Loblaw’s Tariff Strategy and TFI International’s Disastrous Quarter

[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 back with Dan Kent. We are here for a news and earnings episode. Lots to talk about between a little bit more about tariffs and then some Canadian companies that are reporting.

[00:00:28] Some pretty good insights too from the Canadian companies reporting, so we had a lot to choose from. And that's all before the bank earnings are, well, they're kind of starting, right? The bank earnings, which we'll probably touch on next week's episode. Yeah, I think BMO and Scotia reported today. And then I believe the rest of them like EQ Banks tomorrow, and then the rest of them will gradually be through the end of the week.

[00:00:52] I mean, it was a good January, but February is not, it's shaping up to be a pretty rough month. There's a lot of turmoil here. A lot of economically sensitive stocks, I guess we'll talk about today that are kind of showing the cracks.

[00:01:07] Yeah, it'll be interesting and especially iMade. So some of the companies will be touching on. So we'll talk about Apple's big investment, the US. We'll talk about TFI International. They reported and very interesting call as well. If people had a chance to listen to it. Air Canada. We'll talk about Home Depot and then finish with Loblaws and maybe touch on Berkshire's earnings report as well.

[00:01:32] But I will be talking with Braden about the actual letter from Warren Buffett this upcoming Monday. So if we don't have time, that's okay. We'll touch on it Monday. Now, like I said, Apple had a big announcement saying they plans to invest 500 billion in the US over the next four years.

[00:01:48] Now that's pretty substantial. And they are saying there's a couple of different things here that they'll focus the investments on. They'll be building a Houston manufacturing facility that will be used to provide or produce servers for Apple intelligence and a company suite of AI features, which hopefully it'll get better over time because I have Apple intelligence on a new piece of Apple equipment that I just bought.

[00:02:14] And it's not great. It's pretty bad. It's not as good as Chad GPT. I can say that now they think it should create about 20,000 jobs. They also have some advanced manufacturing fund inspection. So this is a fund that Apple was contributing to.

[00:02:32] I'm not quite sure how it works, but the commitment to this will go from five to 10 billion. And part of this fund will support the production of advanced silicon at Taiwan Semiconductors facility in Arizona. And there's going to be some partnerships here that Apple will do with TSMC. And they'll also have a Detroit manufacturing academy. So there's a lot big investment from Apple without going into too much detail. You can see the press release on their website.

[00:03:00] Now, what's really interesting is obviously that comes in light of all the tariff threats that Trump is doing. And Apple has a lot of its manufacturing done in China, but also obviously indirectly in Taiwan, if you're thinking about their most advanced chip, because Apple is designing a lot of their chips.

[00:03:22] And I just don't know whether this is a one-off or it's going to start paving the way for more and more company doing this in order to avoid tariffs on the first hand, but also appease the Trump administration. Because clearly they want to be, I'm sure they want to be on the good side of the administration and not be targeted. And you're hearing more and more ahead of companies that are looking to be on the good side of the Trump administration.

[00:03:52] I think it's pretty common now to see. So it'll be interesting from that standpoint. And the last thing for me that is that I do wonder, because I'm sure some of the jobs that will be created in the U.S. are jobs that probably could have been created in China.

[00:04:09] And if you see the U.S. imposing tariffs, pretty more tariffs on China, should I say, do you start seeing the Chinese consumer doing a bit like Canadian consumers are right now and pushing back against U.S. products and starting to buy China-made products because they want to support their economy and a bit push against this tariff threat from the U.S.?

[00:04:36] So that is the other thing I do wonder for Apple, because China still represents just rough, Matt, here about 15 percent of the sales of Apple. So it's not insignificant. And it'll be interesting if there's some second and third factor effects here with this announcement and obviously what we'll be seeing in the next few years. Yeah, there's definitely no shortage of, you know, smartphone and tablet competition in that regard either.

[00:05:02] Like there is heavy, heavy competition. Obviously, Apple is what I would view as probably the highest quality product. But you could definitely see, you know, a shift from consumers to, you know, Chinese-based alternatives. I mean, it's not the first time I did look it up. Like Apple is they committed $350 billion in 2018 investments in the U.S. And then in 2021, it said $430 billion. So it seems to be a pretty regular thing.

[00:05:30] But I mean, ultimately, I mean, how does it impact the price of the products too? I mean, ultimately, the more you move here, the more you move domestically. And obviously, that's why a lot of people have talked about the fact that these tariffs and just the domestic production in the United States is inflationary in general, which is something they're having a hard time getting under control anyway. Yeah, that's a good point. And that's the other thing I wanted to mention.

[00:05:55] And I forgot, so thank you for bringing it up, is the production costs will likely be going up. So will that affect Apple's profit? Will they be able to pass that on to the consumer? And the reality is I love Apple products. But for the most part, if you're willing to shell out the same amount of money to buy an Apple product, but buy an Android product instead, it's likely going to have a lot more features than Apple.

[00:06:22] So Android phones tend to have a lot of the features that Apple is rolling out. They already have them in Android. Of course, Apple, when you have their products, you're kind of stuck into their ecosystem. So that's probably what they're betting on. So they're probably hoping that people will be willing to pay a bit more, especially if you're getting some financing plans with your cell phone carriers. It makes the cost feel a little less expensive.

[00:06:49] So I'm assuming that's probably what they're going to be banking on. But I thought it was interesting. It'll be really interesting, in my view, to see if there's more and more announcements like this coming from not only U.S. companies, but companies that are maybe domicile outside the U.S., but have a big presence in the U.S. trying to even bring some more production capacity there to avoid tariffs. Yeah, I wouldn't doubt it.

[00:07:16] I mean, obviously, Apple's one of the largest companies in the country, so they make the most, you know, the biggest headline. But I wouldn't doubt if there's more shifts like this. Obviously, that is, I mean, ultimately, I think the tariffs are a bit of a negotiation play overall. But they are, this is kind of what he wants. I don't think it's completely what he wants. I believe he's using them more as a leverage play.

[00:07:40] But, I mean, ultimately, this is supposed to be the goal of them is to bring more. Well, it creates uncertainty, right? It creates uncertainty and businesses hate uncertainty. Yeah. I mean, you own a business, I do as well. And yes, uncertainty sucks. And you don't want to have, you want to minimize it as much as possible. So if these companies are seeing, you know what, we'll relocate a bunch of our production to the U.S. to minimize that,

[00:08:05] because at least we know we're good for the U.S. market for beyond the Trump administration even. That could have an impact. I think enough about Apple here. We'll move on to Canadian companies. We'll have plenty of tariff talks because I did definitely looked and I was very keen on listening to what each company had to say in terms of tariffs. And there was a lot of questions about that in the earnings calls.

[00:08:33] So it'll be, I'm looking forward to hear what TFI International had to say. Yeah. So I didn't actually look at what TFI had to say about tariffs because there was enough in the conference call that it was an interesting quarter for TFI. Like, this was a company that I've followed for quite a while, like probably since 2018. And I mean, it was like, to be straight up honest, it was a disaster of a quarter. And I mean, these aren't even in my words either.

[00:09:02] They went straight on the conference call and he just said, Elaine, which is the CEO of TFI, just said it was a disaster. So it earned, sorry, $1.19 on the quarter, whereas analysts had expectations of nearly $1.60. So this is probably the widest miss I've seen from TFI for quite some time. So if we look at the operating income in each segment, package and courier fell by 6.1%, less than truckload fell by 47%.

[00:09:31] Truckload increased by 17.8% and then logistics fell by 21.5%. So truckload increased just pretty much due to an acquisition of DeSeek, they're called. They're like a specialty truckload company. And it's kind of funny, like during the conference call, the analyst was kind of joking around about the less than truckload numbers because he figured it was a typo because they fell so much.

[00:09:58] He had mentioned, you know, when I first opened the quarter, I kind of thought it was a typo because they declined so much. But effectively, I mean, they did fall that much. It was that bad. When we looked at total shipments, U.S. less than truckload fell by 6%. Canada was pretty much flat. The company is also reporting low single digit declines in revenue per shipment. These would exclude fuel.

[00:10:21] So we're not only seeing a decline in overall volumes, but we're also seeing a decline in overall revenue generated per shipment, which ultimately is not a good mix. The company's operating ratio came in at 92.2%. So this is pretty much the reverse of an operating margin. So it compares how much the company needs to spend per dollar revenue generated effectively. So in this case, TFI spending $92.20 per hundred dollars in revenue generated. This is pretty high.

[00:10:50] In fact, it's really high. The company had a adjusted operating ratio in the mid 80% range in 2022. So you're seeing this creep up, up, up over the last few years. And again, the conference call was interesting to say the least. Like, don't get me wrong. I do appreciate it when, you know, management doesn't really beat around the bush and just kind of tells it like it is. But it was pretty drastic. As I mentioned, they called the quarter a disaster. They said they didn't manage labor costs effectively.

[00:11:18] And they said in a roundabout way that flat earnings in 2025 was probably the best case scenario. They also didn't sugarcoat the fact that the first two quarters of fiscal 2025 are going to be far worse than the first two of 2024. And I think this is why the company kind of took a big hit because, I mean, instead of kind of being, you know, not mentioning much in terms of how bad it's going to happen, you know, sorry, how bad it's going to be over the next few quarters.

[00:11:47] They just got it over with. They said it's going to be ugly, which ultimately is going to price in a lot of that immediately rather than, you know, actually issuing those Q1, Q2 2025 reports and them being ugly. They were intending to pursue moving its headquarters to the United States, which, you know, this is 70% of the company's business. Like they are primarily a U.S. operator. However, they did backtrack on that fairly quickly.

[00:12:13] I imagine it's somewhat due to the backlash in terms of the share price and also that the Quebec pension plan. I can't remember what that the QPP is. Yeah, because they put the press on Quebec. Yeah. They're a big shareholder and apparently they were not too happy with it. So I would imagine that has a bit of an impact on it as well. So they backtrack on that. They're not going to do it.

[00:12:35] This would have some I mean, TFI is not really a big dividend payer, but I believe if they did domicile in the United States, that would kind of take away that Canadian dividend credit, things like that. So, I mean, there's there's ultimately a lot of different different angles there, but they're not doing it as of right now. Now, the interesting that I the interesting thing that I find on the quarters, we have a lot of economic data that largely says the U.S. is doing just fine. But I mean, clearly there's a freight recession.

[00:13:02] We're seeing it large pullbacks in volume, both railroads and trucking companies. If we look to Berkshire, their railroad struggling. We look to CN rail. We look to CP rail. They're both struggling. TFI struggling much more notably than the railroads. I mean, this was pretty, pretty weak quarter. And I mean, the results in the conference call definitely like it outright.

[00:13:23] I don't want to say tank the trucking industry, but there was some less than truckload companies south of the border that fell like they didn't even report earnings and they fell 10, 12 percent just based off TFI's quarter and their comments. Yeah. I mean, I listened to most of the call and I have to be honest. I love Alain Bedard's honesty there because one of the takeaways that I'll go that I'll go over with Brayden this upcoming Monday is that there is a quote for Warren Buffett.

[00:13:53] And I don't have in front for me, but saying that they will they make mistakes. They will be very honest about the mistakes. And he said that a lot of companies just don't mention them or sugarcoat them or just paint rosy pictures. And he views that as a big problem, right? Like that's the way I see things as well. And I just appreciate his honesty there.

[00:14:17] The other takeaway I got from the call is that you're right about, you know, a third of their businesses in Canada, two thirds in the U.S. So the U.S. definitely more important in terms of their overall business. But again, they do have a bigger market share in Canada. So I think that's important for people to understand their operations are more efficient in Canada. That's what I also got from the call. And there's a lot of improvement to be made for the efficiency of their operations.

[00:14:43] And they were comparing to some of the best operators on the call and said they're way, way behind when it comes to that. And there is a lot of improvement to be done. So there is definitely some things that they can improve that are more within their control versus being in a freight recession that will be a bit outside of their control. So they have to do their best to mitigate that. But for me, I mean, it's a company that I've always been very interested in.

[00:15:13] But the valuations have gotten way ahead of itself. So right now, I'm not sure I'm ready to start a position just because there's still so much uncertainty. It's the kind of thing that I'll keep an eye on it for the next couple of quarters. See how things play out. Maybe this is the bottom. But it's pretty dangerous when you have so much uncertainty to try and take the bottom.

[00:15:36] Because you're almost better off just waiting for a little bit of an upswing where things start rolling over and then start a position, even if you may have missed the bottom by 5% or 10%. Yeah, because I mean, even though they've said that 2025, the first two quarters are going to be bad. Like, you really don't know how bad. Yeah, exactly. But like you said, like, it's good. He just got it over with. He said it. He told it how it is.

[00:16:02] I mean, he could have easily just been, you know, a bit more optimistic and the stock probably falls, I don't know, 15% instead of almost 30%. But then when Q1 and Q2 at 2025 come along, it just gets ugly. I mean, we've seen, I don't want to pick on it again, but I mean, look no further than BCE. They've, like, if you look at their quarterly reports, it's always rosy. It's always, but really it's not.

[00:16:27] And I mean, then you've got a multi-year drag because every time they report earnings, it's just more disappointments over and over again. Whereas this is just rip the Band-Aid off, tell people it's going to get ugly, and then you kind of work from there. Yeah, and you can usually tell whether a company is being honest with shareholders or not. Usually a tell I find is when you look at the earnings release, the press release, just look at the highlights.

[00:16:53] And if the company is trying to isolate tiny segments to show that they had 15% growth when the overall revenues dropped by 5%, and they're not really talking about the overall revenues until way further down in the earnings release, that's usually a tell. Things like that. I mean, Canopy was the best at doing that. They would highlight these, like, small things when the overall business was, like, plunging.

[00:17:20] The overall cannabis business was struggling, but they would highlight for the longest time BioSteel when they had it. And then there were issues with that, accounting issues, much other thing. But that's a good tell for people who are looking, starting to invest. If you see companies that are just using these random metrics at the very top of their earnings release, and overall, you know, the main things, whether it's net income, free cash flow, revenues, operating margins, margins in general, everything else is not looking good.

[00:17:50] Clearly they're trying to paint a rosy picture when it's not. And I avoid those companies like the plague. And Bell did exactly that. I think you had sent me a screenshot, which was basically, oh, we increased this amount, like, this portion of our business that's pretty insignificant by 5% or 10%. But then you look at revenues and the churn on their subscribers. Those are terrible, but they're nowhere to be found.

[00:18:17] Well, yeah, and the number one thing on the BCE report, like, their first highlight throughout the whole quarter was the fact that they revised their guidance downwards, and then they hit it. That was the number one thing. They said they hit all of their guidance targets except revenue, but they revised revenue downward and they hit it. I mean, I don't know. Yeah. If you have to revise something and then hit it, you're really not, you're not doing anything special. But yeah, it's, I mean, this was, I don't know.

[00:18:45] I appreciate this much more than beating around the bush. Like, it was, if you have time, I would listen to the conference call. It was very kind of enlightening. I mean, if you're considering buying the business right now, the conference call is a must listen, in my opinion. And you'll get an idea of a management team that is brutally honest. That's for sure. Yeah. Yeah, exactly. Now we'll move on to Air Canada.

[00:19:11] Air Canada, obviously, it's a company we like to call its biggest airline in Canada. It's the, I guess it's been, it's not the only publicly traded, is it? No, there's other airlines, smaller ones, right, that are publicly traded in Canada. There would be, well, there would be WestJet, but they're Onyx now. And then I guess there would be Transat? I don't know. Maybe. I don't know. Yeah, I'm not sure anyways. Yeah, it's. I went rogue there a little bit with my notes. The most notable. Exactly. The most notable.

[00:19:38] So revenues were up 4.4% to 5.4 billion. They had a net loss of $644 million for the quarter. That's compared to a profit of $184 million the year prior. Free cash flow was down 54% to $1.3 billion for the full year. Again, I don't like to look at free cash flow on a quarterly basis. A lot of the time it is lumpy. So that's why I look at that for the full year. The available seat miles was up 2.1% for the quarter and 5.4% for the full year.

[00:20:08] And for those wondering, available seat mile, also known as ASM, is the number of seats available multiplied by the miles flown. The passenger load factor, which is the number of seats occupied by paying customers, because sometimes there is people on the airplane that are non-paying customer. A good example is I could be airline employees that are needed in another location, but not on that flight. So those would be non-paying customers.

[00:20:34] So that was down 100 basis point for the quarter to 82.5% and was down 170 basis point for the year. They bought back 473 million worth of shares during the year. Now, that's not the... I've been very critical about airlines because airlines have done that. Prior to the pandemic and then ended up getting into trouble when the pandemic hit.

[00:21:00] I'm not saying another pandemic will hit, but if there is some kind of trouble, like the economy significantly slowing and they start having some pretty major losses, I just don't think it's a good idea to be buying back your shares. I think you should be reducing your debt level even more by using the share buybacks. What's your take on that? Do you agree with me? I'm pretty passionate on that one. I would agree 100%. I mean, they have a debt to equity of four.

[00:21:28] Interest coverage ratios are really low. Like if something happened and this company got into trouble, it would just be like it was in the pandemic. They got 10 billion in long-term debt, which is quite a bit lower than the pandemic. I'm pretty sure. Yeah, like 17 billion during the pandemic. But I mean, I don't know why you're buying back shares right now when your balance sheet is really not that good. Maybe it looks better. Yeah, exactly.

[00:21:53] And I'll just show here, I have the passenger load factor for our joint TCI viewers and listeners. So you'll see that the passenger load factor is actually higher than it was pre-pandemic at 85% for the most recent quarter or the most recent year. So it is higher than it was pre-pandemic, but it is some things that's ticking down a little bit.

[00:22:17] So something to keep an eye on if you're interested in airlines in general, just not just Air Canada. I think it's really important. Now, again, on the buyback thing, I guess the last thing I'll mention here is the moral hazard that was created by governments with bailing out these airline companies. I mean, can you really blame them? Because they know if anything happens, the federal government, whether it's in Canada

[00:22:43] or the US, will probably come and bail them out, which is incredibly stupid. Because even though, even if they would go bankrupt, let's say worst case scenario, it's not like all the jobs would be lost. Like they could come back from bankruptcy in a leaner way, still have operations. They could be bought by someone else. I never fully understood why governments end up bailing out these companies like this, because it just creates a moral hazard.

[00:23:10] They end up being not making the best decisions when in reality, sure, there'd be job losses, but not as much as people oftentimes fear. Well, yeah. And didn't they, they already, Air Canada went bankrupt. I'm pretty sure. Probably. Yeah. I think they may have. I don't know. And then they ended up. Yeah. They ended up being like the best performing stock in Canada, like coming out of that bankruptcy. They were like, it was crazy how well they did. But I mean, yeah, like if, like the reality is if the airlines get in trouble, there'll just

[00:23:39] be more bailouts. That's just kind of the way it works. I mean, what did, I can't even remember how much of the government during the pandemic, how much of Air Canada they bought, but I mean, the taxpayers own a portion of this company. I'm pretty sure. Yeah. Much higher than the levels it's trading at today. But I mean, yeah, if they get in trouble. Well, the good thing with the buybacks is now we own the bigger portion of the company. So there you go. That's the advantage. I mean, it's, yeah, there's not enough, like, I do believe it's an element of competition as well.

[00:24:09] I mean, just total operating company. Like there's just no airlines here in Canada. Yeah. If they did go bankrupt, I imagine somebody would buy the assets, but. Oh, exactly. Yeah. Like, again, it's a trick. I think it's, it's just a moral hazard thing. I think you end up creating behavior that reflect that in business management. So I think that's, that's as simple as it is. Now the guidance was pretty soft for the full year. They are projecting between basically flat and 200 million, well, zero and 200 million of

[00:24:38] free cashflow for the full year, the available seat miles. So ASM to increase between three and 5% and adjusted CASM. So I forget what this one stands for, but the cost per ASA. Yeah. So they, it's the cost per available seat mile to be between 14.25 and 14.15 cent. So that would be an increase of around 4% compared to 2024. Obviously the lower, the better.

[00:25:07] And I do apologize for my quick brain cramp here on the call. They said that they would be looking at potentially redeploying some of their U S capacity towards Canada and other destination if they see softening demand. So that is a little bit as a response. If you've, people have seen in the news, it's pretty common people canceling their trips now to the U S because they want to encourage Canadian companies and they're not happy with

[00:25:34] the way the U S is treating Canada in terms of tariffs right now. They didn't know I elaborate on that, but it's easy to read between the lines. And they said, if Canadians start snobbing us destination, these are my own words, but I'm paraphrasing in response to what's happening there. It sounds like they're able to shift their capacity and meet that demand, whether it's more domestic flights or more flights that are internationally bound, but not to the U S. Yeah.

[00:26:04] And I mean, I would imagine this is not even like, even if we don't look at it as like kind of a boycott standpoint, I think just the weakness in the Canadian dollar is going to cause this regardless of tariffs. Like I just think people, I mean, I went down to Arizona, that would have been probably a month ago and I'm just lucky. I had U S dollars that I could pull out because the exchange rates were just ugly. And I would imagine the thing is like everything costs the same down there on a U S dollar basis.

[00:26:32] So you're effectively going down there getting the same costs, but paying, you know, 40% plus on your dollar. So I would imagine that's going to impact U S travel from here quite a bit. Yeah, exactly. So you kind of do a double whammy there between the exchange rate and the cause being so high to travel in the U S plus those who may have gone despite a higher exchange rate, but they don't want to support the U S economy. They'd rather do something in Canada or say, you know what?

[00:27:00] I'm just gonna, I was going to Florida. I'll go to Mexico. I'll go to Dominican Republic. I'll go to one of those other countries instead because I just don't want to give my money to the U S. So it is interesting that they are looking at potentially shifting the capacity of DC that demand is waning towards the U S. So we'll have to see. Now we'll move on to home Depot. So a company that, uh, not has been struggling, but has had better days.

[00:27:29] But I think from what I've saw, I've seen, and I haven't looked at all of their earnings, but the headlines, it sounds like it's starting to turn a corner. Am I correct in that? Yeah. I mean, like if you were to look at this quarter, you would think that they were starting to, uh, turn the corner, but then they reported guidance that, you know, it's, it's looking like it's going to be another year of waiting. Yeah. It's going to be a long corner. Huh? It's going to be a long term. Cause, uh, I own home Depot. I've owned home Depot for quite a while.

[00:27:57] And I kind of, you know, my main thesis here is eventually like people are going to open up their wallets. But the thing is, it's like, it's in the U S it's a bit tricky just cause of the, just cause of the rate environment. I mean, it was a pretty solid quarter comparable sales increased by 0.8% company wide in the U S they increased by 1.3%. Uh, when we look to total transactions, this is where we're kind of starting to see things pick up in this regard.

[00:28:22] I mean, the thing is it was only one quarter, but they increased by 7.6% to sit at around 400.4 million. The difficulty here is average ticket price remains relatively flat to even slightly declining on the year. So average ticket price would be effectively how much somebody is spending when they walk through the door. So although the transaction environment is improved, improving, people are just spending less, uh, they're likely going, you know, more necessity based than discretionary on the

[00:28:51] year, total transactions. So that was for the fourth quarter, the, the 7.6% growth. So on the year, they increased by 0.9% and average ticket actually fell by 0.8%. So earnings per share grew by 7.1% on the quarter. And when we look to the full year, the company's earnings actually declined by 1.3%. Uh, it certainly hasn't been the best few years from home Depot, from a growth perspective, it's share prices effectively moved nowhere for the last couple of years.

[00:29:21] I mean, the thing is, I think it's actually pretty impressive how well it's held up considering, you know, the current environment consumer wise. I mean, I, I can't imagine, you know, with rates in the United States, renovating your home, even new home builds, like the thought of doing that at, you know, like North of, I don't even know what you would get. Like, I know mortgages are, you know, over 6.5% in the States. So I mean, it's crazy. It's crazy. Something like that. Yeah. So, I mean, it's definitely hitting new home starts.

[00:29:50] And the other thing is, I mean, if a mortgage is six and a half percent, you're probably getting a HELOC or some sort of home renovation loan, probably North of 9%. So like, like you got to think like the vast majority of people will be financing transactions like that. They don't really lay out the cash all at once. So, I mean, that's just a huge element that's, that's hitting them as well. Total store locations, 2,347. This is about a 0.5% increase year over year. These are pretty much in line with what the company has kind of always grown store counts by.

[00:30:21] They plan to add 13 next year, which is around half a percent increase. The one interesting thing here is they increase the dividend by 2.2%. So this is the slowest pace of dividend growth from Home Depot in the last two decades, I believe. If we look to the last five years or so, they've raised the dividend pretty much by double digits, high single digits, double digits typically. So they came in really low this year, which is probably just an indicator of where they

[00:30:49] think the economy is going, where they think the environment is going. And they did issue 2025 guidance in which they expect total sales growth of around 2.8%, comparable sales growth of around 1%. So, I mean, the vast majority of growth is going to come from those new stores. And they expect earnings to decline by 2% from 2024 levels. And I mean, again, I just think, you know, stickier inflation. It's causing rates to stay higher for longer in the United States, which ultimately, I mean,

[00:31:19] this is a Home Depot is a company that, you know, is going to be very cyclical based on rates because ultimately these the vast majority of it is going to be discretionary spend outside of, you know, new home construction. And even in that regard, I mean, you have crazy high interest rates in the United States that is probably putting a damper on new home construction as well. Yeah. And keep in mind when people when the economy is uncertain, when tariffs are the tariff

[00:31:47] forward is being thrown left, right and center. I can't remember like a day where there wasn't a headline about tariffs now. And I'm sure the US it's a bit like that. It impacts confidence. I'm sure people don't want to who wants to do a major home renovation when you're not sure if you may or may not have a job six to six months to a year down the line. So it does impact that it will likely impact home purchases, especially in area in Canada

[00:32:15] that we're seeing where they're more reliant on exports. I'm thinking here even like Southern Ontario is probably one of the key areas. So I can understand why people are just doing more of the bare minimum. So probably just doing the required maintenance on the home and not any new big projects. And the one thing I wanted to show here for joint TCI, it's really interesting.

[00:32:41] So the average ticket size on obviously they're looking on it for the whole year here. I don't know there's a better chart that shows inflation than this one. Oh, I know. Yeah. It's crazy. So for people that are just listening, just think about it. So here, so from 2013 to 2020, so the start of 2020, the average ticket price went from 54, let's say 55 to 67. So a span of seven years.

[00:33:09] Now between 2020 and 2023, it went from 67 to $90. Yeah. And has been staying around that price around 90 bucks now for the last few years. So I think that is just a, an amazing way to just show inflation here because the average ticket size is basically going to be impacted a whole lot by just rising costs in general. Yeah. Rising costs.

[00:33:38] And then, you know, the added element of 2021, I mean, stimulus checks, like record low rate environment, which ultimately will fuel inflation. So, I mean, you look at 67, $67.30 average ticket in 2020, all the way up to almost $90.50 over the span of like three years. It's crazy, huh? Yeah. So it's not only, you know, an element of those prices increasing, but it's also like consumers

[00:34:03] spending so much, which ultimately causes those prices to increase. And then, you know, now we're sitting here at Home Depot for the last, you know, two years, it's just been having to kind of absorb all that and is now just kind of in treading water. Yeah. Yeah, exactly. And I think it's also a reflection, right? You had the lockdowns and people had stimulus checks in the US and there were some support in Canada too. And you couldn't spend the money anywhere.

[00:34:30] So you might as well improve your house and expand on things. So buy some new patio furniture, do that, renovate that washroom you've been putting off for a while because you're staying at home 24 seven anyways. So it's just an interesting, just looking at that chart, you can't understand a whole lot of stuff that happened in the economy over the last five, six years. But anything else you wanted to add for Home Depot before we close this out with Loblaws?

[00:34:57] No, I mean, I guess the final thing I'll say is, is the financing element of it during the pandemic, right? You probably could have got a HELOC for like what? Three percent probably. So it makes maybe four percent, three or four percent. So I mean, it makes sense. You know, you go out and you can finance that renovation. A lot more people do it. Whereas now, you know, you're sitting on really high financing costs. People just put it off. So still bullish on the company, but I think it's going to be another year of patience. Yeah, no, definitely.

[00:35:26] So now we'll move on here to Loblaws. Very interesting calls. Calls. I'll finish with what they said on the call at towards the end, because this one, there was a lot of talk about tariffs. I think I searched I did. Well, no, I think I searched the word tariff and it came up, I think, 11 or 12 times. And it mainly came from questions from analysts, but it was really insightful what the management team had to say.

[00:35:53] So first of all, we'll look over the revenues and while the what they came out for the report. So revenues were up 2.9 percent to 14.9 billion. The food same store sales increased 2.5 percent and the drug same store sales increased 1.3 percent. And that's a big decrease from the 4.6 that they saw last year.

[00:36:15] And for those on joint TCI, you'll see here that the increase for food retail and drug retail. Obviously, drug retail is primarily shoppers drug mart or PharmaPrix if you live in Quebec. So it's interesting to see how those increases have gone way, way down, which I'm not sure. I can't I don't remember them mentioning this on the call, but I don't know what exactly is the big culprit here.

[00:36:45] Obviously, they said that the price of food has been accelerating at a slower pace. So clearly the inflation on food is much lower. So I don't know if this is also a result in terms of maybe just population growth slowing down a little bit, too. That could have had an impact on that in terms of the same store sales. So it's really interesting. Obviously, I think food inflation has come down, but I thought it was really interesting

[00:37:13] to look at this graphic here and just to see the trend that happened over the last few years. Well, and I think what we're seeing is the huge shift from consumers to something like Loblaw, like just kind of, you know, it's been absorbed, I guess I would say. Yeah. I just think so many people shifted in 2022, 2023. They're going to have a hard time keeping up with those same store sales just because, you know, the shift has already happened. It's the same thing with Dollarama, right?

[00:37:42] They reported they were like double digit same store sales growth when everybody started being like, holy crap, like food, everything's going up 9%. So they'll shift to Dollarama and ultimately it's really hard to, you know, grow sales on top of those crazy high growth rates. Yeah, no, exactly. And then you kind of combine that with population growth that is at the very least slowing down.

[00:38:08] I think sometimes it's hard to get actual numbers on that, but clearly I think it is, I think it's safe to assume that it's slowing down. But I thought it was really interesting because that is a pretty big deceleration compared to what we had seen. Net income was down 14% to 469 million for the quarter. Earnings per share was down 11% to $1.52. Now for the full year, free cash flow was essentially flat to 4 billion.

[00:38:34] And one thing that caught my eye was their operating margin that dropped by more than 60 basis points for the quarter. So that is something to keep an eye on if it's a business that, you know, that you follow or that you own or that you're thinking of buying. But clearly they should do pretty well in most kind of environments. So if you're not sure or if you want a more defensive Canadian company, that would definitely fall within that bucket because people have to eat. It's just the reality.

[00:39:04] And obviously Shoppers Drug Mart is a very large brand in terms of drug retail. Is there shoppers over in Alberta? Yeah. Okay. Okay. Very expensive. Yeah. Very. Yes. But there is. Okay. Yeah. I think I may have gone. I couldn't remember when I was in Calgary, but I went to a pharma as I couldn't remember whether it was shoppers or not. But they also opened their first TNT supermarket in the US in Seattle in the fourth quarter.

[00:39:33] So for those not familiar, TNT is geared towards more like Asian type of foods. We have one in Ottawa. It's pretty cool. If you're looking to do some either like kind of Chinese meal, Japanese, whatever it is, Thai meal, they have a lot of selection over there. I know the regular Loblaws will have like one aisle or two, but over there you'll kind of find a lot more of those type of products. And I go there once in a while. I think they're pretty cool stores.

[00:40:02] Their discount brands are gaining a lot of traction and they expect opening 50 new discount stores in 2025. Now all Quebec stores have now been converted to Maxi, their discount brand in the province. I actually learned that from my parents. They're like, they were telling me how there used to be like actual Loblaws. And then I think it was because of the language laws, they had to change the name to Previgo. But now apparently they've converted.

[00:40:30] They were telling me this like, oh no, they're all Maxis now. Like, oh really? And fair enough. Like sure enough, they mentioned that on the call that now they're all converted to that and they are seeing good uptake from those discount brands in Quebec. Yeah. Yeah. I mean, that's just a shift everywhere. I think too, like the discount, the discount model is just working everywhere. I mean, people really don't care about having their groceries bagged or having like fresh baked goods or whatever. They just want the cheapest price on groceries.

[00:41:00] I think, especially, you know, considering the food inflation. So, I mean, this is going to be a trend that I think will continue indefinitely. I think. Yeah. And they're really focusing on that. It's clear now. And they've reduced their shrink rate to the levels of 2020, but are still looking to make improvements there. And for those not familiar with the term, shrink is when the actual stock on hand is less than the recorded inventory in the system. So, it can be impacted. It's not only theft, but can be impacted by theft.

[00:41:28] Administrative errors, damage, spoilage. Obviously, for a company like Loblaw, spoilage is definitely true. And even vendor fraud. So, it is something that they are keeping a close eye on. And definitely obvious, at least on the theft front, whenever I go into some Loblaw's own brands, like they make sure either there's a security guard out like checking stuff or employees or they make sure they're like you're like cordoned off with like metal bars and there's

[00:41:55] only like a little tunnel or funnel that people can go out. So, I guess it's definitely working. They did not increase the dividend, which is something I thought they might do, but they'll probably do it in the next quarter. It seemed like it would have been the time to do it based on how regularly they do it. But who knows? They'll raise every year during the summer. Typically. During the summer. Okay. Yeah. Like in June is typically like the March quarter will be the time. So, they'll raise it next quarter, I think. Next quarter.

[00:42:25] Okay. Yeah. It seemed like it could have happened this quarter or next one. So, anyways, I didn't take me too much out of it because obviously the company is doing quite well. And the word tariff, like I mentioned, it was mentioned 11 times in the earnings call. Overall, if there are reciprocal tariffs. And that's very important because yes, people we see in the headlines and we have to remember this that when Trump says they'll tariff Canadian goods, it's companies that are important goods

[00:42:53] from Canada into the U.S. that will be paying those tariffs. And then those tariffs will likely be passed on to some degree. And that's debatable, but at least passed on to some degree to the consumer. Now, what would happen? So, technically that wouldn't impact food prices in Canada. But what the federal government has said is that they would be likely, they said their plan would be to apply reciprocal tariffs.

[00:43:19] And some of the things that they mentioned would be produce in those reciprocal tariffs. And I was very critical when they came out with that because people are struggling. Like a lot of people are having trouble putting food on the table. And how are you helping? And especially lowest income household, they're the ones that are going to be heeding the cost of that because they're the ones that don't have that much money left over to buy things like groceries.

[00:43:47] For people that have, you know, no one likes higher costs. But if that's if you have no problem buying your groceries, you have more than enough money and you can absorb a 5-10% increase, no problem. Then yes, you won't like it, but you're still going to be able to eat. And those reciprocal tariffs, if they go on things like produce, is that it'll force these lower household incomes, those households with lower income to actually purchase probably food that's not as good for them just because it's cheaper.

[00:44:17] So I'm pretty. Yeah, exactly. More processed food. So that is something that I've been very critical of because I understand they want to do a strong response to Trump to show that Canada is standing together. But who it will likely impact the most are the least fortunate in our society. But I digress. Sorry, I went a little bit on the ran there. Yeah. I don't really know like the produce situation all that much. Like if they if they could source it elsewhere.

[00:44:48] I know that. That's what they. Yeah. Like Mexico or something like that. Well, so that's what they said. So when they were asked a question on good call, they said that, look, the most obvious one to be impacted by tariffs would be produce. Yeah. They said that they would likely be able to mitigate about 50 percent of that. And they said that approximately 10 percent of all their cost of goods sold.

[00:45:15] So all the goods that they sell come from the U.S. and most of it is produce. So that's why they kind of singled out produce a bit more when answering that question. And it they said it really depends on basically what tariffs are applied on what. So it really depends what ends up happening. Obviously, again, it's these would be reciprocal tariffs. So it would be what Canada and plant implements on U.S. goods coming in. Now, they said their in-house brands are produced in Canada.

[00:45:44] So that would be an alternative to consumers because these would likely become more attractively priced. And during the call, they even gave the example of Kellogg. So they said if they're if Kellogg products coming from the U.S. are tariffed at 25 percent and their in-house brands aren't for the same product, then clearly consumers will likely go to the in-house brand at 25 percent discount or 20 percent, whatever

[00:46:13] it is in terms of the discount being. So they said for the most part, of course, there is there would be some impacts, but they have ways to mitigate that. And there's they think consumers will likely shift their behavior to when it comes to produce, try and buy things that are produced in Canada a bit more or produce outside of Canada, but not in the U.S. or look for alternatives that are not tariffs. Yeah. Yeah.

[00:46:42] And I mean, who knows? Like it seems to change every day. So like it's just it's going to be a difficult environment to navigate, period. But yeah, who knows? Yeah. But the food part, right, it's it's really important. So clearly. And that's why I wanted to do Loblaws. I was really intrigued to to what they are going to say. So I would say just based on their call, it's no time to panic whether you're a Canadian human trying to eat. Yeah.

[00:47:09] Obviously, if your your income is high enough to absorb some higher costs, if not, then clearly it's probably going to be a bit more difficult. They didn't hide it that. Yes, it will put some upwards pressure on goods that are being tariffed. But it sounds like they have enough of a vendor network to be able to at the very least mitigate that. Yeah. Yeah. I mean, I would imagine that they're going to be able to source a lot of it from I mean,

[00:47:38] I would think that Mexico would be like the next best place. But I mean, I even know going through Loblaws a lot right now, like because they put on there like where it's from or whatever, all the produce like a lot of it is already in Mexico. So it'll be interesting to see. I mean, I know a lot of the fresh fruit and stuff. I'm pretty sure it comes from the States. And if there is tariffs, it's like it's already borderline unaffordable. So it's definitely going to be unaffordable if especially for lower income, if these come in place.

[00:48:08] But hopefully they can get some sort of resolution. But I doubt it. We'll see again. People are panicking because Trump said that the tariffs will be going on on March 4th. Or yeah, I can't anyways. And when the 30 day expire, they're still set to go on for Canada and Mexico. We'll see. Again, I've been who knows. I've been steadfast from the beginning to say, look, let's see what happens.

[00:48:32] And I guess in the world we're living a week or how many days there are left that now we're recording this is like it feels like years. So a lot of stuff can happen in just a span of a week or so. So we'll have to see what happens. We may have some more information when we record next week. But I think we'll leave it at that for today. If you want to know more about what Mr. Buffett said, tune in next Monday. Brayden and I will be talking about that.

[00:48:59] Anything else you want to add before we sign off here? No, that's it. Thanks for listening, everybody. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guest 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.