Presidential debate, Levi Strauss CFO: Catalysts

What's moving markets (^DJI, ^IXIC, ^GSPC) this morning? Are any companies making a splash today? In this episode of Catalysts, Seana Smith and Madison Mills guide investors through some the morning's prominent market trends, from May's pending home sales data to the hype around tonight's presidential debate.

Levi Strauss & Co. (LEVI) CFO Harmit Singh joins the show to discuss what the denim apparel brand has planned to jumpstart its direct-to-consumer segments.

Crossmark Global Investments Chief Market Strategist Victoria Fernandez weighs in on the latest jobless claims print and how the Federal Reserve should be approaching labor market data.

Top trending stocks on the Yahoo Finance platform include Boeing (BA), Walgreens Boots Alliance (WBA), and Goldman Sachs (GS).

This post was written by Luke Carberry Mogan.

Video transcript

10 a.m. here in New York City.

I'm Sean Smith alongside of Madison Mills.

And let's dive into the catalyst moving markets today.

A fresh read on the housing market may pending home sales continue to show some weakness in the overall housing picture.

We're going to discuss what that could signal for the broader economy and micros outlook disappointing the street as the chip company failing to exceed those lofty guidance expectations of the A I era, we're going to have have investors set the bar too high we will discuss and we've got the first presidential debate on top for tonight.

This is the first of the 2024 election cycle will dive into what investors need to hear from the candidates when it comes to the economy.

And more all we want to start with some breaking news that we have out right now on housing pending home sales falling 2.1% in the most recent monthly on a month over month basis.

The estimate was for an increase of a half of a percent when you take a look at some of these other numbers on a regional basis.

Northeast sales actually increasing 1.1% on a month over month basis.

In the Midwest, it fell in the South falling 5.5% in the West though it was a 1.4% on a month over month basis.

Why do we look at this?

Well, this is actually a leading indicator or largely viewed as a leading indicator of existing home sales, which we will get here very soon.

But again, pending home sales falling 2.1% on a month over month basis down 6.6% here matty from the previous year.

Yeah, and this fell.

This is following rather new home sales slumping to the slowest pace since November.

I find it interesting within the print and they are is predicting the mortgage rates are still going to remain above 6% in both 2024 and 2025.

And they add that that will come despite what the Federal Reserve chooses to do with regards to interest rates.

So that indicates to me that that could be an issue moving forward for the feds inflation targets because we know that one potential driver of inflation is the fact that people are locked into their houses were not seeing as much movement in the housing market.

Today's data confirming that with this decrease in pending home sales that leaves people open to spending opportunities elsewhere.

And that could be one potential driver of inflation.

We've even heard the president speaking about this.

He spoke about it in the last state of the Union in regards to how the challenges in the housing market are potentially fueling broader inflation challenges that the FED is trying to fight back on today's data.

Confirming that in terms of the market action, though not a huge impact.

At least when you look at the equity space, you're looking at gains across the S and P just around the flat line there and the NASDAQ is up about 3/10 of a percent Shana.

All right, let's turn now to the big showdown that's going to be happening just hours from now.

Tonight is the first presidential debate of the 2024 election cycle.

How much can we expect or what can we expect?

And how will each candidate's policies impact the market and potentially the broader economy?

We have our very own, Rick Newman here with us.

So Rick, what can we expect tonight?

Well, we're all going to see, we're going to see who some stamina can get to the end after 90 minutes.

I mean, this is ob obviously, I think that's one thing everybody is looking for, but you know, is this going to affect markets?

It's possible there's something that could affect markets a little bit for a short term city has some research out on this.

They are getting a lot of questions from their clients.

They say, when do we need to start paying attention to the election.

When is it going to become a market moving thing?

And the answer is probably not yet, even if this debate turns out to be kind of interesting.

Um, what is most likely to happen is markets are going to start paying attention to the intricacies of this debate in the fall, September, October.

Until then, uh we have a lot of other things that are going to move markets.

We got a whole earnings season to get through.

Uh We got several more readings on inflation on employment.

We have a fed meeting in July and another in September.

So those are the things that markets going to be paying attention to.

But I think investors are definitely starting to keep an eye on this and see which way does this seem to be heading.

What about consumers who are just concerned about the state of the economy right now?

What should their kind of guide for watching the debate look like heading in to tonight?

Uh That's, that's such an interesting question because uh consumers think the economy is a lot worse than it is.

Um So I, I think uh what ordinary people should be listening for.

I mean, I my expectation is there will be a lot of arguing about who is responsible before the inflation that we've had during the Biden administration.

If Trump is debating the way he should be debating, he's going to be blaming all of this inflation on Biden and Biden's policies, that's not really correct.

I mean, supply chain distortions probably accounted for most of the inflation we saw.

Uh so, but I mean, I, I don't know that consumers should care that much about what happened in the past.

I mean, if you, if you're following the election, I think you care about what is going to happen during the next four years.

Um and you need to be listening for what are they going to do?

What are they going to do in the next presidential term?

You know, for what it's worth.

Um Biden as we know he's kind of, he's kind of promising more of the same.

He ha he wants to raise taxes on corporations, but he couldn't do that the first time around.

So that may not be that many new changes if Biden gets another term, Trump has a very different sort of agenda.

He wants tariffs on all imports which will raise costs.

So Trump may not, let's say Trump wins.

He may not be able to do, he may actually choose not to do everything he says he's going to do while campaigning.

That's kind of how it went the first time around.

But if you raise tariffs, you're raising the cost of imports and that pushes prices up.

And there has already been a fair amount of economic research that says if the Trump tariffs on Chinese imports and all other imports went into effect as expected, it would cost the ordinary household between one and $2000.

So when you hear tariffs, it might sound like a good idea to protect the US economy, but tariffs means higher prices.

And rick real quick.

I'm curious the timing of this happening earlier than usual.

Any sense as to why that is or maybe what this then signals about what the next several months are going to.

The Biden administration wanted it to be earlier.

They asked for it to be earlier, I think because they sensed that with Biden tied in the polls with Trump at best and behind by many measures, they could use this as a chance to reset the election.

But the good news is we're going to have, we have no debate scheduled over the summer, go on vacation, go golfing, do whatever you want to do, go to the pool.

Don't worry about missing anything.

We're going to, we have another one scheduled for us, September.

And, uh, you know, that's when, that's when markets voters, that's when everybody is really going to be paying attention.

So, um, if you can't watch tonight's shame on you, but you're gonna get another chance.

We know you'll be watching for us.

So I have a feeling we'll be talking about this tomorrow, the same chairs, hopefully you will be right there next to us.

Thank you so much for joining us.

We really appreciate it.

We're going to take a look at markets now.

Mixed on the back of that fresh economic data actually, let me correct because markets now just moving to the upside here, you got the dow relatively flat as well as the S and P. But the NASDAQ moving to the upside about 2/10 of a percent, that's off a fresh economic data this morning.

And what it signals for investors is exactly what we're going to talk about with our next guest.

Right now.

We've got Victoria Foran Keep market strategist at Crossmark Global Investments.

Victoria thanks so much for being here.

So look, we got new home sales down continuing claims since 2021 suggesting that it's taking longer for folks to get a job who are looking is this moment the tipping point for the Federal Reserve or have we already passed that?

I actually don't think we're at the tipping point yet.

I think we're getting there.

I mean, if you recall what Powell's comments were after the first few months of this year when we were getting economic surprises to the um to the upside, especially in regards to inflation.

It took three months, right?

For him to say that they were losing confidence in the path of inflation.

So we've got a little bit of time here where things have been coming in weaker than expected.

I don't think just a few reports in a few weeks time is going to change the outlook for them right now.

But if we continue to see this, you know, uh the continuing claims, the initial claims, those are great reads, the jolts number, I think is something that the Federal Reserve is really watching those job openings.

The quits number, those are the things that are gonna really give them a feel for is the labor market weakening.

And we know that that is the element they're watching right now is the labor market gonna weaken enough to where it affects consumer spending.

Consumer spending has been driving this economy so much um with all of the stimulus that's been in play.

So I think um we're at the beginning of the tipping point, but we're probably not ready to call it that yet.

Victoria, should we be placing more emphasis or I guess is the more critical report, is it going to be that next jobs print rather than the upcoming inflation prints?

You know, Shana, it's difficult to say it's the dual mandate, right?

And it seems like the fed kind of focuses on one or the other um depending on the stability of the numbers that we're seeing.

So when they thought inflation was on a steady disinflationary trend, the focus was on the labor market.

Then when we got surprise inflation numbers, the focus shifted a little bit.

So when we look at the um upcoming labor reports, I think there will be a lot of focus, like I said, on job openings on job quit.

Um There's a lot of volatility that goes in just the the monthly number and a lot of seasonality adjustments that fit in there, especially in the summer time.

And so they will be watching elements of that, I think consumer demand, the sentiment, the confidence numbers are going to be something they watch.

And obviously the inflation component is going to be key, not just overall inflation, but we know it's that super core inflation that they're really watching.

Um So all of that is going to be important for the decision makers.

Victoria, I want to get your take on the broader equity space because you put it out really plainly used to say you can't stand in the way of the train given that you have to be in te to some degree to bank on this market rally right now.

Where are you finding an edge?

Yeah.

So finding an edge might be a little bit difficult right now because there is such concentration in this market.

I mean, you guys know that it's been 56 names that have really been driving all of their performance this year.

I mean NVIDIA alone is over a third of year to date performance for the SNP.

Uh the top five or six are closer to 75% of return.

So you have to have exposure there.

What we've been doing is trimming some of those names like NVIDIA as they have their runs waiting for Pullbacks because we know they're gonna have them, NVIDIA had them this week, we saw some of the pullback there.

So if you don't have exposure, you can, um, have a chance to get in there.

But look at some of those other tech names, maybe the, the less sexy names that are out there, right?

Some of the IBM names, um, some of the other names that maybe are trailing a little bit on these, um, top heavy names but are still going to benefit overall.

I mean semis by themselves are the top performing sector um year to date relative to the S and P. But I also think you need to broaden it out a little bit.

Look at some of those more staple, more value names that you can have in your portfolio to help buffer some volatility that I think we'll have um for the second half of this year.

So whether that's health care, um whether it's staples, like I said, or even with starting maybe to move up closer a 4.5.

If the fed doesn't cut rates, you can add some financials in there as well.

Victoria, anything that you've seen over the last several weeks and even looking at today though the whip saw action that we've seen with Miron with Miron now under pressure and actually the earnings results were pretty good.

Has the narrative at all changed surrounding the A I story given the selling that we had seen in NVIDIA earlier this week and given some of the questions that we are seeing today following Mike's print, you know, Tony, you're right.

It is this Whipsaw.

And I think that's the struggle that we have here if you go all in one way or the other that can easily come around and bite you in just a couple of days.

So I think you have to look at the A I story as being a longer term story, but maybe start to look at some of the secondary effects in terms of what are some of the other companies that will come along and benefit um from the A I story.

Look, whenever we have this much concentration for performance in the index following that, it's those lower pe names that really do well.

But the question is, how long does that concentration period last?

And with A I, it seems we still have a ways to go.

I mean, Miron, their earnings were pretty decent.

It was just that the outlook was a little bit less and these days if you're not far surpassing expectations, your stock comes down, but let's not get it wrong.

I mean, we're up considerably in Mikron over the last 18 months.

So a 5% 6% pullback, um isn't going to be that detrimental, but I think you need to be cautious um, of putting all your eggs in one basket for just those elements.

All right, Victoria Fernandez as a chief market strategist at cross mark.

A global investment.

Thanks so much for hopping on with us.

My pleasure.

Keep it right here on Yahoo Finance.

We've got much more of your market action ahead.

Again.

You're looking at all the major averages trading to the upside.

You've got NASDAQ as the out performer of the three up just around 4/10 of a percent.

We'll be right back.

You're watching Catalysts Boeing is reportedly facing new whistleblower claims, a former mechanic allegedly observing some substandard manufacturing and maintenance practices on the 787 forward pressure bulkhead.

That's that dome shaped piece located in the jets nose and it's critical for maintaining cabin pressure.

Now, that former employee alleged that he was fired after raising those concerns, he was fired by Spirit, which he was working on this Spirit aircraft at a Boeing hangar in Washington when this occurred.

That was and then later at a spirit supplier.

He says that basically they had to put fasteners into that dome that we were talking about and holes were drilled that made the fasteners not quite fit into those holes.

So he raised those concerns.

He said by the way that those changes were made without Boeing's permission.

According to his statement, he then moving forward says that he was fired from spirit after reporting those issues was fired in March of this year.

So this is relatively recent Boeing then saying that they had addressed some of those concerns.

So it's just the latest example though of this continued challenge, Shana for Boeing with regards to the safety concerns from whistleblowers, it certainly is and obviously, it's very worrisome here in spirit to a statement to Bloomberg, I believe, saying that our leadership is aware of the allegations and looking into the matter, we encourage all spirit employees with concerns to come forward in knowing they will be protected.

But you're exactly right.

What this points to or what this follows has been a series of whistleblower complaints pointed at Boeing pointed at its suppliers over some of the manufacturing processes that have been in place at the plane manufacturer here for quite some time.

The FAA has received more than 11 times as many Boeing whistleblower reports in the first five months of this year compared to all of 2023.

So that really puts in perspective here.

The increase obviously coming after that fuselage blew off a plane in mid flight back in the beginning of the year in January here.

So we do have this renewed focus on Boeing right now.

We are still seeing shares up just around nine tons of a percent.

Obviously, the stock has been under a tremendous amount of pressure going back to that uh incident in mid January here.

So again, lots of questions from analysts just about what exactly the future looks like under for Boeing, they will be under a new CEO in the new year.

So exactly what management looks like what some of the issues, um how they are going to address some of the issues that have been raised over the last five or six months.

Of course, is a critical question here at this point and we know that we've heard from Boeing's uh current Ceo Dave Calhoun saying that they are doing all they can to address some of the issues coming out saying that they are being uh proactive in trying to address some of those complaints.

But again, we will see how this all shakes out uh for Boeing in the end.

All right, we're also watching some of those big banks today following the latest round of stress test results.

The fed saying all 31 banks would be able to withstand a severe recession scenario.

Goldman Sachs shares taking a hit.

Analysts are saying that the bank is going to have to have to set aside more capital based on the stress test we wanna bring in Devin Ryan, he's J MP Securities Director of Financial Technology Research.

Devin real quick before we dive in specifically into Goldman.

I just wanna take a step back when you take a look at the results that we did get out last night.

Did anything surprise you uh at a high level?

It wasn't overly surprising.

We figured, you know, all banks would pass and, and really you go into the stress test and you hope that all banks are gonna pass and really, then the question is the nuance around that and then what that implies for capital return, which is really what investors are focused on.

I think we all know that banks have built a lot of capital and recent years.

And so I would say, uh you look at, you know, the banks, banks have passed, you know, 10 were uh slightly better um than um where they were last year and 11 were slightly below where they were last year.

So they're really small nuance around the edges versus, you know, some major surprise to your question.

So let's talk about the Goldman of it all then that banks capital strength that is for our viewers, that their solvency, their ability to withstand financial distress that declined.

What do you think was the single biggest driver behind that?

Yeah, so it declined a little bit.

Um And, and not overly surprising.

Uh if you look at this year's test, it wasn't dramatically different than last year.

But um the pressure from kind of stressing the credit card portfolio was a little bit of a drag for them.

And so, you know, I would point to that is, is kind of one component of it.

Um Again, these are really small uh dynamics and um you know, we're, we're much more focused on, you know, what, what this all implies for capital return, I think from a capital position, they're still in a very strong position.

Um As we saw in the test last night, even these like very severe scenarios.

Um But the question then is what does this imply for how much capital they can return?

And we'll get an update on Friday.

So tomorrow from all the banks and then, um you know, happy to talk about this.

But I think the bigger question is around where capital rules go and that's really related to basel three end game, which is a whole another conversation, but that's gonna be kind of over the next couple of months.

That's where we get to the final rules there.

Yeah, Devin, let's talk a little bit more about that because in the recent note and your reaction note, you're saying that we should be placing maybe a bigger emphasis or maybe that is more important ultimately to the banks health here in the future.

Talk to us just about what you think we could potentially see from that given that there are certain, I guess uncertain factors or uncertainty because we don't exactly know what exactly puzzle the end game is going to look like.

Right.

Exactly.

So the initial proposal came out and I think, um, you made a lot of us and, and some of the bank executives a bit nervous in terms of where the starting point was for that conversation.

And what we've seen in recent months is that, um, you know, it does appear that it's going to get softened and there's even some press reports earlier this week that the FED has been floating, you know, much softer, um, proposal for the final rule which would really, you know, be a positive for the industry.

So I think, you know, everybody is just waiting to see what exactly that looks like.

And then on the other side of that, then I think uh companies will have more confidence to really, um you know, more broadly accelerate capital returns.

So of course, you need to get through the stress test and have um you know, reasonably good results.

I think we got that last night again.

There's some nuance on the plus side and some nuance on the negative side.

And I think you'll see probably modest acceleration and capital return in the announcements tomorrow, but then you'll see a bigger catalyst on the other side, a basel three end game in the expectation that it does get watered down, which is, you know, everything that we're reading about right now in the press, at least.

All right, we're going to have to leave it there.

Devin, thank you so much for joining us.

We really appreciate it.

That was Devin Ryan J MP Securities Director of Financial Technology Research.

Now coming up, we are going to speak with the CFO of Levi Strauss after the company reported sales that missed expectations for the second quarter.

Stick around for that.

Coming up.

Shares of Levi Strauss are singing today off just about 17% after the company's 8% rise in sales, it wasn't enough to impress investors in the street.

The G maker stuck with his full year outlook of sales growth of 1 to 3%.

And now says it plans to cut back on cost by selling more directly to consumers of strategy that we have seen from Levi Strauss.

Let's talk about it with Harmeet Singh.

He's Levi Strauss, the CFO and Chief Growth Officer joining us now alongside Yahoo Finance's executive editor Brian Assa Army.

It's great to see you again.

So let's talk about the quarter because going into this, lots of questions just about the strength of the consumer, some of the trends that you are seeing.

So talk to us about what you saw in the most recent quarter and whether or not that has continued up until today for this most recent quarter.

Good morning folks.

Uh Thanks for having me.

Um You know, it's not the reaction uh we expected on the, on the stock, but as, as you know, the stocks had a great run up over the last 12 months.

Um You know, on the belief by us and our investors that are longer term strategies to grow the company to a $10 billion company and uh deliver operating margins are um you know, fairly strong overall, it was a strong quarter for us.

We met our revenue expectation and significantly beat our s on the back of record gross margin.

And as you said, we reaffirmed our fuller guidance which implies an acceleration in the second half, both for revenue as well as profitability.

And that's after making investments in higher investments in marketing because the brands, uh you know, having a moment as well as um transforming our distribution and logistics strategy.

Uh to your question about um you know, uh what's really driving our strategy?

The first is our direct to consumer business um which is now close to half our business was up 11% on the back of 14% growth a year ago.

Um Second, our women's business is really doing well.

Uh It was up 22% in our direct to consumer business.

And in the US, we are now number one.

you know, uh and uh and that's not something that uh we could have said a couple of years ago.

Uh And so, as we think about the US as a marketplace, this is the third consecutive quarter of the U growing.

Um And so, as you think about the business around the world, us ahead of expectation, Europe, largely on our expectation, Asia slightly down driven really by foreign currencies impacting their business.

And our China business was a little soft but ex China Asia was up 9% in constant currency.

Harvey, it seems like the uh the street is locking in on the on the wholesale business.

And I, and I understand it did improve sequentially but it was another quarter of it being down, should investors just expect that business to be in a long term structural decline?

You know, the you're right, sequentially global uh and globally, wholesale, uh you know, improved, but it was, uh it was down our view.

Uh Brian, is that over the, you know, over the long term, the business will get to modest growth.

But what's more important is that wholesale customers that are seeing a new product assortments, you know, the wider lose of faith as we expand our addressable market and get into skirts and dresses for her or the performance tech pan for him are, you know, beginning to open their checkbooks and buy into the new product line and that is working.

And so I think thinking about this business longer term, you know, our expectation is the wholesale business gets moors growth was more profitable, the growth, uh you know, I made single digit growth as a company that's really driven by a direct to consumer business.

It's a business that we can directly control.

And so that will be the lead.

Um, wholesale is a big, um, you know, it's a big business for us.

It's an important business for us and actually will complement direct to consumers.

So we, we talk about the company making a pivot to D DC first, but it's not D DC only wholesale will complement our business because we need wholesalers to reach our end consumer just from a distribution perspective and for the wide variety of assortments we offer, you mentioned expanding the product portfolio to increase your total addressable market.

I'm curious from your perspective in your seat as the CFO what is your thinking when you're looking at the balance sheet on a decision like that?

How do you suss out the opportunities that are going to cost you guys a lot but potentially lead to long term growth versus those that may be expensive and not necessarily give you the iro I that you're looking for.

Yeah, I know it's a very, very good question.

Uh you know, both as CFO and with my growth officer role.

Um you know, as we're making this pivot to ad DC first company, we have a project, uh and that's uh called fuel, which is really about rewiring the company.

We are looking at our go to market calendar and our, you know, our thought is that we can make it shorter and faster, get a lot more g we have already reduced our skills, you know, which will begin impacting in the first half of next year by close to 15%.

And I think we can go more and by doing this, our view is we create the capacity to really expand the time.

And, you know, we have talked about dresses and skirts her, we talked about the non denim offer for him, et cetera.

And so, you know, being thoughtful because our view is we can improve our inventory turns right now.

Our turns are about two.

we can get to three while expanding time while adding SQ US on the stuff that's really working.

But actually reducing SQS on the uh on the assortments that are not working.

So we get a lot tighter, a global assortment.

Um you know, something that you have and you can offer across the world.

We're increasing that by being more directive in an assortment because the consumer is largely similar everywhere.

And uh once uh our product that's relevant.

And so, you know, by ensuring that are common assortments around the world a lot more than what they are today, I think will just lead to that reserve Harvey.

Um Levi's is not the not alone at least this week.

Calling out weakness in China and General Mills called it out in its earnings call yesterday talking about weakness for Haagen Dazs Ice cream bars, which I think caught a lot of people by surprise.

No question, weakening consumer sentiment in the country.

What's your diagnosis?

Is this uh Chinese consumers having negative sentiment against us brands ahead of the election or is it product oriented?

How do you guys uh diagnose what's going on there?

Yeah, I, you know, we have a wonderful team in China that is looking to grow that uh business.

Um you know, China in quarter first, Chi and China is a small piece of a business about 3% of our business.

Uh Quarter two was, you know what I call an out quarter because it was lapping the reopening of the Chinese economy a year ago.

And you know, last year China grew to 95 percent and you know, in quarter do we said the business was down about 10%.

But it sequentially year over year, a month, over month got better as we exited the quarter.

I think it's more the macros Brian because traffic is under pressure, what we are really doing to bring the consumer back into our store.

We are introducing more locally relevant products.

So think of performance school, which is make, we're making a big play just because it's lighter denim that that's working as the as the world becomes a lot more warmer, you know, so we introduced that that's working.

Um you know, the Chinese consumer uh you know, has, has a slightly different taste.

So we're making the product a lot more locally relevant like we did in India.

And I think that would make a difference over time.

We're not planning for a lot of growth in the second half of the year from China.

It takes a little while to make the assortment change.

But we are really long on international.

Um you know, we expect Europe, for example, to return to growth in the second half.

We're seeing that in the orders we are getting from wholesale customers, our D DC business is sequentially improving.

It was up high single di and we think that momentum continues.

So, you know, thinking about international, you know, international is about 60% of our business.

We think it can be a higher business and is obviously higher growth margins.

And we have teamed on the ground working really hard to get there.

All right, Hary, we're gonna have to leave it there.

But thank you so much for joining us this morning.

We really do appreciate it.

That was Harit Singh Levi Strauss and CO CFO and Chief Growth Officer also joining us and bringing us this inter interview.

Yahoo Finance's executive editor Brian Sazi.

Thank you so much.

Thanks, Dean.

Bye bye.

Good bye there.

Well, Walgreens shares are plunging this morning after slashing their full year profit outlook, citing a quote, continued challenging environment.

So what should that signal for investors moving forward?

We've got Jeff Jonas funds portfolio manager joining us on this.

Thank you so much for coming here with us on this somewhat breaking news this morning.

Just given the amount of the stock movement that we are seeing.

What is your statement to investors who are watching this right now?

Who might own the stock?

What should they do with it?

You know.

Unfortunately, I think I would sell the shares.

I just don't see a clear path to a turnaround here and it's really just in the US where we have a lot of reimbursement pressure in the pharmacy where we have a weak consumer.

And I think it's just in structural decline.

And despite new management, despite maybe selling off some non core assets, I, I don't really see a turnaround here.

What would it take for you to be convinced of a turnaround?

I guess in terms of the strategy, a couple of things that were outlined by the new CEO on the call earlier today, just in terms of the priorities and different initiatives that they are taking, like closing some of their stores.

What do you need to see in order to be more convinced of that turnaround?

Well, I definitely would need to see margin improvement and closing some of those marginally or unprofitable stores could help with that and then selling off some non core assets like maybe boots in the UK or maybe selling down some of their ownership in village MD to pay down debt and strengthen the balance sheet.

I think those would be positive steps.

I'm just not sure if I see that happening yet.

So given that, do you see a route where this is a company that can't recover that goes under?

I don't think we're anywhere near that point.

I mean, they cut the dividend last year to make it more sustainable and again, to free up a lot of cash.

Uh again, I think they have assets to sell, to pay down debt.

Um but I think it's in structural decline and you know, with earnings declining again in next fiscal year, it only trades at about six times earnings, but I, I just don't really see a clear path to growth again.

Jeff, I'm curious, uh and I'm not sure if you, if you own CV S but just more broadly speaking, when you take a look at some of the issues that we're clearly seeing at Walgreens and compare that to some of the other trends within the sector.

Is this more of a Walgreens specific issue or are we seeing some of this week as well?

We talk about consumers no longer spending or maybe trading down the, obviously the uh rampant uh uh uh theft that is occurring really across the retail space.

How many of these issues are specific to Walgreens versus broader weakness across the sector?

Yeah, I think these are industry issues.

I think they will impact CV.

Si mean with the weak consumer with higher prices at the pharmacy.

I mean, consumers aren't paying that anymore.

They're going to Amazon, they're going to Costco or Walmart.

So that's forcing the pharmacies to cut price on a lot of those store items which directly hurts the profit margins.

And CV S has other issues too where they have challenges in their Medicare advantage business on the Aetna side of things and they lost a big Pharmacy benefits contract with Cent team this year.

So I think they have a lot of challenges too.

We've seen more broadly in the healthcare sector.

A lot of names benefiting off the G LP one craze and demand.

Why isn't WB A seeing that same benefit?

Yeah, because of their high prices.

Uh G LP ones are actually very low margin for the drug wholesalers who move them to market and for the pharmacies who dispense them, you know, a lot of them need to be frozen.

So there's special handling requirements and they're just incredibly low margin or, or possibly even no margin um for a lot of the people in the supply chain, it's really just the manufacturers who are profiting from this.

Mm Yeah.

Really good point, Jeff.

All right, we're gonna have to leave it there but thank you so much for joining us on this.

We really appreciate it.

That was Jeff Jonas.

He is Gabelli Funds portfolio manager.

Now as market valuations continue to cause a lot of concern for investors.

What could that mean for upcoming IP OS?

We've got all this and more with your markets action ahead.

You're watching Catalysts the fast fashion giant.

She and confidentially filed paperwork to list on the London Stock Exchange.

That's according to several reports.

And the retailer has strong ties to China previously did try to confidentially file in the US but failed to win broader support in part due to its use of forced labor practices, practices in its supply chain.

So what does this tell us about the state of play?

For IP OS and company listing decisions on as we bring in Doug, Adams City co head of equity capital markets.

Doug, thanks for coming in studio with us.

I bring up the example of she and just to get us started about how companies are thinking about where they're gonna list when they're making these decisions.

What do you think is the biggest driver of that right now?

I think part of it depends a little bit on.

Uh first, thank you for having me.

Uh Today.

I really appreciate it.

Uh Pleasure to be here.

Uh Part of the decision goes into um where's their client base?

How do they think about their business?

Um How well are they known in certain markets where the comparables um that they may look to for um from a valuation perspective.

Um and also where the target investor universe is.

So there's a lot of different dynamics that go into um how companies think about uh the IP O process where to list and importantly, when to list, we've seen uh a pretty significant increase in activity as you know, uh versus where we were last year at this point.

Um We're up about 80% in the US uh similar levels globally.

And I think that's a very constructive environment for companies and for investors.

Doug talk to us a little bit more about that activity because we certainly have seen an increase in the IPO activity going back over the last couple of months.

What does that signal just in terms of the second half of the year?

Lots of uncertainty, obviously, when it comes to the fed, when it comes to rates, when it even comes to the election, do you think we'll see some of that IP O activity sidelined until towards the end of the year or how are companies thinking about that?

Look, the, the pipeline is absolutely building.

Um The dialogue is great.

I think companies are still trying to work through some of that.

Part of it is the market dynamics, but part of it is their own uh performance.

I think lots of companies are going through their forecasting exercises.

How would they have done if they were a public company?

And so the one thing we do know is companies will be better prepared to be public companies when they come.

Uh I'm not sure if it's all gonna come in the second half of 2024.

Probably not.

We're, you know, when we think about the windows of going public between now and the end of the year, we've got a couple of windows, but there's a lot of uncertainty as, as you talk about, I do think 25 and 26 we're gonna see a significant amount of that come to market.

What's the catalyst for those companies getting off this island?

Is it just simply looking at their business?

I guess how much of the macro factors have been factoring into some of these decisions versus just the stability of their own balance sheet.

I think the macro factors are influencing individual company performance.

And so they're trying to factor that in.

So we spent a lot of times with companies talking about what are the KPIS that they'd go to market and how would they perform relative to those KPIS if they had been public?

Um and importantly against their forecast, how would they perform?

And so given the right environment, given um some of the economic aspects, given regulatory challenges that some companies face, you know, that's factored into it.

And so they're trying to weigh all of this and decide when is the right time to go public and be a good public company, not just go public.

Obviously, the rate cycle is one big factor for these companies.

But I'm curious about from an equity perspective, just the crazy valuations that we've seen.

Are you seeing that have an impact on what companies are expecting when it comes to valuations heading into ipos?

Are they looking around and thinking, how do I not have the biggest valuation possible for this?

I, yeah, valuations are certainly one of the drivers for companies to go public, but it's one of the drivers, you know, um often times it's what does it mean to be a public company?

What is the strategic value of being a public company, the branding.

So, yes, it's important for going public.

But then the sustainability of that in the aftermarket also becomes important.

And so lots of companies trying to evaluate when is the right time to go.

How do I think about valuation near term, but also longer term?

And what are the growth and, and margin aspects that they're trying to project to the market?

What do you see in terms of the take private activity because I believe right around record levels, right.

Yeah, we are, there, there are a lot of companies, you know, well, we we focus on what the indexes have done and the S and P is up 15% uh year to date.

And you know, when you look at the equal weighted index, not every company has actually performed at that level, NVIDIA is about a third of that performance year to date.

And so lots of companies haven't been um caught in this updraft that we've seen in, in the broader equity markets.

And so for some of them, they have to wonder whether or not they're getting properly valued in the public market.

So we have seen an increase in activity of companies thinking about, you know, am I better valued in the private market than in the public market at this period in time?

What is that decision looking like then for those companies?

Do you expect to your point, Shawna, do you expect that to continue to be a trend moving forward?

I think, you know, there's a lot of money in private equity hands.

It's, you know, closing in on $3 trillion.

And you folks have talked about it on many of your, your broadcasts as well.

So, you know, the real question is how do we think about the trade off of being a public company, the value of being a public company versus the value of being a private company?

And so every company kind of evaluates that their boards evaluate it.

The management teams evaluate it and you know, really trying to figure out how to get how best to get value for all of their stakeholders.

All right, Doug, we gotta leave it there, but thank you so much for joining us.

We really appreciate it.

Thanks for coming in as well.

That was Doug Adams.

He is city's co head of equity capital markets.

Still ahead here.

My shares taking a hit today after the company's outlook, disappointed the street could be a signal of what's to come in the broader A I space.

We're going to discuss that after the break shares falling today after the company forecast failed to meet lofty expectations that investors had set for the A I space and for this company in particular.

And this comes off the back of a wild ride for in video this week after the company briefly topped Microsoft as the most valuable in the world.

Now that stock is down almost 5% over the course of the last five days.

So should investors be read about a potential A I bubble to come?

Joining us now is the founding partner of lead edge capital, a venture firm focused on the tech and software sector.

Mitchell Green here with us in studio Mitchell.

Thanks for being here.

Thanks so much for having me.

So talk to me about what you're seeing in terms of the concentration, right?

Because obviously this is causing some concern for investors who love to say in video as the new Cisco.

Are you seeing this moment as a bubble?

Do the investors who say that?

Do they say it's overvalued or do they say we're gonna ride Cisco for a while?

Still?

A little bit of both NVIDIA is a law if you believe.

So we think A I set back, we think A I is very real.

We have not made any A I investments ourselves happy to walk into why, why I think it's real.

We think it takes a lot longer than it does, but specifically related to NVIDIA, you own NVIDIA today.

It's like 100 and $20 stock or whatever.

Roughly it is probably 4 to 5 bucks of earnings next year.

So it trades it 30 times, given the growth rates, it's not crazy expensive.

I think just one fundamental thing if you believe the hyper scale and they are a long ways away from their competition like A MD and some of these all smaller companies that are attacking at the fringes.

But these, these guys have built an incredible business and incredible chips.

If you believe that the hyper Scalers are gonna, who are gonna spend giants amount of money, I should say Hyper Scaler in the Singaporean government and the Middle Eastern governments are gonna spend more money next year on this stuff.

Then it's probably along if you think that this Capex could be some slight sort of slight bubble.

It's probably a, a short uh what, what we think is, it's very real, but this stuff is gonna take a lot longer to play out than people think.

And it's our belief that it's like the telecom bust in their late nineties, early two thousands where people massively overbuilt capacity.

You're gonna also also we believe here, see, costs come dramatically down over over time.

If you want to build a website in 1997 you went to some microsystems and spent, you know, 50 million bucks to build your website today, you pull out your credit card, spend 25 bucks and go to Go Daddy.

Same thing's gonna happen with A I.

So then what does that shake out look like?

Uh If you are a lot of the V CS plowing money into some of these companies, we think there's gonna be lots of zeros.

It, it, what's interesting in A I is there's three things that people don't think about.

One with the advent of that phone on your desk, the iphone coming out in whatever 2007, 2006 whenever how many companies that didn't exist after 2000 sev that didn't exist before 1997.

Uh sorry, 2007, how many new companies were created that are worth over $100 billion?

Three byte, Dance, Pin Dodo and Uber only three, you know who wins incumbents.

So the incumbents are the giant incumbents like Sales Force or Microsoft or Oracle or Google or Small Snowflake.

They're all gonna win two.

We've never seen growth rates like this in companies.

I'm stealing a line from very famous VC.

They've never seen growth rates like this in companies, but they've never been shakier.

In other words, the gross dollar retention rates aren't that good.

So it's like a lot of people are trying this but they're not sticking around to be customers.

So it's like a lot of like project based stuff right now.

And I think that's gonna, and that would imply that it's probably some sort of bubble.

Are we gonna see those companies though?

The smaller ones?

Are they going to fail?

Are they going to be acquire, I guess in terms of consolidation, I think many people would say we'll see some sort of cons consolidation within the space.

A lot of the start ups aren't going to succeed, but are we going to see more of these larger players?

The incumbents acquire some of the smaller players, I guess.

And when you talk about that timeline and, but right, but when you talk about that timeline, what more realistically does that look like?

Everyone's excited about it?

Now, what's it gonna take for you to get in when we see gross retention rates go up?

So, gross retention rates are all, what I mean by that for the uh for the viewers is before you have any up sells or anything.

You take $100 a year of revenue the next year.

Do you end up with $70 if you didn't add a new customer or you end up with $95 like 95 is best in class, like think about people on sales force.

It's like impossible to get off sales force or an oracle or like Microsoft Office and these products are very hard.

But when you have like 70% gross retention rates, it just implies 30% of your customers are turning every year and we're seeing really low retention rates.

We will get interested in this stuff when gross dollar retention rates.

Yeah.

90 plus.

Ok. Really quickly, like less than a minute here, you've said previously, your biggest mistake in the last decade was not predicting multiple expansion.

Are you potentially making that mistake again?

By not getting it on A I right now?

Maybe, but that's fine.

We don't have to, we can stick to boring software companies like Pacem, make that, make cardiac monitoring software or growth zone that makes chamber of commerce software 40% this year, software is struggling right now.

That's the best time to invest in companies.

But again, a huge amount of our portfolio, we'll end up selling to private equity.

So 60 plus percent of our companies are, are profitable businesses where you've never heard of any of these businesses like growth zone or GVL or Pace Mate.

They'll never be giant IP OS.

We don't need them to, we'll sell them to one of 100 private equity firms or we'll sell them to a tuck into a strategic and make and try to make, you know, 2 to 5 times our money versus trying to bet on the ifpo markets coming back.

The reason IP O market is not strong right now is if you run money at Wellington or Tre or Fidelity, it's easier to go by Microsoft or Facebook or Google or NVIDIA.

They're growing super fast because I think the biggest challenge in a lot of the software companies is if you just look across the whole software ecosystem as public companies, they're not growing that fast anymore.

A lot of them have slowed down a lot.

Well, Matt Green, we have to leave it there, but thanks so much for coming in studio.

We look forward to hopefully having you back soon and continuing this conversation.

Lead edge capital, founding a partner.

Thanks so much Michele.

Thanks for having me.

Keep right here on Yahoo Finance.

We got much more coming up ahead.

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