Power Lunch - The State of the Restaurant Industry, Social Media Scrutiny & How Apple Could Utilize AI 2/15/24

Episode Date: February 15, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, everybody, welcome to Power Lunch alongside Contessa Brewer. I'm Tyler Matheson. Glad you could join us coming up. The magnificent seven tech stocks saw some, well, magnificent gains. But recent 13F filings are showing the institutional heavyweights are starting, starting to take some profits. But how does an individual investor like you know when to sell? Well, as Congress and state governments increasingly are growing antisocial. Now New York is suing TikTok, Facebook and YouTube, others, for allegedly causing harm to children's mental health. But first, a check on the markets. The Dow are clawing back now up 263 points at 38,687. That's about two-thirds of 1%. The S&P 500 up about a half percent.

And NASDAQ trailing a little bit, but positive by 27 points at 15-886. And look at Penn Gaming. It has plummeted today. Those shares are off now. You can see 15%. ESPN bet investments is really cutting into that company's profits. We'll have more on that ahead in the show. One day moving higher.

Shake Shack up a whopping 23% reporting strong 2024 outlook there. More on the restaurants later this hour. And then on the tech front, as we mentioned, big firms selling off shares of the Mag 7 members in order to take some profits. Leslie Picker brings us those details. Leslie, what do you have? Hey, Contessa, yeah, you said it perfectly. We saw what appears to be a bit of hedge fund profit taking and portfolio rebalancing in some of those Mag 7 names during the fourth quarter. Take Microsoft, for example, Viking and Echo Street selling out billion. dollar stakes each. Yesterday's filings, these are the 13F filings, show Citadel and 0.72,

also reducing exposure to Microsoft, which had surged 19% during the last three months of the year alone. Tiger Global and D1 pairing back exposure to meta. Amazon saw some big sales from Jane Street and Viking, but Citadel and Whale Rock did add to their positions there. In Alphabet, we saw sizable reductions from Coteau and Tiger Global, but big increases from Millennium and Viking. Berkshire Hathaway sold 10 million shares of Apple. Sounds like a lot, but that's really just 1% of the firm's ownership worth roughly $174 billion at the year end. Tesla, the laggard of the group, got a small boost from Kautu, which increased its stake. Co2 also alongside Appaloosa and Tiger Global decreased Nvidia, while D1

dissolved its stake in Nvidia completely. And as a reminder, these are snapshots from the end of 2023, they may have changed in the six weeks since. Those who remain in names like NVIDIA, Amazon, Microsoft, and Alphabet likely have continued to see gains from that time because they are up year to date while Apple and Tesla holders maybe a bit more disappointed. So question for you, are these are reductions in stake, not necessarily eliminations of a stake in many cases. For example, the Apple stake that Berkshire had, they took out 1% or thereabouts of their total holding. In other cases, like in Vydea, it may be the same thing. They reduced but didn't eliminate. Exactly. So there are certain

instances, like I mentioned, Vikings selling a billion dollars worth. That was a total, you know, they sold out of that Microsoft position completely. But by and large, and when we're kind of thinking about profit taking versus just a different thought on a certain name, profit taking, you see, you know, maybe a reduction of 10 to 25 percent of a stake. That, to me, looks a little bit more like portfolio rebalancing, maybe they're looking to kind of crystallize those gains at the end of the year as opposed to a complete dissolution of a position entirely, which may just suggest that that manager isn't a big fan of that position anymore. Now, of course, just that, you know, that reminder, again, things may have changed in the six weeks since. Viking could be back in that name in Microsoft,

but, you know, these are the filings that we have. So we know as of the end of 4Q, they decided, you know, No more Microsoft. We're out. We're selling that nearly a billion dollar position there. All right, Leslie, thank you very much. Beyond the big institutions and more on the individual level. How does a retail investor know when to cash in for some profits? Let's bring in CNBC contributor Michael Farr, chief market strategist with High Tower Advisors and president and CEO of Far, Miller and Washington. Michael, always good to see you. So let's, I was watching the movie the other day, dumb money in which quite a few CNBC people appear. And it was really the story of the game stock or the meme stock mania back in 2021.

And the big question through line that ran through the movie was, when do I sell? When do I take profits when I've made 10 times my money in some of these stocks? So when do you, when you've got a good profit like my friend and father-in-law, Jim, who's had Nvidia for a year. He's tripled his money. Should he sell? Probably sell some, Tyler.

And thanks for having me, of course. You know, selling is tough. And there's a great strategist, Don Hay's old friend from Tennessee, who says you should be in a full body sweat. Whenever you make a buy or a sell decision, it should feel awful when you sell. It should feel awful when you buy. You saw Warren Buffett selling today, some Apple shares. It's only 1%, but it's a sale. It's a taking some chips off the table.

and I assure you, Mr. Buffett is following his discipline, as is the management of Berkshire Hathaway. So what's your discipline? What's your discipline that tells you, for example, I know you own a, I've had a historic stake in Microsoft, up a lot. What's your discipline for selling a stop? We've owned Microsoft for a long time, and there are four ways we have four rules by which we sell. If there's a change in our original thesis, if there's a change in valuation, if there's a change in If there's disingenuous management or the overall first initial theory upon which we bought the stock, any of those changes will take us out of a stock. But that valuation matters.

And there are two types of ways you look at that evaluation. You say, well, the stock is 60 times earnings and that no longer meets my discipline. Or it's grown so steadily, as in the case of Microsoft, that it's now such a huge portion of my portfolio. If that's the case and you have 10 or 12% of your portfolio, that would be a huge position for us. It would make sense to lower that risk. So you create a risk both in concentration and you can have risk based on price. Both will get me to sell. Some will just trim as you talked about managing the position.

Others will have me sell the whole position if I really get concerned. You know what's interesting is that your advice seems counterintuitive to well, psychology, for one thing, that if you're seeing the growth of something like this, if you see that, hey, I'm going to make 30 times my initial investments, but I'm not meeting the criteria that Michael Farr just laid out. Or Michael, I don't know, like that thing about it feeling bad when you buy or sell, that's counterintuitive to following your instinct. You know, Leslie, this is what Buffett has always said Americans are funny.

they hate stocks when they're cheap and they love them when they're expensive. And that's why you have to have a discipline. That's why you have to have rules that will protect you from your emotion. And when I say emotion in this case, I mean greed. If you think the stock's going up 30 times, of course you want to buy it and you want to buy a lot of it. But anything that goes up really fast can go down really fast. And I was on NBC back in those days when the dot coms were going crazy in in 07 when was going crazy, and I preached this same message. So let's take two stocks and look at them. Let's look at your Microsoft holding.

Would you trim it? Are you trimming it? I will trim it in positions where it has gotten too big for portfolios where it's too big. Yes. And if I didn't own any Tyler, I'd buy some today too. Because I think Microsoft for the long term, I love this stock. I think they're really well positioned and I want to participate. So I would sell it if my position was too big.

And if I didn't have a position, I'd buy. So let's go to the second one, which I began by asking you about, and that's NVIDIA. I don't know whether you own it, but it is tripled over the past year. Some people say it's cheap. Some people say it's expensive. What do you think? Would you trim it if you owned it? Well, same.

I'm going to give you kind of the same answer. Yes, NVIDIA is an amazing stock. I do not own it right now. And frankly, I'd like to see some stronger fundamentals meeting my discipline before I get back in. So I guess I'm saying I'm waiting for a bit of. of a pullback at this point, might never come. But that's what my discipline says. If I can't pay this sort of a price, I'll wait. If I had some huge position, if I all of a sudden I had 10% of my portfolio or more in Invidia, yes, I would reduce that position. I would redeploy that money.

Tyler, years ago, we had a client who was a founder at MCI. We sold 10% of his position. Every year diversified into the S&P 500. He wanted to fire us as MCI prices kept going up. And he wanted, when WorldCom bought him, he really wanted to fire us. And we thought he was right. We thought basically we might have been as stupid as he was saying we were. When WorldCom went under, he came down to our offices to thank us in person for saving him. So you reduce positions of risk, you diversify, and you make sure that you can get a portfolio as bulletproof as you possibly can. Don't worry about making that last dollar.

worry about your greed and make sure that you're financially safe and prudent at all times. Michael Farr, always good to see you, sir. Thank you. That was a jackpot of a call, wasn't it? Yeah, that was it. Boy, yeah. Remember MCI and Bill McGowan? Ooh, man, made a lot of money. Bernie Evers, WorldCom?

While some investors are taking profits from the MAG7, others think there might still be room to run. Specifically, Evercore ISI says Apple is underappreciated as an AI play. Amit Daryanani is the senior managing director of Equiport, research at Evercore ISI. I'm good to see you. Give me a sense of what way Apple could deploy artificial intelligence that it's not already. Yeah.

Listen, so I think there are two elements of what Apple could do with AI, right? One is, can they use their own large language models to make Siri, for example, what it was supposed to be a decade ago, like truly a virtual AI assistant that you can interact with voice, right? That would be kind of phenomenal. can you improve iOS broadly using AI, right? So that would be one set of things that Apple could do, and I think they'll do it this year.

The second part that I think it's a lot more fascinating is can you open up a framework to enable local inferencing? So instead of being inferencing the way you do it today in a public cloud, can I do it on my iPhone? The advantage of that is it's faster, cheaper, more secure. Security will be important for data. That would be really fascinating.

And this to me is a punchline for Apple. if you can open up local inferencing, which we think they'll do, and there are certain set of killer apps that come out of it. Now, I'm not quite sure what these killer apps will be, but if there are killer apps out of it, that could trigger a very sizable iPhone upgrade cycle because to run local inferencing, you probably need a lot more memory,

both NAND and DRAM on your phone. So I think there are two parts where they can really benefit from. One is making the ecosystem sticky, but the other one is local inferencing, and that could unlock a whole big replacement cycle. If they put it on local, would that resolve some of the challenges, I don't know, cost-wise or otherwise, to using AI more in Apple? It would certainly make it a lot cheaper for everyone, if you can run it locally, right?

Because in that case, what happens, you don't need all the $9 billion or $9 parameters that are out there on an LLM, all of it at the same time. You might run a few hundred or a few thousand of them, but you would run it on your local device. So it certainly would make it a lot cheaper for everyone, I would argue, to run local inferencing versus doing inferencing on the cloud the way it's being done right now. How would this affect do you think that the sort of moat that Apple puts up around its technology and its ecosystem? Yeah. If I go to the, can they really make Siri what I thought it was supposed to be a decade ago, right?

A truly interactive virtual AI-enabled system, that would make the product a whole lot more sticking. So that would make iOS and Siri and iPhone more sticky. But the second part, right, if you do enable local inferencing, and you can start running a certain set of apps, again, I don't know what these killer apps are today. But if you can start running them on your iPhone, that would actually make you want to go by the next-gen iPhone that's AI enabled because you want the extra DRAM, the extra memory to run all of that stuff, right? So actually it locks you in more into the Apple ecosystem, but why did they're successful over time? more time. Amit, I just want to mention that you have an outperform rating on Apple, a $220 price target. Today, the stock is at about 182. Thank you for joining us. Appreciate it. Amit Daryanani. All right, coming up, social media stepping into a minefield, Congress poised to

pass a bill aimed at protecting children from social media platforms. Additionally, New York and Florida, both taking aim at social media giants for reportedly endangering teens. We will discuss that one next. Plus, on the menu, some key insights into the rest of the rest of the business, concerns for McDonald's franchisees, restaurants betting on China, and we will speak to restaurateur Marcus Samuelson. All that, when Power Lunch returns. All right, welcome back. A bill focusing on protecting kids online from cyber risks is poised for passage now in the Senate. Emily Wilkins has the details. Emily. Hey, Tyler. Well, yeah, the Senate is now ready to pass a major tech bill that will hold social

media companies accountable for protecting kids' mental health. Sixty-one Senate. That's the golden number, got to get more than 60, and that includes Senate Majority Leader Chuck Schumer, are now supporting an updated version of the Kids Online Safety Act. The increase in support is the result of months of negotiations led by senators Marsha Blackburn and Richard Blumenthal. And it clarifies that social media companies have a responsibility to prevent their products from harming kids. Now, that includes features like push notifications, filters, or suggested friend requests. Another change, giving the FTC more oversight enforcement of the new standards. Now, the bill is bipartisan with supporters, including Senators Elizabeth Warren, Ted Cruz, Joe Manchin, but there are still concerns about whether the bill's restrictions would violate free speech.

And there are fears that state attorneys general could over moderate content and potentially sue social media platforms that host LGBTQ plus content. Net choice, which represents meta, TikTok, X, and others called on Congress today to consider other legislation and to, quote, abandoned censorship regimes masquerading as child safety bills. Now, despite the large support in the Senate, the bill faces a tougher climb in the House where the focus has been less about kids' online safety and more about wider privacy bills. But first, of course, this is going to actually have to get on the agenda to pass the Senate. It's possible because they have the votes, but as always, time is a factor here. Emily, thank you for bringing us that story. Of course, states and cities are tackling the problem as they see with widespread social media use among children and teens. This week, New York City announced it suing TikTok, meta, snap, and Alphabet's YouTube accusing those platforms and others of causing a youth mental health crisis.

And they say it costs the city money. Last month, Florida lawmakers advanced a bipartisan bill banning children younger than 16 from using social media. Here to discuss Julia Borson, our senior media and entertainment correspondent, Alex Cantorowitz, founder of big technology and a CNBC contributor and Andrew Sellepac, social media professor at the University of Florida. Julia, let me start with you. You saw the pushback to what's happening in Congress right there, the questions over whether there are free speech amendments. Is the pushback mostly coming from lobbyists for the social media giants? It's coming from lobbyists, and there is some concern about this. element of free speech and then also perhaps privacy issues. But I think what's really interesting

here is that, you know, it's not just coming out of Congress. We're seeing it from New York City. We're seeing it from all these different school districts and this idea that there is this concern about a mental health crisis. Now, we have seen a big effort made and a pushback from the companies themselves saying we are giving parents the tools to have some control over what their minors are doing, what people under the age of 17 or 18 are doing. on their devices. And then we've heard from some of these social media platforms that they think that some of the responsibility should lie on behalf of the app stores. And they're saying the app store owners such as Apple should be responsible for making sure that people aren't downloading these

apps unless they have permission from their parents. So there's a little bit of finger pointing here as they themselves work to improve what they're doing because they don't want to have a product that is seen as toxic by these different entities. Sometimes it's parents that are downloading the apps and helping kids even bypass the age restrictions that do exist on the social media platforms. Let me give the response. Here's TikTok spokesperson responding to the lawsuit saying that it has industry leading safeguards to support teens' well-being, including age-restricted features, parental controls, an automatic 60-minute time limit for users younger than 18 and more. And then here's META's response to the lawsuit. We want teens to have safe, age-appropriate experiences online. We have more than 30 tools and features.

You see, I'm correcting the grammar as I go along to support them and their parents. We've spent a decade working on these issues and hiring people who have dedicated their careers to keeping young people safe and supported online. Alex, what do you make of this? A lawsuit, does it make a difference? Is it, you know, the way that California led the way on car emissions? Could we see New York City and Florida leading the way on social media? Yeah, I think it could make a difference.

I think this lawsuit has merit. And the reason why it can make a difference is because some states like Montana and Ohio and Utah have said, we want to ban social media for people under 16. And that's been struck down by the courts under free speech rights. And I think New York is taking the right position here. Not only does it have a laundry list of evidence in its lawsuit, but it's also saying, yeah, we would like them to not be able to have users that age, but we also want money. Right? And it's one thing that these social media companies will listen to, and that's, you know, having their money taken from them.

And I think that's the right way to approach this. Sue them, get money, and make it so painful for them to be able to have such young kids on their apps that they'll stop doing it. They'll actually be serious about it. I do question the moral platform that New York City is coming from because its own Department of Education has not banned cell phones in schools. Where do you come on this, Andrew? Well, and that's one of the important things. I think there's a difference between New York and Florida right now. Florida's passed legislation that prevents young people in schools from accessing social media. Whereas if you look at some of the press conferences from Mayor Adams, he talks a lot about how he thinks social media is contributing to crime in New York. It seems like they're also looking for money, not saying exactly how much they're looking for, but instead saying that the state spends $100 million a year. It seems like, like a lot of this is lawsuit instead of passing legislation. And that's a big difference because if the state can kind of educate people, if it can educate young people about the dangers, which most states aren't doing, that can have an actual real effect on young people. Andrew, can legislation or

lawsuit achieve the desired ends, which is to make children safe for number one? And number two, wouldn't children just work around whatever prohibitions are put into law? codified or in lawsuits because they'll lie. They'll lie about their age. They'll lie about whether they have parental permission. They'll, they'll confect some way to get around whatever the barriers are. That's number one. And number two, I'd love your opinion on whether the companies in their very earnest disclaimers saying, we're doing so much, we have these people who are dedicating their lives to protecting children. Are they being disingenuous or not? Well, on the first part, I think it's 100% true.

Young people will find a workaround. If you build a 10-foot fence, someone will have an 11-foot ladder. And young people are using social media. It's hard to keep them off. Parents give young people a tablet or a phone when they're two, three, four years old. It's a babysitter. That's why I'm a huge proponent of teaching students about teaching young people about the dangers and the harms of social media.

And that's where social media literacy courses come in. And that's why I'm really excited that the state of Florida is one of the first states to actually implement that in grades six through 12. At the same time, the social media companies, we've seen them again and again and again go before Congress, apologize, say they will do better, get called in front of Congress months later, and make the same apologies. You know, for them, it's about getting young people. It's about having young people addicted. It's about having us addicted. The big thing about young people is they want them in the pipeline early so that they'll become lifelong.

And they also understand that young people are in a lot of respects the taste makers of social media. They want them on there with their TikTok dances. They want them on there, you know, kind of spreading what's new and popular for us older people to enjoy it. Julia, I saw in and around the Super Bowl Snapchat's new ad, new campaign saying, oh, no, no, we're just going to really focus on being together in real life. I don't even remember what it called. It made it, it made an impression on me. But why are they doing that? Well, so Snapchat is really trying to distance itself from these other platforms and saying, we're not social media because Snapchat is about communicating with your friends.

So really trying to send the message that they want to enable people who already know each other to have these interactions. And then they also have entertainment as well and things like maps where you could find your friends. But that Super Bowl ad was a big investment and an attempt for this company to really stake a claim and saying we are different from, say, you know, you know, Instagram or TikTok or even YouTube. And I think it's notable that Evan Spiegel also really tried to make the point when he was testifying on Capitol Hill. We're different from those other players. We're about interacting with people either one-on-one or people you know from real life. But isn't that a little disingenuous, Julie?

Snapchat is the one where the messages disappear very quickly. And it can be used in pernicious ways, can it, as a result of that fact, so that it can be used as a vehicle to shame, or embarrassed or otherwise injure somebody. I mean, and so to say, oh, we're just here, we're just here trying to put friends together and let them communicate. Oh, come on, man.

Of course, look, none of these platforms is without fault or without flaw, but I think that they do have different business models. So if you look at Instagram, it's about following companies or people or influencers who you do not know. TikTok is about sharing videos that go from one to many. And then YouTube is, again, about the sort of the power of these influencers and the people with these massive platforms. So they do serve a different purpose.

And I think this question about whether Snap is more about communication doesn't mean that they're not going to be a platform where people can do bad things. It's just a different type of communication, more of a one-to-one than a one-to-thousand-thousand-thousand-money. I see Andrew nodding there in agreement. We have to leave it there. And Alex, I promise you, we'll get you in more the next time, around. round, okay? You'll come back? For sure. Okay, thanks. Thanks, Julia. Alex, Andrew, we appreciate it.

All right. Scroll up, scroll up, there we go. As we head to break, a quick power check on the positive side, zebra technologies. Yes, indeedy. Where are you going, Nikki? What are you doing back? What are you doing back? She's doing? She's walking right behind me. You know, it's like a circus in this studio. Despite missing on sales, but overall things seem to be improving and analysts are happy. On the negative side, we've got West Farm mesutical sinking 13% issuing weak guidance. Nikki, issuing weak guidance over here. We'll be right back.

Welcome back, everybody. Crude prices higher today. Some energy socks hitting new highs. Pippa Stevens has more. Pippa. Hey, Tyler. Well, energy is the top sector today rising more than 2% with some big individual movers.

So starting here with Diamondback hitting an all-time high, up more than 16% this week alone after announcing the deal to buy Endeavor Energy on Monday. Midstream players target resources rising to the highest level since 2015, on the back of earnings. Now, Nat gas producer, Antaro, also on the move, despite the massive drop in Nat Gas, which is down again today. The company reported last night saying that looking forward after paying down debt, the majority of free cash flow will go to share buybacks. Now, not a name we talk a whole lot about, but check out shares of drilling equipment provider Patterson UTI jumping some 13% after its Q4 update, with Raymond James saying

results outperformed across the board with activity and margins holding up better than expected in a seasonly slower time of year. Now, we should also note that the White House, that the House, I should say, just passed a bill to reverse President Biden's pause on building LNG export facilities, although the bill still has to go to the Senate. Contessa? Pippa, when in doubt, throw it out. It's a company phone anyway. It didn't really matter. That's all right. Let's get to Bertha Coombs for a CNBC news update. I hope her phone's okay. Meantime, Contessa, Nathan Wade, the prosecutor accused of having a relationship with Fulton County District Attorney Fannie Willis, is still on the stand this afternoon. Donald Trump and co-defendants in Trump's

Georgia election interference case are accusing Willis of misconduct. Willis, who could be disqualified from the case, is expected to take the stand as well. After another witness claimed earlier today that the relationship between Wade and Willis began years earlier than the two had claimed. New York's governor is pushing to criminalize deceptive uses of artificial intelligence. Governor

Kathy Hokel's office presented new legislation in the state budget that would add a misdemeanor for unauthorized uses of a person's voice. And the company that makes Tinder, Hinge, and The League is accused of gamifying love.

Six plaintiffs filed a lawsuit accusing Match Group of designing their platforms to hook users rather than find them a romantic match. They say the tactics don't line up with the company's claims that its apps are designed to be deleted. Match called the lawsuit ridiculous and said it has zero merit, although I'm tempted to say they just swipe left on the whole thing. You know what?

Makes for an interesting story, though. Right. Bertha, thanks. Still to come, we'll speak with Russ. for tour Marcus Samuelson about how soaring food costs have affected his business and his customers. We'll be right back. Welcome back to Power Lunch. Restaurants are bracing for a tough year ahead.

McDonald's franchisees, for instance, are looking at potential headwinds. Kate Rogers covers McDonald's for CNBC. What are you learning, Kate? Hi, Condessa. Well, McDonald's franchisee advocates speaking out on the company's plans to continue to make McDonald's a destination for value and discounts, they agree with the goal, but have some different ideas on how. how to get there. Now, CNBC obtained a copy of a letter from the National Owners Association. That's an independent advocacy group of McDonald's franchisees. The letter responding to some

discussion that played on in the company's recent earnings call, as CEO Chris Kempchinski said that lower-income consumers were pulling back somewhat and that value offers might be needed to bring them back. The NOA says value is, quote, not a new or unique message. Value has always been at our brand's core. Value, however, should not be discounting our core and iconic menu items. The group points to opportunities like bringing back snack wraps and testing out affordable beverages as a way to lure in consumers. Now, McDonald's for its part says affordable options are core to its brand and that franchisees continue to create impressive returns which with average cash flow, rather, up nearly 50% since 2018. And even when accounting for

inflation, 2023, it says, was one of the highest franchisee cash flow years in the history of the company. But the NOA has countered that in its letter saying that since 2022, Sales and cash flow are growing, yes, but they're not keeping up with inflation. They say trailing CPI by about $24,000 per location in 2023. Wow. You know, Kate McDonald's and Starbucks and other restaurants that you cover have significant business in China. And we've heard a lot of commentary about concerns about consumer spending there. We've also heard about long-term growth opportunity.

Give us the glass half-empty, the glass half-full picture. Well, Contessa, we'll start with Starbucks. So it reported same-store sales growth of, 10% in China. That's its second home market. The company's CEO, Loxman and Erasmund, did note that the Chinese consumer is currently a bit more cautious, but it's leaning into being the premium offering for Chinese coffee drinkers. McDonald's, we were just talking about another major U.S. brand that planned to expand more in China. CEO Chris Kempchinsky said back in December, it could one day be the company's largest market in the world. It's planning to add about

7,000 locations in its international developmental license market segment. More than half of those will be planned for China. And finally, Yom China, that's the KFC parent company, had a stellar quarter. The company says it's currently serving about one-third of the Chinese population. It aims to get to half of the country's population by 2026. It's focusing, though, on expanding in lower-tier cities. So definitely a different strategy there, but really all of these iconic American brands doing quite well in China for now. Very interesting. That logo is interesting there. I look at it, Yum-China. That's cool, Yum-China. All right. Thanks, Kate. All right. Thank you. National Restaurant Association Forecasting Sales for the industry to top a trillion dollars for the first time in history this year. Additionally, another 200,000 people are expected to join the restaurant workforce. For more on the state of the industry, let's check in with our next guest.

And operates more than a dozen restaurants across the country and abroad. Joining us now for more, Marcus Samuelson, renowned chef and restaurateur. Mr. Samuelson, welcome. Good to have you with us. What's the biggest challenge you face today? And how are you surmounting it? Thank you so much for having me here right now in my restaurant at American Dream, Marcus Bar and Grill Live. I mean, it's one of those smaller private events room. You know, there are several challenges in the hospitality industry, of course, but I love it.

And I'm bullish in the space because I do think people still enjoy and want to go out and eat and want to be social. So it's about understanding what type of. restaurant do you have and how do you meet that customer and how do you create value regardless of the pricing it has to be value in its category we're a family-owned restaurant majority of our restaurants are family like red rooster of mar and marcus bar and gruel are really family-oriented restaurants with one higher-end metropolis at sense so i guess i guess the answer to the question then is that the broad issue is is finding out how the consumer defines value

and then figuring out a way to meet that. But there must be specific things that are notably challenging right now. I can think that labor cost and availability is one. I could think that food inflation would be another, and rent might be a third. No, I mean, I think about it like this. All of those times, all of those things have always been very, very difficult, right? So there are restaurants, and the word restaurant is very large. You know, my restaurants, I have the opportunity to go back to my.

landlords and creating the strongest, strongest possible deal. And I urge all restaurateurs to really go back and have that dialogue with the landlord because, yes, inflation, price increase, all of it really hits your bottom line, right? But I still think you find your core menu, you go through your menu, you find value in that menu that works both for you as a restaurant and for the customer. Then take advantage of free opportunities, like social media. that's a place where you can really, you know, no one buys ads anymore, especially independent restaurants.

It's really all about pushing your social media and meeting the customers where they're at. So for me, as an entrepreneur, I've got to be really creative. I got to keep work at it. I know it's tough times, but this is the business I'm in, and I love this industry. I love my people. I love my staff. I love growing it.

So I know we have challenges, but also believe in it, although it's difficult. Especially first quarter. We're paying an awful lot of attention to wages and labor costs. I wanted to ask a question about young people, because we're hearing so much about how Gen Z doesn't show up for work, that they don't want to work, that they're late, they think nothing of calling in sick or for their mental health days. What do you see with your younger workers? What kind of value are they bringing to the table and where are their challenges?

I don't see that at all. Actually, my majority of the staff, especially here in American Dream, they're about 24. The average is about 24 years old. The staff shows up. They eager they want to learn. So I don't think at all. I think it's part of it. Every generation is going to say that the next generation is not working as hard.

I think that everybody says that. But I feel very blessed to work with very hardworking young people. And they want to learn. And then they want to go and do their own things. So an average person today at 24 might not have one job that they had before, right? Today they might have three jobs. It might be their pop-up on the weekend or it might be that they're selling something online and at the same time as they're working in my restaurant.

So as an owner, I have to work with that and meet the works force where they're at. Marcus. You know, we have many programs. I'm just, I'm curious because they're digital natives. Are they bringing to the table ideas about how to effectively use technology in ways that are helpful to your overall business. I'm laughing because I'm not digital native and I get reminded of

it by them all the time. So, yeah. No, I mean, obviously we have this amazing opportunity now to meet customers for social media. So, of course, they always say, hey, you know what? Our posting is still. We can make it, our wheels can be better. They constantly

remind us if we're not fun enough or we're not informative enough about what we're doing online. So I do think I look at, you know, I came up through mentorship and I will have had older mentors, but it's also about having younger mentors that can teach you about what's happening through these social media platforms so we can opt out there. You know, I think in restaurants, your customers are from all ages, your staff have many different ages. So it's really important to listen as a leader. And if there's value there, who doesn't want to improve? Who doesn't want to maximize?

So it's not about being closed doors. Chef knows everything. Those days are gone. You've got to stay much more open. And it does require more listening from leadership. But the chef knows a lot. Marcus Samuelson, congrats on your new restaurant. Metropolis, Marcus Live bar and grill. Great to see you. Thank you. Have you been to American Dream? Have you been there? No, I haven't. It is audacious. It's immense. It's next to the Meadowlands. I'm overwhelmed. I'm like, you know, the offerings are so great. It's got everything. Waterpark. I'm afraid if we go, I'm never going to get Lots of ways to get hurt and spend money.

It's good. Speaking of spending money, Penn Entertainment spent a lot, and its shares are tumbling on a big earnings miss. It's the price to pay for launching ESPN bet. Draft Kings reports after the bell. Will it paint a prettier picture? Let's talk gambling when Power Lunch returns. All right, welcome back.

It's time for a check on the bond market, and you know what that means. Rick Santelli tracking the action in Chicago. Rick. Hi, Tyler. You know, we had a lot of numbers this morning. Retail sales? Well, if you look at a chart of retail sales, today's month-over-month change was the weakest since March of last year. We'll call it 10 months, as you can see on that chart.

But the whisper number was always on the weak side. Many traders I talked to were expecting us to take back some of the strength we saw at the end of last year. And if you open up retail sales pre-COVID, you can see even though we are dropping a bit, the spikes have run out. Some of the government money seems to be running out. You see those spikes in 2020. and the small one at the beginning of 23, we're getting much more normalized like pre-COVID. Now, if we look at CPI Tuesday and through the lens of a two-year yield,

you can see we've started to come down. We're intersecting back in those ranges. But that particular session, all Treasury yields closed at fresh 20-24 high yields, and they are still affected by that, and they haven't really slid very far below those levels. We want to pay very close attention to that CPI-slash-infest.

effect, especially in front of tomorrow's PPI number. And if we look at what has been going on with the 10-year, let's open the chart up year-to-date, you can see that we've come barely off of that Tuesday high-yield close, which actually in Treasuries went back to the end of November, early December of last year, and we want to continue to monitor how the inflation numbers are going to skew investor confidence in some of those rate drops they were expecting and what the lasting impact might be with respect the equities, which have caught a lot of green despite Tuesday's yield jump. Contessa, back to you.

Rick, thank you. After the break, we'll talk about the big moves in the gambling space. More parallel next. 31% of Russell 1000 companies conduct race or ethnicity-based pay analysis, according to just capital. This type of analysis is done to manage equal pay for equal work. Celebrating Black Heritage, I'm Sharon Epperson. All right. Welcome back, everybody. Quick check on the Dow, right around session highs up 336 points. Well, it's a bus for shares of Penn Entertainment today. As you can see, down within 13% after a massive missin earnings. Bricks and mortar casinos are Penn's bread and butter. And those casinos largely met or exceeded expectations.

But the interactive segment was a real drag. In this case, interactive is code for sports betting, online sports betting, online casino. and it's costing Penn a pretty penny. On the call, CEO Jay Snowden said the losses were greater than expected, and he blamed how much the company spent on promotions to acquire customers in its newly rebranded sportsbook ESPN bet. It did not help that the two weeks that followed the launch were weeks that saw games that ended in customers favor. In fact, Penn said they were two of the lowest hold percentage weeks in the whole NFL season.

We heard Fandul and Draft Kings report a big wallop to their bottom lines as well. Still, Penn is painting a positive picture about its future. Customers bet more money with Penn on sports in December and January than in the company's history, up 190% over the previous year. It added more than a million customers. And it made deals for sports betting licenses in North Carolina and New York. And that is a big deal with the potential to reach 9% more of the U.S. population, Tyler. But again, that will cost Penn. It costs a lot of money to launch states.

and Penn is now guiding to a $400 million eBadar lost this year. This afternoon we see Draft Kings reports earnings and we'll see what their picture looks like. When did the ESPN bet product come out? So mid-November, it was already well into football season. And so they were up, you said, 190%? Percent. Over last year. Over last year.

For December and January. Is that the reason? I think that they are paying a lot of money to acquire. customers and to let people know that ESPN bet now exists. But they're also getting a lot of exposure through ESPN itself and its talent. And they're relying on that in terms of keeping their upward trajectory. All right. Very interesting. All right. We got about 15 seconds. What should we do with the time? Let's go gamble. Let's go make a bet. Thanks for watching Power Lunch, everybody.