Power Lunch - Target’s profit warning, a nat gas power player and a quiet outperformer. 6/7/22

Episode Date: June 7, 2022

Target is slashing prices as it faces an inventory glut and says margins will be squeezed. A former industry insider says Target doesn’t have a handle on things. Plus, the CEO of EQT, the largest U.S. nat gas producer, discusses what it will take to lower prices. And, trading one of the cheapest stocks in the S&P. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson. Here's what's ahead. Inventory glut. Target issuing a profit warning again. The issue too much stuff on the shelves. The company isn't alone. Other retailers facing the same challenge. Plus the price of natural gas tripling, yes, tripling over the past year in a short time ago. The EIA said demand and output will hit a record this year. We'll speak to an industry power player. But first, the Contessa Brewer, who's in today for Kelly. Hi, Contessa. And so glad to be, Tyler. Thank you.

Stocks are racing early losses. The Dow had been down 274 points at the low. The S&P and the NASDAQ had been down more than 1%. But now take a look. We have the Dow hanging onto the green up a quarter percentage point. S&P 500 up the same in the NASDAQ composite up a third of a percentage point. Energy, the best performing sector today, up about 2%. It's extending its 60% gain for the year.

Oil prices. pulling back after trading at nearly 120 bucks a barrel, something I never thought I'd say. And ExxonMobil is back above $100 a share for the first time since 2014, Tyler. Well, Contessa, that profit warning from Target casting a spell over the retail sector, Target, Walmart, Costco, all trading lower. After Target said it's going to mark down items to get rid of excess inventory and now expects an operating margin of just about 2%. That's quite a slice from what they had been saying recently. Walmart, The Gap, Urban Outfitters, recently reported on inventory increases of 30% of more from a year ago.

American Eagle, a 46% gain. And Costco said inventories balloon 26%. Joining us now, Jerry Storch, Storch Advisor, CEO, former CEO of Hudson's Bay and Toys R Us and former vice chairman of Target. Jerry, welcome. Good to have you with us. I guess one thing I would say is this. It is unusual and be really not good form for a company, the quality of Target, with the reputation of Target, to warn this way within two weeks.

Yeah, I think their earnings will be three weeks tomorrow that they reported their earnings. It's a little disappointing to see them make a change in guidance so rapidly after that. They sort of should have known back then what was happening. meanwhile, let's keep in mind what they're doing is the right thing. They need to get rid of this inventory. And you were talking about inventory increases of various retailers. There's two factors. One is how much your inventory is grown relative to the sales increase you're seeing.

And the second is the character of that inventory. And the issue at Target is they have both problems. So they have among the largest increases in inventory of getting a retailer. Plus, it's the wrong inventory. Target is a fashion retailer. Even the home goods are fashion oriented at Target, as you know, whereas Walmart sells a lot more. staples and regular products. So, you know, they're in a lot better shape, as I've mentioned,

recently. I'd rather be Walmart than Target right now in this environment. Yeah, they're all of them are going to work through this, though. Go ahead. They're a little more in the, Walmart, a little more into the basic stuff. That's right. So inventory management is at the heart of retail. It is to me sort of basic blocking and tackling. What did they do wrong? Hey, everyone here got suckered. Do you know why? Because they're so worried about the supply chain. Remember, oh my gosh, we don't. not going to have goods for Christmas. Everything's going to be out of stock.

So they sort of bought everything they could. They threw out all the old rules, you know, about buying close to demand, just in time, purchasing, get a good read on the fashion goods and then reorder. It's okay to run out of stock, but it's terrible to have too much. They're like, buy everything because we're not going to be able to get it. And that's what all these retailers did wrong. They got fooled by the supply chain issue. And then when the year turned the corner and the consumer changed their buying behavior,

by the way, not how much they're spending. Consumers are still wealthy and spending a lot. Don't get it confused. Change the character of what they're spending. These retail retailers were stuck with the wrong inventory, and that's the bigger problem, not the amount. You can sell candy bars all day long. They last a long time. But when it's the wrong apparel, you're in big trouble. You know, the thing that gets me about this is that Target is so advanced and they have technology and people who are experts in predicting consumer. demand. I get that like maybe people wanted fancy party dresses and business suits faster. We heard that from Macy's than they expected. But I'm just still wondering, is this really at its core a supply chain problem that the things that you knew customers wanted late in 2021 and they just didn't get here in time

and now you're stuck with all this stuff that it's too late to offer to your customers? And are we going to see that same sort of backlog come Christmas time? Are you going to see back to school supplies just in time to stuff your stockings? No, those aren't fashion good. So they know what they're going to sell them back to school supplies. And the crayons aren't going to be a problem. They don't sell. They'll sell them later.

That's not an issue. This is indeed, as you say, a supply chain problem, both in terms of product-driving late. But I think even more importantly, people so worried about the supply chain that they ordered too much into early without getting a read and what was going to sell. So it is a supply chain problem.

It's very disappointing. I also kind of wonder, you know, keep in mind, as you said, It's only been a few weeks since Target, you know, came out with their earnings. Maybe the numbers aren't so good right now. You know, maybe people aren't seeing the sales where they want to see in terms of those products they're trying to get rid of anyway. And so they had to act now because they were more hopeful back then a few weeks ago

than they are now. So there's a little bit more going on. They have three weeks more information. How long does this inventory problem take to work through, number one? And what does it mean for consumers who may say, boy, I'm going to Target because they are discounting the, you know what, out of the prices. Well, I don't know you, but I turn to my wife and I said, you know, we need some furniture by the pool.

It's still summer. Let's go get it. So, of course, people are going to shop it, Target, and the deal is going to be amazing on those products, but they're trying to clear. And, again, they're doing the right thing. They're doing it late. I wish they'd done it a few weeks ago. They're doing the right thing.

They're going to be out of this product in time for Christmas. What they're setting up is a great back half of the year. And I think it's what a smart retailer does, what a good merchant does. you have to take your markdown then move on. And that's what they're doing. That's what they're doing. So you see a better back half of the year as they move through, as we move within a month into the third quarter of the year, but third and fourth quarter some improvement. Yes. I hate to say anything is 100%, but 99.9%. Yes. All right. Jerry, thanks so much. Good as always to see you. Thank you for the insight.

My pleasure. Well, let's go back to the broader market now and a quiet and surprising outperformer. Our next guest is focused on international markets, which he says are widely underowned and offer appealing valuations relative to U.S. stocks. Let's bring in Jim Paulson, Chief Investment Strategist with the Luthold Group. It's great to see you today, Jim. So let me get this straight. You're looking at ETFs and funds from around the world at a time when we're seeing the biggest war in Europe since World War II. You're seeing China really struggling. That makes up a lot of international funds.

So what are you looking at that makes you think, hmm, this might be a great area of investment? Well, one thing, Contessa, is I am kind of amazed how well international stocks across a wide variety of styles and countries are doing relative to the U.S. market in a time when, as you say, we have so much turbulence. Like you said, a war sitting right in Europe, the worst since World War II, setting off one of the worst energy crises we've had. And a lot of the international market is subjected to that more than most. As you say, China, the leader of the emerging world struggling, you've got a dollar, which is up 15% in the last year. Always bad for international stock returns when you repatriate them. And then we've got recession fears that are rampant, as you say, why would you leave the shores of the safety of the U.S. to go abroad? And yet that's what I see.

I'm looking at frontier markets and the emerging markets, even with China, that are market performers. relative to the SPY this year. If I exclude China, the EMX China, it's outperforming the S&P 500. If I look at international small stocks, small stocks, they're outperforming. You see international value stocks are killing it. If I go to individual countries, a place like the UK is having a banner year, Aussie and Canada, as we might suspect, energy-related doing really well. But what's really surprising is places like Japan,

and even the Eurozone itself are just slight underperformers here to date. So one of the things that gives me some optimism is that if they're doing this well in a bad environment, Contessa, then maybe that sets up a possibility they're finally turning the corner here. If they can hold up this well in bad times, how well will they do if things turn out a little bit better? And I think it's a good time to enter these stocks finally. As you said, they're almost underowned in every portfolio, and their relative values are very, very attractive. And maybe, just maybe, they're finally turning a corner. I know you're also doing a look back, Jim, some research looking at the consumer price index and where inflation peaks and its correlation to recession and what happens with the stock market after that.

And you've come to, I think, a pretty optimistic conclusion. Yeah, I have. I look back, Contessa, to 1940, and I highlighted 17 different peaks in the inflation rate over that period of time. And what you do find out is that eight out of the 17 times of those peaks, we have recessions. So it does elevate recession risk almost to half the time. But of six out of those eight periods, a recession was already in place prior to the peak of inflation. So by the time inflation peak, inflation was more over than coming. of the nine that didn't recess over that period of time, the average length to the next recession

during those periods was still almost three and a half years overall. Second point I make is that every one of the 17 inflation peaks was a spike top. There was no rounded tops. Inflation goes down about as fast as it comes up in every instance. Of the five inflations that we had that were 8% or more, like the one we've had today, two in the 40s, one in the 50s, and two in the 80s. All of those on average fell by one half, the inflation rate within one year. So if that happens here, we'll be down to 4% a year from now overall.

The big thing is what it does to stocks. Of all 17 inflation peaks, the stock market in the coming year from the peak was up on average by 13.2%. If we didn't have recession, it was up by 17.2%. And even if we had a recession, it was up by almost 9%. So I just think inflation peaks historically are great entry points for the stock market. So let me come back to this thing. We've got to go then, Jim. Do you think inflation is peaked?

Because if it has, it's time to buy. I think so, Tyler. I think I'm not alone. I think growing evidence suggesting inflation is peaking in a wide array of different data. And it doesn't matter how fast it comes down. It doesn't matter whether we have recession or not. It doesn't matter that the Fed's tightening, which it is at the top of every inflation cycle, stocks typically do well. All right.

We're going to leave it there on that cheery note. Thank you, Jim Paulson, glass half full. You glass half full right there. Thank you, ma'am. All right, coming up, natural gas prices surging more than 200 percent. That's a triple over the past year. The CEO of EQT, the largest U.S. Nat gas producer will share his outlook for prices. with a hot summer ahead plus an under the radar stock that is outperforming the market.

We'll talk to the CEO of V-V-Chi properties about his bet to double down on Vegas. As we had to break, a check on shares of Union Pacific, which are higher, despite the company saying higher costs will pressure incremental margins. We'll be right back. All right, folks, welcome back. New milestones in the energy market, not necessarily good. milestones, natural gas touching, unless you're a financial gas company. 950 earlier today, less than 24 hours after settling at 932, highest prices since August 208.

And a new EIA report says Nat gas production and demand will both hit records this year. Joining us now as an industry power player Toby Rice, president and CEO of EQT, that is the largest N-A-T-G-A-S producer. Toby Rice, thank you. Nice to have you back with us. We appreciate it. Thanks. So what are you seeing in terms of demand for the summer? Are you able to meet it?

And what does the intersection of supply and demand imply for prices? Well, the good news is that we will have the supply to meet that demand here in the United States. The question is at what price? And, you know, one of the questions that people need to look at is where could natural gas prices go? I think the first answer to that question is, well, what about what's going to happen? When do you see natural gas demand destruction? Well, people need to understand natural gas is not a luxury item. It's needed not only for the electricity that powers our machines and our computers and our technology.

It's also a feedstock for four modern pillars of modern society. That's fertilizer, steel, and concrete. And when we don't have those things, modern societies collapse. So natural gas is not a luxury item. It is absolutely critical to modern society. societies. And that is why you see prices go up before you start seeing significant demand destruction. Look at Europe as an example where natural gas prices rose to over $30. Now, looking at the supply side of the equation, we understand what can we do to add more supply? And one of the biggest

challenges with supply has been the traditional, underinvestment in traditional energy. And we've seen investment in upstream decline significantly over the years. And what is the root cause of that? it is lack of pipeline infrastructure. So if you want to lower prices and make this energy more affordable because energy prices right now are completely unnecessary, let's get more pipeline infrastructure in the game so we can unlock the biggest resources that we have here in the United States. We've got the largest gas field in the world, the Marcellus Shale, but pipeline cancellations and blockages have prevented us from connecting this resource to the world and lowering prices. And so the problem then is not supply per se. It's the ability.

to transmit the supply to the customer or to the end user who is using it for fertilizer or concrete or whatever. And this is largely because of regulatory impediments, blockages to the building of pipelines. It's not a question that you don't want the pipelines or that you wouldn't be able to finance them. It is simply regulatory and legal impediments. That's correct. And that means that these shortcomings are completely self-inflicted. And to give you an example of the impact of this in New England, the strip right now is showing that natural gas prices in New England will be over $23 this winter. During that same period of time, we'll be selling that same gas here in Appalachia for a price of

$7. The only way you can explain those extreme price differences is lack of pipeline infrastructure. But if we can get this pipeline infrastructure put in place, we can do some really amazing things because America has tremendous potential in lowing prices for Americans here while also providing energy security to the world. Well, do you see anything on the horizon that might shift the opposition that environmentalists and state regulators have to having pipelines in their backyard? Is there new technology in terms of transferring natural gas that might calm some of these fears?

There is a new perspective that is changing. And people need to understand that the biggest source of emissions around the world is comes from foreign coal. And we have the opportunity here in the United States to leverage our American resources, unleash U.S. LNG on the world stage and use natural gas to replace foreign coal. And if we can do that,

it will actually be the biggest green initiative on the planet and have the environmental impact of electrifying every vehicle in the country, putting solar panels on every house in America, and also doubling U.S. wind capacity combined. That's three mainstream green initiatives unleashing U.S. LNG on the world stage will achieve all of them. That's why we call it the biggest green initiative on the planet.

So how long would it take to build the pipeline infrastructure that you propose? And what would the total cost be? Well, right now in a fully unleashed U.S. LNG scenario, we believe we have the ability to increase natural gas production here in the United States by an incremental 50 BCF a day. That would be a 50% increase in natural gas production here. and that would be slated for natural gas exports in the form of LNG. Now, how long would it take for us to do it?

Actually, the mechanics of it, we can do a lot of the infrastructure in a timeline that's very short. The issue is the permitting and the regulations that is preventing us, and that is ultimately going to be the bottleneck on the pace of progress. But if you got the approval to start building tomorrow, by when could you have operating infrastructure in place? it would be less than 24 months and we can achieve a fully unleashed us lNG scenario that 50 BCF a day over a period of less than 10 years the question is what can we do to shorten that that cycle time the good news is those bottlenecks are self-inflicted and we can work to streamline the permitting process all right then i want to leave the viewer with the with the thing you said earlier if if we are where we are today and

by winter in New England, people should expect to pay how much? Over $23 is what the strip is showing today. Has it measured in billions of BCF, right? And then in other parts of the country as little as $7. That's correct. It's pretty outrageous when you think about it. The key here is we need to leverage our resources. We have the biggest gas field in the world, the Marcellus Shale here in Appalachia,

is right next door to New England. And what you realize is if we can unleash this energy potential here by building more infrastructure, not only will we lower prices here and launch the biggest green issue on the planet, we will provide an unprecedented level of energy security for here in America. We will, with that amount of supply, that surplus is going to reduce volatility. It's going to keep our storage levels full. And that means lower prices for Americans while providing energy security to our allies. Toby Rice, thank you very much of EQT.

your time and insight. Thank you. Coming up, manifest destiny dilemma. New data shows wealthy Americans are migrating out of big cities in search of cheaper, smaller towns, but it is just causing major problems on those local populations. Plus, speaking volumes, Apple continues to eat up market share across multiple industries. So how do tech companies stay relevant? We're here from the CEO of Sonos. Welcome back to Power Lunch, the great wealth migration, which really got going during their

pandemic is still going strong. Rich people are on the move. Robert Frank joins us now with a look at where they're going and what they're leaving behind. Hi, Robert. He'll contested the move from the high tax days to the low tax dates. It's been happening for years, but it actually doubled in the first year of the pandemic. New York losing nearly $20 billion in taxpayer income from out migration. That's in 2020, more than twice the losses in 2019. California also nearer. doubling its losses to $18 billion. You look at Connecticut, New Jersey, Illinois, all losing a combined $11 billion in income. As you might expect most of the winners were the low tax states, especially Florida, Florida adding a net $24 billion in personal income in 2020. Texas adding over

$12 billion with Arizona and Nevada also seeing strong gains. But when you drill down, you look at the state-to-state moves. Taxes are not the only driver. New Yorkers did go to Florida, of course, but their second most common destination was New Jersey, which gained $5.3 billion from New Yorkers who moved there. Even California gained $3 billion from the New Yorkers, but in the end, California losing more than twice that to Texas and Arizona. Interestingly, so far, this has not affected tax collections in these high-tax states. California now looking at a $100 billion surplus from soaring revenue, New York looking at an extra 30 billion. So so far, this lost income not showing up yet on the tax rolls, but eventually it will.

Guys. That's a really fascinating look. Robert, thank you for that. I appreciate it. And I just saw it in Montana, where I went to go talk about the cultural divide that's happening as a result of the hit show Yellowstone. And Tyler, the interesting thing is the Census Bureau says that in the pandemic, Montana was one of the fastest growing states by population. You saw a house in or around Bozeman that was less than half a million dollars before the pandemic, shoot to almost three quarters of a million dollars two years later. The housing crisis there has become so immense. It's grabbing headlines. What we saw on the ground in Bozeman was that professionals, people with jobs with good salaries were being priced out of apartments and going to live in

RVs and tents. So the consequence of this is not just at the tax revenue level. for the states, but also in a very real way, what happens to housing when you have a lot of people with more money in their pockets coming in and pricing out the locals. You have big dollars moving from California or New York or wherever, and I have friends who have bought land in Montana because it's gorgeous. I even thought about doing it myself a couple of years ago when I went to Whitefish. But the other side of it is, these are communities that do not have the social service infrastructure to take care of people who are outplaced.

They don't have the infrastructure. They don't have the actual, not just social infrastructure. They don't, they don't even have housing. And then what it costs now is, you know, materials costs and labor costs and the delays that are associated with building new developments. And then, you know, how do you route the water? How do you make the sewer happen in schools, all of that? And it's happening so quickly that urban planning just has not kept up. Yeah.

And those states like Montana, Idaho. which have a lot of, boy, it's just so, you look behind me. Who doesn't want to live? I mean, it is just a gorgeous, gorgeous place, but obviously there are downsides. And you had, I think, was it a doctor in your piece? A veterinarian. Veterinarian, yeah. He said if he hadn't been able to live with his uncle on his uncle's property, above a horse stall, by the way.

That's where this veterinarian is living, so he can't get away from the animals. He goes home to more animals. But he said he's just been priced out of an entry-level apartment. Yeah. Interesting story. We'll be following it. Let's go to Dom Chu now for a CNN. What does Dom Chu not do? Especially during the summertime when we got a lot of people on vacation, Tyler Contessa. Anyway, thank you very much for that. Amid concerns, North Korea could be preparing for its first nuclear test explosion in nearly five years. South Korea is releasing video of fighter jets from its Air Force flying with U.S. military planes.

South Korea says it's a demonstration of how quickly it can respond to threats from the north. Diplomats from South Korea, the U.S. and Japan are meeting tomorrow to discuss a coordinated response if North Korea does go ahead with a nuclear test. In Ohio, one person was killed and another seriously injured when a helicopter crashed in flames near Greenville. Investigators are right now at the scene. And days after three people were killed and 11 wounded in a Philadelphia shooting, crime victims and their supporters came to Pennsylvania's capital, calling on lawmakers to do more. to assist people affected by crime. Contessa, Tyler, all some things back over me. We will see you later in the broadcast.

Meantime ahead on Power Lunch. Cheap stakes, we will take a look at three stocks that are a discount compared to the market and could bring you some very nice games. Plus real estate roulette, the gambling stocks you know are having a rough year, but despite that one casino landlord is showing the house always wins.

We'll speak to the CEO of VT properties next. 86 minutes left in the trading day and we want to get you caught up on the market. Stocks, bonds, and commodities and a company you may not have heard of, but it dominates the Las Vegas strip. Let's begin with a check on markets and the stocks are higher right now. As you can see, the Dow up half a percent, the S&P 500 up also half a percent, and the NASDAQ composite up almost three quarters of a percent. The big story today is a target warning. Earnings will be hurt because it has to cut prices to liquidate excess inventory. The stock is down 30% in the past month.

Now, the other big retailers, Walmart, Home Depot, even Amazon are also lower today, as you can see, off by more than a percent. Now to the bond market, where yields are moving lower today. With inflation, still the top concern, Rick Santelli has been tracking the action for us. Hello, Rick. Hello there, Contessa. Yes, we had a three-year note auction today. It didn't go particularly well, below average by a bit. But as you look at it, intraday of threes, notice it,

one Eastern that yields spiked a bit. And they spiked a whole lot more in the short maturities than longer maturities as you look at an intraday of tens. Now if you open the chart up to Memorial Day, what you see is 10-year-note yields have really been creeping back up. And yesterday they closed above 3% for only the fourth time since November of 2018. And if we think about the foreign exchange markets, we know that there was a point not long ago where the dollar was nearly at a dollar index, we're nearly at a 20 year high, and it was nearly at a 20 year high on the euro currency. But it's lost some ground. However, look at the dollar yen. We are currently at a 20 year high against that currency, and it's all about weakness in the end, because when you

pair it up with the Chinese you won, you can see on this chart, it's nearly, not quite, but nearly at the weakest levels against the Chinese currency since January of 2015. And one more thing, $2.1 trillion is the big number today. That's the size of that parking lot of cash and the reverse repo market. It has a tendency to creep up as we get closer to Fed meetings. And remember, that's a good place to put your money because there's a lot of demand for good quality collateral at a time where many securities are a bit questionable. Contessa, back to you. Rick Santelli, thank you. Oil closing for the day at $119, slightly higher. And when has been a rather volatile session. Natural gas and gasoline futures also taking a breather today,

both up 10% or more on the month. All right, energy stocks are the best performing S&P sector today. Exxon, Mobile, Valero, APA, all with really nice gains today. Look at that. You've got APA Corp up almost 7%. All right, now to a Vegas bet. This is not a casino stock, which you often hear me talk about, but Vici Properties is a reet with a big footprint on the Las Vegas strip, the biggest, The stock is trading near its all-time high. After it was announced late Friday, it's being added to the S&P 500. It has outperformed the benchmark in the past month, quarter, six months, and for the year. And joining us now is Vici CEO, Edward Petoneak. Ed, it's good to see you today. Hi, Contessa. Good to see you again.

All right. So congratulations on being added now to the S&P 500. I'm just curious what this does for your company in terms of exposure. What does it do in terms of access to capital? And what do you do with it? Yeah, it's really the latest chapter, Contessa, and what's been the institutionalization story that Vichy represents just over four years since our IPO. We've grown markedly during that period.

Our market cap when I first started was $4 billion. Today it's over 30. We had a couple dozen properties. We're up to 43. We owned only one property on the Las Vegas trip. Today we owned 10. We got elevated to investment grade

in late April in conjunction with our MGP closing. And this S&P 500 inclusion is yet one more step of that institutionalization, giving us even greater access to capital and a greater opportunity to capitalize on growth opportunities in experiential real estate. MGP was one of your biggest competitors, MGM growth properties, that included a lot of MGM land underneath their casino, so not the operations. I'm curious, because you have so much exposure, you're the biggest, I think, hotel and conference owner in the nation and the largest land on the Las Vegas strip.

How much are you reliant on consumer spending? I mean, do rising gas prices concern you or the rent is due? Your tenants are going to pay it and that's that. Yeah, so we do operate off of rent. We do not operate off of operator revenue. And I should point out for the benefit of your audience contest said that we collected 100% of our rent entirely. during COVID, which speaks to the resilience of our operators. Our operators are, I believe, the best leisure, hospitality, entertainment operators in the world. When it comes to our exposure to the strip with the ten assets we have there, icons like the Venetian, Caesar's Palace, MGM Grand, Mandalay Bay.

We have exposure right now to what we firmly believe, and contestably, is the busiest place on Earth. But more importantly for long-term secular trends, the Las Vegas Strip has been, it is, be for decades to come, the most economically productive street in America, in the world, in fact, because of our operator's ability to constantly reinvent and re-infresh the experience and keep the consumer coming. So let me understand, Ed, it's good to see you, by the way, your business a little more thoroughly. You own the land, which is critical, you own the buildings, which is critical, but you operate none of it. That is absolutely right, Tyler. It's good to see you

after so many years. We do not operate any of it. Our operators own the operating risk. They own the downside, but they also, very importantly, own the upside, the entirety of the upside, which we are very happy for them to have. They've worked very hard through COVID, and now they are thriving in a wonderful way that they deserve. What's the most valuable part?

Is it owning the land or owning the buildings? I'm always curious. In this case, it's both, Tyler. Owning land, obviously, along the Las Vegas Strip is to own very. very valuable land. But look at the Venetian, our biggest property of all. 7,100 hotel rooms, biggest private sector conference convention, trade show space in America. One of the biggest commercial real estate assets in America, all toll 13 million square feet. The value of the building is really almost incalculable given the economics to take place within it.

That asset did $1.8 billion in revenue alone in 2019, pre-cule. COVID. Given where gaming is going, it's expanding everywhere. We've just seen a long time legendary names like when resorts decide that they are also going to go with what is known in this business as op co-prooperating company, property company, and sell off a piece of land under its wind Boston Harbor or Encore Boston Harbor, I should say. I'm curious what's behind, and you just announced this, your efforts to expand your brand into other areas. So you've announced a big golf venture. Tell me about trying to grow Vici beyond gaming. Yeah, so what we love about gaming, Contessa, is what we love broadly about experiential

real estate. And that has to do with the increasing consumer preference for experiences over things. That took a hiatus during COVID, but it has restored itself. It's in a roaring fashion right now. And what you're referring to is the partnership we just announced with Cabot. Cabot is one of the great placemaking and experience creating companies on Earth. In their case, they create what we call pilgrimage golf destinations. We're very proud to partner with them in Florida. They've got an incredible reputation based on what they did at Cabot, Cape Breton. Good luck getting in there in 2024, because you're not going to get in there the next two years.

That's how solidly booked they are. And they represent the kind of operator we want to partner with across the experiential spectrum. Cabot is, again, a representative of who we want to work with. Great placemakers who also know how to create great experiences. Okay, so Vici joining the S&P 500 tomorrow. Congratulations on that, Ed. Thank you. This company, Market Cap, Tyler outsizes Las Vegas Sands and pays a big old dividend. And he said, what, from $4 billion to $20-some billion in? 30 million now, $30 billion in market cap. Really amazing. He was a friend.

He was a skiing magazine editor. Skiy Magazine. And you too could be CEO. I don't think so. All right. Coming up, today's Working Lunch featuring a special speaker. John Ford brings us his interview with the CEO of Sonas. But first, throughout the month of June, we celebrate Pride Month.

Here is CNBC Associate Producer Joey Caruso. For pride this year, I'm celebrating a long-fought history, understanding, love and equality. I consider myself a late bloomer. It wasn't until five years ago, I finally accepted who I am. And since then, my life has accelerated. Breaking generational habits that say it's not okay to be gay, it is okay. You are okay, and you always were. Put yourself first and everything else will fall into place. Welcome back, everybody. Yesterday, I'm supposed to look there. Yesterday, Apple laid out its plans for its software, hardware, and payments platform at its worldwide developers conference. And Today, John Ford brings us up close with the CEO who lost big to Apple once and is determined

to do things differently this time, John. Yeah, Tyler. Patrick Spence is CEO of Sonos, a company known for wirelessly syncing up high-end audio around the home. Sonos has managed to carve out a $3 billion market cap, about $2 billion in revenue, even as Google, Amazon, and, yes, Apple, storm into the connected speaker market. It turns out Spence, who grew up playing championship high school basketball in Canada, has learned a few things about beating business.

bigger teams, the toughest corporate lesson came during his years at Blackberry. It goes back to something that I learned, you know, my first 14 years at Rim, the company behind Blackberry, you know, were super educational, exciting, you know, amazing. But one of the things that we did, which in hindsight is easy to see is not a smart move, when the iPhone came out, Verizon came to us and offered us a huge check to basically create a response to the iPhone and the first touch screen Blackberry. So we did that and it was a huge mistake because we, instead of staying focused on what do our customers need, where are our strengths, which should we do next? We kind of took the bait and we responded and got overly focused on the iPhone and it was a

failure. You know, Storm was the product and it, you know, basically threw away at that point a decade of hard-earned credit with customers and a great reputation. And we threw that away, you know, overnight. Patrick's now focused on what makes Sonos special, trying to expand beyond home audio into personal audio. The company did a deal with Audi last year to bring its system to cars that has a line of portable speakers, and it's rumored to be coming out with headphones soon. Though the company is grappling with supply chain shortages now, it's also maintained gross margins at about 45%. Patrick thinks delighting his base is the key to growth. You may have seen we just acquired a company called Mike, which creates transducing.

is really the heart of the speaker in a completely revolutionary way, something that hasn't changed for 40 years. But these two founders, co-founders in the Netherlands, these two brothers, thought, hey, there is a better way, and they went and did it. And it's incredible, John. And so, like, trying to look for those areas that can be different, staying focused, leveraging our expertise, but using that to expand into new areas and bring that sonous experience into these new areas that really make people, you know, bring them joy, but fundamentally get them adding to their system and adding their next Sonos and telling their friends and family, okay, you've got to get this product.

So far, Patrick and Sonos are holding their own against giants, but it's a challenging game. Apple's challenging Intel, AMD, and InVIDIA with its custom M-S series chips. Amazon is challenging software makers with AWS features. Oh, now Apple's also getting into Buy Now Pay Later. So to keep winning, Spence and Sonos are going to have to play their own style in music. You know, I was, forgive me, go ahead. I'm sorry. Well, you know, it's just interesting that anyone who has a Sonos speaker can immediately hear the sound quality. It might be the kind of system that once you have it and you fall in love with it, you want to keep it, much like the Apple ecosystem, right?

But you pointed out already, if Apple is the Goliath and Sonos is the David, they're going up against a competitor that is owning the whole. stack. They're owning the content. They're owning the delivery system and they're owning the sound delivery method. How do you compete against that? Well, for one, Apple has not been good at speakers. The iPod High-Fi, people forget about this. Everything Steve Jobs did was great. No, the iPod high-fi came out like 15 years ago and flopped. They've done these little mini speakers. They've done fine, but haven't taken the market by storm. So, you know, if you do focus on your niche, if you're not trying to beat Apple, sometimes you can beat Apple. Yeah, now, they may come in, as you said, with earphones or headphones or small speakers that you could take to the beach, like the little mini bows that I have.

That would be fun. But they have stuck to their basic knitting, and they make it pretty doggone easy to add products. So, oh, I'll get another one for whatever it is, $2.99, and I'll put it in this room, and it's good. Perhaps most encouraging for investors, they had to stumble a couple years ago. They tried to do a software sort of update that only worked with the latest speakers. big uproar from their installed base. They were able to reverse. Yes, they did. And I had to buy some extra

product there to enable me to do something. I can't remember exactly what it was. The only person it's defeated is my mother-in-law. She just can't figure out. Anyhow, we've got to go. John, thank you. Good to be with you. Coming up, looking for a discount, we'll trade a cheap stock in today's three-stock lunch.

Time for today's three-stock lunch, and today we look at Ford, Moderna and Exxon Mobile, which are among the cheapest stocks in the market, according to a new CNBC Pro Screener. Let's bring in Jeff Mills, CIO of Bryn Mard Trust and a CNBC contributor. Jeff, we're going to ask you today to pick your favorite of the three. Yeah, we'll talk about one. We're on a little bit of a diet today. We'll do a one-stock lunch. I was going to talk about Exxon. I do like it, but it's consensus. So let's talk about Ford,

because this isn't typically a stock you would want to own in a slowing economic environment. I think that's exactly what we're in. I think there's evidence of slowing wage growth. I think inflation, although peaking is still going to remain high. So that hurts purchasing power for the consumer. I think we're seeing that in some of the credit data. They're binging on credit once again, consumer credit now, surpassing those pre-COVID levels. And that will ultimately hit profits for cyclical companies like autos.

But here's the but relative to Ford. First, I think the chart is interesting. That $12 level, to me, looks like it's support. It was old resistance. Now it's becoming a floor. So the technicals line up for me. And then on a valuation standpoint, at six and a half times forward, the stock has rarely traded this cheaply throughout its history. So I think that's a tick in the positive box.

And then it's investing in growth. The EV spending between now in 2026, somewhere around $50 billion. I think they'll be able to execute. So yes, the present is a challenge. There's a semiconductor shortage. It's hitting production. You see that in the F-Truck series down about 25% this year. But this is a name that you can buy now.

If you can weather the cyclical storm, I think it produces really good return. over the next couple of years. Putting the pedal to the medal. Jeff Mills, thank you very much. Appreciate that. Cutting down on his day drinking, three to one. All right, up next, a new twist in the latest golf drama. We'll be back.

The new Saudi-backed golf tour called Live, holding its first event this weekend. Phil Mickelson will play. Tyler Woods. Tiger Woods will not, but not for lack of trying. Dom Chu is here with the details, Dom. So in an interview with the Washington Post, Greg Norman, the CEO of Live Golf, basically said that Tiger Woods was offered mind-blowingly enormous. Those are his words, sum of money in the high nine digits.

Now, whether that means $600,000, $700,000, $800 million, $900 million to participate, whatever it was, Woods did not bite. He's not playing. Mickelson was reportedly getting $200 million for his appearance in this series. And we know that Dustin Johnson reportedly got between $100 and $150 million. for his participation. Now, this is big because it means that Phil Mickelson and Dustin Johnson are among the high-profile players that are involved in this inaugural tournament. We know that Kevin Nah has already resigned his PGA tour card. He's leaving the PGA tour to play exclusively

in this league. And now Dustin Johnson broke news today when he said this about his participation. Obviously, at this time, it's, you know, it's hard to speak on what the consequences will be. But, you know, For right now, you know, I resign my membership from the tour. I'm going to play here for now, and that's the plan. Now, in a statement that USAGA says the U.S. Open play is going to be open for anybody who has qualified for it or is exempt. And that includes folks like Dustin Johnson and Phil Nichols. I guess they're washing their hands of it. And Dom, so are we.

Thank you for watching Power One.