Wall Street Is Warning Investors to Get Ready for Stocks to Drop

27:10Do you get hit with those kind of nickel and dime tariffs, too? We do. We use a lot of steel. We use a lot of aluminum. We use a lot of copper in every single gen set. So, in fact, you know, it's interesting you brought up the automotive industry, Matt, because it's a real good proxy for, you know, a lot of our input costs, you know, in terms of the components, in terms of the commodities, the things that we're exposed to. So, you know, we have a lot of those similar exposures. And I think just like Ford and others, you know, we're trying to do what we can to minimize the impact of tariffs. But it's difficult.

27:40I mean, we've all developed over the last, you know, 40, 50, 60 years global supply chains, right? I mean, there are areas of the world where, you know, certain components, certain commodities are only available, right? They're just not widely available in other parts of the world. So it's going to take time to recalibrate those supply chains and to try and create a more domestic manufacturing base. And I get it. I understand the need to do that, in particular around things that are associated with defense, maybe pharmaceuticals, things that are truly critical. I'm not sure, you know, when you look at the broader base of things that we're putting tariffs on that, you know, like tennis shoes and Barbie dolls, if that's maybe the right place to do it.

28:18You know, I think we've got to be selective and we've got to be strategic in how we use tariffs. But I know the administration's working through all that with all these different trade partners. Some things, I mean, like magnets or rare earths out of China, we're never producing those here. It's like not an option, not in decades. It's challenging. And you must use those. Are you getting enough? We are. We're fortunate that we have the ability to kind of substitute for some of those super rare earth elements that I think are really critical in aerospace and defense. Not as critical maybe in the automotive.

28:51and in smaller quantities they are. But we have access to them today. But of course, that's a concern because as you noted, there are only a few areas of the world where you can get those types of materials and those types of components. So it presents a really, I mean, this is a very complicated situation, very complicated conversation. I understand what we're trying to do. But again, I think we've got to be super strategic about how we implement these trade agreements and these tariffs. We are talking with Aaron Yachtfield. He is chairman, president and CEO of Generac. Hey, a couple of things that you said I want to follow up on.

29:25You are mostly selling here in the United States, but you did talk about what you guys are doing around the world, Aaron. Does it make sense to pivot even more so international with the energy storage solutions to places like Europe and China, given that the U.S. policies are now less friendly to something like solar? Well, those are big markets to begin with. Right. So, you know, obviously we want to be successful with our energy products. You know, the storage products, in particular, battery products. You know, Europe is a very well-established market. The U.S. is a good market as well. But obviously, the policy changes that we've now codified here recently are going to have an impact on the U.S.

30:05market for solar and for storage. Now, a lot of the things we're looking at, though, even with the loss of those incentives and the loss of support here in the U.S., you know, the economics of putting a solar system on your rooftop, depending on where you live, the cost of energy continues to rise. This is one of the things we've talked about. We started out talking today about the quality of power. The cost of power is another element here that needs to be talked about, because as power costs go up and the cost of these technologies around solar and storage continue to come down, the economics, the payback, the raw economics of investing in your own power production on your rooftop or a geothermal loop or however you want to produce your own power and store some of that power continue to improve.

30:45And the loss of support, you know, it may impact the industry for a year or two, but it will get back on track because, again, power prices are going up. Yeah, it does feel like we're headed towards a power war, certainly here in the United States, considering the amount of power needed to really support all the AI that's going on. Having said that, you talk about these loss of these residential tax credits. You've got some new home standby generators, my understanding, is coming to market. is that going to help offset, though, some of the loss that you are seeing from those residential tax credits, especially when it comes to your energy storage business?

31:17Yeah, absolutely. So on the energy storage side, the loss of the credits, that's going to impact that business here short term. Our home standby business, that business, it's never benefited from tax credits to begin with. So, you know, it's the kind of thing that you, again, if you and Matt out in the suburbs, you want one of these products to back up your home so that, you know, you protect your property, protect your family. there unfortunately were no tax credits available, even though the administration, when President Trump was on the campaign trail, you know, he had mentioned maybe perhaps offering a generator tax credit.

31:48We're still waiting on that. We think that'd be smart policy, but we haven't seen it yet. It certainly wasn't in the one big, beautiful bill. But those products don't have tax credits. We do have a new product line coming out, which has got some great features and benefits packed in it. But those are the kinds of products that, you know, again, you're really buying and investing in those products to protect your home, to protect your family, to protect your business from a power outage. And what I really meant is those new products kind of offsetting anything you're losing from the energy storage business because of the loss of the tax credits.

32:18One other thing I want to ask you about data centers. What about the imminent launch that you guys are expecting of large diesel generations for data centers? What can you tell us about capacity? How much do you guys have for that? And are you investing to boost that capacity? and what is the pipeline of new orders looking like? Yeah, so the pipeline's very strong. You know, again, about 150 million already booked in backlog. In terms of capacity, just raw capacity here, you know, kind of globally, about a$500 million capacity number for 2026. So if we get the orders, we think we can have a really great year next year as a way to increase our commercial and industrial business.

32:56But we're already thinking about 2027 beyond. You know, this is a market that, again, you kind of have to go back to what do you see in terms of capex spending for data centers? Is this going to be a, is this truly a bubble? You know, something that in the next year or two, you're going to see a retrenchment or retracement of all of that spending, or is this secular, right? Is this going to go on for the next decade? And we definitely, like others, believe that this is certainly a longer term trend and one worth leaning into. So we're already starting to think about adding capacity so that we can take that$500 million number to something much higher in the years ahead.

33:29For me, it's the residential products because this is like - Matt just wants a diesel generator, Aaron. I'm just going to lay it out for you. You know, what we do here is just what Matt needs to buy. And that's what this is. It's not even me, but if you're like a hedge fund guy and you just made your first couple of million and you're putting up a place in Millbrook so you can be next to Michomik, you want to have a sweet diesel generator out back. Well, I'll tell you, You know, what people don't think about, right? Like if you think about your home today and right, so you talk about that hedge fund manager or, you know, anybody else who's got a home, the amount of technology that's entered your own home, right?

34:10Think about it, like from security cameras to just the, you know, from control of all of your, you know, a lot of your audiovisual equipment, your lighting, but a lot of the, you know, the safety equipment that goes in your homes, your security systems, these systems are non-operational when the power's out. We get notes from people who are like, you know, look, I didn't even realize that my garage door wouldn't open. You know, I've got a garage door opener. The power's out. I can't even back my car out of the garage. You know, everybody, if your power's out and you want to open the garage door, you got to reach up and grab that red handle, right?

34:40Nobody wants to do that ever in your garage because you don't know what's going to happen next, right? So people are like, I didn't think about it. I didn't think my sump pump. What happens when you're sump pumping? My husband keeps doing all these systems. Like our lights, I have to turn on with like these technical systems and everything. Nothing switches or anything anymore. And it's like, I fear for when the lights go out. I don't live in suburbia. I live just outside New York City, but we talk about a generator too. But there's so much. We talk about a generator too. It's not just even the food in your refrigerator, but the deer in the freezer downstairs, you know?

35:09And what happens if you can't heat the pool in the fall? You know, you need to have, what is the hottest product, Aaron? What is the thing that, you know, the dude at the end of the cul-de-sac absolutely has to have? What are you selling out of? Well, I'll tell you, it's our 26 kilowatt home standby generator, which can cover your entire house, a good sized home for everything you need. Basically, if the utility goes down, you don't even notice that that that the utility is not present. Right. I mean, you see a momentary loss of power and then the generator starts up and you can you can basically run indefinitely on a natural gas pipeline.

35:44Or if you have propane at your home, you know, you're going to be able to last a long time on a generator. And I think one of the things, the other thing that we're seeing, huge trend, right, is people who have home medical equipment, GLP-1 drugs. GLP-1 drugs have to be refrigerated. So if you lose refrigeration with medications, certain kinds of medications spoil very quickly. And so, you know, these trends, these overarching trends, again, you know, a lot of the medical infrastructure is starting to move into the home. We see Americans who are trying to stay independent and stay in their homes much, much longer.

36:16But a power outage, when you get older, in your 60s or 70s, and you lose power, it's a very different situation than if you're a younger American, 30s and 40s. It's the indoor camping. You get out the Monopoly, and everybody has fun, and it's great until everybody gets sick of that after about an hour. But if you're older, I mean, the danger that comes from not being able to regulate temperature, the loss of some of the function of some of these medical devices, just not having the lights operate, as you mentioned, Carol. I mean, those are very serious situations for older Americans. And that is a huge part of our demographic for home standby generators.

36:48Yeah, moves from being a discretionary to a staple. Not to mention the wine cellar. Matt, stop. Aaron, he's now Googling what you just suggested. And so, you know, there might be a purchase coming or something in Matt's future. Aaron, thank you so much. Aaron Jekfeldt, he is chairman, president and CEO of Generac. Delighted to have him here on Bloomberg Business Week Daily. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work.

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38:37This product is not intended to diagnose, treat, cure, or prevent any disease. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work, I'm Carol Masser. DoorDash, the largest food delivery company in the U.S., is building its own delivery drones and has gained the necessary FAA approvals to operate them commercially, the latest in its effort to delegate more orders to robots as a way of cutting delivery times. Bloomberg's Natalie Lung reports the company says it has been conducting pilot programs with various restaurants, some of which have seen their order volume grow during the test period.

39:13The effort marks an expansion of DoorDash's in-house robotics efforts to reduce reliance on human couriers for some orders, as their wages constitute a key expense to the business. Drones are also a way for DoorDash to cut delivery times on orders from more remote locations that some dashers may not want. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode. Available on Plus and Pro plans. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m.

39:56Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. or watch us live on YouTube. Hey, one name that is definitely outperforming in a big way in today's session, that is Wayfair. Stock is up about 12.8 % as we speak, so pretty much hovering near its highs of this session. This is after the company came out and reported second quarter results that were much stronger than expected. Our Bloomberg Intelligence, Putnam Goyal, putting out a research note saying Wayfair second quarter, heat looks to stay hot in the third quarter. So let's get to it. Let's hear about the business.

40:31Kate Gulliver is back with us. She's chief financial officer of Wayfair, and she joins us once again from Boston. Kate, how are you? Fine, thanks. We're thrilled with the quarter. So happy to be here. Well, talk to us. I mean, investors are thrilled as well. Talk to us about the quarter and what you guys saw and where the growth was. Yeah, I think you really saw two key things happening. So first on the top line, our share gains continued to manifest and really accelerate. And that led to that 5 % top line, 6 % adjusting for the German business comp. So that's pretty exciting for us. And then what you saw is a really nice flow through of that revenue to adjusted EBITDA, crossing that 200 mark, 205 of adjusted EBITDA.

41:16And I think that really shows the strength of the model and efficiency of the cost takeouts over the last several years. So to have the nice revenue momentum, the share gains paired with that cost efficiency, you know, for many quarters, we said you should see that really significant flow through when that happens. And indeed, that manifested in the second quarter. Kate, whenever I ask someone about the stock price and it doesn't look great, they always say, well, we're focused on doing business here and we don't care about the shares, but you got to care about them on some level, especially as a CFO.

41:50So, you know, they've, you've had an incredible year, year to date, you're up like 66%. But if I bring the chart out to, you know, the COVID highs, you still have a long way to get back there. I think you're down 70 some percent from your 2021 highs. Is that going to happen? You think at Wayfair, or was that just, you know, like la-la land levels in the pandemic? Well, now we're focused on operating the business. But, you know, let me unpack it a little bit for you, because, you know, the reason you probably hear that answer is at the end of the day, we do believe that, you know, the valuation and sort of where investors see the business should over the long run follow the performance that we drive here at the company.

42:35And so our focus actually really is on how do we continue to take share and how do we continue to flow through that revenue into adjusted EBITDA dollars, into free cash flow growth and into, you know, a metric that we look at where we call owner's earnings, which is that EBITDA less our CapEx expense, less our stock based compensation. And we do want to continue to build on that over time. And we think we can. And as we continue to grow the top line, as we continue to grow those adjusted dollars, you know, I firmly believe that the valuation will follow. Revenue. But just go ahead. Can it get back to that?

43:10Or was that just like everybody locked in at home and the government throwing money at American citizens? Is that why revenue climbed so high during the pandemic or can you get back to that level? Yeah. So if you think about the category itself, obviously, the category itself had a very unique period during the pandemic where growth accelerated in the category in 2020 and into 2021. The categories had significant pullback since then in 22, 23, 24, and even still a bit in 25. We would say we think the category is sort of flat to slightly down, you know, low single digits in the past quarter. So the category is still under quite a bit of pressure.

43:52Can the category return to a normalized level of growth? Of course. Right. The category in a normalized period grows, you know, sort of three to four percent, the overall home goods category. And we do believe that we can return to double digit growth over time, you know, where we significantly outpace the category. That's what we did for the majority of our history, you know, significantly preceding the pandemic. And it's what we expect to do, you know, as the category returns to normalization. So, you know, can we ever get to the revenue that we had during the pandemic? Absolutely. We're quite confident in our ability to do that.

44:23You mentioned earlier about cost efficiencies of the model. What specifically? Yeah. So over the last few years, we've been quite focused on a few things. One has been improving our overall total overhead cost structure that manifests in that SOTG &A line in the P &L. And I would think about that as really our fixed cost basis. The majority of that line is labor. And so we have had a number of restructurings where we've reduced labor cost. And that has shown up in that line. And we've said that where that line is right now, you know, at that 360 to$370 million point, it should be able to hold there for some time, even as we continue to grow the top line, we get ongoing efficiency from labor.

45:07And as we, you know, sort of continue to see the benefits of some of the growth investments that we've made. So that's one big area of cost management. We also have been improving our sort of structural gross margin. So we took out, you know, cost in our supply chain and that's really helped our gross margin. And we've added some supplier services like supplier advertising, which have helped improve that gross margin as well. We've reinvested, you know, a significant portion of that back in the customer experience in the form of price, in the form of delivery experience. And so we've held that gross margin at 30 to 31, but structurally we've been able to drive it higher and instead give it back to the consumer and then float that through and ultimately, you know, cover off on that fixed cost basis.

45:47I wonder how you deal with tariffs because you have so many suppliers, but, you know, furniture making in the United States of America has is far from its from its peak these days. So do you get suppliers to kind of eat that? Are you taking some of it into your margin? And how much are you passing on to the consumer? Yeah, you know, we talked about actually, you know, in May when Carol and I spoke before was that we thought the benefits of our marketplace model would help us manage the tariffs. And that's because we are able, you know, as you point out, Matt, we source from over 20 ,000 suppliers.

46:27Right. So we were able to have a very wide range of goods with suppliers from all over the world, including some from the U.S. And we're able to then position within a given class or category, say like this chair that I'm sitting on now, we're able to position the products that we believe are best for the consumer. So most price competitive can get to her quickly, you know, are high quality. We're able to position that first in the sort order among many very similar products. So if a product gets relatively more expensive, other products will then move up within the sort order so the consumer is able to see the product that is most price competitive.

47:03And that means there's a tension within the marketplace where suppliers actually want to maintain their price competitiveness. They do not want to lose that volume, particularly in a category, as we spoke about earlier, that's been under pressure for some time. And you're seeing that pan out. So what we said on the call this morning was on a like for like basis for the products that are on those first few pages of the sort order when you search for, you know, sort of lounge chair, you're going to continue to see and you are seeing prices relatively stable on those first few pages. And that means that the products that the consumers are buying, they're not yet seeing, you know, pricing changes flow through.

47:41And I do think that's due to that, you know, breadth of suppliers that we work with and the competitive nature of the marketplace. We are talking about Kate Gulliver. She's the chief financial officer of Wayfair, joining us from Boston. Hey, Kate, so what do you know about the type of shopping that consumers are doing? You know, when they're buying, are they buying more items or are they buying fewer items? Are they give us some idea in terms of some of the trends that you're seeing in terms of the actual shopping going on? Yeah, it's a great question. So when we think about our average order value or AOV, that's really comprised of three different pieces.

48:19One is like for like pricing, like you just spoke about. One is items per order to the question you just asked. And then last piece is mix. And we actually are seeing a little bit movement on items per order and mix. So in items for order, we're seeing a little bit of increase, nothing major, but sort of moderate. But where we're really seeing momentum is on mix. And what we mean there is that we're seeing mixing in brands of ours that are actually sort of higher value. So Paragold, which is our highest end, our luxury brand, we're seeing ongoing really nice momentum there. Our specialty retail brands, so All Modern, Chaucon, Maine, Birch Lane.

48:58Again, these operate a little bit above that mass segment that the Wayfair.com business operates at. Those are also seeing nice momentum. And then our B2B business where we sell to professionals and the trade, we're seeing nice momentum there. All of these are much higher ticket values than the sort of core Wayfair.com business. The other thing I'd add is we're obviously newer to the physical retail game. We have our first sort of large format Wayfair store opened a little over a year ago. And we're seeing nice momentum in categories like storage and org and small kitchen accessories in the physical space as well.

49:33Do you want to keep continuing to add in terms of the physical stores? I know you guys have some more expansion going on. Yeah, no, great question. We're thrilled with the performance of that Chicago store. Really two key things that we see there. One is the halo effect. So the sales that we get in the surrounding region from having the store there. And then two within the store, you know, we're seeing nice momentum in categories that, you know, maybe sort of underpunch a little bit online, like storage and order, kitchen accessories, small appliances, that kind of thing. And so as we look at it, we see significant opportunity from a growth perspective in expanding stores.

50:09We've actually announced three additional leases. Two will open in 2026, one in Atlanta and one in Denver. That's our first store in sort of the Mountain West region. So we're very excited about that. And then early 27, we have a store opening in Yonkers, New York. So you can see us starting to build some of the momentum here. I will be there for you guys. Hey, I wonder about your view on rates, because, you know, maybe if you're buying just one chair or a side table, you can afford that. But I'm sure a lot of Americans are putting stuff on a plan or borrowing money. And today, the tenure is pretty low.

50:48But the idea, I think, is that rates tend to go are going to tend to go up from here. What's your view? Just got about 30 seconds, Kate. Yeah, you know, I would actually say in our business, actually, the average order size is only around three hundred dollars. So, well, you know, rates have an impact on the consumer overall in terms of the housing market, in terms of our purchasing with us, it's largely not financed. All right. Couldn't leave it there. Always fun to check in with you and get a really great view of what's going on with the consumer. Kate B. Well, Kate Gulliver, she's the chief financial officer of Wayfair.

51:21This is the Bloomberg Business Week Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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