Return to Transcripts main page
First Move with Julia Chatterley
Microsoft, Alphabet Shares Sink after Q3 Results; Cargoes of LNG Unable to unload at Ports; Ukraine's Largest Private Energy Company calls for Help; Chipotle Q3 Results Top Wall Street Expectations; Standard Charted CEO: The Whole System will Come Down; Brands Drop Kanye West after Anti-Semitic Comments. Aired 9-10a ET
Aired October 26, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move". And a busy hour coming up as always, including British Prime Minister Sunak
minding his first PMQ's. A spirited debate will bring you the news.
The U.K. budget has been delayed at least that buys time for appropriate reviews and in tech land, Alphabet and Microsoft triggering investor blues.
However, a rare Wall Street IPO was driving his car firm Mobileye debuts.
For global stocks, though the bulls are unable to light an investment fuse has done. Microsoft and Google's parent company Alphabet are lagging post
results as you can see there. The chips are down also for semiconductor maker Texas Instruments too, it's seen weaker demand from firms across the
economic spectrum.
All of these things warnings, warning sign of economic slowdown, as such the NASDAQ sector for the first time in four sessions. Europe struggling
too with the U.K. as you can see that the underperformer down some five tenths of 1 percent as Investors grapple with what the new Prime Minister
can do to help the broader economy Chancellor Jeremy Hunt now delaying as I mentioned his keenly awaited budget proposal until mid-November.
Halloween arguably never really felt like the right day. Heineken in the meantime shares today also reflecting some of those broader macro fears
call it a tipple topple, the bear maker over a barrel as sales soften shares as you can see down at some 8.3 percent.
However, a better earnings picture from restaurant chain Chipotle its continued to pass on rising input costs over to consumers. We'll be hearing
from the company's CFO later on in the show. Also of note today, Asia on the ascent, green arrows across the board for stock markets there as the
Bank of Japan announces fresh action to bring down rising bond yields ahead of its policy meeting this Friday.
Or this summit separate efforts to prop up the yen, the Japanese currency. And China's Central Bank promising fresh support measures too tech
Investors needing support, perhaps some emotional support after earnings so far this quarter.
And Rahel Solomon joins us now to go through it. Rahel, great to have you with us! Alphabet is actually beginning of worrying week I think for some
of these bigger tech companies, disappointing on the advertising spend a dramatic slowing in revenue. And actually, I think a revenue decline at
YouTube walk us through these numbers and what they're doing to mitigate.
RAHEL SOLOMON, CNN CORRESPONDENT: Well, Julia, I think emotional support will be needed, certainly after these reports, but maybe even beyond this
week. So what we learned in Alphabet's report was quite simply disappointing to Investors, as you pointed out, it was a miss on the top
and the bottom lines for revenue and earnings. A few things are happening here.
Julia, you have some macro headwinds. In terms of a pullback in digital ad spend; we can pull up this slide for you and just show.
And the company saying that it is seeing a pullback in advertising in certain industries like insurance, loans and mortgages. And of course,
Julia, we know here in the U.S. what's happening in the U.S. mortgage market. Demand has really fallen off a cliff as interest rates for a
mortgage remain high and home prices remain stubbornly high.
So you see, you're seeing that reflected and hurting some of the digital ad spend but also the stunning dominance of players like Tic-Tac that is
hurting players like Alphabet. And then as you pointed out, we're seeing something that we really haven't seen in quite some time.
And YouTube ad revenue actually fell or revenue rather fell for YouTube about 2 percent. That is something Julia we have not seen since Alphabet
began separating YouTube's revenue. So that was certainly something that surprised Investors to the downside.
One analyst putting it this way, of course, Alphabet Google best in class in the digital ad spend industry. One analyst saying when Google stumbles,
it is a bad omen for digital advertising at large. That comment coming from Evelyn Mitchell.
Speaking of digital ad spend, Julia we're going to learn a lot more when we hear from Mehta after the bell today. But more emotional support perhaps
needed after these warnings from Alphabet.
CHATTERLEY: Yes, hand holding, and I was interesting to see the CEO saying, look, we can be more efficient. He wants to make the company more 20
percent, I believe more efficient. It was interesting to look at the employee growth.
The total full time worker headcount 186,779, that's up from just over 150,000, last year. And he talked about slowing that employee growth, so
not cutting jobs, just slowing the growth. Interesting, it's sort of cautious. But we've got to be I have a little bit of perspective on this as
well. What about Microsoft?
SOLOMON: I think that's a great point right? Not cutting jobs, but saying that they're going to slow on their hiring so that too a bit of a warning.
Microsoft's earnings were a bit of a mixed bag, right?
[09:05:00]
SOLOMON: I mean revenue actually grew up 11 percent and that was better than expected. But net income fell 14 percent. That too however was better
than expected. So in the Microsoft space, the company reporting its cloud business Azure actually saw growth of 35 percent.
Although that is slower and lower than analysts were expecting. And this appears Julia to also be hitting Amazon stock. Of course, you think Amazon,
you think its AWS cloud business, and that stock also being hit a bit hard this morning on the back of these results?
So certainly lots of headwinds for these tech companies to sort of wade through, and to sort of grapple with and lots of pain being felt among
Investors across the industry.
CHATTERLEY: Rahel, great to have you with us. Thank you so much for that. OK to London now and the new U.K. Prime Minister laying out his economic
goals before lawmakers.
Rishi Sunak was greeted with cheers as he took his first session of Prime Minister's questions or PMQ's. He told MPs stability and responsibility at
the forefront of his mission for the economy. And he defended the actions though, of his predecessors.
(BEGIN VIDEO CLIP)
RISHI SUNAK, PRIME MINISTER OF BRITISH: Mr. Speaker, my record is clear. When times are difficult in this country, I will always protect the most
vulnerable --. We did in COVID, and we will do that again.
(END VIDEO CLIP)
CHATTERLEY: OK, let's get more now from Bianca Nobilo in London. Bianca, you and I were talking about this yesterday. Even more confident that I
think command of the details, a pretty impressive performance I call it. What do you make of what we saw today?
BIANCA NOBILO, CNN CORRESPONDENT: Hugely impressive trajectory. Julia, you and I over the last few days have spoken about that first speech he gave
which was quite nervous, definitely not sure footed at CCHQ. Then behind the podium yesterday when he was officially Prime Minister, it was
businesslike.
But it was more - and serious. And then today, we sort of far more confident performance. Some smiles as well, obviously Sunak hadn't thought
that was appropriate until this point, because he wanted to convey the severity of the challenges that lay ahead.
What we also witnessed is that when Sunak is dealing with detail and dealing with things he can research and brief himself on. He is far more
comfortable than if he's for example, having a spontaneous face to face interview where he's being asked questions about his personal life and his
background. This is where he shines.
And the key element here was the cheers from the back benches. They were very pleased with his performance, his surefootedness, his competence, how
he was sharp in his responses. And the general mood as well certainly at the beginning was more celebratory.
We had the Leader of the Opposition, Kier Starmer and the leader of the SNP, Ian Blackford. And Westminster saying that they were really proud and
celebrating the fact that Rishi Sunak was the country's first Prime Minister of Asian heritage.
But Starmer didn't waste any time he started twisting the knife on Sunak about his reappointment of Suella Braverman. As you know, a very
controversial move in his new composition of cabinet to bring her back just six days after she was sacked for a security breach, Julia.
CHATTERLEY: I was going to ask you about the delay for the fiscal plan, of course, into November beyond Halloween and the 31st of October. But we've
run out of time. I'm sure we will come back to this at a separate point.
Bianca but it does at least give them time now to get this budget plan this autumn statement reviewed by the appropriate institutions and bodies which
I think's key here too but a command performance first PMQ's. Bianca, great to have you with us, thank you.
OK to Ukraine now, Russian missiles struck a gas station in the central City of Dnipro. Ukrainian officials say two people died in the attack,
including a pregnant woman. Meanwhile, Russia continues to claim that Ukraine is preparing to use a so called Dirty Bomb, prompting President
Biden to issue a stern warning.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF UNITED STATES OF AMERICA: Let me just say Russia will be making an incredibly serious mistake. If we're to use a tactical
nuclear weapon I'm not guaranteeing you that it's a false flag operation yet, don't know. But it would be a serious mistake.
(END VIDEO CLIP)
CHATTERLEY: Nic Robertson joins us now. Nic, what do you make of this we were discussing yesterday. Is it too alarmist to use the word alarm, clear
alarm in in Western Governments about the risk of escalation and the use of a so called Dirty Bomb?
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: There is a concern about a risk of escalation from the Russian side. There isn't concern about
Ukraine using a dirty bomb. Ukraine doesn't have a dirty bomb. It says in fact, I sat down with their Military Intelligence Chief General Budanov
just a couple of hours ago. And that was my first question for him.
(BEGIN VIDEO CLIP)
ROBERTSON: Russia accuses Ukraine of having a dirty bomb. Do you have a dirty bomb? Are you preparing a dirty bomb?
[09:10:00]
GENERAL KYRYLO BUDANOV, CHIEF OF UKRAINIAN DEFENSE INTELLIGENCE: This is a question that became something of a joke. My answer is direct we are not
getting prepared. We are not working on a dirty bomb.
ROBERTSON: Ukraine has invited the International Atomic Energy Agency inspectors to come here. When are they due to arrive? Where will they go?
And when do you expect their results? BUDANOV: We're absolutely supporting the visits of the IAEA mission. And we are waiting for them. We're waiting
for them to visit all nuclear facilities.
ROBERTSON: And Russia has identified two sites, Science Academy here in Kyiv and a mining facility in the center of Ukraine. How important is it to
you that the IAEA inspectors, very quickly clear Ukraine of all these baseless Russian allegations?
BUDANOV: Sooner they come, the better things will be.
(END VIDEO CLIP)
ROBERTSON: And, of course, the interview went on longer. And one of the interesting details that came out he does not believe. And he is leading
the Military intelligence here in Ukraine.
He does not believe President Putin actually wants to have a nuclear escalation. He thinks that what President Putin is trying to do right now
is posture to try to get into peace talks, which of course, Ukraine is not prepared to do. He said, until Russia pulls back to the 1991 lines. That's
the pre 2014 invasion lines.
And I think one other important detail that came out there. And you heard him referenced said on that point about the importance of the IAEA
inspectors coming and going to all nuclear facilities. He particularly wants them to get full access to where Russia controls Zaporizhzhia nuclear
power station Ukraine's power station, of course.
That Russia now controls, because they're concerned about the activities of Russian Military forces around some of the spent nuclear fuel rods there
and the dangers that could imply for the area.
CHATTERLEY: Nic Robertson, great to have you with us as always, thank you. OK, crisis avoided for now, after months of warnings that the European
Union could face an energy crisis this winter. It now looks like the block has enough gas in storage to make it through.
Anna Stewart joins us now with more on this. Let's be specific, it feels like a combination of luck and management. Self-rationing from consumers in
Europe, fingers crossed that the weather stays mild.
And the result is that we've seen spot gas prices, so current gas prices coming down so some of the concern is perhaps filtering out of the market.
It's clearly more complicated, but it's good news.
ANNA STEWART, CNN REPORTER: Yes, good news in the middle of a full blown energy crisis. It's certainly not what anyone was necessarily expecting.
And you can see with the gas futures, the - benchmark here in Europe.
They dropped to a level we haven't actually seen since Russia started reducing outflows of gas through Nord Stream. And on Monday, Dutch spot
prices for next hour delivery actually turned negative. So there is a lot to celebrate here, Europe has worked really hard to procure LNG from other
suppliers.
It's done very well, in that sense. Storage facilities are well above target. They wanted them to be 80 percent, full by November. They're well
over 90 percent at this moment.
And actually last week, the EU Commission President said, the EU has already cut more than two thirds of the Russian gas supply they used to
rely on just only last year. So that's above their target. I would argue have they actually been able to cut it themselves?
Or did Russia simply stop sending it gas. And another part of the good news, as you say, is also the weather on seasonably warm weather here in
Europe, which means demand is a lot lower than you'd expect. So that's kind of, I'd say, where the good news ends.
CHATTERLEY: I was about to say, I think government's also been quite tight lipped about this. Because the danger of perhaps in that prices coming down
at least in the short term is that people decide, OK, well, we've got storage prices are coming down.
Perhaps I'll use a bit more on it and it reverses the situation we're in. You know, when I look at the Futures Curve. And what prices say further
out, the news is less good.
STEWART: Yes, and the fact that Europe has more gas than it knows what to do with is actually a big problem. It doesn't have enough in terms of LNG
terminals, in terms of regasification facilities. It doesn't have enough storage facilities.
They're so full perhaps because they don't have enough to see them beyond this winter. At least if winter was really cold, they could still actually
be in a bit of a pickle. Right now, according to a data foam core index, around 35 LNG vessels are just floating around Europe or on their way to
Europe at very slow speeds.
Because right now, they can't really dock because Europe doesn't know what to do with it LNG prices are expected to rise as much as 60 percent by
December.
So these LNG vessels will be floating around until then. And that is why EU talks on their so called Energy Union are so critical. They've done a lot
in terms of reducing demand and increasing storage and getting more LNG orders in.
They've got some way to go. And one of the big thorny issues they're talking about them at the moment is capping the price of gas, whether it
should happen. How it should work?
[09:15:00]
STEWART: And how they can ensure that it doesn't really backfire in terms of the energy supplies.
CHATTERLEY: Anna Stewart thank you so much for that we shall see. OK straight ahead rolling blackouts in Ukraine, the country faces a dark
winter as Russia targets their attacks on power distribution. I speak with the CEO of the country's largest private energy company about the help
needed to fix critical energy networks.
Plus, Chippy for Chipotle, a robotic assistant getting a test runs. Chipotle CFO joins us later to discuss tortilla tech and earnings after the
break.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move", a bit of winter is approaching in Ukraine and the wars taking a devastating toll on the energy industry.
Russian forces have bombarded electricity and heating networks.
The result rolling power cuts water pumping stations disabled and widespread internet outages. President Zelenskyy says more than a third of
the energy sector has been destroyed or incapacitated. And experts in Kyiv say Russia is aiming to plunge the country into complete darkness.
DTEK, the largest private energy company is currently providing 20 percent of Ukraine's electricity. But it says it needs help to fix and protect its
facilities as the onslaught continues. And joining us now is Maxim Timchenko; he is the CEO of DTEK. Maxim, great to have you on the show once
again! I read your October update.
MAXIM TIMCHENKO, CEO OF DTEK: Good morning.
CHATTERLEY: Good morning, and you said and it's a very important point that you made that the biggest cost here is not in terms of energy loss or
financial cost. It's in human loss. And I know that you've lost I believe 95 individual employees and you still have 15 people missing.
I mean, that's heartbreaking for the families involved for all of you in the country. And of course that the business. Just talk me through that.
TIMCHENKO: It is the highest possible price. We pay this war just since 10th of October when massive attacks of energy entropy series started by
Russians. We have 10 people injured and one was killed. And basically Putin and Russia declare energy war on Europe, on Ukraine many years ago by
guarding gas supply building, building gas pipelines to bypass Ukraine.
[09:20:00]
TIMCHENKO: And now they swore transfer into completely different from its physical destruction of our critical infrastructure. Since 10th of October
more missiles and drones were used to attack critical infrastructure and military facilities. This is the face of Russia.
So they create humanitarian disaster in the middle of Europe. This is reality. This is where we are at the moment, but we are keep fighting.
CHATTERLEY: I mean, I mentioned in the introduction too. That you're currently providing around 20 percent of the electricity for Ukraine. Talk
to me about those specific drone and missile attacks that the country has faced since October, the 10th.
How much capacity have you lost? And just give us a sense of your ability. And how quickly you can repair that or get that back up and running?
TIMCHENKO: Today, we operate six power stations producing even today, even more than 20 percent of electricity; five of these stations were attacked.
So we did everything possible to bring them back, and four of them already back to the grid. But it's not only us; its energy system of Ukraine, the
whole system was attacked.
And today, we cannot transmit about 25 of electricity needed to consumers. This situation that's why we have to go to rolling blackouts over all
regions of Ukraine and this situation is very much critical today.
What we need is equipment to replace damaged equipment. And we try to find everywhere in Ukraine and also appearing to our partners to bring.
As probably, you know, when the war started, our military officers and our President was saying, give us equipment and we will fight. Now this is what
we ask as Energy Company is power generous. Help us with equipment, give us equipment, and we will keep fighting, bringing back electricity restoring
our power stations.
CHATTERLEY: Maxim, can you tell me who you're talking to are either other companies or other nation States stepping up and providing this. I mean,
you're talking I'm assuming about basic electrical equipment needed to replace some of the damaged pieces and parts of the infrastructure.
TIMCHENKO: So we do everything possible in terms of contacting our colleagues from other energy companies for basically operate coal fired
power stations. We speak with vendors, suppliers of Cape Whitman's a company like Siemens Abb. We have long term City history, legend
relationship.
We speak to other governments and humanitarian organizations so that they help us to build this logistics. So this is the critical point for Ukraine
to ask for this help from the world because if they lose this energy war, we do not know consequences for the whole country.
CHATTERLEY: I want to come back on that bigger point about what Russia is trying to achieve here? And how you better protect the country but I know
you've also said you're trying to erect structures around transformers around some of the grids, the electrical grids as well to try and protect
them from drone or missile attacks.
How much progress are you making there? And is that even feasible? Is it even possible to protect against those kinds of attacks, and this kind of
technology?
TIMCHENKO: To be honest with you, we are very much dependent on our Air Defense Forces. So we work very, very close to our forces. And we hope that
they can protect us.
But also we build constructions, concrete blocks, everything possible to protect our equipment on open air. But if it's direct heat, that there is
no chance that all this construction can help us. We rely on air defense. And I hope that our partners will hear us that we need much more today to
protect critical infrastructure.
CHATTERLEY: Maxim, you touched on it earlier. This is bad enough at this point in time. But if this continues, and the winter weather progresses,
it's going to be even more devastating.
Is that what you expect Russia to do to continue to target critical infrastructure like power in energy services in the country? And for those
that are saying they actually are aiming for a complete blackout in the country? Do you think that's what the intention is?
TIMCHENKO: I'm confident what are the intention can be from terrorists? So it's obvious for the whole civilized world that Russia is terrorist's
country. And they use methods of terrorism.
So this is the intention to cut decrease the supply from our people so that they will be freezing.
[09:25:00]
TIMCHENKO: So that they create humanitarian crisis which will touch millions of people. Because people will have no choice either go to the
west. And have refugee crisis, or basically there is no other choice if we completely cut off, replaces the support and heat you're on.
CHATTERLEY: How do you expect Ukrainian people to react in that kind of situation? And as you pointed out, for those in the West that perhaps could
do more, we are talking about an even wider scale refugee crisis potentially, that needs to be recognized.
TIMCHENKO: It is something that should be reality in eyes for those who are helping us. And that basically, the whole world sees these features of
attack in the center of Kyiv on 10th of October. But people still in Kyiv, we are still working.
People spend half of their day in both bomb shelters. They cut off electricity for four, five, even 10 hours during the day. But we are
staying and fighting.
And this is something that make Ukrainian special, special nation in this fight. It's difficult to predict how situation will be development. We
still hope that we can cope with all these challenges.
Even today, when we have 25, 30 percent of electricity shortage in the country we develop different plans how to develop local power sources? How
to find a technological solution of the situation dependent on the regions? So what I can say, we have no choice, we'll keep fighting and eventually we
will be.
CHATTERLEY: But to your point too in the interim, you need critical help in repairing some of the damaged infrastructure. And we emphasize that call
that's what you're asking for here and requiring. Maxim, I just want to get your view on one other story that we continue to cover.
Russia has suggested that they're concerned that Ukraine is preparing some kind of dirty bomb. And obviously the Ukrainian government has said this is
ridiculous. Western governments, the United States, the U.K. have come forward and have obviously talked to the Russian government.
And the fears are that this is some kind of false flag operation by Russia to escalate this war. Maxim, how concerned are you of some kind of nuclear
escalation in Ukraine?
TIMCHENKO: So I think that it's obvious that Russians cannot be on Battlefield. And they use different methods. So they attack civilians, they
attack civilian infrastructure; they cut heat from children and from families.
This is the way how they fight. And all these nonsense ideas about dirty bomb was something that just the face of Russians, they aligned the line
for years. And basically, of course, our officials responded Ukraine is ready for any kind of inspection.
And so it's difficult to comment what next Russian can create in their minds. Accusing Ukraine, Ukraine is something that never happened. So, of
course, we cannot exclude any nuclear risk and attack from Russians after what they've done since February. But as I said, we'll keep fighting we
will do everything possible to get prepared for the worst case scenario.
CHATTERLEY: Maxim, good to speak to you thank you so much for your time today. I know you and your people are incredibly busy and our hearts are
with those that are missing and also the families of those whose people and family members have been lost. Thank you, sir stay safe. The CEO there of
DTEK we'll be back after this stay with us.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back "First Move"! We're looking at a weaker Wednesday on tap for U.S. stocks the NASDAQ and the S&P 500 falling for the first
time this week and all because tech is not up to spec disappointing results from both Microsoft and Google parent firm Alphabet pressuring the entire
tech market.
A cloudy outlook for Microsoft's cloud is Chicken Wing weakness for Amazon shares too whose recent growth has also been driven by strength
particularly in that space. Shares of three firms Microsoft, Alphabet and Amazon as you can see sharply lower in early trade this morning.
So they're the ones to keep an eye on. And the tech earnings torrent does not end there. Meta, Facebook reports after the closing bell today
remember, it's exposed to the same advertising sales pressures that we're seeing impacting Google. So that's what we'll be looking for when those
earnings hit later.
Now on to a Burrito Bonanza, Restaurant Chain Chipotle posting better than expected third quarter numbers revenues jumping 14 percent, with customers
undeterred by average price hikes of 13 percent over the past year, as the firm continues to pass on higher costs to consumers.
Chipotle owns and operates all of its nearly 3100 restaurants from the United States and Canada to the UK, Germany and France. It also operates a
$50 million venture fund investing in new technologies, including automated production and plant based meat.
And joining us now, Chipotle CFO Jack Hartung, Jack, great to have you with us once again, and congratulations on another strong quarter! What you've
talked to us about in the past this sort of distance between you and competitors that allows you to pass on some of these costs remains key.
JACK HARTUNG, CFO, CHIPOTLE MEXICAN GRILL: Yes, exactly. And you know, Julia, that same gap exists today. You know, we talk about the fact that
our chicken burrito, which is what more than half of our customers get, they either get a chicken bowl or chicken burrito still costs a little less
than $9 on average.
And when you compare that meal to any other competitor in the fast casual realm, especially somebody that has some of the food ethos, and the real
cooking that we have, you're talking about entree prices for a chicken entree and the 11, 12 sometimes $13 range.
So we still even though we've had to, you know, defend our business, you know, based on the inflation that we've seen, we still have a large gap to
other competitors in the industry.
CHATTERLEY: And that makes sense when I look at the whole range of inputs that you're talking about where you're seeing these price pressures dairy
to tears, avocados, it's packaging its labor too. I feel like forecasting to some degree is a fool's errand even now. But is your any sense that any
of that really is slowing what can you tell us about sort of current quarter to pushing into next year?
[09:35:00]
HARTUNG: Yes, you know, the visibility isn't great just because of what we've gone through in the last year or a couple of years. But it does seem
like things are starting to stabilize a bit. We've got a few things that are pressure on the upside like beef looks like it's still going to be a
little upside pressure are cooking oils, as well and then tortillas.
On the other side, it looks like there's an opportunity for things like, you know, dairy, and some of our packaging to ease a little bit into next
year. So it seems like it's trying to ease into kind of more of a normal pattern. So but we'll have to let it play out because that certainly
predicting what happened in the last several quarters has been very difficult with the supply chain challenges we've seen.
CHATTERLEY: Even with the success that you're proving to have, I remember you saying it's a wealthier customer that's continuing to come and showing
such resilience in terms of what we're seeing for broader consumption, never mind for your product and the less wealthy or perhaps that are sort
of reining in their spending to some degree.
How has that changed quarter over quarter as well? Are you seeing more of that sort of stable levels of engagement? I'm just trying to get a sense
of, I guess, degree of slowing, even underlying the strength of your business?
HARTUNG: Yes, we saw another quarter very similar to what we saw in the second quarter, where our higher income consumers, those who are making,
you know, over 150,000 or so they're coming more often, it's those consumers in the under 70 and then between 70 and call it 150,000.
Those are the ones that seem to be a little bit more discerning; those are the ones that seem to be visiting less often. And it's a similar pattern
that we see in retail in general and other restaurants.
That is the consumer that with very high prices of gasoline and vacations and restaurants. And you know grocery inflation has been high as well.
Those are the consumers that seem to be pulling back a little bit.
CHATTERLEY: The other thing that is driving growth is that you continue to open new stores, which I think is also a sign of ongoing confidence,
irrespective of what we're seeing in terms of some of the broader challenges. I see digital now is 37, just over 37 percent of revenue.
And of course that's come down as people grow in confidence and get back out there and visit restaurants which are a good thing. I guess it also
helps the bottom line because you're not paying the third party delivery fees and the commissions for that. Jack do you worry about that decline or
you think that's sort of a happy balance to find between those that are coming in store and spending and those that are doing it digitally?
HARTUNG: No, Julia I think that's just kind of a normal post pandemic transition, where people were really frankly stuck in their homes, they had
no choice but to either pull up and grab your food curbside or through a in our case a Chipotle and, or have their food delivered.
And now that people are vaccinated, they feel more comfortable going out and about they want to be outside. They want to dine at a restaurant, even
if they're dining somewhere else. You know, when the weather's good, they may come to the restaurant, pick up their food and then eat outside in one
of our patios and so I think its normal activity.
That thing now that we're doubling down on with our new store growth is that 80 percent of our new restaurants do have the Chipotle. And while
digital overall is in that 37, 38 percent range when we open up a restaurant with a Chipotle, it's more like 50 percent.
And so the consumers love not just the convenience of Chipotle, but also the value as well because you're not paying somebody to bring the food to
your house and it's an easy drive up to our you know, our Chipotle. We agree on what time your food is going to be ready. So your food's ready to
go when you drive up, you grab your food and off you go.
CHATTERLEY: I want to talk about Chippie as well. Your autonomous kitchen assistant made by Miso Robotics, it's going to make and season tortilla
chips with salt and lime. Because as you expand these stores, the use of sort of labor saving technologies.
I'm assuming is going to significantly grow too, which is part of the venture fund. Talk to me about Chippie and how excited you are. I know this
is a California thing for now but growth potential?
HARTUNG: Yes, listen, we're very excited about it. I mean, we have to be, you know, not getting ahead of ourselves. It's in one restaurant right now;
we've been doing more of an ops test. So it's in a restaurant, but we've been testing it ourselves.
Just this week, we are having some customers on a very controlled basis. Try the chips and make sure that they love it that it's got the right line,
the right salt and the right texture. And then soon after, within the next few weeks, we hope that we'll start serving customers along the line.
But we're very excited about it because listen to the chips making of the chips in the morning is not something that our crews love to do. It's very
hard over the fryer. It's a little bit you know, messy. I mean, we're dealing with cooking oil; it can be a little bit messy.
And so if this is something we can basically take from our crew so they can focus on other things, whether it's making guacamole or serving the
customer. We think this is a win-win for our customers for our business and for our crews.
CHATTERLEY: Yes, that's absolutely going to be my next question was hang on a second, what about the workers but I like the idea of substituting away
from something that they simply don't enjoy doing anyway.
So if they can be more efficient, doing other things, it's a good thing. And specifically around 15 percent of your operations or your businesses
are in California and you've also talked about the prospect of potential legislation there to raise the minimum wage quite significantly.
[09:40:00]
CHATTERLEY: I mean, we're talking $21 to $22 an hour, it's currently $14, I believe, but you pay significantly more than that already. Jack if that
legislation was enacted, what would that mean for your business in terms of hiring in terms of growing of opening new stores, I mean, that would be a
material increase in wages and labor costs?
HARTUNG: Yes, you know, across the country, we pay an average rate based on the actual hours' worth between 16 and $17. We've been a leader in terms of
paying wages. We've been a leader in terms of benefits.
You know, paying benefits such as educational so our employees can get a debt free degree. So we will pay for the entire degree. We also develop our
folks as well, and 90 percent of our managers come from internal.
So if you join Chipotle, and you have the desire to learn how to lead people will teach you, if you have a desire to learn how to cook, we'll
teach you, if your desire to learn how to run a business, we'll teach you how to do that and whether you stay with Chipotle or not you have the
skills to take wherever you go.
Listen, we don't love the legislation. We don't think this is necessary. We don't think you know, third party body needs to come in and you know
legislate what the wages should be. If it happens, we'll be able to, I think withstand that.
We have a very strong economic model, it would result in inflation, I think in all restaurants. I think Julia, it's also likely to hurt the little guy
even though there's a cut off of I think it's over 100 restaurants.
The little guys are going to have to compete with talent for the bigger companies like Chipotle in terms of wages, so everyone's going to have to
pay higher wages. I think it's going to be probably tougher on little restaurants than it is like a restaurant like Chipotle. We'd rather have
this one to one relationship in terms of the benefits and the pay with our employees. But if the legislation passes, you know, we'll handle it.
CHATTERLEY: Yes, that's an interesting point as well about your ability to weather this relative to much smaller, smaller, medium sized businesses in
the state. Jack, always great to chat to you thank you so much for joining us once again this quarter and great news once again in the earnings. Jack
Hartung there the CFO thank you!
HARTUNG: Thanks Julia.
CHATTERLEY: Thank you. All right, up next, what one of the biggest names in banking sees as one of the biggest challenges at this moment? We hear from
the CEO of Standard Chartered about his concerns over the strength of the U.S. dollar.
(COMMERCIAL BREAK)
[09:45:00]
CHATTERLEY: Welcome back to "First Move"! Global banking giant Standard Chartered has operations all over the world with a particular focus in
Asia, Africa and the Middle East. The firm reported a 40 percent rise in profits in the third quarter as rising interest rates help boost income.
Now ahead of those results, Richard Quest caught up with the company's CEO, and they spoke about some of the wider challenges including a strong U.S.
dollar listen in.
(BEGIN VIDEOTAPE)
BILL WINTERS, CEO, STANDARD CHARTERED: You know that the biggest impact on us over the past year or so actually has been the lockdown in Hong Kong.
And the fact that equity markets have been so poor, which has affected our business with affluent investors, right with wealthy individuals.
So of course, that's down. But other things are up the cross border trade that we're doing our risk management and financial markets, that we report
our earnings tomorrow. So I can't give any inside scoop. But we had a very good first half of the year. Third quarter has been consistent in terms of
the economic activity and trade activity. So broadly, yet we're in super good shape.
RICHARD QUEST, CNN CORRESPONDENT (on camera): Then you get the recession that's coming in the developed world.
WINTERS: Could be.
QUEST (on camera): Well, come on - today they are going to happen?
WINTERS: Cloud be.
QUEST (on camera): How's that going to influence opinion?
WINTERS: It doesn't help at all. But that's keep in mind that we're anchored, which is Africa, Asia, Middle East. We're not going to have a
recession--
QUEST (on camera): No but the spin over--
WINTERS: There will be. The whole system is going to come down for sure. It's going to come down. Thankfully, we're starting here with a really
strong capital position, lots of cash in the bank, very clean loan portfolio with very small credit losses.
So even if we have an uptick from here, because of the recession, we'll be fine. And in fact, I think the global economy will be fine. We just have to
let that rat pass through the snake.
QUEST (on camera): You are signing - I want to say optimistic and say Sanguine?
WINTERS: Sanguine, I think we're all prepared for bad times in the next year or two. And I don't want to minimize that, because bad times are very
bad for the most vulnerable people. So you're an emerging markets country that has an external debt problem, or trade imbalance. Life is very tough
right now, as we've seen in places like Sri Lanka, these are a lot of the markets where we operate.
QUEST (on camera): How can you help in those places, because I was at the IMF and World Bank, and I've been at the WTO? And essentially, they're
saying that we learn from the pandemic that the developed world doesn't really help sometimes. It's every man and woman for themselves in the
lifeboats. So with the Sri Lanka's and the emerging markets, yes, I've higher interest rates, it's going to get worse?
WINTERS: It's going to get worse. And the strong dollar, the strong dollar is very, very impactful for these countries. I'll say the obvious, which is
the best cure is prevention.
So the earlier we can get in and help these countries to get things in balance, the better. But as we sit here, right now, it's probably too late
to prevent. So we've got to come up with some different cures.
QUEST (on camera): What are the unusual aspects of the UK financial debacle in the last month, and there have been many? But one of the ones that I'm
sure people like you are looking at is how the LDI from the pension funds these rather tedious instruments that were have been around for decades
that were thought of as being genuine hedges suddenly appeared to be ticking time bombs.
WINTERS: Yes.
QUEST (on camera): What does that tell us?
WINTERS: Yes, it tells us to tell risks manifests themselves all the time. And like, I would venture to say every pension fund tested their liquidity.
Do we have access to cash if a certain thing happens?
Nobody's tested for a full percentage point increase in long term gilt yields overnight. I don't think anybody thought that that was a realistic
possibility. Now we know it is. So the system will recalibrate just as the system did after the financial crisis. You get used to these black swan
events, as they're called.
QUEST (on camera): So does this mean now there could be other instruments buried elsewhere that are ticking?
WINTERS: Yes, of course. And the idea that we're done with the black swans, forget it, there will always be black swans, probably calls for being
better capitalized, generally having more cash in the bank liquidity and technical terms, generally. And if you get those things sorted out, then
you can absorb the black swans.
QUEST (on camera): Finally, the one thing that everybody says is the banking system is robust.
WINTERS: Yes.
QUEST (on camera): In fact, Jamie may say, and complain about too high capital requirements, and Basel three may all be a real pain in the butt
for the rest of you in terms of the amount. But having just seen the Bank of England, I think I'd be happier that you will lending a little bit less
WINTERS: Yes.
QUEST (on camera): --having bigger buffers?
WINTERS: Well, we're lending a fraction of what we learned pre 2008. So we are much, much, much stronger than we were then. But yes, there's a really
interesting question, what point should the banking system accommodate every risk that could hit us?
And at what point do you say actually, the central bank should step in at some point? Let's think about some of the horrific acts of war or acts of
nature. Should banks be capitalized to protect against the worst possible scenario?
[09:50:00]
WINTERS: Well, if we are, the economy will grind to a halt. So central banks can manufacture liquidity pretty much for free. And that's what the
Bank of England did in this LDI crisis. I think that's a perfect example of where you draw the line and say up to a point, the private sector has to
take care of itself. Well, my point the central bank can actually smooth things through.
QUEST (on camera): On that point will be a moveable feast?
WINTERS: If you knew what it was in advance, you'd protect against it in advance.
(END VIDEO TAPE)
CHATTERLEY: That's a great conversation. OK, still to come here on "First Move". Billionaire status may the latest financial fallout Rapper Ye, stay
with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! Corporate America saying nay to yay major brands the latest being Adidas have cut ties with the rapper who
formally went by Kanye West after he doubled down on anti-Semitic comments he made online.
At the same time Gap and Footlocker have pulled all Yeezy merchandise from their shelves. The fallout causing Forbes to drop Ye from its billionaires
list saying the botched deals now make him worth just $400 million.
Paul R. LA Monica joins us now with more. Paul, great to have you on the show! Christine and I were talking about the financial value of this
contract with Adidas. And Ye it seemed pretty sure that no matter what he said he wasn't going to lose it. Now the financial consequences it seems
are becoming clearer?
PAUL R. LA MONICA, CNN REPORTER: Yes, there are clear for both Ye and they are clear for Adidas as well. This is a company that is obviously a global
conglomerate, but they said that they're going to take a hit to the tune of nearly $250 million in the fourth quarter from last sales as they wind this
down.
So obviously this is not something that I think Adidas made this decision and, you know, a rash moment. They had to really consider whether or not
they should cut ties like many other companies have done.
And that's something that will be potentially a problem down the road unless they want to find a way to re-launch the Yeezy line which they seem
to be hinting they could do because they claim that they own the brand rights not yet.
CHATTERLEY: That's exactly where I was going to go next because I saw reports on this too. I mean, you will imagine that he believes he owns all
the rights to Yeezy and everything that every product that comes from it, but not necessarily the case?
MONICA: Yes. I think it's going to be difficult for Adidas, though. I mean, this has been a very successful product launch for them and brand. But to
give credit to Ye, he obviously had a lot to do with the creative beyond behind this line of products. You have to wonder without him can Adidas
really say that we're selling a Ye-less Yeezy brand.
[09:55:00]
MONICA: What does that mean? Do consumers still want it? He seems to be a pretty toxic person right now with regards to commercial enterprise you're
even seeing it with his music.
My colleague Frank Pallotta has a story up on "CNN Business" right now that notes that variety is reporting that, you know, streams are down nearly 25
percent in the past week for his music.
AirPlay is down almost 15 percent so you have to wonder, you know, what does ye do next? Does he try and rush out a new album and will Spotify and
Apple stream it?
CHATTERLEY: Just say the "A" word again Pull your way?
MONICA: Ye.
CHATTERLEY: No.
MONICA: Which "A" word?
CHATTERLEY: I can't do it now.
MONICA: Oh, Adidas said - I'm sorry. I can't do--
CHATTERLEY: You have to say your way not in my way--
MONICA: I see - I see where you're going Julia? Yes.
CHATTERLEY: Adidas--
MONICA: I can't say Adidas. I grew up on DMC.
CHATTERLEY: You did it.
MONICA: They didn't say my Adidas. It's my--
CHATTERLEY: That's it for the show. Goodbye. Goodbye. Goodbye. "Connect the World" is up next, we'll see you tomorrow.
(COMMERCIAL BREAK)
END
