A Tale Of Two Consumers… And TikTok On The Clock 3/13/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Two wildly different reads on the consumer. Shares of Williams-Sonoma surging while Dollar Tree dives. What do these two retailers say about the strength of spending? We'll debate that. Plus, tick-tock, tick-tock. The house passing a bill that looks to crack down on the viral video app. Could its days in the States really be numbered? And what could it mean for the rest of the social media space? We'll debate that. And homing in on housing. Shares of Lenar on the move after reporting results as affordability and housing supply weigh on this space.

0:32We'll talk exclusively with the Home Builders Executive Chairman Stuart Miller about his outlook in just a few minutes. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Steve Grasso, Guy Dami, and Lori Calvacina, head of U.S. Equity Strategy at RBC Capital Markets. Welcome, Lori. We start off with two very different reads on two very different consumers. Shares of Dollar Tree plunging more than 14 percent after posting misses on the top and the bottom lines this morning. Shares which had been on a steady climb since October, seeing their biggest drop in nearly two years and erasing all the gains for 2023.

1:05Meantime, Williams-Sonoma stock cooking up an all-time high today. The high-end home goods retailer beating earnings estimates, upping its stock buyback plans by a billion dollars and hiking its dividend by 26 percent. And get this, in the last six months, Williams-Sonoma posted virtually the same gains as Red Hot NVIDIA. So does today's action emphasize just how divergent the high-end and the low-end consumers are? This is a theme certainly that we've been hitting on for months and months and months, but this really seems to underscore that. One thing for us to say, it's another thing to see two stocks on the same day perform the way they did.

1:40William Sonoma, all-time high. Tim has discussed WSM for quite some time now, and he's been right. This move, though, lately is a bit parabolic. But the Dollar Tree is the one that I'm focused on and I'm a little concerned about. Because if you think about it, I think it was over a year or so ago, back when DollarGen said people are trading down from our stores to like food banks, right, food kitchens. And that was disturbing in a word. So when people used to go down to the Dollar Tree to save money, now they're trading down from a place like that. That flies in the face of what we're seeing on the other end of the spectrum, the high end.

2:12So the wealth gap continues. I think unemployment is going to be a problem. I think inflation is clearly a problem. It's manifesting itself in some of these numbers. And that's one of the reasons I'm still not particularly optimistic about the broader market. Actually, in the conference call, they also spoke about trading down from the higher income consumers. They said 3.4 million new customers were added in 2023, and most of them were higher income households greater than 125 ,000. So we're seeing sort of that same dynamic that Walmart had seen a couple quarters ago in terms of that high end trade down, Laurie.

2:43Now, look, I think this is a theme we've been reading about as well, not just for the last, you know, couple months, but last couple quarters. And it's really just not budging. You know, the thing we've been talking about a bit, our economics team has been talking about how the consumer generally is less sensitive to short-term rates. Well, that's certainly not true for the lower-end consumer. And so it's not surprising to me that we're sitting here at these elevated levels. You're starting to feel the pinch, and you're seeing more pain there. It's interesting. So, right, Williams-Sonoma, whether it's the Dutch oven that's been selling off the hook or the real stemware, which you can get there, and we have the inside track on that.

3:19I just think if you listen to that Dollar Tree number, it was all about the guide. It was all about a number of factors that I think actually don't have me that concern. I mean, they're talking about an early Easter. They're talking about weather. They're talking about dynamics, I think, in terms of some of the seasonals, some of the elements, I think, of a cautious guide that the market just beat up and said their consumers are running out. I think the profitability here is a big issue. You've seen a lot of companies come through with margin enhancement. And actually, it's been, if anything, about profit margins that have increased across the board, especially in retail.

3:50And you're not getting that here. So I think some of the macro is is is to be concerned about. But I think this is kind of an overreaction for a stock that was climbing out of a hole. I agree with that. I think if you look at it, wasn't this more about family dollar, that acquisition going back and optimizing? How do they have the phrase it? Portfolio optimization. Closing stores. Yeah, exactly. So that's a fancy way of saying it. But if you look at Dollar Gen, they don't have that same issue that Dollar Tree did. And William Sonoma looks like a turnaround story that has started to turn around to me.

4:23So I don't know if we're making it bigger than it is. I think we might be guilty of that a little bit. I would like to see. I agree with him. Overdone. Look at the spike down. Is it a buy? This is a three-day rule, definitively three-day rule. Let it breathe, but maybe go the other way and go Dollar Gen. We're going to hear from Dollar Gen tomorrow morning, by the way. Yes, so we'll be able to compare and contrast. Sounds like a would-you-rather. No, no, no. I'm sorry. I'm sorry. So sensitive with the would-you-rathers. That's where you're going. Well, I don't like it when other people insert the would-you-rathers.

4:58No, no, no. I always say he was so sensitive. You got sensitive. I was going to say, these two guys. A little distance between the two of you. Stop sticking my nose in there on the would-you-rathers where they don't belong. They are sort of contracted. Maybe we overreacted to these results, Guy, and you're actually concerned. So where do you think at the— So maybe we're having two different conversations. Well, we're having multiple conversations. I think maybe there's an overreaction in the stock, maybe. I don't think there's an overreaction in terms of the commentary and what it says about where we are as an economy, where one side of the equation is doing extraordinarily well, and you see it manifesting itself in these high-end retailers, not just Williams-Sonoma's, a bunch of others that we talk about.

5:30And the flip side of the coin is people are clearly hurting. And I think at some point, and if you think about this, I believe that people are fighting the combating inflation with credit. That doesn't end well. And it's in the numbers. I mean, credit card debt in this country is now north of one point one five trillion dollars at an average rate, I think, around 24 percent. That's not going to end well either. So when you start hearing things like this and drawing these comparisons, I don't think it's particularly. I'm not discounting. I'm not discounting the plate that everyone's going through right now.

5:59But if you look at a Walmart, that would be considered not high end. Right. And Walmart's been pretty successful. So I think it's more a dollar tree story. It's an execution issue. Exactly. In your view. So I would just throw one more thing in the mix on the broader market, which is that if we are seeing clear and present evidence that lower-end consumers are really struggling and maybe that's stepped up a bit, that is something that keeps the Fed in play, which I think is ultimately good for the market. I've heard a lot of conversations with people saying, oh, my gosh, the economy is so strong the Fed can't possibly cut.

6:31But, well, maybe just more evidence that things are not so rosy if you dig down to all the layers is something that can keep them moving. To you, though, as a strategist who has a broader view, do you take a look at this data point and think this is a data point that will keep the Fed in play? I think it is. I mean, and, you know, what I've sensed is talking to investors. So there's this March view, right, and that got kind of pushed back to June. But our house was already in June. And so I got a lot of pushback from people when the economic data was flying. Well, they're not going to cut it all.

6:59And I said, well, you know, they are going to cut because they're trying to prevent a recession and they weren't necessarily looking for all this enormous damage to the economy. But there's a contingent of people who thinks that you do need to see some damage. So I think that data point helps convince a lot of participants in the market that the Fed will move. I have no problem there being two consumers out there. And I think you can invest around it. I still think that the Williams-Sonoma story, first of all, it's not terribly cheap. I actually bought some restoration hardware because I think talk about execution.

7:28This is a name that I think they were running into themselves. But what they both would have said, but we did hear from Williams-Sonoma, is that this has been one of the most difficult housing markets in decades. And that's a pretty extraordinary statement. It's part of the reason why I think these numbers got the reaction they did. But betting alongside of the restoration hardware consumer right now, I think you do. I think the economy's at least beating to the upside. I think anybody that's shopping at restoration hardware knows the stock market's at all-time highs. These are people that have houses that are worth more.

7:57They're still locked in at two and a half percent. So there is that skew within the consumer that I think you can continue to play. And then back to Walmart and some names that we've talked about. There is crossover. And Walmart, to me, is growing their margin. That's a company that is doing everything right. Right. And in terms of the housing down cycle, in terms of home furnishings, they actually said, Williams-Sonoma on the conference call, we're closer to the end of this down cycle. And West Elm, which is always a problem, showing some signs of that turnaround. A hundred percent. And again, lower end.

8:25And that's, well, compared to compared to compared to. Correct. You know, Steve brought up Walmart correctly. But Walmart tells us I think now north of 60 percent of their client base has income of one hundred thousand dollars or more. So, again, that speaks to the middle, you know, the middle end of the country getting squeezed as well, where they're having to move down to. You know, the whole thing sort of and I understand what Laurie's saying. She might be spot on. Maybe this is a great data point if you want the Fed to lower rates. Of course, the problem is inflation dragon hasn't been tamed yet.

8:53I don't think. So if they were to do that, I think the commodities, which we'll talk about later, I think they're just going to continue on their horse hire. All right. Meantime, shares of Robinhood getting a boost in the after-hour session after releasing some data on customers and assets. Kate Rooney joins us with all the details. Kate. Hey, Melissa. Yeah, we're getting some updated numbers from Robinhood. The brokerage firm is seeing a significant jump in assets and trading volume as market conditions improve. At the end of February, assets topped$118.7 billion. That was up 16 percent from January.

9:21Net deposits, meanwhile, were$3.6 billion in February. That translates to about a 42 percent annualized growth rate from January. They also say trading volumes in February were higher across all asset classes relative to January. If you look at equity trading volumes, those are up 36 percent. That's up 41 percent from a year ago. Options trading volume grew about 12 percent and 33 percent from a year ago. And then crypto volumes as well grew up 10 percent. That was about an 80 percent jump from a year ago, at least, yes, from the prior year. Options volumes up 12 percent. Margin balances up 6 percent.

10:04And that looks like all we got here. But Robinhood does rely heavily on trading volume. More activity absolutely tends to bode well for the bottom line. What you're seeing reflected in the stock here after hours, Melissa, up more than 8 percent. Back over to you. All right. Kate, thanks. Kate Rooney. Coinbase not getting too much of a boost at the back of the Robinhood, maybe obviously because they have a more focused business than Robinhood, which is a little bit more diversified in terms of the options and equities. What are you leaning? I mean, these Robinhood news points shouldn't surprise anybody.

10:34But if you stripped out the price of Bitcoin and others, if you kept Bitcoin flat, I bet those numbers are flat. I'm just saying. I mean, who's their audience? Who are the people that are trading on Robinhood? Good for Guy, good for Dan. They've been talking about this recovery, and I think it certainly can continue. In terms of Coinbase, it's a combination of what do we see every single day in terms of the backlog that's going into that are going into the Bitcoin ETFs, the size of the institutional world that's going in. It only augurs well for the broadening of this digital market of which Coinbase really has the pole position in terms of the on-ramp into the real digital.

11:07It was a final trade of mine, Robinhood, around 12. I think it was Mizuho. I based it on a Mizuho analyst that was on the desk. We said, what was the best way to play Bitcoin? And he said Robinhood. So it's been a great trade from there. I'm long IBIT. I'm long Ethereum Grayscale Trust. But if you look at Robinhood, I feel like they're changing the narration. They're bringing a lot of money into retirement accounts where it was seen as they were a different type of investment firm. Pandemic, they were. Yeah, exactly. And now they're sort of a mainstream. They're trying to shoot for that mainstream IRA money and investment money.

11:43Yeah, that was Dan Dole of Mizuho. But to be fair, he got it wrong on Coinbase, which was very negative on the run. Very wrong. Yeah, I think this side was showing about 135 at the time, Coinbase. Yeah, I mean, you get something right, you get something wrong. And Steve talked about Robinhood for sure. Analysts are off sides on this one, I'm pretty convinced. So after an announcement like that, people are going to have to start to raise their price targets, which sometimes matters, sometimes doesn't. It's had a great run. I actually think it continues. Coming up, a huge drop in U.S. steel as the company's planned acquisition by Nippon hits a snag.

12:14The headlines have sent shares to their worst day in nearly four years. Plus, we're live with the executive chairman of Lennar, the home builder dropping after earnings. We'll dive into the report, get a closer read on what is next for this company right after this.

12:27This is Fast Money with Melissa Lee right here on CNBC.

12:39Welcome back to Fast Money. We've got an earnings alert on Lennar. Shares heading lower in the after hours. A home construction company reporting a slight miss on revenue but beating on earnings. CNBC's Diana Olick joins us now for a CNBC exclusive interview with executive chairman and co-CEO Stuart Builder. Diana. Thanks, Melissa. And Stuart, thanks so much for joining us. A lot in this report, so I want to get right to it. You had a strong quarter with a 28 percent increase in new orders and a 23 percent increase in deliveries year over year, but that came at a price. How much did higher mortgage rates hurt you in terms of having to rely on pricing and incentives?

13:12Well, if you really look at our numbers, Diana, you see that our margins are actually up year over year. Margins kind of act in seasonal fashion. And so if you look at our fourth quarter last year versus first quarter this year, it has about the same relationship that the fourth quarter had to the first quarter the year before and years before that. So it really didn't come at a price. In actual fact, what we've seen is that incentives have started to moderate just a little bit. Now, That, of course, varies as interest rates trail up or down. But our program has been solid from sales to deliveries.

13:56And our margin is actually stronger than our guide last quarter to this quarter. We thought we'd come in somewhere around 21.2. We actually ended up coming in at 21.8. And that's a strong proxy for the fact that the new normal is kind of stabilizing a little bit. Demand trends remain strong. And interest rates definitely have an impact on affordability. Now, I see the average price of a home, though, that sold in Q1 dropped from 421 ,000 down to 421 ,000 from 448 ,000 last year. Was that an actual price drop or are you just selling smaller, less expensive homes with fewer amenities? Yeah, it's a combination between the two.

14:40Some of it's going to be mixed, but some of it is certainly that prices have come down. They have moderated. I guess from an inflation standpoint, that's probably positive news. But overall, we see a fairly robust environment from the standpoint that demand is strong. And we all know that supply is short across the country. But you said in the release, we remain focused on consistent production pace, driving sales pace. Now, other buildings, though, are pulling back and we're seeing single family housing starts in January actually came down month to month, which you wouldn't expect right before the string.

15:13We talked about this a couple of weeks ago. Why are you building so much when others are pulling back? Look, we've had a contra view, and the contra view is there is a housing shortage in the country. The country needs more dwellings, especially for workforce housing. We think that it is important for the homebuilders to be building through and compromising a little bit on margin in favor of providing affordable, attainable housing across the country. And so that's the direction that we've taken and we've leaned into our ability, our strong balance sheet and our strong ability to provide housing when it's needed.

15:51But you stay land light. Why? Why do we stay land light? We stay land light because from a balance sheet standpoint, and if you look at our balance sheet, we're running at a debt to total capital ratio of below 10 percent right now. That is an effective way to generate returns and to generate shareholder returns while at the same time providing the housing that the country needs. And if you look at our cash flows, you look at the way that our company's configured right now by design. If we continue to maintain pace and maintain production, we're able to to reduce the cost of production and therefore actually produce more affordable, more attainable housing for the country.

16:35And that's that's good for the workforce. OK, I think Melissa has a question for you. Stuart, at what point do mortgage rates have to drop in order for you to stop incentives altogether? Hard to tell. I think that I think there are a lot of different factors that are that are going to feed into that. Interest rates will probably in order to stop incentives altogether. There's always been a normalized level of incentivizing in the new home market. But I would say a couple hundred basis points is probably where we're going to have to drop to get to a new normal. And we'll start to see at that point the existing home markets start to come back into play.

17:23And, Stuart, we've seen a lot of fluctuations recently in mortgage rates that have pushed buyers in, pulled them out. Do you see that 7 percent is now the new normal? Because there's a lot of talk maybe we're not going to see it come below 7 percent on the 30-year fix. You can buy it down to five. But what do you think is that buyer's level? Well, the reason that we have been buying down to five, although it's been less of a buy down than it had been when sticker shock prevailed, it seems that that the buy downs are a pretty good indicator as to where the consumer really starts to come in at normalized interest rates.

18:05And so that might be at five, five and a half percent. But it doesn't feel to us like we're going to see mortgage rates fall in the near future. And so we continue our production levels, even as interest rates remain high, using those buy downs to keep meeting the consumer at the intersection of their affordability and where we can produce homes at a solid margin. Stuart, always great to talk to you. Stuart Miller, Executive Chairman of Lenar. Melissa, back to you. All right, Diana, thank you, Diana Olick, and our thanks as well to Stuart. So what do we make of this trade here? A couple hundred basis points is a long way from where we are right now.

18:42Well, it's been a phenomenal trade, and it's a trade I definitely have not been in. And I've been of the view that even despite the unbelievable demand factors that I just felt rates were an impediment, in Lennar's case, they're clearly going pace over price. I mean, they've sacrificed margins. They've been trying to compete. They've been moving, I would say, lower in their ASPs. And that's been proven to work. Whether that really translates, though, into a higher multiple, what you're starting to see is some EPS cuts, even though these numbers were solid. 60 percent move since the October pivot.

19:11I think I'm out still. It's interesting. We talked about the retailers before. So let's just quickly talk about homebuilders. Toll Brothers, which reported a couple weeks ago, their average selling price is now a tad north of a million dollars going up. Right. Lenar, we just heard from$420 ,000. The tale of two consumers as well. 100 percent. And then Pulte, right? You like the way it did? I'll show. I think you're going to find this. It's almost poetic what you've done. I could do it in haiku, maybe later. And then Palti Holmes somewhere in the middle. So the move, I will say with Tim as well, I think we had it right into the fall of last year.

19:44But the Parabakh move since I think it'll catch a lot of people off guard. If you think unemployment stays low, I think you have at it. If you think it starts to tick higher, I think you pull the ripcord. What do you think, Lori? So, look, I would say big picture-wise it feels to me like we're entering into this idea the rates are going to be higher for longer, come down a little bit, not nearly as much as we thought. But I feel like that has more impact on the homebuilder space generally. I also feel like the homebuilder space as a whole has defied expectations for the last year and a half. And you've had a lot of head scratching.

20:11This is not a lagging area of the market to be looking for opportunities in at this point. So I think the bar is high. And if you beat on earnings and miss on revenues, I don't think investors generally like that. It just seemed like a bad setup to begin with. A name that did really well when there was nothing on the market was D.R. Horton because they were a spec builder. They've obviously trailed because they're left with too much inventory, I'm guessing, at this point. But when the market turns, they'll turn. You've been in it. I've been in Lenar. I'm not in Lenar right now. Pulte is your entryway into the home builders.

20:43But I think DHI is your contra bet that when the market does turn on interest rates, you'll see this one pop. There's a lot more Fast Money to come. Here's what's coming up next. Has Tesla lost its magnificence? Analysts unplugging as shares hit 10-month lows. But is all the negative EV talk overdone? The electric debate next. Plus, the clock nearing midnight, and TikTok's fate is hanging in the balance. The latest on the bill that could see time run out for the Chinese social media app in the U.S. You're watching Fast Money, live from the NASDAQ market side in Times Square. We're back right after this.

21:29Welcome back to Fast Money. U.S. Steel falling over 12 percent today on a report that President Biden will raise serious concerns over Nippon Steel's plans to buy the company. Those comments expected to come ahead of a state visit next month with Japan's prime minister. The White House declining to comment to CNBC on this report, but has said previously the takeover deal warrants, quote, serious scrutiny. U.S. Steel shares notching their worst day since June 2020. So if not Nippon, then who, Steve? Nobody. It's not going to be anybody. Or it'll be a U.S. conglomerate or something else on that front.