BI Weekend: Novo Pill, Retail Earnings, Restaurant Sales

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1:32quality stocks driving this short-term rally. Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio, YouTube, and Bloomberg Originals. On today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide in-depth research and data on some of the 2 ,000 companies and 130 industries our analysts cover worldwide. Today, we'll look at why the retailer Kohl's rates its full-year outlook for the second straight quarter. Plus, a look at why travelers may be eyeing similar spending for vacations in 2026.

2:02But first we move next to some news in the biotech space. This week we heard that a pill version of Danish drug maker Novo Nordisk Ozempic failed to slow the progression of Alzheimer's in a pair of studies. Novo said this was based on a cognitive assessment for patients who took the medicine. The drug maker will now discontinue a planned one-year extension of the studies. As a result Novo stock plummeted to its lowest in more than four years. We were joined by Sam Fazelli, Bloomberg Intelligence Director of Research for Global Industries and Senior Pharmaceuticals Analyst. We first asked Sam to break down Novo's recent studies.

2:33It's not about obesity. It's about a drug, semaglutide, in a pill form that they've tested in Alzheimer's disease. And the theory was, and there was some evidence, that people who were taking the very first version of the GLP-1 drug, so Victoza or liraglutide, they had a lower risk of developing Alzheimer's. when you looked at historic or retrospective data. And there's animal models, et cetera. So they thought, well, it's worth a try. And it didn't work out. They said that they're seeing some impacts in some biomarkers, et cetera, and we'll find out next week what biomarkers. But the trial didn't work out.

3:14And the question here is, was the theory wrong or is the drug not good enough? Is the pill enough? And we know the pill doesn't do as well in obesity as the injection. Should they have tested the injection? That's a good question. And you mentioned that the ingredient here that we're paying attention to is semaglitude, which I hope I'm pronouncing correctly there. Does that mean that this ingredient and Alzheimer's are just a no-go from here on out? Or does there need to be more testing before we can determine that? Yeah, there needs to be more testing, but who's going to do that? I mean, having failed now, who's going to put the money in to test it?

3:49Now, Lilly does have an Alzheimer's business with a different set of drugs. And they have a more punchy product once weekly with a relatively easily administered pen. That would be interesting to see whether that helps. And, you know, so that you get much more drug in the body. Or maybe you redesign it a bit. So it really does depend on how much appetite for risk these companies have. And literally now with literally just over a trillion dollar market cap, maybe they should give it a go. You know, it would be magic if this thing, it literally would be magic if this thing just helped so many different diseases.

4:29Sam, talk to us about just the market for dementia, Alzheimer's as one part of it. I would think that A, it's a big market, and B, it's got to be a growing market with people living longer. How do you guys think about it and how do you play it if you're an investor? Yeah, it is a significant societal issue, number one. And, you know, I think there are many, not many families who would say that they haven't experienced it if they have older people in their extended family. So the market has humongous potential, but you need drugs that actually treat the disease. Remember, by the time you have Alzheimer's, i.e.

5:09a full-blown dementia of the Alzheimer's, it's a bit late. That means there's a lot that's already happened. So you need to go early, long, expensive trials. And Lili is doing that with their assets. So fingers crossed we'll find out in the next two or three years whether going early with these assets, Roche is doing it too, would be beneficial. Right. I mean, the tests with the pill form of Ozempic was definitely a lottery ticket. If it worked, great. If not, we're back to the drawing board. Are there any effective treatments right now against dementia or Alzheimer's? Well, by effective, I mean, it's tough to say, but there are drugs that lower this thing that is viewed as a critical part of the Alzheimer's disease, which is amyloid plaques in your brain.

5:55They do lower it. Lily's got that drug. Biogen's got an equivalent drug. Rush is trying a similar approach. and you do slow down the degeneration. You don't stop it, you slow it down. So what we really want is to stop people getting to that degeneration, try and get them before they have full-blown Alzheimer's or dementia, so that's called mild cognitive impairment. Try and slow that down to give them another 10, 12, 20 years of dignified life. So where do you think we are on a timeframe for something like that, Sam? Is that measured in a couple of years or more than that? Well, so Lilly is literally trying that.

6:37And we'll find out whether – and they have the better drug in this space. We'll find out whether in the next two or three years – remember, these things are trials that need to be run until you start seeing a difference. They get to that point. And, of course, then society has to decide, well, how are we going to pay for this? how many people because there's a large market right how many people are we going to want to treat with the prices of these drugs whatever they are even if it's ten thousand dollars a year right and they are on their way to becoming worse and we want to slow that down you have 10 million people i mean this could be this could be similar in terms of value to the obesity market um but you need the drug to do that so let's let's wait and see and rosh has got a new way of trying to do it then they're going to go again also into phase three to test that out.

7:30Our thanks to Sam Vazelli, Bloomberg Intelligence Director of Research for Global Industries and Senior Pharmaceuticals Analyst. We move next to the restaurant industry. Bloomberg Intelligence will release data for November restaurant sales in early December. And according to BI, U.S. restaurant same-store sales rose 7 tenths of 1 % in October, but could drop in November because of the government shutdown. For more on the industry, I was joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. I first asked Michael to talk to us about how restaurants are doing and whether it depends on the segment of the market they're targeting.

8:00That's definitely part of it. We saw that in last month's data. Fine Dining had a really nice rebound. And I think part of it is because they're catering to higher income consumers who own assets and are feeling pretty good about things moving forward. Right now, you know, November is going to be a tough month. There's no doubt about it. the government shutdown has definitely impacted sales and traffic for the chains we cover, especially in the DMV area, as well as in the south, where there's a lot of government workers. Also, last November, restaurant sales had a nice boost from the election.

8:42And so we're going to be lapping tough comps. So November is not looking great, but things should bounce back a little bit here in December. And we're not crazy bullish, but we're more bullish about the first half of next year. Let's start with quick, quick service dining. Talk to us about that marketplace. I think about the McDonald's of the world and so on. How's that faring? Quick service had a really difficult first half of the year. They were lapping strong comps and they kind of lost their way when it came to value. They just had implemented too big of price increases over the last few years and customers started to push back, especially low-income consumers who are really impacted by inflation to a much greater degree than middle and higher-income consumers.

9:30So the first half was difficult, but here in the second half of the year, things have gotten better largely because they've reestablished their value propositions. McDonald's has revamped its dollar menu this year. They also reintroduced snack wraps at a$3 price point, which have boosted checks. by people adding them on to their orders as well as bringing in some low-income consumer traffic. But low-income consumers are pulling back at a pretty big rate. We think part of that is the snap benefit pullback. But they've been able to bring in some higher-income consumers and middle-income consumers.

10:11So things are starting to look better, McDonald's especially. I mean, McDonald's is going to be lapping the E. coli, or right now is lapping the E. coli. outbreak from last year. And so, you know, they're the 800 pound gorilla. And I think good results out of McDonald's over the next few quarters should boost the entire category. How about the cost of beef, which, you know, consumers complain about across the board. I know companies are dealing with it. And what I understand is we're not going to see a material improvement in the cattle herd till maybe 2028. So how does that factor into the profit margins of all these restaurants?

10:45The restaurants that are impacted the most are, you know, burger chains like Shake Shack or steakhouses like Texas Roadhouse that own and operate all of their stores. You know, to your point, beef inflation for these chains is going to be in the mid-teens in the fourth quarter. So yeah, yeah, very high. So definitely a lot of margin pressure for those chains um you know luckily those two chains have driven traffic as of late into the stores which you know and driven higher sales and been able to pass along price increases and that has kind of helped their operating leverage which has helped offset the higher costs um for the burger chains they there's less impact for the chains that we cover for mcdonald's wendy's jack-in-the-box because they're largely franchised so then the franchisees are the ones footing the bill for the higher beef costs.

11:37Why do not all chains do the McDonald's franchisee model? What's the benefits of franchising or what's the benefit of owning versus a franchise? I saw the movie. I think I understand the economics of franchising. It seems pretty good. Listen, the franchise business, that's a great business. And from where I sit as an analyst, we love it. It's easier to predict the earnings and the free cash flow. It's a much more steady business model. Franchising eliminates a lot of the operating leverage and thus the risk to your margins out of the business, right? But if you are running a full-service restaurant chain where operations is very core to your business, think Darden, think Texas Roadhouse, you want to own and operate your stores because you want to have control over those operations.

12:28You want to make sure people are getting a good experience and they're just much harder to run than a McDonald's or a Wendy's. And then I I'd say on the last case would be somebody like Shake Shack or Wingstop or Kava. You know, when your cash on cash returns are 40, 50, 60 percent, we don't think it's a bad thing to be greedy and want to open up as many stores as possible. Our thanks to Michael Halen, who covers restaurants and food services for Bloomberg Intelligence. Coming up, a look at why the tech company Cisco may be on a Goldilocks growth path. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries.

13:08You can access Bloomberg Intelligence via BI Go on the terminal. I'm Scarlett Fu. And I'm Paul Sweeney, and this is Bloomberg.

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14:39This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to more earnings in the retail sector. This week, we got third quarter earnings from Kohl's and Abercrombie and Finch. Kohl's raised its full-year outlook for the second straight quarter. It's a sign that Chief Executive Officer Michael Bender is helping to stabilize performance at the struggling retailer. Separately, Abercrombie & Fitch raised the low end of its full-year sales outlook as its Hollister brand continued to gain momentum. We are joined by Mary Ross Gilbert, Bloomberg Intelligence Senior Equity Analyst covering retail.

15:12We first asked Mary for her take on Kohl's most recent earnings report. They've kind of gone back to the basics. What's something that Kohl's has always been known for? So one is their private brands. So if you think about some of the brands like So and Juniors, Lauren Conrad for women, and they brought those brands back because they actually sacrificed some of those brands under the prior leadership and replaced them with some more name brands like Madden Girl, trying to really attract the junior shopper there. And now that they've brought the private brands back, they've brought back petite sizing, which was really important to their customer base.

15:52Now they're really starting to see, you know, a recovery. But they're not out of the woods yet, Scarlett, as you pointed out. I mean, they're really cycling three years of declines, but we are seeing encouraging results. And given that they actually turned positive in the latest month, it looks like they could actually reach break even in the fourth quarter, even though they're guiding to a 1.7 % comp sales decline. So it's very encouraging to see with Kohl's, again, not out of the woods. And when you look at what's going on with Sephora, it's now a$2 billion business. And as you were sort of highlighting, that means they really lost, you know, over the last four years, something like$4 to$5 billion in other categories.

16:34So they have lost market share. We think they're losing it to off price and some of the value players in the specialty space, such as Old Navy, you know, a Gap brand. Mary, I also want to ask you about Abercrombie & Fitch. It was the darling two years ago because the new CEO found a way to make the brand relevant to a new audience. It was no longer targeting teenage boys, for instance, and really targeting young working women. But it's had a brutal 2025, a lot of concerns about tariffs, perhaps, and maybe even a lack of fresh ideas in terms of its offerings. What's the narrative with Abercrombie & Fitch right now?

17:10Yeah. So, Scarlett, with Agrocrombie and Fitch, their numbers came in better than expected. So the namesake brand, as you pointed out, I mean, that had been double digit increases over the last three years. So they're cycling those increases. And that's why their sales are coming in less than expected. But this quarter, the comp sales decline there was about 3.3 percent. So that was better than expected. and when you look at Hollister though Hollister has been coming in ahead of expectations and they've been posting double digit increases so as you were talking about sort of the millennial women who really love and also the men but it does tend to favor more of the women on the Abercrombie side on the Hollister side which really uh caters to Gen Z that has been on fire And so that's what's helping to kind of overcome the weakness that they're seeing at Abercrombie.

18:06But also, it's looking like Abercrombie could turn positive in the fourth quarter with the number of the initiatives that they have in place going into the holiday quarter, even though they're cycling some pretty strong gains in the prior year and the year before that. Our thanks to Mary Ross Gilbert, Bloomberg Intelligence Senior Equity Analyst who covers retail. We move next to some research from Bloomberg Intelligence in the tech space. It's titled Cisco and a Goldilocks Growth Path. According to BI, Cisco may see 2026 sales above the top end of its 5 % to 7 % target. And this comes as the company balances strong AI growth with networking gains.

18:41For more on this, we are joined by Woojian Ho, Bloomberg Intelligence Senior Technology Analyst. We began by asking Wooj to break down why Cisco's shares have had a good run this year. So there's a couple of things driving it. They're actually a massive$43 billion product upgrade cycle that Cisco will potentially benefit from, which is going to give them outsized growth in their core networking business. But their AI story has actually been a lot better than I thought. AI is going to be about$3 billion of sales, tripling, or$3 billion of sales in fiscal 2026, tripling that of 2025. So there are these goldilocks of good AI story as well as an upgrade cycle tailwind.

19:22Paul was asking Michael Casper earlier about a lot of the tech companies issuing debt to pay for their AI build out. What does Cisco's debt profile look like and will it also need to sell bonds to fund everything it's doing? Yeah. Hey, Scarlett. So that's one of the great stories about Cisco. I mean, they have roughly about$20 billion in debt and roughly$30 billion in cash. So look, they're net cash positive. They don't need to take on debt. If anything, they've been very active buyers of their stock, very good stewards of the cash, strong cash flow profile. And if anything, they're using their cash as leverage to build up the inventory for the AI opportunity that's ahead of them.

20:08So talk to us about just kind of the growth drivers for this company, Wuj. As you look to 2026, what kind of underpins their top line growth? They got it to roughly the top end of their 4 % to 6 % growth. I think they're going to do roughly about 7 % to 8 % growth for this year. So if we think about the AI story itself, tripling from$1 billion to$3 billion, And that's going to be the incremental growth that gets you above to the top end of their revenue growth guidance. You know, the way I have networking flashed out right now, the networking business, you know, XAI is growing roughly around 4%.

20:48And that's probably towards the low end. And quite frankly, if the upgrades come in stronger than a lot better than we think, there's a little bit of upside. Now, there is a little bit of drag. The security business hasn't panned out as strongly as they hoped, primarily because it is going through this business model transition. But, you know, it would have been a story at another time. But the two stories, AI as well as a core networking upgrade cycle, I mean, that's doing very, very well in 26. And if anything, I would argue it would probably be better in 2027. Is Cisco part of this whole circular dealmaking, circular funding concern that has investors worried that if one company in this link stops spending or maybe slows down spending, everyone else will get affected?

21:32To some degree, yes, Scarlett. And that's why I think if you look at some of the AI stories there, it's one of the safe bets, right? They are exposed to some of the, I would say the hyperscale names, but a very small exposure to it, as well as some of the NeoClouds. They do sell some routing products and some of the sovereigns. Now, if that business disappears, the cash flow story is still well intact. If I calculate the amount of AI revenue relative to their total revenue base, we're only talking about six to seven percent of total sales. So if the AI story collapse, I mean, AI evaporates, they're still in very good standing.

22:18Not to mention the fact that they pay out a dividend too. I mean, it's not a huge one, but a tech company with a 2 % dividend yield is something. And they've been steadily increasing. When the stock was lower, it used to be three. So yeah, I mean, what's not to like? Stock boxbacks and a dividend yield and an AI story if it works out. Our thanks to Woo Jin-ho, Bloomberg Intelligence Senior Technology Analyst. We move next to the news in the media space. U.S. President Donald Trump recently said in a social media post that no television networks should be able to expand. Trump cited the potential growth of what he considers left-wing news outlets.

22:50Trump's post was in response to a Newsmax story that said the FCC head, Brendan Carr, is moving to give television networks massive reach and push through a merger of Nextar Media Group and Tegna. For more on this, we were joined by Matthew Schuttenhelm, Bloomberg Intelligence media litigation analyst. We began by asking Matthew if he was surprised about President Trump's recent comments. It's a moderate surprise. So it's not a complete surprise because Newsmax has participated before the FCC and has been one of the few voices that said, don't do this, don't deregulate this space. And what you really see here is President Trump latching on to an article written on Newsmax's platform opposing the easing of this national ownership cap.

23:36What's in play here is that there's current FCC regulation says no company can reach more than 39 percent of U.S. households. And companies like Nexstar and Sinclair want to go way beyond 39 percent. In fact, Nexstar has a pending deal before the FCC. They just filed their application last week to acquire Tegna. That would take them to 70, 80 percent of the country. And it depends on the FCC deregulating in this space. So So Trump latching on to Newsmax's opposition because he's concerned about the TV networks growing larger is a concern. It's a it's a real risk. I'm not convinced yet that it's going to lead to real FCC policy.

24:23I think this FCC wants to deregulate in this space. And I think there's going to be a pushback against Trump's view on this. OK, so the FCC is headed by Brendan Carr, who's been very active in making sure that he's out there doing the president's bidding. Are you saying that Brendan Carr is going to defy President Trump? Yeah, so that's the big question here. The FCC used to operate as an independent agency, meaning even if the president had a view on something, the FCC could chart its own course. That's not going to work anymore. The way this FCC is operating, if the president takes a firm view on something, the FCC is not going to defy it because effectively the president can fire the FCC chairman then.

25:07And, you know, there's no no future job prospect if you defy the president. What I'm not convinced about is, you know, this was one social media post from President Trump and, you know, talking about concerns about letting the broadcast networks, ABC, CBS, Fox get bigger. What I think there could be now in back channels is some education from the FCC to the White House that says, hey, easing the national ownership cap, it would let Sinclair and Next Star get bigger probably. But it doesn't necessarily mean the broadcast networks will get bigger. There's still an independent check on that, even if we ease this cap.

25:45So ultimately, if Trump is against this, the FCC is not going ahead with it, in my view. But I think there's still room for Trump's position to evolve on this. So, I mean, the reality is, I mean, this is an industry, the broadcast television industry, that is arguably on life support vis-a-vis, forget about cable television, which itself is on life support. They survived that onslaught. Now it's just all about digital and social media. And I would think the industry would have an open, would have an effective argument, not just to the DOJ, but to the president as well. Absolutely. I mean, that's the case that the National Association of Broadcasters has made to the FCC, that these ownership restrictions, you know, which come from the 1970s or even earlier than that, really make no sense in the world we live in today, where so much video that is consumed doesn't come from broadcast.