Expect More Companies to Pull Their 2025 Guidance

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger. Welcome back to The Canadian Investor Podcast. I'm here with Dan. We are back for some news and earnings and oh boy, there is a whole lot of news as some of you might expect.

[00:00:24] In fact, it's a bit quieter on the earnings front. Still some earnings. There's a few we picked just to see what is going on in terms of what companies are saying. Because right now companies that are reporting, especially those that are reporting after Liberation Day, after April 2nd, it's a good glimpse as what we might be hearing in earnings call for the earnings season that will be starting slowly in the next few weeks, right?

[00:00:52] Yeah, and I think there's actually like Dollarama. It's a pretty popular Canadian stock we'll talk about. They continue to just crush it and probably, I mean with this environment moving forward might continue to as well. But yeah, it's been, I mean this has to be one of the most volatile, like that Monday, what would have been Monday?

[00:01:12] That had to be the single, one of the biggest daily moves in the NASDAQ, especially over what, like a 20 minute timeframe was like a 9 plus percent swing. Like that's got to be what, multiple trillions of dollars and then, you know, in 20, 30 minutes? Crazy. Yeah, I don't, I don't know if it's the largest percentage move in a single day, but I saw a tweet saying that it was the largest points move on the S&P 500.

[00:01:42] Now keep in mind, obviously, as the S&P 500 gets higher, higher, higher over time, a large point move is not necessarily as big on a percentage basis. But it's still, history was made there because like you mentioned, it started the day completely down, then went way up and then back down. And we'll talk a little bit about that. But before we get there, I thought it would be a good way to start the podcast and just say, I think it's time to buy Dan.

[00:02:10] Yeah, because I'm reading this tweet from Donald Trump. Sorry, this truth from Donald Trump saying, in all caps, this is a great time to buy DJT. That's it. And I think he's just implying this is a great time to buy stocks. Obviously, I don't think it's necessarily a good idea to take some financial advice from the US presidents, considering how unpredictable he's been.

[00:02:35] I don't know if he's trying to pump the stock market a little bit, freaking out a little bit what's happening right here, or maybe knows something that we don't know. And he's trying to help out his friends. I have no idea. But it was kind of funny that he posted that and clearly was taken by all the mainstream financial media as well. So that's kind of exactly my thought process. Well, when I seen that, I was like, okay, well, is he trying to prop up the market or does he actually know something that's coming down?

[00:03:04] I mean, this is obviously he's effectively controlling the direction of the markets with whatever he says. You know what I mean? Like one statement by him, obviously one supposed statement by him was the reason that the NASDAQ skyrocketed in that 20-minute time frame. So, I mean, sometimes you just kind of take this at face value. But I was kind of thinking, like, what is his motivation here? Who knows? Who knows?

[00:03:33] But speaking of Trump, there's also some controversy that happened over the weekend or late last weekend. Last weekend. Yeah, where he retruthed, trying to use the correct terms here. It's still every time I say it, I start almost laughing. But he retruthed a video that said that Buffett was on board with tariffs.

[00:03:56] So, President Donald Trump shared a video on Truth Social claiming that Warren Buffett endorses tariffs policies, stating that they were the best economic moves he's seen in over 50 years. The assertion was based on a video that originated from an Instagram account. I think it was also posted on TikTok as well. And in response, Berkshire Hathaway, Buffett's obviously the company that he runs, issued a statement refuting these claims.

[00:04:25] Basically, I'll just quote what they said. There are reports currently circulating on social media, including Twitter, Facebook, TikTok, regarding comments allegedly made by Warren E. Buffett. All such reports are false. And now it's also important to know that Buffett has also been pretty critical of tariffs in the past.

[00:04:46] And he also said that he would not be really talking about the economy or the markets or tariffs until the Berkshire Hathaway annual shareholder meeting on May 3rd. So, just some more weird stuff happening where it's too bad that he was caught up in or caught in this whole tariff war, trade war.

[00:05:12] Especially because Buffett, I think, tries to stay on the sideline for that kind of stuff. So, it just looks like there was a user that started this fake video claiming these things about Buffett. And Trump just decided to promote it and then obviously created a whole new thing on its own. Yeah, I think, I mean, Buffett is not the type of guy to like come out and make a special announcement on events like this. So, like, I mean, it seemed weird in that regard.

[00:05:41] I actually haven't watched the video. I don't know if it was like some deep fake. I couldn't find it. Yeah. Apparently, it's been deleted. I tried to find it as best as I could. I'm sure it's posted somewhere. But it looks like it was removed from Instagram as well or at least not viewable from Canada. So, I can't tell which it is. But I saw some snippets of it just because it got taken by different financial outlets. But I wasn't able to see the full video either.

[00:06:11] Yeah. Like, if it was some sort of like kind of a deep fake AI type thing, it's pretty crazy how realistic you can make them now to kind of, you know, make it seem viable. I mean, like I remember Berkshire had been doing, Berkshire had been doing very good this year. And then all of a sudden it was down, like, I think it was down 9% because of this. So, I think that's why they came out and kind of issued the statement because all of a sudden it just bombed in one day.

[00:06:41] And a lot of people were asking me what was going on. And I couldn't really figure out what was going on. And then they came out with this report. But yeah, I mean, he is definitely not pro-tariff. So, I mean, anybody who has kind of listened to him prior to this would probably know that this was completely fabricated. But it just kind of shows you the small stuff now, especially with social media. What can move companies? Yeah, exactly.

[00:07:08] And obviously, the way we're talking, clearly volatility has continued to be wild. It's something we've been talking about for quite some time, even before this started. Late last year, that's what we were talking about, that we should probably expect some more volatility. I didn't think it would be this volatile, I'll be honest. But I knew that it would be more volatile than what we had seen in the last few years. Monday, like you said, was a wild day and markets opened 4%.

[00:07:34] Then within 30, 40 minutes, markets were up more than 4%. And when I say markets, I'm talking primarily here about the U.S. market. I know it's a Canadian-focused podcast. But at this point, the U.S. is really taking center stage. And other countries, stock market, Canada included, are taking a little bit of a backseat. But they're clearly very influenced by that. And the swing was just several trillions of dollars in market value. So what happened?

[00:08:02] Then basically, the big rally came after rumors that the U.S. would delay implementation of the new tariffs for 90 days. Shortly after that, the Trump administration came out and said that the rumor was false. Later in the day, Scott Besson said that over 70 countries had reached out to the White House to discuss tariff. And then Monday kind of finished close to flat, if I remember correctly, or a little bit down. Is that... Yeah, I think so. I think that's about right, right? Yeah. Yeah, they went... Yeah. Yeah.

[00:08:30] And now what we're seeing the last few days is just the escalation between U.S. and China. The U.S. keeps saying that there's a lot of country coming at the table wanting to negotiate deals. I don't think there's been any major deals that have been negotiated just yet. Even some countries offering like zero tariffs. But I think the U.S. is really focused on the trade deficit that they have with other nations. I'm not so sure now that they're actually focused on tariffs. We'll have to see. And now we're seeing that the U.S. impose 104%.

[00:09:00] I think that's the correct number on China. And then China, that was effective basically this morning at 12.01 a.m. And we are recording this on April 9th at around 11 a.m. I just want... 11 a.m. Eastern time. I just want to be clear because it could... Yeah. There could be some developments in the next half day before this episode is released, right? Yeah. I mean, we need timestamps for everything we say because it could change in an afternoon. But yeah, the one like... Yeah.

[00:09:30] They say a lot of countries are negotiating. But I mean, one of the biggest ones isn't at all with China. Yeah, like that... I could see that battle getting worse. Yeah. And I think... Look, I'm not a geopolitical analyst or anything like that. But I think that China probably sees this as existential. And China, the reality is it's probably the second most powerful country in the world. So it wants to hold its own. I don't know what their end game is either.

[00:09:58] But clearly there doesn't seem to be a willingness to negotiate. It seems to be just escalate the trade war at this point. And now China has said that they would be implementing, I think it was 84% tariffs on US goods, on all US goods coming to China. So we'll have to see. But clearly this is not great. It impacts a whole lot of different companies. And we'll have to see how things develop. I'm sure in the next few days there's going to be even more development.

[00:10:25] But the big issue for investors here, and let me know if you agree or not, is just the uncertainty that tariffs creates for investors and companies, right? It's very difficult for companies to be able to provide some guidance, know where the business is going. And you'll see this when we talk from two companies, specifically Levi's and Delta Airlines. You'll see what they're saying.

[00:10:51] And they released their earnings right after Liberation Day. So you can see how companies are really struggling with this. And it's so hard to predict what kind of impact they will have on their business. But the problem we're seeing for investors, it's like a double whammy of high valuations and lower earnings as a result of tariffs. Because I asked ChatGPT what the current P was for the S&P 500 in the aggregate, of course.

[00:11:21] And the trailing P, it gave me just slightly lower than 22. And that was yesterday. So it may be a bit different right now. And the forward P was 20. So let's say it's 22 and 20. So what this implies is that the market is still basing those earnings based on what was done a month, two months, three months ago. Because they're still expecting earnings to grow because the forward P is just looking on a forward basis.

[00:11:49] So clearly, if the price to earning ratio is lower than the trailing 12 months, it means that they're still expecting earnings to grow. And what we're seeing right now is the market's trying to figure out how much will those earnings go down on the first end. And the market was willing to pay a trailing P. And I'm going to use trailing just because at least that is certain. The forward P are so hard to predict right now that I think it's actually better to

[00:12:18] use the trailing P, although it has its limits around here as well. But the market was willing to pay 22. What is the market actually willing to pay now in the face of all this uncertainty? Maybe it's not 22. Maybe it's going to be 20. Maybe it's going to be 18. Who knows? But the lower that multiple is, and then you add in the whammy of expected growth being either

[00:12:45] zero or negative in terms of earnings, you can get some pretty sharp market moves downwards, even from this point going forward. Yeah, I think that's what a lot of people I've seen are talking about how stocks are cheap, stocks are cheap. But I mean, we have no idea really how cheap stocks are because I mean, I would imagine this 20x forward price to earnings. I mean, there's probably not a lot of revisions downwards in terms of tariffs.

[00:13:14] So I mean, a lot of analysts have no idea how to predict the expected earnings for companies over the next month. So I mean, we really don't know how cheap stocks are right now, because obviously there's no, there's just absolutely zero accurate predictions we can make about the future. So I mean, I would caution people in that regard. I mean, on an absolute pricing basis, yes, a lot of stocks are much cheaper.

[00:13:40] I mean, but if a stock goes from $200 a share to $150 a share, yes, it's cheaper. But I mean, depending on how hard it would be hit, if these tariffs persist, it might not be cheaper on an earnings basis, which is ultimately what the market values these companies on. So that's kind of something that a lot of people get caught up in, especially, you know, when I seen a lot of this in 2022, when people were comparing how cheap stocks were relative to like 2021 highs.

[00:14:11] And it's, it's just not really, you know, you got to be looking on an earnings basis. And right now it's just, it's completely unpredictable. Yeah, exactly. And what I think for me, the most likely scenario is you get a multiple compression. So the market will not be willing to pay as much in terms of valuations. And then you will have lower earnings than what was previously expected. The problem is it's, you know, that's a pretty wide range.

[00:14:40] I just said, so it's trying to figure out, you know, the impact, the extent of both here. And I think you really have to be careful when you hear people saying, like you just said, markets are cheap. I think they're just looking at the price and they're making the assumption that the business they are looking at, or even the aggregate, the S&P 500, that there will not be much impact by tariffs.

[00:15:06] And I've seen professional fund managers, people that you think would know better online saying that it's a great time to buy great businesses, quality businesses. Yet we actually don't know how impacted those businesses will be going forward. Some won't be. Some may actually thrive in this environment, but there is going to be a lot of really good

[00:15:30] businesses or great businesses that we've seen over the 5, 10, 15, last 5, 10, 15, 20 years that simply will see their business model completely change and their profitability take a big hit. So I think it's just to keep that in mind. I tweeted something that I think it's a really good tweet, in my opinion. Of course, I don't always... You're a little bit biased. Yeah, I'm a little bit biased.

[00:15:58] And sometimes, you know, I don't put the best tweets out. But I think this one is pretty fitting. This is the kind of market that sets you up for life or sets you back 20 years. And I think it's... I think this is very accurate. Let me know if you agree or not. But you can really set yourself up if you play this market right. But if you panic and, for example, you decide, you know what? Like, I can't handle this volatility. I sell it all.

[00:16:26] And then what if the market goes down another 10, 20% but then you're scared it goes down even more and you end up never pulling the trigger and benefiting from those lower prices to only pull the trigger when it ends up being 10, 20% over the price you actually sold. So that's where it becomes very difficult is when do you sell? When do you buy? All these different things. And like we talked on our last episode, dollar cost average could be a really good strategy here.

[00:16:56] Or if you have certain businesses in mind, then you could look at certain price levels, whether it's on a valuation basis or even if you think the company will be unfazed, you can go more on a dollar basis if you'd like and have a systematic approach. But I think people need to be careful because, yes, there's a lot of great opportunities that are starting to come up and there's probably going to be some more.

[00:17:21] But there's some potential to really hurt yourself as well if you panic. Nick. Yeah, exactly. I mean, it's very easy for people to maintain like a routine purchase strategy during a bull market. But then, you know, when the bear hits, they start, especially because I think like this would especially be the case if you've started in like, say, the last five or six years. I mean, every single and we've had a lot of bear markets like market volatility overall

[00:17:50] crashes over the last five years. But they've been very quick to recover, like pretty much. Well, I mean, what was it? The COVID crash lasted a month and then you recovered very quickly. 2022 was really not that bad. But the only thing here is it's like the the two crashes and bear markets we've had over the last five, six years have been pretty much bailed out by policy.

[00:18:15] Like in COVID was insane stimulus interest rates like rock bottom. That's why I recovered. 2022 was inflation. But with rates as low as they were, they were able to crank them up like at a crazy high pace and kind of kind of calm that. I mean, if you think about it like those, you know, those are not typical recoveries. I mean, there's usually I actually did a YouTube video on this over like, you know, post World War Two recessions, crashes, bear markets.

[00:18:45] I mean, you know, a 10 to 12 month recovery is not typical. But I think that's probably what a lot of people expect in a situation like this, especially if you've just started over the last while, because like that's all you've seen. I mean, if you bought stocks in March of 2020, you were very quickly rewarded. And I mean, even in 2022, you were very quickly rewarded because inflation, you know, kind of went away. The markets started to go back up again. But I mean, I would, you know, this could be prolonged.

[00:19:12] I mean, if you think about it, you know, the financial crisis was a three year bear market with like a four or five year recovery time if you had bought like close to the peak. So I think that's kind of a, you know, there might be a lot of investors who are buying these dips with the expectation that, you know, things are just going to go back to normal in a month or two or three or four, which they could if all of this, you know, if Trump goes to the table with a lot of these countries, negotiates better deals, it could.

[00:19:40] But I mean, it also could drag on for a very long time and we could see lower stock prices for extended periods of time. And I think that's where people, you know, start to make a lot of mistakes. Yeah, exactly. And I think dollar cost average, right? Hopefully no one's income has been severely impacted and you're still able to do those regular contributions, whether it's through an RSP, something that's sponsored by your employer and RSP matching a defined contribution pension, for example, as well.

[00:20:10] Or it is just money that you put aside every single paycheck to put into the stock market. I think you'll you'll do very well as long as you continue and you don't stop. This is the time to continue. And if you wish you had more cash on the sidelines, I mean, at the end of the day, it's looking at reducing some expenses, getting some additional income. The time to raise cash with your investments is not now.

[00:20:38] The time to do it was two weeks ago, a month ago, two, three months ago. That was the time to do it. When we were both saying pretty explicitly that we were starting to put a little bit more cash on the sidelines, just a bit as a hedge because things were getting pretty, pretty crazy with the market. That was the time to do it. But if look, if you haven't done it, that's fine. A lot of people are fully invested. That's OK. Just make sure that you don't deviate from your strategy of dollar cost averaging, which I

[00:21:08] know a lot of people do. And just keep on doing it. That's the beauty with DCA is you keep buying when the market is high, but also when the market is low. So you want to make sure that you don't stop buying when the market is low. Yeah. Like if you, you know, you're strictly dollar cost averaging during the bull market, obviously it feels good to do that because you're pretty much immediately rewarded. But, you know, if we hit, say, a two or three year bear market and you stop doing it,

[00:21:34] I mean, effectively that completely eliminates the benefits of it because ultimately when stock prices get cheaper, your expected returns are higher. Exactly. And during the bull market, I mean, as stock prices get more expensive, your expected returns are lower. So if you're sitting there dollar cost averaging during a bull market and then during a bear market, you start flip-flopping around and, you know, selling stocks that aren't down as bad to buy stocks that are down a lot and like selling stocks now because they're going to fall another 5% next week and buy them back.

[00:22:04] And then, you know, you just got to stick to the strategy and do it regardless of the market conditions. But that's like one of the hardest things for people to do, especially now with like all the headlines, like social media, like access to just an insane amount of information. It's not something that's easy, but it's, you know, something that ultimately, you know, stick to your strategy and it's going to be just fine. Yeah, exactly.

[00:22:33] Now, enough of the news. Obviously, I'm sure we'll be talking more than enough about what's going on on the trade front. We'll try to obviously stay positive because there's a lot of negative news going around and I think there is some fantastic opportunity for investors. It may not be, you know, necessarily all right now, but there will be some really good opportunities coming up. So I think that's a big reason to stay positive. That's a big reason I stay positive. But it's also impossible to ignore. Yeah.

[00:23:02] This is literally changing or has the potential to change the business model of a lot of businesses. And we tend to invest in businesses and good ones. I invest also in index fund and gold and Bitcoin as well. But for the business part of my portfolio, I'm keenly aware of that. Now, let's move on to one of the companies that reported after Liberation Day and that is Delta Airlines. So do you want to go over what they said? They actually reported this morning.

[00:23:32] The call isn't out just yet. So you weren't able to listen to it. But still, I think the release and the earnings had some really interesting information on how Delta is approaching this. Yeah. Their basic report kind of gave a lot of decent information. I did want to listen to the call because I imagine they would have discussed a lot about tariffs because they did mention in regards to their guidance. It was primarily just due to what's going on right now.

[00:24:00] But they reported revenue was up 3.3%. Earnings per share are up around 2%. That would be on a year-over-year basis. So although they increased revenue, total revenue per available seat mile declined by around 1%. So this is how much money they're making per seat. Like we had discussed before, a lot of these airlines- For paying customers. Per paying customers.

[00:24:28] So yeah, they have the seats that are occupied by paying customers, how much they're making per customer. So that actually declined by 1%. So this is nothing like overly concerning, but it does kind of give the impression that, you know, travel demand might be a bit weaker because, I mean, I don't follow the airlines all that much.

[00:24:50] But I would imagine that this is probably a situation of seat sales, maybe, you know, lower demand pricing adjustments, things like that. Because passenger revenue was up 3.1%. Cargo revenue actually went up 16.9%. And their premium revenue saw a 7% year-over-year increase. So premium revenue would be things like people paying for first class or, you know, they pay the extra whatever it is. I don't know what it is here in Canada because I've never paid for it.

[00:25:20] But the seat selection where you can like pre-book your seats. I've done that when I went to Calgary, but mostly because I went there to get a procedure for my back and having the extra leg room. Because I'm not like super tall, but I'm 5'11". So, you know, it gets pretty tight in those. And the extra leg room actually felt pretty good for my back. So that's the reason I did. But I get why people would not do that. Yeah, I would never do that. I'm only 5'6".

[00:25:50] So, I mean, there's plenty of room on the planes. Okay. I travel a little. I think you're telling me because when we – I know we'll meet in person at some point. So, I don't want to be too surprised. So, that's good. Yeah. I'm not a very tall guy. So, I am very comfortable. Well, I wouldn't say comfortable. But, I mean, I fly with a couple of buddies who are like 6'5". Okay. And when they fly standard seats, I don't even know how they do it. But, yeah, they – I mean, a lot of people do pay for that seat selection because of, I mean, how uncomfortable planes are these days.

[00:26:19] So, Delta One would be another one of their premium options, which apparently gives you like a full lay down bed and like dining and all that stuff. So, I mean, they're doing pretty good in that regard. I'm actually surprised that this segment of the business is, you know, still showing growth. I would imagine it would probably be on a business perspective. But maybe – Yeah. And one – Go ahead. One thing I wanted to add, Rob, before you move on from the revenue per available seat miles.

[00:26:47] So, for those on Joint TCI, you'll see I'm sharing a graphic here. And you can tell that there's definitely a bit of a downward trend happening. But it's also something that you'll see it kind of peaks and then lowers and peaks then lowers because it peaks around the high demand seasons of the year. So, for summer travel but also holiday travel. And that's where they can charge more because there's more demand for the actual seats.

[00:27:10] And if you look and go back all the way to 2020, you can see how that revenue per available seat miles. So, I'm trying to come up with an acronym. But RASM or whatever it's called. But you can see how it really plummeted. It's not to that extent. Let's be clear. But it's just to show that, yes, when demand cratered because of the pandemic, clearly that metric went way, way down.

[00:27:39] Now, we'll see whether it actually continues lower. We'll have to see. But it is a really good indicator of the demand for air travel. So, yeah, which is pretty much like if you look at any sort of KPI or like revenue segment or anything for Delta, that's what you're going to see is like that spike during, you know, the early summer months. And then it just gradually falls, spikes again, gradually falls. And that like obviously this would be, again, a lot related on demand. So, you'd see those spikes as well.

[00:28:09] Operating expenses. So, they came in 4% higher, which ultimately resulted in that operating cash flow declined on the quarter. And operating margins came in around 4%. But the company is guiding to 11% to 14% next quarter, which is more in line with what the company's typical operating margins are.

[00:28:30] And the one thing I was surprised to see is they've actually paid off a huge chunk of their debt, not only over the last year or so, but just going back to the pandemic level days. I mean, they've definitely reduced the debt by quite a wide margin. Just this year, they went from $20 billion to around $16 billion. And when we look to debt levels from the lockdown environment, they've actually cut their debt by about 55%. This is quite a bit more than a company like Air Canada.

[00:28:59] So, Air Canada has reduced debt levels by around 42% compared to pandemic peaks. So, they're doing a bit better in that regard. Now, I would imagine Delta's, again, I don't pay attention to airlines a lot, but I would imagine Delta's probably fared a bit better than Air Canada just because of the overall environment here in Canada versus the United States. I know Canada economic. I mean, you follow me. That's music to my ears here.

[00:29:21] You know how intense I can be about debt and companies not paying down debt and buying back shares. And they've went from, at the peak of the pandemic, $36 billion in debt to $23 billion. Yeah. And that would be as of the end of 2024. If you put it to a quarterly basis, it would probably be even lower. They've reduced it quite a bit. Yeah, I still have it. I think it's just not populating yet because... Oh, yeah, that's true.

[00:29:49] They released this morning, so it's going to take a little bit of time. But that's pretty impressive props to them. They generate quite a bit of free cash flow when they're allocating it pretty much like a huge chunk of it to debt, which is ultimately... I mean, it's a good decision, especially with how cyclical this business can be. Yeah. In hindsight, it's an even better decision. Yeah, exactly. So, revenue passenger miles, which would be RPM.

[00:30:15] This takes the amount of paying passengers and multiplies it by the miles traveled. So, that came in slightly ahead of last year's numbers and available seat miles, which would take the total amount of seats. Not necessarily... Like, they could be unoccupied, I'm pretty sure. And compares them against the distance traveled. That actually came in ahead of last year's numbers as well. So, it's actually doing quite well. Like, this was a pretty good quarter from Delta.

[00:30:42] I think it's actually up 6% or 7% this morning. Yeah. Although it's down, it's in a big, big drawdown. So, it's a draw over the last year. So, I pulled that out just before we started. So, over the last year, it's looking at 44% drawdown. And that's including the little bump it's having today. Yeah. Yeah. I mean, airlines are definitely not my cup of tea. I wouldn't own them.

[00:31:08] But the company's average cost of fuel, which is obviously going to be a big variable expense. They do hedge it quite a bit, I think, to kind of prevent huge swings. But it's gone down quite a bit over the last year. So, it's down around 20% since December of 2023. And obviously, fuel cost is going to be one of their biggest variable expenses. And then, just finally, and actually the part that's probably the most worthy of talking about, is they issued next quarter's guidance.

[00:31:34] So, next quarter, they said 2% increase to 2% decline in revenue. And they said operating margins. Obviously, I spoke about that 11% to 14%, which should no doubt help earnings. But they did say they're not going to be releasing any sort of 2025 guidance because of how uncertain the environment is. And again, I didn't get time to listen to the conference call. It's probably up now, but it's a little bit too late with how early we're recording. But I was pretty interested to see because I imagine, you know, in terms of the guidance, it probably would have been filled with, you know, the economy, tariffs, etc.

[00:32:04] But overall, it seemed like a pretty decent quarter. But obviously, they have no idea what's going to happen in the next year. Yeah, and I think this is going to be a theme that we're going to be seeing in this earnings season. And probably for the next couple quarters, I would not be surprised because Levi Strauss also released earnings. It was a bit before here. So it was on April 7th. So this Monday, but still after Liberation Day.

[00:32:30] And I think it's really fascinating what they had to say. And a lot of it will sound pretty familiar in terms of the guidance. I'll finish with that. And the thing I wanted to do was not look as much as the results, but more at what they're actually saying. The ticker here for those who are not familiar is just Levi. So L-E-V-I. And first, just to give some context here at the end of Q4, they were guiding for 2025

[00:32:58] revenues to be down between 1% and 2% for 2025. This was their Q1 release. They saw revenues come in stronger than expected at 3%. Revenues increase across the board except for Europe. Now, obviously, the big question mark for a clothing company of all types of companies will be tariffs and what impact it will have on the business. So during the call, it was really interesting to listen to the call.

[00:33:26] I strongly encourage people to listen to this call, whether you want to invest in this company or not. I think it's just interesting to see how they were talking about tariffs, what they had to say, and really just to get a bit of a preview of what we'll probably be hearing a whole lot in this upcoming earnings season. So one of the questions is they were asked, like, oh, where do you source most of your clothing from?

[00:33:51] So they sourced their clothing from 28 different countries, but the most important ones are Bangladesh, Cambodia, Egypt, Pakistan, Sri Lanka, and Vietnam. On the call, they acknowledge a challenging macro environment, but said that they were well positioned because of the strength of the brand. They also believe consumer will go to their brand because they offer good value and good quality.

[00:34:17] They also pointed out that the U.S. represents only represents half of their revenue. So they're not like overly dependent here on you. I mean, they are to some extent, but it's not their whole business that will necessarily be impacted by tariffs. It all depends whether you see countries outside of the U.S. starting to put tariffs on one another. So it all, I guess we'll have to see.

[00:34:45] I have not seen any indication of that just yet, but I just wanted to provide that context here. The word tariff. This is really interesting. I searched the word tariff and it was there 19 times in the call. And if you compare that to their Q4 earnings, which was at the end of January, it was mentioned twice. And it's not like there wasn't any talk of tariffs back in at the end of January.

[00:35:12] Trump had already taken office and he was already, I think, going at it with Canada and Mexico. I'm trying to to think what was happening back then because so much stuff actually happened since. But yeah, he was like going at it pretty hard with Canada and Mexico because remember, I think it was like February 1st or 2nd was supposed to be the implementation of the tariffs. And then that got delayed for a month at that point for Canada and Mexico.

[00:35:38] So it's kind of staggering that it went from 2 to 19 times, clearly showing that the market was or analysts were clearly not thinking about tariffs all that much still at the end of January because a lot of tariff talk during the call came in from questions from analysts. They also said they are not changing their guidance. So a little bit different approach here than Delta because the situation is changing too quickly.

[00:36:08] They are mapping various scenarios and mitigation strategies. This could include working with vendors, suppliers, and even looking at increasing prices, although they said it would be done surgically. So they're not necessarily looking at increasing prices across the board. They would probably doing on certain items that they think it could be worthwhile for them to do that. Clearly, they're probably going to take a hit on margins. They didn't say that specifically.

[00:36:37] They did say, and that's a really important point and something we haven't talked enough is that tariffs will have a minimal impact on Q2 that is coming up, of course, since most of the products for early spring and summer is already in the US. And I think that's a really important point because a lot of companies actually did that. They actually purchased a lot of inventory beforehand in case there would be tariffs implemented.

[00:37:05] So you saw a lot of purchasing that was front running potential tariffs. So it'll be really interesting because what may happen is you may not see that big of a price increase on a lot of different items that are going or are tariffed right now because the purchasing was done in advance. So that's something to keep in mind that we might just end up seeing that tariff impact

[00:37:31] in a couple quarters from now, for example, versus just seeing it the next quarter. Yeah, that's pretty. I didn't even think of that to be honest. Well, I knew a lot of companies, especially like small businesses around just for me watching the news, like we're kind of front running a lot of the metal tariffs. But in this regard, I mean, it all depends, you know, how the situation unfolds. Because if the tariffs don't continue and you load up a bunch of inventory, then you kind of, you know, you have a huge chunk of inventory that you got to roll out as well.

[00:38:01] But obviously, it's a good idea if these tariffs do persist because you're saving a ton of money on your product. I was looking at Levi, like pair of jeans made, an equivalent pair of jeans made in the U.S. versus something like Bangladesh or Vietnam. And they were nearly $500. They were. It was like, now keep in mind, this is just GPT. I was using GPT for this, but it did come up with numbers and like a source article.

[00:38:29] And it was like something like $128 for the jeans when they're made overseas compared to like 348 made in the U.S. Oh, wow. For the equivalent pair of jeans. It's better be a nice pair of jeans at that price. So, I mean, now you can kind of get the idea of what would happen, you know, because obviously the motive here, you know, on a surface level basis is Trump wants a lot of this stuff moved to the U.S.A., but I'll tell you like that there's going to be nobody.

[00:38:58] I mean, there'll probably be somebody, but there will be very few people who will pay $350 for a pair of jeans. I mean, obviously there are some people because they manufacture them made in the U.S.A. and people do buy them. But yeah, that's crazy. No, exactly. I mean, and just to sum it up here, it's like, I think this is a theme you're going to see a whole lot. It's just, it's a quickly evolving tariff situation. They don't know how it will impact their guidance. They're trying to find ways to mitigate the impact.

[00:39:27] And for types of companies like this fashion, it makes sense, right? Like you definitely need to order stuff before spring and summer. So that's completely reasonable. I think I'm not an expert, but I'm pretty sure that's how most fashion related companies, whatever you want to, or clothing, that's how they would operate for the upcoming season. They probably order like a quarter or two in advance regardless of tariffs. So it'll be interesting, but it's very similar what we're seeing here.

[00:39:56] Two very different type of companies between Delta and Levi's. And they're saying a whole lot of things that are similar. Levi, obviously they are choosing not to change their guidance, but they're also saying they have, they don't really know what impact it's going to have. And then you have Delta that's basically just not providing guidance because clearly they also don't know what's going to happen.

[00:40:21] So this is a theme that I think we will be seeing a whole lot during this starting season. Not something we're used to seeing, that's for sure. Yeah. Two completely different companies. Like Delta would probably more so be on, you know, an economic impact. Like if the, whereas Levi is actually like directly impacted from a pricing perspective. So yeah, it's, I mean, there's very few companies and I mean, we talked about it before with the, you know, buy quality companies.

[00:40:51] There's, there's very few companies that aren't going to be hit by this. Yeah, that's right. So let's finish here with a Canadian name, Dollarama. I'll just listen. I know we were chatting quickly about it. So I might chime in, chime in for a few things, but go ahead, take it away. Yeah. And this is actually, I mean, the Dollarama, actually I said, not a lot of companies would be impacted, but like Dollarama at this point in time is actually one company that hasn't really been impacted.

[00:41:17] It does get a bit of stuff from the United States, but I'll talk about that in a bit because they said it was pretty easily mitigated. I thought Dollarama would have faced, you know, quite a bit of pressure over the last while, just due to year over year comparables, especially in terms of, you know, same store sales growth, but it just kind of continues to crush it, to be honest. You know, while the indexes continue to sell off at some of the quickest paces we've witnessed in a very long time, Dollarama is quietly up around 7% this year.

[00:41:45] Revenue grew by 14.8%, earnings per share by 21.7%. That would be year over year basis. So comparing this quarter to the same quarter last year, same store sales grew by 4.9%. And this is partially what I meant prior when we looked to same store sales last year, we can pretty much see, you know, throughout, you know, late 2023, early 2024, we're talking like mid to high single digit same store sales growth. And that's pretty hard to keep up with.

[00:42:13] We're seeing it with like something, I give an example, something like Loblaw, who was seeing like a huge jump in same store sales because of how many Canadians were shifting to, you know, discount type grocery items. But eventually, you know, they're going to absorb all that and it would be pretty difficult to grow over and above that. But, you know, Dollarama continues to do so. Gross margins, they increased by around half a percent. They now sit at 46.8% and the company's total store count is now at 1,616.

[00:42:42] So they've added around 65 stores over the last year. And over the last year, so we're looking at the entire year compared to last year, revenue increased in the high single digits and earnings per share jumped by 17%. And the company over the last year, well, they did in their most recent quarter, they jumped the dividend by 15% and they spent around a billion dollars buying back shares. So some pretty good shareholder returns from Dollarama.

[00:43:08] And in terms of activity, so the number of transactions increased by 6.4%. But as mentioned, same store sales came in a little below, a little lighter than that. And that was because of just an overall average ticket price, which is effectively, you know, what people are spending on average in the store. So we're seeing a decline by a lot of retailers. Home Depot is one I can think of off the top of my head. That's, you know, people are spending less when they go in, probably because of just tighter wallets.

[00:43:35] So it's pretty evident, you know, I don't think it, everybody knows this. Dollarama sells a gigantic amount of stuff from China. So we do need to keep... What? Yeah. I did not know that. So we do need to keep a close eye on the tariff situation in that regard. I don't think there's any risk here. I mean, Canada's battle firmly lies with the US. I mean, obviously, you can discuss this actually. Is it my point to put my time to push back on that? Yeah, exactly. Yeah. So you go ahead.

[00:44:05] Yeah. So what we were talking before we recorded and you had a good point, right? You say, look, Canada so far, there hasn't been massive tariffs against China. But one of the things I said, I'm like, look, we have our elections coming up. And this is a card that the Canadian, the new Canadian prime minister, whether it's Mark Carney or Pierre Poiliev, uses in negotiations against the US and says, you know what? To be on show that we're in good faith with you.

[00:44:35] We align with the US on trade. We will impose the same kind of tariffs that you're imposing on China. Canada will also do that. That would be, in my mind, a kind of concession that Canada could offer here to the US just to show that, look, we're trying to work with you. Let's talk about the tariffs between each other. Try to get that as close to zero as we can.

[00:44:59] But let's try to unite against China and create this North American blog between us, the US, obviously, US, Canada and Mexico. I could see that being a non-zero probable outcome. And that's the only place where I could potentially push back here. Yeah. I mean, I didn't even like prior to writing this up, I didn't even think of a situation like that. And it would be something that, you know, if it got Canada into better relations with the

[00:45:26] US, obviously, the US is a much higher priority. And if that were to be the case, I mean, there's no question a company like Dollarama would be hit pretty hard because... Oh, it would raise prices for Canadians. That's for sure. But I mean, I guess in that element too, depending on the scale of the tariffs, I mean, Dollarama is still pretty cheap. Would they be able to kind of absorb those costs? I mean, cross that bridge when you get there, I guess.

[00:45:52] But it's a risk that I didn't even think of, but is absolutely valid. The one thing that the company did mention it's exposed to in terms of tariffs is it does import goods from the US. But it said on the US end of products, they're mostly consumable items. And it also says that it's very manageable due to the fact that they can just source those products from somewhere else. So they're not really... They have some kind of flexibility here being able to purchase elsewhere.

[00:46:22] Maybe they do start sourcing those types of items from China. I don't know if it makes sense cost-wise. But they said it's... And there's a lot of exemption under the USMCA, right? On the free trade agreement. So that's also something where people tend to forget is seeing what's happening right now. And clearly, I'm not making light of this situation. I know tariffs that are in place against Canada, Canadian goods, the ones that are in place are definitely impacting some people. And I'm sure there's going to be some job losses.

[00:46:51] But in the aggregate, compared to the rest of the world, Canada and Mexico are not... You know, it doesn't look too bad right now. Oh, yeah. We're... No doubt we're getting hit. But we're not getting hit as, you know, as big as... As weird as it is to say. Yeah, like it's kind of looking at it saying like, oh, you know, we... You know, it's not that bad when you think... Well, especially when you think about it. Just even a month ago, I mean, all the focus was on Canada, Mexico, US.

[00:47:20] And now, like, he's kind of deterred and went elsewhere. But yeah, I mean, they can navigate around... I mean, obviously, I don't know what they source from the US. But I just tend to believe them when they say that they can just, you know, source alternative products elsewhere. And I think, you know, the potential for a recession here in Canada is likely just going to continue adding tailwinds to Dollarama's results. Again, I would have predicted that, you know, the shift in the consumer would probably be absorbed right now.

[00:47:48] And the company might, you know, struggle to continue to grow on a year-over-year basis. But I mean, it's not. We have lower rates, which, you know, if the economy is maintained, could probably result in, you know, adding some additional spending on consumers' ends that maybe go elsewhere, fewer discount items, things like that. But I think that all goes away in the event this tariff situation, you know, sends Canada into recession and more people are probably going to be looking to pinch every penny they can.

[00:48:13] And I mean, Dollarama pretty much trades at the valuation of a tech stock. I mean, it's like 30x free cash flow. But I think in this type of environment, I mean, they're, you know, investors are probably going to welcome a business that should be unfazed by tariffs, except in the situation of what you brought up. And, you know, a business that probably benefits more than is impacted by a recession, especially

[00:48:38] because like a lot of people shop at places like Dollarama for everyday consumers, consumables. I mean, I'm thinking cleaners, you know, snack items, things like that. I don't know if it would be impacted too much in a recession. And obviously, the market doesn't really think it will be either. And the market obviously doesn't think it's going to be hit by tariffs in any meaningful amount either. No, exactly. And the counterpoint to my argument of the risk, it can also be just to say, look, it

[00:49:05] will also impact other Canadian companies, other competitors, those potential Chinese tariffs. If that's kind of a negotiation tool that the Canadian government uses with the US government. So we'll have to see. But again, it could impact sales because at the end of the day, at some point demand falls, right? So at some point prices become so high that people either decide that they take a cheaper substitute or they just don't buy it.

[00:49:36] Like that's always a potential outcome is just people just end up even stuff at Dollarama, the non-essential stuff, because they do have some non-essential stuff as well. Well, it's just people say, oh, you know what? I'd like to buy that. But at this point, I just won't buy it. So that's always a potential outcome too. Yeah. And I mean, there could be an element of, you know, the stuff in there is what? Three dollars. I mean, if it goes up to what? Like three fifty, three seventy five, four dollars.

[00:50:04] Does that really impact it all that much? Um, I would argue probably not because as you mentioned, I mean, if you have, you know, an item at Dollarama that's gone up that much, it's going to hit elsewhere as well. You know what I mean? So it's probably more expensive at the other stores. It's probably even more expensive. So this is a business that I think is fairly protected overall. And obviously, you know, the market is valuing it as such. Yeah. And Loblaws fills in that category, the grocers too.

[00:50:30] Uh, despite, I'm saying that despite the risk of getting say hate mail because of Loblaws past practices. But at the end of the day, look, I think it's important. The way I invest is I try to invest in the world we live in and the reality we're facing. Um, not in the world I hope we live in. Unfortunately, as unemotional as this may seem at the end of the day, the reason I invest

[00:50:57] is just to make sure that, you know, I can provide to my fam with my, for my family for years to come in our retirement. And I just have to figure out the best ways to invest based on the reality right now and the potential outcomes down the line. So that's the way I see things. I know some people will prefer to invest in companies that follows their value ethically and for other reason. And that's completely fine.

[00:51:23] But when we talk about businesses a whole lot of the time on the podcast, we look at them strictly as investments and whether it makes sense or not. Yep. Well said. I mean, hopefully we could just look back on this in six months and just laugh about it and it's all over with. Yeah, exactly. Say like, look at these, uh, these two talking heads on, uh, on the Canadian investor podcast talking about this, that things would all be different. And then look, it's six months later and, uh, it's the same. It was a year before that.

[00:51:53] Let's hope that's the case. Yeah. If that's the case, I'll be happy to be wrong. I'll just say that. Yeah. I think, uh, this is a good point to finish it on before we let you go. If you haven't done it, uh, already, if you can give us a five-star review on any of the players you're listening to, whether it's Apple podcast, Spotify, any of the other platform, it really helps us, uh, help people discover us.

[00:52:18] You can find me at Fiat underscore iceberg on Twitter, and you can find that at stock trades underscore CA. And there's also our joint TCI.com, uh, where we provide our monthly update for our portfolio. I also provide a monthly update for my parents' retirement portfolio, a little bit of a different approach than what, um, traditionally would be a retirement portfolio, but you've seen it,

[00:52:44] Dan, it's actually performed quite well, phenomenally well, very well. So I'm not to toot my own horn, but for people wanting to see what I'm doing there, and we'll probably be, I'll probably be posting a lot more content as I have more time in the coming weeks and months. So, um, if you want some more content from me, it'll also be available there. So, uh, thanks again for listening and, uh, we'll be back next Thursday.

[00:53:10] The Canadian investor podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.