Reddit’s Post IPO Surge and Headwinds for Fashion Stocks

[00:00:00] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence

[00:00:07] you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger.

[00:00:15] Welcome back to The Canadian Investor Podcast. I'm here today with Dan Kent. We're doing our

[00:00:20] Thursday earnings and news episodes. Dan before we get started, did you see what happened with

[00:00:26] the bridge in Baltimore and the US earlier today? So we're recording on Tuesday, March 26th here.

[00:00:33] Yeah, that was pretty crazy. From what I had heard, they managed to maybe stop a little bit of

[00:00:39] the traffic because they knew the tanker. It looked like the tanker ran out of power or something.

[00:00:45] You could see power going on and off a few times but I remember waking up at like six in the morning

[00:00:52] and turning on the news and this bridge is toppling over. I'd never seen something like that before.

[00:00:58] Yeah, I mean, I think it's good. I mean, I don't know all the details but obviously just looking at

[00:01:03] the images, it's crazy and I do hope that you know definitely our thoughts with the people that

[00:01:09] were impacted by this. Hopefully everyone's okay. I don't know if there were any casualties or how

[00:01:14] many there will be. It's hard to think there won't be any just by the footage but that would make sense

[00:01:20] that there I think the latest they were looking for like about seven or eight. Seven so they'd

[00:01:25] recover a couple. Yeah, yeah. So that would make sense because I mean if it was just regular traffic

[00:01:31] flow would have been probably hundreds of people at the video. Yeah, I guess that's glass half

[00:01:36] half full view of it. Like if it had been at like 2 p.m. or something or 4 p.m. during the day.

[00:01:43] Yeah, I'm terrible. Now just saying if anyone, well I'm sure everyone will probably have seen

[00:01:48] the footage but just have a look at the footage like this camera that just I guess traffic cam

[00:01:54] or some kind of like far away camera and it's just the bridge literally like crumbles in itself.

[00:02:02] It's pretty astonishing just watching it. Yeah, it's a crazy situation. I don't know how like busy

[00:02:09] that bridge is in terms of like you know economic movement what the impact it's going to have on

[00:02:16] that I don't know. Yeah, I don't know either. I'm not familiar enough with Baltimore. I'll be honest.

[00:02:20] So I know the Orioles played there and the Ravens I think those are the two things I know about

[00:02:26] Baltimore but I guess we'll get to what we have on this slate today a lot of stuff hopefully

[00:02:31] we'll get to everything so first things first we'll start with the big macro that happened last

[00:02:37] week. We're going to too much detail but clearly the fed raid decision whether people like it or

[00:02:42] not in Canada. I mean it has a big impact on Canada. The Bank of Canada is definitely very

[00:02:48] dependent on what the Fed does because they have to they definitely have to act similarly to the

[00:02:55] Fed if not there can be some consequences for the Canadian economy so as expected the Fed kept

[00:03:00] the Fed's fund rate unchanged at a bracket from 5.25% to 5.5% they mentioned some you know it was

[00:03:11] the usual discourse from Jerome Powell I found pretty much what we would have expected at least in

[00:03:17] my opinion so they said the economy is stronger than expected but higher rates are starting to

[00:03:23] bring inflation down and maximum employment at a better balance. You'll see whenever you listen

[00:03:30] to the Fed these press conference or the Bank of Canada you'll see that they come out with these

[00:03:37] terms that are very hard to quantify. I don't know if you noticed that but they they will throw

[00:03:42] these terms that are very hard to quantify and time and time again so it's always interesting

[00:03:48] and then the market obviously tries to interpret that one way or another and read between the lines.

[00:03:54] Now in the employment front the pressure seems to be easing with wage growth slowing

[00:03:59] and job vacancies trending down all the labor demands still exceeds supply of workers so definitely

[00:04:06] steal some pressures there they believe that their policy rate is likely at its peak for this

[00:04:12] tightening cycle again it's all likely and things can change right so whatever Jerome Powell is saying

[00:04:19] and that was my main takeaway is that they're not really sure what to do although the market seems

[00:04:26] to be baking in three rate cuts in part because of what's called the dot plot so these are Fed

[00:04:32] officials that essentially kind of project where they think the Fed's fund rate will be later this

[00:04:39] year and in 2025 and for the most part the medium was essentially three rate cuts by the end of this

[00:04:46] year but again that doesn't mean that it will happen I think my interpretation of this is that

[00:04:53] they are saying this and they are almost wanting to get the market excited by rate cuts so the

[00:04:59] market keeps doing well and hopefully even if they don't do the rate cuts the market won't be too

[00:05:06] much impacted because I've been reading a lot different interpretation on it and might take away

[00:05:12] for the most part is pretty simple they're again still data dependent they're not quite sure

[00:05:18] just yet you know they're prepared to cut if they need to but they seem to be prepared to hold

[00:05:25] the rates higher for longer if they need to as well people tend to want to hear what they want

[00:05:32] a year and obviously equity markets Bitcoin as well they just kind of ripped after the press conference

[00:05:38] was open and clearly markets were very kind of happy and bullish for the fact that red cut

[00:05:46] rate cuts are potentially coming so that's my main takeaway of it I don't know if you had similar

[00:05:50] takeaways I would have mad like by the three rate cuts I would imagine they mean like 20 so 75

[00:05:56] basis points they would be talking like a 25 basis point cut each time so that would put yeah

[00:06:02] like four and a half percent I mean I see it seems like the market doesn't react like as violently

[00:06:08] as it used to I don't know if you remember like 2022 2023 as soon as they had these meetings

[00:06:14] you'd see like the markets move 2% at like 20 minutes but it's not all that surprising that

[00:06:20] they're keeping it the same it seems like the US economy is doing pretty good considering where

[00:06:25] rates are which kind of like probably is an indicator that I don't think we're going anywhere near

[00:06:32] like like where where it's gonna settle out like I think a lot of people here are at least hoping

[00:06:37] that they're gonna go down quite a bit but I mean if you look at how strong the US economy is

[00:06:42] right now at 5.25 percent like do you ever see them going like sub 3% again I don't know

[00:06:49] it's difficult to predict but yeah it's very difficult to predict I think the new normal will

[00:06:54] probably be somewhere in between 3 and 4 percent that's my expectation but when will that happen

[00:07:02] I have no idea so your guest is a good as mine again I mean it's just so hard to

[00:07:08] to know where the Fed is going obviously they're still concerned with inflation because

[00:07:13] the print came in hotter than expected last CPI print and a few other different metrics that

[00:07:18] they look in terms of inflation gauge in the US so I guess we'll have to see but again if they don't

[00:07:24] start with these cuts by I would say the June or at the very least a July meeting they'll be hard

[00:07:30] pressed to start cutting after that if they haven't started just yet because then you get very

[00:07:34] close to the US election and create the perception that you are cutting rates to favor one

[00:07:42] candidate over another whether that's right or not it's still the perception and you can just

[00:07:46] imagine the discourse in the US if that happens yep for sure now we'll move on to some earnings and

[00:07:53] there's a bit of everything this week so we have some earnings from Alimentation Couche d'Or

[00:07:59] coming up so do you want to go over how what it looked like for them and if I recall their stock

[00:08:05] took a big hit on like 10 percent yes yeah I was waiting for you to say the name because

[00:08:12] I usually usually butcher it you see most people just say coach Tardt that's the most common

[00:08:18] the most common thing yeah it's okay braiden butcher like he butchers it pretty badly as well

[00:08:24] so you're not a lot but yeah they had first week quarter in quite a while you'd have to go back

[00:08:29] to the second quarter of 2023 to find when they missed estimates on both top and bottom lines

[00:08:37] when we look to q3 earnings compared to last they declined 12.2 percent and revenue is down 2.2

[00:08:44] percent so they reported same store sales decreases across the board so 1.2 percent in Canada 1.5

[00:08:52] in the USA and 0.3 percent in Europe and fuel volumes dipped in both the USA and Europe as well by

[00:09:00] 0.8 percent and 1.9 percent they increased in Canada by just half a percent so merchandise margins

[00:09:08] increased however one of the main reasons the company performed so I guess I wouldn't say

[00:09:16] poorly but not as good as it typically does is fuel margins so fuel margins missed the mark by quite

[00:09:22] a bit particularly in the United States so they figured fuel margins would actually increase by 3.5 percent

[00:09:28] they ended up declining by 7.8 and just to give you an idea of how important

[00:09:35] fuel margins in the US are so out of the 51.6 billion in revenue it's generated through the first

[00:09:41] three quarters of the year just under half of that is from US fuel sales so Canada only makes up

[00:09:48] 8.9 percent of total revenue their fuel sales so this company is highly dependent on the US when

[00:09:55] it comes to overall fuel sales so when margins miss it's definitely going to take a hit yeah I mean

[00:10:00] who who isn't dependent on the US somewhere or the other I mean you got to think Canada is what 10%

[00:10:07] of the population so like it makes sense that they're so heavily dependent on the US but it seems

[00:10:13] to me like maybe we're seeing a bit of consumer slowdown here in overall spending kushdard saw some

[00:10:19] pretty crazy growth coming out of the pandemic in terms of fuel revenues this kind of made sense

[00:10:24] because when you look the year over your comparables it would have been like 2021 2021 22 when we were in

[00:10:30] like full out lockdowns I do have a question for you do you think this is maybe due because a lot

[00:10:36] of their margins and their profits come I'm sure from merchandise that they sell into those convenience

[00:10:42] store right so as are we seeing the opposite effect of you know law boss a metro and dollar store

[00:10:51] you know offering kind of value alternatives to consumer where here it's the opposite where they're

[00:10:57] saying okay well sure I could get this bag of chip and pay for the small bag for like three dollars

[00:11:03] or whatever it is or you know I can wait go to the dollar store one of the discount brands and get a

[00:11:08] big bag for the same price right maybe customers are a bit more value conscious now and they're seeing

[00:11:15] that you know convenience store are notoriously overpriced right oh yeah like there's a reason why

[00:11:20] they're called convenience stores they're solely for convenience so yeah they make a lot of money off

[00:11:25] those types of products and the one compounding thing is when fuel sales slow like I don't think anybody's

[00:11:31] going out of their way to go to a convenience store to buy a bag of chips like really the only way

[00:11:36] you're going there is if you're filling up I mean maybe you'd pass by and you know grab some to eat

[00:11:41] if you don't need fuel but for the most part you're gonna rely you know on those people that are

[00:11:46] filling up on gas and then unless you're you know you're you went out to bar and it's 2 a.m

[00:11:53] it's the only place open yeah exactly really you really need to eat then you're in desperate times

[00:12:00] so through the first nine months of the year the company has spent 1.1 billion on share buybacks

[00:12:08] so I kind of wonder now with the stock trading at at the price points it is if kuchdard will

[00:12:14] allocate more capital towards the reduction of debt so it does have quite a bit of debt just in terms

[00:12:19] of its 10-year average multiple in terms of price to earnings a price to free cash flow it is trading

[00:12:24] at a premium so whether or not it scales that back I'm unsure I mean that's still quite a bit

[00:12:29] of I think it generates around 3.5 billion in terms of free cash flow so 1.1 billion just spent on

[00:12:36] buybacks is quite a bit the company closed on the acquisition of total energy so it costs a company

[00:12:43] 3.4 billion euros and adds just over 2175 sites so just under 1200 of them are in Germany 560 in

[00:12:53] Belgium 380 in the Netherlands and 44 in Luxembourg so the company expects synergies which

[00:13:00] in the M&A world like mergers and acquisitions that's pretty much you know the benefits of

[00:13:06] combining the two companies so this would be the result of kuchdard buying them implementing

[00:13:12] cost saving strategies as well as company strategies to improve margins and just overall it wasn't

[00:13:19] the best quarter for the company but it's really not that surprising during recession fuel demand does

[00:13:24] typically fall so it's a bit of a domino effect as well as mentioned because they have to go into

[00:13:29] the stores to buy the food the merchandise so yeah not the best quarter no I think that's a good

[00:13:35] break down now I mean I'm sure people will try to edit it out a little bit but Dan has been

[00:13:40] coughing quite a bit so that's okay happens to the best of us so I'll let you go grab your

[00:13:46] lung that just expand it away or cough for a couple weeks now it's terrible yeah so that's okay

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[00:14:50] for our listeners so I'll give you a little break and we'll talk about the reddit IPO here so I'm

[00:14:56] sure most people saw it reddit IPO last week the IPO price was $34 a share which was actually

[00:15:04] at the high end of what they were debating I think the range was like 28 to 35 dollars or in that

[00:15:10] in that ballpark and that valued the company I write around $6 billion the price popped on the

[00:15:17] launch and now it's safe to say that it's I don't know upwards price discovery so when I did these

[00:15:23] notes I had to actually amend my notes because the price has gone up a lot since yesterday

[00:15:29] the last I check about half an hour ago was trading at $68 a share and to give people some

[00:15:35] context here the price to sales based on that share price would be 13 times sell which is

[00:15:43] very expensive for a company like reddit and I'll explain why that's because last year they

[00:15:48] generated 804 million in revenue that was 20% increase over the previous year the vast majority

[00:15:55] of their revenue is generated through third party advertising on their platform they had a net

[00:16:00] loss of 159 million in 2022 and 91 million last year they were also free cash low negative last

[00:16:09] year to the tune of 85 million and 100 million the year before so clearly they are not profitable

[00:16:16] whatever metric you really want to use they are not profitable their average daily active user has

[00:16:22] been also quite flat between 55 million and 58 million between the start of 2021 and the end of

[00:16:30] 2022 however in q4 of last year they did reach 73 million which is a 27% increase the average revenue

[00:16:40] per user is where things get a bit more concerning for reddit it's been going up overall but there's been

[00:16:48] some weaker comps as well so for example the q4 2023 our puso does the average revenue per user

[00:16:56] was $3.42 which was down 2% year over year however it was up for all of the other quarters last

[00:17:03] year on a year over year basis with q2 showing the strongest growth at 15.2% again you're seeing

[00:17:10] a big divergence between you know similar to other social media platforms between the USA

[00:17:17] RPU and the rest of the world in q4 for the US it was four times higher than the rest of the world

[00:17:24] the US came in at $5.51 while the rest of the world came in at $1.34 so that's why in total for

[00:17:31] the latest quarter it was $3.42 now in terms of whether it's a good investment or not obviously we

[00:17:40] always say that this is not financial advice you know we're not providing any kind of financial

[00:17:46] advice will make sure you do your own due diligence but i have here like for their joint tci

[00:17:51] listeners they can see how it looks in terms of our poo for the world as well for the US and then

[00:17:58] for the rest of the world how it's breaking down i personally don't invest in ipos and

[00:18:04] reddit is definitely not any different do you invest in ipos then or do you give it like a certain

[00:18:10] amount of time usually for me i'll try to give it at least a couple quarters yeah but sometimes my

[00:18:16] sweet spot is like at least a year i would say i mean the one thing with these ipos i think a lot

[00:18:22] new investors might believe is that they they could have got it at $34 a share

[00:18:28] but really because you'll see on the first day that you know there's a huge spike in price

[00:18:32] but like retail investors actually can't get that issuing price so it'll kind of look like you

[00:18:37] could have gotten early and made a ton of money when in reality it's just mostly you know institutional

[00:18:43] investors that can get that pricing so i think that's what draws a lot of people in but i

[00:18:49] i think the last ipo i would have bought would have been tell us international and i think even then

[00:18:56] i waited like almost a full year before we ended up before i ended up buying it it still hasn't

[00:19:02] worked out all that well like ten times sales is is a crazy like it seemed this feels like

[00:19:08] like 2021 13 13 yeah this this would be value territory for them 10 times

[00:19:16] and like i don't know like i find reddit horrible i don't know i don't really visit it all that much

[00:19:22] but i find it like really confusing to navigate and uh just yeah i use it from time to time i would

[00:19:29] say i find for me and some people may have different opinions on it but i find for me it's

[00:19:35] i find it good for things that you want an answer that is kind of niche so something that you won't

[00:19:42] easily find the answer online sometimes there's going to be someone who has that same question and then

[00:19:47] you'll get some different perspective but one of the issue is the quality of the content

[00:19:53] is debatable i would say um obviously the there can be upvotes for what people think is the best

[00:19:59] answer but i think that's you know that's from the extent of it and i i see like you very high

[00:20:05] multiple actually starts like the market right now and just this IPO is starting to remind me of 2021

[00:20:13] yeah how things were getting you know quite expensive people didn't really seem to care about

[00:20:21] profitability or whether the business was sustainable long term this is primarily an ad business

[00:20:26] which is a very competitive market some i've seen people say there's potential for them to sell

[00:20:33] data so that it can be used to train an AI model i mean sure i guess they could do that but again

[00:20:39] that would probably be a more of a one-time thing with the aggregate of the data and then probably

[00:20:45] bring in some revenue going forward for the new data that they have available but i don't know how

[00:20:51] valuable that is because of what i just said how how do you assert the quality of the data

[00:20:58] if you're trying to train an AI model i mean there's just a lot of crap on reddit and you know how

[00:21:04] will they be able to yeah kind of sift it sift it exactly so sift through all of that i just don't

[00:21:11] know and the other risk that i think is not being considered is a content moderator so these are this

[00:21:18] is unpearily on a volunteer basis and they're the ones that essentially within these forums will

[00:21:24] ensure that the things run smoothly and these moderators at some point if reddit starts earning a

[00:21:31] profit i don't know about you but if i'm a moderator i see reddit like making a lot of money

[00:21:37] why not getting some money exactly i want a piece of it and i think that's also a big risk so

[00:21:43] i personally would not touch this with a 10 foot pole i think it's just their being

[00:21:47] opportunistic of the IPO i think it's probably a good move on their part to get you know

[00:21:54] as high as possible of a price for the IPO but again i think it's probably just

[00:21:59] to move to get the insiders to cash out i think that's uh that's my sense of it i mean maybe the

[00:22:06] stock keeps going up and we see you know kind of the meme craze from 2021 again but not something

[00:22:13] that i want to be part of i'm more than happy looking on the sidelines yeah i mean i kind of

[00:22:18] mentioned to you that like reddit like for the most part kind of was i don't really know how to

[00:22:23] describe it but i don't think its users would kind of appreciate you know a public company that

[00:22:29] has to now prioritize like revenue generation at all costs well i think a lot of people went to

[00:22:35] reddit because you know it was kind of different than a lot of the other mainstream websites which

[00:22:40] are littered with ads and all that type of stuff which is now i mean as a publicly traded company

[00:22:45] you're gonna be in the spotlight you're gonna have to you know find ways to generate more revenue

[00:22:50] which is probably gonna lead to a decline in user experience which is is probably not good for

[00:22:56] a lot of the current reddit users but yeah i wouldn't touch this either no no exactly do you want

[00:23:01] to take a little coughing break or you're good to talk about what's happening with light speed

[00:23:06] no i'm good and and this one's short too so it shouldn't be that bad okay good so uh if you

[00:23:11] listen last week we had a chat about how Ryan Reynolds company new veh well he's a major backer of

[00:23:17] the company was potentially being taken private by a venture capital firm so dax de silva who is

[00:23:24] the CEO of light speed commerce did an interview yesterday that said although the stock market is

[00:23:30] a good place for light speed he also wonders if going private would be a better option so obviously

[00:23:36] if the CEO is saying this publicly it's been talked about internally long before he would go public

[00:23:42] at least i think personally i don't think he's going out on a whim and going public about this

[00:23:47] but when new veh announced that a venture firm had significant interest in taking the company private

[00:23:53] shares launched by over 35% so after the silvis comments light speed went up around 6%

[00:24:00] the main difference here is there was you know official interest from new veh from a third party

[00:24:06] whereas light speed it's just kind of the CEO talking aloud so obviously this isn't really a

[00:24:10] statement for people to gamble on light speed going private and benefiting from a rise in share price

[00:24:14] but i can't imagine the premium wouldn't be pretty big from where the company is right now so

[00:24:21] it's trading at only 1.5 x enterprise value to sales so when you look to a company like new veh

[00:24:28] they're trading at 4.5 x so three times evaluation and when you look to something like Shopify

[00:24:33] they're trading at 14 x so nearly 10 times evaluation i'm not saying like light speed deserves to

[00:24:40] trade at you know a similar valuation to Shopify but i don't think Shopify is probably worth 10 x

[00:24:47] the company so it'll be interesting to see i think this is kind of just him talking aloud like

[00:24:54] i don't think there's anything official or even anything close to official maybe he did it to

[00:24:58] kind of you know spring the share price a bit go public with that because he saw new veh go up 35

[00:25:04] percent i don't know they have a billion dollars and cash on hand zero debt and they've kind of

[00:25:09] been working their way towards profitability over the last while if you pay the attention of the

[00:25:14] light speed over the last few years and i'm sure a lot of a lot of the audience has it was one of

[00:25:19] the wildest stocks on the tsx like the shares effectively doubled in a four month period and then

[00:25:25] it was a target of a major short report which was true say yeah spruce point i think yeah so they

[00:25:32] said it was burning a ton of cash and it was fabricating customer locations paying way too much

[00:25:37] for acquisitions so it's now 90 percent off those highs so it'll be interesting to see what happens

[00:25:44] there is i think there's a lot more pressure placed on these growth companies you know when they go

[00:25:48] public they're in the spotlight the you know i don't know it's i would imagine you're going to see

[00:25:53] light speed trade heavily over the last while depending on the premium of what new veh gets or news

[00:25:59] that comes out in that regard just because he said this even though there's really no confirmation

[00:26:06] that they're even kind of digging into it at all but i just think him coming public is it's pretty

[00:26:11] interesting yeah and do you know why gp shovee stepped down a few months ago or month ago yeah he uh

[00:26:19] he pretty much kind of said that you know like the market right now is all about profitability really

[00:26:26] like they don't like they hate cashburn right now and he kind of made a few comments about how you

[00:26:31] know they're they were looking for acquisitions and they're still looking for growth and i think the

[00:26:35] stock after he said it it felt like 18 percent and then he pretty much stepped down and and

[00:26:41] to silva came back like i think it's like light speed was burn and cash and issuing a ton of shares

[00:26:47] in the pandemic so they kind of funny because i thought he came in to do the opposite to kind of

[00:26:54] right size it because daxx was to focus on growth and you know i remember watching an interview and i

[00:27:00] was pretty critical that must have been like two and a half three years ago where you know uh he was

[00:27:05] doing i think it was on bnn or you know i can't remember exact spot but could have been on cnbc where

[00:27:11] they were uh looking to become a mega cap like we tried to find out that hilarious at the time so it

[00:27:17] was just uh i just find it funny because i thought gp shovee was there to kind of bring more fiscal

[00:27:24] disciplines so i don't know yeah i'll be interested in just keeping an eye on it it's definitely like

[00:27:31] i've said before i think just a payment space it's starting to become more and more of a commodity

[00:27:35] i think you have like the two behemoths with mastercard and visa that have those obviously network

[00:27:41] effects it's accepted everywhere and then you have every other payment company that to me a lot

[00:27:48] of the time uh there can definitely be like competition that puts prices or pressures prices down to

[00:27:57] make it a much difficult much more difficult business to be profitable yeah and the difficulty

[00:28:02] with light speed as well is how much it relies on small and medium businesses which are like not

[00:28:09] doing very well right now yeah they're they're pretty big in the bike so i'm into mountain biking

[00:28:15] so the every like it almost seems like everywhere every bike shop i go to has like a light speed terminal

[00:28:22] point of sale and for those not aware there's been a lot of pain in the bike industry in the last

[00:28:30] year or so so high inventory levels because they overordered overproduced during the pandemic

[00:28:37] because the demand was just off the charts and now people are not spending not buying new bikes

[00:28:42] anymore and i just saw an article a couple weeks ago that trek bikes which is a large pretty

[00:28:49] large bike producer for both mountain bike road bikes electric bikes they're looking to downsize

[00:28:55] pretty heavily and you're starting to see that in bike world so i'm sure that will have an impact

[00:29:00] on them because it is a decent part of their customer base but i just thought that was interesting

[00:29:06] yeah if you look to like the small like bike shops those knee shops you look to restaurants they even do

[00:29:13] t-times like they do they have a lot of yeah golf t-times and golf golf has slowed down quite a bit

[00:29:20] it absolutely exploded during the pandemic because it was pretty much one of the only sports you

[00:29:26] play while everything was locked down but they have a lot of exposure to smaller businesses which are

[00:29:33] more prone to churning like they can't afford to pay for the point of sale system so they'll cancel

[00:29:39] whereas larger businesses you know they still need it so yeah no that's fair it's uh well

[00:29:46] i was trying to find the quote from uh the old CEO but he said he said something that really turn

[00:29:53] the market off because it was in relation to you know still having the cash to make acquisitions

[00:29:58] and all that type of stuff and it just it didn't go over well and then he stepped down shortly after

[00:30:03] well that's all right i think he summed it up pretty well

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[00:31:05] so we'll go on to some not so great news that came out today so again we're record this

[00:31:12] on march 26 on Tuesday that's usually when we record the episode for the Thursday release

[00:31:18] so this came out just a couple hours ago so Canada goose is laying off 17% of its corporate roles

[00:31:26] dimension in the press release that the cuts were to reduce costs simplify the organization

[00:31:31] accelerate decision making and increase efficiencies i think it's probably mostly reducing costs and

[00:31:38] the reason why i'm saying that is because they essentially have seen their profitability

[00:31:45] after peaking during the pandemic it's been going down pretty substantially over the last little

[00:31:52] while so for the joint t c i listeners here i have a graphic that looks back at the last three

[00:31:58] years so you have the 2021 fiscal year where they had 262 million in free cash flow went down by i

[00:32:07] would say close to half from 261 to 117 in 2022 then 71 million in 2023 and the last 12 months

[00:32:19] it's at 20 million so clearly they're struggling on the profitability basis uh same kind of thing

[00:32:25] when you're looking at net income so it's not just on a free cash flow basis and to put this as

[00:32:31] in perspective so as of April 2nd 2023 they had 4760 employees with 915 of those being at their

[00:32:40] corporate head office and because these are corporate layoffs i bull like i think it's safe to assume

[00:32:46] that it's probably the 17% is from that 915 figure so assuming that's a case that would be roughly

[00:32:53] 155 employees and again it's not surprising just given the current environment i know they've been

[00:33:00] struggling with growth china i think you'd mentioned before we started recording as really

[00:33:04] affected their growth plan with the lockdowns over there and also the economy not performing as well

[00:33:10] and they've also seen like this year and into 2024 sells that were not up to their expectation in

[00:33:19] part because of the weather but also the macro economic environment yeah i think they've had

[00:33:24] this is a company that's had like a lot of a lot of headwinds as what is one that i used to follow

[00:33:29] quite a bit because i did own it i sold it i can't remember when i sold it i bought it in and out

[00:33:35] like quite a bit after its IPO and then kind of moved on but in 2022 that was when china like

[00:33:43] Canada goose was one of the most popular growing brands in china but in 2022 china pretty much

[00:33:49] went into full out lockdown and it affected their sales a ton and i think that's why you see cash

[00:33:55] low like dive and then coming out of it like i know chinese consumers tend to be one of the one

[00:34:04] stingiest when it comes to spending i can't remember the total numbers but they

[00:34:08] they don't like to spend money they're actually like one of the economies that heavily favor saving

[00:34:13] money so when it's you know when the economy isn't as good there they're not going to spend as much

[00:34:18] and Canada goose is far from cheap they're a very expensive very expensive clothing product that

[00:34:25] you definitely need some disposable income to buy so yeah they're they're struggling and i don't

[00:34:31] know i don't know how they turn it around yeah and i mean the long downs in china started pretty much

[00:34:36] what in January of 2020 all the way to the end of 2022 i think there were different levels but

[00:34:43] i think it was pretty much a strictest place in the world yeah and then obviously like you said

[00:34:48] i think the wealth effect probably has a big impact in china as well because you know a lot of people

[00:34:53] here will have their wealth in real estate but in china it's even more so where people here may also

[00:34:59] have stocks and different kind of assets that contribute to their wealth and in china for most

[00:35:05] people you know buying real estate buying a condo is really where you store your wealth and there's

[00:35:11] been some pretty big price declines obviously even some developers uh so country garden ever grand

[00:35:19] day and i think there are more over there that are struggling so that's putting pressure on

[00:35:25] home prices or condo prices over there and most likely affecting the willingness of chinese

[00:35:31] citizens to spend on high price items like uh you know can i be goose codes which apparently they

[00:35:37] have some that go over two thousand dollars now oh yeah i remember like the cheapest one i think

[00:35:42] was eight or nine hundred bucks and that was when i was looking a few years ago but yeah i looked

[00:35:46] up the data so in china consumption accounts for 53% of GDP compared to 72% for the rest of the world

[00:35:55] okay so they tend to save more yeah yeah overspending yeah it's kind of hard sometimes

[00:36:01] though with china to just how good the data is right so that's always the issue but i'll give you a

[00:36:08] little break here let you rest your your throat a little bit before we do your last segment so

[00:36:15] i'll go and continue in the fashion world here with uh Lulu lemon q4 earnings now obviously

[00:36:22] i own Lulu lemon and this is just so people know this is the quarter that ended on january

[00:36:28] 28 so it does include the holiday quarter obviously the holiday time so revenue's increased 16% to

[00:36:35] 3.2 billion for the quarter it increased by 9% for north america and 54% for international

[00:36:43] men sales increased 15% while women's increased 13% and comparable sales increased 12% that's

[00:36:51] 7% for north america and 43% for international and comparable sales were up 56% for china so they

[00:36:59] are doing quite well in china although their president is still quite small over there compared to

[00:37:04] other companies like one that you'll be talking after and they open 13 new stores in china and seven net

[00:37:12] new stores in north america and the net new store just means you know i factors in stores that day

[00:37:18] they would have clothes as well so just the amount of net stores that day open gross profits margin were

[00:37:24] 350 basis points higher than q4 last year so those of you are not familiar with that that's like

[00:37:31] 3.5% if you added like in terms of an addition so that's 3.5% one basis point being 0.01% operating margins

[00:37:42] were 170 basis points higher than last year net income was up more than 450% to 670 million and

[00:37:51] free cash flow was up more than 400% to 1.6 billion for the full year so definitely i would say

[00:37:58] i mean i own a little lemon i think it was a good quarter what really impacted the stock because

[00:38:04] the stock was down like i think 15% or somewhere like that when the earnings came out it really comes

[00:38:11] down to the guidance so for q1 revenues are expected to grow 9 to 10% for the full year the expect

[00:38:18] revenues to grow between 10 and 11% on the call however they said that there's been a shift in the

[00:38:24] us consumer and the start of the year has been much lower than expected and i think this is the main

[00:38:31] reason the stock was down because clearly the us is their still their most important market you can

[00:38:36] include canada here i mean if you want because they do break down north america but i think it's

[00:38:42] safe to say that the Canadian consumer probably started slowing down before the image long before yeah

[00:38:48] exactly and the us being slower than expected is not good because it does represent two thirds of

[00:38:55] their revenues and they plan to open five to 10 new stores in the us in 2024 and optimize another

[00:39:02] 15 to 20 stores they're looking to about to open about 30 stores outside of north america in 2024

[00:39:10] now they've launched their new men's shoe line as well in early february so this could help growth

[00:39:15] going forward this is after the launch of their women's shoes which has been i think was launch

[00:39:21] either last year the year before i can't remember but it's been out for a little bit so i think

[00:39:26] it's all about guidance here but it's not a company i'm looking to sell i do love little

[00:39:31] lemon i love their clothes i'm wearing a hoodie right now and a few other clothes you know items of

[00:39:37] my clothing that i have on right now including my pants and another item i will i'll let the listeners

[00:39:43] guess which i think but i think it was yeah it's more of a guy and sink clearly i think we're starting

[00:39:49] to see a lot of retailers just saying that there are some headwinds that they're seeing so it could be

[00:39:55] it's interesting because i find little lemon and Nike to be kind of a almost in a category of

[00:40:04] their own because to me Nike even for longer but little lemon has really shown that it kind of

[00:40:10] stood the test of time where the brand were in fashion it's not easy to have a company that will

[00:40:16] do well over decades i mean you can have companies that will do well over you know five six years

[00:40:22] or a couple years but i mean there's a graveyard of fashion companies out there that were you know

[00:40:30] the most in demand item or most in demand clothing that are now essentially bankrupt so i think

[00:40:38] still i think in a class of itself along with Nike but it will probably be a rocky

[00:40:44] little wild for little lemon i'm assuming it's similar for Nike

[00:40:49] yeah the while the lulu lemon earnings are actually quite a bit better than than

[00:40:53] Nike's but in your in regards to you like saying the brands fizzling out it's it's pretty impressive

[00:40:58] like Nike and lulu lemon considering how expensive they are like i would i would personally never buy

[00:41:04] anything lulu lemon or Nike but as you can see i'm also wearing a curkain slender

[00:41:11] i've never spent any sort of money on clothing but i mean it's they have strong ways

[00:41:19] yeah and the way i see it at least for lulu lemon i haven't really i don't buy that much

[00:41:24] Nike stuff lulu lemon for me it's more i mean it's not like luxury but it's not cheap it's kind

[00:41:30] of like you know it's kind of in between yeah middle of the line but what i find is they

[00:41:36] the items blast for a really long time so that's what i've noticed is i would buy cheaper brands

[00:41:42] before but i'd have to buy it as like twice as often and then feel as comfortable

[00:41:47] oh yeah so that's my reasoning around it but i agree with you it's not cheap and if you're

[00:41:52] you know if you're trying to save money at least in the short to medium term

[00:41:57] you know not buying lulu lemon or Nike is probably decent idea if you want to reduce your cost

[00:42:04] when you say that i just remember because i used to shop at american eagle a lot and that was

[00:42:09] something where you put that through the wash or two or three times and it's your $18 t-shirt

[00:42:14] is pretty much toast yeah i mean speaking of it i'll just say another one i think one i used to

[00:42:21] like like more than a decade ago i think it's i'm pretty sure they're going bankrupt it's express

[00:42:28] i don't know if you heard of those they had like anyways they had like some kind of

[00:42:33] work attire but kind of more like younger like that was more when i was made my early 20s

[00:42:40] a lot of vibrant colors that i used to wear as well so but they're going just that's an example

[00:42:46] where it used to be really popular like over 10 years ago and now i went on their website everything

[00:42:52] is like 60% off so i think they may be restructuring or something like that yeah keeping

[00:42:57] relevant in in fashion is so hard this is just off the top of my head but i seem to remember

[00:43:03] that this was a while ago but they did they did like kind of a study where they took two

[00:43:09] of the identical t-shirts and they put a Nike logo on one and no logo on the other and i think

[00:43:16] they could sell the Nike t-shirt for like three or four x the price like that's just that's

[00:43:22] just how valuable the brand is it's the exact same piece of clothing but they can just sell it

[00:43:28] for so much more but yeah i guess i'll get into the Nike earnings yeah go for it it was

[00:43:33] it was a pretty average quarter for Nike so they topped street expectations but revenue was

[00:43:39] flat year-rear and earnings declined 2.5 percent the company has essentially flatline since late

[00:43:45] 2022 so the i believe this is revenue is only increased about 2.5 percent since november 2022

[00:43:54] and earnings have dipped around 6% over that same time period and i didn't really notice this

[00:44:00] i didn't know this but the converse brand is really struggling with Nike so it reported sales

[00:44:07] down 19 percent so converse revenue is peaked in august of 2022 they had sales of 643 million

[00:44:15] this quarter sales of 495 million or 23.5 percent off those peaks and they kind of keep going down

[00:44:24] the company is either seeing flat growth or small declines across pretty much every one of its

[00:44:30] business segments outside of its equipment segment which i would imagine would just be sports

[00:44:36] equipment for like a different variety of sports that continues to grow at a double digit pace the

[00:44:42] only issue is it only makes up around 3.9 percent of revenue so initially the stock spiked on

[00:44:49] the earnings beat however much like lululemon who was kind of the guidance issued in the conference

[00:44:54] call that tanked the stock so they said that fourth quarter revenue will be soft and that full year

[00:45:01] revenues for this year will only work out to be about up 1 percent and they said it doesn't get

[00:45:07] much better for fiscal 2025 they stated that revenue will decline at a low single digit pace through

[00:45:14] the first six months of the year i have a feeling that Nike is one of those companies that's

[00:45:20] probably heading into their fiscal 2025 right now they kind of they're one of those ones

[00:45:24] that report a year ahead because i believe the guidance is for the first six months of this year i

[00:45:30] believe okay i think so though i might not be i might not be correct on that but i'm pretty sure

[00:45:35] they might be moving into fiscal 2025 pretty soon on a positive note they've been aggressively

[00:45:41] implementing cost saving strategies they seem to be working gross margins expanded by 150 basis points

[00:45:47] to sit at 44.8 and the company expects even further margin expansion some of it will be due to

[00:45:55] cost saving initiatives but they also expect a reasonable margin expansion from the fact that

[00:46:02] one time restructuring costs kind of impacted it i'm not a huge follower of Nike but when i quickly

[00:46:08] get glanced at KPIs it seems like it relied quite a bit on China much like Canada goose to fuel growth

[00:46:16] so from May 2017 to May 2021 revenue from China effectively doubled while North American revenue

[00:46:23] only went up by about 12% now however the company seems to be kind of losing ground in China so

[00:46:29] trailing 12 month sales are actually down by 10% off peaks so i'm kind of wondering if again you know

[00:46:36] as we had talked about if this is kind of you know the the Chinese consumers typically being a little

[00:46:42] less spend happy more savings directed the economy's not doing too well so they're they're kind of

[00:46:47] you know spending less and overall i just think it kind of shows so pretty large shift in the consumer

[00:46:52] when it comes to major trendy brands people just you know they either don't have the money for it

[00:46:57] anymore they're not willing to to spend that extra money yeah i mean i think that's very possible

[00:47:03] and i know wasn't y'all mean for a while kind of their biggest spoke person i think so you ask

[00:47:10] it ball player yeah for China and i think i think LeBron James pretty popular there but i i'm trying

[00:47:17] to think if there's also some good kind of ambassadors for the Nike brand that would resonate with

[00:47:22] Chinese people i'm not sure that there is maybe there's one i'm dead doesn't come to mind but here

[00:47:27] I have for our joint tci listeners so you have the operating margin so we can see they really picked

[00:47:33] up the operating margin in 2021 but it's been a steady decline since and it's actually now gone

[00:47:41] back lower than it was a pre pandemic so that is kind of showing that there's definitely some

[00:47:48] operating pressures for for Nike and i was also showing as well for you can see converse

[00:47:55] revenue that has been kind of steadily declining as well after peaking during the pandemic

[00:48:00] it's kind of weird to me how converse spikes so much during covid like what even happened there

[00:48:07] i mean people i guess when you can't really do any kind of experience right there there was so

[00:48:15] many lockdowns i guess people were just buying goods and yeah goods basically so just whatever

[00:48:20] they could get their hands on that's my best guess but no it'll be interesting how it goes forward

[00:48:26] definitely definitely a company that i think it'll be here in 10 15 years from now but i think

[00:48:33] just like little lemon i think they're gonna be some definitely gonna be some headwinds and

[00:48:38] then x year two and to answer what you were or to clarify what you were saying

[00:48:43] they just reported q3 2024 so they have this weird reporting schedule yeah yeah i find that's

[00:48:51] like kind of the case with a lot of companies that focus on retail as well i think a ritsia might

[00:48:57] be the same thing like they're kind of i know brp like bombardier is the same thing they're kind of

[00:49:03] like a fiscal year ahead so sometimes if you're just looking at the numbers it could seem really

[00:49:06] confusing you'll have them report first quarter 2025 in like the middle of 2024 but yeah it's

[00:49:14] that's uh so they expect the next the first six months of fiscal 2025 to be relatively weak

[00:49:22] okay well we'll have to keep an eye on it anything else you want into chat about or you just want

[00:49:27] go get some cough syrup yeah exactly i'm gonna go downstairs and get some bucklies

[00:49:32] yeah perfect well i think it was still a really great episode i mean we covered a lot of ground today

[00:49:37] lots of you know some macros some news some earnings and i thought you know earnings were slowing down

[00:49:44] but we had plenty of content to talk about today so for everyone listening we really appreciate that

[00:49:50] if you haven't done so already again we do appreciate it helps us

[00:49:55] helps people find us if you can give us a five-tar review on spotify on apple podcasts as well

[00:50:02] uh write us a nice review we do appreciate it we try uh we always try to read as many as we can

[00:50:08] and aside from that you can find me at underscore at sorry fiat underscore iceberg on twitter slash

[00:50:15] x and you can find dan at stock trades underscore c a that's it yeah twitter yeah yeah or stock

[00:50:23] trades dot c a if uh if you want to go visit a site yep thanks for listening everybody

[00:50:29] the canadian investor podcast should not be construed as investment or financial advice

[00:50:34] the host and guest featured may own securities or assets discussed on this podcast

[00:50:40] always do your own due diligence or consult with a financial professional before making any

[00:50:46] financial or investment decisions