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The Transcript 11.23.20

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Succinct Summary: Retailers reported strong quarters last week showing that the US consumer remains resilient despite high unemployment.  A new wave of Covid could slow the economy back down but vaccines are almost here.  It will be interesting to see what behaviors have been permanently altered by the pandemic and which ones will return to the way that they were.  Business travel is one thing that may be permanently changed.

Macro Outlook:

The consumer economy has outperformed everyone’s expectations

“The consumer economy has, I think, outperformed everyone’s expectations…The economy, I think, is resilient. The economy was relatively strong going in. And I think we’re – hopefully, we get back to where we were soon.” – CSX (CSX) CEO James Foote

Retail had another strong quarter

“Walmart U.S. had another strong quarter. Comp sales increased 6.4%…Consistent with the second quarter, we saw customers consolidate shopping trips with larger baskets and fewer transactions.” – Walmart (WMT) CEO Doug McMillon

“Third quarter comparable sales increased 20.7%, reflecting a 4.5% traffic growth, combined with an increase in average ticket of more than 15%. Since the pandemic began in March, we’ve experienced a meaningful acceleration in basket growth, both in stores and online as guests have consolidated their shopping into much larger trips. Across channels, our store comps grew nearly 10%, while our digital comp sales grew 155%, contributing nearly 11 percentage points to the Company comp.” – Target (TGT) CEO Brian Cornell

E-commerce growth has been huge

“our third-quarter digital sales grew more than $2 billion compared with last year. For perspective, $2 billion is more than our company’s total digital sales for the entire year in 2014. Somehow, I think I should pause for a second and let that sink in” – Target Corporation (TGT) CEO Brian Cornell

“As consumers increasingly shifted towards little or no contact buying methods during the pandemic, we experienced e-commerce sales growth of 99% on a full-year basis and 126% in the fourth quarter compared to last year.” – Tyson Foods (TSN) CEO Dean Banks

“E-commerce accelerated sequentially to a record net comp of over 49%” – Williams-Sonoma (WSM) CEO Laura Alber

Retailers are expecting some normalcy for the holidays

“There are some common trends, people are at home more, they’re eating at home more and they’ve all been through a difficult year. So just emotionally, I don’t know what you’re thinking, but in my family while it would be a smaller group, we’re really looking forward to Thanksgiving and Christmas, and New Year’s, and some sense of joy and normalcy. And I think we’ll see that play out as it relates to consumption patterns in the U.S. and beyond.” – Walmart (WMT) CEO Doug McMillon

For a lot of people the economic environment is still far from normal though

“But certainly, the jobs, there’s still a lot of people that are not at work.” – Union Pacific (UNP) Management

“…there are a lot of people who are still struggling although parts of the economy are roaring back, parts of the economy, small businesses, restaurants, travel and other need more help, and that’s where we want to put this money.” – US Treasury Secretary Steven Mnuchin

A new wave of COVID may make matters worse

“…we’ve definitely seen a flattening of ticket sales. It’s nowhere near to the kind of negative effects we saw either in July or in the March, April period. But we absolutely – now we are in a place where we can absolutely anticipate it from a network and our revenue production around that. But we’ve seen it. If you go and look at restaurant availability, it’s fallen in the last seven to ten days.” – American Airlines (AAL) Management


There’s still plenty of frontier for e-commerce

“…we think there’s a very long runway for all players in the market given the relatively low penetration in Southeast Asia for e-commerce at this stage yet. And we believe in the longer run, given the demographic and also the geographic nature of the – our region, we believe e-commerce penetration should go much deeper and we hope to work with all players in the market to collectively expand the pie.” – Sea Limited (SE) CEO Forrest Li


Will consumer tastes have changed after the pandemic?

“As it relates to a vaccination..I think that customers are going to be, there’s going to be a surge of demand when that happens. And there’s going to be customers that have been wearing the same clothes have been lounging inactive in casual sportswear. And they’re going to want to dress up that fits squarely in our strengths.” – Macy’s (M) CEO Jeff Gennette

“If you said tomorrow that there was a vaccine with 100 per cent efficacy, and everyone gets it, do people want to live on a cul-de-sac or in a city? They’d rush back and realise there was a reason they weren’t living in a cul-de-sac before” – Expedia (EXPE) CEO Peter Kern

Consumers are building confidence in DIY home improvement projects

“…we continue to see unprecedented levels of engagement from both new and existing customers across a variety of home improvement projects, and importantly as these customers complete a project, they are gaining the confidence to tackle their next project.” – Home Depot (HD) CEO Craig Menear

“…we posted U.S. home improvement comparable sales growth of 30.4% in the third quarter. ” – Lowe’s (LOW) CEO, Marvin Ellison on Q3 2020 Results – Earnings Call Transcript | Seeking Alpha

Full-service restaurants are operating at 80% of normal

“While quick-service restaurants are close to or better than pre-COVID levels, full-service restaurants continue to operate at about 80% of normal with wide variations by geography” – Tyson Foods (TSN) CEO Dean Banks


The metaverse is here

“The metaverse experience will be designed right from the get go to be personalized. How do we do that? Well, that’s where data comes into play. While personalized, these experiences are also social. You are part of a community, enjoying these experiences all together — sometimes collaboratively, sometimes competitively — but always with joy and fun. So, with the digital data and physical coming together organically with the story, we now have physical and digital convergence experiences that are personalized and social, creating that theme park metaverse. And because of the digital dimension of these metaverse experiences, they can be updated frequently, and they stay fresh and relevant.” – Disney Parks Executive VP Digital & CTO Tilak Mandadi,

“I’m just going to start by putting a little pin in that. I’m a giant believer in the Metaverse. I’m also a giant believer that’s already here. Today, I played a couple of games. I read the news about the political environment. I read a lot of some news that’s going on in some of our markets around the world. I communicated on Zoom, Slack, e-mail. I got WhatsApp notices from notes from a bunch of my folks in Asia, I made a cell phone call. And I visited a couple of dozen websites. I’m already in the middle of the Metaverse. What’s going to change in years to come is that Metaverse will be increasingly real-time 3D.” – Unity Software (U) CEO John Riccitiello

There is not as much 5G coverage as ads would suggest

“There is a lot of promise in that Verizon advertising, about a breadth of 5G experience in this Ultra Wideband thing. But quite frankly, customers are just not finding and not seeing. And so I think they are really over their skis, right, promising a 5G experience, which, quite frankly, for the vast, vast majority of their customers does not exist in the U.S. today.” – T-Mobile (TMUS) CTO Neville Ray


Moderna’s vaccine is 94% effective while AstraZeneca’s is 62-90% depending on dosage

“…we had 95 cases reviewed on Sunday by the independent NIH lab DSMB, and basically what they informed us, on Sunday, is that of the 95 cases that they reviewed that had been adjudicated for disease, 90 were participant that got cases were on placebo, and five were on mRNA-1273, leading to a 94.5% efficacy. The p-value is very strong, so we feel really confident about that dataset.” – Moderna (MRNA) CEO Stéphane Bancel

“One dosing regimen (n=2,741) showed vaccine efficacy of 90% when AZD1222 was given as a half dose, followed by a full dose at least one month apart, and another dosing regimen (n=8,895) showed 62% efficacy when given as two full doses at least one month apart. The combined analysis from both dosing regimens (n=11,636) resulted in an average efficacy of 70%. All results were statistically significant (p<=0.0001).” – AstraZeneca (AZN) 

With no severe cases in the trial groups

“The severe cases of disease we had 11 cases of those 95, and of those 11, all 11 were on placebo, we had zero on active, and so when you put those two data together, Michael, what it tells us is that what we know so far, let’s wait for it to be confirmed, but if this evolves it would mean that if you get mRNA vaccine you have around 95% of being disease-free if you get infected naturally after your vaccination, and in those 5% chance where you get disease you will get mild disease, you will not get severe disease.” – Moderna (MRNA) CEO Stéphane Bancel

“Positive high-level results from an interim analysis of clinical trials of AZD1222 in the UK and Brazil showed the vaccine was highly effective in preventing COVID-19, the primary endpoint, and no hospitalizations or severe cases of the disease were reported in participants receiving the vaccine. There were a total of 131 COVID-19 cases in the interim analysis.” – AstraZeneca (AZN) 

Supply chain constraint is in raw materials not manufacturing capacity

“…we are on track, next year, to have between 500 million dose and a billion dose manufactured. There’s still a big swing at this stage, Michael, because we have the GMP space to make a billion dose, we have the equipment to make a billion dose, we have the people to make a billion dose. The swing factor is from raw materials, because as we make pharmaceutical products, as everybody will understand, if we are missing one ingredient because a supplier is tight on delivery we cannot start making the vaccine, and because we are running 24-7, if on the Tuesday you go in the Wednesday night shift there is one component missing we cannot start making the product until that product arrives.” – Moderna (MRNA) CEO Stéphane Bancel

“The Company is making rapid progress in manufacturing with a capacity of up to 3 billion doses of the vaccine in 2021 on a rolling basis, pending regulatory approval. The vaccine can be stored, transported and handled at normal refrigerated conditions (2-8 degrees Celsius/ 36-46 degrees Fahrenheit) for at least six months and administered within existing healthcare settings.” – AstraZeneca (AZN) 

Amazon sends shockwaves with entry into the pharmacy business

“We wanted to make it easy for people to get their medication, understand the cost and get it delivered to the home” – Amazon (AMZN) Vice president of pharmacy TJ Parker,

“Mail order is really hard. The road is littered with companies that tried to offer mail order. They are our partner, it’s not a winner take all scenario” – GoodRx (GDRX) CEO Douglas Hirsch

“When you want to get your COVID vaccination, are you going to call Amazon or are you going to call Walgreens or CVS?” – Walgreens’ (WBA) CFO James Kehoe

Industrials and Transport:

Supply/demand imbalances could create some inflationary pressure

“I would say, certainly, a strong truck pricing environment, a stronger economy overall and a good service product are all dynamics that play favorably to that price question. And so if those trends all stay in that direction, I think that is a positive statement of for us to be a positive momentum for us.” – Union Pacific (UNP) Management

“The supply/demand imbalance in the used vehicle market especially at the lower price points is real and has resulted in some volume challenges, but has also led to meaningful increases in revenue.” – America’s Car-Mart (CRMT) CEO Jeff Williams

“…despite some natural headwinds and the economic disruption of the pandemic crisis, we’ve experienced ASPs for our vehicles at all time highs…ASPs worldwide grew 37.3% year-over-year for the quarter with U.S. ASPs up 39%. Used car prices have no doubt helped to contribute to that high ASP environment for us” – Copart (CPRT) CEO Jay Adair

“Despite this fact that we are still in the middle of the pandemic with continued high uncertainties, we have seen a strong recovery in demand within transportation and logistics, which has led to equipment shortages, both containers and vessels at selected trades, which has been a supporting factor in the freight rates in the short term.” – A.P. Møller – Maersk A/S (AMKAF) CEO Søren Skou

It may take years for travel to get back to normal

“It’s not as though there is a light switch around that we just flick a switch, and all of a sudden, we all go back to 2019; that’s not the way it’s going to be, and we all know that. So, we still believe it’s going to take years, not quarters, we’ve talked about a U-shaped recovery into the fall and winter. Look, we’re all hopeful that people will be protected quickly, and we all hope that these — what are increasing rates of infection peak, it start coming down quickly, we all hope for that too. But everybody should be aware that this is not a “Okay, we’re all back to normal, because that’s not what it is.”Booking (BKNG) CEO Glenn Fogel

Business travel may be permanently changed

“We will go to the office somewhat, we’ll do some business travel, but dramatically less…My prediction would be that over 50% of business travel and over 30% of days in the office will go away” – Microsoft (MSFT) Co-Founder Bill Gates

“I think all of us, as business leaders, have realised that perhaps we had people taking trips that might not have been necessary, or we sent too many people on a trip, or we sent somebody to give a presentation for an hour and a half and sent them around the world, and that cost money and it cost time, which is money, and now realize that, boy, a lot of that stuff can be done on any one of these video platforms that work darned well” – Visa (V) Chairman & CEO Alfred Kelly

“I’m not going to do as many long haul trips that I’m meeting just with one person. I mean, it’s just incredible use of — hard use of time and money. Why would I do that when I can have really good video communication with one person or one company. And I think a lot of other people are thinking about that too in terms of the costs of travel for corporate – corporations; will that be something that people look are going to look at very closely, going to reduce the number of trips and not do as many, certainly there is still going to be corporate travel, it’s not going away but I think as a share, it will be lower.” – Booking (BKNG) CEO Glenn Fogel

“I personally think that there’s going to be a pretty big bounce back in terms of leisure travel because it’s kind of pent-up demand, business travel may take longer to come back.” – Uber (UBER) CEO Dara Khosrowshahi

“..we have Marc Andreesen, yesterday he made the comment that his mental exercise was, if you’d ask the S&P 500 CEOs at the beginning of last year, what’s going to happen to your productivity if your entire workforce is working from home for nine months. All of them would have said it had been terrible for their productivity. If you ask them now, they would say, actually, it hasn’t been terrible for productivity i.e., it’s possible that business travel, business commute, certainly long-term distanced business travel could be cut back materially” – RBC Capital Markets Analyst Mark Mahaney

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