOUCHING INVESTMENT GRADE BONDS, IT DOES COMPARE WELL TO ASSET CLASSES. IT IS A REAL VIABLE ALTERNATIVE. ROMAINE: IS YIELD ACTUAL VALUE AS WELL? NEIL: IT IS STILL NOT GOING TO TELL YOU A TIMING MECHANISM. IT DOES TELL YOU A LOT ABOUT YOUR MARGIN FOR ERROR. WE HAVE NOT BEEN IN THAT SITUATION SINCE PRE-DOTCOM WHAT YOUR MARGIN FOR ERROR IS MUCH LOWER THAN IT WAS. JESS: WE HAVE HAD THE EQUITY RISK PREMIUM HOVERING AROUND THOSE LOWS FOR A WHILE NOW SO WHAT DOES IT TAKE TO BREAK THAT DYNAMIC? YOU HAVE HAD THE EQUITY MARKET FOR INSTANCE, KEEP RUNNING DESPITE THAT NOISE. NEIL: IT IS EARNINGS. IS IT A STRUCTURAL PHENOMENON? YOU NEED AND MODERATION IN EARNINGS. PEOPLE FOCUS ON THAT A LITTLE BIT MORE. JESS: WHAT IS THE BIGGEST RISK TO FINANCIAL MARKETS OVERALL? NEIL: IN THE SHORT TERM FOR SURE, IF YOU LOOK AT BOND YIELDS AND ENERGY PRICES IT IS EXTREMELY HIGH, IT IS UNUSUALLY HIGH. AN ESCALATION IN ENERGY PRICES SHORT-TERM REMAINS THE BIGGEST RISK. ROMAINE: WHETHER HERE OR WHAT IS GOING ON IN EUROPE RIGHT NOW, ALL THESE YEARS THAT SHOULD BE PAYING ATTENTION TO FISCAL DEFICITS AND EVERYBODY SAID, THAT IS TOMORROW'S PROBLEM AND NOW THERE SEEMS TO BE THIS SENSE AMONG THE CERTAIN CORE OF THE MARKET THAT TOMORROW HAS ARRIVED AND NOT A LOT OF PEOPLE ARE WILLING TO EMBRACE LONGER TERM. WE HAVE SEEN INSURERS PULL BACK FROM SOME OF THIS ISSUE AS WELL. DO THINK THIS IS THE START OF A TRUE RECKONING WITH REGARD TO THE LACK OF THE FISCAL DISCIPLINE OUT THERE? AND AT SOME POINT RATES RESET AT A LEVEL THAT KEEPS EVERYBODY SATIATED? NEIL: I TO GET APPENDS ON THE POLITICAL APPETITE. IN WASHINGTON THERE DOESN'T SEEM TO BE APPETITE TO ADDRESS IT. DIVIDED GOVERNMENT, THAT COULD HELP AT THE MARGIN. IF YOU HAVE 6% NOMINAL GROWTH, YOU COULD ADDRESS FISCAL CONCERNS OVER THE LONGER TERM. JESS: YOU SEE THE VOLATILITY OF THE BOND MARKET PICKUP. WENDY THINK THAT -- WHEN DO YOU THINK THE DYNAMIC SHIFTS? NEIL: IF YOU LOOK AT THE BREADTH AND THE EQUITY MARKET, THAT IS NOT PARTICULARLY HEALTHY. A LOT OF THE HEAVY LIFTING IN EARNINGS IS BEING DONE BY A DIMINISHING AMOUNT OF STOCKS. I THINK 50% OF THE STOCK MARKET IS 20% OF THE HIGHS, THAT IS SOMETHING TO BE AWARE OF, THE NARROWNESS IN THE MARKET RIGHT NOW. ROMAINE: NEIL, GREAT TO HAVE YOU HERE ON THE MARKET. NEIL SUTHERLAND, HEAD OF FIXED INCOME AT SCHROEDER'S. YIELDS DOWN LOWER AS WELL. OIL PRICES ELEVATED AND SO IS THE DOLLAR. WHEN WE COME BACK A LITTLE BIT LATER IN THE SHOW, WE ARE GOING TO TALK RETAIL, PARTICULARLY WE ARE GOING TO TALK THE OUTDOORS. WE WILL CATCH UP WITH STUART HASELDEN ABOUT HOW HIS COMPANY IS TRYING TO PRESERVE THEIR AUTHENTICITY. JESS: WE WILL BE JOINED BY THE TRUE RELIGION CEO MICHAEL BUCKLEY ABOUT HOW THE BRAND IS NAVIGATING CHALLENGES TO CONSUMER SPENDING. ROMAINE: NOBODY WANTS A DATA CENTER IN THEIR BACKYARD, BUT WHAT ABOUT IN SPACE? CO-FOUNDER AT ROBINHOOD HAS A NEW VENTURE CALLED COWBOY SPACE AND THEY ARE TRYING TO TEST THAT THEORY NOW. IT IS ALREADY OUT THERE AND WE WILL CATCH UP WITH HIM LATER IN THE PROGRAM. THIS IS "THE CLOSE" ON BLOOMBERG. ♪ ROMAINE: KEEPING AN EYE ON SHARES OF APPLIED DIGITAL ON THE BACK OF ITS EARNINGS REPORT YESTERDAY. FIRST QUARTER REVENUES UP MORE THAN 320% FROM LAST YEAR BUT SOME QUESTIONS ABOUT THE LONGER-TERM GROWTH. THE CEO ON THE CONFERENCE CALL SAID THAT AI DEMAND REMAINS EXTREMELY ROBUST RIGHT NOW. I'M PLEASED TO SAY HE JOINS US RIGHT NOW, THE FOUNDER AND CEO OF APPLIED DIGITAL. WE HAVE BEEN TALKING A LOT ABOUT HOW AI ISN'T JUST AN INFRASTRUCTURE STORY, IT IS A FINANCING STORY. YOU TALKED ABOUT THIS IDEA ABOUT HOW YOU ARE MOVING TO EXECUTING. I WANT TO TALK TO ABOUT THE MISMATCH BETWEEN THE 36 BILLION DOLLARS YOU HAVE CONTRACTED RIGHT NOW. WHEN DOES THE GAP START TO CLOSE? WES: THANKS FOR HAVING ME, THAT GUESS -- GAP STARTS TO CLOSE, EVERYTHING WE HAVE CONTRACTED WILL BE ONLINE. IF YOU TAKE A LOOK AT THE RESULTS LAST NIGHT. THAT DOESN'T INCLUDE THE RESULTS FROM THE 250 MEGAWATTS, YOU SEE THAT IN THE FORWARD NUMBERS. THERE ARE BIG STAIR STEPS AND REVENUE AS WE JOURNEY 20 THESE BUILDING A DATA HALLS ONLINE FOR OUR CUSTOMERS, BUT WE HAVE DELIVERED 250 MEGAWATTS OVER THE LAST 12 MONTHS AND EXPECT TO DELIVER DOUBLE THAT OVER THE NEXT 12 MONTHS AND FOR THAT TRAJECTORY TO CONTINUE TO INCREASE SO WHEN YOU LOOK OUT 22 MONTHS FROM NOW WE WILL HAVE ALL OF THAT ONLINE AND WHEN YOU TAKE VERY SIMPLY THAT IS THE AVERAGE, THAT IS THE ANNUAL REVENUE RUN RATE. ROMAINE: WE TALK ABOUT THE PHENOMENAL GROWTH RATE WE HAVE SEEN IN REVENUE BUT I DO HAVE TO ASK YOU ABOUT THIS IDEA OF HOW MUCH OF THAT ENDS UP BEING RECURRING? A BIG CHUNK OF THAT REVENUE CAME FROM THE BUILDOUT ITSELF WHICH I WOULD ASSUME IS A ONE-OFF. WHAT IS THE RETURN TO MAKE SURE THERE IS A STEADY STREAM COMING IN? WES: WHEN WE TALK ABOUT $36 BILLION IN WE TALK ABOUT THAT OVER 15 YEARS, THAT IS ONLY THE RECURRING REVENUE PORTION. WITH THE CONTRACTS COME THE TF OH AND THAT IS SOME OF OUR REVENUE RIGHT NOW. THAT IS PART OF THE REVENUE WE REPORTED LAST NIGHT THAT WILL BECOME A THE $36 BILLION DOES NOT INCLUDE THE SHORT-TERM TENTATIVE REVENUE. IT IS THE OUTGOING CONTINUE IT'D -- CONTINUING LEASE REVENUE . JESS: HOW YOU END UP TURNING A PROFIT EVEN THOUGH YOU'RE SEEING BRIGHT SPOTS IN REVENUE NOW. WES: YOU ARE SEEING OUR NUMBERS INCREASED DRAMATICALLY BECAUSE OF OUR LEASE MARGINS, $36 BILLION OVER 15 YEARS. THAT IS 85%-90% MARGIN REVENUE. WE HAVE DONE THE MATH ON OUR LEASES VERSUS OUR BUILD COST. WE ARE GETTING UNLEVERED YIELDS THAT ARE LOW DOUBLE DIGITS FOR OUR SITES AND WE SEE PRICING ON THOSE GO UP. WHEN YOU ARE LOOKING AT WHAT IS EFFECTIVELY REAL ESTATE DEVELOPMENT WE WILL TAKE OUR COST TO CAPITAL AND THE YIELD AND THE SPREAD IN BETWEEN THOSE TWO. THE LAST 12 MONTHS WE HAVE DRIVEN OUR COST OF CAPITAL DOWN SIGNIFICANTLY SEEING UPWARD PRICING ON OUR LEASING PRICES. WE SHOULD EXPECT THE SPREAD OF HER TIME TO WIDEN. WE HAVE A PRETTY LOCKED IN PROFIT ON OUR BUSINESS AND THESE PRODUCTS. WHEN WE SIGNED THE CONTRACT, WE HAVE A GOOD LOCKED IN AMOUNT OF WHAT IT COSTS US TO BUILD. THERE CAN BE SMALL OVERRUNS. WE HAVE EXPERIENCED LOW-BUDGET FROM WHAT WE ESTIMATED AND THAT SHOULD IMPROVE SOMEWHAT. >> WE HAVE TALKED ABOUT DATACENTER DEBT CONCERNS WITH COMPANIES TIED TO AI. HOW DO YOU VIEW THAT? HOW COULD THAT POTENTIALLY SHAPE UP GIVEN THE DIVINE -- IN THE DYNAMIC WE HAVE SEEN IN YIELDS IN RECENT WEEKS? WES: WE HAVE BEEN FOCUSED OVER THE PAST YEAR. IT IS VERY PUBLIC OUR FIRST CUSTOMER IS COREWEAVE. SINCE WE SIGNED, CUSTOMERS HAVE BEEN FOCUSED ON INVESTMENT GRADE OFF TAKES AND WHAT WE CALL PIER 1 HYPERSCALE OFF TAKES FOR HOURS. THAT IS BY FAR OUR LARGEST COMPONENT. THE WAY WE DEAL WITH IT OVERTIME IS REALLY HIGH INVESTMENT GRADE CUSTOMERS BECOME THE MAJORITY OF OUR BUSINESS. THAT HAS ALREADY HAPPENED. WE CONTINUE TO DIVERSIFY THE CUSTOMER SETE AMONG HIGH INVESTMENT GRADE CUSTOMERS. YOU ARE RIGHT. FINANCING HAS BECOME MORE DIFFICULT. WHAT MAKES OUR FINANCING A MUCH EASIER PATH COMPARED TO OTHER TYPES OF PROJECTS IN THE MARKET, THE MIDDLE OF JUNE, IT HAS BECOME MUCH MORE DIFFICULT TO FINANCE THESE TYPES OF PROJECTS AND I AM HAPPY WE HAVE THE KINDS OF CUSTOMERS WE DO. ROMAINE: ON THE TYPES OF CUSTOMERS, AND IT GOES BACK TO THE BACKLOG. POLARIS FORGE ONE, FORGE TWO, IF I AM RIGHT. I DON'T THINK YOU NAME TO THAT CUSTOMER IS. THE IDEA THAT THEY ARE ALSO STILL LINKED TO THE SAME UNIVERSE OF HYPERSCALERS. IS THERE CONCENTRATION RISK OR DIVERSIFICATION OF BACKLOG BEYOND POLARIS, THE UNNAMED HYPERSCALER, AND WHOEVER ELSE IS OUT THERE? WES: WE HAVE TWO CUSTOMERS THAT ARE INVESTMENT GRADE CUSTOMERS. WITH US, FROM A RISK PERSPECTIVE AND WHERE THE OPPORTUNITY LIES, THE UNIVERSE OF CUSTOMERS AND CONTRACTS WE WANT ON THE OTHER SIGHTINGS VERY SMALL. FIVE OR SIX COMPANIES WE WANT THAT WE HAVE CAPTURED TWO OF THOSE AND WE PLAN TO CAPTURE MORE. THAT DIVERSIFICATION BEYOND THAT INCREASES RISK RATHER THAN LOWERS IT, A LITTLE BIT OF A LITTLE BIT OF THE NECK -- AN OXYMORON. IT'S TIED TO THE CREDIT RATING. WHEN I THINK ABOUT THIS, FOR US, FOR OUR COMPANY, WE WANT COMPANIES THAT ARE JUST COMPLETELY TIED TO AI. WHEN YOU LOOK AT GOOGLE, MICROSOFT, AND MIDDLE -- META AND AMAZON, IN THE GROUP OF CUSTOMERS WHERE THEY HAVE HUGE BUSINESS OUTSIDE AI. AI DRIVES UPSIDE. IT PROVIDES A LOT OF PROTECTION FROM OUR LEASES AND THE GUARANTEED THEY SERVE -- NATURE WITH THOSE TYPES OF COMPANIES THAT AREN'T JUST INDUSTRY. ROMAINE: GREAT TO TALK TO YOU. MEANWHILE, WE WANT TO CHECK IN ON SHARES OF LOFT TODAY. NEXT ON THE CLOSE ON BLOOMBERG. ROMAINE: BIG MOVERS. PALANTIR HAS AN UPGRADE FROM GOLDMAN FROM BAIDU NEUTRAL. ANALYSTS SAYING PALANTIR'S TOTAL ADDRESSABLE MARKET MIGHT BE UNDER APPRECIATED. THOSE SHARES OUT FOR A FOURTH STRAIGHT DAY. STARTING COVERAGE OVER RATE -- OVERWEIGHT WITH A THREE THERE ARE THREE PRICE TARGET. THE MAKER OF POWER GENERATION EQUIPMENT DESPITE OPPORTUNITIES SET OUT GOING FORWARD. THOSE SHARES CAME IN DECENT ON THE DAY. CAVA TO BUY AFTER THE STOCK WAS COMPOUNDED BY TRANSIENT INDUSTRY FOOD SAFETY OVERHANG. ANALYSTS RAISING THE PRICE TARGET OF $95 SAYING, EXPANSION PLANS SHOULD BOLSTER THE STOCK FURTHER. PEPSI UP MORE THAN 3%, HEADING FOR ITS BEST DAY GOING BACK TO MID JULY. THE COMPANY REVENUE DECLINED IN ITS FOOD AND BEVERAGE SEGMENTS IN NORTH AMERICA. THE CEO SAYING THEY DON'T FEEL GOOD ABOUT THE BEVERAGE BUSINESS. U.S. EQUITY RESEARCH ANALYST AT BARCLAYS, LET'S TALK ABOUT THE REPORT. WE CAN LOOK AT THE NUMBERS AND SAY IT IS SOMEWHAT DOUR. WHEN WE LOOK AT A PRICE REACTION IN THE MARKET, IS THERE OPTIMISM AMONG INVESTORS OR ANALYSTS, LIKE YOU? WORKS -- LAUREN: OPTIMISM HAS BEEN GOING A BIT FAR. THE BIGGEST CHANGE TODAY ON THE CALL, MORE SO THAN THE BUSINESS RESULTS THEMSELVES WAS THE COMMENTARY THAT SUGGESTED MORE OF AN ADMISSION THAT STATUS QUO IS NOT WORKING AND SOMETHING NEEDS TO CHANGE. THAT IS THE BIG SURPRISE TODAY. AS FOR WHETHER OR NOT THEY WOULD LOWER EXPECTATIONS FOR THE YEAR, THAT WAS WIDELY EXPECTED. >> YOU WERE TALKING ABOUT YEAR TO DATE. IS DOWN FOR PEPSICO 11%? WHEN YOU LOOK AT THE RIVAL, COCA-COLA, THE STOCK IS OVER 25%, ON PACE FOR THE BEST YEAR SINCE 2009. TALK ABOUT THE TWO DIFFERENT STORIES AND WHY IT IS HURTING PEPSICO MORE THAN COCA-COLA. LAUREN: ONE THING WE HAVE TALKED ABOUT ON THE SHOW IS HOW MUCH OF PEPSICO IS A FOOD BUSINESS. BROADLY SPEAKING, PACKAGED FOOD, PUBLICLY TRADED STOCKS HAVE BEEN UNDER A LOT OF PRESSURE WITH QUESTIONS IN THE INDUSTRY ABOUT HOW CONSUMERS ARE SNACKING, WHETHER THEY ARE SNACKING AT ALL, AND HOW FOOD HABITS ARE CHANGING. PEPSI HAS BEEN IN THE CROSSHAIRS OF THAT. INVESTORS ARE THINKING, THIS IS A U.S. FOOD BUSINESS THAT IS STRUCTURALLY VERY CHALLENGED. POPE BRAND EQUITY IS THE STRONGEST IT HAS EVER BEEN, SOMETHING ELSE WE HAVE TALKED ABOUT ON THE SHOW TOGETHER BEFORE. PEPSI'S BRAND EQUITY IS STRICT -- SHRINKING. DR. PEPPER IS THE BIGGEST BRANDED -- BIGGER BRAND TODAY IN THE U.S. THAN PEPSI. FUNDAMENTAL PERFORMANCE HAS BEEN VASTLY DIFFERENT BETWEEN THE TWO. ROMAINE: ON THE FOOD SIDE -- AND IT IS A GOOD POINT. I THOUGHT WE WERE SEEING SOME IMPROVEMENT IN THE SNACKS BUSINESS AND YESTERDAY THEY SEEMED TO ARTICULATE ON THE CALL THAT THEY WERE SEEING MOMENTUM, INCREASED MOMENTUM THERE. >> YOU ARE RIGHT. THERE ARE GREEN SHOOTS IN THE U.S. FOOD BUSINESS. LET'S FOCUS ON FRITO-LAY. I WOULD SAY THE GREEN SHOOTS ARE SHORTER AND LIGHTER THAN THEY HAD HOPED. THEY TALK ABOUT BUSINESS VOLUME BEING UP 1.5% OR LOW SINGLE DIGITS VERSUS TRENDING DOWN. LOW SINGLE DIGITS ONE YEAR AGO. NO DOUBT, THAT IS PROGRESS. THE PROBLEM IS PRICING IS STILL DOWN. THE REAL TEST OF WHETHER THIS STICKS WILL BE WHEN WE ANNIVERSARY THE PRICE ADJUSTMENTS THEY HAVE MADE GOING BACK NINE MONTHS OR SO. THE OTHER PIECE OF IT IS THAT THE QUICKER FOODS BUSINESS AND, I GUESS, CANADA OR DOWN SIGNIFICANTLY TO MAKE AN IMPACT WITH WHAT WE ARE STARTING TO SEE IN FRITO. ROMAINE: ARE THE PRICING POWER ISSUES NOW SPECIFIC TO PEPSI OR IS THIS BROADER? LAUREN: PRICING IS HUGE ACROSS MYSPACE AS WE LOOKED AT 2027. INFLATION PRESSURES ARE REAL. EVERYBODY KNOWS ABOUT OIL. I HAVE ALSO TALKED A LOT ABOUT DIESEL, OVERALL TRANSPORTATION COSTS, AND OTHER THINGS THAT ARE NOT MARKET TRADED COMMODITIES. THERE IS INFLATION EVERYWHERE. THERE WILL BE PRICING ACROSS THE SPACE GOING TO NEXT YEAR. I THINK IT WILL BE AS LOW AS THEY CAN MANAGE BECAUSE EVERYBODY IS WORRIED ABOUT HOW THE CONSUMER WILL REACT. ROMAINE: LAUREN LIEBERMAN, U.S. EQUITY RESEARCH ANALYST. WHEN WE COME BACK, WE SHIFT GEARS AND TALK TO A LEGEND ON WALL STREET, ONE OF AMOUNT -- AMERICA'S LEADING WOMEN-OWNED INVESTMENT BANKS IS CELEBRATING 30 YEARS. ROMAINE: WELCOME BACK. 30 YEARS AGO THIS MONTH SUZANNE SHANK AND COMPANY COFOUNDED THE INVESTMENT COMPANY THAT WOULD BECOME SIEBERT WILLIAMS SHANK. ALMOST $7 TRILLION OF FINANCING LATER, THE MARKET SHE MENTORED GRIMES WITH THE ONE -- RHYMES WITH THE ONE WE ARE SEEING TODAY. A NEW TECHNOLOGY CYCLE WAS UNDERWAY WITH THE INTERNET AND TELECOMMUNICATIONS. THE CAPITAL MARKET FAITH A LOT OF THE -- OF THE SAME FUNDAMENTAL CHALLENGES. SUZANNE SHANK JOINS US NOW. BEFORE WE GET TO THE NITTY-GRITTY OF WHAT IS GOING CO-EDITOR THE MARKET, I WANT TO ASK YOU ABOUT THE EVOLUTION OF THE FIRM FOR THESE 30 YEARS. THERE IS A LOT OF DIFFERENCES TO 1996 AND PARALLELS TO WHAT WE ARE SEEING TODAY. HIS EAR DROPPED THE SAME? WORKS KNOW, MY JOB IS VERY DIFFERENT. THE FIRM IS VERY DIFFERENT. WHEN WE STARTED OCTOBER 1, 1996, WE WERE PURELY IN THE MUNICIPAL BOND UNDERWRITING SPACE. I WAS JUST HOPING TO GROW IN THE RANKINGS AND BECOME A TOP PLAYER. TODAY, THE FIRM HAS GROWN DRAMATICALLY. THE BRATS -- BREADTH OF THE FIRM IT'S WE ARE VERY ACTIVE IN CORPORATE AND CAPITAL MARKETS. WE DO SHARE BUYBACKS. WE ARE VERY ENTRENCHED IN MUNICIPALS -- MUNICIPAL. WE HAVE BEEN ABLE TO EXPAND THROUGH GROWTH MERGERS AND ACQUISITIONS OVER THE YEARS AND STILL BE A MAJOR PLAYER ON THE CAPITAL MARKETS ON A WEEKLY BASIS. ROMAINE: IT IS INTERESTING TALKING TO PEOPLE WHO HAVE BEEN THROUGH PAST CYCLES. THE INTEREST RATE CYCLE WAS WORSE THAN TODAY. IT'S A LITTLE DIFFERENT. IT'S NOT JUST ABOUT ACCESS TO CAPITAL. THAT WAS MORE OF AN ISSUE IN 1996. THE CAPITAL IS THERE. I AM WONDERING HOW YOU APPROACH THAT? SUZANNE: ISSUERS, MUNICIPAL AND CORPORATE GET USE TO EXTREMELY LOW INTEREST RATES. WE SAW THAT DURING THE PANDEMIC AND THE GREAT RECESSION. WHEN I STARTED THE FIRM, RATES WERE MUCH HIGHER THAN TODAY. MY YOUNGER EMPLOYEES HAVE NEVER SEEN RATES AT THIS LEVEL. ISSUERS ARE NOT USED TO THESE LEVELS. WE HAVE TO GET COMFORTABLE WITH WHERE WE ARE TODAY WITH INTEREST RATES. IT LOOKS LIKE WE WILL BE HERE A MINUTE. ISSUERS ARE TRYING TO FIGURE OUT THAT THEY MIGHT NOT BE ABLE TO REFINANCE AS MUCH DEBT AS THEY HOPED. MARKETS ARE OPEN. INVESTORS ARE WILLING TO INVEST. THE MARKET IS VERY RESILIENT, AS YOU KNOW. WHAT WE WERE NOT SEEING IS USUALLY WHEN THERE IS A WAR, THERE IS A CRISIS IN THE MARKETS. RATES TRENDED LOWER. GIVEN THE INFLATIONARY ENVIRONMENT WE HAVE TODAY, WE ARE NOT SEEING THAT. ISSUERS ARE RESETTING AND TRYING TO FIGURE OUT HOW TO FUND THEIR CAPITAL IMPROVEMENT PROGRAM IN THIS NEW ENVIRONMENT. JESS: YOU MENTIONED ISSUERS ARE TOO STIFF THESE TYPES OF LEVELS. WE HAVE SEEN FIRMS DELAY INITIAL PUBLIC OFFERING FOR. -- INITIAL PUBLIC OFFERINGS OF LATE. SUZANNE: THE CONCERN IS THE VOLATILITY. YOU DON'T KNOW IF THIS IS THE RIGHT DAY TO GO IN. IT IS THE LEVEL OF UNCERTAINTY GIVEN THE GEOPOLITICAL ENVIRONMENT. WE DON'T WANT A LITTLE MORE STABILITY. WITH HOW MUCH WE GO INTO THE MARKETS, THIS IS TOUGH BEFORE OUR CFOS AND TREACHEROUS TO OPERATE IN THIS ENVIRONMENT. WE DO OUR BEST TO HELP GUIDE THEM AND TO BE FLEXIBLE AND PROVIDE OTHER ALTERNATIVES. JESS: BORROWING COSTS ORRICK -- ARE AGAIN MOVING HIGHER, A DIFFERENT DYNAMIC THAN THREE OR FOUR YEARS AGO WITH THE FEDERAL RESERVE'S MOST AGGRESSIVE HIKING CYCLE AT THAT POINT, IN A GENERATION. HOW DOES THAT AFFECT COMPANIES IF IT IS A MORE GRADUAL CYCLE THIS TIME AROUND ON THE LAST ONE? SUZANNE: ANYTHING GRADUAL IS BETTER THAN SHARP. WE THOUGHT YOU -- HUGE MOVES IN U.S. TREASURIES OVER THE PAST WEEKS. WE HAD SEVERAL DEALS IN THE MARKET. YOU DON'T WANT A SITUATION WHERE YOU ARE CHASING THE MARKET AND INVESTORS ARE HOLDING WHERE THEY WANT TO BUY SO CLOSE TO THEIR VEST. WE GENERALLY HAVE A MORE OPEN DIALOGUE ABOUT WHERE AN ISSUER OR AN INVESTOR IS WILLING TO BUY IN. BUT THE MARKET CREATES MORE UNCERTAINTY. I THINK A GRADUAL MOVE UP IN RATES IS WHAT WE ALL EXPECT TO HAPPEN AND WE WILL BE ABLE TO VISIT -- PIVOT AROUND IT. >> ON THE RIGHT SIDE, THE HERITAGE OF THE COMPANY, WE HAVE SEEN ISSUANCE UP SIGNIFICANTLY THROUGH THE FIRST NINE MONTHS OF THE YEAR, LIKE 78% HIGHER THAN LAST YEAR. THE YIELD IS A LOT HIGHER, AVERAGING AROUND 422 ON A CLOSING BASIS. IS IT A SIGN OF A HEALTHY MARKET WE ARE HAVING AN INCREASE IN ISSUANCE AND THESE HIGHER YIELDS? OR IS IT THAT A LOT OF THE MUNICIPALITIES HAVE NO CHOICE? SUZANNE: WE HAVE A LOT OF PENDANT DEMAND. -- PENDANT UP INFRASTRUCTURE TO MATT -- PENT UP INFRASTRUCTURE DEMANDS. UPGRADING THEIR INFRASTRUCTURE WILL COST MORE. RATES ARE A BIT HIGHER AND THE COST OF MATERIALS IS HIGHER. IT IS DIFFICULT TO PLAN IN THAT ENVIRONMENT. THERE IS A LEVEL AT WHICH INVESTORS ARE WILLING TO JUMP IN AND BUY. IT IS MAKING MUNICIPAL QUITE ATTRACTIVE. ROMAINE: THE OTHER BIG PLAYER IS IN THE AI SPACE. GIVE ME A SENSE OF HOW DEEP YOU HAVE MOVED INTO THAT AND WHAT TYPE OF RISK YOU ARE WILLING TO UNDERWRITE NOW WHEN IT COMES TO THE DURATION OF SOME OF THE INVESTMENTS AND THE IDEA THAT THEY MAY NOT BE DIRECTLY BACKED, BUT WOULD BE DEPENDENT ON REVENUES HERE TODAY. SUZANNE: CORPORATE EARNINGS ARE STRONG. WE HAVE BEEN DEEPLY INVOLVED IN MANY PROGRAMS FOR UTILITIES. WE ARE GEARING UP FOR MORE CAPACITY. WE HAVE BEEN QUITE BUSY THIS YEAR WITH THOSE TYPES OF TRANSACTIONS. THESE ARE HIGH-GRADE, INVESTMENT GRADE CORPORATIONS. THESE ARE HUGE RISKS. THESE ARE CASH WITH COMPANIES LOOKING TO EXPAND -- CASH RICH COMPANIES LOOKING TO EXPAND AND GETTING READY FOR THESE HUGE CAPACITY NEEDS WE HAVE. FOR THESE HYPERSCALER TRANSACTIONS AS WELL AS UTILITY DEALS. JESS: HOW ARE COMPANY SUPPOSED TO SCALE THAT AI DEBT? ARE YOU SEEING EARLY ENDING RED FLAGS? SUZANNE: I'M NOT SEEING ANY RED FLAGS NOW. THIS HAS BEEN IN THE WORKS A COUPLE YEARS. ISSUERS AND UTILITIES HAVE VARIOUS CAPITAL IMPROVEMENT PLANS. THEY WANT THE EXTRA LOAD. IN THE EXTRA LOAD AND WHAT THE HYPERSCALERS WILL BE PAYING WILL HELP THE COMMUNITIES IN WHICH THEY ARE OPERATING. CERTAINLY, LOWER INTEREST RATES WOULD BE HELPFUL AS THEY BUILD OUT THE PLANS. I THINK THEY WILL ALSO BE LOOKING AT EQUITIES. TO HELP FUND MAJOR, BILLIONS OF DOLLARS OF CAPITAL THAT WILL BE NEEDED TO SUPPORT HYPERSCALERS. ROMAINE: I AM CURIOUS WHAT YOU NEED TO SUPPORT SIEBERT WILLIAM SHANK FOR THE NEXT 30 YEARS GOING FORWARD. YOU ELEVATED GARY HALTER PRESIDENT. IS THAT THE BEGINNING OF EFFECT -- THE BEGINNING OF A SUCCESSION PLAN? >> ABSOLUTELY. WE FOCUS A LOT ON SUCCESSION. WE HAVE HAD A LOT OF TALENT WITHIN THE FIRM. THE BIGGEST JOY I HAVE IS SEEING THE QUALITY OF PEOPLE WE HAVE BEEN ABLE TO HIRE. THEY ONLY SERVE TO MAKE US STRONGER. I AM LOOKING FORWARD TO THEIR INCREASED LEADERSHIP OVER THE COMING YEARS. YOU ARE GRACED TO HAVE YOUR EMPLOYEES AND TALENT. WE ARE THRILLED THAT WE HAVE A LOT OF CALLS FROM TOP TALENT ACROSS THE STREET EVERY WEEK. IT GIVES ME A LOT OF JOY. ROMAINE: ARE YOU HIRING BANKERS NOW? SUZANNE: I'M TAKING A LITTLE POND AS WE LOOK AT WHAT IS HAPPENING WITH INTEREST RATES AND THE ENVIRONMENT. WE ARE ALWAYS LOOKING FOR TOP TALENT. WE HAVE BEEN HIRING THROUGHOUT THE YEAR. WE EXPECT TO DO MORE IN 2027 AND THE -- AND WE WILL SEE FROM THERE. THAT IS THE BIGGEST JOY I HAVE HAD IN THIS CAREER, BEING ABLE TO INCREASINGLY HIRE THE BEST ON THE STREET AND WE ARE SEEING THAT IN THE QUANTITIES -- THE QUALITY AND THE NUMBER OF TRANSACTIONS WE ARE DOING EACH WEEK. ROMAINE: REMARKABLE. AT THE TOP OF A LOT OF ELITE TABLES FOR YOUR PEER GROUPS YOU ARE AFTER YOU -- YEAR AFTER YEAR. YOUR ACCOLADES ARE TOO ENORMOUS TO LIST. THANK YOU FOR JOINING US. SHE HELPED COFOUND THE FIRM THAT BECAME SIEBERT WILLIAMS SHANK. WHEN WE COME BACK, WE WILL TALK ABOUT THE POTENTIAL DEAL EVERYBODY IS TALKING ABOUT. YOU PUBLISHERS ARE SPIKING TODAY ON THE BACK OF A REPORT STARBUCKS -- CHIPOTLE SHARES ARE SPIKING TODAY ON REPORTS THAT STARBUCKS IS LOOKING TO BUY THE COMPANY. JESS: OUR SHOP -- STOCK OF THE HOUR IS CHIPOTLE. STARBUCKS EXPLORED A TAKEOVER PROPOSAL. BRIAN NICCOL'S, THE PREVIOUS CEO OF CHIPOTLE. SHARES SURGED 770% DURING HIS TENURE. IF THE DEAL GOES THROUGH IT COULD BE ONE OF THE LARGEST EVER IN THE RESTAURANT SPACE ACCORDING TO BLOOMBERG DATA. LET'S BRING IN JOHN TAPPER, AN ANALYST AT CITY RESEARCH. HOW LIKELY IS SOMETHING LIKE THIS TO ACTUALLY HAPPEN WHEN YOU SAW THE REPORT? JOHN: I DO NOT THINK IT IS LIKELY TO HAPPEN. I WOULD BE VERY SURPRISED. RESTAURANT MNA BETWEEN BLACK -- BETWEEN BRANDS, THERE IS A MIXED TRACKER COULD HEAR NOW. WE HAVE NOT ELITE -- YOU SEEN ANYTHING WITH THE COMPANY-OWNED MODEL MERGING AT THE OTHER COMPANY OWNED MODEL AT THIS SCALE BEFORE. FRANKLY, THE COST AROUND IT AND HOW IT COULD POTENTIALLY AFFECT STARBUCKS SEEMS PROHIBITIVE. BUT NEVER SAY NEVER. YOU MENTIONED BRIAN HAS BEEN A CHIPOTLE PREVIOUSLY. HE HAD A VERY SUCCESSFUL TIME UNDER HIS TENURE. HE PROBABLY KNOWS WHERE THE OPPORTUNITIES ARE AND WHERE THE WARTS ARE WITH THE BUSINESS AND HE PROBABLY SEES A LOT OF OPPORTUNITY FOR THAT BRAND, IF IT WERE TO BE THE CASE, THE COMBINED ENTITY. IT IS FAIRLY UNLIKELY, BUT I CANNOT TAKE IT OFF THE TABLE. JESS: HOW ARE YOU COVERAGE IN THE COMPANY NOW WHEN IT COMES TO CHIPOTLE? >> WOULD LIKE THE STOCK AND WHAT THEY ARE DOING UNDER THE HOOD TO TRY TO IMPROVE THE BUSINESS WITH RESPECT TO TRAFFIC. THEY ARE INCREASING LIMITED TIME OFFERS TO DRIVE CONSUMERS BACK TO STORES, FOCUSING ON MESSAGING TO GET PEOPLE IN. IMPORTANTLY, WHEN IT COMES TO PRODUCT INNOVATION, THEY ARE DOING A LOT MORE THAN THEY HAD IN THE PAST. THEY ARE DOING IT IN A MANNER THAT IS NOT COSTING THEM, ON THE MARGIN. AT THE SAME TIME, THEY ARE INVESTING IN A BUSINESS. WE LIKE A LOT OF WHAT YOU BELIEVE HAS BEEN DOING. YOU WILL CONTINUE TO SEE UPDATES, EVEN IN THE THIRD QUARTER CALL. THEY ARE SHOWING PROGRESS ON WHAT THEY HAVE ACCOMPLISHED SO FAR. >> ROMAINE: THE PERFORMANCE OF STARBUCKS HAS BEEN GREAT SO FAR. IT GETS TO THE QUESTION. WHY MIDDLEWEIGHT THINGS WHEN SOMETHING IS AS AMBITIOUS OR MAY BE RISKY AS BRINGING IN A GIGANTIC COMPANY LIKE AAA. FROM AN ANALYST PERSPECTIVE AS SOMEBODY THAT UNDERSTANDS THESE COMPANIES IN THE INDUSTRY, ARE THERE SYNERGIES HERE? WE REACHED OUT TO STARBUCKS. THEY WOULD NOT COMMENT. SAME WITH CHIPOTLE. WHAT WOULD ULTIMATELY BE THE GOAL? JUST TO CREATE AN UMBRELLA COMPANY? I DON'T KNOW WHERE THE STARBUCK LINE OF PRODUCTS AND HE SAYS LINES UP WITH MY BURRITO BOWLS. >> A FEW THINGS. BRIAN HAS BROUGHT A LOT OF MANAGEMENT PHILOSOPHY FROM CHIPOTLE TO STARBUCKS. I THINK THERE IS ALIGNMENT THERE. THERE ARE PROBABLY BACK OFFICE SYNERGIES FROM A CORPORATE INFRASTRUCTURE STANDPOINT. I'M NOT SURE ABOUT THE SUPPLY CHAIN. OBVIOUSLY, THEY PURCHASE WILDLY -- WILDLY DIFFERENT THINGS WE'RE TRYING TO GET BETTER ON FOOD, WHILE STILL FOCUSING ON BEVERAGE. CHIPOTLE HAS GOTTEN BETTER ON FOOD AND CONTINUES TO. ALSO DELVING INTO BEVERAGE. I THINK YOU WILL SEE MORE OF THAT IN 2027. FROM A GROWTH STANDPOINT, WHEN YOU LOOK AT WHERE CHIPOTLE IS DEFICIENT, THEY DON'T HAVE MUCH INTERNATIONAL PRESENCE. STARBUCKS HAS A GLOBAL NETWORK OF LICENSED PARTNERS. COULD YOU SEE THEM A PLUG IN CHIPOTLE TO A NUMBER OF THOSE PARTNERS ACROSS THE GLOBE? YOU GOOD. BESIDES THAT, I DO NOT KNOW IF THERE IS A LOT BY WAY OF SYNERGY HERE. THAT SAID, BRIAN DID WORK AT LLAMA PREVIOUSLY AND UNDERSTANDS HOW A MULTI-BRANDED COMPANY WORKS AND THE GOOD AND THE BAD OF IT ALL. MAYBE HE HAS A VISION I CANNOT CURRENTLY SEE TODAY FOR THESE COMPANIES GETTING TOGETHER. ROMAINE: THAT IS CERTAINLY THE QUESTION HE WILL BE ASKED REPEATEDLY OF THIS TURNS OUT TO BE ACTUALLY TRUE. WHEN YOU LOOK AT OTHER RESTAURANT COMPANIES OUT THERE THAT HAVE MULTIPLE BRANDS UNDER ONE ROOF, THE TRACK RECORD HAS BEEN RELATIVELY SPOTTY. I UNDERSTAND SOME OF THAT IS NOT JUST ABOUT THE EXECUTION ITSELF, BUT HOW THE ACQUISITION WAS MADE. EVERYTHING THAT TRANSPIRED WITH BURGER KING, TIM HORTONS, ALL THAT. IS THERE A WAY THIS COULD BE FINANCIALLY EXECUTED TO AVOID THOSE PITFALLS? >> OFTEN, IT'S CULTURE. IT'S NOT JUST THE PRICE POINT. PRICES ARE IMPORTANT FOR WHAT YOU PAY FOR THE BRAND AND GET ON THE BACKEND. BUT THE INTEGRATION OF CULTURE LEADS INTO HOW TECHNOLOGY IS INTEGRATED INTO THE BUSINESS. HOW THEY INTERACT WITH CONSUMERS AND DRIVE GROWTH AND THINK BROADLY ABOUT GROWING THE BUSINESS FROM THE GROUND UP. WITH BRIAN BEING AT BOTH COMPANIES HE UNDERSTANDS BOTH CULTURES EXCEPTIONALLY WELL AND HOW THEY TAKE. THERE IS A BIT MORE OF A LEG UP THERE FROM THAT PERSPECTIVE. BUT FROM A FINANCIAL STANDPOINT, I DON'T KNOW WHERE THIS WOULD SHAKE OUT. WHERE CHIPOTLE SHAREHOLDERS WOULD WANT A CERTAIN AMOUNT. THEN ULTIMATELY, WHAT STARBUCKS ARE HOLDERS WOULD BE WILLING TO PAY. ROMAINE: MY OTHER QUESTION IS ALSO ABOUT CUSTOMER OVERLAP. WHEN I THINK ABOUT THE LLAMA MODEL YOU CAN MAKE AN ARGUMENT THAT A LOT OF THE CUSTOMER IS TO TACO BELL MIGHT BE SIMILAR TO THE CUSTOMIZER -- CUSTOMERS PATRONIZING KFC, ETC.. DO YOU FIND THAT THE STARBUCKS CUSTOMER OVERLAPS WITH THE CHIPOTLE CUSTOMER? >> YES. YOU THINK ABOUT HOW UBIQUITOUS STARBUCKS IS IN THERE IS A HEAVY OVERLAP. THERE IS A HEAVY OVERLAP WHEN YOU LOOK AT THE VENN DIAGRAM OF THE AGE AND OF THE AGE AND THE INCOME LEVELS. THEY WOULD BE SPEAKING TO SOME OTHER CUSTOMERS. >> JOE, WE ONLY HAVE ABOUT SEVEN SECONDS LEFT. THE CHIPOTLE STOCK IS DOWN 10% YEAR-TO-DATE AFTER LOSING MORE THAN ONE THIRD OF ITS VALUE LAST YEAR. WHAT, REALISTICALLY, TURNS THIS AROUND? THERE IS PROGRESS UNDERWAY TO DRIVE TRAFFIC BACK TO STORES IN A MARGIN ENHANCING MANNER AND THAT IS TRANSPIRING. I THINK WE WILL GET EVIDENCE OF THAT IN THE THIRD QUARTER UPDATE, LIKELY MOVING INTO A FOURTH QUARTER THAT IS EASIER FROM A COMPARISON STANDPOINT. IN 2027 YOU WILL SEE THE HIGH-EFFICIENCY KITCHEN PACKAGE ROLL OUT AND UNLOCK CATERING. YOU WILL SEE MORE LIMITED TIME OFFERS. SALES IMPROVEMENT WHILE UNIT GROWTH REMAINS ROBUST AND I THINK PEOPLE WILL COME BACK TO IT. ROMAINE: WE APPRECIATE YOUR TAKING TIME FOR US. CHIPOTLE PUBLISHERS ARE NOW THE BEST PERFORMING IN THE S&P 500 ON THE DAY. WE MOVE CLOSER TO THE CLOSING BELLS WITH THE S&P UNDER PRESSURE AS IT HAS BEEN FOR MOST OF THE SESSION. JESS: DOWN AROUND .5%. 49 CONSECUTIVE SESSIONS WITH OUT 1% DROP. TODAY COULD POTENTIALLY BE THE 50TH STRAIGHT ONE. LOOKING AT YIELDS, THE 10-YEAR TREASURY YIELD AROUND 5:20 TWO AFTER COMING OFF A MULTI-DECADE HIGH LAST WEEK WHEN IT WAS 5:30. BRENT CRUDE TRADING AROUND 104 DOLLARS PER BARREL, OF ALMOST 4%. ENERGY STOCKS THE BEST PERFORMING IN THE S&P 500 TODAY. ROMAINE: LINDSEY BELL IS A CHIEF INVESTMENT STRATEGIST AT 248 VENTURES. SHE KEEPS REPEATING THE NUMBER, 1% DROP. MARKETS ARE CUMULATIVE. WE HAVE HAD A LOT OF DROPS AND I KNOW WE AREN'T NECESSARILY FAR FROM RECORD HIGHS. WHAT DOES THE CURRENT STATE OF THE MARKET TELL YOU ABOUT STABILITY AND ABILITY TO ADD IT ITS GAINS? >> WE ARE CLOSE TO ALL-TIME HIGHS. BUT WHAT IS DRIVING THE GROWTH IS RESILIENT ECONOMY AND RESILIENT EARNINGS GROWTH. WE ARE GEARING UP FOR THIRD QUARTER EARNINGS STARTING NEXT WEEK LOOKING FOR ANOTHER DOUBLE-DIGIT GAIN IN EARNINGS GROWTH OF 24%, AFTER A PERCENT SECOND QUARTER. EARNINGS RESILIENCE IS THERE. IT IS BLOCKBUSTER AND BEING DRIVEN BY WHAT IS DRIVING THE MARKET, TECH, COMMUNICATIONS SERVICES, AND ENERGY. ROMAINE: WHAT DOES THE COMPLEXION OF THE EARNINGS SEASON LOOK LIKE? OVERALL I KNOW WE EXPECT PHENOMENAL GROWTH. BILL BURCK ESTIMATES FOR THE S&P IN AGGREGATE, 25% EPS GROWTH AND REVENUE GROWTH CLOSE TO 20%. OF COURSE, MARGIN EXPANSION AS WELL. WILL THAT BE BROAD-BASED? LINDSAY: YOU WILL SEE EARNINGS GROWTH ACROSS SECTORS BUT IT WILL STILL BE LED BY TECHNOLOGY. TECHNOLOGY WILL HAVE THE HIGHEST EARNINGS GROWTH OF THE 11 SECTORS AT 63%. I AM LOOKING AT CAPITAL IQ NUMBERS. IT WILL HAVE THE HIGHEST MARGIN EXPANSION, 41%. THAT'S DRIVING THE BOTTOM LINE FOR THE OVERALL S&P 500. THIS WILL ACCOUNT FOR ABOUT 36% OF S&P 500 EARNINGS THIS QUARTER , SOMETHING THAT HAS TO HAPPEN OR THE MARKET WILL NOT BE ALLOWED TO CONTINUE TO HAVE THIS DOUBLE-DIGIT POSITIVE RETURN WE HAVE SEEN THUS FAR. ON THE FLIP SIDE, I'M KEEPING AN EYE ON INTEREST RATES. THEY ARE MUCH HIGHER THAN 5%. THEY HAVE BEEN FLOATING ABOVE 5.2%, A LEVEL OF RESISTANCE. IT SEEMS LIKE THEY ARE WILLING TO STAY ABOVE THAT LEVEL. THIS COULD BE SOMETHING THAT DERAILS THE MARKET NEAR TERM. ROMAINE: CAPITAL IQ. S&P IS A FINE FIRM. JESS: BLOOMBERG TERMINAL. WE WILL TALK TO YOUR PEOPLE AND MAKE IT HAPPEN FOR YOU KEEP SAYING RECORD EARNINGS GROWTH. THE FIRST HALF OF THE YEAR, BASED ON BLOOMBERG INTELLIGENCE DATA AVERAGED OVER 30% GROWTH. WHEN YOU TAKE OUT THE BOUNCE BACK FROM COVID AND THE FINANCIAL CRISIS IN 2008, THAT IS SOME OF THE BEST EARNINGS GROWTH IN THE FIRST HALF OF THE YEAR WE HAVE SEEN IN DECADES. IT IS INTERESTING, BECAUSE YOU DON'T NORMALLY SEE THAT AT THIS POINT IN AN ECONOMIC CYCLE. HOW ARE YOU TELLING YOUR CLIENTS TO POSITION AS A STRATEGIST? >> YOU DON'T SEE THIS TYPE OF EARNINGS GROWTH WHEN YOU AREN'T COMING OUT OF THE DOWNTURN REBOUND TYPE SITUATION LIKE YOU JUST MENTIONED. BUT IT'S GOOD NEWS FOR THE MARKET, EQUITY INVESTORS, EQUITY HOLDERS. I THINK AT THIS TIME OF THE YEAR, GOING INTO -- TO THE END OF THE YEAR, IT IS A GOOD TIME TO CHECK IN WITH YOUR PORTFOLIO AND ASSESS YOUR DIVERSIFICATION. YES, INFORMATION TECHNOLOGY ACCOUNTS FOR 40% OF THE S&P 500. BUT DEPENDING ON WHERE YOU ARE IN YOUR FINANCIAL JOURNEY, YOU NEED TO DETERMINE WHAT SECTORS YOU SHOULD HAVE AND HOW THAT SHOULD COMPARE TO THE S&P 500. TWO SECTORS I AM LOOKING AT, SEEING IF MY CLIENTS HAVE EXPOSURE OUR FINANCIALS AS WELL AS HEALTH CARE. FINANCIALS OBVIOUSLY DO WELL ON A HIGHER INTEREST RATE ENVIRONMENT AND HEALTH CARE IS RESILIENT IN UNCERTAIN TIMES. THESE ARE TWO SECTORS I'M LOOKING AT TWO DE-RISK. ROMAINE: PUT NO CONCERNS ABOUT HIGHER INTEREST RATES EATING IN TO THE VALUATION? WE TALK ABOUT A PHENOMENAL EARNINGS SEASON AHEAD, BUT I DON'T KNOW. AT SOME POINT, DOES THE BOTTOM OF THE EQUATION WORK AGAINST US? >> WHEN I LOOK AT THE VALUATION OF THE STOCK MARKET VERSUS BONDS, WE HAVE NOT SEEN MUCH MOVEMENT IN THE DATA THERE, AND THAT IS A GOOD THING. WE HAVE SEEN THE VALUATION OF THE S&P 500 COME IN FOR THE YEAR AS INTEREST RATES INCREASED. SO THEY ARE KIND OF OFFSETTING EACH OTHER AND ACCOUNTING FOR THE MOVE IN INTEREST RATES, AT LEAST THIS POINT IN TIME. IF INTEREST RATES MOVE SIGNIFICANTLY HIGHER FROM HERE, WE MIGHT HAVE A DIFFERENT CONVERSATION. BUT FROM THE VALUATION RISK PERSPECTIVE, IT IS STILL AN INCENTIVE TO INVEST IN STOCKS VERSUS BONDS. ROMAINE: A CLOSE EYE ON THE MARKET. A MAKES TODAY WITH THE NASDAQ AND S&P IN THE RED. THE DOW FLATLINED AND SO IS THE RUSSELL. TURN SPORT IS UP. STARBUCKS SHARES UNDER PRESSURE ON HEADLINES COMING THROUGH ABOUT A FINANCIAL TIMES REPORTED STARBUCKS APPARENTLY CONSIDERED POTENTIALLY A BID TO BUY CHIPOTLE. STARBUCKS PROVIDED AT THE STATEMENT. STARBUCKS SAYS "IT IS LATER FOCUSED ON ITS EXISTING STRATEGY. THIS STORY IS STILL DEVELOPING. IT'S A STORY WE WILL COVER IN FULL AS WELL AS ALL THE BIG MARKET MOVES FROM STOCK TO BONDS AND EVERYTHING IN BETWEEN WITH OUR GLOBAL SIMULCAST. BOTH THE CLOSING BELL. BLOOMBERG'S COMPREHENSIVE CROSS-PLATFORM COVERAGE OF THE U.S. MARKET CLOSE STARTS NOW. QUICKSAND WE ARE TWO MINUTES AWAY FROM THE END OF THE TRADING DAY. TAKING YOU THROUGH TO THE CLOSING BELL, A GLOBAL SIMULCAST. WE ARE JOINED BY CAROL MASSAR. AND AS STEVE SMITH. I LOVE THIS. IT'S LIKE SCOOBY-DOO EVERY DAY ON THIS PROGRAM. WELCOME, AUDIENCES ACROSS BLOOMBERG, TELEVISION, RADIO, ALL OUR PLATFORMS, INCLUDING YOUTUBE. I'M STILL TALKING, CAROL MASSAR. STACY, THIS IS WHERE SHE TALKS OVER ME. I TALK OVER HER. AT SOME POINT, YOU END JUST MIGHT GET A WORD IN. INTERESTING DAY IN THE MARKETS. WE HAD HEADLINES IN THE MIDDLE OF THE DAY ON OPENAI THAT SEEMED TO TAKE A LITTLE BIT OF THE WIND OUT OF THE SALES, AT LEAST ON STOCKS. >> YOU SAID THE INDEX IS DOWN ON THE S&P 500, BUT WHEN YOU GO INSIDE, A MAJORITY OF NAMES ARE HIGHER. WE KEEP SEEING THIS. THE INDEX IS UP BUT MOST OF THE NAMES ARE LOWER. THE INDEX IS DOWN, BUT MOST OF THE NAMES ARE HIGHER. THAT FEELS LIKE A TRADE, STACY. STACY: IT HAS BEEN A TOUGH DAY FOR TECHNOLOGY STOCKS. WE WERE TALKING ABOUT PEOPLE GETTING METALS TODAY FROM THE TRUMP ADMINISTRATION BUT THE STOCKS HAVE BEEN TAKING A HIT. >> THE VIX IS BELOW 16, BELOW THE 20 LEVEL THAT SHOWS MORE VOLATILITY. WE AREN'T SEEING THAT. IT IS BELOW THE ONE YOUR AVERAGE, OVER 18. ROMAINE: WHO ARE GETTING METALS? CAROL: THE TECH CEOS. IT IS COMPLICATED. DON'T WORRY YOUR PRETTY LITTLE HEAD ABOUT IT. ROMAINE: ALL RIGHT. WELL, WE HAVE THE CLOSING BELL HERE. I WANT TO POINT OUT, A LOT OF PRICES MOVED PRETTY SIGNIFICANTLY IN VARIOUS DIRECTIONS. WE HAD A STRONG RALLY EARLIER IN THE DAY. WE STARTED TO SEE A LOT MORE BUYING IN THE TREASURY SPACE. THE DOW JONES INDUSTRIAL AVERAGE UP ABOUT 52 POINTS, ONLY ABOUT .1% ON THE DAY. THE S&P ART -- S&P 500 WILL CLOSE IN THE RIGHT DOWN ABOUT .5 PERCENTAGE POINTS AND THE NASDAQ COMPOSITE AND 100 EACH LOWER ON THE DAY BY ABOUT ONE PERCENT. THE RUSSELL 2000 IS UNCHANGED ON THE DAY, IN THE GREEN, ONLY BY A FRACTION OF A PERCENT. CAROL: GOING BACK TO THE S&P 500, YOU HAVE MOST NAMES IN THE AVERAGE HIGHER TODAY. 338 NAMES IN THE S&P 500 GAINING GROUND -- GAINING GROUND BREAD 163 TO THE DOWNSIDE, THREE UNCHANGED. JESS: ENERGY IS THE BEST PERFORMER, UP ABOUT 3% AFTER BRENT CRUDE. ON THE OPPOSITE END, INFORMATION TECHNOLOGY DOWN ALMOST 2%, THE WORST DECLINER OF THE DAY. CAROL: STC, CONSTELLATION BRANDS, GAINING TODAY 4.4%, THE FOURTH CONSECUTIVE SESSION OF GAINS FOLLOWING A MIXED QUARTERLY REPORT WE GOT EARLIER THIS WEEK. ANALYSTS CUTTING PRICE TARGETS TOO ON CONSTELLATION BRANDS SINCE THEY REPORTED OCTOBER 6 ACCORDING TO DATA AT BLOOMBERG. YOU SEE INVESTORS MOVING INTO SHARES AGAIN. I WILL GO TO SOMETHING DIFFERENT. PCR X. BIOSCIENCES. SURGING THE MOST INTRADAY ON RECORD, UP 44% HERE AT THE CLOSE AFTER AN AGREEMENT BY THE FIRM FOR $36.50 CENTS PER SHARE. 45 PERCENT PREMIUM TO THE WIND STAYED CLOSE. THE DEAL IS EXPECTED TO CLOSE AT THE YEAR. WHY IS THIS HAPPENING? THIS IS ABOUT EXPANDING INTO THE NON-OPIOID PAIN MARKET. WE HAVE SEEN A LOT OF STUFF HAPPENING IN THE HEALTH CARE SPACE. THEN I SERVED THE BEST FOR LAST. CHIPOTLE, CMG. THE STOCK IS OUT MORE THAN 6%. THE FINANCIAL TIMES IS COMING OUT REPORTING STARBUCKS HAS WORKED WITH ADVISORS IN RECENT MONTHS ON A TAKEOVER PROPOSAL FOR CHIPOTLE. THE STATUS OF THE TAKEOVER PLANS COULD BE IMMEDIATELY LEARNED. A MENTOR DEAL OF THIS SIZE MIGHT NEVER GET OFF THE GROUND ACCORDING TO FOLKS FAMILIAR WITH THIS MATTER. YOU HAVE TALKED TO BRIAN AND I HAVE OVER THE YEARS TOO. WHAT DO YOU THINK? ROMAINE: HE IS THE FORMER CEO AT CHIPOTLE AND HE KNOWS THE BUSINESS IN AND OUT. TO THE WALL STREET JOURNAL IS NOW REPORTING THEY HAVE A STATEMENT FROM STARBUCKS SAYING THEY ARE LASER FOCUSED ON EXISTING STRATEGY. IT DOES NOT SAY IF THE EXISTING STRATEGY INVOLVES MNA. SO READ INTO THAT WHAT YOU WILL. BUT WE WERE JUST TALKING WITH JOHN TOWER ABOUT THE IDEA HE DID SEE A MOVE FOR THAT IN THE CONSUMER BASE, POTENTIAL SYNERGIES IN THE BACK OFFICE. HE SAYS THAT WHEN YOU LOOK AT WHAT BRIAN NICCOL HAS DONE, HE HAS BORROWED A LOT FROM THE CHIPOTLE PLAYBOOK. SO MAYBE THEY CAN WORK ON IT. CAROL: BURRITOS AND COFFEE. AS SOMEBODY SAID TO HIS EARLIER, YOU THINK ABOUT BEANS. COFFEE BEANS, BURRITO BEANS. CHIPOTLE IS HIGHER, BUT STARBUCKS, NOT SO MUCH. >> STARBUCKS DOWN .4%. NOT TERRIBLE, BUT THEY DID NOT GET THE BUMP CHIPOTLE GOD. AND IT WAS A REALLY ROUGH DAY FOR TECHNOLOGY STOCKS. THEY GOT HAMMERED. THERE ARE WORRIES ABOUT ENERGY CONSTRAINTS AND ALSO DATA CENTER CRUNCHES. NVIDIA IS DOWN 2.94 PERCENT. SPACEX IS DOWN 4.25%. MICROSOFT SHARES FELL. WE TALKED A BIT EARLIER ABOUT WORKER VISAS, HOW MICROSOFT WAS CALLED OUT BY THE TRUMP ADMINISTRATION FOR ABUSING THE WORKER VISA PROGRAM AND REPLACING U.S. WORKERS WITH "FOREIGN INDENTURED SERVANTS. THAT STOCK IS DOWN 1.35%. AIRLINES GOT HIT A LOT TODAY BECAUSE OF OIL PRICES. UNITED IS DOWN 3%. DELTA IS DOWN 1.3%. ROMAINE: ON YIELDS, WE SAW APPETITE FOR BUYING IN THAT SPACE. YIELDS ARE DOWN ACROSS THE CURVE, MOST OF THE BUYING IS ON THE LONGER END OF THE CURVE. THE 10 YEAR IS DOWN ABOUT SIX BASIS POINTS. WE HAD A 30 YEAR AUCTION TODAY WITH YIELDS DROPPING ABOUT SEVEN BASIS POINTS ON THE DAY. A LOT OF THOSE MOVES ON THE BACK OF THE AUCTION SHOW INVESTOR APPETITE FOR BENCHMARK YIELDS AND LONGER DATED TREASURIES AS LONG AS THEY ARE BEING PRICED RIGHT. STACY, DID YOU MISS ME, ROMAINE? ROMAINE: WERE YOU GONE? THAT'S A WRAP. OUR CROSS-PLATFORM RADIO, TV, BLOOMBERG ORIGINALS. JESS AND ROMAINE CONTINUE ON THE CLOSE ON BLOOMBERG TV AND STACY AND I WILL BE ON BLOOMBERG BUSINESSWEEK DAILY AND BLOOMBERG RADIO. WE WILL SEE YOU AGAIN AT THE SAME TIME AND PLACE TOMORROW. ROMAINE: COVERAGE CONTINUES WITH A CLOSER LOOK AT CONSUMER SPENDING AND APPAREL. WE TALKED OF -- TALK TO THE CEOS OF ARC'TERYX, TRUE RELIGION, AND PATAGONIA NEXT ON THE CLOSE ON BLOOMBERG. >> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS THE CLOSE. ROMAINE: A MIXED TODAY. THE CLOSING BELL ABOUT EIGHT OR NINE MINUTES AGO WITH THE S&P CLOSING THE DAY DOWN ABOUT .5%. THE NASDAQ INDICES DOWN MORE THAN 1%. BUT IT'S A MIXED BAG. WE SAW A LITTLE STRENGTH WHEN IT CAME TO DOW TRANSPORTS AS WELL AS SMALL-CAP NAMES HERE. THE STORY OVER THE MARKET CONTINUES TO BE BETWEEN -- THE INTERPLAY BETWEEN YIELDS AND ENERGY PRICES. ENERGY PRICES HIGH AGAIN ON THE DAY. YOU SAW THAT BENEFIT A LOT OF OIL AND GAS COMPANIES. YIELDS ARE DROPPED, A BIT OF A -- A BIT OF A TAILWIND FOR STOCKS TAMPING DOWN GAINS IN THE DOLLAR EARLIER IN THE SESSION. THERE IS STILL A LITTLE BIT OF ANGST ABOUT THE AI TRADE. YOU PROBABLY SAW THAT REFLECTED TODAY IN ORACLE. A LOT OF CONCERNS ABOUT THE DEBT LOAD AND THE COMPLEXION AND PACE OF THE AI INFRASTRUCTURE BUILDOUT DESPITE THE FACT WE HEARD FROM SAMSUNG OVERNIGHT AS WELL AS TSMC. SAMSUNG POSTED RECORD PRELIMINARY QUARTERLY RESULTS. TSMC BASICALLY SAID, THERE QUARTERLY GROWTH IS RUNNING OVER 50%. YET INVESTORS ARE STILL NAVEL GAZING, WONDERING IF WE MIGHT HAVE REACHED A PEAK. KEEP YOUR EYES ON STARBUCKS. A LOT OF ACTIVITY ON THE BACK OF SPECULATION THEY MIGHT BE INTERESTED IN BUYING CHIPOTLE OR LULULEMON. OF ABOUT .9%. QUITE A FEW RETURN NAMES OUT THERE GETTING A BIT OF A BID. LIKE EVERYTHING ELSE IN THE MARKET, THE REASONS WHY ARE VARIED. THIS BRINGS US TO OUR TOP STORY OF THE HOUR ABOUT THE ECONOMICS OF RELEVANCE. OR AT LEAST, WHAT A GRAND IS ACTUALLY WORTH. LET'S FACE IT. NOBODY URGENTLY NEEDS ANOTHER JACKET, PAIR OF JEANS, OR PUFFER. LET'S JUST ASK THE PATAGONIA CEO THAT LATER. APPAREL IS A LOW BARRIER BUSINESS WITH AN EXTRAORDINARILY HIGH BARRIER TO NECESSITY AND RELEVANCE. ALMOST EVERYBODY CAN MAKE A SWEATSHIRT OR A PAIR OF JEANS OR LAUNCH A WEBSITE BUT VERY FEW CAN PERSUADE CONSUMERS TO CARE, AND EVEN FEWER CAN KEEP THEM CARING AS THE BRAND GROWS. OVER THE NEXT HOUR WE EXAMINE DIFFERENT APPROACHES TO WINNING THE CONSUMER, THE REVIVAL OF TRUE RELIGION BY CEO MICHAEL BUCKLEY TURNING A $250 JEANS COMPANY INTO A MASS-MARKET LIFESTYLE BRAND. YOU HAVE THE UNIQUE LESS IS MORE ENVIRONMENTAL APPROACH BY THE PATAGONIA CEO WHO CALLS EARTH HIS LARGEST SHAREHOLDER AND YOU HAVE THE ARC'TERYX CEO STUART HASELDEN, TAKING A HIGHLY NICHE OUTDOOR BRAND AND QUINTUPLE IN REVENUE OVER THE PAST FIVE YEARS BY EMBRACING AND EXPANDING DEEPER INTO THE LUXURY AND FASHION PROUD OF. STEWART JOINS US, THE CEO OF ARC'TERYX . PHENOMENAL GROWTH WITH THIS COMPANY SINCE YOU TOOK OVER. YOUR AMBITIONS WILL DOUBLE REVENUE OVER THE NEXT FIVE YEARS. HOW, EXACTLY, WILL YOU DO THAT? STUART: OUR STRATEGIES REMAIN CONSISTENT. FIRST, WE DOUBLE DOWN ON TECHNICAL INNOVATION. ON TECHNICAL INNOVATION. ON PERFORMANCE PRODUCTS. WE DIVEST PRODUCTS WE THOUGHT WERE DILUTING OUR BRAND, AUTHORITY, AND AUTHENTICITY. WE HAVE SEEN RENEWED INTEREST AND ENERGY IN THE BRAND. THIS HAS BEEN THE FIRST CRITICAL STEP. WE LOOK TO CREATE A DIRECT RELATIONSHIP WITH OUR CONSUMER. WE LAUNCHED A NEW RETAIL FORMAT AS THE CENTERPIECE OF THAT HAS ENABLED US TO GROW OUR BUSINESS WITH DIRECT TO CONSUMER FROM 25% IN 2022 NOW OVER 75% IN 2026. THIS HAS BEEN A CRITICAL CATALYST FOR OUR GROWTH THAT CONTINUES TO BE AN IMPORTANT PART OF HOW WE UNDERSTAND OUR CONSUMER BUSINESS. ROMAINE: LET'S START WITH WHO YOUR CONSUMER IS. WE TALK ABOUT THESE BEING PERFORMANCE TYPE PRODUCTS FOR PERFORMANCE TYPE PEOPLE. I AM SURE YOU KNOW THAT IN NEW YORK CITY THERE ARE A LOT OF PEOPLE WALKING AROUND IN YOUR JACKETS THAT WILL NEVER SEE ANYTHING CLOSE TO THE SIDE OF A MOUNTAIN OTHER THAN WHAT IS AT CENTRAL PARK. HOW DO YOU BALANCE THAT WHEN YOU KNOW THAT SOME PEOPLE COME FOR THE PERFORMANCE CITED THE BUSINESS, AND OTHER PEOPLE JUST WANTED AS A FASHION ITEM OR A STATUS SYMBOL? STUART: THE WAY WE DESIGN PRODUCTS IS FOCUSED ON THE MOUNTAIN ATHLETE, A COMMUNITY THAT WE KNOW REALLY WELL. WE DESIGN ALL OUR PRODUCTS TO SOLVE PROBLEMS FOR MOUNTAIN SPORTS. THAT IS THE UNDERPINNING THAT CREATES THE AUTHENTICITY OF EVERYTHING WE BRING TO MARKET. WE COMBINE THAT WITH A REALLY POWERFUL UNDERSTANDING THROUGH OUR DIRECT TO CONSUMER MODEL. WE LOOK AT HOW TO CREATE ASSORTMENTS THAT MEET THE NEEDS OF FOLKS, WHETHER THEY ARE IN MANHATTAN, LOOKING FOR A GREAT JACKET FOR THEIR MORNING COMMUTE, MAKING THEIR WAY ACROSS MIDTOWN, OR LOOKING TO STAY ALIVE BY THE SOUND OF -- SITE OF A MOUNTAIN SOMEWHERE REMOTELY. WE ARE LOOKING FOR WHAT WE CALL THE POINT OF EXTREME AND NEED. THAT IS SOMETHING THAT SERVES OUR GUESTS COME AS WE CALLED THEM, OUR CUSTOMERS, WHEREVER THEY MAY LIVE AND WORK. THAT IS THE POWER AND THE APPEAL OF OUR BRAND. ROMAINE: GOING FROM $2.7 BILLION IN REVENUE TO HIT THE $5 BILLION MARK, CAN THAT BE DONE? JUST GOING AFTER THE PERFORMANCE OF THE PERSON FIND THIS MORE FOR PERFORMANCE? ARE THERE ENOUGH OF THOSE PEOPLE OUT THERE TO GET TO THAT SCALE? WHAT'S CLEARLY AT THIS POINT OUR BRAND HAS GROWN BEYOND JUST THE TECHNICAL MOUNTAIN ATHLETES. THE APPEAL OF THE PRODUCTS WE MAKE TO FOLKS LIVING FAR FROM MOUNTAINS WHO WILL NEVER PARTICIPATE IN MOUNTAIN SPORTS IS THE FACT THOSE PRODUCTS ARE DESIGNED IN A SIMILAR HIGH-PERFORMANCE MANNER. THE SUCCESS OF OUR PRODUCTS IN BOTH MARKETS FOR SEGMENTS OF CUSTOMERS WITH BOTH PERFORMANCE -- SEGMENTS OF CUSTOMERS PERFORMANCE ORIENTED AND NON-PERFORMANCE ORIENTED COMES BACK TO THE AUTHORITY AND AUTHENTICITY WE HAVE. ROMAINE: TELL ME HOW YOU ARE EXPANDING YOUR OWN RETAIL FOOTPRINT AND YOU TALKED ABOUT THE IDEA OF DIRECT TO CONSUMER SALES, AS WE HAVE SEEN WITH OTHER BRANDS OUT THERE. IT IS A TRICKY BALANCE TO FIND OUT HOW MUCH YOU CAN ABSORB ON YOUR OWN AND HOW MUCH YOU NEED OR DO NOT NEED THIRD PARTIES OR WHOLESALERS. STUART: AT THE WHOLESALE PARTNERS WE HAVE ARE IMPORTANT AND WE NEED THEM TO GROW OUR BRAND IN PLACES WHERE WE WILL NEVER OPEN STORES OURSELVES. ALSO, AT THE FOOT OF THE MOUNTAIN, THE FOLKS ENGAGING IN THESE SPORTS WANT TO SEE A RANGE OF PRODUCTS. IF WE DON'T SHOW UP IN THOSE PLACES ALONGSIDE OTHER GREAT BRANDS IN THE WORLD, WE WILL MISS AN OPPORTUNITY TO CONNECT AND CAPTURE THAT OPPORTUNITY. WE ARE NOT LOOKING TO LOSE THOSE CRITICAL WHOLESALE PARTNERSHIPS. WE WANT TO CONTINUE TO HAVE THOSE. DIRECT TO CONSUMER OPEN THE DOORS FOR US TO CAPTURE OTHER MARKET SHARE AND OTHER CUSTOMERS, IF YOU WILL, THAT MAY NOT BE SHOPPING IN THOSE WHOLESALE ACCOUNTS. >> A LOT OF YOUR GROWTH WAS BUILT ON YOUR PARENT COMPANY SEEING A LOT OF FAST GROWTH WITH REGARDS TO WOMEN'S PRODUCTS. AND IN FOOTWEAR AS WELL. GIVE ME A SENSE AS TO HOW MUCH MORE HAD WONDERED IF HAVE IN BOTH CATEGORIES TO WIN NEW CUSTOMERS AND INCREASE SALES WITH EXISTING CUSTOMERS? STUART: WE ARE JUST REALLY GETTING STARTED IN WOMEN'S AND FOOTWEAR. WE SEE WOMEN'S AS AN EXCITING OPPORTUNITY. THE LEGACY OF ARC'TERYX WAS MORE MALE FOCUSED AND WE ARE FOCUSING ON OUR FEMALE GUESTS OVER THE PAST SEVERAL YEARS AND THAT IS PAYING OFF. WE INVESTED HEAVILY IN DESIGN CAPABILITIES. WE IMPROVED HOW WE ARE INCLUDING OUR FEMALE GUESTS IN OUR COMMUNITY ACTIVITY. THIS IS IMPORTANT FOR BUILDING AND -- COMPLETELY DUAL GENDER BRAND THAT WE SEE AS A MAJOR OPPORTUNITY FOR YEARS TO COME. WE ARE GETTING STARTED THERE. IT'S THE FASTEST GROWING CATEGORY WE HAVE HAD AT LEAST THREE YEARS. IT VALIDATES OUR BELIEF IN THE OPPORTUNITY THERE. IN FOOTWEAR WE ARE SEEING SOME OF OUR OPPORTUNITY TO CONTINUE TO FIND RELEVANCE OUTSIDE OUTERWEAR AND LOOK AT ACTIVITIES LIKE TRAIL RUNNING AUTHORITY IN A WAY THAT MAKES SENSE, THAT FITS OUR GRANT PERMISSION, THAT FITS YOU COULD BE TRUE TO THE DURABILITY THAT MOST PEOPLE EXPECT OUT OF ARC'TERYX, OF MONUMENTAL RESPONSIBILITY. STUART: ABSOLUTELY. THIS IS SOMETHING WE CARE DEEPLY ABOUT. WE JUST LAUNCHED A NEW PRODUCT PLATFORM WE CALL SYSTEM ZERO. WE LAUNCHED OUR FIRST PRODUCT ON THAT PLATFORM. THIS BUILDS ON THE INHERENT DURABILITY AND PERFORMANCE OF OUR PRODUCTS THAT ARE BUILT TO LAST FROM THE BEGINNING. FIVE YEARS AGO WE LAUNCHED A REPAIR PROGRAM CALLED RE-BIRD. WE NOW OPERATE THEM AROUND THE WORLD WITHIN OUR STORE FOOTPRINT. THIS IS A FOUNDATION THAT WE KNOW -- NOW BRING SYSTEM ZERO TO BUILD ON TOP OF. THE PRODUCTS ON SYSTEM ZERO WILL BE DESIGNED IN A PERPETUAL MANNER TO TAKE PRODUCT APART, RECYCLE THEM, AND PUT THEM BACK INTO THE SUPPLY CHAIN IN A PERPETUAL MANNER. THE VISION HERE IS NO PRODUCT WE MAKE WILL EVER GO TO A LANDFILL. WE ARE FAR FROM THAT TODAY. THIS IS AN IMPORTANT FIRST STEP FOR US. THIS ISSUE YOU MENTIONED, IT IS REALLY IMPORTANT. THIS IS A COMMITMENT WE HAVE. WE LOOK FORWARD TO EXPANDING SYSTEM ZERO. OVER TIME, OUR VISION WOULD BE TO HAVE EVERY PRODUCT WE MAKE CONSTRUCTED IN THIS MATTER -- MANNER. ROMAINE: WE WILL CATCH UP STUART HASELDEN STUART HASELDEN WITH YOU AGAIN, THE CEO AT ARC'TERYX. TALKING ABOUT SUSTAINABILITY. WE HAVE SEEN A FEW COMPANIES TRYING TO VENTURE DOWN THAT ROAD TO MAKE SURE, NOT ONLY ARE THEY SELLING, BUT MAY BECOME A GIVING BACK TO A CERTAIN EXTENT TO THE SAME ENVIRONMENT THEY ARE TAKING FROM. THAT IS THE MESSAGE I GOT FROM THE PATAGONIA CEO. I WILL SHOW YOU PART OF THE CONVERSATION I HAD WITH BRIAN TAYLOR WHEN WE COME BACK AFTER THE BREAK ON BLOOMBERG -- RYAN GELLERT AFTER THE BREAK ON BLOOMBERG. ROMAINE: WE JUST HEARD FROM THE CEO OF ARC'TERYX. I HAD A CHANCE TO CATCH UP WITH PATAGONIA CEO RYAN GELLERT. TAKE A LISTEN. RYAN: THERE ARE PHENOMENAL HUMAN BEINGS RUNNING BUSINESSES ACROSS LANDSCAPES. THERE ARE SOME COMPANIES OUT THERE AND SOME AT SCALE THAT I THINK YOU'RE DOING IMPORTANT WORK. I THINK ABOUT COSTCO. I BELIEVE THE CEO OF COSTCO MAY HAVE SPOKEN HERE RECENTLY AND I LOOK AT WHAT THEY CENTERED AS THEY NAVIGATED THESE SHIFTING CULTURAL LANDSCAPES SAYING THIS IS WHO WE ARE AND THIS IS WHAT IS IMPORTANT TO OUR EMPLOYEES AND COMMUNITIES. WE ARE TUNING OUT THE NOISE. THIS IS WHAT WE WILL DO. I HAVE A LOT OF RESPECT FOR THEM. ROMAINE: A LOT OF CEOS ARE JUDGED PRIMARILY ON FINANCIAL METRICS, WHETHER IT IS THE SUCCESS OF THE COMPANY OR THE SUCCESS OF THE SHARE PRICE AND SHAREHOLDERS. WHAT IS A METRIC YOU USE TO DETERMINE SUCCESS? OBVIOUSLY, IT'S NOT A SHARE PRICE. BUT YOU HAVE TALKED ABOUT REVENUE GROWTH BEING A PRODUCTIVE METRIC. PROFITABILITY BEING A RESORT -- RESEARCH STANDARD. HOW DO YOU MEASURE SUCCESS? RYAN: I DON'T THINK GROWTH IS GOOD OR BAD. I THINK YOUR GROWTH IS PROGRESS FROM ONE PLACE TO ANOTHER PLACE. I PREFER GROWTH, BUT I INSIST WE GROW IN TERMS WE ARE COMFORTABLE WITH. PROFITABILITY, I LOOK AT SIMILARLY. THE THING ABOUT PROFITABILITY THAT IS AS IMPORTANT TO OUR BUSINESS IS THIS IS AN INFLATIONARY ENVIRONMENT THAT WE HAVE TO BE ABLE TO TAKE CARE OF OUR PEOPLE. WE HAVE TO BE ABLE TO REINVEST IN THE BUSINESS. ONE OF THE RESPONSIBILITY THAT HOLD RIGHT AT THE TOP WITH ANYTHING IS AS LONG AS I AM IN THIS ROLE, WHEN I HAND THIS OFF TO SOMEBODY ELSE, I WANT THE BUSINESS TO BE IN AT LEAST AS GOOD OF SHAPE AS WHEN I FOUND IT RELATIVE TO ITS ABILITY TO CONTINUE TO RUN INDEPENDENTLY. ROMAINE: DO YOU WANTED TO BE BIGGER? >> I THINK IT CAN AND SHOULD BE A BIGGER BUSINESS. I HAVE NEVER THOUGHT ABOUT DOUBLING THE SIZE OF THE BUSINESS IN THE TIME I AM IN IT. I AM SUPER COMPETITIVE. IF I BELIEVE WE ARE MAKING THE BEST PRODUCT IN A CATEGORY, I WANT TO SEE THE PRODUCT ALL OVER THE WORLD AND I DON'T WANT TO SEE ANYTHING ELSE. WE WILL MAKE THE PRODUCT THE WAY WE FEEL IT NEEDS TO BE MADE AND COMMUNICATE TO PEOPLE WHAT IT IS AND PROVIDE GREAT SERVICE TO BACK IT UP. TO THE ATTENTION OF OTHER BUSINESSES MAY FEEL, I THINK THIS IS THE MOST BROKEN. I THINK THE FOCUS ON SHARE PRICE, THE FOCUS ON QUARTERLY EARNINGS AND PERFORMANCE IS WAY TOO SHORT TERM. IT CREATES PERVERSE INCENTIVE STRUCTURES. I WILL TAKE THE OPPORTUNITY TO SAY IN THESE WELL -- LAST ROUGHLY 24 MONTHS IN THIS CULTURAL MOMENT, INFLUENCED BY THIS ADMINISTRATION, THERE IS A SENSE OF, LET'S CELEBRATE. HOW MUCH CAN I GET? HOW STRONG AM I? EVERYTHING I GET I TAKE AT THE EXPENSE OF YOU AND THIS IS WHAT WINNING LOOKS LIKE. I DON'T FIND THAT INTERESTING ON ANY LEVEL. NOT AS A BUSINESS, NOT AS A LEADER, NOT AS A ROMAINE: ROMAINE: HUMAN. PART OF MY CEO --ROMAINE: PART OF MY CONVERSATION WITH CEO OF PATAGONIA. LET'S TURN BACK TO THE DESKTOP -- THE TECHNOLOGIES OF SPACE. SPACEX ANNOUNCING IT AGREED TO PURCHASE A BATCH OF NATIONWIDE LOW SPECTRUM LICENSES, BASICALLY LICENSES THAT CAN BE BASICALLY USED FOR MOBILE PHONE SERVICE. YOU HAVE SEEN SHARES OF T-MOBILE, AT&T, AND VERIZON EACH DOWN ABOUT 5% ON THE BACK OF THIS. WE ARE LEARNING APPARENTLY, THE PORTFOLIO IS BEING BOUGHT FROM THE COMPANY CONTROLLED BY DAVID GRAIN. IT'S A FAST MOVING. IT SEEMS TO SUGGEST SPACEX HAS AMBITIONS TO COME FURTHER BACK DOWN TO EARTH WITH WHAT COULD BE SOME TYPE OF MOBILE PHONE SERVICE. WE WILL GET YOU MORE DETAILS ON THAT WHEN WE ARE BACK IN A MOMENT HERE ON THE CLOTHES HERE ON BLOOMBERG. ROMAINE: RETAIL IS NO STRANGER TO A COMEBACK STORY. JUST ASK GAP, ABERCROMBIE, AND NOW TRUE RELIGION. THE JEAN MAKER GOT ITS START IN THE 2000'S IS A PREMIUM WOMEN'S DENIM BRAND. GEN Z IS POWERING ITS RESURGENCE AND IT IS CAUGHT THE ATTENTION OF CELEBRITIES -- TIMOTHÉE CHALAMET, MEGAN THEE STALLION. I WANT TO TALK ABOUT WHERE YOU GO WITH US NEXT. YOU DROPPED OFF MY RADAR, BUT I LOOKED AT THE MORE RECENT NUMBERS YOU GUYS PUBLICLY ANNOUNCED WITH REGARDS TO REVENUE AND EBITDA. IT'S LOOKING HEALTHY. IS THIS SOMETHING THAT HAS LEGS, OR ONE OF THESE CIRCULAR THINGS WHEN NOSTALGIA HAS COME BACK AROUND TO BENEFIT YOU? >> WE ARE GOING AFTER A MUCH BIGGER AUDIENCE THEN WE WENT AFTER YEARS AGO. OUR CUSTOMER IS WHAT WE CALL THE URBAN CASUAL CUSTOMER, WHICH IS MEN AND WOMEN 15 TO 50, ALL RACES, VERY DIVERSE, $65,000, $75,000 OF HOUSEHOLD INCOME THE MARKET FOR GOING AFTER IS 117 MILLION PEOPLE STRONG. THE PRICE POINTS WE SELL AT TODAY ARE WHERE THERE IS $100 BILLION OF CASH IN VOLUME. AS MUCH AS WE ARE HAPPY DOING, WE WILL DO CLOSE TO $550 MILLION IN REVENUE THIS YEAR AND $145 MILLION OF EBITDA, WE BELIEVE THIS IS A MULTIBILLION-DOLLAR BRAND AND WE HAVE A PASS TO GET IT FROM CURRENT LEVELS TO $900 MILLION OVER THE NEXT FOUR OR FIVE YEARS. THE TRUE RELIGION BRAND WILL DO A BILLION DOLLARS IN RETAIL SALES THIS YEAR. ROMAINE: GIVE ME A SENSE WHAT IS DRIVING THAT. AND I WAS LOOKING AT THE SHARE OF SALES, JEANS ARE NOT 50% OF YOUR SALES, NOT THE MAJORITY OF HER SALES. IT IS THE OTHER PRODUCTS. IS THAT THE DRIVER, THE ACCESSORIES AND THE SPORTSWEAR AND OTHER THINGS, NOT THE JEANS THEMSELVES? MICHAEL: 100%. I CAME BACK SEVEN YEARS AGO AND WHAT WE HAVE DONE IS TRANSFORMED THE BUSINESS IS TO GET INTO A COMPLETE LIFESTYLE APPAREL COLLECTION. WE DO 20-PLUS CATEGORIES OF CASUAL APPAREL FOR MEN AND WOMEN. WE DO A NUMBER OF ACCESSORY CATEGORIES AS WELL. THE BUSINESS IS 35% JEANS IN TERMS OF DOLLAR SALES AND REDUCE 65% OF THE CASUAL APPAREL AND ACCESSORY CATEGORIES. THE PLIGHT WE ARE GOING AFTER IS $100 BILLION-- PIE WE ARE GOING AFTER IS $100 BILLION OF VOLUME. THE JEAN MARKET IS A FEW BILLION DOLLAR BUSINESS. WE ARE GOING AFTER MUCH BIGGER MARKET SHARE. ROMAINE: I'M CURIOUS ON THE HIGH-PRICED JEANS. AT THE TIME WHAT YOU GUYS WERE SELLING JEANS FOR SEEMED ABSURD. IT SEEMS COMMONPLACE TODAY, SO MANY OF THESE LUXURY JEANS BRANDS. I'VE SEEN EYE-POPPING NUMBERS AND SCRATCH MY HEAD AS TO WHY YOU WOULD PAY $600 FOR A PAIR OF DENIM. HAS THE MARKET SHIFTED TO WHERE THEY HAVE SEVERED ON SOME OF THE HIGHER PRICES, OR IS THIS MORE ABOUT TRUE RELIGION SHIFTING AND GOING AFTER A DIFFERENT MARKET ALTOGETHER? MICHAEL: I THINK THE CONSUMER TODAY, ESPECIALLY WITH THE DIGITAL WORLD AND EVERYTHING BEING ON THE INTERNET AND SOCIAL MEDIA, THE CONSUMER SEES WHAT THEY CAN PAY FOR THINGS. THEY CAN GO ON AND BUY A PAIR OF JEANS FOR $1000. THE MASSES OF PEOPLE WHO WANT TO BUY BRANDS TODAY, I THINK THEY WANT TO BUY A BRAND THAT IS RELEVANT. I THINK THEY WANT TO BUY A BRAND THAT IS HERITAGE, AND THEY WANT IT AT A PRICE. TRUE RELIGION TODAY, THE VAST MAJORITY OF OUR SALES ARE IN THE $30 TO $80 AVERAGE RETAIL. COULD BE ON THE HIGHER SIDE OF THAT ON JEANS . THEY WANT TO GET INTO A BRAND THAT IS CONSIDERED STATUS BUT NOT SPENT $300 -- ROMAINE: HOW DO YOU ENSURE THAT THAT STATISTICIAN YOU SELL THROUGH MACY'S, T.J. MAXX, QUETTA THROUGH--QUITE A FEW OTHER PLACES. THERE HAS BEEN THE STRAP WITH APPAREL MAKERS THAT AS THEY ENTER INTO THE CHANNELS, IT BECOMES DILUTED IN TERMS OF THE AMOUNT OF PRODUCT, BUT ALSO THE OPINION OR VISION OF WHAT THE PRODUCT ACTUALLY REPRESENTS. MICHAEL: I THINK THE THING TO STAY RELEVANT TO THE CONSUMER TODAY, THERE IS A NUMBER OF FACTORS, BUT ONE IS THE PRODUCT ITSELF. YOU HAVE TO BE ON TREND. YOU HAVE TO SEE WHAT IS HAPPENING FROM A TREND PERSPECTIVE. WE USE THE EXPRESSION FIRST TO BE SECOND. YEARS AGO WE MADE THE TREND. TODAY WE MAKE SURE WE ARE THE BRAND APPROPRIATE FOR TRUE RELIGION. AT THE SAME TIME, WE WANT TO MAKE SURE WE HAVE THE RIGHT CELEBRITIES OR INFLUENCERS OR OTHER PEOPLE THAT GET BEHIND THE BRAND WILL ALSO GIVE US RELEVANCY FROM A MARKETING PERSPECTIVE. IT'S REALLY A COMBINATION OF THE PRODUCT AND THE MARKETING ANGLE. ROMAINE: I'M CURIOUS WITH REGARDS TO PRICING, BUT ALSO THIS IDEA PROMOTIONS. I'VE SEEN ON YOUR WEBSITE QUITE A FEW PROMOTIONS, AND WE ARE HEADED INTO A HOLIDAY SEASON. HOW MUCH DO YOU THINK YOU WILL HAVE TO OFFER DISCOUNTS OR HAVE SOME SORT OF PROMOTIONS, GIVEN SOME OF THE CONCERNS RIGHT NOW ABOUT THE STATE OF THE ECONOMY, OR THE STATE OF CERTAIN CONSUMERS IN THEIR POCKETBOOKS. MICHAEL: WE RECENTLY DID A SURVEY WITH WIRED RESEARCH OF CONSUMERS OUT THERE AND THERE SENTIMENT, AND WHAT WE'RE ARE FINDING IS THAT CONSUMERS THAT -- THEY SEEM TO -- OBVIOUSLY THE POCKETBOOK IS TIGHTER AND THEY ARE BEING MORE SELECTIVE WITH PURCHASES, BUT THEY ARE GOING AFTER BRANDS THEY NO ONE TRUST, HERITAGE- KN-- KNOW AND TRUST, HERITAGE FRIENDS. GIVEN THE RIGHT STYLE, THINGS IN TREND AT THE RIGHT PRICE, THE LOCATIONS THEY WANT TO BUY, IS GOING TO MAKE US SUCCESSFUL THIS YEAR. WE ARE UP 20% YEAR-TO-DATE. WE HAVE BEEN GROWING THE BUSINESS DRAMATICALLY THE LAST COUPLE YEARS. WE ARE EXPECTING -- WE HAVE A LOT OF GREAT PRODUCT AND WE BELIEVE WE ARE ON TREND AND WE ARE EXPECTING A GOOD HOLIDAY SEASON. ROMAINE: DID YOU GUYS LAUNCH THE TIKTOK SHOP THAT WAS SUPPOSED TO START IN SEPTEMBER? MICHAEL: WE LAUNCHED THE TIKTOK SHOP. WE HAVE 1000 INFLUENCERS, CREATORS POSTING TRUE RELIGION VIDEO. VERY EXCITING. CERTAINLY FOR THE YOUNG GENERATION, THAT GEN Z GENERATION, THEY ADORE TIKTOK. THEY ALSO LIKE TO GO INTO STORES. WE HAVE 63 STORES TODAY. WHAT WE ARE SEEING IS THE YOUNGER GENERATION IS COMING BACK INTO STORES AND THEY WANT TO TOUCH AND FEEL THE PRODUCT AND SEE THE EXPERIENCE. ROMAINE: ARE THE STORES WERE OPENING, THE NEW ONES, PRODUCING THE ECONOMICS THAT MAKES THAT A LONG-TERM PROFIT STORY, NOT JUST CUSTOMER ACQUISITION STORY? MICHAEL: OUR STORES I WOULD SAVE DELIVER ONE OF THE BEST-IN-CLASS PROFITS IN THE INDUSTRY. 45% FOUR-WALL EBITDA, PRETTY GOOD. OUR STORES PAYBACK IN LESS THAN ONE YEAR. WE WILL GROW OUR ENTIRE BUSINESS, E-COMMERCE, WHOLESALE STORES, INTERNATIONAL. WE THINK WE TAKE IT TO 150 STORES OVER THE NEXT FOUR OR FIVE YEARS. IN THE ECONOMICS MAKE TREMENDOUS SENSE WHEN YOU DELIVER 45% ON A LESS THAN WHEN YOUR PAYMENT. ROMAINE: MICHAEL, REALLY APPRECIATE YOU JOINING US. MICHAEL BUCKLEY, CEO AT TRUE RELIGION ON A TORRENTIAL REGROWTH STORY, IF YOU WILL ANOTHER RETAILER LOOKING TO REINVIGORATE SALES IS LULULEMON. THEY HAVE GOT A NEW LEADERSHIP TEAM IN PLACE NOW UNDER THE NEW CEO, HEIDI O'NEILL. MAGGIE GARBER IS HANDLING THE NEW ROLE OF PRESIDENT AND PRODUCT OFFICER. JOINING US TO TALK ABOUT THE CHANGES IS THE MANAGING DIRECTOR OF CONSUMER EQUITY RESEARCH OVER AT BTIG. WHAT WAS YOUR REACTION WITH THESE TWO NAMES? HEIDI HAS BEEN ON THE JOB FOR A FEW WEEKS HERE, BUT GIVE ME A SENSE AS TO WHAT THOSE TWO NAMES BRING TO THE TABLE THAT MIGHT HELP THIS COMPANY. >> THE FIRST REACTION IS THAT THERE IS A SENSE OF URGENCY IN THE ORGANIZATION PARTICULARLY AROUND PRODUCT, KNOWING THAT THEY NEED TO GET PEOPLE IN AND GET TO WORK RIGHT AWAY. IN TERMS OF MAGGIE, THE INITIAL HEADLINES, SHE CAME FROM NIKE BEFORE THAT. NIKE HAS BEEN STRUGGLING. THE REACTION MIGHT NOT BE GREAT, BUT WHEN WE DIG DEEPER, SHE WAS AT ATHLETIC FOR A YEAR AND DID NOT HAVE A CHANCE TO IMPACT THE PRODUCT. BERNANKE, AS MUCH AS WE TALK -- FOR NIKE, AS MUCH AS WE TALK ABOUT THE STRUGGLES FROM THEY HAD A GOLDEN ERA SHE WAS PART OF. A PERSON WHO HAS A LOT OF GLOBAL EXPERIENCE IN THE ATHLETIC CATEGORY, THOSE PEOPLE ARE HARD TO TO FIND. SHE IS A GOOD HIRE. ROMAINE: I'M CURIOUS ABOUT YOUR FOCUS AS YOU ANALYZE THIS COMPANY. THERE IS TALK ABOUT DO YOU FOCUS ON PERFORMANCE. WE WERE TALKING ABOUT THE IDEA THAT IF YOU FOCUS ON THE PERFORMANCE, THAT WILL BRING DIVIDENDS BEYOND JUST THAT COMMUNITY. LULULEMON SEEMED TO START OFF IN THAT WAY. IT WAS CATERED TO THESE HARD-CORE YOGA FOLKS AND THEN IT BECAME THIS BROAD ATHLEISURE MARKER FOR US. CAN THE STRATEGY WORK? DO YOU THINK THAT IS WHERE HEIDI WILL MOVE BACK TOWARDS? JANINE: WE ARE IN A DIFFERENT ERA FROM ONE LULULEMON MADE ITS BRAND AROUND PERFORMANCE. THE HEART OF THE PRODUCT NEEDS TO BE PERFORMANCE AND THE TECHNICAL CAPABILITY. THAT IS HOW LULULEMON HAS DIFFERENTIATED ITSELF ON THE LINES HAVE BEEN BLURRED BETWEEN WHAT IS PERFORMANCE AND WHAT IS CASUAL WEAR. PEOPLE WEAR THEM IN INTERSECTING WAYS, BUT THERE HAS TO BE SOMETHING SPECIAL ABOUT THE PRODUCT, WHETHER IT IS FUNCTIONALITY OR QUALITY, AND THAT IS A LITTLE OF WHAT THEY HAVE LOST THE LAST TWO YEARS. THEY TALKED ABOUT THE PRODUCT BEING NUMBER ONE. DOES NOT BEEN -- IT HAS NOT BEEN A PRODUCT AT THE ORGANIZATION FOR SOME TIME NOW BUT AND THEY USED THE WORD "ALIGNMENT" IN THE ORGANIZATION. THERE HAS BEEN THESE MISMATCHES OF IT HAS NOT BEEN MARKETED PROPERLY OR MERCHANDISE PROPERLY IN THE STORES. STORE ASSOCIATES HAVE NOT BEEN ABLE TO TALK ABOUT THE PRODUCT THE WAY THEY HAD BEEN ABLE TO TWO YEARS AGO. TAKE THE PRODUCT AND MAKE IT BETTER AND MARRIED WITH THE INTERNAL ALIGNMENT THEY BEEN MISSING THE LAST FEW YEARS, THAT IS THE MISSING LINK. IT SEEMS THEY ARE ON THE RIGHT TRACK. ROMAINE: AS I UNDERSTAND IT RIGHT NOW, DO THEY HAVE A BRAND OFFICER? DO YOU KNOW IF THEY'RE LOOKING FOR A BRAND OFFICER? DO THEY NEED A BRAND OFFICER? JANINE: THERE ARE SEVERAL ROLES THAT NEED TO BE HIRED. CHIEF BRAND OFFICER BEING ONE OF THEM. THEY LET GO OF THE CHIEF SUPPLY OFFICER AND CHIEF STRATEGY OFFICER. THEY HAVE HAD OF CREATIVE -- H EAD OF CREATIVE AND PRODUCT NOW. THOSE ARE TWO OF THE BIG ONES THAT NEEDED TO BE PLACED. ROMAINE: ON THE CEOS SIDE, ARE YOU GOOD ON THIS IDEA OF KEEPING MEGA-- MEGHAN FRANK AROUND IN THE CFO ROLE? JANINE: THERE IS A LOT GOING ON I WAS PROBABLY OUTSIDE OF HER CONTROL. WITH SO MUCH CHANGE GOING ON IN ALL THE LAYERS OF THE BUSINESS, INTERNAL STABILITY IS ALSO IMPORTANT. HAVING SOMEONE WHO HAS BEEN THERE -- SHE HAS BEEN IN DIFFERENT ROLES AND SEE DIFFERENT PIECES OF THE ORGANIZATION --HAVING SOMEONE WHO HAS BEEN THERE AND KNOWS THE FINANCIAL AND OPERATIONAL SIDE TO KEEP INTERNAL STABILITY IS IMPORTANT. ROMAINE: INTERESTING TO SEE THIS MANAGEMENT TEAM COME TOGETHER AND IT WILL BE INTERESTING TO HEAR HEIDI SPEAK FOR HERSELF PUBLICLY WHEN SHE IS READY. WHEN WE COME BACK COME WE'RE GOING TO REFOCUS ON SPACE, THE SPACE RACE. SPACEX IS IN THE NEWS, AND SO, TOO, ARE A LOT OF THE PRODUCTS SPACEX HAS BEEN SENDING OUT. THE ROBINHOOD CO-FOUNDER HAS A VENTURE AIMING TO PUT DATA CENTERS AROUND EARTH, AND A BIG TEST CASE IS ORBITING AROUND US. THAT AFTER THE BREAK ON BLOOMBERG. ♪ ROMAINE: WE HAVE BEEN TALKING A LOT ABOUT SPACEX, OBVIOUSLY IN THE NEWS FOR QUITE A DIFFERENT REASON. OFF OF HEADLINES READING EARLIER, ELON MUSK WEIGHING IN ON THE SPECTRUM PURCHASE, CONFIRMING THAT PURCHASE AND SAYING IT WILL BE THE SET UP FOR SPACEX TO PROVIDE COMPLETE PHONE COVERAGE ACROSS AMERICA. SPACEX SHARES GETTING A MODEST BID ON THE DAY. ALTHOUGH THE DATE PUBLICLY TRADED MOBILE PHONE CARRIERS, T-MOBILE, VERIZON, AT&T COME DOWN SIGNIFICANTLY IN THE AFTER-HOURS TRADE. ON THE LEFT OF YOUR SCREEN, THE SPLASHDOWN OF THE DRAGON CAPSULE IN THE PACIFIC OCEAN CARRYING THESE FOUR ASTRONAUTS BACK HOME AFTER AN EIGHT-MONTH MISSION TO THE INTERNATIONAL SPACE STATION. WE WANT TO TALK ABOUT WHAT IS GOING UP INTO SPACE, PARTICULARLY AS THE ARTIFICIAL INTELLIGENCE BUILDOUT CONTINUES. A LOT OF TALK RIGHT NOW NOT SO MUCH ABOUT BUILDING DATA CENTERS ON EARTH, BUT A MORE RADICAL ANSWER TO THIS PROBLEM, TAKING THE DATA CENTER OFF THE GRID AND QUITE FRANKLY OFF THE PLANET. BAIJU BHATT JOINS US RIGHT NOW. MOST PEOPLE KNOW HIM AS THE COFOUNDER OF ROBINHOOD, BUT HE IS ALSO THE FOUNDER AND CEO OF A COMPANY CALLED COWBOY SPACE THAT WANTS TO PUT SOLAR POWERED GPU'S INTO LOW EARTH ORBIT AND EVENTUALLY USE A PURPOSE BUILT ROCKET FOR THE UPPER STAGES TO REMAIN IN SPACE AS ACTUAL DATA CENTERS THEMSELVES. WE HAD A LITTLE BIT OF A TEST OF THAT. PUT YOUR FIRST HARDWARE INTO ORBIT, BAIJU. GIVE ME A SENSE -- I KNOW IT IS GOING TO BE A FEW MORE DAYS OR WEEKS BEFORE YOU HAVE SOME COMMUNICATION WITH THAT, BUT CAN YOU GIVE US AN UPDATE ON WHEN YOU EXPECT TO SEE A PROOF OF LIFE CONCEPT? BAIJU: FIRST OF ALL, THANKS SO MUCH FOR HAVING ME ON. A LOT OF THINGS GOING ON IN THE COWBOY SPACE CORPORATION. I STARTED THE COMPANY TWO AND HALF YEARS AGO, MAYBE MORE NOW, WITH THE GOAL OF PUTTING ENERGY IN ORBIT. ENERGY WOULD BE THE NEXT MAJOR INDUSTRY TO EXISTENT OUTERSPACE. MY BACKGROUND IS IN COMMERCIAL ACTIVITY AND CAPITALISM IN THE POCKETS OF MILLIONS OF AMERICANS FIRE ROBINHOOD THE COMPANY STARTED OUT WITH THE IDEA OF COLLECTING POWER IN SPACE AND BEAMING IT DOWN TO THE GROUND. WE ARE GOING TO BE DEMONSTRATING THAT FOR THE FIRST TIME WITH OUR TECHNOLOGY IN THE COMING WEEKS HERE. REASON ONE IS OUR FIRST SATELLITE WENT TO ORBIT ON A SPACEX RIDESHARE. MADE CONTACT WITH IT AND WE ARE TALKING TO IT EVERY DAY NOW AND GETTING READY FOR THE FIRST DEMONSTRATION OF OPTICAL POWER TRANSMISSION FROM SPACE TO EARTH. JUST TO PUT THAT IN PERSPECTIVE, WE ARE TALKING ABOUT KIND OF WHAT TO ME FEELS A LITTLE BIT LIKE A MAGIC TRICK, AS YOU COLLECT ELECTRICITY IN OUTERSPACE AND GENERATE ELECTRICITY ON THE GROUND. YOU USE SPACE OPTICS AND LASERS TO CARRY THE ENERGY FROM SPACE TO EARTH. GROUNDBREAKING STUFF. ROMAINE: IT IS. SCIENTIFICALLY, YES, BUT I WANT TO ASK YOU FROM THE BUSINESS AND ECONOMIC AND INVESTMENT PERSPECTIVE, IS THIS GOING TO BE A MORE ECONOMICAL SOLUTION TO OUR DATA CENTER BUILDOUT RATHER THAN THE TERRESTRIAL SOLUTION THAT IS UNDERWAY RIGHT NOW? BAIJU: WE BELIEVE THERE IS A PATH TO DOING THIS, AND THAT IS ONE OF THE CORE IDEAS BEHIND WHAT WE ARE PURSUING. REASON ONE, FIRST MISSION GOES TO SPACE. THAT CARRIES SOME OF THE CORE TECHNOLOGY THAT WILL SORT OF TRANSFORM INTO WHAT WE ARE DOING WITH DATA CENTERS. OUR LONG-TERM GOAL WITH THIS IS TO BUILD A BESPOKE LAUNCH VEHICLE ROCKET PURPOSE LOAD FOR PUTTING PAYLOADS IN SPACE. --PURPOSE BUILT FOR PUTTING PAYLOADS IN SPACE. THE ROCKET THAT TAKE THE DATA CENTERS IN SPACE, GIVEN THE UNIQUE APPLICATIONS OF DATA CENTERS IN SPACE, TRANSFORMS INTO THE SATELLITE. BY DOING SO, WE REUSE THE COMPONENTS ON THE ACTUAL ROCKET ITSELF. FOR EXAMPLE, USING THE ROCKET AS A FUNCTIONAL ELEMENT. IT GETS TO SPACE AND IS A RADIATOR THAT LETS THE HEAT OUT. ALL OF THESE REFLECT A UNIQUELY DIFFERENT APPROACH TO PUTTING DATA CENTERS IN SPACE. ROMAINE: ON THE SCIENTIFIC SIDE, ONE THING I'M CURIOUS ABOUT IS THE ENERGY. WITH EVERY MEGAWATT YOU PUT OUT THERE, IT IS TO A CERTAIN EXTENT A MEGAWATT OF HEAT SOURCES AS WELL. THE DYNAMICS ON EARTH ARE DIFFERENT FROM SPACE WHEN YOU'RE IN THE VACUUM. OW HAS THAT PROBLEM -- HOW HAS THAT PROBLEM BEEN SOLVED, IF IT HAS? BAIJU: THAT'S RIGHT. ACTUALLY, DISSIPATING HEAT IN SPACE IS SOMETHING EVERY SPACECRAFT HAS TO DO. IF YOU HAVE ELECTRONICS UNDER SATELLITE AND GENERATING POWER, GUESS WHAT, YOU'RE GENERATING HEAT. NOT A NOVEL PROBLEM. EVERY SPACE SATELLITE HAS SOME MEASURE OF HEAT MEASUREMENT, OR THE VAST MAJORITY OF THEM DO, AT THE LEAST. OUR APPROACH TO DISSIPATING THE HEAT THAT THESE WILL GENERATE IS USING SOMETHING CALLED RADIATIVE HEAT TRANSFER. USING LARGE SHEETS OF METAL COMPETING THEM OUT, AND LETTING THEM BLOW THE HEAT -- USING LARGE SHEETS OF METAL, HEATING THEM UP, AND LETTING THEM BLOW THE HEAT AWAY. THAT SCIENCE FICTION? IT IS A COMMON THING. WHEN YOU SEE SOMETHING AT HEART AND START AGLOW, THAT IS A VERSION OF THIS--SOMETHING GET HOT AND START TO GLOW, THAT IS A VERSION OF THIS. ROMAINE: CAN THE GPU OPERATE CONTINUOUSLY, OR IS IT GOING TO HAVE TO POWER DOWN OR REDUCE POWER TO COOL DOWN AT CERTAIN TIMES? BAIJU: THE GOAL IS TO OPERATE THEM ON A NEARLY CONTINUOUS BASIS. THE INTERESTING THING ABOUT DOING DATA CENTERS IN SPACE, AND ONE OF THE CORE IDEAS BEHIND THIS, IS THAT IN LOW-EARTH ORBIT YOU CAN GET NEAR-CONTINUOUS ELIMINATION FROM THE SUN OF SOLAR PANELS. YOU HAVE THIS SOURCE OF ENERGY THAT ON THE EARTH HAS THIS INHERENT INTERMITTENCY TO IT. BY PUTTING IT IN ORBIT, IT ADDRESSES THAT HAD ON. ROMAINE: HOW ARE YOU GOING TO ADDRESS POTENTIALLY, ASSUMING YOU GET A COMMERCIAL SCALE WITH COMMERCIAL CUSTOMERS, ISSUES OF OBSOLESCENCE? IF I BUILD A DATA CENTER ON EARTH AND THE GPU OR CPU IS OUT DATED, I SENT A GUY IN THERE AND SWAP IT OUT. WHAT ARE THE ECONOMICS OF DOING THAT WHEN YOU HAVE SOMETHING IN ORBIT? BAIJU: OUR PLAN IS TO RUN THESE THINGS TILL END OF LIFE. WE SEE THIS WITH CHIPSETS TODAY. CHIPSETS THAT CAME OUT A HANDFUL OF YEARS AGO ARE ACTIVELY USED TODAY FOR AI WORKLOADS. IT IS A BYPRODUCT OF THE FACT THAT THE DEMAND IS THERE, AND FRANKLY, IF THE CHIPS ALREADY EXIST COME IT IS BETTER THAN ONE THAT HAS NOT BEEN DELIVERED YET. WE THINK THAT THE DEMAND FOR COMPUTE IS SO HIGH THAT THESE CHIPSETS WILL CONTINUE TO GET USED UNTIL END OF LIFE IN ORBIT. THEY MAY HAVE LESS GLAMOROUS JOBS TO DO, BUT THEY WILL STILL NEED TO BE USEFUL. ROMAINE: FASCINATING STUFF. WE HAVE TO CATCH UP AGAIN, PARTICULARLY WHEN YOU HAVE THAT OFFICIAL POWER COMMUNICATION, AND WE ARE LOOKING FORWARD TO 2027 AND REASON 2. BAIJU BHATT, FOUNDER AT COWBOY SPACE AND COFOUNDER OF ROBINHOOD. WE WILL SET YOU UP FOR WHAT TO WATCH AFTER THE BREAK ON BLOOMBERG. ♪ ROMAINE: LET'S SET YOU UP FOR WHAT THE MARKETS WILL HAVE THEIR EYES ON THE NEXT 24 HOURS, AND IT STARTS WITH THE START OF EARNING SEASON. DELTA KICKING US OFF IN THE MORNING. FULL COVERAGE ON BLOOMBERG TELEVISION. AT 10:00 A.M., AN UPDATE ON CONSUMER SENTIMENT. UMICH NUMBERS COMMAND AT THAT TIME. ADDITIONAL FED SPEAK FROM THE BOSTON FED PRESIDENT SUSAN COLLINS. IN THE BROADER WORLD, THE NOBEL COMMITTEE IS SET TO ANNOUNCE THE WINNER OF ITS NOBEL PEACE PRIZE. I WANT TO BRING TO YOUR ATTENTION SEVERAL LINES ACROSS THE BLOOMBERG TERMINAL. THE FIRST IS ON SPACEX BUYING THE SPECTRUM PORTFOLIO THAT ELON MUSK SAYS WILL OFFER NATIONWIDE MOBILE PHONE SERVICE. COMPANIES LIKE AT&T, AND VERIZON, AND T-MOBILE DOWN SIGNIFICANTLY IN THE AFTER-HOURS TRADE ON THE BACK OF THE HEADLINE KEEP AN EYE ON AMERICAN EXPRESS. FEDERAL REGULATORS FINING THE COMPANY FOR FAILING TO CATCH AND REPORT MONEY-LAUNDERING SYSTEMS, A FINE THAT THE COMPANY SAYS WON'T IMPACT ITS FULL-YOUR GUIDANCE. HUMANA IS SURGING AFTER THE COMPANY IMPROVE THE PERFORMANCE ON THE MEDICARE ADVANTAGE QUALITY RATING. WE WILL BE BACK HERE TOMORROW ON "THE CLOSE."