Cava CEO, Tariffs & Inflation, & Perplexity’s Bid for Chrome 8/13/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Coming up today on Squawk Pod. President Trump's world in 2025. Did you know it's only been about 206 days? He's a riddle wrapped in an enigma. Have you heard that expression? I have. Wrapped in a conundrum surrounded by confusion. I'm wrapped in all of those things right now. Tech regulations new frontier, AI-powered search engine perplexity, making a play for Google Chrome. Antitrust AG under President Biden, Jonathan Cantor, weighs in. Browsers are going to be the front lines for the AI wars, and I think that's becoming clear. And right now, Google and Apple own most of the distribution points.

0:43Kava, shares of the fast casual chain are down almost 25 % after the company's latest earnings report. CEO Brett Shulman says he feels good anyway. Even before our IPO, I told the team, you know, stocks will go up, stocks will go down. But what really will define us is how we build this over the long term. Plus the drive to lower interest rates and the rise of super babies. Doesn't everybody think their own kids are the smartest? It's Wednesday, August 13th, 2025. Squawk Pod begins right now. Stand and your buy in three, two, one, cue Andrew. Good morning and welcome to Squawk Box right here on CNBC.

1:24We're live at the Nasdaq market site in Times Square. I'm Andrew Ross Sorkin, along with Joe Kernan. Becky is off on this summer, August 13th. The 13th. That's what today is, the 13th. On the back of some of that inflationary news, we can talk about what that means, but it sounds like the prevailing view is the Fed is going to continue to potentially lower it, continue, maybe start lowering rates this fall in September. We'll see. I would just say true or false. for the Fed. And this is a Nick Timmeros. It's just well, it just sums it up. It's good. I was trying to say yes. For the Fed, for the Fed, the lack of more alarming acceleration in price pressures likely removes an obstacle to lowering rates in response to growing worries about the labor market.

2:14In other words, that 3.1 core, you know, that's not great. what we saw yesterday. It was hotter than forecast for a 3 % rate, but 3.1, 3, it just... Well, the question is whether... It's not as alarming as what people were worried about. It's not as alarming. The question is, is it the beginning of something, right? With labor, you mean? No. You mean with a rate cycle moving lower? Well, no, no. I think what we're saying... Oh, is the inflation... Is the inflation piece... Right. Are we starting to see a little bit of that? How much of it is it happening? Supposed to be here three months ago, and then two months, and then one.

2:52And that's the question. Here's the thing. People, and I'm not mentioning any names, but people that keep saying that the market is reacting incorrectly to what I think it should be doing, and that the inflation is still there, and I haven't been wrong about inflation, it's just the markets have been wrong about the way it reacts to it. That doesn't help anyone. That doesn't help viewers. it doesn't help anyone. The market could be wrong. The market could be mispriced. The market could be ready for a correction. But let's say it happens like yesterday. You saw the numbers. The market immediately took off.

3:31Is that a day where you would argue that actually it was worse inflation than expected and that the market should be down? No, no, no. It wasn't worse than expected. I think you're missing my point, though, that the market, when the market tells you something, then it It doesn't matter what you think or what anyone thinks at this. Well, sure. I'm just suggesting to you that I wonder whether come this fall, you actually will start to see bigger signs of inflation and whether what we saw yesterday was the first sort of crack in that. Last month, I think. Right. And by the way, it's not that it's shooting up.

4:04It's just here we were going down, down, down, down, down, down, down, down, down. And now we're turning around. It's going up. Well, the last mile, as Rick always points out, has always been from three to two is always going to be the hardest to get. It wasn't, you know, we got down here pretty quick from where were we, nine at one point. So that's going to be the hardest. But I do think just to want your point, one of the reasons that people thought, you know, their hair was on fire three months ago. Yes. Right. Including my own. Because you didn't know Trump was going to pull back. And that's the distinction.

4:33So when Jan Hatsias, who's now getting a hard time from President Trump, put out those reports back in, I don't know, what was it, April or May, saying that he thought that there was going to be a potential recession as a result of the tariffs. He, I believe, when you go read those things, was saying, yes, if we have 145 % tariffs against China, we'll have a recession. That's not a crazy idea. Maybe it's a, an economist should just be able to interpret numbers, and no one is saying he should be a psychiatrist to know what Donald Trump is thinking. But there are some people that probably were able to gauge the likelihood of whether that was going to be the case.

5:13And I'm not saying that they're Trump fans, but people that think there's a method to the madness or that he's a negotiator or the art of the deal or it was just negotiations all along. Maybe you could have been savvy enough to say the worst case scenario is never going to come to pass. But here's what worries me, is that we have gone from everyone predicting inflation from tariffs to now. Nobody predicts inflation from tariffs. And so I'm, I'm, you might be right about like to be a little bit, you might be a little in the middle. You might be right that at this point, the consensus has totally switched.

5:46And now it's like yesterday, I think, you know, when we hear Waller, I think Jim Bullard yesterday was on basically said, I don't think tariffs cause inflation. Said it outright. I think it's, you know, monetary money supplier or whatever it is. And there are people, he's also auditioning for a job. So let's just take it all. Before he was. Get your salt shaker out. Yeah, but you remember I said to him, I think two months ago, you were saying that the labor, that the dual mandate, that the labor problem or the growth slowdown was more of a concern than inflation. And he said, yes, that was two months ago.

6:26So it was long before he was. In fact, no, that'll be in a second. You're going to read that one. You're going to talk about Scott Besson yesterday. He wasn't on this show. It's disappointing. But somehow the word got out from another show, and you're going to talk about that. We won't. The Trump administration, though, is reportedly considering changing how the government collects and reports those jobs data. It's a Wall Street Journal report saying officials are looking at different technologies now to make the process more efficient. That would probably be a good idea. with aid saying that they want to improve the response rate to surveys, which, as we noted, are down, have been plunging since the pandemic, to below 60 percent.

7:07People just don't answer. President Trump fired the head of the BLS after a worse than expected July jobs report. That wasn't really it. It was the revisions. It was the largest revisions to the prior two jobs reports in the last 50 years was really what it was, not just because the numbers were bad. And meantime, the economists picked by the president to take over the BLS recently floated the idea of doing it quarterly. Because you can't, you know, by the third month, you finally know because you finally get a delayed response. Right. No, so he wants to get rid of the monthly numbers. Yeah. And do it quarterly.

7:42But my understanding is he wants to suspend the monthly numbers while they figure out new technology and other kinds of methods to get better, more frequent numbers. This is one of our guests, E.J. Anthony. But it is interesting that they're accepting. But this is interesting. So if you're accepting of the quarterly numbers, you're saying to yourself that they're not. The last month could be. But if you're saying that the quarterly numbers are not rigged. Oh, I don't. That's just the president says rigged. He uses it. He throws out word. We said it. But we asked him and we said, is it political?

8:13No one thinks it's rigged. He said it was rigged. I know he did. But he says a lot of things. Don't take him literally. Take him seriously. That's what we said all along. No one thinks they're rigged. You can't rig them. Elaine Chao says you can't rig them. But they suck. I'm not suggesting they're rigged. I'm not suggesting it's... The standard of deviation is so large that you can't trust them. Correct. Okay, so let's just then accept that they're not rigged. You're worried? I've always accepted that. That's why when we had them on, I was grilling him on that. Okay. But he's continued to say he thought they were rigged.

8:42Yeah, he says that about the 2020 election, too. So he's, you know... Okay. You don't... I know you understand how it works with him by now. After one whole... No, I do. Four-year term and then another 200 days. I know you understand. I do. Here's the hard part for me. The hard part is sometimes you say, don't take him literally, take him figuratively. And then people say, no, no, no. Actually, he does what he says. And that's why, by the way, in the Jan Hatsius universe, when he's putting out a report saying he thinks there's going to be a recession because of tariffs, when he says 145 % tariffs on China, there are some people who say, well, he said that's what he was going to do.

9:22When you go to a doctor, do you think that it's art or science? Probably a little bit of both. Exactly. With him, this is not a science. Every single situation, you've got to sort of use some intuition to try to really figure out what's going on. A lot of things he does follow through on. Other things he's saying that he's not even going to come close to following through on because he's doing something else, right? Look, I know him well, but I still don't know. He's a riddle wrapped in an enigma. Have you heard that expression? I have. Wrapped in a conundrum surrounded by confusion. I'm wrapped in all of those things right now.

10:07Meantime, Treasury Secretary Scott Besson broaching the possibility of a 50 basis point rate cut at next month's Federal Reserve meeting. In an interview yesterday, Besson highlighted downward revised jobs growth data for May and June that came in two days after the Fed opted to keep rates steady at the last meeting. He also said he hoped that the Senate would confirm Council of Economic Advisors Chair Stephen Mirren to fill that temporary Fed vacancy before the central bank's next meeting in September so he could ultimately actually have an impact on that decision. Where did I? I already lost it, but I read somewhere exactly what might have been on Twitter.

10:46You never know when you. Well, that you never know. Yes, I could have read it anywhere. But reading, Dessen said, this is what I'm looking for in the next Fed chair. And when I read it, I got to say, I thought James Bullard, you know, this, there were like five things in each one of them. I just checked about. We'll see whether that finally happens. But I like Bullard. And I think he's an experienced hand. People know him. People trust him. Calm. He's got some credibility. And does not seem political to me. He does have probably a more of a... Even though you said earlier he's trying to get...

11:24No, he has more of a right-leaning bent than a left-leaning bent. But I think on the whole, people on both sides of the aisle wouldn't look at him as some kind of political puppet or prop. Right. Right. But the way that... And I like Besson, too. And the way the I'm going to find it, but the parameters, by the way, even though I just did say that about what he said yesterday, he also made other comments that weren't completely. And these aren't these weren't new. These weren't since. Right. I don't think he two months ago. I don't think he thought he was or they could always be auditioning. Right.

12:03OK, now to one unforeseen consequence of the rapid advancements in A.I., a push by some people. to have smarter babies. That's the subject of a new Wall Street Journal article, which begins by telling the story of a Silicon Valley mathematician who's hoping more intelligent children will save humanity from the perils of AI. It details testing that purportedly is effective at screening embryos for high IQ and high-end matchmaking that aims, at least in part, to generate smarter babies, boosters of the so-called pro-natalist movement to have more children in response to declining birth rates. That's different, though, includes Elon Musk.

12:49And the idea has been embraced by others in Silicon Valley, but questions about efficacy and bioethics remain. The journal article quotes one professor who said, testing embryos for IQ and selecting the top one could result and an extra three to four IQ points on average versus choosing randomly. Doesn't everybody think their own kids are the smartest? They do, and it's, you know, what are we going to start, like, breeding for, like we do with livestock or corn? Apparently we are. Already happening. It's already happening. Cheese will be next. Coming up next on Squawk Pod, the latest inflation reading showed core consumer prices did surge just over 3 % in July, which investors took as a sign that the Federal Reserve may have to begin cutting interest rates to combat slightly higher inflation.

13:46Our chief economics reporter Steve Leisman crunches the numbers. There's been two criteria, Joe. How much is coming through and is it bleeding into other areas? And speaking of prices, what's for lunch? Brett Shulman, CEO of fast casual chain Kava, says he's still serving up for hungry customers despite inflation and despite tariffs. We haven't seen inflationary pressures to date. Got to give a shout out to our supply chain team. They've been incredibly agile, really mitigating any cost pressures to pass through to our guests. Remains to be seen what's going to happen at the end of the year, but no pressure on the labor front either.

14:25Welcome back to Squawk Pod from CNBC. Today with Joe Kernan and Andrew Ross Sorkin. Here's Joe. Yesterday's headlines, just modestly higher inflation from tariffs. Steve's going to dig deeper into it, but I just want to have a conversation with you before you wrote something out. We've been crunching some numbers. You can do that in a second. Can I read something? Yeah, you got something. What do you got? This is what we were trying to say yesterday. And I think this is good. And then I want to ask you what it would really take for the Fed. The lack of a more alarming acceleration in price pressures likely removes an obstacle to lowering rates in response to worries about the labor market.

15:05And it kind of sums up what I think we saw yesterday. 3.1 was hotter. Right. For core. 7 was lower. 7 was lower. 3.1 is not to what would what would be. what would be the siren number for core? 3-5? I think it's kind of like there's been two criteria, Joe. How much is coming through and is it bleeding into other areas? And those have been the keys. You expecting 3-5? It's not out of the question. Guys, let's just skip the first part of this and go right to the first graphic. We're just going to... Because this is sort of going to answer your question. PPI's coming today, isn't it? PPI's tomorrow.

15:46Oh, tomorrow. Okay. So you look inside the report. These are things, Joe, what we did is we calculated prices changes from January to July. Women's dress is up 10.4 percent. Tools and hardware, 5 percent. Major appliances, 4.8. You can see toys and games. These are things that normally would be going down or flat or were offsets to it. And that's really a key. If you move on here, we're doing this live here. Another way to see the change, though, is from the prior declining trend. Mike Konzo from the Roosevelt Institute found some stark reversals. Take a look here. Tools and appliance categories was heading down.

16:23That's the trend line, the dotted line there, before the reversal that likely is linked to tariffs. Similar pattern in home furnishings and dozens of other products that are mostly imported. The trend line was down, and you can see the current line is up. Konzo found that 52 percent of 82 items in the core basket are up more than 3 percent. That was a sign of persistent inflation in the pandemic. Scott Lincecum from the Cato Institute tells me, quote, the big question is whether we're starting to see it move into the service. Inflation and auto repair could be a sign of that. How long margins could hold before they pass on the tariff.

16:56At the same time, sort of talking about what Joe was talking about, those who see benign tariff outcomes have been proven correct in several respects. Some prices are falling, perhaps in reaction to other things being more expensive. That's that relative price thing we've been talking about, acting as an offset to the tariffs. and tariffs may not be sufficient in and of themselves to overcome these other offsets. Take a look at yesterday's CPI. Energy was down 1.1, so that's a big offset. Food at home, down 0.1. Core commodities, though, were up. That's where it really was modest. But the surprise was that core service was up 0.4.

17:30So the stock market trades like it's game over in this debate between saying it ain't going to ever happen and those warning just you wait. That's a bad sign. The latter see overtime to this game in August and the inflation reports. I think that answers your question. We talked about it earlier. You know? That the consensus has gone from, oh, it's going to be terrible inflation, to now people think that we know that it's not good. Can I ask you one question? I'm going to just, this is the perfect world that I wish there was some chance that it was true. What's that? You know how Trump always says that we're collecting money from foreign countries, And we all know that it's people that import it here.

18:10I have an answer. No, no. But my question is, let's say that there are countries that it's so important that they continue to export to us, that they really have eaten the lion's share of the tariffs in their prices. So you actually could say that they're the ones that are losing out and actually paying for the tariff money that we're getting here. At least a part of that could be true. It could be 10 percent, could be 50 percent. By the way, Goldman Sachs says it's 60 percent. Think about it. No, no, no. That was also including the wholesalers and the retailers as well. Here, and corporations.

18:49Let me give you two answers to that question, which is... Well, wouldn't it be great? It would be great. What a wonderful world it would be. I want to give you two answers to that question. The first one is why I like my job so much. Because you know what? Tomorrow is not only PPI. I think it's tomorrow. We're going to get import prices. Okay. When did you ever get excited about import prices? I'm excited about it because the import prices will answer that question. If import prices are not falling, they've been kind of flat. Which is crazy. It shows that they're not absorbing it overseas. But the dollar's been weak, too.

19:22You have a currency thing. The other thing is, you know, we have our CFO council, which is really a great group of people. One CFO said to me, I don't think we're that stupid and bad negotiators that our suppliers have 15 percent extra margin to absorb. According to that interesting. Not really. Elizabeth Warren thinks that every single. Well, every single producer is not making it. He thinks every single person's gouging every chance they get. But if you said, well, you're already making money and you have an extra 15%, I could have negotiated out. And that the world market is so uncompetitive that there's an extra 15 % hanging around.

20:04What's NVIDIA's margin? Well, that's the margin, but that's true. That's true. And we'll see. We'll kick it from margin. My friend Rob is begging me to not talk anymore, as are some viewers, I'm sure. But that's the two things. We'll watch import prices tomorrow. And margins is the other key. Steve, thank you, sir. My pleasure.

20:27Kava shares down lower this morning after the fast casual chain reported second quarter revenue and same source sales that missed estimates. A company also trimming its sales outlook for the year as it tries to top last year's very strong numbers when it added grilled steak to the menu. And joining us right now is Brett Shulman. He is the company's CEO and a bit of a brave soul. I give you lots of credit to come on TV on a morning like this and not to overplay it or downplay it, but the stock is off nearly a quarter this morning, about 25%, 24, a little over 24 % right now. So before we even get, how are you feeling?

21:02I feel good. This is not throwing you for a loop? Listen, even before our IPO, I told the team, you know, stocks will go up, stocks will go down, but what really will define us is how we build this over the long term. We're not doing this for the next 10 weeks. We're doing this for the next 10 years and beyond. And so we're focused on that. And when you look at some of the metrics in the quarter, We beat our EBITDA. We beat our EPS. And our new restaurants in 2025 are trending at record level openings at$3 million plus run rates. So we're more confident than ever in the large scale white space opportunity defining the match.

21:33And so what do you think is happening? I mean, I think the investor class is saying we expected you to continue to beat, beat, beat, beat, beat. We thought the forecast was going to be up and to the right. And it is not that way. Well, markets can be short term focused and very focused on same restaurant sales, which we did come in under expectations. And so when did you start to see that happening? So we did enter the quarter on our run rates as we expected. And then in June, we saw a pretty pronounced deceleration. But that also coincided with our year over year lap of our steak launch last year, which was our most significant protein launch in a number of years.

22:09And as we started to work through the quarter, we started to regain momentum and reaccelerated comps at the end of the quarter. OK, so what are you seeing? though? What is the issue in your mind right now? I think for us specifically, we are comping significant hurdles. If you think about on a three-year basis, we grew traffic in the quarter 20%. Our AEVs have gone from 2.3 to 3 million during that period. So certainly high hurdles. And then I think there is macroeconomic uncertainty. I like to use the metaphor. It's like consumer trying to navigate through the fog. The fog has gotten denser at moments.

22:40It's gotten lighter when they passed the budget. I think that gave consumers certainty, whether you liked what was in the bill or not, at least gave you clarity. And then now we've got some shifting tariff policy that creates fog again. So we're just trying to focus on delivering a great value to our guests when they're feeling that fog or pressure. Tell me what you're feeling on the labor front and what you're feeling on the product front, meaning the food and other wholesale stuff that's coming in that you need to actually buy to make the food for folks. We haven't seen inflationary pressures to date.

23:11Got to give a shout out to our supply chain team. They've been incredibly agile, really mitigating any cost pressures to pass through to our guests. Remains to be seen what's going to happen at the end of the year, but no pressure on the labor front either. Okay, but hold on. So on supplies, you're saying there's no pressure? No, when you put the puts and takes together, and again, that's our job. That's our responsibility to try and work on behalf of our guests to mitigate any of those inflationary pressures we may be seeing by offsetting it with other efficiencies in the business. Okay, so tell me how you're doing that.

23:38Because, by the way, that is the central issue for so many businesses that are bringing in goods from outside the country. So, first of all, what goods are you bringing in? Yeah, so our olive oil from Greece. We do get some hormone antibiotic-free beef from Australia and then some basmati rice from overseas. So the rice crop was great this year, so that helped offset any tariff pressure on that front. And then when you think about how we've architected our supply chain over the years, we do source a lot domestically. we are a domestic manufacturer. We have our two production facilities where we're vertically integrated to make our dips and spreads, which also helps pass that cost effectiveness and efficiency to our guests.

24:14When you think about the rice, when you think about the olive oil, is it possible over the next year or two that you think you could be sourcing that domestically? With the specificity of the ingredients. That's the problem, I imagine. Yeah, there's some of it. I mean, there's certainly things we can shift domestically. There's others that we're going to source overseas, and then we're going to work to make sure that we don't have to pass those costs along to our guests. What are you seeing? Okay, and that's the other question. Are you eating the costs? No, if you look, we beat on restaurant-level margin.