Starbucks Sales Accelerate as Turnaround Gains Steam

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Starbucks reported some pretty darn good numbers today. Mike, tell us about what's going on in Starbucks. You know, the turnaround plans are starting to really take a hold right now. And results really improved, rising, you know, 4 % system-wide, same-store sales, U.S. as well. China was up 7%. You know, here in the U.S., it's, you know, mainly about better operations, right?

1:54They rolled out new operating standards late last year, and they seem to be really boosting the speed of service, which is creating happier customers that come back more frequently, right? Some food innovation, including protein cold foam, seems to be hitting the mark, right? And they're doing a better job on the marketing side. So all those are driving drove better same-star sales than expected. Yeah, I don't know. The one I go to, the Starbucks Route 35, Walt Township, New Jersey, they do a great job for me. And I've noticed the change. I mean, little things like writing your name back on the cup like they used to back in the early days, in addition to that sticker, which was a little antiseptic, I guess.

2:40Talk us back costs there. Are they looking at their costs as well? Yeah, they've identified$2 billion in annual costs that they want to get after over the next one to two years. You know, right now, margins have been impacted. They've gotten those same-store sales and traffic numbers up by adding labor to the stores, right? And so they're seeing margin compression still. So now that they got people coming back to the stores, now that the operations are more dialed in, you know, CEO Brian Nichols said they're not quite where they need to be throughout the day. They're great at peak, but they have some improvements still to do.

3:16But, you know, now that people are coming back to the stores, they're going to, you know, focus a little bit more on where they can save some money because, you know, it was a smart move, reallocating labor into the stores, but costly. Talk to us about the competitive environment because you go to like, I don't know, small towns. It seems like there's a coffee joint on every corner these days. What's the competitive landscape for Starbucks these days? well you know it's as it's as competitive as it's ever been you know they they have some of these younger uh chains that seem to do really well with uh gen z like dutch bros and uh seven brew and and they're they're opening up um these drive-through cans you know throughout uh the suburbs across america you know in the cities you know there's a lot of competition with these you know, very high end coffee shops that are, you know, using very, you know, very high quality coffee and, and, and elevate and offering an elevated food experience.

4:16So competition is tough. And that's why, you know, Starbucks is, is making some changes, you know, they're focusing on, on health and wellness, right? They're looking to improve the food in the bake case, they're looking to improve the food or throughout the day, they're looking into some new innovative of drink offerings to boost that afternoon day part. And so, you know, this is just the beginning of what Starbucks, you know, thinks they need to do for long-term continued same-star sales growth. Also, Brinker International, another big restaurant holding company here, boosted its full-year profit outlook.

4:52What's going on at Brinker? more of the same and you know ceo kevin hockman um worked at yum brands with brian nickel so it shouldn't be a surprise that they have had similar turnaround plans obviously kevin started his uh a little bit earlier than brian's but it's it was about operations uh then improving the marketing right now it's about continuing to work on the food and the food quality so they started by you know, taking menu items off of the menu to make it easier to execute, make sure people are getting their food hot and fast. But now this year, the story is really about improving the quality and the portions.

5:33Nacho sales jumped 170 % on a relaunch. They improved the bacon. Bacon burger sales are up 30 or 40%. They had a queso relaunch. You know, those sales are up 20%, right? So, So, you know, the money that they're spending, which is going to impact their cost of sales negatively, you know, customers are seeing the improvements and it's resulting in higher satisfaction and customers are coming back. And that's a great story, man. They did, you know, eight plus percent same store sales comp at Chili's, comping over a 30 plus percent. You know, I've never seen this in the restaurant business. It's absolutely incredible.

6:16I saw the company did call out the Chili's. All right. 30 seconds left. Cracker Barrel. My fave. It's up 18 percent year to date. We got a little bit of life there. Listen, I think there's life throughout the restaurant industry. I think Seamstore sales are going to increase. They were strong in January up until winter storm fern. But I think I think, you know, tax relief and cheaper gas prices and just a better economy and less inflation are all going to help restaurant spending this year. Stay with us. More from Bloomberg Intelligence coming up after this.

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7:58You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. It is earnings season as well, and AT &T has reported earnings. Its revenue beat estimates thanks to broadband strength. Let's bring in John Butler. He is our go-to guy when it comes to the telecom's names. He's our senior telecom analyst on Bloomberg Intelligence, covering AT &T, covering Verizon, covering T-Mobile. Where does AT &T stand relative to its competitors?

8:34Because as much as it's getting a boost from customers who subscribe to its broadband services, this is a saturated market and it's competing against big players and small players alike. Yeah, it's a great question, Scarlett. You know, post the earnings call, they held a breakout session with the investor relations with the sell side. And there were a lot of questions about how broadband or how competition is now shifting from wireless over to broadband. I actually think AT &T is in a great position relative to their competitors because they're the fiber leader. And they're about to buy Lumens Fiber Business and add another million fiber subscribers there.

9:20So in terms of their ability to sell what are called converged packages or wireless together with broadband, they're in a great position there because they have both fiber and they have a smaller fixed wireless access business, which is that wireless broadband product. john this is a company at &t that spends 20 22 billion dollars in capex every year what is that capex for typically a lot of it paul is going towards wireless network upgrades as well as the deployment of fiber so this year for example they're going to add 5 million new fiber homes but it costs about two thousand dollars maybe twice that in some markets to build a new what's called a fiber homes pass.

10:10So a lot of capital is getting spent this year, next year, and maybe to a little bit of a lesser degree in 28. That's sort of laying the foundation to build out that fiber network and that 5G wireless network. Beyond that, AT &T has said, we're going to cut our cap backs. We're going to lower our capital intensity, and you're going to see a lot more free cash flow flow through and they're going to be able to fund hopefully some dividend growth after that and increase the share buyback yeah i'm looking at the dividend yield for at &t 4.6 percent for verizon it's almost seven percent um for t-mobile a little bit less at 2.19 um john where do the telecom stand when it comes to this rotation out of big tech looking for some cyclicals, looking for parts of the market that haven't been overbought?

11:07So it's a good question, Scarlett. I always say telecoms, particularly the dividend payers like AT &T and Verizon are bond proxies to a degree. I think sentiment has been pushed around a little bit by the fact that we have new CEOs of both Verizon and T-Mobile, and these guys are going to be looking to make their mark. Verizon on Friday is going to set out a new strategy set by Dan Schulman, who is the new CEO there. So there's been a little bit of concern or more than a little bit of concern that the competitive intensity in wireless is going to pick up as these new CEOs look to make their mark.

11:47And I think that has led to some of the pressure, particularly on AT &T, though again this morning I think they put a lot of those concerns to rest by reiterating their fiber plans and laying out new free cash flow guidance. John, on the competitive land front, where are the cable companies these days? They're struggling, Paul. I mean, they're at a technology disadvantage in that they're offering broadband over those legacy coaxial cable networks. They're doing what they can to upgrade the technology and increase speeds on those networks. But at the end of the day, fiber really is a superior product to everything else on the market.

12:32And fixed wireless access, which has been offered by the telcos, has been a very popular choice given the fact that it's an easy setup. It's over the air, so there's very little problems with it. It's pretty much problem-free as broadband goes. Over time, it sort of has a headroom problem. It can't offer the same speeds as fiber, but through it all, cable is sort of flying underneath those two products, sort of, you know, trying to compete with what is a legacy product in the market. John, did we learn anything from AT &T's results regarding iPhones and consumers signing on for the latest version of the iPhone?

13:15So, great question. It's very interesting. AT &T overindexes to the iPhone. They have a lot more users than Verizon or T-Mobile because they had an early exclusivity deal when the iPhone first launched. they were asked about the foldable iPhone that's rumored to be coming out next year and whether that's really going to move the dial for them. Their answer to me was interesting. I didn't expect it, which is they've been tracking the performance and the sales of the foldables that they have available on the network today on the Android side. And their expectation is that we won't see a huge bump in iPhone sales next year with a foldable model.

14:00I think time will tell. I actually think foldables are going to resonate well with people. And Android isn't always the best read through there. I think it's a different kind of user that's on the Android phone versus iPhone, but we'll have to see in the fall. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Joe Matthew, inviting you to join me for the Balance of Power podcast. Every day we deliver insight and analysis on the latest headlines from the White House and Capitol Hill, including breaking news from Bloomberg's reporters and in-depth conversations with lawmakers and administration officials that you won't hear anywhere else.

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15:24You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Caroline Hyde joins us here because there's a lot going on in the world of tech. And Caroline Hyde is the B-Tech co-anchor. I'm going to start with ASML. some really big numbers overnight, Caroline, from this big chip maker. I guess that bodes well for folks that want to see continued momentum in AI spending, if nothing else. Might not bode well for a few of their employees.

15:57Yes. That was odd to see a company put out such a strong earnings and then at the same time combine it with Headcutt, something. This is AI, folks. This is AI. This is efficiency. This is agility, as the CEO calls it. It's actually shares that have now turned red, which is interesting. We're trying to delve into the reasoning why, because they booked record orders 13.2 billion euros worth in fact they're trying to point us to the fact that orders aren't the big tell anymore and don't always look at our backlog but more broadly this is a company that has lit a fire underneath european peers today smi is up an awful lot the semiconductor is up a lot we've seen lamb research here in the united states supply materials because this is the chip equipment maker to the world in particular to china in fact most of its sales still go to China, even though I will tell you they sell their eighth generation lithography cup.

16:45They're not even allowed to ship lithography, but their chip equipment is so old, but still China needs that deprecated chip equipment manufacturing ability because they want to make their own domestic chips. Now we're also seeing the fact that they're good in Taiwan. They're seeing strength in the United States as we build out domestic chip manufacturing here as well. And that's why Intel has been so much higher to Dell as well, because it really is just a tell like TSMC was that this is an AI bubble. This is real orders for real chip manufacturing. And the CEO had said, look, we've got a lot of clarity in the last three months.

17:19So much clarity, in fact, that they are making those 1 ,700 job cuts where they're trying to be more agile with their innovation and they're cutting out from the IT and the tech part of the business. Okay. Well, speaking of job cuts, another big name announcing job cuts is Amazon. 16 ,000 corporate jobs. And that's 30 ,000 in the last three months that they've announced. So this is a company that signaled this. Look, Andy Jassy, in his letter to his shareholders, had said, I am going to make AI work for me. But what does that mean? I'm going to have a smaller employee base. He's trying to strip out that layer of management and bureaucracy that built up during COVID, where many would say big companies overhired in that period.

18:00And therefore, we're starting to still see the areas of being fixated on where they will rehire is areas of AI, of areas of AGI and areas of LLM and all the areas of growth for the business. So they are going to try over the 90 days, find new homes for some of these laid off employees. But 14 ,000 of them, they're not going to find homes for all of those. This is, again, about efficiency for the company. Yep, absolutely. Absolutely. SoftBank in talks to invest$30 billion more into open AI. A, the numbers are just monstrous. But the valuation, you know, about$750 billion. I mean, SoftBank's all in on this AI thing.

18:41Yeah. And Masa is really committing to open AI. In particular, the number one holding for SoftBank thus far has been Arm. And that is all about chip design and the future of artificial intelligence in that direction. But this would actually probably bring their number one exposure, their number one stake to being open AI if they put this 30 billion to work. And this is why Massa has been selling down his NVIDIA stake, has been trying to free up capital to get in on the generative AI move that in many ways people would say SoftBank kind of missed from its own business model perspective. But he's really tried to lay claim to betting on some of the biggest makers.

19:14Remember, they just bought Ampere as well, which is another chip manufacturing company, which was backed by Oracle previously. but Massa all in you know he's a guy who makes big bets sometimes they work really well like Alibaba sometimes they work less well like we work but more broadly he's a man with commitment stay with us more from Bloomberg Intelligence coming up after this I'm Barry Ritholtz inviting you to join me for the Masters in Business podcast every week we bring you fascinating conversations with the people who shape markets investing and business CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations.

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20:39You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. LVMH kicking off some earnings here for luxury brands. Not particularly good numbers. Talking about a tough Christmas period. That was kind of the tail of the tape there. Andrea Feldstad joins us, a Bloomberg Opinion columnist from London. Andrea, what can you tell us from LVMH and their results? Well, this was kind of there were two reasons, I think, for the really strong share price reaction we've had today.

21:19One is, you know, these weren't really there was nothing really terrible about these results, apart from the drinks division, which was much worse. But investors, after being far too gloomy about luxury, sort of in the first half middle of last year, they thought no one was ever going to buy luxury goods again, which was ridiculous. But now they sort of came back last fall and they started to get really excited about luxury. And they pushed one of the indexes up 30 % between August and earlier in January. And that was just like ahead of where we are. So where we are at the moment is China has stabilized, but it's not a V-shaped recovery.

22:04The U.S. is pretty good thanks to stock markets. but the US compared with the period a year ago which was also pretty good before we had the tariff trauma after the election there was a real boom in luxury goods after the election unleashed a lot of spending so you've got the numbers that weren't you know great but weren't terrible but investors have got far too excited about luxury so anything other than a big a big earnings upgrade, they were always going to be disappointed. And Richemont, which owns Cartier, which is absolutely on fire at the moment, they had some pretty good numbers a couple of weeks ago.

22:44But they weren't any better than anyone expected. We knew they were going to be good. They were going to be good. And they were good. The shares fell. So we're in a very funny sort of environment at the moment. I really like the way you put that, the tariff trauma, because I'm sure that's a big, big problem for these luxury purveyors. three of the five divisions at LVMH missed estimates in what is traditionally the strongest period. So that does not help either. Which divisions, which part of the LVMH empire are doing well? Which one are really lacking? You mentioned wines and spirits. We know that's kind of been a problem child all along now, but what's doing well, what's not doing so well?

23:23Jewelry is absolutely sparkling. There's a few reasons for that. So over the past five years, handbags particularly have gone up in price. So, you know, a large flap Chanel bag, you are looking at around$10 ,000. Most nice handbags are about£3 ,000 plus. I'm not sure what that is in dollars. Maybe, you know, I'll let you work that out. Too much. Exactly. So, but actually, jewellery, which everyone always thought is really expensive because those leather goods have gone up so much. So something like a Cartier Love Bangle that you can wear again and again and again, and it's made of gold, it's got residual value, that's actually seen as better value for money than a handbag.

24:13Plus, you know, the luxury industry has really matured. You know, 20 years ago, we were all buying our first It bag. Now, you know, many people have got a wardrobe full of It bags, and they've moved on to jewellery. There's been a democratization of jewelry, a shift from unbranded jewelry to Tiffany, Cartier, Bulgari. And that's really helped the jewelry sector. Andrew, what is the company saying about the Chinese consumer these days? Are they buying on mainland? Are they going to Japan to buy? Are they coming to Europe or the U.S.? What's going on? They were going to Japan and then they came back to China.

24:55Now, with the currency moves, I wouldn't be surprised if they went back to Japan again. Now, the thing about Japan is pretty interesting. It's not a great, the economics of selling in Japan aren't great. It tends to be less profitable. So if we do get that big Japan trade, that's not going to be great for profitability going forward. OK, we also have the dispute between China and Japan, And certainly not helping things either with, you know, Chinese tourists going to Japan to buy luxury goods. Nevertheless, if you wanted to, you know, arm the currency difference, that possibility exists. What about American consumers?

25:34You mentioned the stock market doing well, and certainly that helps the 1 % and the 0.1%. Where are we seeing the American consumer pick up slack? Well, the U.S. consumer has picked up slack all the way through while China has been in the doldrums. US luxury demand tends to be very correlated with stock markets and also Bitcoin. And I know we've had a wobble on Bitcoin, but the fact that, you know, we're testing new highs on markets, that is very good for luxury demand. Now, where we're really seeing it is those very wealthy consumers, the middle class customer. You know, they felt more pressure from inflation, from tariffs, perhaps the weakening job market.

26:16that is the sector where the industry would really like to see them come back. And they were also the segment of the market that was probably priced out the most by those price increases. So Luxury really needed middle-class customers back. This is the Bloomberg Intelligence Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon 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.

26:59This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defence, AI to entertainment, and from startups to the magnificent seven. We highlight the latest stories of the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. We do this all every weekday, then bring you the most important conversations and analysis in our podcast.