Target CEO Brian Cornell & Commerce Secretary Howard Lutnick 3/4/25

0:00Bring in show music, please. This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's podcast, tariffs on Canada and Mexico take effect, with some extra on China. The question is, what's the end game, right? Like, is this a fentanyl thing for real? Is this what you're trying to shut down? Is this we want to build American factories here? Because that's a much longer term process. That's going to take years. We asked the Commerce Secretary himself. Howard Lutnick tells us today, yes, it's all about fentanyl. Today's opioids, April 2nd. I'll be here talking to you about how trade policy is going to change and we're going to make it fair to Americans.

0:43U.S. stocks dropped and the VIX Wall Street's fear gauge ticked up on Monday as investors digested the reality, which includes potentially higher costs for automakers. Yes, as the president said on the campaign trail, there may well be short-term price movements, but in the long term, it's going to be completely different. This is going to be the greatest America will have a balanced budget. Price movements indeed. Retailers like Target are preparing themselves and their consumers for some changes. Becky Quick sits down with Target CEO Brian Cornell. We know for certain categories, like fruits and vegetables, where during this winter season, And we depend on Mexico for a significant amount of supply.

1:27Those are categories where we'll try to protect pricing, but the consumer will likely see price increases over the next couple of days. It's Tuesday, March 4th, 2025. A jam-packed, tariff-heavy SquawkPod begins right now. Stand Becky by in three, two, one. Cue, please. Good morning, everybody, and welcome to Squawk Box right here on CNBC. I'm Becky Quick, along with Joe Kernan. Andrew is off today. The S &P 500's worst day of the year yesterday. It was a decline of about one and three quarters percent. It came after President Trump announced that these tariffs would be, in fact, taking place, that it looked like there was no room for change or for negotiation.

2:10And immediately, you did see a bit of a sell-off that happened. Joe, I don't know how you'd kind of take this and put it in context with some of these issues. I think the market, for some people, it was a bit of a wake-up call, thinking, OK, this is really going to happen. when nobody had been thinking about that to this point. I'm not sure if everyone still believes it. Chuck Robbins was, there was a soundbite from Chuck Robbins just in the last hour or so, talking a little bit about how maybe they think it's going to come off at this point. And that may be still being what investors are thinking right now, too.

2:40So we'll continue to see what the real impact on the market. Journal says, look, if you say, if you want to, If your end game is renegotiating the USMCA, if that's what you want to do, then do it. You just, you know, this is going to add quite a bit of cost to SUVs, even that are assembled in North America. The whole fentanyl thing, I mentioned this yesterday. The U.S. Customs seized 43 pounds of fentanyl at the Canadian border. And that could kill millions of people. But that compares to 21 ,148 pounds at the Mexican border. They say it's assembled up there. They've got a lot of, when you ask them about it, they've got a lot of, I don't know, it almost sounds like an excuse.

3:30I'm not saying it is completely because we don't, one pound of fentanyl is too much to get in. But it's 500 times at the southern border. So that they're friendly partners for the most part. I don't know how long it lasts. And I don't know what his I don't know how long he's going to, you know, hear the mainstream media just hyperventilating about a one and three quarter point move in the in the S &P. We're up six. I think the question it's not a huge drop, but I think the question is, what's the end game? Right. Like, is this a fentanyl? something for real? Is this what you're trying to shut down?

4:13Is this we want to build American factories here? Because that's a much longer term process. That's going to take years that these tariffs would have to be in place before you actually see companies put that much money to work, get the factories up and running along those types of things. So I think it's just confusion. You did see the VIX spike a little bit yesterday, and there were questions about that, too. And the other thing I was thinking about on the way in this morning is just that, remember, back in January 20th, when all this took place, all we heard for most of the next month was just this talk about animal spirits.

4:43And I think the questions, the uncertainty surrounding this, the question would be is, does it kill animal spirits that were kind of unleashed by the thought that this was going to be such a pro-business administration? Well, it's also, you want to do these things to try and get, look, you want to try and get the border secure, that's going to be some near-term pain. You're You're going to see on nightly news every night. Right. You know, you're going to hear that schools or people are coming to schools to take parents away from that. You're going to hear that. You try and get the trade imbalances in order near term.

5:17That's going to cause pain. You try and shrink the size of the federal government. Look what goes on there. I mean, the hyperventilating that goes on with with happening there. You do any of that stuff near term and you're going to I mean, look at drudge on any given day. I mean, the world is literally ending. How long? And I don't don't look at Drudge, actually. But if you happen to by accident hit it up, it's just I mean, you get to bruise on his hand and he's going to be, you know, they're just so ridiculous at this point. I don't know what happened to that whole outfit, but we'll see how how long this this goes.

5:56He's not you know, there's a there's a midterm coming in two years. I don't think any Republican wants to get shellacked in the midterm, but he's not running again. And this may be the time where he, you know, all he cares about is the stock market going up and, you know, inflation being low and interest rates coming down. I think eventually it will affect some of the sinking, but maybe not right away. President Trump hitting Canada and Mexico with 25 percent tariffs on imports to the U.S., doubling tariffs on Chinese goods to 20 percent. President saying that the three countries had failed to do enough to stop the flow of fentanyl into the U.S.

6:38and retaliation came immediately from China, mostly on agricultural products. The country announcing U.S. imports of soybeans and corn would be subject to additional tariffs of 10 and 15 percent, respectively, starting in about a week. China also announced export and investment restrictions for more than two dozen U.S. firms. Canadian Prime Minister Governor Justin Trudeau said his country would respond immediately with 25 percent tariffs on about 20 billion dollars worth of all U.S. imports and more than$80 billion additional dollars worth of imported goods in about three weeks. If the new U.S.

7:17tariffs are still in place, Canadian energy will be subjected to a 10 % U.S. tariff under new American rules. And Mexico's economy minister, economic minister, said President Claudia Sheinbaum was expected to announce Mexico's response during his news conference this morning. We do have some more details on China's new retaliatory tariffs as well. The country is saying it will hit American chicken, wheat, corn and cotton with a 15 percent tariff. Soybeans, pork, beef, fruit and vegetables and dairy and fish products will also be subject to a 10 percent tariff. One U.S. firm specifically targeted by China is medical equipment maker Illumina, the country announcing a ban on the company's genetic sequencers.

8:03China accounts for about 7 percent of Illumina's sales, and you can see that that stock is off by about 3 percent. The Trump administration, meantime, is pausing military aid to Ukraine. A White House official telling NBC News that the U.S. is reviewing its assistance to make sure it's contributing to a solution in Ukraine's war with Russia. That move comes just days after a public disagreement in the Oval Office over the war. On Friday, as you have to know by this point, Ukrainian President Volodymyr Zelensky was believed to be coming to the White House to sign a deal providing the United States access to critical Ukrainian minerals.

8:38But in a public argument, President Trump and Vice President Vance criticized Zelensky, saying that he hadn't shown enough gratitude for the billions of dollars in aid that the U.S. has supplied since the world war broke out. President Zelensky did not look like he was ready to sign any deals and looked like he was negotiating in front of the media that was there as well. Trump again criticized Zelensky yesterday after an Associated Press report quoted the Ukrainian president as saying that the end of the war with Russia is very far away. In a post on Truth Social, Trump said Zelensky's comment was the worst thing that he could have said and said America will not put up with this for much longer.

9:15I saw something from two years ago that said something like thousands of thousands of deaths on both sides. The territory hasn't changed one inch. That was two years ago. And I don't know what's changed since then in terms of the territory. But war always is is awful. And there's no one denying who started it and who's at fault or anything else. But it's got to end, got to stop one way or another. It's spending money on defense and on, you know, I mean, I think Putin's got a thousand nukes or something. I don't know how many we have. There's things that you hope are never used and you wish you didn't have to build them.

9:52And now we're, you know, every time we send another couple of billion, it's weapons being used up and we're depleted over here. It'd be nice to stop spending it on the weapons and stop using the weapons. Both of those would be good. I think that's the endgame. Well, the other huge announcement today is what Europe is going to do in terms of stepping up its own defense spending. And that's something we're watching play out, too. Yeah, what a concept. They've been, you know, they've been benefiting sort of one way from, you know, we are the leading Western nation. And we do like to lead. But at some point, you don't want to be taken advantage of.

10:29you know i need to talk to you off camera about why are chicken wings not surging in price but eggs are i have the answer to that do you know the answer no does it have to do with we're not eating them after they call them i would take it are we no broilers versus they're totally different chickens oh totally different types of flocks i guess well the other thing is is one chicken can only contribute two wings, but one chicken can probably contribute lots of eggs. I would like to genetically alter that. I don't see what's wrong with it. Why have a two-wing chicken when you can have a four or an eight-wing?

11:05It'd look a little weird, but it'd be better for chickens. I might pass on that. This might be something where I don't want the genetically modified version of it. Supposedly, I know. I said that yesterday, Chernobyl Farms, which, by the way, is in Ukraine. How weird is that? Yeah. But, yeah, the broilers, you can repopulate those flocks really easily. The egg layers, I don't know. They've got to be trained. Well, they have to, I don't know. Harder. More information than I know. Squeeze. Harder. I can't imagine trying to do that day in and day out. Cheese will be next. Coming up on Squawk Pod, how Target will weather President Trump's tariffs with CEO Brian Cornell.

11:52Over the last few years, we've gone from over 60 % of our imports coming from China to 30 % and we're on a path to get it down to 25%. So we've diversified our supply chain to give us more optionality. And I think that'll serve us well as we go forward. An extended interview with the retailer's CEO right after this.

12:15You're listening to Squawk Pod from CNBC. Here's Becky Quick. Target just reporting those earnings are coming in at$2.41 a share. That was a pretty steep beat over the street's expectations of$2.26 a share. Revenue came in at$30.9 billion, and that also beat estimates. They were around$30.8 billion. Same-store sales were up by 1.5%. That about matches the guidance that the company issued back in mid-January. If you're looking at the fourth quarter operating margins, they came in at 4.7 percent. That was slightly higher than the street expected. And as for the guidance for the full year, the company is saying that it sees earnings somewhere between$8.80 and$9.80 a share.

12:57That's about in line with what the street's expecting. The company also expects comp sales to be flat in 2025. The street was looking for a gain of 1.6 percent. But we're going to talk a lot more about that in just a moment. In the release, Target says, in light of ongoing consumer uncertainty and a small decline in February net sales, combined with tariff uncertainty and the expected timing of certain costs within the fiscal year, the company expects to see meaningful year-over-year profit pressure in the first quarter relative to the remainder of the year. So unsure what's going to happen in the first quarter, but still giving guidance that's in line with the streak for the full year.

13:31Joining us right now to dig into this all in depth is Target's CEO, Brian Cornell. And Brian, it's great to see you this morning. Good to see you. Thanks for joining us. So very strong numbers for the fourth quarter. What happened? Well, I think the team delivered a really solid holiday season. And you talked about the results. But it was great to see the comp sales grow. It was driven by traffic, which was really important. And it was led by categories like apparel and beauty, really strong performance in toys and books. And our digital performance just gets stronger and stronger, up over 7 percent, led by same-day services that grew over 25%.

14:07Our Target Plus marketplace continues to perform really well. So the team did a really nice job of connecting with the consumer during the holiday season. And we're just building on the momentum we've seen in recent months. That traffic growth, it's the ninth straight month that we've seen traffic grow. And to see traffic up 2 % during an important holiday season was a real bright spot. So traffic is here. You guys are pretty optimistic about the full year. but you do have some concerns for the first quarter. And I think that might be what the street's reacting to right now. The stock is up by about eight-tenths of a percent.

14:39So you always see some fluctuation right when the numbers come out. Excellent fourth quarter, really good guidance for the full year, but questions about what's happening right now in the first quarter. First of all, what happened in February in terms of sales? What did you see? Becky, I'll go back to something you and I have been talking about actually for several years now. It's just the state of the consumer. And I think we've seen a cautious consumer for quite some time now. You know, they're shopping carefully. They're making sure they're stretching their budgets as carefully as they can.

15:05We know that that's a consumer who's been looking for value, but is also celebrating the key holiday moments like they did during November and December. We saw that in February. We actually had record performance around Valentine's Day. A consumer wants to make sure they're there, they're in Target stores, they're shopping online. They celebrated that moment. But we also saw extreme cold across the country. And actually, as we've seen temperatures warm up for categories like apparel, we've seen a pretty good spike. But it is a consumer right now that I think is under pressure. That's not new news.

15:37You reported consumer confidence has taken a downturn in recent weeks. And I think there is some concern about tariffs. And I think there's a number of Americans right now that understand what a tariff is and what it might mean for them. So I think that cautious shopping behavior that we've seen for quite some time now continued in February. In terms of February, how much of it, the cautiousness you saw from consumers was from the weather? How much of it was from the fires and floods that we saw in different places across the country? How much of this is the consumer kind of having spent everything in December and maybe reining in some spending a little bit afterwards?

16:12I think it's all of the above. I think you've really summarized it. But I also recognize it's one month. We're excited about spring and the Easter season. We expect Easter to perform just like it did in Valentine's Day. So there's a lot of, obviously, time in front of us. But you described all the factors we're looking at in February, from fires and floods and extreme cold to just consumers that are looking at their credit card bills and saying, I might pull back just a little bit. But we've had a really optimistic outlook for the full year. And in a few hours, we'll talk about our confidence in the next five years.

16:45and sitting here today, I'm very excited about where Target sits as we think about the next five years and how we build on the momentum that we've built in our business. I've just been watching the stock as you've been talking. It's over your shoulder. And it's gone from up over 5 % to down a couple percent to now just around the midline. It's up by two tenths of a percent. And again, this is a lot of bouncing around. But I think the investor is doing the same thing with every stock on a daily basis at this point, trying to figure out what is the impact right now and the uncertainty that comes around tariffs have raised a lot of questions.

17:17How do you see the tariff in terms of, A, how your business handles it, and B, what you think it is the impact to the consumer? Yeah. We always start with the consumer, Becky, as we think about the implications of tariffs. And we've been working on this for quite some time. We had a very experienced team. This is not the first time we've faced tariffs. But it's really understanding where we go from here and the impact it will have on consumers. So we'll watch it very carefully. We'll see how things unfold. I think for anyone in our space today, we're looking for certainty. And hopefully over the next few weeks, we have a better understanding of how things are going to move forward.

17:52And we better react accordingly. So if the certainty is, OK, all goods coming from either China or Mexico are going to face 25 percent tariffs. And if you're coming from China, it's going to be 25 percent from these two countries, 20 percent from China. What does that mean in terms of what you're bringing into this country and what you sell? Well, I'll start with half of the goods we sell come from the United States. And over the last few years, we've gone from over 60 % of our imports coming from China to 30%, and we're on a path to get it down to 25%. So we've diversified our supply chain to give us more optionality.

18:27And I think that'll serve us well as we go forward. But we always want to make sure we're delivering great value to the consumer. And over the last couple of years, you and I have talked about the importance of making sure we're delivering value. It's a consumer that's on a budget. We want to make sure we delight them with great new items, but also the value they're looking for, that affordability every time they shop. So we'll continue to make sure we lean in and do everything we can to control prices, provide that value, and continue to delight them with newness along the way. So what did your team do to prepare for this potential eventuality?

18:58I mean, there were a lot of people who still didn't think this was going to happen. Midnight has come, and they are in place as far as we know at the moment. We've done a lot of scenario planning, and we've tried to understand what are the different options that we might have to face. We'll go back and understand the implication of Canada and Mexico. We've been looking at that. We know for certain categories, like fruits and vegetables, where during this winter season, we depend on Mexico for a significant amount of supply. No, those are categories where we'll try to protect pricing, but the consumer will likely see price increases over the next couple of days.

19:32Over the next couple of days? So those are really short supply chains. You think about all the fresh produce. You know, we depend on Mexico during the winter. We're going to try to make sure we can do everything we can to protect pricing. But if there's a 25 percent tariff, those prices will go up for things like what? Strawberries, avocados, bananas. What are we talking about? You've got that list right. Is that so that's some of the key items. And those prices could change within days in the stores, certainly over the next week. Brian, this is something you think about for Target all the time.

20:00But you are also the head of the business council right now, the chairman of the business council for what's stepping in for this. So you must have been talking to lots of your peers, other business leaders. And I wonder what conversations you've had with the administration about this. Well, I won't speak for the other CEOs, but as I said earlier, I think we're all looking for clarity and certainty. And we operate much better and we understand, all right, what are the issues we're facing? What are the steps we have to take? And I think coming out of today, we've got a better understanding of kind of what might be in front of us.

20:31So I think for most business leaders, they're looking for certainty and clarity. And you'll modify your business strategy and your tactics along the way. But, again, we're going to understand what's going to happen. We're going to look closely at the consumer. We want to make sure we protect our brand in this environment and deliver that value. And while short-term there may be some pressures, as you'll hear from me today, I'm really excited about the next five years. I want to stick with this issue for a little bit. We could talk about the next five years, too. But just the idea that business leaders would prefer certainty.

21:03Is that the case, even if the certainty is that you're going to be facing 25 or 20 percent tariffs? Or would you rather face maybe a little uncertainty? Maybe we use this as a negotiation and then we see what comes. Well, we'll see how that unfolds. But one way or another, we need to understand what are the operating conditions? How do we react? How do we take care of the consumers we serve, our teams, our brand? So I'll always err on the side of certainty. And you mentioned that this is a very experienced team. You've dealt with tariffs from the last Trump administration. What happened then? How much got passed on to consumers?

21:35How much did it impact your profit margins? Well, it's when we started to make some changes in the country of production and de-risking our supply chain, looking at different options, bringing things back to the Western Hemisphere. So we're actively been pursuing some different changes in our supply chain to give us more durability and flexibility to meet the changing environment we're in today. So that's an interesting point, too. We've been trying to figure out ourselves, is this a negotiation tactic? Is this something that really is going to be driving or hopefully drive factories to be produced here, producing things here in the United States?

22:07You have made changes to your supply chain. You didn't stop and change or go back on any of those things. You're continuing to make progress. It doesn't happen overnight. But is this a push that really is going to lead to more production in the United States long term, you think? Well, I think that's the goal of the administration. And if that happens, we'll have more opportunities to buy products made right here in the USA. Certainly that's going to be interesting for us, and we certainly encourage that. But we'll continue to modify our supply chain and give us as much flexibility as possible.

22:36What do consumers think about tariffs? What have you learned? What do you know about that? Well, I'll give you a couple of facts. You know I like numbers. I mean, only a couple of months ago, only about 20 % of America actually understood what a tariff was. Now that number's close to 50. And I think they understand what that means, the fact that it could have an implication on them on the prices they pay. So I think going back to the state of the consumer, yes, they've been cautious for a while. They've been shopping really carefully. Weather's been extreme. Overall confidence has dipped down.

23:08But I think that lingering tariff conversation that they hear about almost every night on the news or every morning when they're watching you, that's certainly in the back of their minds. And in the back of their minds, that does what to their behavior? Are they spending less money as a result or are they thinking, OK, this is OK. We'll deal with the pain for a little while if it leads to more jobs in the United States. How how far down do they dig on the tariffs? I think we see a very cautious consumer right now, but one that still celebrates those key holidays. They're still looking for newness, but they're shopping on a budget and they're looking for affordability right now.