A blog about business and economics.

July 28 2015 2:07 PM

Those New Bag Fees Are Working Out Great for JetBlue

Airlines have been getting stingy about even the simplest of flight amenities lately. It costs money to stretch your legs in roomier seats; meals are no longer free; even requesting a pillow can come at a cost. While the industry’s biggest airlines haven’t yet stooped to the low of charging for boarding passes and drinking water, they are instituting new fees for one crucial component of air travel—luggage. JetBlue was one of the last airlines to hold out on revoking the traditional airline courtesy of allowing at least one checked bag for free, until it too started charging for bags this summer.

And how is that working out for JetBlue? Pretty well, apparently. At a time when the aviation industry as a whole has weak revenues, JetBlue had a profit of $152 million in the second quarter of the year, the company announced Tuesday. Its shares are up more than 40 percent this year, and its stock has climbed 96 percent in the past 12 months. CEO Robin Hayes said that the airline has seen “solid demand across our network.”

Still, steady earnings don’t necessary mean that customers are very happy with JetBlue’s new bag policies. It’s more that they just don’t have much of a choice. According to the Bureau of Transportation Statistics, U.S. airlines raked in more than $864 million from baggage fees in the first quarter of 2015—a whopping sum that the companies are unlikely to want to let go of anytime soon. With the exception of those who are able to take bare-bones flights with minimal luggage, passengers are often stuck with the additional flying fees these days. Southwest Airlines is now the only large airline that offers free checked bags.

But don’t worry: JetBlue still claims to offer the most legroom in coach of any U.S. airline. The company also promises to continue providing free snacks, soda, and television on its flights—at least for now.

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July 28 2015 1:34 PM

Why You Should Root for China’s Stock Market to Keep Crashing

After a few weeks of relative peace and quiet, China’s stock market is careening downhill again, and the government is trying to stop the landslide. On Monday, shares saw their biggest one-day drop since 2007. Tuesday, they dipped a bit more, capping three straight days of losses that have cut 11 percent off the Shanghai Composite Index. In response, the country's regulators have promised to continue pouring money into equities to pump prices back up.

Is the rescue attempt good for China? I’m starting to think that it’s not—and that the country would be better off if the government failed and this crash continued.

Mind you, the current leadership of China’s government wouldn't be better off, seeing how it has staked a not insignificant bit of its reputation on a promise to salvage what very much looks like an unsalvageable situation. Urged on by a cheerleading state-backed media, millions of first-time Chinese investors piled into stocks just as the bubble was getting ready to blow. They got creamed when the market fell by about a third between June and early July. And since then, the government has taken extraordinary rescue steps: Regulators have stepped in to essentially buy shares, suspended new IPOs, allowed massive swaths of the market to stop trading, and loosened monetary policy and rules on lending. If the kitchen-sink approach falls flat, a lot of people are going to lose confidence in the Communist Party's ability to stabilize the markets.

But that wouldn't necessarily be the worst thing, long term. The government shouldn’t be stabilizing stocks, and if its current scheme works, it would set a terrible precedent for the future.

In general, it’s reasonable for a government to step in and calm down markets when there’s a panic that threatens long-term economic stability. If there’s a run on the financial system, for instance, it’s probably time to act, since banking collapses have a way of leading to depressions. Thankfully, China’s fledgling equities market isn’t that important in the grand scheme of things. It’s relatively small compared with the overall size of the country’s economy, and Chinese households only keep about 9 percent of their wealth in stocks. Even if share prices fall through the floor, the damage shouldn’t have that much of an effect on how families and businesses decide to spend. So the current stock decline could be a chance for the country to learn a lesson about stock bubbles while the repercussions are still small and containable.  

If Beijing does manage to put a floor under stock prices, however, it will have bought itself a much bigger problem. Namely, it will be stuck supporting the market for the foreseeable future. After all, once the government promises to keep stock prices from falling, it can't suddenly turn around and say: “Sorry investors, you guys are on your own.” Otherwise, prices will just crash again.

Why would that be a drag for China? First, vowing to back a whole stock market is an expensive promise—especially when Beijing is essentially guaranteeing that a massive bubble will stay inflated in perpetuity. Remember, the government has been resorting to actual share purchases, as well as loosening the overall credit environment, which creates its own potential dangers for the economy. The bigger the bubble gets, the bigger the challenge of keeping it from one day popping. Longer term, the Communist Party would like its markets to attract international investors, which is hard to do when it looks like the government is essentially running the whole game from Beijing. Better that shares crash now, and the government learns there are some things it can't, and shouldn't, micromanage.  

July 24 2015 5:53 PM

Hillary Unveils Her Wonky Plan to Jack Up Taxes on Rich Investors

Hillary Clinton has unveiled what might be the first truly interesting economic proposal of her presidential campaign. During a speech in New York on Friday, she detailed a plan to hike taxes on income from investments that high-income Americans hold for less than six years. It is part of a broader platform designed to fight what she refers to as "quarterly capitalism"—corporate America's focus on maintaining short-term profits in order to appease shareholders. "American business needs to break free from the tyranny of today's earnings report," Clinton said. Frankly, a few of the ideas she brought up—such as more elaborate disclosure rules regarding executive pay and stronger disclosure rules on stock buybacks—seemed a bit limp. But the tax increase on investors could become a defining issue.

Most obviously, because it's a tax increase. Republican contenders like Marco Rubio and Rand Paul have argued for eliminating taxes on investment income altogether, a move that would overwhelmingly benefit wealthier households. (New York University economist Edward Wolff calculates that, in 2013, the top 10 percent of U.S. households owned 81.4 percent of all stocks.) Clinton is officially moving in the opposite direction.  

Here's how it would work. Today, when Americans sell stocks or bonds that they have held for less than a year, it's taxed as normal income. If they hold it for more than a year, they pay the lower long-term capital gains rate, which technically maxes out at 20 percent. (However, high earners also pay an additional 3.8 percent surcharge under Obamacare, so the final number is really 23.8 percent.)

Clinton argues, very reasonably, that it's silly to consider everything a long-term investment after just a year. Instead, she wants the capital gains rate to decline gradually, so that the longer people hold their stocks, bonds, and mutual funds, the less they pay after cashing them in. For Americans in the top tax bracket, the government would tax investments sold after less than two years like ordinary income. Then, over the next four years, the rate would fall back down toward 20 percent (you have to add the 3.8 percent Obama surcharge onto each of these numbers to get the total tax amount). None of this would affect people outside the highest bracket.


Screenshot via

Again, Clinton is couching this change to the tax code as a way to prod investors into thinking long term, rather than push companies to cut investment and pay out dividends to enrich their shareholders at the expense of future growth. It might work. It might not. But, ultimately, it's a progressive tax increase on investment income, and that should make many progressives happy. Regardless of whether it changes investors' behavior, it will raise some money from the wealthy, especially given that the average stock is currently held for less than a year.

Inevitably, conservatives will argue that the plan is a job killer. In general, the right maintains that raising taxes on capital gains (or corporate dividends) is wrongheaded, because it will dissuade individuals people from investing in companies and saving, which will in turn cause companies to invest less on their operations. Suffice to say, it's far from clear that's true.

If you simply chart the top capital gains rate against economic growth, there isn't much of an obvious pattern. Given the vast number of factors at play in the economy at a given moment, it's extremely difficult for economists to design credible studies singling out the effects of the investment taxes, which, as the Congressional Research Service has noted, actually have a very small effect on how much it ultimately costs companies to fund themselves. However, a clever paper by University of California—Berkeley professor Danny Yagan found that the Bush administration's 2003 dividend tax cut had no effect on corporate investment. Yagan looked at the way companies organized as C-Corporations, which were affected by the changed, reacted compared with those organized as S-Corporations, which were not affected. Long story short: There wasn't much of a difference.

So here's the potential upside of Clinton's plan: It's a tax increase that will raise a bit of revenue and dampen some of the worst impulses of investors without risking much in the way of growth.

Economic merits aside, parts of Wall Street will obviously hate and oppose this idea. But maybe not all of it. As I wrote earlier this week, some major figures in finance, like BlackRock CEO Larry Fink, have argued that short-termism has become a crisis that threatens to undermine capitalism. It's possible that other money managers who subscribe to his buy-and-hold approach to investing might get behind Clinton's idea, if only because it would give them an advantage over competitors with a shorter horizon.

Ultimately, Clinton's proposal sets us up for a campaign-season debate about how the country should treat the money people earn from investing versus the money people earn from their work. Given the declining share of the nation's income that's going to labor, it's one of the most essential questions we could ask about inequality right now.

July 24 2015 4:54 PM

Can the Marijuana Industry Rebrand Itself as Health Food?

This post originally appeared in Inc.

Upon entering Dixie Elixirs' headquarters in Denver, you're greeted by a big sign that reads: "The Future of Cannabis." Since its 2009 founding, Dixie has updated its image from a "pot soda" company to a gourmet THC edibles manufacturer whose carbonated drinks and snacks, containing ingredients like pepita and sea salt, look like they could be found on a shelf at Whole Foods. It's just one example of how marijuana businesses are rebranding the plant to distance pot from its hippie-stoner-outlaw culture and show off its appeal to a health-conscious, kale chip–eating crowd.

In April, during High Times' Cannabis Cup in Denver, Pete Williams, co-founder of cultivation center and dispensary Medicine Man, said the companies that will ultimately find success are those that develop a branding strategy that appeals to the mass market. "The game is about demographics, he said. "We need to make cannabis less looking-over-your-shoulder and more soccer mom."

Recent industry events such as the Marijuana Investor Summit in Denver and the Cannabis World Congress Business Expo in New York City showcased businesses aimed at maximizing the medicinal value of weed. New York City–based Potbotics is marketing the Brainbot, a helmet that reads patients' brain waves and gives a cannabis recommendation tailored to their specific ailments. Genifer Murray, co-founder of marijuana testing company CannLabs, says that five years ago no one thought testing weed was important. Now companies have started to put dietary information right on their packaging. "This is how we're going to legitimize the industry," she says. "We need to get rid of these images of Bob Marley and tie dye—no offense to Bob Marley—and smoking blunts."

Still, changing the view of the product that has been ingrained over decades remains a work in progress. "You see a lot of poorly engineered branding strategies being employed," Steve Angelo, founder of marketing company Cannabranders, tells DigiDay. "As this plays out over the next few years, branding will make or break these companies."

During the BevNet conference in New York City last month, Dixie Elixirs CEO Tripp Keber detailed how vital branding and packaging has been to the company's fortunes. During the early days of legalization in Colorado, packaging standards didn't exist. But after a college student ate a pot brownie (not a Dixie product) and committed suicide, a new law was passed forcing companies to lower THC content in single servings and make their packaging childproof and resealable. For Dixie, that meant pulling its line of sodas off the market, costing the company $300,000.

Dixie replaced its glass bottles with brush-aluminum bottles with a resealable and childproof cap that doubles as a single-dose cup. Now novice pot consumers can buy a bottle of the soda, which has 90 milligrams of THC, and measure a single dose of 10 milligrams. This small move fostered consumer trust in Dixie—instead of drinking the whole bottle and being zonked, they can use it responsibly and enjoy the buzz, Keber says. "A lot of the other brands were looking to set the maximum amount of THC in each of their products, but we decided to set the minimum," he says. "When I go out, I don't put a bottle of Jack Daniel's on the table and try to consume it all at one time."

Ultimately, says investor Leslie Bocskor, marijuana will follow a pattern similar to that in the tech industry. Computers used to be used mainly by scientists, giving rise to an intense culture surrounding them, but that changed as adoption increased. "The industry will evolve and stoner culture will be less and less prevalent," Bocskor said at the Marijuana Investor Summit. "Eventually, we won't think of Cheech and Chong when we think about cannabis, just like we don't think about geek culture when we think about Amazon."

July 24 2015 7:48 AM

Conservatives Think They Have a Magic Formula for Raising People Out of Poverty

I haven't yet read Ta-Nahesi Coates' new book, Between the World and Me. But I did find myself groaning while reading Rich Lowry's review of it at Politico. This was not due to anything Lowry wrote specifically about Coates' work—which, again, I haven't opened—but because he trots out a bit of received conservative wisdom about fighting poverty in a very irksome way. It's a canard I fear we'll hear a lot during the presidential election.

Lowry, who edits National Review, says he dislikes Between the World and Me because it is too nihilistic and doesn't offer a "positive program" to improve the lot of black America. However, he also dislikes Coates' suggestion, put forward in a widely read Atlantic essay, that the government start by considering paying black families reparations. Why? Social science, of course. 

... like all Americans, [blacks] are in a much better position to succeed if they honor certain basic norms: graduate from high school; get a full-time job; don’t have a child before age 21 and get married before childbearing. Among the people who do these things, according to the research of Ron Haskins and Isabel Sawhill of the Brookings Institution, about 75 percent attain the middle class, broadly defined.

In policy circles, this idea is often referred to as the "success sequence." Conservatives —including presidential contender Marco Rubio and sorta-kinda-contender Rick Santorum—are quite fond of it, because in their eyes it shows that personal responsibility is essential to conquering need. Certainly, Lowry seems to think so. Would reparations "be transformative for any individual?" he asks in his review. "No. For poor blacks to escape poverty, it would still require all the personal attributes that contribute to success. So Coates is selling snake oil. Even if he got his fantastical reparations that he has poured such literary energy into advocating, real improvement in the condition of black people would still require the moral effort that he won’t advocate for."

This is, in fact, a statement about much more than reparations, or Coates. Implicitly, it's an argument that unless the poor embrace middle-class "norms"—that all-important three-part code that unlocks membership to the middle class—money is useless.

Which is just sort of silly.

In the end, the "success sequence" is a mildly catchy way of stating the obvious. It is not a magic formula—though people who follow it rarely end up poor, by Sawhill and Haskins' own admission, a good number of people take all of the right steps and still don't make it to the solid middle class. But yes, you are more likely to get there if you both graduate from high school and promptly find full-time work. That's sort of like saying it's easier to go bear hunting with a gun than it is to wrestle a grizzly into submission—nobody would think otherwise. You are also more likely to be middle class if you get married before having children, in part because wedded couples have been found to be more stable, and two incomes are typically better than one, especially when there is a baby to raise.

I somehow doubt that there are many people who need to be told that graduating high school, finding a job, and settling down before starting a family are ideal things to do. Achieving all of these personal milestones is easier, however, if your family happens to have money, or can at least afford to put food on the table. Wealthier children do better in school. Moving poor kids to nicer neighborhoods while they're young improves their future earnings. The more money men make as adults, the more likely they are to get married. "Moral effort," whatever that means, might be useful when it comes to making your way through the world. But cash definitely is.

It is also entirely possible to end up in the middle class while violating the success sequence, which is not, in fact, some sort inviolable law of nature. As Sawhill and Haskins show, a quarter of Americans who miss one or two items on their to-do list end up earning above 300 percent of the poverty line. Many of those individuals were probably born middle class or wealthy. But that only goes to show how, with a little help, people can find a decent lot for themselves, even if their lives don't conform to Rich Lowry's strict standards.

And that's why, as I said, I'm not looking forward to conservative politicians picking up the "success sequence" as a theme. If you treat it as a list of things that we should probably help people do, it's fine. But, again, it's not magic. And it shouldn't be treated as an excuse to cut off people from help if they don't live their lives by a very specific set of rules. This country really doesn't need yet another flimsy excuse to let people fend for themselves.

July 23 2015 8:25 AM

So Long, McDonald’s Monthly Misery Watch. It’s Been Real.

Dear McDonald’s,

It’s been a lovely run. Every 30 or so days, you’ve shared your monthly same-store sales figures, and every 30 days or so, we’ve dutifully compiled the numbers into charts to follow their rise and fall (mostly fall). We watched in December as comps in the United States peaked into positive territory for the first time in 13 months and even stayed there through January, before toppling 4 percent in February. We stood by in June as global comps dropped 0.3 percent to mark a year of consecutive declines.

But in late May you told us that these rendezvous would have to end. So here we are, on the day of your second-quarter earnings report, to observe the last installment of the Monthly Misery Watch. Once again, you disappointed. U.S. comps down 1.7 percent in June. Global comps off 1.3 percent. Here’s one last chart, for old time’s sake:


Data from McDonald’s. Chart by Alison Griswold.

Sure, we know that this is what’s right for you. Your CEO, Steve Easterbrook, will get some breathing room to focus on long-term improvement instead of monthly flirtations with investors. Now that you’ve ceased an out-of-date financial reporting practice (one that Walmart gave up six years ago), maybe you’ll succeed in becoming a “modern, progressive burger company.” Maybe you’ll finally get all-day breakfast off the ground in the U.S. nationwide (as the Wall Street Journal reported could happen by October), delighting diners with near-constant access to the Egg McMuffin. Maybe you’ll even stop trying stunts like “Pay With Lovin’ .”

Still, what’s best for you is tough for us. When August rolls around, we’ll wonder how your same-store sales fared in July, and in September how they did in August. And we’ve finally accepted this is really happening. When we were still in denial in late May, we consulted a top accounting firm, which assured us that companies aren’t required to provide their same-store sales on a monthly basis. Yes, we’ll still get some comps information in the quarterly reports, but let’s be honest—that’s just a third as fun.

What we’re trying to say is, we understand why your same-store sales are leaving us, but we’re still sad to see them go. We hope you’ll change your mind, but recognize that you probably won’t. We’ll look forward to seeing what you include next earnings cycle, in three months. Until then, it’s been real.


Slate Moneybox

July 22 2015 6:34 PM

New York Is About to Launch an Especially Terrible Experiment With the $15 Minimum Wage

As was widely anticipated, a board convened by New York Gov. Andrew Cuomo voted Wednesday to raise the minimum wage for fast-food workers across the state to $15 per hour. Once the recommendation is approved by the state's labor department, as most expect it will be, it will become law. This, of course, follows after San Francisco, Seattle, and Los Angeles all passed ordinances that will push their citywide pay floors to $15. Whatever you might think about the wisdom of those moves—I'm skeptical—New York's plan seems to be far more ill-conceived.

There are two main reasons. First, while it may be easy for some to forget, New York State is not in fact synonymous with New York City. It includes economically haggard rust belt towns and relatively poor cities like Buffalo where there's a much weaker case that a $15 minimum wage is appropriate. Cuomo's wage board has tried to account for this—it says the increase in New York City should happen by 2018, while the rest of the state will have until 2021. But even with additional adjustment time, $15 will still be relatively steep in cities such as Syracuse and Binghamton.

Here's one way to look at the issue. Economists often judge the appropriateness of a minimum wage by comparing it with the local median wage—the theory being that, in cities with higher pay across the board, a higher minimum will be less of a burden.1 In the graph below, I've projected what the median hourly wage might be in a handful of cities across the state once the new minimum for fast food workers comes into effect. (I'm assuming 3.5 percent annual wage growth starting in 2016, which is fairly generous.) In New York City, $15 in 2018 would still amount to more than 60 percent of the metro area's median wage, which is high. In cities like Buffalo and Binghamton, $15 by 2021 would be worth more than 70 percent of the area median, which is extremely high.


Of course, New York's politicians seem well aware that New York City can probably support a higher wage structure than other parts of the state. Cuomo himself proposed a bill that would have boosted the minimum in the five boroughs to $11.50 and $10.50 elsewhere. The Democrat-led assembly passed a bill that would have set the minimum at $15 per hour in the city and its suburbs, and $12.60 elsewhere. But Republicans in the state Senate refused to cooperate. So Cuomo turned to the wage board, which only has the power to recommend pay levels in individual industries, like fast food.

Which brings up the next problem: Not all of fast food will be affected by this rule the same way. In order to soften the blow on small businesses, the $15 minimum will only apply to restaurants with more than 30 locations. Thirty locations, however, is not that small. Assuming New York McDonald's and Burger King franchises raise their prices in response to the hike, the state will perversely be pushing cost-conscious customers toward eateries that can pay their workers less, including, under these rules, medium-sized chains. You might argue that forcing pay up at national chains will have a cascade effect that increases pay across the region's economy as businesses compete for workers. But that's somewhat hypothetical, and would undercut the whole point of the exemption. Basically, you're either rooting for the 30-or-more rule to fail, or you're implicitly comfortable giving businesses that hand their workers relatively low pay a business edge.

Long story short: Of all the minimum wage experiments popping up around the country, this might just be the worst.

1 Regular readers will note that I've yammered about this particular point a number of times. I plan to continue.

July 22 2015 1:43 PM

The Least Meaningful Job in America (According to PayScale)

You know that moment during the day when you're staring at your computer monitor and suddenly, as if blown by a chill wind, you shudder with the sense that perhaps your work is completely insignificant, that the great machine we call the globe would run just fine if your cog suddenly went missing? No? Well, good for you, Mr. or Mrs. Self-Actualization. But anyway, the job market data collectors at decided to poll the existential state of the American workforce, and asked 2 million of its users whether their jobs made the world a better place.

One occupation stood out among all others when it came to meaninglessness: parking lot attendants, only 5 percent of whom thought their toil improved things. It was the only job within which less than 20 percent found their work meaningful. (That's PayScale's word, by the way, not mine. Presumably, you can find deep meaning in your work even if you don't think it's doing much to help the lot of your fellow humans.) I can see how looking out over a vast expanse of concrete while sitting alone in a booth might leave one feeling as if he or she is not making much of a contribution to the universe. But, to me, it seems like attendants are unnecessarily down on their work. Someone needs to watch over the cars. And just imagine what getting out of a stadium parking lot would be like without someone directing the traffic flow.

For that matter, I noticed a few occupations that seemed to sell themselves short. Only 53 percent of pilots and flight engineers thought they were making the world a better place, even though they make it possible for human beings to fly through the air in giant vessels made of steel. Likewise, only 56 percent of architects—without whom we would literally have no shelter, or at best be living in mud huts—found their work especially meaningful. That compares with 46 percent of telemarketers, which, well, OK.  

Though if you just glance at the chart there doesn't obviously seem to be much correlation (positive or negative) between "meaningfulness" and lucrativeness, PayScale says most of the best compensated job titles score at least 75 percent on the "are you helping the world?" scale. One interesting exception is coding-heavy jobs like software engineers (again, staring into that computer screen all day can be rough). Meanwhile, doctors do exceptionally well on both fronts. Lucky them.

July 22 2015 12:05 PM

Apple Is Going to Comical Lengths to Avoid Saying How Many Watches It Sold

On Tuesday, Apple reported its earnings for the first time since the Apple Watch went on sale in April. It’s the first major new product in five years from the world’s most valuable company, so people were understandably interested to learn how it’s selling. Apple, however, was not interested in sharing that information.

Rather than report Apple Watch sales and revenue directly, as it does with the iPhone, iPad, and Mac, the company buried them in a category called “Other Products.” That category—which also includes Apple TV, Beats headphones, iPods, and various accessories—accounted for $2.6 billion in revenue in the quarter that ended on June 27. So we know Apple Watch sales were less than that.

How much less? That’s hard to say. The $2.6 billion figure for the latest quarter was up about $950 million from “Other Products” revenue the quarter before, and about $850 million* from the same quarter last year. But Apple CEO Tim Cook cautioned against concluding that the Apple Watch made only that amount of money. Sales of iPods and accessories were down in the most recent quarter, he noted, so Apple Watch sales were actually greater than $1 billion.

OK, but how much greater? Again, hard to say. The company’s CFO, Luca Maestri, told the Associated Press that Apple Watch revenue was “well over” $950 million, but he didn’t say how well over. It’s safe to assume that revenues were less than $2 billion, however, unless everything else in the “Other Products” category tanked all at once.

Even if we knew how much Apple made from its watch sales, we wouldn’t know how many watches it sold. The device ranges in price from $349 for the cheapest “Sport” edition to upward of $1,000 for stainless steel versions. Here, too, Apple was cagey. “Sales of the watch did exceed our expectations,” Cook said, and they did so despite demand exceeding supply for most of the quarter. Maestri added that Apple sold more watches in the device’s first nine weeks than it sold iPhones or iPads in their first nine weeks on the market. That sounds like a good sign for the watch’s future, although expectations for Apple are rightly much higher today than they were in 2007 or 2010.

Tim Cook's Apple Watch
We know at least this guy has one.

Photo by Stephen Lam/Getty Images

By the end of Tuesday’s earnings call, Cook had gone to almost comical lengths to describe the watch’s sales performance without actually disclosing it. The watch, he averred, is off to “a great start”; “we felt really great about how we did”; there was “very good news on sales”; “I feel fantastic about what the team has done and delivered.”

So why not just tell the world the great news, Tim?

“That was not a matter of not being transparent,” Cook clarified helpfully. “It was a matter of not giving our competition insight on a product that we’ve worked really hard on.” How exactly “not giving our competition insight” differs from “not being transparent,” Cook did not explain.

All we can say for sure at this point is that, at somewhere between $1 and $2 billion, Apple Watch revenues are a drop in the bucket compared with those of the company’s more established devices. For comparison, the iPhone made $31 billion in the most recent quarter, the iPad $4.5 billion, and Macs $6 billion.

Investors on the earnings call let a few notes of annoyance creep into their voices as they pressed for more Apple Watch details, but they didn’t push too hard. It was yet another strong quarter for Apple overall, driven by a 35 percent increase in iPhone sales over the same quarter last year and a 38 percent rise in profit. Those numbers disappointed some bulls, as the stock dipped 6 percent after the market’s close, but they’re hardly cause for concern. That said, some more concrete good news on the Apple Watch surely would have helped.  

The watch might well take off in the coming months; Cook predicted it would fly off the shelves this holiday season. If it does, you can bet Apple will decide that providing those impressive sales figures is worth the risk of giving the competition insight after all. And if it doesn’t? Get ready for a lot more parsing of that “Other Products” category.

*Correction, July 22, 2015: This post originally misstated the year-over-year revenue increase in Apple's "Other Products" category as $850 billion. It was $850 million.

July 21 2015 5:42 PM

Chipotle Reports Excellent Avocado News, Middling Sales News

When Chipotle greeted investors to report earnings for the second quarter of the year on Tuesday, attention immediately flew to the company’s comparable sales (for stores open at least 13 months), which were up 4.3 percent. For a lot of restaurants, that would be something to celebrate. When KFC and Taco Bell reported fourth-quarter comps growth of 4 percent and 7 percent respectively earlier this year, those figures qualified as “strong.” McDonald’s, which has watched same-store sales fall globally for the last year, would be thrilled with a 4.3 percent comps increase.

But not so at Chipotle, where a 4.3 percent comp isn’t just not good—it’s pretty bad. Over the past two years, it’s the lowest comp that Chipotle has reported in any quarter. The company also said it expects low- to mid-single-digit comps to continue for the rest of the year. That looks particularly rough against the stellar figures that Chipotle posted in this category throughout 2014 and into the first quarter of 2015, all of which were in the double digits:


Data from Chipotle. Chart by Alison Griswold.

Chipotle’s management realizes that it’s having a tough time measuring up against itself, and has been trying to reassure analysts and investors on this point. “[2014] was a great year in that we delivered double-digit comps growth that have provided a tough target for this year,“ Chipotle co-CEO Monty Moran said on the call. Other execs echoed this sentiment and tried to deflect focus away from the comps figure by touting various Chipotle milestones: the company’s (highly questionable) move away from GMO ingredients, its commitment to “food with integrity” in the face of a carnitas crisis, its promotions of in-store crews.

Somewhat miraculously, Wall Street seems to be buying this explanation. After Chipotle’s stock plunged about 8 percent on an initial reaction to its earnings numbers, it slowly rose back to its closing price of $673.07 during the call and is now trading slightly up. Good job, guys!

Other tidbits from the earnings announcement: Chipotle’s revenue was up $1.2 billion, or 14.1 percent, from the second quarter of 2014. Profit rose $140.2 million, or 27.1 percent. Chipotle also increased menu prices nationwide over the past three months, causing the value of the average customer check to rise as well. And finally, there’s good news on the avocado front, which is a perennially touchy subject for burrito fans. Chipotle says food costs declined slightly in the latest quarter, in part because of higher menu costs, and in part because of “relief in dairy and avocado prices.”