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Quote of the Day
The odds of a bad outcome have gone up.”
Goldman Sachs CEO Lloyd Blankfein is getting vocal about the economy turning stale. Maybe it’s the $1.5 trillion in tax cuts or the $300 billion in added spending, but too much forward momentum could cause this baby to “overheat.”
Market Snapshot
- U.S. indexes shrugged off higher than expected inflation data.
- After announcing a new CEO, Chipotle stock soared 15%—its best day since 2013.
- Amazon passed Microsoft in market cap to become the third most valuable U.S. company.
- Teva shares shot up 11% after Berkshire Hathaway announced a $358 million stake.
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Sam’s Club Rethinks Shipping and... Well... Everything
Load up your doomsday bunkers, Sam’s Club is rolling out free shipping for most of its online offerings. All you need is a $100 Plus membership and you’ll never run out of toilet paper again.
The country’s second biggest wholesale club will also be trimming its membership options from three plans to two, while opening up a new e-commerce fulfillment center in Memphis (with blueprints for more in Florida, California, Chicago, and the Northeast).
If you guessed “this is to compete with Amazon Prime,” ding ding ding, you nailed it. But let’s round that picture out: Sam’s Club will also look to gain ground on No. 1 wholesale club Costco, which is outpacing it in YoY same-store sales.
And it’s taking any measure to get there
Just ask all ~10,000 employees who were let go last month when Sam’s Club shuttered 63 stores. Or how about the nostalgic customers from the underserved, rural economies it catered to. So why’d it close the stores?
Zoom out: Since he took the job last year, CEO John Furner has been on a mission to refocus Sam’s Club on its core customer: families with annual incomes of ~$125,000 who live in suburban areas and own small businesses.
The issue is—it spent years building stores in areas that (1) didn’t meet that criteria, and (2) were too closely located to Costcos that were cannibalizing sales. Case in point: one analyst notes “Costco has at least one club within 10 miles of 52 of the 63 closing Sam’s locations.”
For now, let’s ignore the fact that Sam’s Club is running away from competition...
...and take a more “glass half-full” approach. From an operational lens, Sam’s Club is:
* Cutting some of its worst performing stores (it still has 597 left)
* Offering the Amazon “free-shipping” makeover for its top-tier members
* Being supported by its parent, Walmart, which knows a thing or two about driving online sales (growing 50% in Q3 2017 alone)
And if things don’t work out, that’s what you get for being so exclusive in the first place, Sam.
Consumer Prices Surged in January, Thanks in Part to Apparel
Inflation—the guest you regret inviting to your party because he’ll limit economic growth—is knocking at the door.
Consumer prices rose higher than expected in January, putting more pressure on the Fed to raise interest rates and cool down a scorching hot economy (you didn’t forget about the tax cuts, did you?).
What sector helped contribute to the price gains?
Apparel. It’s an unlikely source of inflation, when you consider clothing prices declined in November and December (which explains the sixteen sweaters you got for the holidays). But in January, prices rose 1.7%—the largest gain since 1990.
Don’t get used to it: Clothing prices should remain low thanks to cheap imports and a wave of popular “fast fashion” retailers (Zara, H&M, etc.) reminding you the $10 shoe that’s in this week, could be out the next.
Get used to this: Rate hikes. Investors give an 83% chance the Fed will raise interest rates in March.
AT&T to Call DOJ for Help in Merger Trial
The call may be coming from inside the DOJ. That is, the call to testify on behalf of AT&T (-0.52%) in its upcoming antitrust trial—against the Department of Justice. The NYT reported the telecom giant will include Makan Delrahim, the top antitrust DOJ official, on its witness list. Classic legal drama twist.
Rewind: Back in November, the government sued to block AT&T’s $85 billion merger with Time Warner (+0.22%). The DOJ claimed the combo would harm competition and consumers’ wallets. AT&T pointed to the government’s permission of similar “vertical” deals, namely Comcast and NBCUniversal in 2011.
Fast forward: Delrahim may prove to be an unlikely star witness in the trial, scheduled to start March 19. AT&T’s defense strategy is to prove an improper enforcement of antitrust laws, stemming from political influence. Rejecting the deal would fulfill one of President Trump’s campaign promises—and Delrahim, before he was appointed (by Trump) to the position, said he didn’t see clear problems with the deal.
AT&T wants to find out what changed his mind.
Coming in July to Netflix: Ryan Murphy
Ryan Murphy has cut cords with 21st Century Fox, signing a five-year deal with Netflix (+2.99%) for a reported $300 million. The prolific writer and director (Glee, American Horror Story, American Crime Story) will produce TV series and films for the streaming service-turned-content powerhouse.
It’s the largest-ever deal for a showrunner, coming on the heels of Netflix’s power move $100 million contract with longtime-ABC creator Shonda Rhimes. A real Scandal as Netflix prioritizes drawing an audience for its original content.
Murphy—known for his more graphic and provocative POV—may have jumped the 21st Century Fox ship because of its impending acquisition by family-friendly Disney (Nip/Tuck/Mickey Mouse just doesn’t have the same ring to it). And Netflix doesn’t have to play by broadcast rules—rules Murphy had been bending during his tenure turning FX into a premium network.
We’ll tune in for American Newsletter Story.
What Else Is Happening…
- The IRS is banning a carried interest loophole that could've benefited hedge funds.
- Amazon (+2.58%) found a partner for its lending program: Bank of America.
- Berkshire Hathaway (+1.18%) dumped 94% of its IBM stock and re-upped Apple.
- Hedge funds are trying to Irish-goodbye Facebook and Google.
Economic Calendar
- Monday Earnings: Heineken (+/-), Restaurant Brands International (-)
- Tuesday Earnings: PepsiCo (+)
- Wednesday Earnings: Cisco (+), Marriott (+)
- Thursday Earnings: No Events
- Friday Earnings: Allianz, Kraft Heinz
Economic Events: Treasury Budget (+/-)
Economic Events: Small Business Optimism Index (+)
Economic Events: CPI (+), Retail Sales (-), Business Inventories (+)
Economic Events: PPI, Industrial Production
Economic Events: Consumer Sentiment
The Bigger Picture: U.S. Infrastructure Is Close to Flunking
Every four years, the American Society of Civil Engineers grades U.S. infrastructure...and as you can see, this one’s not a report card you’d stick on the fridge. That’s not a surprise for those of you driving over shaky bridges, flying out of aging airport terminals, or—bless your soul—taking a train into New York’s Penn Station.
So what to do about modernizing our infrastructure? Most will agree it’s a pressing concern—roads, tunnels, ports, and energy grids are the necessary organs that keep our economy healthy.
But not everyone agrees on the solution.
President Trump’s plan, outlined in this week’s budget proposal, encourages states and private investors to take the lead on projects. Which could result in a more efficient process and higher quality infrastructure.
That’s a major problem, critics say. By its very nature, the private sector is motivated by profits. There’s not much financial return in fixing, say, a bridge in a lower-income neighborhood. That’s the critical role of the government.
What do you think is the best approach to repair our country’s infrastructure? Reply and let us know.
Tell your friends: Every hour commuters are delayed on New Jersey and Long Island trains costs Manhattan employers $14.5 million.
The Breakroom
Question of the Day
Mad Ade's cousin Steve lies a lot. He tells the truth only one day in a week.
One day he said: "I lie on Mondays and Tuesdays."
The next day he said: "Today is either Sunday, Saturday, or Thursday."
The next day he said: "I lie on Fridays and Wednesdays."
On which day of the week does Steve tell the truth?
(Answer located at the bottom of newsletter)
Business Trivia
Which company’s CEO spent his last $5,000 on the Blackjack tables in Vegas to keep the company alive? Yes, this really happened.
(Answer located at the bottom of newsletter)
Stat of the Day
10 years—Extra, extra! How much longer the NYT’s print edition might have left before it kicks the can. At least according to CEO Mark Thompson. Don’t worry though, email newsletter stocks are on the rise.
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Breakroom Answers
Question of the Day: Tuesday (Explannation)
Business Trivia: FedEx founder and CEO Fred Smith
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