And business easier done with shrimp than soybeans. Lets go to su keenan for headlines. Su . Herbalife stock is falling in the afterhours trading, down more than 10 . The Company Posted secondquarter profits that trailed analyst estimates as Sales Volumes declined. The net income fell 17 . It missed analyst projections. Meanwhile, Darden Restaurants ceo Clarence Otis will step down as chairman and chief executive officer. Otis will continue to serve as ceo until a successor is appointed. Last year, darden drew the ire of investors when it proposed selling or spinning off red lobster, a seafood chain which has suffered from declining sales. And zillow has agreed to purchase trulia for 3. 5 billion in an all stock deal. And those are the top headlines. Back to you. All right, su keenan. Thank you very much. Herbalife is a stock that bill ackman called a ponzis scheme. It missed wall street estimates. Wall street got that one wrong. The stock is down sharply in afterhours trading. Joining me from atlanta, duane stanford, who covers the company and does a good job of that. Thanks for joining taking stock. What is the big take away from these numbers . Herbalife has had a long streak, 21 quarters, beating expectations, and people are looking for them to beat expectations quarter in and quarter out. They did not this quarter. You see the result in the shares today. People pushing the shares down now. This is my axe to grind with earnings. I was on the buy side. The analysts often get them wrong. Not only were the analysts getting the numbers wrong perhaps with the help of the company but the number one trend i saw, and i spent most of the day working on these numbers, was a decline in sales quarter after quarter after quarter. The growth rate, yes, it is growing, but it is the slowest growth rate in 14 quarters. Yeah, that is right. And you saw today sales missing at least expectations. One of the areas is the u. S. Right now volume is down in the u. S. Latin america volume was down. In the u. S. , they have had changes lately to how sales leaders can qualify, and they say that slowed some of the volume down, although more people are involved. They think that will translate later into more sustainable sales. That remains to be seen. And of course in latin america, you have Economic Issues and they cited i just got off the phone with the cfo and he talks about the world cup distracting people in brazil, which could be depressing sales there. So the world cup is making people want to not get as healthy . I know they are selling the Health Claims in brazil and elsewhere. I feel like the story is always told that it is bill ackman versus wall street or some like it is a wall street story and not a business story. But indeed, they admit they are changing Business Practices because of what they call they have a line item in their results called the attack cost of what they are spending to fend off attacks. It is hard to imagine the business would need to change itself if they did not have something that they did not want people to look at. They have spent the last two years changing various aspects of the business. Bill ackman will point out one of the classic examples is the refund policy. It used to be you had to pay for a restocking fee. You paid for the shipping to get the product and to pay for the shipping to return it later. They changed that so the only fee you pay is the original shipping. You do not pay that restocking fee. They have made several changes like that over the last two years. What ever happens with bill ackmans eventual case, one thing you can take away, he has pressed the company to make its business better. Indeed those rules about returns are not a small thing. 1979, the federal trade commission decided if you did not accept returns, that was one of the things that went toward defining what a pyramid scheme is. And it is very important when it costs you to return product, what kind of risk there is there. One of the cases bill ackman makes is people are coerced into buying a lot of product they cannot eventually sell. Herbalife says the business is risk free for people now because they can return all of the products within a year, and so there should be no reason people are buying product they have to stuff in the closet, in the basement. That is the core of the debate right now. And what the ftc will be looking at. Herbalife says you get the product and try it and see how great it is. At that point, you can return it. Duane stanford, thank you very much. A big deal in retail. Dollar tree buying Family Dollar. Joining us, Craig Johnson no relation brother johnson. Director, consumer growth partners. This is an industry i do not follow as much as i like, but it is a fascinating one. It very much is. It is the fastestgrowing part of the retail sector. The past century it only had a half percent share of the overall market. Now it is 1. 5 . It focuses on a small basket trip, the convenience trip. Why is it growing so fast . People are looking to save time and money. It gives them 13,000 points of presence in the market, 48 states, plus five canadian provinces. It is designed to fulfill customer needs for a quick trip to the market for stuff they need. Save time, save money. Isnt that why god gave us walmart . Walmart does not save you that much time. You have a 200,000 square foot store. Typically these are 9000 or 10,000. Is it a lot cheaper . Do the other stores require more inventory . More returns . Inventory is typically not an issue. Because it is owned by the seller . Yeah, and it is a very rapid turnover model. Very rapid turnover. And it thrives basically on a lot of quick trips for people in and out, highvolume, per size of the store, and this gives it if this thing happens, another shoe may yet fall. Such as . There are thoughts of, will there be a topping offer for it . There have been rumors about Dollar General for a good six months. Family dollar is the most under managed of the three major dollar stores. Also, which metrics are worse . Profitability. Comp sales versus instore sales . Versus almost any metric you want. This company has some of the best operating metrics and it has the best Real Estate Team in the business. One challenge for Family Dollar is real estate. Dollar tree routinely has better real estate. If you go through with Family Dollar, this one closed, that one closed, this one we knew was a bad deal the best Retail Operations for real estate are cvs, walgreens, and dollar tree. Then it is able to lever those skill sets against one of the big gaps at many a Family Dollar and they will know what to eliminate, what to combine. There is some overlap, but not a lot. Dollar tree has a big presence in california. Family dollar, less so out there. Dollar general is very limited. Really, there is a lot to recommend. The secret sauce, location, location, location. Ive heard that before and retail. Craig johnson, thank you for joining us. We appreciate it. Coming back mixing, making a comeback. Human curated playlists. We will look at the founder of something called 8tracks online, but they are still called 8tracks. This is taking stock. I am cory johnson in for pimm fox. Apple, amazon, microsoft, google all tinkering to offer music online. Early this month, google announced it was purchasing songs for media for 39 million bucks. Lets bring in the ceo of 8tracks, david porter. We were probably on the same plane yesterday. What is going on with the Music Industry . It is so dramatic to me the changes that have been brought in the way that music is delivered. It has been a shift historically from vinyl to cassettes to cds to online. We have seen the numbers for spotify and so on. To me, they are not knock your socks off. They are good, but not incredible. You think about the world of streaming in two buckets. There is ondemand streaming, best exemplified by spotify. And then there is the streaming best examplified by pandora. Their streaming hours were opened by a third, which was pretty significant. I want to get to you and talk about how this works pandora, when they became public, we saw a lot that we had not seen before and the company is been around for a long time. There was a lot of fascinating things in that ipo filing. The most notorious big p was their desire to lower the royalty rates. What is going on with royalty rates . The royalty rates are set by a compulsory license for webcasting, so effectively by u. S. Law. That is the default license that is set for how they structure like radio. The thought is if it is promotional for music sale and not cannibalistic of music sales, it deserves to have a slightly lower royalty rate. I never thought about that. That is why you have iheart radio where you have a pile of songs. And spotify, the royalty rates are higher because that is a substitute for owning the music. What is different about 8tracks is it is a curation platform, so any person or entity around the world what i mean by that him practice, 1 of our users can upload music from their hard drive, create an online mixed tape, add metadata in terms of a title, cover art, a description, classified by genre, mood, activity, and then the listeners tune into a series of online mix tapes choosing a tag. How does this differ from a playlist on spotify . There is an important difference. Fundamentally because spotify is an ondemand service, the way people typically use playlist thing is for direct personal consumption. Oh, there is an album that came out last week and i heard a song from the 80s yesterday. I am going to put that in a playlist and listen to that this afternoon. With 8tracks, it is different because it is intended for an audience. It is not for personal consumption. How does this work with an advertising base . Advertising is a bigger market. Advertising . Advertising associated with radio. Versus what you might see on a website. Or your device. The total market is about 33 billion globally. If you get 10 of that, you will be fine. That is reportedly what pandora has today. Reports are they are up to 9 of the u. S. Market. Pandora is still ahead by a large margin. Where is adoption happening or where is it not . Obviously the car is the holy grail for music listening in the u. S. That is true and we have seen that. Two years ago at this time, two thirds of our streaming came on web or desktop. Now it is about two thirds mobile. Wow, in 2 years that changed . Probably a much bigger business, too. It is growing pretty dramatically as well. Thats right. The challenge of course, the cpms tend to be lower on mobile. The ad rate . Exactly thats right. It does come with lower cpms so they can be challenging. What was the last mix you were listening to before you walked in . I dont think i listened to one today. Really . What was the last one you listened to then . Probably one of my own playlists glow, deep techno. Thanks very much for your time. Thanks for having me. Up next, we will be talking to the chief Business Officer behind the new york city football club. He just signed frank lampard. That is next. This is taking stock. I am cory johnson in for pimm fox. The world cup has led to an interest in soccer. Also, new business for the new york city football club, said to begin playing Major League Soccer next year. They have announced a threeyear partnership with hays, the uks largest professional recruiting agency. Here to discuss the business side of soccer is tim pernetti. There are a number of people looking at what youre doing with great admiration already. Explain your business model. That is great to hear. We look at the new York Business market, it is such a chaotic market. There are eight or nine pro teams. When you are a new franchise, you have to cut through in a unique way. Everything from the beginning has been about engagement. We are letting fans decide theyre looking over your shoulder. We are letting fans decide where they get to sit in the stadium. Dont fans always get to decide where they sit in the stadium . It is equivalent to the student section in College Sports. We sat down with our supporters. We put a map down in front of them, and we said where do you want to sit . We thought maybe here. They said, no, the left field bleachers. I think that is the best way to cut through. It is good to know others are taking notice. What is your media strategy . As you know in sports everyone is competing for exposure. Mls is doing a great job. We have done a local broadcast deal which we will be ready to announce soon. We have created a deal with cbs radio to have englishspanish broadcast of our games. We are pushing as much out there as possible. Cutting a deal is one thing. What kind of splits do you work out in terms of advertising . Do you get paid but out by the media . It depends. Our local broadcast and radio deal, those are advertising dollars that are recouped by the broadcaster. They are paying for the right to televise our games. There is revenuesharing in all broadcast games. We are up to about a dozen sponsorships and growing. That is an investment in the club. Recruiting it is a category that is not very vibrant in terms of sports. It is unique to what were doing because it is an investment sponsorship in the club. Hays is helping out. It is great because they are not just a sponsor. They can help us build a highperforming staff. And you have signed some big players, big on the international scene. What is it like to try to get these guys to play in a place where the competition is not the top rung in the world . Signing players in general is complicated. There are a lot of people involved in the process and the good news david villa is a younger player. He is 32 years old. The beckham model. Sure, he is a younger player. He has a lot of years in front of him. A lot of International Players and players in the u. S. And other places are really excited to play because the league is growing and a lot of people want to play in new york. How does the franchise ownership work . We are owned by the new york city football club. We have the new york yankees as the other owner in our franchise. The best thing about having a franchise in new york is having two global iconic sports brands behind this. Because of the brand recognition, the access, getting football expertise from Manchester City football club, it has been a terrific marriage of strong brands. In College Sports it is going to be fun to creating new model. This is a somewhat different model than any other professional sport in the u. S. I think youre right. Building in pro sports is different today than it was 20 years ago. Building in a chaotic market this is a 20yearold league. I think people got a glimpse through the world cup of what soccer can become. To capture the hearts and minds of new york city sports fans, you have to develop an emotional connection and give them a great experience. Tim pernetti. Thank you. More after this. This is taking stock. I am cory johnson in for pimm fox. For more on our market moving headlines, lets go to su keenan. Virgin america has filed for an ipo. The airline is partly owned by british billionaire richard branson. The number of shares offered and the price are yet to be determined, but the company says proceeds will be used to fund growth and repay debt. Nissans latest profits beat analyst estimates. Revenues rose to about 1 billion. They cut their profit projections for the last two years. And finally in washington, house and Senate Negotiators have reached a rare bipartisan deal. The agreement expands the number of nonv. A. Hospitals where veterans can receive care. Back to you. All right, thanks. 60 of people who buy ipads and max already have an iphone. It really casts a question of what the notion of an ecosystem is. There is already the suggestion that a new ecosystem is evolving around google glass. Joining me is larry my guest is talking about ways to innovate. I love this, because i do our Technology Show on the west coast, bloomberg west. People think innovation means a lot. I do not even know what it means. What does it mean . Innovation is the creation of a viable new business concept. Every one of those words matters. Most people are not precise about it. For it to be viable means it has to return the cost of capital. The cruelest thing we do for smart people is put them in a room and tell them to innovate and never teach them how. That is the standard. It is a good starting place. I worked with a Magazine Editor who really put a lot of time into installing the tools of creativity. Which was usually sitting around a circular table and drawing ideas, honing them over and over and over again. Is there a difference between creativity and innovation . Massive difference. Here is what happened in the room where youre sitting. The individuals has a lot of talent. I was there, too. We have to make certain exceptions, cory. Most people conflate innovation and creativity. They think they are the same thing. They are wildly different. The difference between people who routinely and reliably innovate and the people who occasionally get lightning to strike are the people who look at it this way, say it is all about enhancing our creativity. The other say, no, it is about discipline. The discipline of taking an idea and implementing it . I am using your hand signals now. All of those things. How do we develop these ideas for how human beings are going to do things in their lives. How do we overcome the obstacles . Have we figured out the Little Things like the fact that most innovations are increasingly about the elegance integration of many things, not the invention of one thing. I want to talk about the notion of apple as an innovative company. It is clearly that. The Management Structure is didactic. There is one guy who told everyone else what to do. To me that is not where innovation comes from most of the time. I suspect inside apple, things are different. There are things apple does really, really well. One thing steve personally did was he said no to a vast amount of distractions. That is another form of discipline. I was myself brought him a billion dollar idea. I got most of the way through the second sentence before he said no. I said, excuse me. He said, strategy is choosing. I choose no. I said, i do not have any trouble hearing. I wonder if you could give me a reason why you said no . That was something i respected him for. The ability to say no to things that were great ideas, but not part of what he was trying to achieve now. Is it possible for a company that does not value innovation at its core to become innovative . I think that is something that people in business love, the notion that they can get close to innovation. It is quite possible today for companies to become good at innovation if they set in motion the right kind of journey. If they think about it as the construction of a competence, not the creation of a culture. I get a call at least once every 10 years from some ceo somewhere in the world who says, we do not have a culture of innovation. Can you help us . And my stock answer is, lie down until the feeling goes away. It is like installing plumbing. If you do the right things in the right sequence, anyone can be good at innovation. What are the pitfalls that people commonly encounter . Thinking you will invent some breakthrough products. There are so many Little Things you have to get right. There are about 20 major myths that are always getting in your way. Are there some companies that cannot be or should not be innovative . Sure. Innovation is not for everybody. There are hundreds of thousands of companies. If you and i were running a dry cleaner on the corner, the amount of innovation we need is not very much. Most of that is about execution. A relatively small number of companies have to be great at innovation, not necessarily everybody. For all of us to say we all need to be innovative now is an overreach. It is impractical, unnecessary, and a waste. There has been criticism about the innovators dilemma. What is your take away from that argument . I am sure youre up to speed on that. It is one of my favorites. The innovators dilemma is an old one, the idea that if you focus on your most difficult customers, if you produce a steady stream of innovations, it distracts you from finding the next market to serve. That is the heart of what clay christiansens research discovered 15 years ago. Great research. He is a great guy. The important thing is for all of us to be curious about how we will be relevant to people today. That is a universal message and out to bust out of the innovators dilemma. Thank you very much. All right, coming up we will speak with the owner of a shrimp farm and find out why she cannot grow a farm with enough scampi. That is next. This is taking stock. I am cory johnson in for pimm fox. Last year, the average american consumed four pounds of shrimp, making it the most popular seafood eaten by americans, even more than the humble can of tuna. My next guest is providing shrimp. I am joined from chicago by my guest carlina brown. Great to have you on taking stock. What did you do before you grew shrimp . Corn and soybeans. From soybeans to shrimp. Sticking in the protein business. How different is this . It is a lot different. It is a totally different animal. We still raise corn and soy. Talk about this. How did you discover it . We were looking to get into tilapia for about 15 years. Then it got to be very hard to find anybody to let us see what they were actually doing. Then we came across a shrimp pump and the rest was history for us. To that history i was surprised by this article in the new york times, talking about shrimp consumption in the u. S. , shocked that it is bigger than canned tuna and has been for over a decade. Yes, it has. One of the favorite seafoods of everybody. I know one of the concerns about the wave farms tilapia, salmon, others are growth hormones and so on. What is required by the fda . Explain it to me. For shrimp, right now, for indoor recirculation systems, there is no regulation because there are not that many of us and they do not know what to look for. Basically we tried to follow the standards of anybody. No chemicals are added to our facility whatsoever. That is interesting. Are you making your life harder by not using the stuff . I think it is a much better product. It is just the fact that we are offering much better shrimp them what you will get from something that is imported. Better how . Tastes better . Oh, yeah. Ours tastes clean. The fact that most Foreign Countries use antibiotic or hormone that is banned in the u. S. , and yet they are able to put it in their facility and it is shipped here and that is what we are eating. To whom do you sell . Just the everyday person who walks in our facility. There is no rhyme or reason to our marketing. Just whoever likes shrimp. You can just walk in and buy . You produce in volume. Surely you sell in volume as well . Our facility is small. We average about 400 pounds that goes out our front door. No restaurants, no distribution. Just basically anybody who likes shrimp comes in our door and buys it. Where exactly is the farm . We are in a little town called fowler, indiana. We are halfway between chicago and indianapolis. What kinds of people are in there buying live shrimp in indiana . It is actually not just indiana that buys our shrimp. We get people from toledo, ohio, kansas city, michigan, all over who will come to our facility and buy two or three pounds of shrimp because they like the fact that it is fresh and live. What do your neighbors make of your operation . They actually think it is kind of funny we have a shrimp farm in the middle of fowler, indiana. We are right in between corn and soybeans. Does growing shrimp help the rest of what youre doing, growing hogs or what ever else we no longer raise hogs. It has been our main income right now. My husband and i have been able to quit our day jobs to work this fulltime. We have had issues with production in china, the shutdown of the gulf. You have managed to capture the pricing curves at a pretty good time. Yeah, we actually did. It has been great having you as a guest. We appreciate your time. Thank you very much. Coming up, i will talk to a former wall street executive who is living the dream. Up next on taking stock. Breaking news now in the ownership battle involving the nbas los angeles clippers. A judge has ruled that the sale to former microsoft ceo Steve Ballmer may proceed. Joining me is ira. This is an amazing story about family control and ownership. What was the issue and what did the judge decide . There were basically three questions today and they all went in favor of shelley sterling. One was whether she was the sole trustee and had the authority sorry, shelley sterling is the long separated, but still married wife of donald sterling. Exactly. The two of them owned it in a trust. Basically she had him ruled mentally incapacitated and became the sole trustee. The question was, could she do that . The answer was yes. The second was when he subsequently revoked the trust, did this trial had to go to a different jurisdiction than the Probate Court . The court said no, this was the right jurisdiction. The third question, and this was the big one, could shelley sterling go ahead with the sale to Steve Ballmer while donald presumably appealed this decision . And the court used a very rare power to say the sale could go ahead and it did not matter what the appeal was after that. Why did the court say this . Essentially they said that Steve Ballmers 2 billion bid was a bird in hand that would be hard to get in the future. There were no bidders coming forward with more money than that. The team would go into a death spiral with sponsors and players and coaches abandoning it and it was damaging the trust to not to go forward with this sale under a very advantageous price. As a fan of the warriors, this is bad news, but probably good news for the clippers to see the sale go forward and have stability, let alone a lot of money from Steve Ballmer. I think it was somewhat surprising they would basically squash the appeal today and it looks like now the sale can go through free and clear. I would expect it now happens very quickly. There is another issue i have not seen discussed a lot and that is the issue of taxes. Donald sterling may not have to pay Capital Gains tax if he can prove that the sale was forced by the nba against his will. What does todays ruling mean for his desire to prove he was forced to sale . I am not sure. I do not know if it is material. I do not know if the judge said anything on that matter. What they do today, i think, does not affect whether he has to make the Capital Gains payment. Is this done or does he likely appeal . I will be curious to see if he still appeals, because it will be kind of empty. His purpose all along has been to stop the sale. If he appeals now, it does not do anything to the sale. My guess is he will because he has vowed to fight to the death on this, but it will be kind of toothless. Thank you very much. From basketball to the kitchen, seth lavine has taken a nontraditional approach to becoming the executive chef for top restaurants in new york city. He went to a Culinary School and then went on to work for Goldman Sachs. There were auditions for Gordon RamseysHells Kitchen. From goldamman to the kitchen it makes more sense than you would think. There is just as much stress in the kitchen as there was on the floor of the New York Stock Exchange. Yes, you run the floor. Yes. What did you trade . Everything from aol to ibm. All of the big boys, some little guys that were fun to trade and take on and love that stock every single day and you nurture it. You worked in a garage. I had an old girlfriend who used to work down there and said it was like working at mcdonalds taking orders, but more stressful. Yeah, you are standing eating your lunch, when you are making your trade with some of the top brokers in the world. As a cook in a restaurant cooking is a small part of it in some ways. Running a restaurant i got this experience from Hells Kitchen of course. I have never owned a restaurant prior to that. I have cooked my entire life. I knew that i wanted to open the restaurant after the shows airing. It has been a whirlwind. This is a fantasy of so many people who have jobs, whether they are on wall street or not, and dream of cooking for more than their family and friends. What is the biggest thing that is difficult about this . Obviously be food ordering and coming from a place like Goldman Sachs what do you mean . The costs and employee costs. Great chefs cook great food. But there is an entire business. Most people do not know. It is just when you look at the menu, do you imagine things with popularity. You think, protein is my biggest cost, so i have to have enough routine to sell, but not so much that it bankrupts me . Of course. It is a puzzle, just like on the floor of the New York Stock Exchange when you have to figure out what you are going to buy or sell. You have to make sure there is something popular on that plate that everybody will be able to order from. Making the menu is one of the hardest things. Tell us where you are. We are on the lower east side. We have the stand on 20th and third. We have a new edition that is right underneath the bridge on the Long Island City side. We do a lot of weddings. It just went through a major renovation. These are swanky places. You must have swanky people . Oh, yes. All of these celebs does that change the way you run the restaurant . Change the way you cook . Change the way you cater . Everybody is a vip. Obviously if you have someone walk through the door that has a notable name like puffy . Puffy was at a restaurant we did a collaboration. You had Hillary Clinton there of course. Adam sandler. We did a movie premiere. Justin bieber, his release party. The events are tough stuff to do. Seth levine, interesting story. Appreciate your time. Thank you. Thanks for taking stock. More of this tomorrow. For now, good night