Transcript: Nightly Business Report – August 21, 2019

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  In the bullseye.  Target (NYSE:TGT) wows Wall Street with a much better than expected quarter, and the stock has an historic one-day gain.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Frenemies.  Stocks and bonds are developing a different kind of relationship, one that can be hard for investors to understand.  

HERERA:  Peak SUV?  Americans love big cars, but can the auto industry
produce more of them while at the same time keeping their profits high?  

Those stories and much more on NIGHTLY BUSINESS REPORT for Wednesday, August 21st.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  

It may be mid-August when trading is supposed to slow down, but a few
remarkable things happened on Wall Street today.  Retailers helped lift
investor sentiment.  Yes, retail, that same sector that`s been struggling
to keep up with fast-changing consumer behavior.  Four of the five best
performing stocks in the S&P 500 today were retailers.  

And then there`s the bond market.  The yield curve inverted for the second
time in a week.  Late today, the yield on the ten-year treasury bond dipped
below the two-year yield.  

That often forecasts a recession, and that`s when it happened last week,
the Dow fell by 800 points, but not today.  This time, stocks held on to
their gains.  In fact, the Dow was up more than 240 points.  It closed at
26,202.  The Nasdaq was up 71 and the S&P added 23.  

HERERA:  So let`s start with retail and Target`s surprise quarter.  The big
box retailer blew past every Wall Street estimate forecast thrown at it,
and that`s not something that you hear very often when it comes to retail,
which has seen a number of traditional stores struggle to figure out what
consumers want.  Target (NYSE:TGT) soared 20 percent, its best one-day gain ever.  Its market cap is now above $50 billion for the first time and
shares are nearly four times higher today than they were in 2008.  

Courtney Reagan takes a look at what target is getting right.  

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Target`s quarterly results once again show that its three-year turnaround strategy is working.  Store traffic is up.  Online sales grew 34 percent.  Both led to stronger than expected comparable sales growth.  

The retailer`s same-day online fulfillment options drive up pickup and
Shipt`s delivery service more than doubled their sales in a year, proof
shoppers are increasingly using both Target`s website and stores together.  
Most retail experts agree Target`s management team has done a good job
executing a strategy that`s resonating with shoppers, but a strong U.S.
consumer also contributes to Target`s performance.  

On a media call, I asked CEO Brian Cornell how he views the economy and
consumer.  

Cornell`s answer, quote: As I have said for sometime now, we continue to
see a healthy consumer environment.  Consumer confidence remains strong.  There`s been a reduction in fuel prices which we think is important for consumers.  Unemployment remains low and wages are growing.  

MARK ASTRACHAN, STIFEL NICOLAUS:  You also have seen some of the biggest retailers getting incremental share from some of the smaller retailers and probably think the trends will continue.  You couple that with a broadly healthy consumer environment and the big retailers doing better, and I think you can continue to see those big retailers continue to outperform.  

MICHAEL LASSER, UBS:  There are categories that they serve that are still
challenged.  Apparel has a glut of inventory across the sector.  Consumer
electronics suffers from lack of newness.  So, the fact they`re going to
navigate that does present some challenge, but what Target (NYSE:TGT) has
shown for the last several quarters is that they`re up to the challenge.  

REAGAN:  And like other retailers, Target (NYSE:TGT) will be dealing with
new tariffs on Chinese-made clothing, shoes, toys and electronics in
September and December.  On the earnings call, Cornell acknowledged it
creates, quote, uncertainty and complexity, but said Target (NYSE:TGT) is
confident in its ability to navigate through it.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.  

(END VIDEOTAPE)

GRIFFETH:  And the big day for retail wasn`t just about Target (NYSE:TGT).  
Lowe`s reported better than expected earnings and revenue as well.  The
home improvement retailer CEO cited higher than expected contractor demand, especially from professional contractors who tend to spend more than do-it-yourselfers, and he said that the potential impact of U.S. tariffs on some Chinese goods is already baked into its full-year earnings forecast.  

And the news helped lift that stock by 10 percent in today`s session.  

HERERA:  Nordstrom (NYSE:JWN) reported a solid quarter as well despite
being considered a department store, and they`re facing more challenges
than the big box retailers.  The upscale retailer beat profit estimates,
thanks to stronger online sales.  The company has been investing heavily in
its digital business, as well as its inventory, and that sent the stock
higher in initial after-hours trading.  

GRIFFETH:  A clear trend has emerged from all of the retail earnings that
we have seen in the past week or so.  The so-called big box retailers like
Walmart and Target (NYSE:TGT) are doing very well.  Most department stories like Macy`s (NYSE:M) are not.  Nordstrom (NYSE:JWN) turned out to be an exception in that report today.  

But what does it all say about the consumer and the economy?  

Joining us tonight is John Morris.  He`s senior brand apparel analyst at
D.A. Davidson.  

Thanks for joining us tonight, John.  

JOHN MORRIS, D.A. DAVIDSON SENIOR BRAND APPAREL ANALYST:  Good to be here.  

GRIFFETH:  And you say it really is about the consumer just looking for
better value, right?  

MORRIS:  I think that`s a very key element of it.  I mean, there`s a couple
of things going on, but let`s start with that.  If you look at the
dichotomy that you set up, it is perfect — it really becomes crystal
clear.  On the one hand you`ve got the names that you were talking about,
Walmart, Target (NYSE:TGT).  Add to that list, TJX.  

On the other hand, you`ve got Macy`s (NYSE:M).  You know, while Nordstrom (NYSE:JWN) was good their revenues were low.  Look at the difference, the consumer`s looking for value, and I think it`s value and those companies that have been reinvesting in their businesses as those big box guys have to be able to execute to the customer both in store and online and for the customer that wants value.  

And I think that`s where you`re seeing the pattern emerge.  

HERERA:  In addition to value, there has to be a reason for someone to go
into a brick-and-mortar store, is there not?  

MORRIS:  Yes, very good.  You know, if you think about what`s happened with the shift in the retail paradigm is a result of the disruption of the
Internet.  What you really have is it is no longer about the distribution
channel.  That is department stores offering a wide array of choices.  

The consumer is now empowered, and what does that mean?  He or she shops by brand.  First, online, they look online, they check it out, they get
knowledge, and then they`re much more dedicated.  So, that retailer or
brand needs to be highly focused and ready to deliver.

And that`s what you get, whether it`s a Walmart because of the value, TJX
because it`s brands at really good pricing, or some of the other operators
that are highly focused like we mentioned Home Depot (NYSE:HD) and Lowe`s.  

GRIFFETH:  And it`s not just what you are selling these days.  It is how
you sell it with delivery being very important for companies like Target
(NYSE:TGT) and Walmart, which are really improving the delivery right now.  

So convenience is obviously a very big factor as well, isn`t it?  

MORRIS:  Yes, but it is also — you know, I`m glad you mentioned that
because one of the reasons why target cited the better-than-expected
results is because they`re doing a better job of same-day delivery.  I
mean, this is how these retailers can fight back to the amazons of the
world.  If they have a number of stores, they can deliver same day very
quickly, very fast, or they can provide you service in the store.  

So they can come at it from a number of different angles, and that`s where
the delivery, whether it is in store through service, whether it is same
day or what-have-you makes a difference.  

GRIFFETH:  John Morris with D.A. Davidson — again, thanks for joining us
tonight, John.  

DAVIDSON:  You bet.  

HERERA:  Shifting now to the economy, existing home sales in July rose to a
five-month high thanks to lower mortgage rates and a strong labor market.  
According to the National Association of Realtors, sales of previously-
owned homes rose 2.5 percent, slightly better than expectations.  This
report marked the first year-over-year uptick in nearly a year and a half.  
Existing home sales make up a large part of housing market activity.  

GRIFFETH:  Federal Reserve officials were sharply divided when they voted
last month to cut interest rates for first time in a decade.  According to
the minutes of the meeting which were released today, the decision was seen as a recalibration of policy.  It was not intended to start a preset course
for more easing.  

Some members of the committee wanted a deeper cut.  Others wanted no cut at all.  But policymakers did agree that Washington`s trade strategy is
creating a headwind for the economy.  

HERERA:  President Trump said he`s no longer considering tax cuts because he says the economy is strong.  As we reported yesterday, the president said he was considering cutting payroll taxes and examining whether to reduce capital gains taxes by indexing gains to inflation.  Today, he explained his change of mind.  

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  I`m not looking to do indexing.  I have studied indexing for a long time.  I think it will be
perceived if I do it as somewhat elitist.  I don`t want to do that.  I want
taxes for the middle class, the workers, the people that work so hard.  If
I wanted to do it, I believe I could, but I would need a letter from the
attorney general.  

(END VIDEO CLIP)

HERERA:  The economic expansion became the longest on record this summer, though there are some warning signs.  Overall growth is slowing, and as we mentioned, bond yields inverted last week and once again today.  

GRIFFETH:  And although it did not happen today, the trend lately has been
that when bond yields fall stocks tend to do the same.  Investors are just
trying to decipher that seemingly odd relationship.  Right now, some see
stocks and bonds as frenemies.  

Mike Santoli explains.  

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks and bonds have a complicated relationship, and lately, bonds have been firmly in control of it.  The steep drop in bond yields this month has knocked the stock market off balance as investors do the rush of 10-year treasuries to three-year lows below 1.6 percent as a worrisome sign for economic growth and the Federal Reserve`s ability to support the expansion on its current interest rate path.

The recent pullback in the S&P 500, which at its worst last week, fell more
than 6 percent from its late July record high, got rolling just as the 10-
year cracked below 2 percent.  Even on a minute-to-minute basis, declines
and yields have weakened share prices, while nearly the entire 3 percent
bounce in stocks over the past several days occurred at times when yields
have stopped falling and lifted off their lows.  

And yet, it`s not entirely the case that low yields are all bad for stocks.  
Low rates act as support equity valuations on a relative basis, making
stocks appear cheaper compared to bonds than they have since the sharp
sell-off in late 2018 and before that in 2016.  A majority of large stocks
now have dividend yields higher than the 10-year treasury as does the S&P
500 itself, which now has about a 2 percent dividend payout.  

Very low yields have boosted more stable defensive stocks such as utilities
and consumer staples along with very big growth stocks with strong profit
potential, seen for years to come without reliance on a hot economy.  Now,
this probably means the best setup for stocks at this point would be a
modest lift in yields that allows more cyclical sectors and financial
stocks the recover from sharp losses while easing some of the more intense
fears of recession that the yield collapse has fuelled.  

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.  

(END VIDEOTAPE)

HERERA:  America`s deficit will expand by more than expected over the next decade.  The Congressional Budget Office cited the impact of the two-year budget agreement reached last month that includes higher federal spending. And while the director of the agency says growth could be hurt over the long term, the near-term outlook isn`t as bad in part because of the consumer.  

(BEGIN VIDEO CLIP)

PHILLIP SWAGEL, CONGRESSIONAL BUDGET OFFICE DIRECTOR:  We slightly upgraded our estimate of growth as compared to the forecast we made at the beginning of this year and that was based on data showing pretty strong spending, especially by consumers.  At the same time, we see risks in the economy and our forecast has growth slowing in the second half of the year, consumer spending we expect to subside a little bit in terms of its growth, and then business investment as well.  

(END VIDEO CLIP)

HERERA:  The Congressional Budget Office also warned that the economy could be stifled by further tariff hikes.  

GRIFFETH:  Time to take a look at some of today`s “Upgrades and
Downgrades”.  We have a couple to tell you about tonight.  

Hawaiian (NASDAQ:HA) Holdings, the parent of Hawaiian (NASDAQ:HA) Airlines, was downgraded to sell from buy at Stifel Nicolaus.  The analyst cited the risk to earnings next year, with the addition of new flights to Hawaii by rival Southwest.  Price target now, $20.  Shares fell about 5 percent today $24.10.  

Redfin was upgraded from buy to hold at Craig-Hallum.  The analyst says the company is well positioned for what it called the tech revolution in real
estate.  Price target, $24.  That stock was up 5 percent to $18.39.  

HERERA:  Still ahead, match making like you have never seen before.  

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Buyers from around the world looking to play the field, farmers desperate for a relationship.  It is a kind of soybean love story.  I`m Contessa Brewer.  I will tell it to you coming up on NIGHTLY BUSINESS REPORT.  

(END VIDEO CLIP)

(MUSIC)

GRIFFETH:  President Trump today defended his administration`s actions in the ongoing trade war between the U.S. and China, but that trade war has
left American soybean farmers without one of its major export markets.  So, some of them went to Chicago today to attend an exchange of sorts where they meet with buyers who are in search of new partnerships.  

Contessa Brewer reports tonight from the Windy City.  

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE:  This is ground up beans.  

BREWER:  From farm to table.  At a trade exchange in Chicago, it`s a kind
of soybean speed-dating.  Farmers are desperate for a relationship.  

DEREK HAIGWOOD, ARKANSAS SOY FARMER:  We`re three weeks away from — from the harvest of our soybean crop.  It`s — we have no contracts booked.  

BREWER:  Agricultural suitors have their pick of the global crop.  

ALESSANDRO SALGARO, ITALIAN SOY BUYER:  The world market has changed, and China hasn`t bought any beans in the last month.  

BREWER:  Four hundred buyers from 50 different markets from around the
world.  They`re playing the field, touring U.S. farms but keeping and eye
on attractive competitors.  

JIM SUTTER, U.S. SOY EXPORT COUNCIL CEO:  I think that the Brazilians are
doing all they can to take advantage of this situation, to expand their
production in Brazil, expand their relationships in China, you know?  So,
that is a real risk.  Likewise, Russia is starting to produce more soy.  

BREWER:  Thanks to the sour trade relations with China, jilted U.S. farmers
come to the table with a lot of baggage, more than a billion bushels of
unsold soybeans, a record amount.  Soybean prices are near a ten-year low,
plummeting from more than $10 a bushel before the trade war to about $8.50
now.  

JEFF O`CONNOR, ILLINOIS FARMER:  We`ve had a door of opportunity closed on us by losing a great trade partner short term.  

BREWER:  Now, farmers are getting out there, courting new buyers in Asia,
Europe and South America, even as a Chinese delegation visits with American farmers, reinforcing their commitment to the relationship.  

SUTTER:  We`re making new contacts.  We are developing new markets in other places.  We need to come out of this stronger than we went into it, but I think it will be really hard for us to do if the outcome is no China.  

BREWER:  And so, with cautious optimism for a trade deal this fall, the
daytime drama unfolds.  Buyers and sellers meet, hoping for a match.  

In Chicago, Contessa Brewer, NIGHTLY BUSINESS REPORT.  

(END VIDEOTAPE)

HERERA:  Children`s Place cut its full year earnings forecast and that`s
where we begin tonight`s “Market Focus”.  

Same-store sales at the children`s apparel retailer fell nearly 4 percent,
leading to a miss in revenue.  The company also said it felt pressure from
the integration of the bankrupt Gymboree Chain.  Shares dropped more than 2 percent to $76.10.  

Fitbit inked a deal with Singapore to potentially provide hundreds of
thousands of consumers with its fitness trackers as part of that country`s
health initiative program.  Customers will not have to pay for the device
but spend $10 per month for a year for its services.  Fitbit was up more
than 2 percent to about $3.02.  

Africa`s largest ecommerce company Jumia said it found instances of fraud
where, quote, improper orders were placed by employees and then cancelled, and that impacted Jumia`s order volume.  The company`s quarterly results also missed estimates.  Jumia shares plummeted nearly 17 percent to $12.27.  

GRIFFETH:  Japan Post which delivers the country`s mail, it runs a bank and an insurance company, said today it improperly sold more than 100,000 Aflac (NYSE:AFL) policies over the past five years due to the company`s failure to update its customer data management system.  The improper sales included charging premiums twice or not letting customers switch policies.  Japan Post sells Aflac (NYSE:AFL) products there.  And Aflac (NYSE:AFL) shares were down more than 5 percent today on the news at $48.98.  

Sony (NYSE:SNE) and Disney (NYSE:DIS) reportedly cannot reach a deal over the highly-popular “Spider-Man” character.  Sony (NYSE:SNE) owns the film rights to “Spider-Man” but it had recently cooperated with Disney`s Marvel Studios to bring two movies to the screen.  Disney (NYSE:DIS) was
reportedly seeking an equal co-financing stake for any future “Spider-Man”
films, but so far, Sony (NYSE:SNE) has said no.  Sony`s shares rose nearly
2 percent today to $56.65, with Disney (NYSE:DIS) up a fraction at $135.76.  

And then after the bell tonight, retailer Lbrands topped earnings estimates
but it did miss on revenue.  Same-store sales fell, especially its Victoria
Secret brand, but Lbrands did reaffirm its full-year guidance.  Shares were
volatile afterhours tonight, after closing the regulation session up 2
percent at $20.33.  

HERERA:  With more Americans buying and driving SUVs and crossover utility vehicles, the auto industry finds itself at a crossroads.  It must meet
demand by offering more big cars, while at the same time keeping those
models highly profitable.  

And as Phil LeBeau reports, that is getting tougher to do in a saturated
market.  

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  They seem to be everywhere, SUVs and crossovers.  With buyers looking for bigger vehicles where they sit higher and have more space, automakers are offering and selling more SUVs than ever.  

JEFF SCHUSTER, LMC AUTOMOTIVE:  SUVs and crossovers is a body style or body type, will continue to increase, but the pace is going to slow and the
competitive pressure is going to be even greater as more and more models
are launched.  

LEBEAU:  From new luxury SUVs like the BMW X7, to mass market models like the Kia Telluride, there are now 135 different SUVs and crossovers for
sale.  That crowded market means fewer versions of each SUV model will be sold this year and the trend is expected to continue, which will impact the Chevy Equinox, a popular impact SUV.  General Motors (NYSE:GM) is trimming production of the Equinox at its plant in Central Mexico, so it doesn`t have a glut of the SUV in showrooms at a time when overall auto sales are slowing.  

SCHUSTER:  It`s adding additional pressure, and I think that pressure is
certainly causing some inventory issues and causing manufacturers to make some tough decisions.  That is trimming production as well as looking at some changes in future model rollouts and options.  

LEBEAU:  The surge in SUVs for sale could ultimately cut into the
profitability of models that have long been big money makers.  

That`s because automakers have to work harder than ever to win over buyers.  In fact, the average incentive for each SUV sold this year is close to a record high of almost $4,000, a pricey sweetener to attract buyers who have plenty of options when it comes to utility vehicles.  

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.  

(END VIDEOTAPE)

GRIFFETH:  And coming up, consumers` growing appetite for eating out.  

(MUSIC)

HERERA:  The number of 401(k) millionaires is at a record.  In the second
quarter, there were 196,000 Fidelity plans with balances of $1 million or
more.  Analysts say investors were able to recoup the money lost at the end
of 2018.  Fidelity is the largest provider of 401(k) plans.  

GRIFFETH:  Bank CEOs tend to have a unique view of the economy and the
spending habits of Americans, and today, the head of Bank of America
(NYSE:BAC) said that he feels the consumer is doing well and is strong
enough to keep the U.S. economy humming.  

(BEGIN VIDEO CLIP)

BRIAN MOYNIHAN, BANK OF AMERICA CHAIRMAN & CEO:  They`re employed and more importantly, they`re spending more money.  And so, in our customer base through this time, you know, August 15 year-to-date, you have seen the amount spent by American consumers at Bank of America (NYSE:BAC), $2 trillion.  It is up 5.9 percent from last year through the same period of time.  

So, in `17 and `18, you were up 8.5 percent, `18 and `19, you are up 5.9
percent.  So, think about that as $120 billion more spending by our
consumers this year versus last year.  

(END VIDEO CLIP)

GRIFFETH:  And a growing portion of consumer spending is taking place at
restaurants.  

Kate Rogers (NYSE:ROG) continues our look now at the American consumer.  

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If there`s a recession brewing, the American consumer hasn`t gotten the memo, particularly when it comes to dining out.  Census data show that people have been spending more at restaurants this year than at the supermarket.  One reason is that dining establishments are charging more, hiking prices at a faster rate than inflation.  

HUDSON RIEHLE, NATIONAL RESTAURANT ASSOCIATION:  From a consumer perspective, there remains substantial pent-up demand for restaurant services.  Over two out of every five American adults report that they`re not using restaurants as much as they would like in their daily lifestyle, and it is even higher for take-out and delivery.  

ROGERS:  But higher prices aren`t driving consumers away from spending at restaurants.  In fact, the National Restaurant Association projects total
sales at food and drink places will hit $863 billion in 2019.  That`s an
increase of 3.6 percent over last year and a new all-time high.  

Restaurants account for a substantially larger piece of overall consumer
spending on food, from 25 cents for every $1 in 1955 to 51 cents today.  
The trend is helping the industry`s bottom line.  From Chipotle to
Starbucks (NASDAQ:SBUX) and McDonald`s (NYSE:MCD), tech upgrades expanded delivery offering and more modern stores are luring customers.  

Unemployment rates at historic lows are also helping, and even if the job
market weakens, spending on dining out will likely not fall off entirely.  

RIEHLE:  The typical consumer equates restaurant usage with a certain
standard of living.  It`s pretty difficult for them to cut back their
visits.  It does alter their total spending.  And even during softer
economic times, they will continue to patronize, but that patronage pattern
definitely does change in line with what happens to income and employment growth.  

ROGERS:  While recession chatter swirls, the restaurant industry isn`t
expressing concern just yet.  

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Englewood, New Jersey.  

(END VIDEOTAPE)

HERERA:  And that is the NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  

We want to remind you, this is the time of year your public television
station seeks your report.  

GRIFETH:  I`m Bill Griffeth.  Thank you for that support.  Have a great
evening.  See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.

<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.>

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply