Transcript: Nightly Business Report – November 6, 2019

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.  

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.  

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.  

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.

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.  

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.  

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?  


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.  


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.  

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.   

Nightly Business Report transcripts and video are available on-line post  broadcast at 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.

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