Consumers Under Pressure… And Bitcoin’s Next Move 3/27/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square on a day when the S &P500 notched another record close. This is Fast Money. Here's what's on tap tonight. A burger bummer. Shares of names like McDonald's and Wendy's are far underperforming the broader market this year. And a new report finds a key consumer might be cutting back at the fast food chains. What it says about the state of spending and the economy. Plus, gold glistens. The precious metal trading at all-time highs. And finally, the miners are starting to catch up. Will the trade keep shining bright in how you should play the space?

0:33And shares in Donald Trump's media company continue to soar. what is driving these canes. Bitcoin bounces around all-time highs, the next move for the crypto, and the surprising stock that's leading the industrial space this year. How much higher could it possibly go? I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Courtney Garcia, and Guy Adami. We start off with the latest sign that higher prices are taking a toll on the consumer, a new study finding that lower-income spenders are pulling back on eating out. According to the poll, 28 percent of people earning less than$50 ,000 a year say they did not visit fast food restaurants as much over the past month, while 46 percent are staying away from fast casual chains.

1:15Those are higher percentages compared to those earning more than$50 ,000. The lower demand reflected in shares of restaurant stocks, McDonald's and Starbucks, off 4 percent in March, while Olive Garden parent Darden is off 2 percent. So are restaurants signaling that consumers are getting even more squeezed? We heard this from the likes of McDonald's from Wendy. They're concerned about the consumer trading down, not spending as much, going less frequently. Yeah, so we heard it from McDonald's on February 6th, which is the first time I think since we've been doing this show we've heard that from McDonald's.

1:45We've heard it from the dollar stores without question. We've heard it from Walmart to a certain degree. So you're starting to build a little mosaic here in terms of the state of the consumer. With that said, it doesn't really matter for the broader market because as you mentioned at the top of the show, here we are all-time highs. McDonald's maybe not even 8 % off its all-time high. So the stocks are holding in there. However, I do think it's a warning sign in terms of not only how people are feeling, but what their pocketbooks look like as well. So, well, you wouldn't know it today from the action in sort of a lot of the retail space, right?

2:15That seems pretty good or better than pretty good. And I don't know. You know, I thought when we saw Dollar Tree, which ended up being somewhat of an idiosyncratic specific to them, because then when we saw Dollar General, that seemed much better. I don't know. I feel like if you're a good merchant, if you've got a strong brand, I feel like you're still in good shape. Right. Well, they've had menu price increases, right? So even if volume goes down, their total sales still can remain. Yeah. Sorry? Well, Chipotle, maybe it's a little lower. It's higher. Higher ticket. That's higher. But still. Well, if Darden just reported recently and they gave an update and they said that the olive tree, I believe it's the olive tree.

2:59No, it's not the olive tree. And when you look at me like. Anyway, the point is their same store sales were down 1.3%. They have talked about the trade down. They have talked about the dynamics and fast casual. If you look across a couple other places, I mean, like someone like Domino's, they had numbers recently. Their numbers were excellent. And I think they have a slightly different client base. They also have a different dynamic, which is their platform. Their digital platform is best in class. It's margin accretive. They're digital. They're loyalty. And the companies that have been able to kind of evolve on the fly, they even talked about an affiliation in the mix that they're getting from from Uber Eats.

3:31That's very accretive. So it's it is troublesome. I mean, Starbucks has been dead money for two years. And if you look at some of the pressure that they're getting and the things that we've heard about in labor for fast food in California, a lot of this stuff all started with Starbucks. And it's some on some level. It's something that I think the rest of the industry has kind of followed on. So I think some of this pain continues. I think this bigger setup is what I would have thought was what we were looking at for the entire consumer discretionary space for 2024. And it hasn't happened. So I've been wrong on a lot of that, although we started to see the cracks in Nike and Lulu.

4:05Yeah. And I think ultimately, though, inflation is coming down. Well, when I say coming down, the rate of inflation is coming down. But inflation itself isn't coming down, which I think a lot of people need to realize. And unfortunately, is the lower income consumer is feeling this most. But I think from a standpoint of is it a concern from the consumer that we're going into recession? No, but they are having to choose where they're spending their money. Right. So if we don't want to eat out anymore, but we want to spend on groceries, like they're going to have to make those decisions, unfortunately.

4:32So I don't think this is a bigger concern with the economy, but it is going to continue to be a concern with some of these specific restauranteurs. This is with an unemployment rate, though, at record, effectively at record lows. Right. Are you like, seriously? Am I like in your head? Yeah, because cavern, it is exactly right. Imagine what starts to happen if that were to tick up. And we saw it last, the employment report up to 3.9. I'm one of these people that think it's going to start to stair step. I thought that last year, too, that was wrong, but it's beginning now. So that's what's happening with record low unemployment.

5:04To your point, what happens if these things start to move higher? Where do you start to trade down from from the dollar stores and from a McDonald's and from some of these other places? I'm glad, though, that you mentioned sort of the apps and loyalty programs, because I feel like a lot of these fast casual, you know, fast food restaurants, they're doing things differently now. Before, they used to just cut price, right? They would have like a dollar menu, and that would solve the problem in a way in terms of getting traffic in. But now they have, they're more particular about how they attract that consumer.

5:32They want them maybe to order on the app, and they'll give you a discount. They're certainly more surgical. They're better in control of their consumer. And CMG has certainly been, they were one of the first ones. And I realize they're very different than dominoes. But on some level, the loyalty dynamics are the same thing that we're hearing over and over again. And I guess, you know, what's a bit ironic is as we talk about higher wages for especially the minimum wage, isn't this the same group of people that should be doing better and eating out more often? And it's a little bit perverse. So I think you had a major pull forward.

6:06I think pricing for a lot of these restaurants, we've, you know, we've we've joked. I've giggled. I've lamented. I've been frustrated about my Starbucks guy's almond latte. I mean, it's gotten very expensive for him. And I'm sorry about that guy. You're not. I mean, you came at me an olive tree and you know, it's all garden because you're the breadstick guy. I mean, Tim's the guy there. Do you wear like cargo pants? The all you stuff, the cargo pants, Dockers, Uggs, whatever, Crocs, you know, whatever I can find. All right. Let's get more on the landscape for restaurants with our own Kate Rogers.

6:37Kate. I've got the cargo pants and the Crocs in my vision here, Melissa. So value's been a huge focus, as you guys were mentioning, for brands to start the year. And big names have been warning consumers are potentially pulling back. You mentioned McDonald's. Its CEO and CFO have said that the lower income consumers under that$45 ,000 annual threshold were visiting a bit less. And in they've had in the past. Starbucks CEO Loxman Arsman said during earnings and again at its annual meeting that there's no question that value is of increasing importance. And you're seeing this because CPI data as you mentioned continues to show elevation in prices at restaurants particularly when you look at limited service settings like fast food and quick service names.

7:20Prices were up 5.2 percent in the last year compared to just a 1 percent increase for grocery. And so for this reason you are seeing a lot of targeted value offerings. Melissa, as you mentioned, on the apps from fast food companies right now because they can bring you in. They also have access to your data, which is important. But one thing I'll mention, because it's a trading show, when you look at the more expensive for consumer names, like the Sweet Greens, the Cavas, the Chipotles, those are the better performing stocks year to date so far, up double digits, whereas we're seeing losses for names like McDonald's so far.

7:51Really interesting dynamic there. Do you think just because they cater to a higher income consumer, or are they doing things differently in terms of promotion? You know, I think it's definitely both. I know the digital and loyalty play for Chipotle is kind of in a league of its own at this point, but they are catering, as you mentioned, to a higher income consumer. And I think that they're having to be a little bit less choosy about how they're spending money right now. Okay. Kate, thanks. Kate Rogers. For more on restaurants and the impact of the consumer fighting inflation, we're joined by Wedbush Securities Managing Director Nick Setia.

8:26Nick, great to have you in this conversation. In terms of a Chipotle, you might think that a Chipotle is immune from this. Are you seeing even within the better performing stocks at those companies, consumers are trading down? Maybe tickets are going, you know, a little bit lower or maybe people are ordering fewer things to keep their total spend the same. So we're seeing it across the board. Now, Chipotle has been unique in that they had the carne asada, which really helped in Q4 and has helped in Q1. Remember that carne asada was going over a very unpopular garlic guajillo, and that garlic guajillo wasn't that successful because it was too pricey.

9:07So a couple of years ago, they had that garlic guajillo. Now, carne asada ended in the middle of March. The chicken al pastor is now going over chicken al pastor, so the same LTO. Last year, it'll be interesting to see what happens to the transaction trends now that they don't have that easy compare. So that's really what I'm kind of a little nervous about around around Chipotle because they're not in a vacuum of their own. Right. Hey, Nick, it's Courtney here and thanks for being here. So we talk a lot about how McDonald's is more low income and then you have a Chipotle, which is maybe some of the higher income.

9:41But I wonder how much of this is transferable. Like, for example, we actually saw this with Walmart. They're actually starting to get more higher income people going to Walmart because they're trading down. So how much of that will you see some of these higher income people coming down to like a McDonald's, for example? Will that actually benefit them as other people are trading down the line, or is it just they're going to stop eating out completely? We haven't seen that as much yet. I mean, that's a big worry that I'm watching as we move to the second half of 24. Just remember that lower-income consumers is really trading to grocery because the grocery inflation has been so much lower than restaurant inflation.

10:16restaurant inflation, which is 2019, up 30 % plus at McDonald's, 30 % plus at Chipotle. And that lower income, that under 50K consumer is going to grocery much more because at least over the past, since let's say the middle of 23, grocery inflation has massively underperformed restaurant inflation. So you are seeing that trade down. It isn't impacting as much as of yet the middle income consumer, but that's something that we're definitely watching. It definitely scares me. It's one of the things that keeps me up at night. Nick, it's Karen. So let me ask you, what, if anything, do you look at as a leading indicator to give you some insight to what we're seeing now?

11:00So what are you looking at now to see what we'll be seeing shortly?

11:06Like, I mean, this California price hike is just going to, you know, sustain that differential versus grocery within restaurants. So it'll be interesting to see what happens in California if we're going to see even more pressure on transactions in California. And if this leads to a price war, which we're already starting to see some glimpses of, we really just need Olive Garden to jump in the fray within casual dining. And we need McDonald's and some of the other guys to get off just the loyalty focus a little bit, and it'll be a full-blown price war. So, you know, those are kind of some of the things that I'm watching to see if if this ends up becoming a price war, which is going to potentially decimate some of the results in the second half.

11:51Do restaurants just eat that rise in in minimum wage in California? I mean, are you looking for a margin hit or do they continue to raise price to offset? I think a lot of them will raise price to offset at least the bigger chains that are in a position to do so. So Chipotle, McDonald's, they're talking about mid-single-digit to high-single-digit types of pricing. So just sticking with Chipotle, mid-single-digit offsets it on a profit basis, dollar basis. High-single-digit actually does offset the percentage basis as well. But a high-single-digit price increase is a pretty big move on top of 30 %-plus price increases.

12:31Just menu, not average check, just menu pricing. so X mix, you know, since 2019. So, you know, we'll see how that kind of translates in the second year. Hey, Nick, sorry. First of all, thanks for running through that Chipotle menu. Got us all kind of salivating on the desk. Guys, definitely getting ready to make a move. I guess, how do you reconcile the macro here, though? You know, last month, the most recent retail sales number we got, first of all, was better than expected. But more importantly, the segment, restaurants were up 6.3 % and outperformed everything else. We just got done talking about minimum wages that are better for effectively the segment, the demographic and some of this target audience.

13:10I know you're really spending a lot of time looking bottom up, but talk to me about that top down. It's been one of the big puzzles that we've been trying to solve across the restaurants and not just me, everyone involved in restaurants. Why are we seeing so much weakness, particularly here in January and February? and it's not concentrated to any one category. It's across the board from QSR, you know, to casual dining, to fine dining. So, you know, numbers have been really, really weak, you know, through basically through the middle of March. You know, some of that was weather. Some of that is seasonality.

13:46Some of that is just normalization and spending habits post-COVID. You know, this is the final quarter where we're going to see some of that normalization impact. In fact, as we get into March, you know, early April, some of that is, you know, some of the tax refund timing. But it's a question that we don't have a good answer to yet. So tax refund, that's sort of a one-time boost to potential spend, Nick. But, you know, looking out this year, what do you see as longer-term catalysts for the sector, if any? I mean, is it a rate cut that will help the sector, or what are you thinking of? Well, it's, you know, there's such different business models, you know, whether it's franchise company owned, you know, the different sectors are catering to such different consumers.

14:32It's very difficult to talk about it on a, you know, sector basis. I do think that the names that are going to outperform are the ones that, you know, in an environment where average check management matters, you know, they can do value and win while doing value. So, you know, Domino's, for example, is doing very well at the moment. I think they're going to continue to regain some of that share that they lost over the last couple of years. And I think that's going to be a path for multiple years ahead of them. Wingstop, you know, same sort of positioning in terms of very, very high value scores, you know, highly franchised models.

15:09So, you know, they're going to continue to win. You know, Texas Roadhouse within Casual Dining continue to take share. But a lot of the other names are going to struggle. All right, Nick, great to speak with you. Thank you. Thanks for having me. Nick Setien, I think, you know, when he said basically everybody in the industry is trying to figure this out. Why does the economy look good? And then weakness across the board from McDonald's to fine dining. Well, it's one word. I think inflation is still well. Inflation is still a problem. But Domino's, I mean, you can look at the stock had a huge sell off, but it's coming back.

15:45535 the all-time high back in November of 21. And you look at the quarter. I mean, it's a U.S. story still. The comps were much better. Billion-dollar buyback for them, that's actually pretty significant. And margins were better. It doesn't seem like a big deal, but 18.3 % margins versus what the street was looking for was significant. So this probably still has room to the upside. I thought your question, Courtney, was really interesting because that's what we heard from Walmart, right? We heard that they're gaining higher-income consumers, higher-income households trading down. Do you think that could happen?

16:13And that's exactly where my question came from, because we saw that with Walmart. So are you going to stop going to Chipotle and go to McDonald's? I don't know if it's the same thing, so I don't know if we'll see that. But I think there is an argument to be made there. So I think that's something to keep your eye on, if nothing else. Well, I'm just sort of wondering, is this the kind of thing we saw post-pandemic where the money is being spent elsewhere? It's not that the consumer doesn't have money. It's just allocating it. Allocating. I mean, so we've seen, I don't know if we'll get to it tonight, you know, Tim's Delta.

16:40Just across the board, the travel space, cruise lines, airlines, things like that, hotels. Is that where they're going? Is that the same customer, though? I'm not really sure. But I just wonder if the money's elsewhere. Well, we've heard it in beauty, right? And I realize some of this is regional. Some of this is China, China, China, Asia. But we've also heard it from some of the spirits brands, again, some of the aspirational spirits brands. So some of the higher part of luxury, but, you know, buying an expensive bottle of scotch isn't going to, you know, it's a lot cheaper than going on a trip.

17:10So and it can take you on a trip. But I mean, I do think you have a dynamic here where we it is amazing what we're hearing. And Starbucks recently had their annual shareholders meeting. They talk about widespread weakness across their consumers. So both their regular and their occasional consumer. And and it gets back to if what I said, if we're having this kind of concern about the consumer at full employment with rising minimum wages, it's pretty extraordinary. I do think restaurants, especially fast casual, had one of the great moments in their history during the covid and the early stages out of covid.

17:45And I think that's something we have to consider in these comps. All right. Coming up, we are watching R.H. After Hours. The high end home goods retailer just reporting earnings in the last hour. The details on that quarter next is the conference call is about 17 minutes in. Plus, Donald Trump's new media stock continuing its surge. Its market cap surpassing some major names, bringing in a whole lot less revenue. More on the DJT disconnect when Fast Money returns.

18:09This is Fast Money with Melissa Lee right here on CNBC.

18:23Welcome back to Fast Money. We've got an earnings alert on RH shares popping the after hours despite a miss on the top and the bottom line. The luxury home furnishing company saying that they expect demand to accelerate with growth of 12 to 14 percent in fiscal 2024. The conference call just kicked off at the top of the hour. The full year guide in terms of the expected growth and the expected sales, a lot more optimistic than the guide that they gave specifically for the first quarter. There seems to be a real assumption that it's going to ramp very steeply throughout the year. Well, there was one headline that I saw that was revenue to lag demand, which I don't know if that means they can't get it in fast enough.

19:01Right. Demand growth of 12 to 14 percent. The whole year. Revenue growth of eight to 10. Yeah. Yes. What does that mean? I don't know. I don't know what demand growth is. Well, I don't know if that's backlog, what we would call, you know, you know, it's not a remaining performance obligation. But I don't know. I hear that as that's what they're saying. We can't make we can't make it fast enough to satisfy demand. Maybe. I don't know if that's what that. Well, that sort of I think may have been what turned the stock around. I'm not sure. In the after I started off down. Right. And traded up higher.

19:32I don't know what the demand growth number that they gave for the first quarter was positive mid single digits and revenue in the negative low single digits. And for the full year, it's 12 to 14 percent for growth, demand growth and eight to 10 percent positive for revenue. I mean, that gap is enormous, but I don't know. I put a position on this name a couple weeks ago. A lot of it was based upon the strength in Williams-Sonoma. They are in a similar segment, even though RH sits above that in terms of their customer. And I think the guidance on this name, they had been through one of the worst periods after one of the greatest periods.

20:07And the question is, were they going to begin discounting and promoting and whatnot? I think the stock goes higher. I just think there's such low expectations. I think the analyst community is going to have to follow through on this. And if you look at low expectations, and they didn't disappoint in terms of low expectations. I mean, operating margins came in 9.1 percent. Street was looking for 12.3. A year ago, it was 16.1. And revenues missed and EPS missed. Difference, of course, is the stock has been cut in half since its prior all-time high. And I think people are starting to wrap their head around sort of when it starts from, what do you say, from lousy to from really lousy to just bad.

20:40I think that's why we might be right there in terms of RH. Yeah, and they quoted, too, the idea that interest rates coming down are going to benefit them. They are one of these interest rate sensitive sectors. And if rates do, in fact, come down, which I think is what they're alluding to, you're going to see a lot more activity in the housing market as mortgage rates come down, which will ultimately benefit them. So I think that's where some of the disconnect is of what's happening this quarter versus end of the year. It would just largely depend on rates coming down. Well, that goes back to our conversation that we repeatedly have on this desk about the three dots, the three cuts expected versus what will actually happen.

21:11And if zero happens, then a lot of forecasts that a lot of retailers such as RH are giving are out the window. It's good for them. It's good for them. It may be bad for other parts of what's been priced on. But ultimately, that's not just a function of inflation. That's a function of the economy if we're at zero cuts. There's no question about it. If there's zero cuts, then it's actually good because the economy is much stronger. Absolutely. You agree? I do. And I saw somebody on the Twitter yesterday said the exact same thing, that you're actually rooting for no cuts this year because that would suggest.

21:39Was that you? No, it wasn't me. We said it on the show yesterday. There are a lot of Fast Money fans out there. It's nice when you can put something on Twitter and then reference Twitter. I wouldn't do that. I wouldn't do that. You totally would. No, I so not would. You totally would. Liar. Anyway, a lot more Fast Money to come. Here's what's coming up next. The DJT disconnect. Shares keep climbing while revenue doesn't seem all that impressive. Why do investors seem to ignore the metrics on the former president's new company? Plus, the next move for crypto. All eyes on Bitcoin as another halving draws near, where prices could go and the impact on the ETFs.