Power Lunch - Consumer Cracks, and View From the Top 5/23/23

Episode Date: May 23, 2023

Retail earnings reports are creating a worrying picture of the consumer. But former Fed Chair Ben Bernanke says a soft landing is still possible. We’ll explore.Plus, CNBC is gathering business leaders at its CEO Council Summit. We’ll talk to the CEO of Crocs about all of the issues Wall Street is talking about right now. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody. Welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson, glad to have you with us. Coming up, the strength of the consumer retail earnings reports creating a bit of a worrisome picture. But former Fed Chair Ben Bernanke says a soft landing in the economy is still very possible. Plus, the view from the C-suite, CNBC gathering business leaders for a CEO summit out in California. We'll talk to the CEO of Crocs about all the issues everybody is talking about, debt-sealing, economy, dealing with China and trade, and more. Kelly. Looking forward to that. Hi, everybody. First, let's get a check on the markets, which have turned a little bit more negative in the last 30, 45 minutes or so, but the Dow's down still less than 100 points. The S&P is down three quarters of a percent right now at 4162,

and the NASDAQ a little bit worse than that. It's quiet on the regional bank front, though. Pack West jumping, Western Alliance higher. We see a PACWest up 12 percent, Comerica, Zions and the Green. Western Alliance is now slightly lower, I should say. And we're also seeing continued gains and some momentum names. Think Palantir, Carvana, Upstart, which had been on a monster move, but it's actually now down 2.5% Carvana, up 7% Palantir, a similar amount. And if we flip and show you the gains so far in May, some pretty impressive returns and lots of earnings movers in retail to mention as well. Here's, of course, the month-to-date gaze. As we mentioned, Upstart has nearly doubled incredible stuff. On the retail front, though, a little bit different story.

Let's get over to Courtney Reagan, where Lowe's investors are shrugging off a Dower forecast court. Yeah, that's right, Kelly. So shares of Lowe's actually slightly higher here, and that's perhaps because it was a bit expected after we heard from competitor Home Depot. And their results, Lowe's did lower their expectations for the full year for earnings, revenues, and same store sales. But it did beat the street's first quarter estimates for earnings and revenue. Like Home Depot, though, Lowe's was hit by lumber deflation, bad spring weather, and lower discretionary purchasing, leading to disappointing comparable sales for the quarter. Now, Dick's sporting goods beating on earnings and revenues, missing slightly on the same store sales growth.

The sporting goods retailer reaffirming its full-year forecast and looking for margin improvement. Executive Chairman Ed Stack tells me he's cautiously optimistic for the balance of the year. Dick Sporting Good shares, though losing momentum here down more than 1%. BJ's wholesale also reaffirms full-year guidance counting on continued strength in grocery and improvement in general merchandise, particularly apparel and toys as we move through the balance of the year. Investors, though, not convinced. shares down more than 7%. BJ's first quarter revenue was light.

comparable sales also much lower than expected. Earnings did come in in line. Tyler and Kelly? So what conclusions, if any, can we draw, Courtney, about the overall state of the consumer? When you look at Lowe's and Home Depot, I suppose you can say they are particular kinds of retailers, particular cases. They were both affected by lumber deflation, which could affect their revenues. Yeah, that's true.

But I think there also is some weakness generally in the home category. Even T.JX, which of course has Marshalls and T.J. Max, but also home goods, that segment was down pretty sharply. We even heard Walmart and Target call at home as a soft area. So I think we all did our homes. We did what we needed to do during the pandemic. That part was done. Also, some pull forward, I think, and some sporting goods equipment, some outdoor things. That's what Dick said as well. Again, makes sense when we bought all of that during the pandemic. How many kayaks does one family really need? And of course, we do see some weakness in apparel and some discretionary spending. And I think there's some question, again, is that because we went out and spent so much when we did

finally reemerge? Or is that because we're feeling a little tighter with a possible recession? I think there's a lot of question marks there, so a lot of cautiousness for the rest of the year. Or how many trips could my wife, Joe, make to home goods? Not enough. Never enough. Never enough. And don't question her when she comes home. I do not. I sit in the car. All right, Corden. Thanks. All right. Thank you. Meanwhile, lots of opinions on the state of the economy and what the Fed needs to do to engineer a soft landing. One opinion from a former Fed head seems to carry a little more weight. Let's bring in Steve Leesman with more on Ben Bernanke's thoughts. Steve? Yeah, Kelly, thanks.

Two of the world's top economists in a paper that looks at the sources of the pandemic-pandemic-era inflation conclude it's possible to escape without a massive rise in unemployment, though unclear how probable that is. Former Fed Chair Ben Bernanke, he joined with former IMF chief economist Olivia Blanchard. They conclude in a Brookings paper presented this morning that supply shocks combined with government stimulus, loose monetary policy and a consumer preference for goods. That's what caused the inflation outbreak. We kind of knew that. It was not, at least initially, driven by tight labor markets,

but they say that's changing now and does require higher interest rates. Quote, the portion of inflation which traces its origins to overheating of labor markets can only be reversed by policy actions, they say. The more interesting idea, how much does unemployment have to rise to conquer inflation? The two have at least one optimistic scenario in which job openings decline, without a big rise in unemployment. The paper says, for reasons not fully understood, the job worker matching process had become less efficient.

If that shift were to be fully reversed, that is back to where it was before the pandemic. It could bring down inflation over time without a significant increase in unemployment, an immaculate disinflation. Alternatively, if you have these high job openings, unemployment rate may have to rise higher and stay there to loosen up the labor market.

In a conference on the paper this afternoon at Brookings, I asked Bernanke about this. He said it's unclear. It's what's going to happen. But, quote, so far, so good for the immaculate disinflation folks. Kelly? Steve, stick around. Because in addition to all those concerns about the consumer and the Fed and the economy,

we've got the debt ceiling drama. That doesn't seem close to a conclusion. How is it all impacting markets? Let's ask Phil Orlando. He's chief equity market strategist with Federated Hermes. Good to see you, Phil. And how concerned are you on a scale of one to Bernanke? Kelly, thank you very much for having me.

back. I'm concerned. There's a lot of things out there. Certainly, the debt ceiling is near the top of our list. And here's the market sitting up at the 4200 level. So you wonder, stocks have had a phenomenal run here that are up 20, 21 percent since they're mid-October bottom. To some degree, they may be overbought. And you've got a number of concerns like the debt ceiling, like the slowing consumer. and you wonder what's going to give. And we're watching as intently as anyone. You say that you expect this year to look in the stock market like a barbell with a good start and a good finish. Why a good finish?

And then that would suggest that between now and the end of the year, let's say mid-October to the end of the year, between now and then sort of muddling through or maybe down if the economy shows signs of going into recession. Why do you think we'll end on an upnote? So counterintuitive that we have negative GDP prints forecast for the third and the fourth quarter, and we're also concerned that the debt ceiling situation that's dragging on right now might resemble what we saw in the summer 2011. President Obama and a Republican Congress. The stock market, remember, dropped about 10 or 15 percent of the first couple of weeks of August, in the entire third quarter of 2011, the stock market was down about 20%.

Now, cooler heads prevailed. We successfully resolved the problem, lifted the debt ceiling. Stocks rallied by 17% in the fourth quarter of 2011. We could be looking at a similar situation here. In addition, we're forecasting negative GDP prints in the third and the fourth quarter. The Federal Reserve, we think, has probably hiked rates for the last time in the May 3rd meeting. We think they go on pause on June 14th. We think they pause until sometime next year.

So if we get negative GDP prints in the third and fourth quarter, the Fed probably comes in sometime during the fourth quarter of this year and says, you know what, if the economy is trending towards recession, we'll probably cut interest rates at some point next year. The equity market is a forward-looking discounting mechanism, probably rallies on that ahead of the cuts, and that's how we end up with a barbell-shaped year. Although, Steve, the Fed has done everything it can to convince markets they won't be cutting this year.

No, not this year, but, you know, Phil's idea of cuts next year is not an out-of-sample forecast. The Fed has cuts actually built in and the market does as well. So we're just arguing over, you know, the calendar that year that it happens in. I don't think, though, I guess I would push back a little bit on Phil because I keep asking Fed officials this question. What would you do if inflation remains high? and the economy were in recession, and they're not so quick to say they would cut. That's a big difference. It's a bit like, you know, flying or doing acrobatics without a net in this case.

That would make things different. But the idea, guys, in the Bernanke paper with Bonchard, that maybe we can get out of this with a soft landing without a big rise in the unemployment rate, it's a potential big deal. I wish they were more definitive, like, hey, it's going to happen. but what it requires in part is going back to some of the things that were the way they were before the pandemic. And I don't think those are crazy ideas. The idea that the job matching process has become inefficient and we just have to become as efficient as we were before the pandemic. That doesn't seem crazy to me. So I think there are some reasons for optimism.

There are some reasons if you follow at least Goldman Sachs. Alan Sinai is another economist who says, hey, we might be able to get out of this without a recession. So there's not, I guess, not total doom and gloom on the horizon from my perspective. Phil, react to that. And particularly in the context of your call that we're going to have negative GDP prints in the next two quarters, which is technically the definition of a recession. Well, but we had two negative prints last year. And because the domestic private final sales were still positive, we were not in a recession.

one of the things that concerns us right now is the April retail sales had a nice rebound. It was the first sequential improvement in retail sales in three months and only the second increase in six months. But because of the rotating nature of Passover and Easter, we like to look at the mashup of March and April, Mayfow sales. They were only up 2% year-on-year this year versus 8.5% in April last year. So as we look ahead to the other two important retail seasons coming up, back to school and Christmas, if those numbers are similarly low to mid-single digit, and because the consumer accounts for 70% of GDP, we could be looking at a marginally negative third and fourth quarter. And that's disconcerting. Now, vis-à-vis the Federal Reserve, remember, their March SEP is forecasting the rate of unemployment to go up to 4.5% by the end of this year. We're 3.4% right now.

If that's right, if the rate of unemployment goes up by a full percentage point over the next eight months, over the course of history, whenever that's happened, the economy has gone into recession. There's a new SEP coming out on June 14th. Let's see if the Fed changes its forecast and sort of pulls back from that four and a half percent number. All right, we will find out. Phil Orlando, Steve Leesman. Thanks. Thank you. Appreciate it.

All right, let's see how all the stuff we just talked about about the economy, the Fed, the debt ceiling is playing out in the bond markets. We know the two-year yield getting back to March highs. Rick Santelli, standing by at Cebo React, and take us forward, Rick. You know, all I need to tell you is that we had a 21-day cash management-built T-bill auction today. You know what the yield was? 6.2 percent. Holy canoli.

Now, that is a big yield. And if you look at two years as reference, it's on pace for the highest yield close again. since the second week of March and 30-year bond yields. Did you notice this morning they crossed 4% intradate? Now, they've done that a few times, but we haven't closed above 4% going all the way back. Yes, you guessed it, to November of last year. Finally, one thing we want to point out when it comes to T-bills,

what's going to happen after we get a debt ceiling? Let's go talk to a trader. Paul, how's it going, big guy? Hey, Rick, how you doing? All right, debt ceiling is all. Anybody seems to want to talk about. Give me your rendition of that story. Well, you know, you're talking about that auction.

The market's definitely paying attention to the debt ceiling, but you can see down here, VIX isn't elevated. You know, it's not really busy yet. People are not really pricing in the worst case scenario right now. You know, what I find is that everybody's upset about it. No matter what your political persuasion is, everybody's upset, how your things like they need to grow. up. And if you're going to start using economic sanctions because you're the world's superpower,

the reserve currency, all of this stuff isn't helping. Well, it's not, but I'm going to leave it to you to scold the people that are running the show right now. That's not really... Do you think they're actually going to get it done on time and on budget? Are we going to have this little omnibus window where everybody's pulling their eyelashes out? Well, it's hard to know what is on time, Rick. There's a lot of different projections of when the X-Dates. is. So that's actually interesting down here. That's the one place where people are really able to take advantage of these short-dated options to trade a lot of calendars and make sure their risk is. Yes, tailor it exactly. And as for June 1st, I am sure Treasury Secretary Janet Yellens,

a sharp one. She probably has a couple of days, maybe a week in her pocket. I think that'll make a difference? Final thought? Yeah, I mean, she's been on the other side of this in her past life, so I'm sure she's going to do her best to make sure we don't see a catastrophe. There's one job I'm glad I don't have. Paul, thank you for being our guest today. Kelly, back to you. Great stuff, guys. Thank you. Coming up, Microsoft stepping on the gas to keep its lead in the AI race. The company announcing concrete ways to use all of these innovative tools. We have those details coming up. Plus a quick power check before we go to break. Moderna leading the S&P 500, as the company is trying to transition to the post-COVID world,

Headlines of a new wave sweeping through China are boosting the stock 10% today. On the other side of the biotech coin is Edex Labs. It's the worst performer in the S&P 500 today with almost a 6% drop. We're back after this. Welcome back to Power Lunch. Microsoft taking another step forward in the AI race. Today, detailing plans on how it intends to use chatbots to help its customers. Steve Kovac is here with the details.

Oh, goody, chatbots. Yes, more AI, believe it or not. So Microsoft announcing a slew of news. AI features and products today as part of its annual Bill of Developers Conference. Of course, everything was AI colored. Big announcement today, Bing will be the default search engine in the chat GPT app. Now, this is one of the most important things Microsoft wants to do with AI, expand its search market share against Google, though a few signs of progress there since announcing the AI

powered Bing just a few months ago. But incorporating into chat GPT puts Bing front and center in one of the hottest apps right now just last week. It came out on the iPhone and is sitting. at the top of the app store. Also announcing plugins for BingChat, rather, think of these as AI apps that tap into AI's capabilities. Companies like Spotify, Kayak, Instacart, they're all already on board. And then Windows, it's also getting Microsoft's AI co-pilot features. This is coming to Windows 11 very soon. Now, overall, if you're keeping score in the AI race between Microsoft

and Google, Microsoft is proving it's still ahead when it comes to actually shipping products. Though Google did tease several upcoming AI projects at its own developers conference a few weeks ago, guys. So Bing uses chat GPT. We put some chat GPT in your Bing and some Bing in a chat GPT. Is that what it is? And chat GPT, they're going to have Bing in there. So it's all together. And they're calling these plugins.

So basically the way I think is the easiest to think about it is they're AI apps. So these third parties, including Bing, can tie into this open AI technology that's partnered with Microsoft and OpenAI. I'm a first grader at this. What do I use Bing for and what do I use ChatGPT for? In other words, one is purely a search engine. The other is an AI-infused, what? Search engine?

Exactly. The way they're pitching, so for the chatbot part of it, it's basically, think of it as a tool to help you do something. I need to write an essay. I need to come up with ideas for a kid's birthday party. I need to go on a trip. Help me come up with ideas for that. Also, sometimes, you've probably used ChatGaptain.

GBT before, it doesn't always give your results directly from the web. So you might want to say, okay, what does the rest of the internet have to say about this? I heard from chat GPT. Well, Bing is going to now be the default search engine for that. In theory, Google can build itself into this, too, but right now Bing is going to be the default because of that relationship with Microsoft. Okay. You also read a little bit of the kind of competitive landscape into Sundar Pichai's very vocal and he was on 60 Minutes. Now he's got the FT op-ed about, you know, building rules for AI. Just talk to us a little bit about that. And is it in some ways his attempt to say, okay, we might not have been first, but we're going to be, you know, we're going to get everyone's stamp of approval. You could read

into it that way, but he's also mimicking a lot of the messaging that we heard from Sam Altman on Capitol Hill last week that we've heard from Satya Nadella's CEO of Microsoft. They're all asking for regulation whether or not they believe they want it. I don't know if that's true. They are, but what is true, they're plowing ahead. I know Senator Ten Cruz was on Squackbox today and he's one of the people who are going to be making the decisions how to regulate these things. He effectively says we don't know. I mean, I talked to him off camera for a little bit, and he was like, this is out of our hands, and no one knows what they're doing right now. And that was very blunt from the senator. I also think of Section 230. I mean, we always talk about, you know,

oh, you know, what we did or didn't do with social media. Well, even the legislation at the heart of the rise of the internet and social media continues to be, you know, controversial today. Right. So it just feels to me like they should wait to be very sure. what kind of legislation they want before moving ahead with it. I understand people say you can't wait, but there's a bigger danger in doing this wrong, I would think, than in not doing it all. Yeah, exactly.

It's also a chicken and egg problem because we don't know what this technology is going to be capable of a year from now, let alone 10 years from now. So how do you regulate something you can't foresee? At the same time, again, these companies are plowing ahead. That's why you hear some people. Let's pause, pump the brakes for a second, figure out where we're going first, and then figure out the path forward. But that's not what's happening.

No, we like to keep that foot on the accelerator 100 miles, you know. Ready fire aim is what they're doing. Thank you, Steve. Our Steve Kovac. Quick programming note, don't miss our Power Lunch special report. All things, AI, a deep dive on everything you need to know. It's coming up this Friday, May 26th, 2 p.m. Eastern Time. Don't miss it.

Watch and learn. I will be learning a lot. As we head to break, CNBC celebrates Asian American and Pacific Islander heritage throughout this month of May, sharing stories of business leaders in their community. here is Shizu Okusa, Apothecary founder and CEO. What makes me proud of being an Asian-American founder is my parents. They immigrated here in the 1980s with nothing. They were farmers, and here I am today, having raised over 13 million of venture capital

on my second company, Apothecary, filmed for Shark Tank, and I am just getting started. Welcome back to Power Lunch, everybody. Stocks falling now to session lows off 260 points, about three-quarters. of a percent. Let's get a check on the energy markets as trading closes for the day. And Pipp is here to join us. Yeah. Oil is higher extending yesterday's moderate rally. And part of that is thanks to comments from Saudi Arabia's energy minister speaking earlier in Doha. He was asked about speculators and short sellers in the oil market. And he said that I would keep advising them that they

will be outching. They did ouch in April before adding, I would just tell them, watch out. So, of course, you know, actions speak louder than words. And we might not see any follow through, but I think the market is taking these comments a little bit more seriously than usual, given that that OPEC plus meeting is coming up in a week and a half. And Saudi Arabia has been known to announce surprise movements. Pippa, I've been on Twitter. And Twitter is telling me that maybe people are getting really bearish about the Permian all of a sudden. And that what's really going on with some of this OPEC squeeze is their sense that maybe we couldn't step in and kind of fill the supply gap if they wanted to pull back. And all of it sounds kind of bullish,

crude for me, which is maybe why it explains why that's in the green on a day when everything else looks a lot, you know, uglier. Yeah, and I mean, we've seen well productivity come down, and the Pyramian's been such a kind of, you know, symbol of American energy. And even with that deal yesterday with Chevron, expanding into both Delaware and Colorado, and, you know, you know, beefing up their operations in other basins, I think there are some worries that there's so much, so much hope on the Permian, and it still is very productive, but well, productivity has come down. And so if Twitter is saying that... That it must be right.

Yeah, then it must be right. Scott Sheffield has talked about it too, so I know there's like some legit thought process here. But yeah, if that's changing, it could kind of come at the worst time, too, for a weaker U.S. economy, weaker consumer, stronger energy prices. Yeah, and Saudi Arabia knows that it's sitting in a very good position right now because they do have more

spending capacity. They can ramp things up, ramp things down. They're in a pretty good position right now. All right, Pippa. Thank you very much. Pippa Stevens. Let's get to Leslie Picker now for a CNBC News update. Leslie. Thank you, Tyler. The family of a Colorado man shot and killed last year by a deputy will receive a $19 million settlement that is the largest of its kind in the state's history. An attorney for Christian Glass's family says the 22-year-old was likely having a mental health crisis when he called 911 after his SUV got stuck. Glass appeared to be holding a knife when he was shot five times after refusing to get out of his vehicle. The U.S. Embassy in Moscow called the extension of a Wall Street journalist reporter. a detention in Russia deeply concerning. A Russian judge extended to Evan Gershkovich's pre-trial detention by three months today. The embassy says Russia's espionage charges against the reporter

are baseless and says Moscow unjustifiably detained its request for a consular visit to Gershkovich last week. NBC News has learned Florida Governor Ron DeSantis will announce he is running for president during a discussion with Twitter CEO Elon Musk. It will come as Musk and DeSantis host an event on Twitter Spaces. The site's platform for audio chats on Wednesday at 7 p.m. Eastern Time. Kelly, back over to you. Wow, that's a biggie. So it's an audio chat. Or maybe is there a video component to? I don't know. She just said on audience there. Twitter Spaces is for audio chats. But an interesting choice of interviewers. Well, yes. And also for Musk to, I mean, let's just call it sort of endorse or appear with DeSantis,

you just go back and look at the kind of colorful history he's had with Trump, where at times they've been nemesies, then at other times they've supported one another. Of course, he basically signaled his openness to bringing Trump back on Twitter when he bought it a year or so ago. I believe Trump never did that. He just kind of stayed on his own social media site. But this is a pretty big statement to appear with his chief rival, basically, Rhonda Santos. Very interesting. So it should be a spicy. Well, Trump's not on Twitter, but social media will be a buzz. Top executives are convening at CNBC's CEO Council Summit, discussing topics from markets to geopolitics. Yesterday, Nike CEO John Donahoe warned about the perils of a potential

decoupling from China, a big market for them, despite tensions in the Pacific. Take a listen. I think decoupling would be disastrous economically between the U.S. and China or China and European Union. If you really look at the trade flows, both ways, they play a mutually valuable role. And so, you know, again, we believe in global trade. And we'll continue to try to do everything we can to support that. And coming up, we'll hear from another retail executive on our CEO Council about doing business with China, about the consumer and more. Crocs CEO Andrew Reese joins us live.

Power Lunch will be right back. Dow's down 220. Welcome back to Power Lunch. CNBC's inaugural CEO Council Summit in full sway out in Santa Barbara, California. It comes at a time when business leaders are faced with a host of challenges, ranging from rising interest rates to inflation and often getting dragged into difficult social issues. Also a lot of uncertainty with the debt ceiling, recession fears, and how those things weigh on consumers.

Joining us now to discuss all of the above from the CEO Council Summit is Andrew Reese. He is the CEO of Crocs. Andrew, welcome. Good to have you with us. We just went to commercial break hearing from John Donahoe of Nike. And he was talking about how it would be sort of bad business and bad policy to decouple from China. China is your third largest sort of cluster of stores. I presume you do some production out of China.

Talk to me about your relation with China and how you feel, how you are trying to thread the needle of doing business there in an economy and in a system that is not always comfortable to deal with. Look, I completely agree with John. I think if the U.S. was to decouple from China in any way, shape, or form, it would be extremely problematic for many, many businesses in the world, right? There's a lot of mutual dependency, as you just said in your introduction.

We like Nike, manufacture in China, also sell into China. So the country, you know, forms going to both ends of our supply chain. I would say from a manufacturing base, we've been doing a lot of migration out of China, so it's a much smaller portion of a manufacturing base. But it's an incredible consumer market, right? In terms of the global footwear market, the Chinese market, is the second biggest market in the world after the US marketplace and frankly a very large gap between them and the third biggest market so it's super important to us and you know what we try and do is really focus on the

Chinese consumer how do we meet the Chinese consumers needs how do we appeal to them in a productive way and then just recently we've gotten great traction with our personalization engine you may you may know that as gibbets where we add the gibbets into the shoes and the consumer can express their own points of view about all sorts of different things you know and typically you know fun and interesting ways and that's gotten a great deal of traction in China recently. You just mentioned something that triggered something. I mean the gibbets are things where you can express your own point of view. Do you in any way control what those consumers can say in their point of view? In other words, if some jibbitt was in some

way offensive or misogynistic or racist or whatever, do you control that? We do not control that, right? So we don't encourage that either. You know, our tagline and really our brand ethos that we see both in our consumers, but also in our employees and how we interact with the world in terms of our kind of social responsibility is come as you are. So we're really, we want to encourage people to be themselves and to do express the views and the feelings that they have. We do not make gibbets that we think are in bad taste, et cetera. So we avoid that. But we definitely encourage consumers to come as they. are and I think that's an incredibly powerful platform in today's world and a global

platform of that. You know, as we're talking about this, we talk about how companies sometimes can get drawn into socially controversial topics. Obviously, case number one may be what's going on between Disney and the state of Florida right now. As you look at your portfolio of products and you look at all of the issues that may come across your desk as CEO, including social issues. environmental responsibility, sustainability, income inequality, etc., etc., how do you choose

which issues you might engage with in and which you would pass on? Yeah, look, this is an incredibly complex world. You know, as I kind of grew up in the business world and getting ready to be, you know, potentially getting the diverse experiences enable you to be a CEO, you kind of worry about how do I generate revenue, how do I control costs, how do I support margins, how do I make money none of those topics are in that you know are in that education process that you go through so you're right it's very complex it's fraught with dangers and and I think you know we actually was just having some discussions

here at the council about how to how do you do that and I told them another CEO what I do is I have a you know a representative group of people I think I have a diverse set of points of view and I try and make sure I engage them and hear lots of different points of view about things I think as a as a as a our size, we want to focus on what's important to our consumers. We're not trying to push agendas that are, I think, created by the company. We're trying to represent and do the best job for our consumers. And I think if we remain focused on the consumer, you know, hopefully we can navigate a course, which is we represent them really well, we provide them

products that they love and adore and continue to buy. And we probably try and stay a little bit below the radar screen of maybe some of these larger topics. How do you... I think when companies engage... Go ahead, sorry. No, that's a very comprehensive answer. And I sympathize with the predicament that CEOs like you have to deal with because, obviously, you're very much a consumer-facing company, and people can get really bent out of shape if you take a stand on something, and they don't agree with you. And, you know, I remember, what was it, Michael Jordan said, you know, hey, Republicans buy Nikes, too.

So, you know, you can't choose which side you're going to be on. Let's talk a little bit about where you see the consumer right now and their level of health. Obviously, Crocs are an affordable brand. They ain't Yeezys, which is probably a good thing. But talk to me about where you see the consumer right now. Yeah. I think before I kind of dive into that, what I would actually say is that we have actually two affordable brands. So the Crocs company, we own Crocs, which you, every single.

Everybody knows and knows exactly what it is, sells at $50, right? Typically the classic crog. We also own a new brand we bought about just over a year ago called Hey Dude, which also sells at a very affordable price, usually around $60, $65. So I think that's a tremendous asset for us. What we see in kind of the consumer world today is there's some tier of consumers that are getting forced to make choices. I believe, and you can kind of see that in some of the, I think the broad-based retail

results we've had in the last couple of weeks. you know i think uh... walmart's seeing some trade down target suffering a little bit home depot seeing some slowing and spending on uh... on people's homes uh... and uh... we see i think the consumer is forced into making choices and if you talk to you know some of the bankers and some of the economists that are here at this conference you know they said well that is exactly the point that is the point of the uh... rising interest rates is to put the breaks on the economy without destroying the

economy so i think we're starting to see that uh... in in in the fortwell world in the fortwell world And we're seeing some winners and losers. You know, personally, we think we succeed in that environment as a company because of the democratic price point we sell at and the very, very broad consumer basis that we have for both of our brands. But I think you can certainly start to see that emerging. Andrew, thank you very much for a very interesting conversation.

We appreciate it. Thank you so much. Andrew Reese of Crocs. Still ahead, pedaling to new pastures. Peloton announcing a new brand refresh, including a pivot from members. is only focused of fitness for all. But with shares already cut in half over the past year,

will that be enough to salvage its image? Power lunch is back with that question. Welcome back. Peloton announcing the start of a new chapter today, relaunching the brand from an in-home bike company to a fitness brand for all. Cmbc.com reporting along with the new mantra, Peloton will be introducing a new tiered pricing structure for its app, including a free option for users and a new feature called Peloton Gym.

Peloton shares are down 8% in 2023. and, of course, so fell almost half the previous year. To discuss, let's welcome in the writer behind this piece. Retail reporter, Gabrielle Fon Rouge. Welcome. Thanks so much for having me. So juicy. I mean, we all follow the Peloton saga trying to figure out what we would do, right?

In the same situation. I don't know about this move. What is their intent here? You know, Peloton has long been reserved for a very specific type of person, and they've always marketed the company in that way. This, in their eyes, is going to open up a whole new total of business. addressable market for them. They're hoping to get new customers that previously they weren't speaking to. It's strength, it's bar, it's stretching, it's all kinds of things. Let me ask you this question.

If I am the owner of a Peloton bike, which I am, and I subscribe to their monthly plan at $44 at $95, I believe that's the price right now, they are now going to have Peloton App Plus at $24 a month that seems like it's going to be, quote, frictionless with unlimited access to Peloton's vast library, the tier includes all of the app's offerings and unlocks access to thousands of equipment base cardio classes. Why would I continue to pay 44-95 if I can get the same thing for $24? And if they are actually offering essentially what I get for $44, and I don't get it, I'm going to cancel. So you tell them that. You make an excellent point, because that's totally true. You can pay $44 a month with the bike and have all of that, but now you can pay $24 a month

and still be able to do those awesome classes that everybody loves, the cycling classes, the tread classes. And, you know, so customers who have shelled out for the bike already, you're kind of out of luck. But new customers are going to be able to take advantage. No, listen, it's never a great idea to alienate your existing customer base. No, I'm thinking of Tesla. I bought a Tesla. Then he cuts the price. Exactly. Exactly. This is my business. The curse of Daphison. I buy it to peak every time. So what they should do, though, is really make sure that the people who loved the bike and feel part of the community are not alienated by this move, which we don't even know if it will work. I mean, you could say $24 is a bargain, but maybe it's not. Maybe that's still prices out a lot of people. You know, absolutely. And this kind of space sees a lot of churn as is. And I spoke with some Peloton users for this story. And a lot of them were like, you know, Peloton was like a club. And now everybody can get into the club. You know, the brand isn't consistent.

I asked them, I was like, are you concerned about brand dilution? And they said, look, this is how Peloton has always been. And now Peloton inside, it's now Peloton on the outside. And what's the idea that you can take the Peloton classes to the gym? On your phone? In other words, you would take your phone into the gym and follow my favorite instructor. Look, I love the product. It's a fantastic product.

You take your favorite instructor and do the work out there in the gym. Is that the idea? Yes, that's exactly the idea. You know, before Peloton was always seen as anti-gym. Gym was an existential threat to their business. But they realized that's holding them back. I mean, the shares speak for themselves, the revenue speaks for themselves. The company is not what it once was.

So they need to kind of bring other people in, find more use cases for this. So with the gym app, or with the gym function in the app, you can set up a custom workout. You can be at the gym. You know, a lot of people don't know what to do with the gym. You're there. They're overwhelmed. So the app will give you a custom workout that you can follow along while you're there. Very interesting.

All right. I don't know. It's a new day for Feliton. I guess we'll see how it works out. Gabrielle. Thank you very much. My pleasure. Thank you. Speaking of Peloton, Niddam Kinsu's House of Kings, not getting any help from those shares in this year's stock draft.

His team is currently in last place. Those were his picks, UNH and Peloton, Peton, down about 15% since that draft. Meanwhile, Tori Dunlop and the Financial Feminist have a commanding lead thanks to first round pick AMD, which is up more than 25% since the draft. Doesn't hurt they have Microsoft too. Yeah. All right. Coming up, chips, cars, and communications.

We're going to trade Broadcom, AutoZone, and Zoom in a fresh three-stock lunch. We'll be right back. All right, folks, it's time for today's three-stock lunch. We focus on three big movers from today. We've got your Broadcom, we've got your AutoZone, we've got your Zoom. First up, shares are up after Apple announced a multi-year, multi-billion dollar deal with the technology and advanced manufacturing company. Today, here with that trade and more, Victoria Green, Chief Investment Officer at G-squared private wealth. Thank you for joining. It's good to see you again. Let's start with Broadcom. Like it, love it, loathe it.

I love this stock. You've got to love the news that their biggest customer, 20% of their revenues, about 7 billion in annual revenues, has re-upped what had been seen as a more contentious situation. So it gave affirmation that the stock is going to be able to grow, just broke out of those 2021, heading a new high. Bank of America upgrading its price target to 800. I just really like the momentum the stock has. I do think it could lag up there to the 7th. $750,800. Ooh, all right. Feeling good about it, Victoria. What about AutoZone? The stock's such an interesting one. It and O'Reilly have been amazing performers, but now it's taking a 7.5% chop after that earnings report and have the fundamentals change for you. Would you bail on it? Yeah, this is a bail for me. You have to read through. And for them, the biggest driver is their margins are going to contract because their DIY retail versus the commercial is changing.

DIY retail is now only 73% of revenues and starting to slip a little bit, and their commercial has lower margins. So they're under margin pressure. The stock got expensive. You do have that support right here, right around like 2040 for the 200-day moving average, but if you miss that, you're down to 2,300. And I just think the stock is just right for a pullback. Because if you have slowing margins and slowing revenue growth, then it just puts pressure

on an expensive stock that had been on a tear. Well, Zoom's story is Zoom fall down, go boom, right? I mean, what do you think of this one? I can't touch it. I know. It went boom from 600 to 60, basically, but I do actually think we're 60 is where they're going to retest. They had to throw out the AI, which I think is like, remember when everybody was throwing

out ESG and kind of greenwashing because it was a buzzword? This earning season, AI has been the buzzword. And I just think they're going to be under pressure. Look, they're struggling to have growth. They're going to have increased costs. They're trying to expand their products. And so their margins are going to come under pressure. Yes, maybe some of the worst is behind them.

they have a lower bar, but you just think they've got so many headwinds to actually achieve growth. And so I think that that 60 low is reasonable, maybe, but just too much downside pressure in their chart is so ugly. I mean, just like a bad hockey stick, ugly. I just can't touch it right here. That was about $6 below current prices. Victoria, please apply this analysis to the broader mark. Can you explain the stock market today? Because we are down 100. We've been, you know, it's been so resilient. Then suddenly we're down 250. I mean, good luck finding a real headline. It is. I think it's just nervousness about the debt deal. You know, there seems to be a lot of contention between the two sides that that seem to be growing a little further apart. You know,

now they're calling into question, is it really June 1? And that's not necessarily the news you want to have come out there. But I think just broader, there's a lot of nervousness that the fundamentals are really not looking that great. So it was trading more on sentiment and technicals and a little bit this meltup has been a lot of fomo, right? Everybody's saying, well, the bottom must be in. And at this point, we haven't been able to cross 4,200. So maybe. Maybe that bare market's still intact. A quick final comment. Why is the NASDAQ suddenly underperforming, especially because the mentality has been the chases on, you know, just grabbing Vidae and go?

Yeah, jabbing Nvidia and go. Yeah, anything AI. No, I think right now they got a little expensive. So I think potentially you're seeing some profit taking, some people's trying to hedge this potential tail end risk coming June 1st. And without news, I think you could see a little bit more of a meltdown because people may say, hey, these stocks are up 80, 90, 100%. We've had so many gains. Maybe I want to, maybe I want to protect these gains just a little bit. Absolutely. Victoria, thanks today. We appreciate it. Victoria Green.

Thanks, guys. All right, still to come. Italy's got a pasta problem and a mortgage giant trying to make buyers' dreams come through. That and much more when power lines return. Welcome back, but a little under three minutes left in the show. A bunch more stories you need to know. So let's not waste any time. Clock is ticking and Rocket Mortgage is letting buyers put as little as 1% down on a new home. The new program is aimed at low and moderate income. and will also waive mortgage insurance, the catch, strict qualifications, including high credit standards. Rocket estimates 90 million people could qualify, Ty.

But, I mean, the high credit quality often are like the cash-rich buyers who don't need this kind of program, so I don't get it. It's supposed to be people with 80 whose income is 80% or less than the median in the area in which the mortgage is being written. I think these are also going to be guaranteed by Fannie Mae and Freddie Mac, which is a big deal there. A certain general's warning on social media, folks, to tell you about. This time it is social media. Vivek Murty, saying it can be a profound risk to young people, and we still don't know the impact it can have on the developing minds of adolescents. The takeaway Mertie says is that protecting kids needs to come from the tech companies

and the government to set product safety standards. I believe he says that no kid under 13 should be using social media, but about 90% of kids between 30%. and 17 do. Yeah, it's an uphill battle. It's an uphill battle, certainly. New York City's plan to crackdown on shoplifting. Speaking of uphill battles, it's catching criticism for being too lenient. Steps proposed by the mayor's office include offering first-time offenders' intervention programs instead of prosecution and de-escalation training for retail employees. Shoplifting is up 44% across the city in the past year. De-escalation training. What does that mean?

Excuse me, sir. I see you have 40 eyes-odd shirts in your hands. Could you please put it back? Could you please put them back? I mean, I don't know. I think giving first-time offenders intervention programs, maybe that makes some sense here. I think retailers are just saying we need a real solution to a huge problem. I'm not sure that is here. Installs kiosks in stores to connect would-be thieves with social services programs. It doesn't feel like it's going to work, but who knows?

All right. Italy's pasta problem, the country's minister of business says pasta prices have jumped about 17% year-over-year in each of the past two months, roughly double the increase for the entire consumer price index. The situation has gotten so dire that the Minister of Economic Development convened an emergency meeting this month to discuss potential solutions, one of which is to tell Italians just to not eat pasta. Bring down the demand. You may bring down the price. Remember we were talking about tomato shortages, olive oil price spikes, and now pasta.

And now pasta. The average Italian eat something like 50 pounds of pasta a year. Thanks for watching, PowerLine.