ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herrera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Building a foundation. One of the nation`s top ten homebuilders wants to get even bigger and expand its dominance in the industry.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tech takeover? Why Xerox (NYSE:XRX) and HP think the future may be better together.
HERERA: The real question. The world`s largest marketplace for luxury consignment says that everything it sells is 100 percent authenticated. But our investigation finds a different reality inside TheRealReal.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, November 6th.
GRIFFETH: And we do bid you good evening, everybody, and welcome.
Now when we talk about deal making, lately, we have been referring to trade deals. But not today. Today, it was about good old fashioned corporate acquisitions across a number of different industries. The kind of activity that can drive the market and change the investing landscape.
We start with homebuilding. There was a major merger in that sector, with Taylor Morrison buying William Lyon. And as usually happens, shares of the being acquired rose while shares of the company doing the buying fell. And this is a get together that both companies hope will make the combined firm a power player.
Here is Diana Olick.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Scottsdale, Arizona- based Taylor Morrison will buy smaller rival William Lyon Homes, a California-based builder for more than $800 million in cash and stocks. Total value, $2.4 billion. That will make it the fifth largest U.S. home builder.
The deal expands Taylor Morrison`s geographic reach substantially, putting it in Seattle, Portland, Oregon and Las Vegas. The deal also gives it a much larger footprint in Denver, San Francisco, Austin, L.A. and Riverside. It will also expand Taylor Morrison`s reach into the entry level market.
Right now, about 28 percent of its business is entry but William Lyon share is 54 percent of that market.
SHERYL PALMER, TAYLOR MORRISON CEO: They have very successfully been able to appeal to entry level at the right place point, in the right location. That`s compared to just continuing to go further out to the fringe market.
OLICK: Combined 36 percent of Taylor Morrison`s business will be entry- level. Forty percent move-up and 13 percent active adult.
PALMER: We focused on the entry level, but I`m actually equally excited about the active adult positions. And the fact that you know we have not been deep in the 55-plus market in the west side of the United States.
OLICK: And Sheryl Palmer also told me that timing is just right, as Seattle, Portland and Denver have been going through a reset recently after overheating. Prices have settled since and buyers are coming back in.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: Next up, a takeover involving two old school tech companies. There are reports tonight that Xerox (NYSE:XRX) is considering a bid for HP. That deal would combine two household names both with complicated pasts. And in this case both stocks rose in today`s session.
HERERA: The continued decline of printed paper documents once a back bone of business may be pushing two tech icons towards a once unlikely marriage. CNBC is reporting that the combined companies could save more than $2 billion in expenses. Most of Xerox`s $10 billion in annual revenue comes from renting and maintaining large copiers for businesses, often selling printers at a loss while banking on purchases of ink cartridges needs to run the printers.
HP which named Enrique Lores as its new CEO last week tends to sell smaller printers and printing replies. It also remains one of the world`s largest PC makers. HP`s 2018 revenue topped $58 billion.
So, how can Xerox (NYSE:XRX) afford to buy up? The answer is tied to a failed bid to merge with Japan`s Fuji Film Holdings. Fuji is dropping a billion-dollar suit filed last year when Xerox (NYSE:XRX) walked away from the deal. Investors, Carl Icahn among them, resisted, claiming Xerox (NYSE:XRX) was undervalued in that deal. Xerox (NYSE:XRX) is also expecting to unwind a 57-year-old partnership with Fuji Film, selling stakes worth about $2.3 billion.
HP is what remains after Hewlett Packard split off its server and data storage business, now Hewlett Packard Enterprise in 2015.
In October, HP announced plans to lay off up to 9,000 people, about 16 percent of its workforce, aiming to save $1 billion, part of a plan aimed to save a billion-dollars per year.
Companies like HP, Xerox (NYSE:XRX) and Japan`s Canon (NYSE:CAJ), it seems, are attracting the attention of the merger-minded bankers, aware that the digital age is continuing to push past the printed page.
GRIFFETH: And now to trade and new figures. According to the “Wall Street Journal,” the U.S. collected a record $7 billion in tariffs in September. During that month, new duties kicked in on apparel, tools, electronics and other consumer goods from China. Tariff revenue is reportedly up 9 percent from August and more than 59 percent from a year earlier. Those figures are based on an analysis of Commerce Department data.
HERERA: And again, today, Wall Street hung on every headline about the coming trade meeting between President Trump and Chinese President Xi. Today, there was speculation of a possible delay.
Kayla Tausche did some digging to see what may really be going on.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The White House is still working to reach a phase one deal with China by November 16th, that`s the date Presidents Trump and Xi would have met at the APEC Summit before host country Chile cancelled the event due to unrest.
A senior administration official acknowledges that deadline might not be feasible as the two sides continue negotiating the terms of the deal and a venue to sign it. If the date gets pushed out, the signing summit could move to Europe where President Trump will be in early December. He is expected to attend the NATO leaders summit in London, December 3rd and 4th. Trump for months according to officials suggested Switzerland as the ultimate neutral location even as the U.S. pushed China to sign the deal stateside.
“Reuters” has reported Switzerland and Sweden are under discussion, but those officials said those are unlikely sites but perhaps not impossible. The firmest deadline for a deal signing something now viewed at December 15th. That`s the date the tariffs on about $150 billion in consumer goods would take effect.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
GRIFFETH: And that trade uncertainty stalled stocks today. The major averages were little unchanged after struggling to move to further into record territory. In fact, the Dow fell less than a point today to close at 27,492, Nasdaq was down 24, the S&P climbed by two points.
HERERA: The big economic report today shows that productivity fell the first time since 2015. The 0.3 percent decline from the third quarter reflected a cutback in production as the economy slowed towards the end of the summer. Economists say businesses reduced production in response to softer demand, especially for exports.
GRIFFETH: Now to one of the biggest corporate stories of the year, Boeing (NYSE:BA) and its 737 MAX. The CEO of American Airlines said today he expects the FAA to approve the grounded plane to return to the air in the near future. And CEO Doug Parker said that when the jet is certified, his airline will be ready.
HERERA: The CEO of Boeing (NYSE:BA) talked about his decision to forgo his bonus and disclosed that he will give part of the bonus to 737 MAX Victim Compensation Funds. Speaking at “The New York Times (NYSE:NYT)” DealBook Conference, Dennis Muilenburg said the amount would be in the tens of millions of dollars.
He told Andrew Ross Sorkin that he came to that decision in part after meeting with the families.
(BEGIN VIDEO CLIP)
DENNIS MUILENBURG, BOEING CEO: I wish I gone to visit them earlier. We have been focused ever since the accidents on understanding what happened, doing everything we can to fix the airplane, to improve the MAX. We have been focused on working to make it the safest airplane ever to fly.
But the personal element of this and the impact it`s had on families, you know, it`s reminded me of the importance of the work we do. And we talk a lot about at Boeing (NYSE:BA) about the fact that lives depend on what we do, literally. And that should demand in incredible sense of excellent in how we do it. But until it`s personal, until you really talk with the families and really hear those personal stories, there is nothing else like that. That`s going to stick with me forever.
(END VIDEO CLIP)
HERERA: As we reported yesterday, Boeing`s new chairman said
Muilenburg would not be awarded bonuses or equity grants for the year until the 737 MAX is back in the air and flying safely.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and Downgrades”.
We begin with shares of Lowe`s. They were upgraded to outperform from neutral at Credit Suisse with the analyst citing improves industry trends and the company`s current valuation. Price target now $129. That stock rose a fraction today to $112.67.
Blackrock was upgraded to buy from hold at Deutsche Bank. The analyst cited the improved macro environment for that company right now. Price target: $543. The stock up 1.5 percent to $489.54.
And Groupon (NASDAQ:GRPN) was downgraded to underweight from neutral at JPMorgan (NYSE:JPM). The analyst cited lower online sales and international headwinds. The firm has no price target on the stock but shares fell more than 2.5 percent today to $292.
HERERA: Still ahead, what Kohl`s is doing to get in the monthly day spirit.
(BEGIN VIDEO CLIP)
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Courtney Reagan in New York City at Kohl`s (NYSE:KSS) holiday preview. I`ll tell you what the retailer has in store for the season coming up on NIGHTLY BUSINESS REPORT.
(END VIDEO CLIP)
HERERA: The California attorney general says it has been investigating Facebook (NASDAQ:FB) for 18 months and says the company is not cooperating. Officials are now asking a court to force Facebook (NASDAQ:FB) to answer its subpoenas. California is looking into the social media company`s privacy practices. The state says the probe began with the Cambridge Analytica scandal but has since expanded. In a statement, Facebook (NASDAQ:FB) says it has cooperated extensively with that investigation.
GRIFFETH: Dunkin` Donuts is hoping to get in on the fake meat craze. Today, it launched a new plant-based breakfast item, the Beyond Sausage Sandwich. And companies that make fake meat are looking to expand beyond the U.S. to China, since that country is one of the largest in the world in meat consumption.
Eunice Yoon is in Beijing for us tonight.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: CEO Pat Brown is in China for Impossible Foods debut here. And he told me he sees China becoming one of the plant-based meat company`s most important markets.
PAT BROWN, IMPOSSIBLE FOODS CEO: China is the biggest consumer of meat in the world. And the demand for meat in China is so great that Chinese — China doesn`t have the farmland to produce its own meat supply. So, we want — it`s a huge opportunity, a perfect opportunity for us to have a huge impact on climate change and biodiversity impact of meat because China is such a big consumer.
YOON: On this trip where he attended the import fair in Shanghai, Brown said he is looking for China-based partners. He said the plan would be to manufacture here and source raw materials locally. He said he is confident the company would be able to maintain the strict quality control standards and he is not concerned about China`s slow approval for GMOs.
As for pricing, Brown said with pork and beef prices rising, his plant- based meat would be competitive. The company is serving up 50,000 samples of burgers and dumplings at the fair. One unique aspects of the China market, China has a thriving fake meat dining culture. Because of 250 million Buddhists, you can get plant-based pecking duck for example.
Brown said his consumer target is different because they are not necessarily vegetarian but want a meat eating experience.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: Chicken nuggets spice up Wendy`s earnings and that`s where we begin tonight`s “Market Focus”.
The fast food chain topped expectations, helped by strong demand for its spicy chicken nuggets and other special menu items. Wendy is also raising its full-year outlook as it plans to launch the breakfast menu next year. Shares were off a fraction to $20.77.
CVS (NYSE:CVS) topped analysts` expectations driven by strong numbers from its pharmacy benefit management unit and its Aetna (NYSE:AET) health insurance business. The company also raised its guidance. Separately, the company is shuttering 22 stores next year. CVS (NYSE:CVS) rose more than 5 percent today to $70.93.
Strong growth in its Medicare advantage health Humana`s results beat expectations. The health insurer also lifted its outlook and expects to match analyst profit targets for the next year. Humana (NYSE:HUM) shares were up nearly 3.5 percent to $304.94.
“The New York Times (NYSE:NYT)” saw growth in its online subscriptions but the publisher says it expects challenges coming for its digital advertising platform.
(BEGIN VIDEO CLIP)
MARK THOMPSON, NEW YORK TIMES CEO: We guided to a potentially challenging fourth quarter for digital advertising. There are particular reasons for that. We had — we did fantastically well a year ago. We had — digital advertising went up 30 percent a year ago. That`s a tough comp. One or two very, very big deals are not going to repeat in the fourth quarters.
We`ve done the deals. We`ve done very similar big deals. They won`t appear until 2020.
(END VIDEO CLIP)
HERERA: Shares slid nearly 4 percent to $30.69.
GRIFFETH: Tiffany (NYSE:TIF) is reportedly asking for a higher price from suitor LVMH. “Reuters” says the Tiffany`s board felt the $14.5 billion bid was not enough and is willing to open its books and provide confidential information to the French luxury company to prove that it deserves a higher bid. Tiffany (NYSE:TIF) shares rose a fraction to $124.69.
After the bell tonight, Qualcomm (NASDAQ:QCOM) reported better than expected results with the CEO saying the company`s technology and inventions leaves it well-positioned as the rollout of 5G accelerates next year. Shares initially rose in after-hours trading. It closed the regular session down a fraction at $84.63.
GRIFFETH: Also after the bell, Roku topped Wall Street revenue estimates but reported a bigger net loss due to higher costs in its video streaming unit. But the company did see an increase in active accounts and average revenue per user. Shares initially dropped in after-hours trading. They closed the regular session up about 1 percent to $141.05.
HERERA: The most important time of the year for retailers is just around the corner. And Kohl`s which got an early start on its holiday planning is stepping up a notch.
Courtney Reagan is in New York City tonight.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Department stores have struggled to excite shoppers in recent years as mall traffic has fallen. Amazon (NASDAQ:AMZN) has grown and consumers turn to brands directly. Competitors like Macy`s JCPenney and Sear`s have closed a lot of stores but Kohl`s has leaned into its store, the vast majority of which are not in the mall, even offering an Amazon (NASDAQ:AMZN) return service to drive shoppers inside.
CEO Michelle Gass said the retailer is excited about the tariff Amazon (NASDAQ:AMZN) returns is driving, including new customers and that the expectation is that it will be, quote, economically accretive. Still, Kohl`s knows it has to offer consumers a reason to buy after dropping off an Amazon (NASDAQ:AMZN) return. So, the department store is focusing on newness, the key word she and other executives use to describe the holiday strategy and beyond.
This is Kohl`s (NYSE:KSS) four-day pop-up in New York City. It`s meant to introduce shoppers to new brands or refresh products. It`s also intended to resemble New York City holiday windows.
For consumers outside of New York City, Kohl`s created this augmented reality Snapchat experience, a virtual social replication of the holiday window pop-up.
Gass said Kohl`s is leaning into more opportunities for social moments. The New York City pop-up is a good example of that part of the marketing strategy. Hoping to leverage Manhattan`s influencer community and consumers less familiar with Kohl`s since the closest store is across the river in New Jersey.
While total sales disappointed in the most recent quarter, Kohl`s home department sales underperformed the rest of the store. The retailer is hoping its new Scott Living private brand by property properties Drew and Jonathan Scott will get shoppers spending. It`s the largest multi-category home launch the retailer has ever done.
Kohl`s has been more aggressive with its competitors with its holiday strategy, started seasonal hiring in July, and its outburst with a 64-page Black Friday ad.
Daily deals for the first time and free photos with Santa as the retailer urges gift givers to get started. There are six fewer days between Thanksgiving and Christmas this year.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.
GRIFFETH: Coming up, TheRealReal, the world`s largest marketplace for luxury consignment says everything it sells is 100 percent authenticated by a team of experts. But an investigation finds a different reality inside the company.
HERERA: Turnover in the C-suite was the highest on record in October, according to the outplacement firm Challenger, Gray and Christmas. There were 172 CEOs who left last month. That`s up from 151 in September. Challenger tracks changes at companies that have been in business for at least two years and have at least 10 employees.
GRIFFETH: Shares of TheRealReal fell for a second straight day today. The stock closed down more than 7 percent for a two-day decline of about 18 percent. As you may know, TheRealReal is the world`s largest marketplace for luxury consignment goods and it recently went public raising hundreds of millions of dollars.
The company has been growing quickly but is it sacrificing quality for profits? And why are some employees sharing a different reality?
Andrea Day has our investigation, the real question.
JULIE WAINWRIGHT, FOUNDER AND CEO, THEREALREAL: Our goal is to deliver a tremendous value for our new investors.
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: She is the founder and CEO of TheRealReal. Reselling luxury goods like pre-owned Birkin bags and Cartier watches.
Julie Wainwright`s 8-year-old company went public in June.
WAINWRIGHT: The total opportunity in the U.S. is $200 billion.
DAY: Most of the business is online with three retail stores to date.
WAINWRIGHT: Well, now we are just like how big can we get?
DAY: And growth has been rapid. Merchandise volume up 48 percent. Revenue up 52 percent in the first nine months of the year. Still, company financials show it`s not profitable.
WAINWRIGHT: Everything is up indicated.
DAY: TheRealReal`s promise.
UNIDENTIFIED FEMALE: Authenticated by our experts.
DAY: With an expert behind every item, we ensure everything we sell is 100 percent real, 100 percent authentic.
WAINWRIGHT: There`s no fakes on our site.
DAY: That message is key to TheRealReal`s appeal. And it`s helped drive growth.
But has it grown so fast, it can`t deliver on its 100 percent promise?
AMINA MUADDI, DESIGNER: So, we are going to the gallery opening.
DAY: Just ask this celebrity designer. She recently called out the company on Instagram for selling a fake version of her shoe.
UNIDENTIFIED FEMALE: What`s up, you guys.
DAY: And hundreds of fired up customers like this one posting on YouTube.
UNIDENTIFIED FEMALE: It looks like it`s been scratched by a cat.
DAY: After speaking with nearly three dozen former employees and obtaining the internal company documents, our investigation uncovered a different reality inside TheRealReal.
Did you actually see fakes make their way onto the site for sale?
CHANICE PARCHMENT, FORMER EMPLOYEE: Yes.
DAY: Chanice Parchment was a copywriter for nearly 3-1/2 years in TheRealReal`s warehouse in Secaucus, New Jersey. But says the team she managed did more than just write about designer goods. They authenticated them.
Do you think they had enough training to authenticate these luxury bags?
PARCHMENT: No, I don`t think anyone had enough training to authenticate anything.
DAY: And TheRealReal`s, quote, expert behind every item.
PARCHMENT: Only some items.
GRETA STEHR, FORMER EMPLOYEE: That`s been happening since I came at TheRealReal.
DAY: Greta Stehr worked as a luxury manager for TheRealReal in Los Angeles, spending most days with consigners, but says a 2015 company tour of the warehouse in New Jersey left her questioning the business.
STEHR: Most pieces were handled by the copywriters. And only very, very high value items it seemed were being authenticated by the actual lead authenticators. It was very surprising because I was under the impression even as an employee that every item was authenticated by an expert.
GRAHAM WETZBARGER, CHIEF AUTHENTICATOR, THEREALREAL: I`m Graham Wetzbarger.
DAY: Graham Wetzbarger has been the chief authenticator and very public face of TheRealReal.
WETZBARGER: This is truly amazing.
DAY: But what exactly did his team authenticate. CNBC obtained this internal chart from 2018 sent out to copywriters, spelling out what was to be processed by the authentication team and what copywriters were to handle.
Based on this, anything Chanel went to the authentication team. With Fendi bag, no, Prada bags, only leather, and Gucci belts and shoes, both nos.
According to a 2015 World Customs Organization report, some of the most counterfeited brands in the world include Chanel and Gucci.
PARCHMENT: Some people don`t know the difference between real leather and fake leather. So, how are they going to authenticate an item?
DAY: Top authenticators are trained to spot tiny details in designer bags like the number of stitches per panel in Chanel`s iconic quilting pattern.
Chanel is suing TheRealReal, claiming the company sold counterfeit bags on the site. TheRealReal says the suit amounts to harassing with meritless litigation and the case is pending.
According to Parchment when fakes and mistakes were discovered on the site, they were added to a list to be corrected.
How many of these corrections were happening every day?
PARCHMENT: Too many to count.
DAY: Did mistakes happen?
EMILY BOBB, COPYWRITER: Absolutely, yes. All the time.
DAY: Emily Bobb worked as a copywriter at the Secaucus warehouse more than a year and says she was also tasked with authentication.
BOBB: And so, I sort of had an idea how to authenticate a handbag. So, I would go in and do it myself, praying that it was authentic.
DAY: Do you think you had enough training to know what`s real and what`s fake in every category?
BOBB: I wouldn`t say I had enough because I obviously had some bags that I published on the site that were fake. Trying to figure out if the bag is real or not is not, you know, the top of your priority.
DAY: So what is the real priority?
BOBB: It was get out as much as you can.
DAY: This internal document list a specific daily quota for 2018 and `19, saying, copywriters are expected to consistently reach their daily quota. And copywriters are subject to disciplinary actions.
STEHR: The way we were expected to work was like a machine, from Julie herself that we had to get in the numbers by the end of every month in order to please the investors.
DAY: Stehr says she left after three years to work for a competitor. TheRealReal sued her for taking its clients, which she denies. The suit was eventually settled.
We sifted through close to 1,400 reviews of TheRealReal online and in public records. The top three complaints include fakes, damage and customer service.
WETZBARGER: Everything we carry is real. It`s so important to us we put it in our name.
DAY: But this big name is now gone — chief authenticator Graham Wetzbarger.
WETZBARGER: With the Velcro, love that.
DAY: He tells CNBC, I won`t discuss why I left the company.
When asked about his departure after nearly seven years, he denies it was related to our story. And when it comes to copywriters authenticating items, Wetzbarger would not comment.
The company declined our repeated request to go on camera, instead sending in statement saying in part: We stand behind our authentication process and will always work with our customers to make things right. And if there is a question about the authenticity of an item purchased from TheRealReal, we refund the purchase price upon return. The company refused to provide any more details, only saying, that this is our final statement.
For NIGHTLY BUSINESS REPORT, I`m Andrea Day.
GRIFFETH: And on Monday, during the company`s earnings call, the CEO said for the first time, that copywriters do take part in the authentication process and only the so-called high risk items go to experts. That`s what we`ve been asking the company for months but got no response.
HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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