The Transcripts

The Transcript 12.07.20

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Succinct Summary: Consumer spending remains strong and Black Friday was successful. A third wave of COVID has made the near term outlook worse, but the medium to long term looks much brighter thanks to vaccines. Tech spending continues to outpace overall GDP growth and probably will continue to surge after the pandemic is over. The driver of spending has moved from devices towards data infrastructure and management.

Macro Outlook:

What a year it has been!

“What an interesting year, I don’t think I have to be the millionth person to say that, but it is stunning to me to think, what a year. We’re like 30 days away from the end of the year, and it’s been an incredible 12 months that’s for sure.” – Microsoft (MSFT) Corporate VP Jared Spataro

Consumer spending remains strong

“Consumers are spending. Look at U.S. domestic spending: It’s actually plus over last year for the last few months, which is interesting.” –Mastercard (MA) CEO Ajay Banga

“Every day is trending better than we initially expected…Based on quarter-to-date trends, we expect total Q4 comps to be in the mid to high-teens and are on track to deliver some of the best fourth-quarter results in At Home’s history.” – At Home Group (HOME) CEO Lewis Bird

“We had another exceptionally strong quarter from both a sales and a profitability perspective. Overall, the favorable trends in our business have continued into Q4.” – Dick’s Sporting Goods (DKS) Chairman & CEO Edward W. Stack

“…the demand for the products and services we sell remains at elevated levels as we start the fourth quarter” – Best Buy (BBY) CFO Matt Bilunas

Industrial demand is coming back too

“I think we step back and say we are seeing demand pick up. We’re seeing that in early order programs and the large tractor order book that Brent mentioned, so I think we’re really kind of at an inflection point right now where we’re seeing demand move. We would say there’s still a long runway of replacement demand as you look at the age of the fleet and those sorts of things, so we think we’re a ways off mid-cycle let alone peak.” – Deere & Company (DE) CTO Jahmy Hindman

Black Friday was successful with an elongated shopping period.

“…merchants started their promotions earlier. So we also mentioned in our press release that we saw significant sales increases, the 19 days before BFCM. We know from our data that we saw week-over-week growth in order volume increase at a substantially higher rate than prior years in the first couple of weeks of November. So we do believe that this BFCM was elongated more than prior years.” – Shopify (SHOP) CFO Amy Shapero

“We’re really pleased with that strong, consistent performance, including Black Friday and Black Friday week. In fact, if you look at the performance of our business, we had really nice business, very strong business the week to two Saturdays before Black Friday week as well.” – At Home Group (HOME) CEO Lewis Bird

The third wave of COVID has made the near term outlook worse

“…we see the virus numbers, spreading across the United States with record average daily new cases, increases in hospitalizations and increases in death too. And those latter statistics won’t be good for our business. We were — as I was thinking about this conversation with you today, I was thinking a little bit of what’s changed since our earnings release from third quarter, and which was done, I think right before the great vaccine announcement. But, I think, in a sense you could say that the near term maybe has gotten a little bit worse, right?” – Marriott (MAR) CEO Arne Sorenson

“If I walk around the world, I think what we see happening is that clearly, I don’t know if we can call it the third wave or the second wave, but let’s call it for the second wave of COVID, that’s going to have a number of effects around the world. We see it in Europe right now where there is a lot of countries that are in lockdown. U.S is still — not quite sure what we want to do here. But it’s clear that the situation is getting worse. And you have some cities like Chicago that are in lockdown. So the effects that we’ve seen during the first wave, I think we will see to a lesser degree in the second wave. And I’m not quite sure how long the second wave will last, but well into the new year, I would assume.” – Mondelez International (MDLZ) CEO Dirk Van de Put

“We are in the middle of this unprecedented pandemic and as you know, we just reached peak levels of hospitalizations yesterday in the U.S. So it’s uncertain.” – Ulta Beauty (ULTA) CEO Mary Dillon

“…we are seeing COVID cases surge throughout the U.S. and Canada at the time of significant holiday volume through our stores, online and supply chain.” – Best Buy (BBY) CEO Corie Barry

But vaccine news has made the medium to long term outlook much better

“In a sense, you could say the near-term has gotten a little bit worse because the virus statistics have gotten worse, but the medium and long-term has gotten a little bit better because the optimism around a vaccine is that much stronger, I think, we can sit here and say with a greater level of confidence than maybe a month or two ago that sometime in 2021, we should see a shift towards the environment in which the virus is receded into the rear view mirror, and we’re then looking at, okay, what the demand aspects look like” – Marriott (MAR) CEO Arne Sorenson

“…the ultimate revival of consumer confidence we believe from a travel standpoint is going to be tied to the availability of therapeutics and vaccines at scale. And we’re all tracking the news around that. We’re very encouraged by the news we’ve seen lately. We’ve got to see that come through in the nature of at scale vaccines being available and then people feeling comfortable to take those vaccines and then ultimately get on planes and travel. So that’s kind of the trajectory of how we see this coming back.” – Mastercard (MA) CFO Sachin Mehra

It may take a while for things to return to normal

“Indeed there are some good news on the vaccines around in the air. We are still very cautious for next year on travel retail. We don’t expect it to rebound quickly. We are still expecting it to take probably another one to two years as before it comes back to normal and even more before it comes back to what it could have been with no COVID. So the message is, let’s say, investment in our future, we see a recovery next year, but it’s very difficult to assess when exactly and we remain very cautious in the short-term. And that’s what I think we reflected in our comments.” – Rémy Cointreau (REMYF) CEO Éric Vallat

But there’s a lot of pent-up demand

“On the personal front, we feel like there’s a fair amount of pent-up demand. And individuals are looking for what I would call those glimmers of hope to try and get out there and figure out when they feel safe and secure to travel again” – Mastercard (MA) CFO Sachin Mehra

“While we’re continuing to amplify categories that are relevant with customers during the pandemic, we believe that over the medium to long-term, there will be pent-up customer demand, particularly around occasions like travel or in-person social events.” – Nordstrom (JWN) CEO Erik Nordstrom


Black Friday is growing internationally

“BFCM has continued to grow beyond just North America. We saw triple-digit increases in countries like Japan, Italy, Germany and the UK, places where we’ve been localizing for several years, saw real significant gains there.” – Shopify (SHOP) CFO Amy Shapero

Chinese travel and other businesses are at or near full recovery

“China domestic travel has mostly reached full recovery, as we shared earlier. Domestic hotel and air booking have both turned positive growth since August, and especially the high-end business and short-haul travels have recovered well.” – (TCOM) CEO Jane Sun

“If you look at China right now where things are pretty much back to normal, you will see our businesses are performing well there, people are socializing outside the home again” – Diageo (DGEAF) CEO Ivan Menezes

“There’s no question that the bounce back in China has been much faster than in any other region. Although I wouldn’t say that they’re back at a 100%, right. There’s still travel restrictions and so forth. So I think that in terms of patient volumes, it’s also good to think about 90%, 95%, they’re probably closer to the higher end of the range than elsewhere.”Danaher (DHR) CEO Rainer Blair


New consumption habits will probably be sticky

“And so as we look ahead to post-COVID, we do believe that a lot of the e-commerce gains will stick, and we’ll continue to grow off of a higher base. And the reasons why we believe that is convenience is habit-forming. Most consumers have now — we’ve been in this COVID environment for the better part of 2020, and it will continue into the early part of 2021. Those new ways of shopping will stick.” – Shopify (SHOP) CFO Amy Shapero

“We are seeing some changes in consumers’ behavior that I think will have a lot much longer time and resonance than we maybe had thought originally…consumers are really changing the way that they are kind of adopting new behavior as they think about in-home consumption versus in the past.” – Kraft Heinz (KHC) U.S. Zone President Carlos Abrams-Rivera

E-mail lists are the best way to communicate with customers

“…we’ve got 17 million soon to be 20 million people in a Rewards program. And the reason why that’s important is we’ve been very visible to the people that probably want to be the most engaged with Chipotle on the things that matter most to them because we’ve now gained insight on what do you want to know about the brand. And so we’ve been able to communicate our safety practices…I think probably the biggest new vehicle for us is this Rewards database of call it 17 million-plus very active and engaged customers.” – Chipotle (CMG) Chairman & CEO Brian Niccol


COVID has helped create a new baseline for tech growth

“…this is not a COVID spike, this is a step change. So this will become a new baseline, because what we’re going through in 2020 will become the new baseline when we’re going from here. I don’t think people are forward spending to buy excess capacity, people are spending to meet the capacity needs that they need today. Yes, is there a spike? Maybe the spike on remote work, but we haven’t gone through every company in the world, which is going to be accessible 100%” – Palo Alto Networks (PANW) CEO Nikesh Arora

Tech spending will continue to grow faster than GDP even after the pandemic

“I think we definitely are going to have real structural change. So, when we remove the pandemic constraints, I don’t think we just go back to the way things were in the beginning of 2020 or late 2019. What that difference is going to be is going to be different by geography, by function, by business type and industry. But one thing is certain, digital technology is going to be key to any company dealing with even future tail events, both from a resilience perspective and the agility with which you adapt to change is going to be driven by digital technology…In closing, over the next decade, technology spending as a percentage of GDP is projected to double” – Microsoft (MSFT) CEO Satya Nadella

“…overall it’s a great time to be a technology company because we just think that we continue to be in a 10-year wonderful cycle where technology is growing faster than the GDP and software cloud is growing faster than technology overall.” – VMware (VMW) CEO Pat Gelsinger

The primary driver of tech spend has moved from devices to the data economy

“Go back to fundamental demand for semiconductors. There is more demand for compute power today than there has ever been. And what’s driving that, there is a handoff in terms of end market growth, that’s from a consumer oriented device called the handset to something that’s far more substantive material, secular theme around the data economy. It’s the largest companies making substantive investments in their own capabilities, so that they can serve their customers better, manage their supply chain better, drive more efficiency into their operation. I think it’s existential for these companies. They either invest or they don’t. And if they don’t, it becomes an existential issue for them.” – Applied Materials (AMAT) CEO Dan Durn

Data has become the beating heart of an enterprise

“So people are getting used to spending way more money on this class of service than they ever imagined, and the reason is, they now can and they now need to right. Now, does that take time. Yes, it takes time for people to get used to that. I mean I’ve talked to CTOs, they’ve said we spent $50,000 last year, we’re spending $1 million this year. How do I explain that…when data becomes the beating heart of your enterprise, it makes total sense.” – Snowflake (SNOW) CEO Frank Slootman

5G implementation decisions have slowed down a bit

“I’ve actually seen for those customers who had not already made their 5G technology decisions. We’ve seen COVID actually slow that down a bit and push things out by 9 to 12 months, where for lots of reasons, sometimes it’s the spectral auctions were delayed by certain, certain countries. We also saw the ability for certain countries to get permits to deploy radio technology through certain municipalities was delayed. And then also just not having their own staff and the office to do evaluations of technology. So we saw definite push outs. Again, if you have not already made your technology decision, if you’ve already made your technology decision, and if you were on the path of deployment, there are very minor hiccups in the beginning, but that’s been mostly proceeding at pace, but the majority of the world had not yet made their technology decisions for mobile core or for backhaul.”Cisco (CSCO) SVP & GM of Cisco Mass-Scale Infrastructure Jonathan Davidson


Nobody really knows how long the protection from the vaccine will last

“Nobody really knows with the different vaccines. And it’s mostly because it is such a new virus. It’s really hard to know. The animal model are interesting, but it’s tough to translate duration in a mouse that’s going to live a year versus human who is going to live 80, 90 years. So, I think, we just have to be all a bit patient, which I know is not a forte, at least not mine, to wait for the clinical data” – Moderna (MRNA) CEO Stéphane Bancel

Industrials and Transport:

Supply chains are still bottlenecked

“Inventory position is improving as I mentioned before. Seasonal, our overall expectations are unchanged. We still say that we’ll be up slightly, so we will have a positive comp for Q4 in seasonal, but the upside, as I mentioned was limited just because of the inventory constraints.” – At Home Group (HOME) CEO Lewis Bird

A tight carrier network is leading to an increase in delivery costs

“As many of you are aware, the delivery demand is at or above network capacity in the United States. Knowing that our existing carriers will be unable to fully meet our demand, we have added additional regional carriers in an attempt to get shipments to our consumers on time.” – Urban Outfitters (URBN) CEO Richard Hayne

“…we anticipate higher transportation and distribution costs in Q4. Like other retailers, our business is seeing the effect of higher transportation costs due to a tight carrier market as a result of driver shortages and a greater demand for services at third-party carriers.” – Dollar General (DG) CEO Todd Vasos

Miscellaneous Nuggets of Wisdom:

Developing the Decency Quotient

“When I was young, your IQ is what made you supposedly stand out. And then when I got to business school, people began talking about EQ. You know, you couldn’t choose your boss or colleagues, but how you conducted yourself with equanimity showed that you had the emotional quotient to be successful. And I say you need DQ—your decency quotient—when you come to work every day. Because you have to bring your heart and your mind to work. You have to care about the people who work with you, for you, above you, around you. That’s where inclusion comes in. If I can make it a part of my business, then I can bring the whole company to the party.” – Mastercard (MA) CEO Ajay Banga

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