Morning Brew Daily - Walmart Warns of Tariff Price Hikes & Dick’s Sporting Goods' Risky $2.4B Deal

Episode Date: May 16, 2025

Episode 584: Neal and Toby recap Walmart’s Q1 earnings and how tariffs will likely cause price hikes. Then, Dick’s Sporting Goods acquires Foot Locker for a massive $2.4B that may open the door into international markets. Meanwhile, the Dog of the Week is UnitedHealth Group and the Stock of the Week is Coinbase. Also, Harvard has been unknowingly sitting on top of an original Magna Carta when it thought it was a copy…this whole time!  Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Visit endthecampaign.com for more Listen to Morning Brew Daily Here: https://www.swap.fm/l/mbd-note  Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Apple Vision Pro on Price is Right  03:15 - Walmart Price Hikes  07:40 - Dick’s Purchases Foot Locker  11:00 - SOW: Coinbase  15:45 - DOW: UnitedHealth Group  19:00 - Magna Carta at Harvard  22:00 - Headlines  Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash U.S. slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today Walmart is raising prices due to tariffs as the trade war

finally hits home. Then Dick's sporting goods is trying to become Dick's sporting great, snapping up footlocker in a multi-billion dollar deal. It's Friday, May 16th. Let's ride. Happy Friday. Hope anyone who put a meeting invite on your calendar today realizes their error and cancels it immediately.

Okay, here is a question. How much does an Apple Vision Pro cost? The contestants on a recent episode of the Price is Right, primetime edition were asked this by Drew Carey, and they answered $1,000, $750, $1,000, and $1,270. That is off by thousands of dollars. As you all know, since you listen to this podcast, the Vision Pro Virtual Reality headset retails

for $3,500. And when Kerry revealed the true cost, the audience gasped in disbelief. The clip has since gone viral. Toby, what's your takeaway? My takeaway is I would also stink on the prices, right? So no shade to these people whatsoever. But the hits just keep coming for the Apple Vision Pro.

The Wall Street Journal wrote a deep dive on early adopters of the technology who have now had the device for over a year, and it was tough to read. Here are a smattering of quotes from the piece. It's just collecting Duts, I think I've probably used it four times in the last year. It's still way too heavy.

I wouldn't recommend anyone buying it unless you're really rich and you don't know what to do with your money. Despite all of that, though, Apple is still shipping updates to this product. They just announced a new feature that lets you scroll with your eyes. We'll see if people stop rolling them long enough to actually use it. Now a word from our sponsor, Iterable. Neil, you ever done the New York City Airport mixup? Toby, no.

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string lights to give your patio a glow up. Springs calling. Ross, work your magic. Walmart, a retailer known for rolling back prices, is going to start rolling them up. On the company's earnings call yesterday, execs said they'll be raising prices on some products by the end of the month, attributing the hikes to President Trump's tariffs on other countries. CEO Doug McMillan said, we will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week,

we aren't able to absorb all the pressure, the higher tariffs will result in higher prices. CFO John Rainey chimed in, the magnitude and speed at which these prices are coming to us is somewhat unprecedented in history. Walmart imports about one third of the stuff you see in stores from abroad, with most of that chunk coming from China. The U.S. and China agreed to significantly lower tariffs on each other at the beginning of the week, but the current rate of 30% on Chinese goods is apparently still too high for Walmart to eat all those costs. It is an ominous sign for American shoppers when Walmart, the biggest chain of the mall, says it'll have to pass on tariff costs. The company is considered a bellwether for the U.S. consumers since 90% of the population lives within 10 miles of a store and people from every walk of life shop there. Even with tariffs, though, Walmart said its business is chugging along just fine and didn't change your scrap its guidance for the year as other companies have in recent weeks.

It's just too big of a ship to be thrown off course by the trade war wins. but still, if the tariffs weren't real yet, they are now. Yeah, Walmart is just so good at dodging price hikes, which is why it was concerning to hear them saying that they're going to hike some prices. One, it is very good at doing this because it has massive leverage with its vendors. It's just so big. Two, it sources two-thirds of its merchandise in the U.S. Groceries making up the majority of that.

And three, it can keep the cost of everyday items like those groceries low because it can raise prices on other items like electronics and household goods. So groceries account for roughly 60% of its business, which is where consumers would feel the most impact, the most bite from those price ice. So the fact you can keep those prices in check will probably lead to actually a similar pattern post 2008. Walmart emerged from that financial crisis with an even bigger market share, even more brand loyalty because it was able to keep those staples low. So we're almost seeing a similar pattern emerge here where keep the everyday items where they're at, but then raise prices elsewhere across the business to offset. those. They did talk about what specific categories would be most impacted by price hikes. And those include some of those goods that only come from China, which are electronics, toys, vacuum cleaners,

baby strollers, and car seats. That's what John Rainey, the CFO said, would be impacted the most from price hikes. He said those were coming at the end of the month. And they would probably continue through the end of the year. Let's talk about retail writ large, because this is a bad sign for any other retailer, not named Walmart. They don't have. the scale or the leverage or that grocery business to back up their what they sell. So if Walmart says it's going to raise prices, it's the biggest one of them all, then you're looking at a bunch of other retailers who probably do the same because the dam has broken.

We haven't heard from many retailers so far this earnings season, but we're about to because we got Target, Home Depot, lows coming up next week, and then Best Buy as well. They're way more exposed to China. Best Buy about 55% of what it sells is sourced through China because all of those electronic Target imports about half its sales compared to just one third of Walmart. So we're a little girding ourselves for what those retailers say in terms of price hikes. And we did get some government data to parse through U.S. retail sales growth slowed in April to just 0.1%. That is coming off of a revised 1.7% gain in March.

So it's actually the largest in two years. But what is that actually showing? It's showing that a lot of these retailers kind of, or a lot of consumers front-loaded, those purchases ahead of these tariffs coming in and then started cutting back in April. So we'll see what government data paints a picture of once we also pair it with private companies like Target, Best Buy, etc. Dix sporting goods went on a shopping spree yesterday and snapped up Foot Locker for $2.4 billion, but investors are taking a long, hard look at the acquisition. The idea behind adding Foot Locker into the fold is for Dix to expand its influence on the sneaker world

and also internationally where Foot Locker has stores in 20 countries. It also gives Dix a big leg up in the wholesale market, particularly with Nike. Nike's big partners are Dix, Foot Locker, and J.D. Sports. So bringing two of those brands together gives Dix significant leverage over Nike at a time when its business is especially reliant on wholesale. However, not everyone is sold on the synergies. Dick stock fell 14% yesterday as investors digested the big. swing. First, there's antitrust

concerns from two big sports brands teaming up. And also, most of footlockers store footprint is located in malls, which are more exposed to economic downturns. So, Neil, some see the acquisition as buying low. Others see it as a strategic mistake. I see a chance to

change the name of the combined company to Footdick's Sporting Locker. Well, you said investors were digesting this deal, but they spent a lot of time in the bathroom afterward because this did not go down. Well, the shares were down. 14 percent. T.D. Cowan an analyst called John Kernan kind of railed on this acquisition. He called it, quote, a strategic mistake. He said, we've been looking at this particular retail sector for

many years. I've never seen a single piece of MNA accrue value to shareholders. I have seen it lose billions of dollars in value for shareholders. So he was totally against us. He thinks it's a distraction for Dick's Foot Locker is in a really bad spot. They're way exposed to moles and We haven't even talked about tariffs. I mean, we talked about tariffs in the first story, but as it pertains to this story, 99% of footwear is imported. So you're buying a company that is very much exposed to trade the trade war. So these guys are looking at it and saying, I don't know what Dix is doing here.

Like Foot Locker, yes, it's cheap, but it's cheap because there's a reason for it. It's business is not doing great. Yeah, but you can see where Dix is coming from here. Foot Locker's client base tends to skew younger, young kids like going in there shopping for the new cool sneakers. Dix customer base typically is suburban older people because that's the only place where these giant sporting palaces can't exist. So I think they are being lured by the Sirens call of a younger customer base as well. And also, Foot Locker did just recently hire a new CEO from Ulta Beauty back in 2020. And she's kind of expanded Ulta's retail experience online

and is trying to apply the same sort of principles to Foot Locker. So there's an e-commerce angle there as well. So again, you could take the TD Cow inside because this is a business that is exposed to a lot of different pressures from tariffs from, you know, just the fact that no one really shops at malls anymore. Or you could just see it as buying low. So you do see two sides of the coin here. All right, it's stock of the week, dog of the week time where Neil and I pick one stock from the week's news who figured out the New York Times Thursday crossword without hints. And one stock who needed a little help to figure out that theme. Neil, I actually lost. the pre-show game of onion dicing because my eyes were watering too much. So you are up first.

What's our stock of the week? My stock of the week is Coinbase. The largest crypto exchange in the country has popped 19% this week after it was invited to join the S&P 500 on Tuesday. It's another watershed moment for the crypto industries move into the traditional financial world as Coinbase becomes the first crypto company to join the benchmark index. If you're wondering who it's replacing, that would be Discover, which is getting eaten by Capital, one in a mega merger that was just approved. Shares of companies typically rise when they're added to the S&P 500 because the funds that track the index have to add the new company to their portfolios.

So it's like joining a club where you're paid to be a member. But as great as the week started off for Coinbase, it ended the week on a couple of major sour notes. First, Coinbase revealed that cyber criminals had swiped some personal data of its users and were demanding a $20 million ransom payment in order to not release that information to the public. Then the New York Times reported that the SEC has been investigating whether Coinbase inflated its user numbers in past disclosures. With the new Trump administration going more lax on crypto, Coinbase thought it didn't have to worry about the feds breathing down its neck.

Apparently not so. So it's been a whirlwind, one step forward, two steps back kind of week for Coinbase. Yeah, when they were added to the S&P 500, we're like, oh, lock for stock of the week. Like, it's fine. And then as the week progressed and these news stories kept dropping, we're like, ah, I don't know. is it still, it still is up for the weeks. We're like, all right, we'll put it in the stock of the week column. Let's talk about this hack, though. On Thursday, they reported that cybercriminals based overseas were using social engineering to steal customer data by attacking support agents

located overseas. And they said that the incident could cause up to $400 million to fix. But it's not the worst thing in the world because no passwords in private keys were compromised. And so that's, you know, the bread and butter of a exchange like Coinbase. So definitely not a headline that you want right on the heels of you joining the S&P 500, but unfortunately one that they have to deal with right now. And Coinbase stock has been on a true roller coaster over the past few months. Right after President Trump was elected, which Coinbase donated $75 million to crypto-friendly policy candidates around the country. So they were a huge corporate player in the election. So they shot up 31% the day after the election.

But this spring, it's been a different story with the market overall not doing so well. And the legislation that was supposed to come for crypto, just kind of stalling in Crongis. They fell 26% in February, 20% in March. And they thought that all these investigations that the SEC was doing into them during Biden administration were going to go away. But then we found out that they're still being investigated for perhaps inflating user numbers. they said that they stopped using this particular metric two and a half years ago and that it is a carryover from the previous administration. But clearly they're not running free wild like they thought they were in this administration. All this legislation that they thought would get passed to be more lax regulatory policies toward them just haven't come to fruition.

We really should have made Coinbase both the stock the week and then come out a break and say, hey, never mind. It's also our dog the week. It could have been both. Up next, let's actually do our dog of the week. All. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly, big board buck slot machine by aristocrat gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package. The biggest prize in Yamava's history.

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Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies to homedipo.com slash price match for details. United Health Group has been an absolute lock for Dog of the Week as things went from worse to worse for the nation's biggest health care company. First, long-time CEO Andrew Whitty stepped down for personal readings leading to a double-digit drop in the stock. Then the Wall Street Journal reported that the DOJ had opened a criminal probe into the company

for possible Medicare fraud. That came on the heels of investors suing UHG this month for allegedly downplaying the business impact of the December killing of United Healthcare CEO Brian Thompson. It's all led to a stock route almost unfathomable for a company of United Health size in scope. Over the last month, the stock is down 53%, shaving off more than $300 billion from its market cap and leading to a growing crisis of confidence over the most influential player in American healthcare. Neil, this company was once the most influential stock in the Dow Jones by waiting, but now it has fallen to 16th. Pretty shocking.

This company is imploding right now. There's a criminal investigation into possible Medicare fraud, a devastating hack last year that's still feeling the effects from into its payment system. There's antitrust investigations into its past acquisitions, the murder of one of its top executives last December, an actual business model that's hurting from much higher cost. I mean, you just go down the line and you talk about the new CEOs coming in. Stephen Hemsley, he's getting paid $60 million in an equity award to come in and fix it. it almost doesn't seem like enough because those problems are so many.

It's lost so much in value. Truly, one of the, like, something we just haven't seen before in many, many years for a company of this size to fall so quickly. Yeah, it used to be everyone knew United Health Group because it just dominated the Dow Jones so much because remember the Dow Jones is price weighted, which is just an interesting way to form an index at all. And United Health always had the highest share price. So it always, however it went, basically the Dow went.

But for most of its history, it just doesn't. doesn't really go that much of anywhere because it's just this big hulking monolith that, you know, it's just always been what it's been. But now it is just so numerous, the amount of issues that it has faced. Like, we've talked about it multiple times and we're like, we have to do it for dog of the week. It's simply wiped out half of its value, which is just doesn't, not something you see at the upper echelons of the Dow Jones, at the upper echelons of the healthcare business at all. Just pretty wild to watch happen in real time. So what is it getting investigated for?

Well, we don't know exactly because the investigators haven't commented, but this is typically how fraud works in Medicare Advantage. So United Health runs this big Medicare Advantage business. And in this business, you get companies get paid more for taking care of sicker patients in the programs and rates are determined by the number of diagnoses that you submit. So there is a perverse financial incentive for companies to say the patients are sicker. than they are. And that has led to previous investigations leading to, like, investigating how taxpayers are on the hook for billions of dollars in extra payments because these companies are

portraying their patients as sicker than they actually are because of this incentive structure. So we don't know exactly what's going on with this particular probe into United Health Group, but that's typically how Medicare Advantage fraud has worked. For this next story, I haven't seen a supposedly fake document make this many waves at Harvard law since Mike from suits faked his diploma. Harvard Law has been sitting on a supposed copy of the Magna Carta that they bought for just $27.50 decades ago. But it turns out that copy is actually an extremely rare original that dates back to 1,300.

Even more wild was how someone eventually made the discovery. David Carpenter, a professor of medieval history at King's College London, was just sifting through old internet archives looking for copies of the important document when he pulled up Harvard laws and did a double take. First, he was surprised that he had found one of the most rare documents and most significant documents

in world constitutional history, but secondly, he added, he felt astonished that Harvard had been sitting on it for all these years without realizing what it was. For those of you who nodded off during eighth grade history class, the Magna Carta is regarded

as one of the earliest declarations of human rights, established a principle that the king is not above the rule of law and has gone on to form the backbone of constitutions globally. So the fact that just one of seven copies dating back to this 1,300 version, somehow went undetected until now, is wild to think about,

especially when you consider who is in custody of the document. Neela, I'm about to start leafing through my own files to see if I've missed anything. I was going to say, got to get David Carpenter to start looking around my apartment, because this thing is extremely valuable. They bought it for a little over $27. Well, how much does it cost now?

what is the market price for an original Magna Carta? There are only 24 originals out there in the world. The last Magna Carta sold was purchased for $21.3 million in 2007 by the billionaire David Rubinstein, who now owns the Orioles. So they are sitting on a big chunk of change, and it might be the biggest bargain buy in history. I'm trying to think of anything else, but to buy something for $27, for now it to be worth over $20 million. I don't think you would have made that much money if you bet on Lester City to win the Premier League back when they did. Maybe just early on Berkshire Hathaway. But I did want to know how did Carpenter just know immediately that this was the real document?

Apparently there's a few telltale signs, but one of the biggest ones was the style of handwriting and the big E at the start of the first line, which apparently is if you are trained in this sort of thing, it's just like a neon green flashing light that says, hey, this is a real copy because only this particular period was written or copied in this particular. handwriting. So I can't imagine going through and like doing the double take zooming in. That moment, I must have just been like pure electricity going through his body because apparently he was looking at a copy, but he's like, whoa, whoa, whoa, this is the real deal, baby. And you know who's doing a victory lap is librarians because they do the dirty work of digitizing all of these archives. So the librarian at Harvard said, behind every scholarly revelation stands the essential work of librarians who not only collect and preserve materials, but create pathways that otherwise would remain hidden. So kudos to librarians. You do so much work under the

surface and you apparently made Harvard a lot of money, except they did say they're not going to, they're not going to sell it. And they'll just put it on display for the public. Very cool story there. Okay, let's sprint to the finish this Friday with some final headlines. New Jersey transit riders are used to dealing with disruptions and delays. And that was when people were driving the trains. Now they are not. Starting this morning just after midnight, 450 engineers for the nation's third largest transit network went on strike, the first New Jersey transit strike in more than 40 years over a wage dispute with the agency. With no trains currently running as many as 350,000 New Jersey commuters are now in the lurch and a contingency bus plan to bring people where they

need to go will only handle 20% of daily ridership. Toby, this is going to be chaos. Yeah, it's going to be chaos, especially when you look at the concert schedule coming at MetLife Stadium. First, there's a Shakira concert on both Thursday and Friday, and then also Beyonce and the weekend are coming to the venue over the next three weeks. So unless you iron it out, those Uber prices are just going to go nuts because it's reliably the only way you can actually get to the stadium at that point. So we'll see the pay is the big issue here. We'll see if they can come to a deal.

Hopefully before Monday. I think that'll be like the deadline when everyone starts going back to work. AI progress might not be as parabolic of a line as we were all expecting. Meta just announced that it is delaying the rollout of its newest flagship model over concerns that behemoth, as it's called, isn't that much better than prior versions. Originally, April was the planned launch date before shifting the launch to June. Now, Meta is saying at least fall or even later. And Meta is not alone in these training stumbles.

GPT5, the next iteration of Open AIs' everyday model, was supposed to drop around mid-20204. But in February, Altman said that the model was still must. So Neil, some nervy times at big AI companies that have plowed billions of dollars into training these things and need to see improvements to justify the costs. This is why you shouldn't talk up your product before releasing it because meta has publicly said, well, this behemoth model. It's so much better than anything that rivals have put out from OpenAI or Google. And in effect, it is not yet to that level. So they can't release it because they've talked themselves into a bit of a ditch. This is a big problem facing AI companies that is kind of bubble below the surface.

You may not have heard about it, but basically these companies can't really improve on these models at the highest level that they want to. So when they release something, they want to be better than the previous version. They can't do that right now. So they're working behind the scenes feverishly because they poured so much money into this to improve these models. But progress is just hard to come by. Let's wrap up our shows for the week with some remarkable medical history. A baby boy has become the first patient to undergo personalize. gene editing treatment, allowing him to survive a rare genetic disorder that kills half of all

babies in the first week of their lives. The baby, named KJ, is now nine and a half months old and thriving, and he is that way thanks to a medical breakthrough that scientists say could be applied to millions of others with rare genetic diseases. Dr. Howard Marks, who used to oversee gene therapy regulation at the FDA, called it a milestone that would reduce the price of treatments by an order of magnitude at least. It is to me, he said, one of the most potentially transformational technologies out there. Very cool, very awesome. Yeah, to make this treatment work,

scientists wrap the treatment in tiny fat molecules that protect it while it travels through the bloodstream to, in this case, target the liver. Inside those fat molecules are two main things. One, instructions that tell the cells to make special enzymes that actually end up editing the genes. And then two, basically a genetic GPS, which is CRISPR. CRISPR searches through a person's DNA, literally like a bloodhound, looking for the exact spot where one tiny letter often needs to be changed to make the necessary

fixes here. And so this treatment is just one thing that it's very particular to KJ in this point, but you can see how it has broad applications beyond that. Right, because so many people suffer from these rare genetic disorders that only apply to them personally or just a few other people, these particular mutations and drug companies are not going to invest billions of dollars into R&D to develop drugs that treat just a handful of people. So that's what the breakthrough is here with personalized gene editing is we can make a treatment that is based on your personal genome.

And, you know, that it will be a cheaper possible way than developing than pouring billions into a larger drug in order to treat you. Yeah, because KJ's disease only affects one in 1.3 million people. So, of course, it doesn't seem economically viable. But when you add up all the KJs of the world, suddenly there are 30 million people in the U.S. alone that suffer from one of these rare 7,000 genetic. diseases so you can see how the problem is much bigger than just this one baby.

But we're starting to work on a solution which is very exciting. That is all the time we have. Thanks so much for starting your morning with us. Have a wonderful Friday and an even better weekend. If you have any thoughts on the show, send an email with questions, comments, or feedback to Morning Brew Daily at Morningbrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lute is our producer. Our associate producers are Olivia Graham and Olivia Lake. Garretek is on audio. Hair makeup is bargain hunting. at the flea market. Devin Emery is our president

and our show is a production of Morning Brew. Great, show you, Eel. I wish you all well. Hey, Mama. Thanks for making all my favorite recipes. Hi, Ma. Thanks for your unfiltered advice.

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