Elites vs Everyone "Earnings Season Issue 8"

“Jon, thanks for the question. So a couple of things that I would like to comment on. I think the first and foremost is the pricing market has been very rational for the last several years. I think it's also important to remember that we are the price leader. In every market segment in the domestic market, we actually lead on price and that's because we have the better value proposition. We've got seven days a week, and we've got POD and we've got the faster network. So as I think about responding to the current competitive pressure, my job is to make it very difficult for our primary competitor to win back that share.

The team has done an outstanding job of onboarding the business that we won in the last quarter and we have some time to prepare for it. So the executive team has been out. We've met with a lot of these new customers. They're happy service is good. And that's really what I'm focused on right now is delivering just awesome service, and so they want to stay with FedEx because we're the better provider.”

“This leads to our long-term strategy of building the world's first consumer-facing architecture, interior design, and landscape architecture services platform inside our galleries, elevating the brand, and amplifying our core business while adding new revenue streams while disrupting and redefining multiple industries. Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion earnings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums, and apartments with integrated services that deliver taste and time value to discerning time start consumers. The entirety of our strategy comes to life digitally with The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design. Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 trillion to $10 trillion, one of the largest and most valuable addressed by any brand in the world today, a 1% share of the global market represents a $70 billion to $100 billion opportunity.”

“Sure. I think there's a couple of dynamics happening. I think you've got kind of a cycling of the backside of COVID, and you've got a cycling of the -- the dramatic rise in interest rates and the falloff of the highs of what I call a COVID and a federal funds rate-driven home market. So, from our view, I think that cycling happens at the end of this year.

And the question is, is there a longer downdraft in the home cycle? I think that the answered questions really deal with. If you say what's the problem with the housing market today? You've got this real delta in interest rates between people who bought a home over the last several years at dramatically low interest rates that are sitting there with 2.7% to call it 3.4% interest rates, 90% of the market is fixed. So, you've got 90% of market owning homes with really low interest rates, and you've got an interest rate gap. Current 30-year mortgages are going for 7%, somewhere between 6.8% to 7.4%.

It's kind of the range depending on credit. So, you've got a huge spread there. And what's compounding that huge spread is you haven't had home prices drop enough yet, right, to offset that margin spread. If home rates dropped, home prices went up 42% in the two years and the two years post the COVID -- through the COVID boom.

Once COVID hit and there was a -- everybody was stuck at home and focused on exiting cities. You had the biggest migration from cities to suburbs in history and biggest migration to second homes in history. So, you've got a lot of people that moved at a record rate. You've got a lot of people locked into really low interest rates.

Now, you've got really high interest rates and you have no inventory in the market, and you have no inventory in the market because people can't afford to buy a new home once they sell their home because they're going to trade 2.7% to 3.4% interest rate for, call it, a 7.2% interest rate maybe at the midpoint. And so, you've got a lock on that. We're going to begin to cycle this. So, if the Fed has CPI, if they have inflation under control, and we don't -- doesn't have to continue to be kind of tightening.

The question is, when do home prices come down enough for people to step up and pay the higher rate, or when do rates come down and close that gap? Either housing prices have to come down or interest rates have to come down or the gap doesn't close, right? So, you may kind of wallow at the bottom, or there could be further downdraft, if there's a more broader economic issue in the economy or if anything is happening with the commercial market with offices is not a good market. And our view is not all that negative news is kind of unveiled itself. So, there's -- from our view, we're kind of at the end of the worst of it. It's -- is there going to be a bounce? I mean, if you look forward at the market saying that we should expect interest rate cuts starting next year in Q2, Q3, Q4, maybe 100 basis points.

It's 100 basis points of interest rate cuts, move the housing market much, maybe it moves it a little. But I think there's going to be a bigger -- you got to close this gap. It's a gap that I've never seen. I don't think anybody on the phone has ever seen.

That's created kind of a conundrum in the housing market. And then you've got -- look, the news in the press is new houses are up 20%. Well, new house is only 10% of the market. The existing home sales is 90% of the market.

So, until you get existing home sales and this market stabilized, not a downdraft, that's going to be critical. So, we expect stabilization, we think, next year. We don't think there's going to be acceleration until there's interest rate cuts or pricing comes down. Home prices come down to kind of close that gap.”

“For the second quarter of FY '24, our diversified business model delivered total sales of $7.1 billion, down 13% compared to last year driven by lower retail and wholesale volume and prices. In our retail business, while total unit sales declined 7.4% and used unit comps were down 9%, we continue to achieve sequential quarterly improvement. Further comp sales improved sequentially by month across the second quarter. Average selling price declined approximately $1,200 per unit or 4% year-over-year. Retail gross profit per used unit was $2,251 similar to last year's second quarter record high of $2,282. We continue to expect this year's full-year per unit margin will be similar to last year.”

“We’re seeing good top of funnel folks shopping. It's just when it comes to actually meeting the monthly payments, that's where we see the falloff. I think specific to your question, we are seeing still an increased demand for a little bit older vehicles. In our own sales for the quarter, if I think about cars over six years old, 60,000 miles, sales for that pocket sequentially ticked up not only quarter-over-quarter, but certainly year-over-year. So there still is that demand. I think the market data would also tell you, if you look at vehicles that are older than 10 years old, that sector of vehicle is actually performing a little bit better than the zero to 10 at this point.”