Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.

The final week of the first quarter of 2022 saw the three major indices generate positive performance, with the S&P returning 7.5%, the Nasdaq 20.8%, and the Dow Jones eking out a 0.9% return, closing at $4,109.31, $33,274.15 and $12,221.91, respectively.

The week started off with an ongoing focus in the banking sector jitters. Credit default swaps (CDS) for Deutsche Bank shot up 220 basis points last Friday — the most since 2018 — following a 15% decline in the bank’s share price as investors worried about its viability, a result of the fallout of Credit Suisse writing down $17 billion of its AT1 bonds as part of a takeover by UBS over the weekend.

In the latest on Silicon Valley Bank, it was announced that First Citizens BancShares would acquire SVB. First Citizens will assume SVB’s assets of $110 billion, deposits of $56 billion and loans of $72 billion (representing a discount of $16.5 billion) as part of the deal, which will be funded in part with a line of credit from the FDIC, who took control of SVB following a bank run on its deposits.

On the earnings front, Micron Technology reported Q2 2023 financials, with revenues of $3.69 billion falling short of expectations and a net loss of $2.3 billion far exceeding expectations of $900 million, owing to a steep inventory write-down of $1.43 billion. However, their sales forecast exceeded expectations which provided a glimmer of hope that the worst is behind the company. Lululemon reported their Q4 earnings, beating EPS and revenue estimates thanks to the higher-income consumer cohort and strong FY 2023 guidance which propelled the stock 12.5%.

Markets began to rally mid-week as jitters surrounding banking sector fears ebbed, and personal consumption expenditures—PCE, the Fed’s preferred inflation gauge—came in slightly below expectations, showing signs of cooling inflation, with headline PCE coming in at 5.0% versus 5.1% expected and core PCE coming in at 4.6% versus 4.7% expected. Consumer sentiment fell for the first time in four months to 62.0, with consumers increasingly expecting a recession ahead. One-year inflation expectations dropped to 3.6% from 4.1%, but remained above the 2.3-3.0% range seen in the two years prior to the pandemic, while long-run inflation expectations came in at 2.9% versus the 2.8% expected which goes against the Fed’s goal of keeping such expectations “well-anchored.” Find this and more in this week’s Blue Room Weekend Update..

Friday’s Close (Weekly Performance)

S&P 500 4,109.31 +1.44%

Dow Jones 33,274.15 +1.26%

Nasdaq 12,221.91 +1.74%

Key Economic Readings Next Week

Monday, April 3 — ISM Manufacturing, Prices Paid; Wards Total Vehicle Sales

Tuesday, April 4 — JOLTS Job Openings

Wednesday, April 5 — ADP Employment Change; ISM Services Prices Paid

Thursday, April 6 — Challenger Job Cuts; Initial and Continuing Jobless Claims

Thank you Blue Room Team Leader OMAR GUZMAN

+CONGRATULATIONS+
CHEF KELLY WHITAKER
IE HOSPITALITY
CHEF MICHAEL DE LEON

The Founder of the Denver based Id Est Hospitality Group ( @bastaboulder @heykiddo_oy @okyeah_hk @thewolfstailor @dry_storage @brutodenver) was nominated as a 2023 James Beard Semifinalist for Restauranteur / Mountain Region, and @brutodenver’s Chef Michael De Leon, is the only 2023 James Beard Finalist for Best Chef / Mountain Region from Colorado.

Kelly’s vision of how a hospitality company can build and exist in a better food ecosystem for all is one of the factors that attracted Michael to join the team at IdEst / Bruto. The James Beard Foundation is a benchmark organization guided by equity, transparency, respect, integrity, community, and passion — Chef Kelly, Chef Michael and IE Hospitality are a wonderful representation of these values. The James Beard Restaurant and Chef Awards Ceremony will be on Monday, June 5, 2023, at the Lyric Opera of Chicago. Kelly sat down with us to reflect on this nomination as well as his take on being a creative agent of change in the food industry.

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Kelly Whitaker

You know, this is my third nomination as chef for our region. Last year, or two years ago, the James Beard Foundation redefined our region as "Mountain." So we were before grouped in with like Texas and Oklahoma, a lot of the sort of middle states, along with the current states that are in the Mountain region. So my first nomination was for the Wolf's Tailor as Best Chef Southwest, which is what they called it, and I was on the longlist but didn't make the shortlist. And then two years ago, I made the Mountain region, which is our new region, as an actual longlist and a finalist, and I got to the very nth degree of James Beard trying to figure out during a very trying time, are they going to have the awards? How are the awards going to come out? They were sort of reviewing their own process as well in terms of equity in ideas and impact. The finalists, because the awards were going to be remote, we actually on some level all recorded an acceptance speech. I actually accepted my award virtually for that nomination as Chef for the Wolf's Tailor and then, two days later, they canceled the awards completely. So we don't know, it's a big mystery of what that year was going to bring for me as a nominated Chef.

Blue Room

That was 2020?

KW

Yeah, that would have been 2020, announced in '21. And last year would have been '21-'22, which we were just completely not even on the list. We didn't represent any category.

For me, there are parts of the award that are always sort of celebrated. One is you go to Chicago, you try to look nice - but everybody's in hospitality, so do they really look that nice? I would say though, as a fashion category, I feel like hospitality is really stepping up lately because of Celebrity Chef-ism. Everyone's starting to look a lot better. But it's kind of like the ESPN awards, you know, where some of the athletes look nice, but some don't. But anyway, going to Chicago is like a thing, you know. I've never been to Chicago, I've never been to the award show. So in a sort of dud year, or whatever you want to call a skipped year of the awards, in theory, I should have been in Chicago in a suit; it should have been a thing, and it wasn't.

And then this year, all of a sudden, I'm on a national stage because the Outstanding Restaurateur award isn't a local, regional award - it's a national award, which is cool. I never really put myself with too many titles, whether that was Chef before; maybe at the time I felt like a chef, or maybe I was working hard on impact or grains. What is a chef, actually? And then to be called a restaurateur...this was a funny situation because the previous Monday, I had opened Hey Kiddo as the Executive Chef and Owner, and then in the Denver Post, it was like, he's kind of like a fusion chef. I was getting all these different labels with the opening. And then James Beard is like, no, he's a restaurateur. I'm like oh, I'm a restaurateur now! Monday I was a fusion chef, and Friday I'm a restaurateur.

So a lot of this is what the world tells you around these ideas, and it's a great honor, but as I was thinking about the different categories for James Beard, it was about impact, about sustainability, about people's lives. It was about equity. It was about all of these things that, you know, we didn't need to go through COVID for, as a group, to just stand on those pillars. We're far from perfect as a company, but these were pillars before I even knew anything about running a restaurant or opening a restaurant. These were pillars that were founded on our first employee, not where we're at now. A lot of people in this industry work their face off for an award like this, you know; it kind of validates the work in a way. And I’ve said this before, we are constantly chasing the platform, not the award. I've said that to the James Beard Foundation directly. The word is great. I want to celebrate hard work and those types of ideas, but really, we look at this as a platform. When we get nominated for something like this, this is why the nomination means something to us specifically: it provides a platform for our work.

BR

When you say a platform, do you mean awareness?

KW

It's a bigger stage, a bigger audience. A lot of chefs could want a chef award just because you work hard to become a great chef and then you're awarded for that. That's never how I've sort of looked at these things. I've really looked at the continual platform that these things provide. And really, that's what we need. We need a stage and audience that's paying attention to some of our work, whether that work is all the sorts of values that I just spoke about: employee welfare, equity, what we're doing about our food system. Because a lot of those things aren't necessarily the things today that are going to get clicks on an article. People want "The 10 Best Stoner Foods in Denver." We understand what gets clicks and what doesn't, and for us, you know, this work needs a stage, it needs validation. It's why our restaurants, and the teams within them, continually strive for that creativity, the fun and playful things, the things that really start to connect with the consumer in a different way. And when we get Outstanding Restaurateur, or Chef Michael down at BRUTØ being nominated for the Best Chef category, it's awesome. I'm really proud of that for Michael. Michael, I believe is there for his food for sure, but he's definitely there for his story. Every single night, Michael's talking to guests about our projects around food waste, around the issues that are pressing, and I hope that was a big fraction of why he got chosen for that award. I think that's what we need to be celebrating right now. And this is one of the James Beard Foundation's lines, but "good food for good," right? It's not just enough to have good food, or Instagrammable food, anymore.

We can shoot a perfect loaf from our bakery, but the fact is that that’s 100% Colorado regenerative grain, grown with farmers that are paid well, all the way down to this trickle effect throughout the sort of ecosystem that we call a Restaurant Group. We hardly see ourselves as that sometimes. We want to weave into people's lives, into people's stories, but also have impact through the narrative of what we're trying to do, which is creating some change through food, and delicious meals and ideas. So this was a great platform for us. The two awards are awesome, but we're just sort of checking another box of the steps that we need to take. And if these things aren't acknowledged or celebrated, and it's like, "oh, cool, you're a really nice farm to table corner neighborhood restaurant," that's nice for the guests that get to go there every night and be a part of it. But in the larger conversation that we're having with the world, this award means everything.

BR

With the distinction between restaurateur and chef, and also with everything that you bring to the table with this nomination, there must be a wonderful feeling that this is a new precedent on what it means to be a restauranteur. There has to be an ethics vision, there has to be a sustainability vision. Is that how you see it, too?

KW

100%. For so long it's been like, is the tablecloth pressed correctly before service, have you worked out all the kinks? What does fine dining look like? And it's not necessarily inclusive. Everybody knows this industry has a lot of -isms in it, and fine dining, especially, has a pretty gnarly past, and it's like, what do restaurant groups of the future look like? What are they thinking about? How are they really getting involved in the community? It definitely starts from within. We're not a perfect group by any stretch, but I wake up every day not thinking about my ultimate revenue line. I'm thinking about our service pool, and how money's coming in, and how it flows down to the employees more than I ever have about the total outcome for the company. We've been doing this for a decade now, and we're starting to learn a lot about those things and then, all of a sudden, the world changes around you and there are a lot of external things that you can't control, but we definitely try within to set these things in place. Hopefully our guests and our diners feel a sense of value when they come in and they give a tip, or pay a service charge, or eat a tasting menu, but hopefully they would also want to change away from restaurants that maybe don't hold those values for putting that sort of revenue into local food. They know that their money is going to a good place. So, again, I hope with an award like this that people will see not just like, “oh, yeah, the Wolf's Tailor. That's cool, ultimate restaurateur, that's a tasting menu restaurant, that's fine dining." There are these layers, layers, layers, but can they get to the layer that's really why I think we belong on this list?

BR

And that layer is that your business model is sustainable, equitable, and constantly reinventing to get further and further to that ideal?

KW

Yeah, you said it better than me.

BR

Because to your point, you started with “this is how it's going to be” versus trying to revert a huge machine that was built not with those ethics and values in mind. You can't go back, you can't retrograde progress.

KW

Yeah, it's really hard to do that. I learned from the woodfire eatery that I started and stood in front of the oven at for eight years, and that was coming off of working at Providence, which is a two Michelin star restaurant in LA. And so through that, I get some of these things that are in place for fine dining. I mean, it's all difficult, and they're all difficult conversations to have, but we operate two fine dining restaurants that I would argue are incredibly viable and sustainable. And I say that loosely; there's always the asterisk of 'are restaurants actually sustainable?'

It's not one thing, it's not one sweeping category. It starts with the lease, it starts with landlord buy-in, it starts with partnership buy-in, and it goes all the way down from there. You know, we're four blocks off of the highlands in Sunnyside, Denver, Colorado, and if I was five blocks over because I thought that was the best location and I couldn't get someone to drive three blocks, that difference makes a difference in your rent - it makes a difference in everything. It's those little decisions along the way that are ultimately what affect the bottom line. But I'm sure that there's a pivot waiting for Noma when you're the number one restaurant in the world. There's gotta be a pivot within that, like now we're 10 small plates, and we're going to produce those 10 small plates working with eight chefs, and those eight chefs are going to work 200 days a year, and they're going to take three days off a week, and this is how we're going to set the menu. That's the difference. We're all juggling that right now. It's the same as any restaurant in Boulder going, 'we're closed on Mondays.' Well, that's a decision people are making to balance out either employees, or there's not enough revenue on Monday, or whatever. And that's the ultimate formula that equals whether or not that project is sustainable and viable for people in it, and for the ownership group, and investors, and everything else.

Not every one of our restaurants make money. At the bakery, we strive just for a breakeven model to understand bread and grain economics, but more than anything, we're trying to understand and unlock something. And I think they have part of that. Sometimes those bigger ideas of change can definitely be the ones that cost you the most.

BR

But at the same time, I think that's a big part of being the next level up of restaurateur, that you're taking those risks, you're willing to learn for the sake of the whole, you know?

KW

Yeah. We definitely have a lot more restaurateuring to go before I even understand what that really means. I've never in my career called myself a restaurateur, and this is the first time that I've ever had something like this called out. My chefs that were in the kitchen that day were like, "Chef, you’re a restaurateur." I mean, it seems so obvious, but that's definitely not what I consider myself. Some days I identify as a chef, and other days I don't identify as a chef.

Ultimately, I just want to be an entrepreneur for change. Some days I want to be the creative director, some days I want to be the chef, some days I am a restaurateur, by definition. We had a 501(c)(3) that was igniting agriculture and grain within the community, and it might have been from a chef perspective, but we were just creating that business from the perspective of change.

BR

That 5013c was The Grain Alliance?

KW

Yeah, the Noble Grain Alliance. And it actually popped up another great thing, which is the Colorado Grain Chain. We decided to kind of move our efforts away and let other people roll. Because there's a time to really work and put your head down and grind, and there are others when a community can even take this thing further. That was a good call for us at the time. So what would I be called in that moment when I'm out starting a nonprofit dedicated to farm, and agriculture, and farmers?

But today I'm a restaurateur until we find out where this thing goes. That's good with me. Like I said, it's creating that stage, and I'm really proud of how we got here and what we've done to get here along the way, but this is future work. I'm not looking for words as an acknowledgement, I'm looking at it as potential for the future. And again, that doesn't mean Michael can't really enjoy what it took for him to get to this as a chef. What a way to celebrate Michael's work and how hard he put in to get to a chef nomination, it's so great. It's just for me personally, how I view this as a little more future thinking. It's fuel for the fire.

Tailwinds: Demand cycle in the industry is cyclical, and there is increasing secular memory interest in client compute including automotive, IoT industrial AI, and CSP/Enterprise level AI workloads. As indicated by Micron, the bottom of the data center end market is behind us, and should contribute growth in FQ3 on improved customer inventories. On the CSP server side of memory end markets, workloads are estimated to require 8x DRAM content and 3x NAND content. We believe the end market is a secular trend.

The update cycle for next gen. Client compute could stimulate a rebound, however that is not recessionary base-case driven. Micron forecasts PC unit declines in the mid-single digits, with no change vs prior quarter forecast. Graphics is also performing, led by new product introductions by customers that have been received well by consumers.

Mobile memory will have less of a loss vs expectations in 2H23 with unit volumes revised upward to down “slightly” vs down 10% for the FY forecast.

Lastly, automotive revenue saw growth in the quarter, with expectations for continued demand growth in the end market through the second half of the FY2023.

Headwinds: Despite inventories coming down at the customer level, that does not necessarily imply that demand for finished products will come back. Revenue declined in all reportable segments in this quarter, and although the outlooks for data center, client, mobile had an upward outlook revision, the Y/Y comp still implies negative growth overall. (Slightly offset by growth in auto). Additionally, the industrial end market worsened during the quarter.

IN

Crypto regulation has moved to the forefront in the U.S., likely as a direct effect of FTX’s fallout, and regulators have been significantly ramping up enforcement actions against various crypto companies since the start of the year. While crypto has garnered support from officials on both sides of the aisle, there are still many that heavily scrutinize the industry. Just this week, Elizabeth Warren announced her re-election campaign, which shared that she is “building an anti-crypto army.” There is even speculation of an “Operation Choke Point 2.0” which accuses the U.S. government of unbanking the crypto industry.

Crypto cases year-to-date that have been filed or currently in progress:

SEC v. Genesis, Gemini (Earn Program a Security?)
SEC v. LBRY (SEC Win; Remedies TBD)
SEC v. Payward Ventures (Kraken Staking Settlement)
SEC v. Ripple (Awaiting Ruling on XRP Transactions)
SEC v. Terraform Labs (Alleging Stablecoin UST a Security)
SEC v. Wahi (Coinbase Insider Trading Case)
SEC v. Beaxy (Unregistered Securities Exchange)
SEC Wells Notice to Coinbase
Coin Center v. Yellen (Challenging OFAC Action v. Tornado Cash)
Custodia v. Federal Reserve (Challenging Denial of Fed Membership)
Friel v. Dapper Labs (NFTs Might be Securities)
Grayscale v. SEC (Spot Bitcoin ETF)
NY v. KuCoin (ETH is a Security)
CFTC v. Binance

IN

At the heart of what we know as modern, commercial agriculture in the United States is a man named Earl Butz. In 1971, Butz became the Secretary of Agriculture at the request of President Nixon within the USDA. Hardly past the memories of the Dust Bowl, Butz was intent on pushing agriculture to as much production as it could manage by bringing input costs down.

His mantra: “Get big or get out.”

Setting aside the Depression-era guardrails, Butz designed a program that completely revolutionized agriculture by subsidizing farmers for production and artificially keeping output prices high. Although these not-so-economically sound policies indeed caused a great financial burden on farmers during the inflationary period of the 1980s, the “bigger-is-better” mindset has left its imprint on agriculture.

His story is portrayed in the 2007 documentary King Corn where it becomes clear that Earl Butz’s economics of flooding the United States with cheap corn production did not come without repercussions.

IN

BLUE ROOM ANALYST TAKEAWAYS

Revenue outperformed consensus and BLUE ROOM expectations, catalyzed by higher-than-expected shopping volume and full price sales. Lululemon is a standout among a select few in the athletic apparel industry that have maintained and grown market share, despite an aggregate slowdown in the sector. During the fiscal fourth quarter, Lululemon gained 2.3 points of market share white the adult active apparel industry decreased its US revenue by 5.0%. For FY23, the company is looking to remain strong in the top-line, guiding to revenue of $9.355 billion and earnings per share of $11.61, above BLUE ROOM’s revenue estimate of $8.950 billion with EPS of $8.76 and also above consensus expectations of $9.101 billion in topline and $11.26 of EPS.

IN

Consumer sentiment fell for the first time in four months to 62.0 — dropping about 8% below February but remaining 4% above a year ago.

This month’s turmoil in the banking sector had limited impact on consumer sentiment, which was already exhibiting downward momentum prior to the collapse of Silicon Valley Bank.

Overall, our data revealed multiple signs that consumers increasingly expect a recession ahead. While sentiment fell across all demographic groups, the declines were sharpest for lower-income, less-educated, and younger consumers, as well as consumers with the top tercile of stock holdings. All five index components declined this month, led by a notably sharp weakening in one-year business conditions.

Year-ahead inflation expectations receded from 4.1% in February to 3.6% — the lowest reading since April 2021 — but remained well above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations came in at 2.9% for the fourth consecutive month and stayed within the narrow 2.9-3.1% range for 19 of the last 20 months.

IN

Ugur Sahin – Chief Executive Officer and Co-Founder
Thank you, Michael. Good morning and good afternoon, and a warm welcome to all the call participants. We appreciate your continued support. Today, I will summarize our fourth quarter and full year 2022 highlights and priorities before I pass the call over to my team to provide some further details.

We and Pfizer continued our global leadership in the fight against COVID-19 in 2022. We achieved our supply target for the year with approximately 2 billion doses invoiced, which included the successful global launch of our first variant adapted vaccines. In the beginning of 2022, there was no clear regulatory pathway about how to introduce variant adapted vaccines. With our diligent scientific and clinical approach, we were able to navigate this regulatory uncertainty.

We have evaluated various variant vaccine candidates, manufactured and have shipped about $550 million by mid-December. We maintained and continued to build on the strong market position we have established for our COVID-19 vaccines franchise to further label expansion in regions around the world. I would like to thank our growing team and our partners for the steadfast commitment, which contributed to these successes.

IN

March proved an incredibly eventful month in the world of oil and gas. Geopolitical rumors, banking turmoil and industry conferences all contributed to increased volatility resulting in a 52-week low in the price of crude oil. Given the diversity of events that shaped the oil and gas market this month, this article will follow a different structure so as to highlight each event to better understand the narrative surrounding the current state of petroleum.

On March 3, the Wall Street Journal exclusively reported that the United Arab Emirates was having an internal debate about leaving OPEC – a decision that would shake the cartel and undermine its geopolitical and economic power in global markets. The article highlighted that while the two countries remain allies formally, the pair have diverged on several fronts, competing for foreign investment and influence in global oil markets and clashing on the direction of the Yemen war. Specifically as it relates to oil, the article highlighted how the U.A.E. is obliged to pump significantly lower than its potential, hurting its oil revenue. For example, the Emirates and the Saudis clashed last October when OPEC+ announced a decline in production in order to support the price of crude. The article went on to describe how “in public, the U.A.E. supported the production cut. But U.S. officials said the Emiratis told them privately that they wanted to pump more, in line with Washington’s wishes, but faced resistance from Saudi Arabia.”

IN

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Weekend Update #120

+CONGRATULATIONS+
CHEF KELLY WHITAKER
IE HOSPITALITY
CHEF MICHAEL DE LEON

Chef Kelly Whitaker is an inspiration to all at Blue Room, and an embodiment of our belief that together, we can change the world.

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Weekend Update #120

+CONGRATULATIONS+CHEF KELLY WHITAKERIE HOSPITALITYCHEF MICHAEL DE LEON

Chef Kelly Whitaker is an inspiration to all at Blue Room, and an embodiment of our belief that together, we can change the world.

FUNDONE

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Weekend Update #121

Weekend Update #119

+CONGRATULATIONS+
CHEF KELLY WHITAKER
IE HOSPITALITY
CHEF MICHAEL DE LEON

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