Transcript: Nightly Business Report – August 14, 2018

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



(NYSE:HD) crushes earnings estimates and raises its full-year guidance as

do-it-yourselfers spend a lot of money to spruce up their homes.



warns that millions of dollars could be swiped from ATMs around the globe

in a matter of hours and it could happen soon.


HERERA:  Restaurant revival.  The return of the ultimate power lunch.


Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,

August 14th.


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


Expectations were very high for Home Depot (NYSE:HD) and the Dow component

did not disappoint.  First thing this morning, the world`s largest home

improvement retailer released earnings that easily surpassed estimates and

it also lifted its outlook for the rest of the year.  Homeowners it turns

out are spending a lot of money to modernize their homes, thanks to a

strong housing market and an improving economy.  But despite the strong

report, shares fell today which is typical of Home Depot (NYSE:HD) stock

when the company does beat analysts expectations.


Courtney Reagan takes a look now at what`s going right for that retailer.





may be starting to raise some concerns but there`s no sign of those worries

and Home Depot`s latest earnings report.  The home improvement retailer

posting its highest earnings and sales in company history, and increasing

its full-year forecast.


U.S. comparable sales grew more than 8 percent, the best in nine quarters.

Thanks in part to record sales for garden equipment and pent-up demand from

an unusually cold spring.



report today is when the weather cooperates as it did here in the fiscal

Q2, people shop at Home Depot (NYSE:HD).


REAGAN:  The home improvement retailer`s chief financial officer Carol Tome

says the housing market is tight, with only 4 percent of homes turning over

in the U.S.  The 96 percent of homeowners that aren`t selling their homes

though, make a good market for renovating, which is great for Home Depot



Interior paint had its best first-half in five years.  Painting is an easy

upgrade for homeowners looking for a refresh.



in the business are very good.  People are spending on their homes.  People

are — we`ve continued to see that now for several years and we don`t think

that really is going to end.


REAGAN:  All departments except lighting saw sales increase.  Lighting was

the only department to see sales fall from LED price depletion.  Sales to

professionals like contractors again outpacing sales to do-it-yourselfers,

with merchandise priced of a thousand dollars now making up 20 percent of

Home Depot`s total sales.


While online sales make up just a small portion of Home Depot`s total, it

is growing, up more than 25 percent in the quarter.  Plus just under half

of all online orders are picked up in the store, which one in five shoppers

adding something to their cart when they come in to pick up their orders.


FELDMAN:  Most people would go to Home Depot (NYSE:HD), they`re working on

some project. They need that consultation.  You know, right now, I think

that`s a real key would what keeps people coming to these stores, and I

know I think that Home Depot (NYSE:HD) has been very, very smart to invest

aggressively in the service and their stories to help them.


REAGAN:  There are inflationary pressures pushing up cost, including rising

raw material costs, transportation costs and tariff costs.  But Home Depot

(NYSE:HD) says the size and scale of its business makes it manageable at

least for now.






HERERA:  Joe Feldman is back with us.  You just saw him in Courtney`s

report.  He`s going to tell us more about Home Depot (NYSE:HD).  He is the

senior managing director at Telsey Advisory Group.


Joe, good to see you as always.


FELDMAN:  Thanks for having me.


HERERA:  Was there anything in this report that disappointed you?  It

seemed pretty solid as Courtney outlined on in almost every sector.


FELDMAN:  Yes, it was really strong across the board.  I mean, all product

categories, all regions were strong.  Seasonal categories were good.  The

pro-customer continued to grow at a faster clip than the DIY customer, and

pro is now 45 percent of total sales, which is really important because

that helps drive the average ticket, transactions improved after having

been down in the last quarter.


So, we saw very good results in this quarter.


GRIFFETH:  I know we highlighted how Home Depot (NYSE:HD) stock was down

today, but I noticed that Lowe`s, its main competitor, was much higher

today maybe somebody`s expecting them to come in with a similar report.

Are you?


FELDMAN:  Yes, I think Lowe`s is going to have a very good result as well.

We`re modeling same store sales of 5.5 percent.  So, we think they`ll be

very strong growth, not quite the 8 percent that look at Home Depot

(NYSE:HD) did, but still very good results.


And I think there was some concern that Lowe`s might take down numbers for

the back half of the year and after seeing this report, I think people felt

a little more comfortable that it should be a pretty solid year overall.


HERERA:  Are they positioned to withstand some of the inflationary and/or

tariff pressures that Courtney mentioned at the end of her report?  Lumber

prices have been skyrocketing.  Labor costs have also been going up for



FELDMAN:  No, that`s absolutely true.


You know both companies but Home Depot (NYSE:HD) in particular has been

really working hard on labor productivity initiatives within the store and

trying to really refine how they use labor and with the hours and making

sure there`s enough customer facing labor at the right times.  That`s one



Commodity costs historically in the home improvement industry can be passed

on pretty quickly.  You know, the purchases of those commodities don`t love

it, but, you know, if lumber prices go up a little, they have to pay a

little more.  When it goes down, they pay less.


So, you do get a bit of that.  As far as tariffs go, the companies have

told us that they`re working on ways to manage through that and given that

it is a relatively low penetration of their overall sales, it shouldn`t be

too much of a drag on the overall business for at least Home Depot

(NYSE:HD) and Lowe`s.


HERERA:  Joe, thank you so much.  Appreciate your perspective.


FELDMAN:  Thank you.


HERERA:  Joe Feldman with Telsey Advisory Group.


GRIFFETH:  To Wall Street now.  The Dow snapped a four-day losing streak

today.  Tech and bank shares rose as investors shrugged off concerns about

Turkey`s ongoing currency crisis, at least for today.  The industrial

average rose 112 points to 25,299.  The Nasdaq was up by the 51.  The S&P

added 18.


HERERA:  Despite today`s stock market gains, a number of Wall Street banks

are sounding cautious.  Goldman Sachs (NYSE:GS) recently said that an

escalation of trade friction could result in a drop in earnings, which

could in turn push the benchmark indexes lower.


Morgan Stanley (NYSE:MS) warned about investor complacency.


GRIFFETH:  And then just today, a Bank of America (NYSE:BAC) Merrill Lynch

survey said the despite bullishness reaching levels not seen since 2015,

the peak may indeed be near.  Even the Congressional Budget Office lowered

its forecast for economic growth for this year, citing uncertainty from

widening tariffs.


So, how cautious should investors be right now?


Let`s turn to Barry Bannister.  He`s head of equity strategy at Stifel.


Awful lot of crosswinds going here, Barry, with the — everybody convinced

that we may see a correction sometime next year.  What do you make of that?



chance of that.  If you look at the broader S&P 500, an important market

index, it`s actually still below where it was on January 26th of this year.

It hasn`t made a lot of progress.


We`ve had strong earnings to be sure but what`s called the price to

earnings multiple, the ratio of price to earnings, has fallen while the

earnings improved.  So, we`ve had a market that`s really flat year-to-date.


HERERA:  You also mention the fact that the market`s view on interest rates

is basically well below the Fed`s rate view.  How much more aggressive do

you think the Fed is going to have to be?


BANNISTER:  Yes, the trouble for the Fed is they don`t really have any good

choices.  They have to cross an interest rate that`s going to undermine

some of the Wall Street speculation before they get to a rate that is

consistent with what`s called the dual mandate, which is low inflation and

full employment.  So, we speculators need a certain rate, a very cheap

rate, and what the economy needs is a bit higher.  It`s also pressuring

emerging markets as you clearly see because as the dollar gets more scarce,

it`s harder for those people who borrowed in dollars overseas that have no

control over the currency to pay back their debts.


GRIFFETH:  You know one thing working against this bull market we`re in is

the length of time.  We haven`t had a bear market in almost a decade at

this point.  What would be the catalyst though do you think to end this

bull market?


BANNISTER:  We`ve had a couple of close calls, Bill, in terms of a bear





BANNISTER:  We came close as recently as late 2015, early 2016.  So, we`ve

seen weakness and we`ve seen weakness in the economy what`s called nominal

GDP, which is the real growth plus the inflation rate, actually bottom

doubt in early 2016, at a level consistent with past recessions.  So,

usually to cause an actual bear market, you either have to be looking at

the conditions that could cause a recession, or you actually have to be

about to have a recession.  And the Fed`s going to have to raise rates a

bit more before that`s a risk.


But what I do see this summer is a correction or pullback as some of the

earnings estimates come down because the dollar is strong, emerging markets

are weak.  You`re also going to see the Fed I think a little more hawkish

than the street would like to see —




BANNISTER:  — in terms of raising interest rates, and a number of other

negative factors.  So, summer is a tough time through October for the



GRIFFETH:  We will see what happens.


Barry Bannister with Stifel, again, thanks for joining us tonight.


BANNISTER:  Thanks, Bill.


HERERA:  Well, with all of the focus on trade — today, we learned that the

cost of imported goods was flat in July.  But that the annual rate

increased to its highest level in six and a half years.  According to the

latest government report, higher oil prices are behind the push higher but

economists say tariffs imposed by the White House could add to costs unless

the trade disputes are resolved soon.


GRIFFETH:  Meanwhile, total household debt is now higher than before the

financial crisis.  According to new figures from the New York Fed,

household borrowing reached more than trillion dollars in the second

quarter.  It was driven by auto and mortgage loans.  The good news, though,

is the borrowing has not been accompanied by a rise in delinquencies, which

still remains low.


HERERA:  While the U.S. economy is expanding, the Chinese economy is

cooling, and the direction of the world`s second-largest economy could

impact investors around the globe.


Eunice Yoon is in Beijing tonight.





has said that the economy remains steady in July but the numbers did miss

expectations and also indicated a further slowdown in the economy.


Now, looking at the numbers: year-to-date, China fixed asset investment

growth dropped by more than expected to 5.5 percent.  Industrial output

remains steady at 6 percent.  Retail sales posted slower growth at 8.8

point percent, this is down from 9 percent in June.


Now, the weaker data is already prompting authorities here to indicate that

they favor pro-growth policies.  The Stats Bureau said today to expect

infrastructure investment to pick up in the second half.  This is as part

of the government`s overall policies to try to support the economy.  The

official also added that China faces serious complex external and domestic

environments, and that China needs to assess the impact of its trade

frictions with the United States.


So, even before the trade conflict, there`s been a debate going on here for

months as to whether or not China would want to continue with what we`ve

been seeing recently which is a clampdown on financial risks and a rein in

of rising debt, or if there would be a reversal in policy to be much more

supportive of the economy.


For NIGHTY BUSINESS REPORT, I`m Eunice Yoon in Beijing.




GRIFFETH:  Time to take a look now at some of today`s upgrades and



We begin tonight with Urban Outfitters (NASDAQ:URBN) which was downgraded

to neutral from out perform at Baird.  The analyst says that the stock is

now fairly valued after nearly tripling over the past year or so.  Price

target now $53.  Nevertheless, that stock continued to rise up about 3

percent today to $48.74.


Marriott was upgraded to outperform from market perform at Raymond James.

The analyst calls the recent weakness in that stock a buying opportunity.

Price target: $140.  The stock rose nearly 1 percent to $121.61.


HERERA:  Salesforce`s price target was raised to $178 at Morgan Stanley

(NYSE:MS).  The analyst calls the company the vendor of choice for the

digital transformation.  The rating on the stock remains overweight.  The

stock rose more than 1 percent to $146.57.


Square`s price target was raised to $86 by Nomura Instinet.  The analyst

says downloads of Square`s Cash app exceeded those of PayPal`s Venmo app

for the first time in July.  The rating remains a buy.  The stock rose more

than 3 percent to $74.97.


GRIFFETH:  Still ahead, a small business owner caught in the middle of

Turkey`s financial crisis.




GRIFFETH:  Optimism among small business owners is now at a 35-year high.

That`s its second best level ever, and that`s important because Main Street

businesses are certainly considered the backbone of the American economy.


Kate Rogers (NYSE:ROG) explains now what`s behind the upbeat mood.





confidence is continuing to rise in the face of an increasingly strong

economy.  A new survey from the National Federation of Independent Business

shows optimism is near record levels, with most owners looking to hire more

workers to keep up with strong demand.


WILLIAM DUNKELBERG, NFIB CHIEF ECONOMIST:  Well, right now, the economy is

doing very well and that translates into a lot of demand for the output to

small businesses produce.


ROGERS:  But a stubborn problem remains, finding qualified workers to fill

roles.  Labor quality is the top issue for small business owners outpacing

both taxes and government regulations.


TODD MCCRACKEN, NSBA PRESIDENT:  We`ve seen that the ability to find good

workers, especially skilled workers rising as a concern and a problem for

companies over the last few years, and it adds to flows, of course, with

the economy.  And whenever we`ve seen the economy really humming along like

this, getting, keeping the right kind of workers in your business really

becomes one of the chief challenges.


ROGERS:  And as the labor market continues to tighten, wages aren`t

increasing.  That`s part of the reason small business owners are raising



DUNKELBERG:  The problem that we face now is that with the tight labor

market and no supply or a little increase in supply, we are now — if I

succeed in hiring somebody, I`m going to create a vacancy someplace else.

So, we`re not going to be able to eliminate the vacancies unless we get an

increase in the participation rate and the labor force.


ROGERS:  So, while Main Street is feeling good about its economic

prospects, it`s also dealing with the pros and cons of a strong economy.






HERERA:  But it is a different story for business owners in Turkey who

suddenly find themselves dealing with the fallout of their country`s

financial crisis.


Willem Marx is in Istanbul for us tonight.





his first Istanbul restaurant a decade ago.


Today, he oversees 10 burger joints in the city that`s better known for its



But extending this franchise further will have to wait, Cavus told me,

thanks to growing economic uncertainty.


SERTAN CAVUS, RESTAURANT OWNER:  Euro (ph) currencies a little bit high

and, of course, like everyone, we have little problems.  But we believe

everything is going to pass.


MARX:  Many business owners here long ago learned to hedge against currency



But the liras` latest lurch downwards has even raised the cost of building

the perfect burger.


CAVUS:  We`re using Turkish products.  We`re using Turkish beef.  We`re

using Turkish potatoes and many things.  But the feed of the beef is coming

from out of country, which make a cost for us for everything (INAUDIBLE).


MARX:  This nation has long stood at a geographic crossroads, but after

years of growth, its government now faces immense pressure to choose a new

economic path.  So far, Turkish authorities have resisted calls to take a

bite out of inflation by raising interest rates and have instead blamed

foreign interference for their financial woes.


And this reluctance to act means entrepreneurs like Cavus must make their

own difficult decisions about the future.


CAVUS:  Am I worried about it?  A lot.  I mean, before, I could see six

months and one year later, and I have a business plan.  Now, I prefer to



MARX:  But today, President Erdogan told Turks and in particular, Turkish

businesses, they should not postpone investment decisions just as they

should not transact in foreign currencies.  To do so he said would be like

giving in to the enemy, and based on his recent rhetoric, these days, this

country`s greatest economic enemy seems to be the United States.


For NIGHTLY BUSINESS REPORT, I`m Willem Marx in Istanbul.




GRIFFETH:  Tapestry bagged strong earnings and that`s where we begin

tonight`s “Market Focus”.


The luxury fashion company formerly known as Coach (NYSE:COH) posted

quarterly results ahead of estimates thanks in part to strong sales of its

Kate Spade handbags.  Tapestry CEO said today that the death in June of the

brand`s namesake founder fueled nostalgia for Kate Spade products, and that

helps sales.  Shares of Tapestry rose 12 percent today to $53.16.


Meanwhile, Coca-Cola (NYSE:KO) is buying a stake in sports drink maker

BodyArmor, and Coke has the option of increasing its stake in that future.

The BodyArmor is a startup backed by several athletes including Kobe

Bryant.  Just the latest company looking to topple longtime industry leader

Gatorade.  Shares of Coke were up six cents today to $45.89.


HERERA:  Advanced AutoParts topped Wall Street sales and profit estimates

for the most recent quarter and lifted its full-year revenue outlook.  The

auto parts retailer sites improving industry trends and increased spending

per transaction.  The company also announced a new $600 million share

buyback program.  Stock popped 7 percent to $156.13.


Cigna`s deal to buy pharmacy benefits manager Express (NYSE:EXPR) Scripts

will no longer be opposed by the activist investor and Cigna shareholder,

Carl Icahn.  That follows recommendations by advisory firms ISS and Glass

Lewis that shareholders vote in favor of the deal.  Icahn though maintains

that the deal is, quote, wildly overpriced.


Shares of both Cigna and Express (NYSE:EXPR) Scripts rose.  Cigna closed at

$185.30.  Express (NYSE:EXPR) Scripts at $86 even.


Tesla`s board named a special committee to evaluate taking that company

private.  This follows recent tweets from CEO and founder Elon Musk who

said he wants to take Tesla private at $420 a share, and that funding was,

quote, secured.  But there are reports that the SEC is looking into the

accuracy of Musk`s statements.  Shares dropped more than 2 percent to



GRIFFETH:  The FBI is reportedly warning banks about a potential worldwide

ATM hacking scheme.  According to a cybersecurity blog, hackers can use

malware to access a bank or payment card processor to steal data and then

use that stolen information to withdraw large amounts of cash from ATMs



Charles Henderson is global managing partner with IBM X-Force Red.  This is

a team of so-called white hat hackers who helped companies uncover

vulnerabilities in their own security system.


Charles, thanks for joining us tonight.



having me.


GRIFFETH:  Is this a new vulnerability we`re hearing about?  You know what

do you make of this warning from the FBI?


HENDERSON:  So, at its core, the FBI is addressing a lack of care and

feeding in the ATM world.  If you think about all the things that banks

have had to secure and have been focusing on, such as networks,

applications, any number of things, they`ve been ignoring the ATM security

posture for some time.  They`ve been treating it like a magic box.


And those — that ignoring has come home to roost and the criminals are now

targeting ATMs because they`re vulnerable.  They haven`t been tested.


HERERA:  So, is a hack imminent do you think?  And what types of banks

might be the most vulnerable, the big guys like the JPMorgans and such, or

smaller banks?


HENDERSON:  So, you have to remember at its core — let`s take a step back.

Let`s put ourselves in the shoes of a criminal.


Criminals want money and it just turns out that cash monetizes extremely

easily.  So, they`re going to attack ATMs with accounts that have a lot of

money and they`re going to raise the limits for the withdrawal of those

accounts so they can get the highest return on investment in one action.


Think about it this way criminal enterprises are business not unlike any

other, and they`re trying to raise their ROI.


GRIFFETH:  Right.  I can hear the people at home thinking, OK, now,

hopefully, banks are doing something about this to improve their security.

But what should I be doing with my bank accounts here?  How safe are they?


HENDERSON:  So, there`s really sort of a two-part scenario here.  First of

all, the onus mostly falls on the banks.  The banks need to shore up the

ATMs.  They need to conduct dedicated testing programs against the ATM, and

when I say testing, I mean penetration testing.




HENDERSON:  The kind of work that X-Force Red does, which is test these so

that the first time they`re tested it isn`t a criminal.  The other thing

banks need to do is monitor accounts for out-of-the-ordinary withdrawal

patterns, as well as out-of-the-ordinary patterns in the daily withdrawal



Now, for consumers, even though it`s not their responsibility per se,

there`s a couple things they can do to sort of —


GRIFFETH:  Very quickly, if you can, Charles.


HENDERSON:  — make sure that they`re taken care of.  One is I look at

their account, make sure that they`re monitoring the charge history.  They

should be doing that anyway.


The second is call the number on the back of the card and investigate their

daily withdrawal limit.  Make sure it`s acceptable.


GRIFFETH:  Be vigilant, that`s for sure.


Charles Henderson with IBM X-Force Red, thanks.  Appreciate it tonight.


HENDERSON:  Thank you for having me.


HERERA:  Coming up, a restaurant revival.  The first look at the return of

a famed dining institution.




GRIFFETH:  A landmark restaurant is making its return tomorrow at noon.

The Four Seasons will open for lunch for the first time in two years.  And

while the name is the same, a lot about it will be different.


Robert Frank is in New York City for us tonight.





hungry New York elite have been awaiting for two years, the return of the

Four Seasons restaurant.  Tomorrow, lunch will be served once again at the

new location of the Four Seasons.  The iconic lunch room to billionaires,

finance kings and titans of media and politics for nearly 60 years.

Regulars include Henry Kissinger, Martha Stewart and billionaire financiers

like Steve Schwarzman and Mort Zuckerman.


In fact, Pete Peterson as Steve Schwarzman founded their firm Blackstone

over lunch at the Four Seasons in the mid-1980s.  The old location in the

Philip Johnson designed area of the Seagram`s Building closed in after a

fight with the landlord.  Today, it reopens a few blocks away with a new

$30 million shrine to eating drinking and deal-making.


Getting a reservation will be nearly impossible for mere mortals, but we

are the first cameras allowed inside.


It all starts here with the sunken bar made from 24 karat gold leaf and

molded glass.  The windows are covered with a shower of crystal beads, each

of them hand-painted and hand blown from an artist in the Czech Republic.


You then proceed through this mysterious tunnel called The Passage which is

made from perforated bronze and that plays the recorded sounds of the

wildlife in Central Park for each of the four seasons.


And then you arrive here at the main dining room with the Four Seasons` 33

of the most coveted tables in New York city all of them surrounded in mid-

century modern elegance.


There`s a new executive chef.  The new pastry chef comes from the White

House but many of the old dishes make a comeback, including the famous

Dover (NYSE:DOV) sole and the carved duck.


Upstairs is a private dining room and an invitation-only champagne bar.  To

pay for their new space, dozens of Four Seasons customers invested between

$250,000 and a million dollars each in part to make sure they get a table.

The billionaire Brampton (ph) family is also a longtime partner.


ALEX VON BIDDER, FOUR SEASONS CO-OWNER:  The space is brand new.


FRANK:  Right.


VON BIDDER:  But the feeling is the same and the feeling is even more

intimate than before, and it`s really comfortable.  We had a few dinners

for friends and investors last weekend, and they stay forever because it`s

so nice to be here.  It`s warm.


FRANK:  Even with all those investments, they`re going to have to sell a

lot of Dover (NYSE:DOV) sole to make back that 30 million bucks.


For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Manhattan.






GRIFFETH:  Can`t wait.


HERERA: Can`t wait.


That does it for us tonight.  I`m Sue Herera.  Thanks for joining us.


GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  See you tomorrow.





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