Power Lunch - Money & Politics, What’s Next For Chipotle? 8/14/24

Episode Date: August 14, 2024

Could the Department of Justice really break up Google? And what happened to all that Chips Act money that was promised to companies? We’ll do a deep dive into the intersection of tech and politics.Plus, what’s next for Chipotle after the departure of CEO Brian Niccol to Starbucks? Is the fast casual giant really that dependent on one single executive? We’ll discuss, with $CMG stock falling again today. 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, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us. Coming up, money and politics, could the Department of Justice really break up Google and what happened to all that chips act money that was promised to companies? Two years later, none of it's been spent. And what's next for Chipotle after the departure of Brian Nickel to Starbucks? The stock is falling again today? Is the company really that dependent on one person? Let's start with the market reaction, though, to this morning's consumer price index. Stocks are rising, but it's somewhat of a mixed picture.

half a percent, the S&P up fractionally, the NASDAQ lower by a third, and this as bond yields have been falling. The CPI rose by two-tenths of a percent in July from June, but the annual increase 2.9 percent that is the lowest since early 2021. Well, as inflation gets closer and closer and closer to the Fed's target of 2 percent, is that enough for a rate cut in September, and if so, what would that mean for markets? Let's bring in Dean Mackie. He's chief economist at 0.72 asset management, and Adil Zumann, he's a partner at the Wall Street Alliance Group. Dean, let me begin with you. It would seem to me that after this CPI report, this inflation report today, you know, the story is already written.

There's going to be a rate cut in September. Has the market already priced that in? The market has priced in a rate cut in September. The market's really trying to distinguish whether it's going to be 25 or 50 basis points on the size of that rate cut. I think the only thing that could throw it off would be, you know, if we just get a horrible inflation print right before the meeting. But that seems unlikely, given the backdrop that we're seeing in the inflation numbers now. Adil, it seems that it would be unlikely that the Fed would cut by a half point. That would probably require the next jobs report to be really bad. Yes. Yeah, most likely we're going to get a 25 basis points rate cut. And I think the Fed has done their

job here. You know, CPI came down from 9% all the way down to 3%. The Fed has vanquished inflation. I think that the only concern right now that we see is that consumer spending is the earnings report showed signs of the consumer slowing down. So I think that is going to be a concern. So any negative news about the consumer, potentially that could create a sell-off in the market. How widespread was that were the signs of that slowdown? I saw those same earnings reports. and some indicated a slow down. Others did not. Yes.

Well, I think that, you know, we saw this with Home Depot, we saw this with Starbucks, we saw this with Chipotle, and I think we are seeing it both on the high end and on the lower end as well. So I think that investors do need to be cautious over here because we are also entering historically one of the weakest periods of the year, September, we know about the September effect.

And a lot of investors are very overly concentrated in big tech right now. Deanne, just kind of broadening back out, going back a year or so, despite the inverted yield curve and all the decline in leading economic indicators, the decline in the ISMs, you've maintained this posture, which is proven correct, that the economy would keep growing. Do you still see signs that there is enough to keep this expansion going? And what does that mean, this very different economic cycle than where we have to take all of those into account, and yet they don't tell us what they once did? Yeah, I think that we are going to see continued growth here. That is our view. And there's a few reasons for that.

One is that despite the reports you're hearing from some of the consumer companies, a lot of that is because inflation is coming down, which is precisely what the Fed wanted to happen. So that means less pricing power in particular for companies that sell goods to consumers. The volume growth on real consumer spending is actually pretty good. It's 2 to 2.5%. And that's good enough to keep the economy growing at a pace somewhere in that 2.5% range in RV. So I think that this is not inconsistent with what you're hearing.

It's just a very different environment from the very rapid inflation that we saw over the last couple years. Adil, you point out that one of the things that concerns you is the concentration that many people have in their portfolios, or, for example, in the S&P 500 where three stocks equal 20% of the index or whatever the number is. How do you know when you have too much concentration in a single stock or a single sector? A lot of people made a lot of money in Invidia. A lot of people made a lot of money in Eli Lilly. A lot of people made a lot of money in lots of different places. How much is too much?

Well, I think the general rule that we like to follow is not more than 5% in any one stock, right? And we also, what happened with Tesla, right? Tesla had a monster rally up until November of 2021. And since then, the stock is down more than 40%. Right now, if we add back alphabet and meta, the SNP 500, 40% of it almost is in technology. So on the way up, concentration works, but on the way down, it can be very dangerous. So at this point in time, we really feel that investors should focus on increasing the breadth in the portfolio and focus on sectors that are going to benefit more from rate cuts that have been lagging thus far.

Yeah, I guess, you know, to build on the rate cut thing, what do you explain? expecting now in terms of cuts? The two that are priced in between now and next year, or actually two points worth? Yes, I think probably that's what we are going to get, and the market has probably factored that in. When we do get the rate cuts, I think certain sectors will benefit tremendously from it. I think dividend-paying companies, for example, will do really well, because there's near $6 trillion that's sitting in money market funds, and these yield-hungry investors, once rates are cut, need to gravitate somewhere. So they'll gravitate towards dividend payers in our view.

For example, if you look at Pfizer, that stock year-to-date is pretty much flat. But the dividend yield on that is about 5.8%. So those are the areas of the market that we are now more interested in. Dean, what do you see as an economist as the biggest risk to the economy right now? Is it that consumer spending slowdown that Adil pointed to? Is it rising unemployment that we saw in the most recent print a couple of weeks ago? What is it? And how worried are you that we might not get a soft landing?

Yeah, I think the thing to focus on here is corporate profitability. And the reason is that that would be what would drive a significant layoff activity, which we have not seen so far, despite the rise in the unemployment rate. Jobless claims are only initial jobless claims are only 1,000 above where they were, year ago. And they're still at a very low level historically. So I'm confident that corporations will continue to hire in part because corporate profit margins are close to the highest level since the 1960s. And that just has not been the environment where corporations start to lay off hundreds of thousands of workers. Very interesting. Okay, Dean, Dean Mackie, thank you very much. Adil Zaman.

Thank you as well. And bond yields are falling today, although they moderated that somewhat after the CPI. the 10-year yield sitting just above 3.8%. Let's get out to Rick Santelli in Chicago for more. And Rick, it was so interesting to watch the down draft into the print. And then things, they said, ah, wasn't that good. Yeah, no, but here's the issue. They've already, the markets, have already made a significant adjustment. Okay, as you look at the charts, 24-hour chart of two-year, not much different. 24-hour chart of tens, their yields are a bit lower, so the curve's re-inverting a bit. But if you look at the long-term charts, you know, we're at 15 and a half month, virtually at 15-a-month low yields on a closing basis in twos and virtually at a 13-month in tens. So a lot of that's built in.

This particular number? Well, we have the man here. We have Casey Mulligan. He was the chief economist in the Trump administration, in the Trump White House. And we're going to ask him the question. All right, I'm Donald Trump. You're sitting at the table. You used to visit once a month, didn't you?

We used to go, he sent us over to the Federal Reserve to meet with Paul and the governors once a month to make sure we're on the save wavelength, which we very much were on the technical issues. And what was the main discussion on those monthly visits? We talked about appointing. They need new people. People were retiring. Who would be a good economist to participate on the Fed board in the future? And maybe smooth over.

There was some prodding in public. You know, and I really like that. Real quickly, I don't mean to get off course here. prodding in public. The image that was painted by the media was that Trump was in Powell's face going, you've got to ease, you got to ease. Any truth to that? He said that in public, yes. Right, but was there a direct confrontation with Powell, to the best of your knowledge? No. Okay. Now, you're sitting at the table, and Trump wants a report on today's CPI number.

Give me your report. Well, we're supposed to be at 2%. The Fed really emphasized that, and we're not there yet. We went up to 9, and we're still not to 2. They have one job. inflation, 2%, they need to get there. Well, they would argue they have three jobs. They have inflation, they have maximum employment, and then a stable price environment, of course. But ultimately, we have switched gears, haven't we?

Inflation is what the public's concerned about. All of a sudden the Fed's more concerned about the labor market. Well, they can't really influence the labor market, so that's why I say they have one job, inflation. If they don't do, if inflation isn't where it's supposed to be, the buck stops with the Fed. Now, considering it is a huge election year, and you've been in this situation politically.

What kind of headlines are we going to see if the Fed decides to ease, mostly based on a weaker labor market, but yet inflation, even though it's cooled rather dramatically, lately it's basically stayed about the same minor infractions to the downside. The public's really big on this, your final thoughts. They should not get bit distracted by other issues. Inflation is what people care about, and inflation is what they can affect. Excellent. Casey Mulligan, it's always a pleasure to speak with you. Kelly, back to you.

Good questions, Rick. Thank you, Rick Santelli. Reports swirling around tech giant alphabet on news the DOJ may be considering a breakup of Google. The company has been fighting regulatory fronts across the globe the past couple of years. We'll dive deeper with the shares lower today next. Welcome back to Power Lund. Shares of Alphabet falling 3% today. On reports the Department of Justice may try to break up the company. Amin Javers joins us now with the Washington angle of this story. Amen. Hey there, Tyler, that's right. The judge found last week that Google is an internet search monopoly. So now the question is what to do about it. Federal Judge Amit Mehta asked the Department of Justice and Google to come up with ways to fix this monopoly problem by September

4th. And that puts on the table this question of remedy. That's just a legal term for breaking up a monopoly. There have been a number of media reports now suggesting that a breakup of the nearly $2 trillion market cap company could be on the table. And that's literally literally, literally, literally true at this stage, by definition, all options are really in play. But the real question here is whether the Department of Justice is willing to go that far in its request to the court and whether the judge thinks that's the best solution. So the Department of Justice's Jonathan Cantor was asked about this on Squawk Box yesterday. He was careful not to tip his hand.

Here's what he said. That case, USV Google, was the first monopolization case, not just major monopolization case, but the first litigated monopolization case since USV Microsoft. These cases don't come very often, and when they do, they tend to be quite large and quite big. So Cantor there saying quite large and quite big. If you wanted to read the tea leaves, you could maybe read into that that he's thinking, go big or go home. Now, Google has said it will appeal the decision, and a spokesman today declined to comment on the idea of breaking up the company. Whatever happens here is going to take quite a bit of time, so investors really shouldn't expect any sudden moves here.

next hearing scheduled for September 6, guys. Back over view. September 6 is the next hearing, but the judge wants some remedy proposals by September 4th. That's right. Yeah, he wants to have all that stuff in hand and then be able to move forward with the hearing and then figure out what to do. So the question is, what's the DOJ going to propose in those documents? We don't know the answer to that. And I guess the question for investors, Tyler, is this idea that we hear in the private sector in terms of M&A when you break up or spin off subsidiaries of companies. You know, a lot of the M&A guys like to talk about unlocking value in a company. I think if you look at Google, the question is, is there value there to unlock if you broke it up into its constituent parts? Are some of them worth more individually to investors than they would be as the sum of their parts to investors as the overall alphabet entity?

You know, not really clear to me necessarily as a Washington guy, but I'm sure there's a lot of people on Wall Street who are taking a look at that. All right, Amon Javers. Thanks very much. Thank you, Amit. And now to a story of government trying to help business. The Chips Act, it was supposed to help U.S. companies compete with Chinese rivals. While billions of dollars has been promised, zero have been delivered. Sima Modi here with that story, zero dollars so far? Zero dollars. And remember, Kelly, the ultimate goal was to get high-end chips manufacturing to the U.S.

Right now, 95% of the market is dominated by Taiwan. But two years in, no money from the Chips Act has been distributed to recipients, Intel, Taiwan Semiconductor, global foundries, among others, a senior administration, official tells us that the Commerce Department is working diligently to get funds allocated this year. Taiwan's Semi's Arizona plant is already delayed due to a shortage of top talent. Intel has five plans in developments, CFO David Zinzer telling me in early August that despite its cost-cutting efforts, there are no changes to its foundry plans. Wolf analysts are unsure investors will remain patient until 2027 when Intel's manufacturing

is expected to turn profitable. They're proposing a joint venture with Taiwan Semi. which they say will help Intel share the fixed cost and speed up the timeline. Intel does aim to produce its 18A wafer in the first half of 2025 here in the U.S. The bursting analyst Stacey Rosgren says delays are likely if the $8.5 billion grant from the U.S. government doesn't come through. He asked that Wall Street also wants to see customer commitments to demonstrate interest in Intel's U.S. Fab strategy. In February, Microsoft's CEO, Setya Nadella, did share that Microsoft has chosen a chip design that it plans to produce on Intel's 18A process. So a good sign there, of course, we have seen shares of Intel underperform this year.

What's taking so long and why? A shortage of talent, also access to capital. Talent to do what? To design the fabs or to build them? Both, right? You know, to have the individuals who have the expertise to build these chips is incredibly complicated. There is a reason that Taiwan Semiconductor is the leader in and captivates 95% of market share in the world. Yeah, no, I think that, so when Intel was struggling, there were a lot of criticisms that U.S. government money was being wasted and basically trying to prop it up.

How does this fit into that narrative? Yeah, and that's one of the big questions, given that the challenges it's facing in its core business, how does that affect the company's ability to speed up plans to build a foundry, number of foundries here in the U.S.? So in addition to talent, getting access to capital, they certainly got a nice injection from Apollo and Brookfield to private equity. companies. But the question is whether, when does that chipsack money comes in and will it be enough to support these efforts? Yeah. Sima, thanks very much. Seema Modi. All right, still to come, silver or gold, which is the better tool to help navigate markets? We will find out in our market navigator segment. Welcome back to Power Lunch, everybody, in our market navigator segment, despite the market's recovery from last week's turbulence when futures trader thinks gold

often used as a market hedge is poised for another leg higher. Jeff Kilberg is founder and CEO of KKM Financial. And a CNBC Pro contributor joins us now, Jeff. How are you using futures here to play gold? Well, Ty, it's interesting to see gold futures say in the December contract, you're seeing a discount down about $30, but it's been a volatile session subsequent to that CPI data. That CPI data that came out kind of questioned the fact that the Fed's not going to have the ability to do that bigger, 50 basis point rate cut. Therefore, when you see the CME Fedwatch tool, kind of guessing that that 50

basis point has gone all the way down to 37 percent, you saw a sell off in gold. But I do want to be a buyer here in gold. There's a lot of reasons. We see the central banks, despite the fact the PBOC, China has taken a little break from buying gold because these elevated new all-time high prices that we put in July, I think gold continues to move higher. So right here, right now, Ty, I want to be a buyer in the Dease contract at 2480. I'm looking for us to go and retest. We were just a there this morning, Ty, up at 5.2518. So I'm looking for a test of 2520. That's my target. But I want to be mindful. In the event, we have more uncertainty. We see a stop. I want to be stopped out of this at 2460. So I'm risking $2,000, tie, to make $4,000.

So you, yeah, so you're going to sell out at $20 below where you are today. You would be obligated to sell right at that 25, what was it, 2520 number? Or could you sell sooner? No, 2520. If you look at the July high, we put in an all-time high. The gold contract was 25-22. So I'm looking for a revisit. We almost had it this morning prior to the CPI data. We would have seen different CPI data. I think we would have had a new all-time high. So I think as we see Central Bankers, which owned 17% of all gold, ever mined, as we see them re-engage in potentially buying this dip, I want to hop on those coattails. All right, Jeff Kilberg. Great to see you, my friend. See it, pal. All right, Jeff Kilberg. chip off Chip-Hopoldly. How much of a loss is Brian Nicol to that company should investors panic? Panic's rarely the best recipe here. Bernstein out with a new note breaking it all down. That analyst will join us next. We'll be right back. Welcome back, everybody. Let's get over to Bertha Coombs for a CNBC News update.

Bertha. Hey, Tyler. The World Health Organization declared M-Pox a global emergency today that comes during an outbreak of the highly infectious disease in the Democratic Republic of Congo that has spread to neighboring countries. The WHO says the alert can accelerate research, funding, and cooperation to contain the spread. There have been more than 14,000 cases and 500 deaths from MPox reported so far this year in Africa. President Biden took part this afternoon in the White House's first ever creator economy conference. The gathering of about 100 digital content creators is focused on issues facing the industry, which has boomed as social media platforms make it easier to monetize content.

And NASA says it could be a week or more before it decides whether the two test pilots on the Boeing Starliner mission could remain at the International Space Station until early next year. They first arrived at the ISIS back in June, but their return to Earth has been delayed by technical issues. If they can't come back on the Starliner from Boeing, they would have to wait until February to catch a ride on SpaceX's next flight. I sure hope they packed enough, or at least they have enough for them up there. They were only supposed to be up there for about two weeks. Yeah, so it's really an alarming situation. I hope they're able to solve it so that they do feel safe in coming back sooner rather than later.

Exactly. Bertha, thank you. Meantime, shares of Starbucks giving back some of yesterday's huge gain following its announcement that Brian Nicol will be its new CEO starting in early September. But Chipotle is lower once again following a 7.5% decline yesterday on Mr. Nichols' departure. Are investors right to be so concerned about the company's future without Brian Nickel? Kate Rogers joins us now. What do you say, Kate? Hey there, Tyler. Well, Chipotle remember, one of the rare companies that has been performing with strength in this competitive environment. And it seems that while investors are clearly somewhat disappointed with Nichols. upcoming exit. The ship is steady at the moment. Scott Boatwright, seven-year veteran of

Chip-Opulley and most recently chief operating officer stepping into the interim CEO role. He ran point on integrating new technology into the company's restaurants and has been a part of the turnaround plan that has taken shape under Brian Nickel in the last six years. And another key part of this plan, Jack Hartung staying on board. Hartung had planned to retire in 2025 but will now remain with the company indefinitely as president of strategy, finance and supply chain, it says. Wedbush out with an upgrade to outperform this morning in Nick Settian writing, he believes the company is in a good place and good hands with a $58 price target. BTIG's Peter Saleh echoing that sentiment yesterday saying,

quote, we believe Chipotle is on excellent footing, having executed a proven playbook, including shifting to drive-through development, investing in national advertising, and initiating a rewards program under Mr. Nichols' leadership. He has a $67 price target and a buy rating on that stock. Now, in the most recent quarter, the company beat on same store sales again, and it saw traffic increase by more than 8%.

And a reminder, the company said it is still seeing growth in all income cohorts, as the Chipotle customer has not shown any price resistance so far. That is a rare position for a restaurant company to be in in this environment, guys. Back over to you. So generally, the feeling is that the bench is strong. Oh, absolutely. And remember, these are veterans of the company. They've been there during the turnaround plan, and multiple analysts actually out with notes saying that they do believe that Scott Boatwright, who's in that interim position, may wind up getting the CEO role after all. All right, Kate, thank you very much.

Kate, Roger. Thank you. Let's talk more about what Chipotle could look like after Nickel. Our next guest maintains his outperform and $70 price target, says the story ain't over. Let's bring in Danilo Gargul. I said ain't, Danilo, not you. De Nino Gargulah is a senior research analyst at Bernstein. You have something much more sophisticated to say, which is what exactly?

Thank you. Thank you for adding us. I think, look, the story for Cipole, despite some of the concerns that, you know, Kelly was highlighting earlier, is not over. You know, some of the concerns on the investment community is continuity on the management team. But we actually think that the appointment of Scott, Bollwright, as an interim CEO, is suggesting that there is a deep talent bench and there is a smooth transition happening.

We think that the board is conducting his external CEO search just for good corporate governance, but we fully expect Boaright to be appointed eventually CEO. And that is going to be showing once again that Cipoli has evolved from being a kind of one CEO-led company into being a company that has institutionalized some of the knowledge that Brian Nicholas brought into Cipollet. Could you give us an example of what that knowledge? Because I have to tell you, I'm inclined to think that he is really that good. So convince me that the system is now greater than the person. Yeah. So I would say when Brian inherited Chipotle, there were a couple of things that didn't quite work for the company.

First of all, the brand was not as visible. Chipotle back in the day was suffering from social media and also traditional media challenges because of the food scare that was just happening with an eco-lite outbreak. And what Brian did was to work to make the brand much more visible and now become an attractive brand for Gen Z and Gen Alpha. In fact, if you look at TikTok as an example, you will see that there are more likes on Chipotle than, you know, some other iconic consumer brands like Nike or Disney, indicating that Chipotle's been on a journey to attract a new consumer base. Secondly, he's been working for a mobile reengineering of Chipotle, enabling some mobile during pay which is seamless, which is something that Starbucks has been missing for quite some

time, and, you know, has also kind of reintroduced at a higher pace the Chipotle lane, so digital-only drive-through lanes, as well as a digital-only make line that enables the operations in the store not to be affected by the high demand that now are seeing by a new set of consumers. I think it's hard to overstate how skillfully Mr. Nickel led this company through the pandemic and continued after the pandemic to show increasing revenues, increasing same store sales, even in a sector where that is proving to be much more difficult for many others. I would 100% concur with you. I think also the idea of using some prudent pricing strategy,

enable them to create a value perception gap against peers that propel the traffic growth that we are now seeing for Chipotle. The only nuance that I would put onto your statement here... When you say a value perception, let me just interrupt, because I just want to be clear there. What you're saying is, we're going to premium price this stuff, but we deserve it because it's better.

That's correct. And we offer abundance of food, and we offer food which is made from scratch right in front of you that nobody else can offer. The only nuance that I wanted to put onto the statement is while I completely agree with you that Brian Neckle was one of the key engine behind, he was surrounded by a great management team all around.

And so the veterans that Kelly was mentioning before as well were a key part on this transformation and part of the heightened level of operational excellence that Chipotle has been showing over the past few years. All right. Thank you very much. We appreciate your time. Danilo Garjulo. Thank you very much for being with us. Thank you very much for your insights. You bet. Got a burrito would taste good right now. Still ahead. Making every moment more profitable, at least in the second quarter. Fanduels parent surging on a big boost from bigger sports betting. We'll dive into that when we return on Power Lund. Be right back. Welcome back to Power Lunch.

You can see it there. 21% of Americans between 18 and 34 have at least done some online gambling, according to our CNBC Generation Lab poll. And here's where they say more than 9% wager at least $100 a month. That's the bottom line there. And gaming operators are reporting their customers are spending more. or not less, as many other retail companies have been reporting. Fandul Parent Flutter Entertainment announced stellar earnings.

The shares are jumping 10% today. Contessa Brewer is here now with more, Contessa. I mean, this really wowed the crowd, so to speak. Fan Duel is on fire. It's trouncing expectations on revenue, on earnings in the U.S. and abroad. Its growth here is not reliant on new states legalizing sports betting or online gambling because even in well-established states, like those who are, offered it before 2022. Fandall's parent, Flutter, reports revenue growth of 33% year-on-year,

16% growth in new customers over the same time frame. Look, it is fiercely defending its status as the nation's leader in sports gambling. Its market share, based on gross gaming revenue, 47%. And with 25% market share in eye gaming, online gambling, it has captured, it is defending its leader status there too. What's more, Flutter is high. highlighting for investors that Fandul Casino now runs on its own proprietary technology platform. They're developing their own internal games. That, of course, saves money on revenue sharing if you're going to outside vendors. And Flutter has a huge and growing business internationally with profit margins increasing there, too. It's significantly raised full year guidance for revenue and earnings.

Investors are finding a lot to like. The stock is up, as you mentioned, 10%. Jeffrey's analyst, James Weakcroft, raised the price charge. says its growth and gains and market share just aren't getting reflected in valuations. When we're talking about the sector itself, it's clear that Fandual is the company that we should be paying more attention to. Because it was traded overseas until this year, it was easy for investors maybe to ignore and look at the pure play draft kings or MGM and Penn. In this case, they have made it clear that the U.S. is their priority. They are now, their primary listing is the New York stock exchange. And so it's clear this is what is driving the growth for this company. What does this say

about draft kings, MGM, Sears, and the other players in this area? It says that they've got a lot of catching up to do if they want to keep pace with Flutter. Let me just talk about draft kings in particular. Something really interesting happened on the call. You had the CEO, Peter Jackson, coming out and saying, we are not going to add a surcharge. This is the big thing. On to winning bets in high-tax states. Like he didn't say Draft Kings, he didn't call them out by name, but Draft King's got a lot of attention. They said, look, you want to raise taxes in Illinois, then we're going to charge our winning customers in Illinois a surcharge for it. And it made so many waves.

Jason Robbins, the CEO of Draft King, said, look, not only do we think that it's a good idea for us, we think our competitors are going to follow suit. Then what happened? They didn't. Penn didn't do it. Rush Street Interactive, both of Wills. which operate online casinos in Illinois, they didn't do it. But the big one, the one everybody was waiting with bated breath, is it going to happen? Fanduel, because Fandall's the giant.

And Fandle came out and said, not only are we not going to do it, we're going to revise our marketing. We're going to more specifically tailor our promotions. Explain what this surcharge was. I don't get it. Well, they said to offset the impact from this higher tax rate, we're going to add a small fee onto winning customers' bet. and they're going to make more money then.

You're winning money. You're going to give us a little bit bigger percentage of it so that we can offset what the state is charging is. But here's the thing. So it was a tax that was going to apply to the company, not to the winning better. That's right. But then Draft King said,

we're going to follow suit. But here's the interesting thing. Fandall said, not only are we not going to follow suit for Draft Kings, we think our smaller competitors, AKA Draft Kings and others, are actually going to help us because they're going to increase,

their fees or they're going to charge more to their customers and we're going to gain market share. Yeah. Are they going to lose money though by not? Right after that, draft kings came out and said, oh, by the way, we're not doing it anymore. Sure. They reverse course entirely. Are they going to lose money? Fandul says it still expects a $40 million impact in the second half of this year from the Illinois

state tax hike. But they say they have such scale and they're what they call the flywheel where they're feeding customers and the customers are taking their proprietary technology, they say it's not going to matter, that they are able to absorb this cost. They're willing to pay the money. It's 20 to 40% tax rate potentially. Yeah. Well, and draft Kings and Fandle would be the highest, and they would pay the highest tax rate in Illinois 40%. The other thing is there is some skepticism that other states are going to follow suit. But in New York, New York charges a 51% tax rate here. it's clear that states could make a lot more money. Light and wonder is out with a new report that says

they could make $15 billion on tax revenue if all of the states that currently offer legal, casino and sports gambling would legalize eye game. The corporate tax rate on a gambling company in New York state is 51%. Online gambling. Online gambling. Right. Which right now is only sports betting. New York is agitated. I mean, there are some people who are calling for eye gaming. And don't forget, they have three more casino licenses to award in New York around New York City and the governor's dragging 50% of every profit dollar. That's right. It's hard for them to do business here, and it's where scale matters. A lot of the operators want to be in New York because now it is the biggest state for sports gambling.

The other thing is we're not going to get a sense of Florida because Hard Rock, aka the Seminole Indian Tribe, is going to operate sports betting as a monopoly. and they're not sharing all their numbers. So Florida might actually rival New York, but we may not know that. I'll be curious. I mean, Illinois, too, its tax rate goes up, the bigger you are. So Flutter will be taxed at the highest rate, potentially, and more so than Draft Kings than the others. So maybe they're just swallowing it right now so they don't lose, you know, it's kind of like a handicap. Yeah, you wonder long run about that, that impact. Right.

Contessa, thanks. We'll see you a little bit. Okay. I'm told. Yeah. Right. Good. All right. Chairs of Chili's parent, Brinker International, plummeting on some unappetizing results for its fiscal fourth quarter on pace for its worst day. Worst day there in more than two years. The ticker symbol is eat, and we will trade it ahead in three-stock lunch. Time for today's three-stock lunch. If we could do more, we would, but it's three. It's going to be three today, every day.

We're going to take a look at some key consumer names, as some companies are warning of a slowdown in the consumer. Here with our trades, Doug Butler, portfolio manager at Rockland Trust. First up, Doug, we got Walmart, Big Buy. retail, set to report results tomorrow. Happens before the bell, despite a pullback in consumer. Evercores, Greg Mellich, sees Walmart as a safe haven in the sector. How about you?

We think that you should probably, if you're in a tax-exempt situation where you don't have a huge gain in this, you should actually sell it here. We've gotten uncomfortable with the valuation. We think it's a great company, and, like, we'll continue to deliver results in the future. But really, the price has gotten a bit of ahead of itself. And we think that you have opportunities elsewhere in the space. And a lot of people are riding into that defensive trade. But there's a lot of great news that is very much baked into the price of that stock.

You were careful to say if you own, I think I heard you say, if you own this in a tax-exempt account, you would sell. What if it's outside of a tax-exempt account? Then you have to consider it. Yeah, then you have to consider it. We generally would say probably, you know, somebody who's got a 60, 70 percent gain in the name, and that's a lot of people because it's done really well over the years. They should hold on because, again, it's a great name unless it makes up too great a percentage of your portfolio.

Okay. Good answer. Let's move along to, of all things, Victoria's Secret. Those shares are surging after the company named a new CEO Hillary Super. She was formerly the CEO of Rihanna's popular brand Savage X Fenty. I was just thinking about this today. You know why? Because I was in a mall yesterday for the first time in a while

and I saw Victoria's Secret and wonder whatever happened with them. What do you do with this, Doc? Look, I don't think you... I think a new CEO is great and I think Ms. Super has a fantastic background. I think it's very hard to see that Victoria's Secret

is able to turn itself around. Again, I think this is the first time we're talking about Victoria's Secret other than the song since they came out in 2020, I hadn't even really thought about the name other than sort of occasionally seen at the mall. It's been a bad company for quite a while. Maybe she can get it turned around.

But again, I think you take your, you take, most people don't have profits here, but you take the winnings of today and you move on. All right, interesting. And finally, we go to a Brinker International, down more than 10% as rising costs eat away at the quarterly earnings there. but the company did report nearly 15% sales bump at Chili's. Your trade here in Brinker. I think you buy because I think what we learned with the sales growth is, you know, people still want their baby backs.

And again, Brinker has done a great job. They have Chili's and Machianos. They've delivered fantastic sales growth. They really got hit because cost inflation for them, so labor costs were a bit higher than people expected, and their restaurant costs. Food inflation came in right around where it was expected. Just there was sort of a lot of good news baked in the name.

Again, the name is up, I think, 45% year to date and something like 70 or 80% over the past year. So it had a lot of stuff baked into it. But we still think it can go higher. And we think that there's ample opportunity to be a little more cautious with expenses and continue to have this revenue growth at Chili's. Down 10% today, Howard.

I don't believe that's 25 years old. What is Chili? Howard, why are people going back to Chili's all of a sudden? I don't get it. I think there's some sense of nostalgia, but also it is a very good deal. And oddly enough, I think I was there maybe two weeks ago, food's very tasty. I mean, you know, it's a good deal and it's a very tasty meal. I think you're right.

Value proposition. All right, Doug. Thank you, sir. Brinker's CEO, Kevin Huckman, will join you. Jim Kramer on Mad Money tonight at 6 o'clock Eastern time, and we'll get some reactions from Mr. Hockman. And remember, you can always hear us on our podcast, follow and listen to Power Lunch wherever you go, and we're back right after this. Welcome back. Markets are still near session highs with the Dow up 268 points and back above 40,000. Help to some extent today by that, you can say, in-line CPI report, which maybe kept people pretty happy.

We're status quo, maybe not too much of a weaker economy. And again, we'll now turn our attention towards jobless claims and the next jobs report tie. Yep. Main time, we're watching 13F filings to find out what the biggest investment companies are buying and selling. We've just heard from Tiger Global. Contessa Brewer, back now with those details for us. Hey, Contessa. Hey, there, Tyler.

We're looking at chips here and a new stake in applied materials, 895,000 shares added in the second quarter. Tiger Global also added a new position in Qualcomm, nearly 1.9 million shares. And in United Health, the investment firm added 2.3 million shares. That's a new stake in the company. It dissolved its entire stake in Maple Bear, which does business as Instacart. We're not seeing a lot of stock movement on any of these companies now, Tyler. All right, Contessa, thank you very much. Contessa Brewer. We just got about a minute and a half left in a couple of minutes left in this show.

Several more stories we'll like to share with you. Number one is about home loan refinancing, up 35 percent week over. week as the average rate on a 30-year fixed mortgage fell to 6.5.4% according to the Mortgage Bankers Association. Refi apps also up 118% year over year. That's their strongest week since May of 2022. People who had those mortgages, I guess, at the 7% level, higher sixes they are seeing rates come down and maybe switching out and we could expect to see maybe more. Yeah, not moving the needle much in a very big picture point of view. But the servicers, those players like Mr. Cooper and others.

Those stocks have been doing well. Even Home Depot was green yesterday. Mr. Cooper. Mr. Cooper Group. Meantime, our favorite company name, Kellenova, is higher on news that Mars, the maker of Eminem and Snickers, is acquiring it and a cash deal at $36 billion,

including debt. It was just created when Kellogg split into two last year. It's the snack brand owner of Cheez-It's and Pringles. The cereal stays with Kellogg's. And it's the biggest M&A deal of the year so far, and the biggest for Mars since it acquired Wrigley back in 2008. It's a curious move from, That's a lot of money to spend for Cheez-Itzitz and Pringles.

I mean, I like Cheez-I-It's. I grew up on Cheez-Its. They've been around a long time. I'm going to say something unpopular. Yeah. The Ultra Processed Foods book that is making the rounds on this side of the pond and the others, you know, I think people are understanding kind of that these things aren't that great for you. And I can't help but ponder that as I watch the industry churn and consolidate. And for now, everyone loves their cheeses.

I'm just saying I don't know if we're going to all love them so much with you. And the other thing, I think of Mars as a candy company, not a candy company. a snacking company, but I may be wrong about that. They probably have lots of snacking brands. No, primarily that's what they are. This gives them the whole comedian store, as the analyst put it last hour, the front of store with the candy and the back of store with the salty snacks. Now let's talk about my people, the Norwegians.

The world's largest sovereign wealth fund posted a first half profit of $138 billion, driven in part by an AI boom. Norway's so-called government pension global fund says the profit was thanks to very strong returns on its equity investments with most of the gains concentrated in tech stock. Norway's sovereign wealth fund is one of the world's largest investors, investments in more than 8,700 companies, over 70 countries around the world. 138 billion dollars, they got about 6 million people. Well, and they have trillions.

I mean, we need a sovereign wealth fund as well. That's the point of all of this. All right. Thanks for watching. Power Lunch, everybody. We can invest in all of our snacks. Closing bell starts right now.