Two Retail Stocks Crushing It and One That’s Falling Behind

[00:00:01] [SPEAKER_00]: 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

[00:00:14] [SPEAKER_02]: Welcome back to The Canadian Investor Podcast. We're back for our Thursday news and earnings episode. I think this is actually our second to last one or possibly our last regular one of the year. I haven't fully figured out the calendar.

[00:00:30] [SPEAKER_02]: I think it will be a mix of macro, some earnings we missed as well. It's going to be a little bit of a mix of everything. We'll talk about CPI.

[00:00:39] [SPEAKER_02]: We'll talk about the Bank of Canada decision, talk a little bit about the Fed decision coming up tomorrow as well. We're recording on Tuesday, December 17th.

[00:00:48] [SPEAKER_02]: And then just some earnings that we wish we could have done, but for whatever reason we weren't able to get in during the earnings season.

[00:00:55] [SPEAKER_02]: So, yeah. So that's what's on the slate. Dan, how are things with you aside from, you know, wearing a hat due to some razor malfunction when you shave your head?

[00:01:05] [SPEAKER_01]: Yeah, I guess that's one of the risks of being bald. I put a hat on today so nobody had to see what I've done to my head.

[00:01:14] [SPEAKER_01]: My... Yeah, I mean, it's... There wasn't too many earnings. We kind of got saved, I guess, by CPI and the Bank of Canada making another jumbo rate cut.

[00:01:25] [SPEAKER_01]: I mean, Canadian politics and Canadian inflation, economic news. I mean, there would be a lot to talk about, but...

[00:01:34] [SPEAKER_02]: Yeah, yeah. And we will be talking about the fall economic statement. So what happened yesterday?

[00:01:40] [SPEAKER_02]: Brayden and I will be talking about that this upcoming Monday. It's just we had too much that we wouldn't have been able to kind of do a bigger of a deep dive doing that.

[00:01:50] [SPEAKER_02]: So we'll do that. Yeah, when I record with Brayden. So I'll let you start, Dan, and talk about CPI and then I'll talk about the Bank of Canada decision.

[00:02:01] [SPEAKER_01]: Yeah, so it was a pretty good CPI print, I would say. It came in at 1.9% below the Bank of Canada's target rate of 2%.

[00:02:11] [SPEAKER_01]: So CPI common came in at 2%. CPI median at 2.6% and CPI trim at 2.7%.

[00:02:19] [SPEAKER_01]: So CPI trim would exclude kind of the top and bottom of the range in terms of, you know, impacts to inflation.

[00:02:28] [SPEAKER_01]: Whereas CPI median came in at, you know, that would kind of be the median average across all numbers.

[00:02:34] [SPEAKER_01]: And then I believe we looked up CPI common would kind of be like it takes the most volatile elements from that specific inflation print, I believe.

[00:02:44] [SPEAKER_01]: And then and then trim. No, that would be CPI trim or trim. Sorry. Yeah.

[00:02:48] [SPEAKER_01]: Yeah. The common would be like the largest changes in between. I couldn't remember that one.

[00:02:53] [SPEAKER_02]: Yeah, I'm not quite sure the common. I always get a bit confused.

[00:02:56] [SPEAKER_02]: I tend to focus a bit more on the median and the CPI trim. I mean, they define the CPI common as a measure of core inflation that tracks common price changes across categories in the CPI basket.

[00:03:09] [SPEAKER_02]: So I'm not quite sure what exactly that means in real life. So we'll just kind of, you know, that's fine. People can look it up.

[00:03:17] [SPEAKER_01]: Yeah. I mean, the main numbers we'll talk about now would be gasoline. One thing would be gasoline.

[00:03:23] [SPEAKER_01]: So they the prices continue to dip down 0.5 percent on a year over year basis.

[00:03:28] [SPEAKER_01]: They were pretty much flat compared to October. But I believe I believe the one thing they were saying is gasoline fell quite a bit in November last year.

[00:03:38] [SPEAKER_01]: So the fact that it continues to fall is kind of, you know, an added benefit, especially, you know, towards inflation.

[00:03:44] [SPEAKER_01]: And although shelter inflation is decelerating, it's definitely still one of the main drivers to the small amounts of inflation we're currently seeing.

[00:03:54] [SPEAKER_01]: So it increased 4.6 percent year over year overall with rent prices driving a large portion of that.

[00:04:00] [SPEAKER_01]: So overall rent increased 7.7 percent year over year.

[00:04:05] [SPEAKER_01]: And although mortgage costs are certainly still an impact with the mortgage cost index sitting at 13.2 percent.

[00:04:13] [SPEAKER_01]: And I would imagine, again, this is probably just an index that they utilize to track, you know, the increase or decrease in overall mortgage costs.

[00:04:21] [SPEAKER_01]: This is the 15th consecutive month of declines for that.

[00:04:26] [SPEAKER_01]: So it's still increasing, but it's certainly slowing down quite a bit.

[00:04:30] [SPEAKER_01]: And I mean, this would make this would make sense, you know, over the last eight or nine months, we've got pretty consistent policy rate declines.

[00:04:38] [SPEAKER_01]: And when we look to the so when we look to the year over year changes on a month to month basis, there was a pretty big slowdown in terms of the overall inflation in pretty much every single area they track.

[00:04:51] [SPEAKER_01]: So what I mean by this is when we compare November's year over year inflation.

[00:04:56] [SPEAKER_01]: So November this year to November last year, and then we look at, you know, back to October.

[00:05:02] [SPEAKER_01]: So October 2024 is year over year inflation relative to 2023, October 2023.

[00:05:09] [SPEAKER_01]: We are starting we're seeing either lower inflation numbers across the board or actually larger deflation deflationary numbers.

[00:05:17] [SPEAKER_01]: So when we look to discretionary items like recreational items, household items, clothing, etc.

[00:05:23] [SPEAKER_01]: We're seeing pretty large deflation at this point in time.

[00:05:27] [SPEAKER_01]: I mean, clothing and footwear being arguably the largest with a 3.8% decline on a year over year basis.

[00:05:33] [SPEAKER_01]: However, they this is kind of they did attribute some of this to Black Friday.

[00:05:38] [SPEAKER_01]: But I mean, that doesn't really make sense to me because on a year over year basis, you'd be including Black Friday last year.

[00:05:45] [SPEAKER_02]: Yeah, exactly.

[00:05:46] [SPEAKER_01]: So I mean, unless retailers what they're saying is retailers are having to like discount items even further.

[00:05:55] [SPEAKER_02]: Unless they're talking specifically of the month over month change, because then, of course, Black Friday would have had an impact.

[00:06:02] [SPEAKER_02]: But if you're looking at the year over year, I mean, last year, last I checked, there was a Black Friday on November 22.

[00:06:08] [SPEAKER_02]: In November 2023.

[00:06:10] [SPEAKER_01]: And I'm pretty sure when I was reading this, I might be wrong.

[00:06:13] [SPEAKER_01]: I'd have to double check.

[00:06:13] [SPEAKER_01]: I'm pretty sure they were talking year over year.

[00:06:16] [SPEAKER_01]: But yeah, it's I mean, we're seeing obviously, you know, we could see all those discretionary items.

[00:06:22] [SPEAKER_01]: Obviously, the economy is slowing down.

[00:06:24] [SPEAKER_01]: Canadians are saving more than they're spending.

[00:06:26] [SPEAKER_01]: You know, this isn't all that surprising.

[00:06:28] [SPEAKER_01]: You know, food inflation remains a bit stubborn, but it is certainly manageable.

[00:06:34] [SPEAKER_01]: I mean, that came in at 2.8% year over year.

[00:06:36] [SPEAKER_01]: It's definitely manageable when you consider like how high it was in 2023.

[00:06:42] [SPEAKER_01]: But one of the main issues I do see here is the weakening Canadian dollar.

[00:06:47] [SPEAKER_01]: I mean, a lot of the data I found was old, but I'd imagine still very relevant.

[00:06:51] [SPEAKER_01]: We import tons of fruits and vegetables, seafood, processed food from the United States.

[00:06:56] [SPEAKER_01]: So, I mean, obviously, a weaker Canadian dollar could easily put more pressure on food inflation.

[00:07:02] [SPEAKER_02]: Yeah, especially in the winter months.

[00:07:04] [SPEAKER_02]: Yeah.

[00:07:04] [SPEAKER_01]: Yeah, exactly.

[00:07:05] [SPEAKER_01]: And I mean, the thing is, is I don't see the Canadian dollar getting any stronger.

[00:07:09] [SPEAKER_01]: I mean, I think we actually broke 70 cents this morning.

[00:07:12] [SPEAKER_02]: Yeah, it was.

[00:07:13] [SPEAKER_02]: It's having a rough day today as we're recording that.

[00:07:17] [SPEAKER_02]: Yeah, good for our portfolios.

[00:07:19] [SPEAKER_02]: At least I know yours and mine because we have a pretty large chunk of US exposure, whether

[00:07:25] [SPEAKER_02]: it's in cash or actual equities or companies.

[00:07:28] [SPEAKER_02]: But yeah, if you don't, then you're definitely feeling it.

[00:07:32] [SPEAKER_01]: Yeah.

[00:07:32] [SPEAKER_01]: Like I remember just even, this was like a month ago, I went to Costco and there was like

[00:07:36] [SPEAKER_01]: a tiny little thing of blueberries and they were like $11.

[00:07:40] [SPEAKER_01]: I was like, what?

[00:07:41] [SPEAKER_01]: And it's going to, it's just going to get worse.

[00:07:43] [SPEAKER_01]: So, I mean, I don't really know like the overall, you know, what we import in terms of food from

[00:07:50] [SPEAKER_01]: the United States.

[00:07:51] [SPEAKER_01]: But I mean, I would imagine that weaker Canadian dollar, it's going to, you know, keep that

[00:07:56] [SPEAKER_01]: food inflation up.

[00:07:57] [SPEAKER_01]: I mean, overall, the numbers seem to be telling the same story as they have for the past year.

[00:08:01] [SPEAKER_01]: The only real inflation we're seeing here in Canada is probably on the shelter side and

[00:08:07] [SPEAKER_01]: to a minimal extent now, the food side, which unfortunately are, you know, the two main

[00:08:13] [SPEAKER_01]: elements of human life.

[00:08:15] [SPEAKER_01]: I mean, food and shelter.

[00:08:16] [SPEAKER_01]: So obviously, you know, you could argue that some inflation areas don't hit people particularly

[00:08:23] [SPEAKER_01]: as hard as others.

[00:08:24] [SPEAKER_01]: I mean, prime example for me, I don't really travel that much.

[00:08:27] [SPEAKER_01]: Gasoline prices don't impact me that much.

[00:08:30] [SPEAKER_01]: You know, some people in terms of, you know, tobacco, alcohol, things like that, that wouldn't

[00:08:35] [SPEAKER_01]: hit them, but food and shelter is going to be something that hits everybody.

[00:08:39] [SPEAKER_01]: So I mean, I think overall, the CPI print pretty much supports more rate cuts in 2025.

[00:08:46] [SPEAKER_01]: And I mean, I think they priced in a 55% cut now after this, you know, that there's a 25

[00:08:54] [SPEAKER_01]: basis point cut at the next meeting.

[00:08:56] [SPEAKER_02]: Yeah, I haven't looked exactly, you know, at what the odds are on the Canadian side, but

[00:09:01] [SPEAKER_02]: that would sound about right.

[00:09:05] [SPEAKER_02]: Having such a rough time and we're starting to see it now.

[00:09:08] [SPEAKER_02]: And like, I'll go over with what the Bank of Canada actually said in their final rate

[00:09:12] [SPEAKER_02]: announcement.

[00:09:14] [SPEAKER_02]: Yeah, it's not looking great in terms of the economy.

[00:09:17] [SPEAKER_02]: So I can really see them cutting again.

[00:09:20] [SPEAKER_02]: I wouldn't even rule out a 50 basis points, to be honest.

[00:09:24] [SPEAKER_02]: It's probably more likely the 25.

[00:09:26] [SPEAKER_02]: But if things start trending worse and I'm not quite sure.

[00:09:30] [SPEAKER_02]: Do you know when the meeting is in?

[00:09:31] [SPEAKER_01]: It said January.

[00:09:33] [SPEAKER_01]: Well, when I was reading the odds of the rate cut, it said 55% at their next meeting

[00:09:38] [SPEAKER_01]: in January.

[00:09:39] [SPEAKER_02]: Yeah.

[00:09:39] [SPEAKER_02]: So end of January.

[00:09:40] [SPEAKER_02]: So by then, the orange man will be in the office.

[00:09:44] [SPEAKER_02]: So January 29th is what I got from the Google machine.

[00:09:47] [SPEAKER_02]: So it'll be interesting because that's an extra kind of data point to see like what Trump

[00:09:54] [SPEAKER_02]: is actually going to do.

[00:09:55] [SPEAKER_02]: Because now we have the threats, whether he goes through with them, whether it partially

[00:09:58] [SPEAKER_02]: goes through, you know, maybe it's not 25%.

[00:10:02] [SPEAKER_02]: Maybe it's like 10, 15.

[00:10:03] [SPEAKER_02]: Maybe it's just on some items.

[00:10:05] [SPEAKER_02]: We don't know.

[00:10:05] [SPEAKER_02]: There's a good chance we'll have more clarity.

[00:10:08] [SPEAKER_01]: Yeah.

[00:10:08] [SPEAKER_01]: Yeah.

[00:10:08] [SPEAKER_01]: That's, I mean, 50 basis.

[00:10:11] [SPEAKER_01]: I've been a 50 basis point guy for quite some time now.

[00:10:14] [SPEAKER_01]: 50 basis points in January would be crazy.

[00:10:18] [SPEAKER_01]: That would be.

[00:10:18] [SPEAKER_02]: Well, I mean, Canada is doing well according to the fall economic statement because we are

[00:10:24] [SPEAKER_02]: leading the pack in rate cuts.

[00:10:26] [SPEAKER_02]: Yeah.

[00:10:26] [SPEAKER_01]: I don't think they understand how that works.

[00:10:28] [SPEAKER_02]: No.

[00:10:28] [SPEAKER_02]: No, I mean, it's, I mean, granted, and I'm talking with, like I said, I'll talk next Monday,

[00:10:33] [SPEAKER_02]: but I couldn't help myself.

[00:10:34] [SPEAKER_02]: Look, at the end of the day, whatever government is, you know, publishing the budget and the

[00:10:40] [SPEAKER_02]: fall economic statement.

[00:10:41] [SPEAKER_02]: So now it's the liberals.

[00:10:43] [SPEAKER_02]: But, you know, if we get a conservative government next, I mean, at the end of the day, it's a

[00:10:47] [SPEAKER_02]: political kind of document, right?

[00:10:49] [SPEAKER_02]: So they try to show what they're doing that show that things are going well and all this

[00:10:55] [SPEAKER_02]: stuff.

[00:10:55] [SPEAKER_02]: So you kind of expect this kind of thing, but it's just, you know, weighing your in, you

[00:11:02] [SPEAKER_02]: know, in the data often and you understand how the economy works.

[00:11:06] [SPEAKER_02]: Like you don't have to be an economist, but you read this stuff and you're just like,

[00:11:10] [SPEAKER_02]: oh my God, it hurts my brain to read.

[00:11:12] [SPEAKER_02]: But anyways, that was my, my little rant here.

[00:11:15] [SPEAKER_02]: Tune in next Monday for the rest of my rant.

[00:11:18] [SPEAKER_02]: Yeah, that's a, that's going to be a good episode.

[00:11:21] [SPEAKER_02]: So we'll transition here.

[00:11:23] [SPEAKER_02]: Like I said, the Bank of Canada final 2024 announcement, which came last week.

[00:11:27] [SPEAKER_02]: So first of all, congratulations.

[00:11:29] [SPEAKER_02]: If you have a variable rate mortgage, your payments just went down.

[00:11:32] [SPEAKER_02]: So congrats.

[00:11:34] [SPEAKER_02]: So they were lowered by 50 basis point and it was widely anticipated at that point.

[00:11:39] [SPEAKER_02]: Expectations were kind of 50, 50.

[00:11:41] [SPEAKER_02]: I think until the data came out for GDP.

[00:11:44] [SPEAKER_02]: I think that really kind of started hitting it.

[00:11:47] [SPEAKER_02]: And I think also the fact that Trump, I think also tweeted or truted or whatever, you know,

[00:11:53] [SPEAKER_02]: social media uses about the tariffs on Canada and Mexico.

[00:11:57] [SPEAKER_02]: I think that probably came in a lot into their decision.

[00:12:00] [SPEAKER_02]: And since June, the policy rate has gone from 500.

[00:12:04] [SPEAKER_02]: So 5% to 3.25%.

[00:12:07] [SPEAKER_02]: So 175 basis point.

[00:12:09] [SPEAKER_02]: That's massive.

[00:12:10] [SPEAKER_02]: Like it's not just in one year.

[00:12:12] [SPEAKER_02]: Basically, it's a span of six months that this happened.

[00:12:16] [SPEAKER_02]: So, you know, whatever the federal government says, the reality is central banks don't do

[00:12:21] [SPEAKER_02]: this unless they see a problem brewing.

[00:12:25] [SPEAKER_02]: And I think that's safe to say that they're seeing something.

[00:12:28] [SPEAKER_02]: And even like the language they were using, you can clearly understand that they're concerned

[00:12:33] [SPEAKER_02]: about growth.

[00:12:34] [SPEAKER_02]: And in the statement that they released, they mentioned that growth is slowing with GDP coming

[00:12:39] [SPEAKER_02]: in at 1% growth in Q3.

[00:12:41] [SPEAKER_02]: And based on early data that they have, they also expect a weak Q4.

[00:12:45] [SPEAKER_02]: They also stated that unemployment rate increased to the 6.8%.

[00:12:50] [SPEAKER_02]: And that was a significant increase since it had been around 6.5% since July, kind of hovering

[00:12:57] [SPEAKER_02]: around that 6.5% mark.

[00:12:59] [SPEAKER_02]: They're less concerned about inflation now.

[00:13:01] [SPEAKER_02]: And their base case is that it will be close to target for the next couple of years.

[00:13:05] [SPEAKER_02]: One key factor here is keeping the inflation rate low is because of the substantially lower

[00:13:12] [SPEAKER_02]: immigration targets that the federal government announced, which will put some downward pressures

[00:13:17] [SPEAKER_02]: on inflation.

[00:13:19] [SPEAKER_02]: Because of course, especially for certain goods, you get new people in the country, you know,

[00:13:24] [SPEAKER_02]: they need to eat, they need to find a place to live.

[00:13:26] [SPEAKER_02]: So if you don't have, you know, that same influx of new people, it could be placed some downward

[00:13:33] [SPEAKER_02]: pressure on inflation.

[00:13:34] [SPEAKER_02]: So that'll be something interesting to keep an eye on.

[00:13:37] [SPEAKER_02]: They also said that they will provide an update on the GST holiday that came into effect, I

[00:13:43] [SPEAKER_02]: guess, last Sunday, as well as the potential stimulus check that could be sent to household.

[00:13:49] [SPEAKER_02]: That one is kind of in limbo, that $250.

[00:13:51] [SPEAKER_02]: So we'll have to see whether it goes through or not.

[00:13:54] [SPEAKER_02]: But they will provide an update on their forecast and how these things could impact that.

[00:13:59] [SPEAKER_02]: And they expect the GST holiday to temporarily put downward pressure on inflation.

[00:14:03] [SPEAKER_02]: But after the holiday is done, that would reverse course.

[00:14:07] [SPEAKER_02]: So it is temporary.

[00:14:08] [SPEAKER_02]: They're still unsure that potential, what potential effects Terence could have.

[00:14:13] [SPEAKER_02]: And it is definitely creating some more uncertainty in their forecast.

[00:14:16] [SPEAKER_02]: They removed language of future cuts and said that they will be data dependent on meeting

[00:14:21] [SPEAKER_02]: to meeting basis.

[00:14:22] [SPEAKER_02]: Again, it's hard not to read between the line, right?

[00:14:26] [SPEAKER_02]: They think inflation will stay quite low, that the economy is not doing well.

[00:14:31] [SPEAKER_02]: So yes, they aren't committing to further rate cuts.

[00:14:34] [SPEAKER_02]: But I think it's pretty easy to assume that there will be some because, you know, typically,

[00:14:40] [SPEAKER_02]: if inflation is under control and growth and employment is just not there, growth is slowing

[00:14:46] [SPEAKER_02]: and unemployment is rising.

[00:14:47] [SPEAKER_02]: Well, you know, I think you can read between the line that they'll probably decide to continue

[00:14:52] [SPEAKER_02]: cutting.

[00:14:52] [SPEAKER_02]: He had an interesting question.

[00:14:54] [SPEAKER_02]: I don't know if you saw Stephen Polos, the former BOC, Bank of Canada governor.

[00:15:00] [SPEAKER_02]: So he said in recent week that Canada was already in a recession.

[00:15:04] [SPEAKER_02]: So a reporter asked him like what his thoughts were on the comments from Stephen Polos.

[00:15:10] [SPEAKER_02]: He didn't seem to love the question, but said the economy was growing, albeit slowly.

[00:15:14] [SPEAKER_02]: He's not wrong that, you know, we're not in a recession.

[00:15:18] [SPEAKER_02]: So this is just me talking like I don't think Tiff is wrong.

[00:15:23] [SPEAKER_02]: I don't think he's wrong.

[00:15:25] [SPEAKER_02]: You know, we're not in a technical decision recession.

[00:15:28] [SPEAKER_02]: However, if you start looking at various indicator, also GDP per capita, so which kind of strips

[00:15:33] [SPEAKER_02]: out the insane population growth that we have, then we'd be clearly in a recession.

[00:15:39] [SPEAKER_02]: So at the end of the day, you know, I think you're just looking at a the academic definition

[00:15:45] [SPEAKER_02]: versus kind of the reality that a lot of people are facing.

[00:15:48] [SPEAKER_02]: And I think a lot of people listening to the podcast will agree that, you know, things

[00:15:54] [SPEAKER_02]: are not that great overall.

[00:15:56] [SPEAKER_02]: You know, people may be doing OK on an individual basis.

[00:15:59] [SPEAKER_02]: But, you know, I talk to people.

[00:16:01] [SPEAKER_02]: I have lots of friends.

[00:16:02] [SPEAKER_02]: I, you know, interact with people that listen to the podcast and stuff.

[00:16:07] [SPEAKER_02]: And for the most part, like people are definitely feeling the pinch.

[00:16:11] [SPEAKER_02]: Yes, inflation, the rate of inflation may be going down, but it's not stripping away all

[00:16:17] [SPEAKER_02]: the inflation we've seen in the last five years.

[00:16:20] [SPEAKER_02]: And salaries have just not kept up on average.

[00:16:24] [SPEAKER_02]: If you look at over the last five years, salaries have not kept up with inflation.

[00:16:28] [SPEAKER_02]: So, yes, the rate may be slowing, which is great for the Bank of Canada.

[00:16:32] [SPEAKER_02]: By the end of the day, it doesn't solve the issue, the unaffordability issue that a lot

[00:16:37] [SPEAKER_02]: of us are facing.

[00:16:38] [SPEAKER_01]: Yeah, I think that is one of the main things here right now is obviously lower inflation

[00:16:44] [SPEAKER_01]: doesn't mean deflation like those prices are here to stay.

[00:16:48] [SPEAKER_01]: So, I mean, what happens when, you know, we get this type of inflation, salaries don't move,

[00:16:54] [SPEAKER_01]: you know, rates go high and I mean, then they cut rates, but I mean, are really people even

[00:17:01] [SPEAKER_01]: at lower policy rates, can they really afford to be spending?

[00:17:04] [SPEAKER_01]: I mean, clearly we've, we've dropped rates 175 basis points and it's really hasn't done

[00:17:09] [SPEAKER_01]: all that much.

[00:17:09] [SPEAKER_01]: Although there would be like, you know, it's lagging, obviously it's not just going to

[00:17:13] [SPEAKER_01]: immediately pick up.

[00:17:14] [SPEAKER_01]: Yeah, there's going to be a lag effect.

[00:17:14] [SPEAKER_01]: There's going to be a lag effect.

[00:17:16] [SPEAKER_01]: But I mean, if you get to the point where, you know, I had mentioned before, like this

[00:17:21] [SPEAKER_01]: is policymakers pretty much main lever for, for economic growth.

[00:17:26] [SPEAKER_01]: And I mean, if it doesn't work, then you're, you're in quite a bit, a bit of trouble.

[00:17:31] [SPEAKER_01]: I mean, if they continue to decline rates and Canadians still don't, you know, spend, then

[00:17:36] [SPEAKER_01]: it becomes quite difficult.

[00:17:37] [SPEAKER_01]: And it's realistically possible because I mean, it's so expensive to live here now.

[00:17:42] [SPEAKER_01]: It's crazy.

[00:17:43] [SPEAKER_02]: Yeah, exactly.

[00:17:43] [SPEAKER_02]: And look, I mean, at the end of the day, if he left Tiff, if you know, his last day was

[00:17:48] [SPEAKER_02]: today and then you interviewed him and asked him like, you know, the actual, the same questions

[00:17:54] [SPEAKER_02]: that were asked, what he thinks about the Canadian economy, all that.

[00:17:57] [SPEAKER_02]: I think you would probably say something a bit different.

[00:18:00] [SPEAKER_02]: You know, you see politicians or people in public service with positions of power that

[00:18:05] [SPEAKER_02]: oftentimes once they leave, they tend to have a very different discourse that when they're

[00:18:10] [SPEAKER_02]: in power.

[00:18:10] [SPEAKER_02]: And most recently we saw that with Janet Yellen, the US who now said who was going to be leaving

[00:18:16] [SPEAKER_02]: because obviously Trump has been elected as treasury secretary.

[00:18:21] [SPEAKER_02]: And as she's leaving, she's saying the level of the deficit is concerning and that she was

[00:18:26] [SPEAKER_02]: sorry that she couldn't get it into more control over the last five years since she's been in

[00:18:30] [SPEAKER_02]: the Biden administration.

[00:18:31] [SPEAKER_02]: It's just like, okay, you actually could have done something about it.

[00:18:34] [SPEAKER_02]: You didn't.

[00:18:35] [SPEAKER_02]: And now you're like, oh yeah, this is really concerning.

[00:18:37] [SPEAKER_02]: Kind of good luck with the, with that for the upcoming administration.

[00:18:41] [SPEAKER_02]: But I just said that because yes, sometimes, you know, his role as the governor is also not

[00:18:47] [SPEAKER_02]: to, you know, put people into panic.

[00:18:50] [SPEAKER_02]: So to show that things are into control, are in control.

[00:18:53] [SPEAKER_02]: And I have a suspicion that if he was not in that role, if he was retiring or whatever,

[00:18:59] [SPEAKER_02]: soon he would have a pretty different discourse.

[00:19:02] [SPEAKER_02]: So it'll be interesting what happens.

[00:19:04] [SPEAKER_02]: These lower rates.

[00:19:05] [SPEAKER_02]: I mean, at the end of the day, if you have a variable mortgage and you're saving money,

[00:19:09] [SPEAKER_02]: I don't know if you're going out and spending that money right away.

[00:19:12] [SPEAKER_02]: You may actually be using it to build a buffer so you don't get in a tough situation like

[00:19:17] [SPEAKER_02]: that again.

[00:19:18] [SPEAKER_02]: So we'll have to see.

[00:19:19] [SPEAKER_02]: And then the last thing I'll finish on is, you know, bond yields have actually been up

[00:19:24] [SPEAKER_02]: since the five-year bond yield has actually increased since the announcement.

[00:19:28] [SPEAKER_02]: I know I'm saying this time and time again, but it's a reminder that, you know, variable

[00:19:34] [SPEAKER_02]: rates are not, you know, it's not what decides fixed rates that you get on loans, that you

[00:19:41] [SPEAKER_02]: get on mortgages, that businesses will get.

[00:19:44] [SPEAKER_02]: That's decided by the bond market.

[00:19:46] [SPEAKER_02]: And essentially there's a spread that will be assigned on top of what the, you know, government

[00:19:51] [SPEAKER_02]: bonds are yielding.

[00:19:52] [SPEAKER_02]: On top of that will be, you know, whatever the spread is like 1%, 1.5%.

[00:19:57] [SPEAKER_02]: And then you get whatever interest you get on your loan or the business gets on their

[00:20:01] [SPEAKER_02]: business loan.

[00:20:02] [SPEAKER_01]: Yeah, it's, um, I mean, it's, it's difficult to say, you know, what the outlook for the

[00:20:10] [SPEAKER_01]: Canadian economy is.

[00:20:11] [SPEAKER_01]: But I mean, when you get people in this type of position, like you're saying, they're going

[00:20:15] [SPEAKER_01]: to try to, I wouldn't necessarily save face, but they're going to be generally, you know,

[00:20:21] [SPEAKER_01]: positive outlook overall.

[00:20:24] [SPEAKER_01]: Because I mean, obviously if he's very negative here, you'd probably have, you know, Canadians

[00:20:27] [SPEAKER_01]: scaling back even more.

[00:20:30] [SPEAKER_01]: And then in the case of the variable rate, like you said, I mean, people are saving money

[00:20:33] [SPEAKER_01]: right now, but who knows, maybe they were, you know, in negative amortization for, you

[00:20:38] [SPEAKER_01]: know, two years.

[00:20:40] [SPEAKER_01]: They're not going to be like, Oh, my mortgage has gone down 400 bucks a month.

[00:20:43] [SPEAKER_01]: Let's go, you know, buy a new car or something.

[00:20:45] [SPEAKER_01]: Or maybe they would.

[00:20:46] [SPEAKER_01]: I don't know.

[00:20:47] [SPEAKER_01]: Some people are kind of like that.

[00:20:48] [SPEAKER_01]: Yeah.

[00:20:49] [SPEAKER_01]: But, uh, I think it's, it's going to be a different, it's going to be a different mentality taken

[00:20:53] [SPEAKER_01]: by a lot of people.

[00:20:54] [SPEAKER_01]: I think just because I mean, those levels of inflation we've seen a few years ago, I

[00:20:59] [SPEAKER_01]: mean, they were, they were crazy.

[00:21:00] [SPEAKER_01]: Like not a lot of people have seen that type of price increases over that time.

[00:21:04] [SPEAKER_01]: I mean, when it would be the last time we've seen that it would have been, I mean, not in

[00:21:08] [SPEAKER_01]: our lifetime for sure.

[00:21:09] [SPEAKER_01]: So, I mean, that, that hit a lot of people hard, I think.

[00:21:13] [SPEAKER_01]: And, uh, yeah, it's, it's going to be interesting at the Canadian consumers in, in pretty rough

[00:21:18] [SPEAKER_01]: shape.

[00:21:18] [SPEAKER_02]: Yeah.

[00:21:18] [SPEAKER_02]: And it will be interesting to what happens with energy.

[00:21:21] [SPEAKER_02]: Cause a lot of it, uh, pushing inflation down again, the energy numbers in the CPI,

[00:21:26] [SPEAKER_02]: right.

[00:21:26] [SPEAKER_02]: They're negative.

[00:21:26] [SPEAKER_02]: Yeah.

[00:21:27] [SPEAKER_02]: So, um, you know, I, I'm sure central banks are hoping that that stays at the same level

[00:21:33] [SPEAKER_02]: because if for whatever reason, energy prices as a whole start increasing, you know, that

[00:21:38] [SPEAKER_02]: could put a wrench in, you know, in their plans.

[00:21:41] [SPEAKER_02]: But I think we've talked enough about macro.

[00:21:44] [SPEAKER_02]: We'll, uh, switch over to some earnings here.

[00:21:46] [SPEAKER_02]: BRP had its earnings a couple of weeks ago.

[00:21:49] [SPEAKER_02]: It's actually a stock that I put on my radar for, um, for a segment Braden and I did last

[00:21:54] [SPEAKER_02]: week.

[00:21:55] [SPEAKER_02]: So, well, I'm interesting in seeing what you have to say.

[00:21:58] [SPEAKER_02]: I have a general idea of how the quarter went, but I might chime in a little bit.

[00:22:02] [SPEAKER_01]: Yeah.

[00:22:02] [SPEAKER_01]: So BRP is a company I own.

[00:22:05] [SPEAKER_01]: I've owned it for, for quite a while.

[00:22:07] [SPEAKER_01]: If you want to talk about, you know, a, a penny pinching consumer, this is pretty much,

[00:22:13] [SPEAKER_01]: you know, one area you could look to get a very good idea of, uh, how things are going.

[00:22:18] [SPEAKER_01]: I mean, they had a pretty rough quarter from a growth perspective, but it wasn't nearly

[00:22:23] [SPEAKER_01]: as bad as many analysts had expected.

[00:22:26] [SPEAKER_01]: You know, the company actually topped earnings expectations by 70%.

[00:22:29] [SPEAKER_01]: So they earned a dollar 16 when only around 68 and a half cents was expected and revenue

[00:22:35] [SPEAKER_01]: came in around 5% higher than estimates.

[00:22:38] [SPEAKER_01]: Estimates were pretty, pretty bearish for this company.

[00:22:41] [SPEAKER_01]: You know, just considering the overall, um, prior to this quarter, they had cut guidance

[00:22:46] [SPEAKER_01]: for three straight quarters.

[00:22:48] [SPEAKER_01]: This, this quarter, they actually didn't cut guidance.

[00:22:51] [SPEAKER_01]: So that's, uh, you know, that's a bit of a bright spot.

[00:22:54] [SPEAKER_01]: Um, overall revenue declined by 18% year over year earnings fell by nearly 65%.

[00:22:59] [SPEAKER_01]: And I mean, again, this company is just getting hammered on a, on a tighter consumer.

[00:23:05] [SPEAKER_01]: They've finally maintained, like I mentioned that guidance, they finally maintained, they

[00:23:09] [SPEAKER_01]: should hit around 7.6 to $7.8 billion in revenue and earnings per share of 425 to 475

[00:23:16] [SPEAKER_01]: to close out the year.

[00:23:17] [SPEAKER_01]: I believe before they started cutting guidance, this is right off the top of my head.

[00:23:22] [SPEAKER_01]: I believe their earnings estimates were around nine or it might even been, you know, $10

[00:23:29] [SPEAKER_01]: plus.

[00:23:30] [SPEAKER_01]: So as you can see, I mean, we've gone from $10 plus, uh, a share down to 475 on the upper

[00:23:37] [SPEAKER_01]: end of things.

[00:23:38] [SPEAKER_01]: So obviously it's, uh, it's been hit pretty hard.

[00:23:42] [SPEAKER_01]: They expect year round products to fall by 20 to 22% and seasonal products to be down

[00:23:47] [SPEAKER_01]: 30 to 32%.

[00:23:49] [SPEAKER_01]: Inventories are normalizing a bit, uh, at least over the last while.

[00:23:52] [SPEAKER_01]: So over the last year, the company has been dealing with rising dealership inventories,

[00:23:56] [SPEAKER_01]: which are ultimately, you know, killing new product production and just overall sales.

[00:24:01] [SPEAKER_01]: Obviously when dealers are full, they're not going to order overall through the last three

[00:24:05] [SPEAKER_01]: quarters, network inventories, network dealer inventories have fallen by 10%.

[00:24:09] [SPEAKER_01]: So they should start to normalize moving forward, uh, through the first nine months of the year,

[00:24:14] [SPEAKER_01]: free cashflow has fallen by over 71%.

[00:24:17] [SPEAKER_01]: And this is also with the company trimming back capital expenditures.

[00:24:20] [SPEAKER_01]: So it's definitely not been pretty.

[00:24:21] [SPEAKER_01]: The company made the decision back in October to sell its Marine business in order to double

[00:24:28] [SPEAKER_01]: down on its power sports segment.

[00:24:30] [SPEAKER_01]: So although they expect it to have around a $225 million hit to revenue in this year, they

[00:24:36] [SPEAKER_01]: expect it to pretty much, you know, see immediate improvements to EBITDA earnings and free cashflow

[00:24:42] [SPEAKER_01]: as power sports are generally the higher margin business.

[00:24:46] [SPEAKER_01]: Again, the results really aren't all that surprising.

[00:24:49] [SPEAKER_01]: There's really nothing the company can do about the current environment.

[00:24:52] [SPEAKER_01]: I wouldn't say it's any knock on, on BRP.

[00:24:55] [SPEAKER_01]: It's just like people just aren't buying wreck vehicles now, especially like they were,

[00:24:59] [SPEAKER_01]: you know, in during the pandemic and the company's going to need to rely on policymakers to, uh,

[00:25:06] [SPEAKER_01]: reduce interest rates and, and just try to get North Americans spending money again.

[00:25:10] [SPEAKER_01]: I mean, I would expect the company is going to be allocating quite a bit of free cashflow

[00:25:14] [SPEAKER_01]: it generates right now to share buybacks.

[00:25:16] [SPEAKER_01]: I hope so.

[00:25:17] [SPEAKER_02]: Yeah.

[00:25:17] [SPEAKER_02]: I mean, that was my biggest criticism when I put it on my, for as a stock on my radar was

[00:25:23] [SPEAKER_02]: that I, you know, I, I was scratching my head as to why they were buying back so many

[00:25:29] [SPEAKER_02]: shares when things were like, just, you know, sales were going through the roof because clearly

[00:25:35] [SPEAKER_02]: they should have known this is a cyclical business.

[00:25:37] [SPEAKER_02]: It's not going to go on forever.

[00:25:39] [SPEAKER_02]: And there's going to be better opportunities to buy back the stock.

[00:25:43] [SPEAKER_02]: And that's the one criticism I have against them is, you know, probably not the best team

[00:25:48] [SPEAKER_02]: for buying back, uh, shares.

[00:25:51] [SPEAKER_01]: Yeah.

[00:25:52] [SPEAKER_01]: They were buying back.

[00:25:52] [SPEAKER_01]: I mean, the, the way cyclicals work, they're kind of like the reverse in terms of a price

[00:25:58] [SPEAKER_01]: to earnings situation.

[00:25:59] [SPEAKER_01]: Like typically, you know, you kind of want to buy cyclicals.

[00:26:04] [SPEAKER_01]: And obviously this is, this is very generic and is, you know, it's not, you know, don't

[00:26:10] [SPEAKER_01]: just go buy anything you want just cause I'm saying this, but generally cyclicals when they

[00:26:15] [SPEAKER_01]: look expensive, it's often the time to buy them.

[00:26:19] [SPEAKER_01]: So, I mean, you might, well, I'm saying share buybacks and you might look at BRP and you're

[00:26:22] [SPEAKER_01]: like, Oh, they're trading at nearly 30 X earnings.

[00:26:24] [SPEAKER_01]: Why are they buying back shares?

[00:26:26] [SPEAKER_01]: But I mean, with cyclical stocks, the theory has always been you buy when P's are high and

[00:26:31] [SPEAKER_01]: you sell when P's are low.

[00:26:33] [SPEAKER_01]: So a high P and a cyclical stocks typically occurs at the bottom of an economic cycle where

[00:26:39] [SPEAKER_01]: a high P typically occurs at the top.

[00:26:41] [SPEAKER_01]: So that's why you look at BRP during like 2021, 2022 is trading at like, you know, I believe

[00:26:47] [SPEAKER_01]: it was like eight times earnings or something like that.

[00:26:49] [SPEAKER_01]: So yeah.

[00:26:50] [SPEAKER_02]: If you look, yeah, it was, if you look at like, you know, the COVID, let's just

[00:26:54] [SPEAKER_02]: say the three years after kind of COVID starting like in 20, mid 2021, it traded like between

[00:27:03] [SPEAKER_02]: like 11, 12 and like six price to earn on the trailing basis.

[00:27:08] [SPEAKER_02]: So that compared to 24 that it's trading right now.

[00:27:12] [SPEAKER_01]: Yeah.

[00:27:12] [SPEAKER_01]: And obviously, you know, that is when the cycle would have been, you know, at the top.

[00:27:18] [SPEAKER_01]: And then as P's rise, you know, that typically kind of indicates, again, it's never, it's

[00:27:23] [SPEAKER_01]: never a guarantee, but that does typically, you know, indicate somewhat of a bottom.

[00:27:28] [SPEAKER_01]: I mean, overall to me, it's, it's a high quality company that's going through a bit

[00:27:32] [SPEAKER_01]: of a tough situation right now with the economy, but I'm going to hold it long-term.

[00:27:37] [SPEAKER_02]: Yeah.

[00:27:37] [SPEAKER_02]: Overall, I think it's a really good company.

[00:27:39] [SPEAKER_02]: As long as you know what you're getting into, you're getting into a cyclical company.

[00:27:44] [SPEAKER_02]: It's the kind of company where I am a more buy and hold typically.

[00:27:48] [SPEAKER_02]: Although I will sell stuff strategically from time to time, as people know, we've been listening

[00:27:53] [SPEAKER_02]: for a while or join TCI subscribers.

[00:27:56] [SPEAKER_02]: And this is one that I would probably like be flexible on the holding period.

[00:28:02] [SPEAKER_02]: I'll just say that.

[00:28:03] [SPEAKER_02]: But again, I think it can make sense, especially if you think the economy is going to pick

[00:28:07] [SPEAKER_02]: back up.

[00:28:08] [SPEAKER_02]: But in all reality, and I don't know if you agree with me on this and let me know if you

[00:28:12] [SPEAKER_02]: own, but I think it's probably going to be a rough year or two before things start picking

[00:28:18] [SPEAKER_02]: back up again.

[00:28:19] [SPEAKER_02]: So just, you know, just know that.

[00:28:22] [SPEAKER_02]: And again, it's the kind of company that you want to buy when things are not looking great

[00:28:27] [SPEAKER_02]: because overall they're in good financial situation.

[00:28:30] [SPEAKER_02]: They can weather the storm and these type of companies, you want to be buying them when

[00:28:35] [SPEAKER_02]: they look expensive, when the economic cycle is rolling over.

[00:28:39] [SPEAKER_02]: But you just want to make sure it's a good company because it has to be able to survive

[00:28:43] [SPEAKER_02]: that rough patch, right?

[00:28:45] [SPEAKER_02]: And I think that's where a lot of people get in trouble buying like value stocks or things

[00:28:50] [SPEAKER_02]: like on the low when it's, you know, on a rough patch, but they don't realize that the company

[00:28:56] [SPEAKER_02]: may not get out of that rough patch.

[00:28:59] [SPEAKER_01]: Yep, exactly.

[00:29:00] [SPEAKER_01]: Well said.

[00:29:01] [SPEAKER_01]: I mean, it's yeah, well said.

[00:29:05] [SPEAKER_02]: Okay, so I guess we'll end it on that for BRP.

[00:29:09] [SPEAKER_02]: So we'll move on with Lululemon.

[00:29:11] [SPEAKER_02]: So it is full disclosure.

[00:29:13] [SPEAKER_02]: It is a company I hold.

[00:29:15] [SPEAKER_02]: I did recently trim a little bit before the recent earnings and then a little bit after

[00:29:21] [SPEAKER_02]: the pop, the stock increased by like 15% on the day of the earnings release.

[00:29:26] [SPEAKER_02]: I haven't looked at it right recently.

[00:29:29] [SPEAKER_02]: I don't know if it's kind of around that same range because it's been a couple weeks now.

[00:29:34] [SPEAKER_02]: It's 390.

[00:29:34] [SPEAKER_02]: Yeah, I think it's pulled back a little bit.

[00:29:37] [SPEAKER_02]: So I guess I made a good move.

[00:29:40] [SPEAKER_01]: Genius.

[00:29:41] [SPEAKER_02]: Now, yeah, the main reason is like I've talked before.

[00:29:45] [SPEAKER_02]: It's not because I don't like the company and there are some issues that I will highlight

[00:29:48] [SPEAKER_02]: here.

[00:29:49] [SPEAKER_02]: It's just because I am kind of trimming my equity exposure.

[00:29:53] [SPEAKER_02]: You know, like I've been pretty upfront about that.

[00:29:56] [SPEAKER_02]: I want to build a 15 to 20% kind of cash cushion in my investment in US Treasury bills.

[00:30:03] [SPEAKER_02]: So Lululemon was one of the companies that I trimmed back.

[00:30:06] [SPEAKER_02]: So revenues increased 9% to 2.4 billion.

[00:30:09] [SPEAKER_02]: US revenues were actually flat year over year for the second quarter in a row.

[00:30:13] [SPEAKER_02]: And I'll touch more on that in a second.

[00:30:15] [SPEAKER_02]: Canada revenues was up 9% and revenues outside of North America were up 33%.

[00:30:21] [SPEAKER_02]: Now, the good news is that, well, good and bad news.

[00:30:25] [SPEAKER_02]: So the US represents 60% of their sale.

[00:30:28] [SPEAKER_02]: They did say on the call that this was their expectation.

[00:30:30] [SPEAKER_02]: And it's true.

[00:30:32] [SPEAKER_02]: The previous quarter, they had mentioned the same thing and that they are on track to provide

[00:30:36] [SPEAKER_02]: new options that they think will resonate with US consumer in Q1 of next year.

[00:30:41] [SPEAKER_02]: So they have a plan in place.

[00:30:43] [SPEAKER_02]: They realized that their offering was not resonating with consumers, whether it's the actual kind

[00:30:48] [SPEAKER_02]: of clothing pieces that they had or the colors.

[00:30:53] [SPEAKER_02]: I think it was a mix of both.

[00:30:55] [SPEAKER_02]: Clearly, the positive here is I guess Canada is doing well, but outside of the US is growing

[00:31:01] [SPEAKER_02]: very quickly.

[00:31:02] [SPEAKER_02]: But again, the US, you're banking on them turning things around in the US because you're looking

[00:31:10] [SPEAKER_02]: at close to two thirds of their sales.

[00:31:12] [SPEAKER_02]: So if they don't, it's going to like I don't care how fast they're growing outside the US.

[00:31:16] [SPEAKER_02]: It's going to be a drag on the business.

[00:31:18] [SPEAKER_02]: And the other wild card here for them is potentially US terrorists as most of their clothes are produced

[00:31:24] [SPEAKER_02]: outside the US.

[00:31:25] [SPEAKER_02]: So who knows?

[00:31:27] [SPEAKER_02]: Again, we don't know what will happen with US terrorists, but most of their clothes are

[00:31:31] [SPEAKER_02]: produced outside.

[00:31:32] [SPEAKER_02]: So they could be subject to some kind of tariffs depending on what happens with where they manufacture

[00:31:40] [SPEAKER_02]: their clothes, mostly in Asia.

[00:31:42] [SPEAKER_02]: Comparable sales were up 4%.

[00:31:44] [SPEAKER_02]: On the bright side, both of their gross margin, operating margins were very good during the

[00:31:49] [SPEAKER_02]: quarter.

[00:31:50] [SPEAKER_02]: Gross margins were up 150 basis points and operating margins were up 520 basis points.

[00:31:56] [SPEAKER_02]: That one was up to 20.5% and 58.5 for the gross margins.

[00:32:01] [SPEAKER_02]: So Lululemon keeps, you know, having some of the best margins in the clothing or fashion

[00:32:06] [SPEAKER_02]: industry.

[00:32:07] [SPEAKER_02]: It's been like that for a while.

[00:32:09] [SPEAKER_02]: EPS was up 46% to $2.87.

[00:32:12] [SPEAKER_02]: Net income was up 41% to $352 million.

[00:32:16] [SPEAKER_02]: What really helped the stock was the company increasing its sales guidance a little bit for

[00:32:23] [SPEAKER_02]: the year.

[00:32:23] [SPEAKER_02]: So they increased the bottom end and the top end of their range.

[00:32:26] [SPEAKER_02]: Small increase.

[00:32:27] [SPEAKER_02]: But the fact that they're increasing it so late into the year, I think it's something

[00:32:31] [SPEAKER_02]: that investors like.

[00:32:32] [SPEAKER_02]: They also announced a $1 billion increase in their stock buyback program.

[00:32:37] [SPEAKER_02]: And during the quarter, they bought back $408 million worth of stock.

[00:32:41] [SPEAKER_02]: People probably noticed that's because there's a, that's why there's a difference between

[00:32:45] [SPEAKER_02]: the earnings per share and also the net income increase, right?

[00:32:48] [SPEAKER_02]: So the earnings per share is greater because there's less shares than there was, you know,

[00:32:53] [SPEAKER_02]: at the same day last year.

[00:32:54] [SPEAKER_02]: So overall, I think, you know, a good quarter from Lululemon.

[00:32:59] [SPEAKER_02]: I think there was maybe some people that were overly pessimistic on the stock.

[00:33:04] [SPEAKER_02]: I mean, I still like the company.

[00:33:06] [SPEAKER_02]: But again, take that with a grain of salt because first I do own it, but I also trim my

[00:33:12] [SPEAKER_02]: exposure a little bit.

[00:33:13] [SPEAKER_02]: But so I think I'm being a bit cautious because the US, even though they're saying it's going

[00:33:17] [SPEAKER_02]: to pick back up, it is a spot of concern for me.

[00:33:21] [SPEAKER_01]: Yeah.

[00:33:21] [SPEAKER_01]: I mean, for, for retailers, I find like the pessimism is especially fashion retailers is

[00:33:27] [SPEAKER_01]: probably one of the highest.

[00:33:29] [SPEAKER_01]: I mean, when they struggle, it's not only they're struggling, it's the brand is falling

[00:33:33] [SPEAKER_01]: out.

[00:33:33] [SPEAKER_01]: The, I mean, Nike's going through this right now.

[00:33:36] [SPEAKER_01]: Um, Aritzia went through it in, you know, 2022.

[00:33:40] [SPEAKER_01]: I mean, I do end up comparing Lululemon and Aritzia together like a lot.

[00:33:45] [SPEAKER_01]: And it's kind of interesting to see the two different dynamics.

[00:33:48] [SPEAKER_01]: Like Lululemon's kind of struggling in the US, whereas international, they're doing fine.

[00:33:53] [SPEAKER_01]: And then you look at a company like Aritzia, who's like killing it in the US, but Canada,

[00:33:58] [SPEAKER_01]: you know, they're not really budging all that much.

[00:34:00] [SPEAKER_01]: And I would imagine that's just due to, you know, Aritzia being an up and coming company

[00:34:03] [SPEAKER_01]: in the US, whereas Lulu is a much more established.

[00:34:07] [SPEAKER_01]: But I mean, like you said, they're definitely one of the more profitable, you know, efficient,

[00:34:12] [SPEAKER_01]: I guess I would say clothing lines.

[00:34:14] [SPEAKER_01]: I mean, if we look to even something like Aritzia's operating margins, like Lululemon,

[00:34:18] [SPEAKER_01]: I believe almost triples Aritzia.

[00:34:21] [SPEAKER_01]: I think Aritzia is like 7% and Nike, I mean, 11 and a half and, you know, Lulu's what 20 plus.

[00:34:28] [SPEAKER_01]: So, uh, you know, I think they're going to, you know, I think they're going to be fine.

[00:34:33] [SPEAKER_01]: It's just, I mean, it's a pretty tough environment for, for all of these companies right now.

[00:34:38] [SPEAKER_02]: Yeah.

[00:34:38] [SPEAKER_02]: Again.

[00:34:39] [SPEAKER_02]: And then you have the tariff threat, right?

[00:34:41] [SPEAKER_02]: Yeah.

[00:34:41] [SPEAKER_02]: That like, who knows what the hell would happen there?

[00:34:43] [SPEAKER_02]: So it is just, it's uncertainty.

[00:34:45] [SPEAKER_02]: Like, I, I don't know what the answer is there.

[00:34:48] [SPEAKER_02]: Neither does Dan, neither does anyone, you know, Trump is notoriously unpredictable.

[00:34:54] [SPEAKER_02]: So, um, we'll have to see what happens, but it could definitely impact them in some way.

[00:35:00] [SPEAKER_02]: And to be honest, any clothing retailer or manufacturer that does a lot of business in the U S which is a lot of companies,

[00:35:08] [SPEAKER_02]: depending where they're manufacturing their equipment, their clothes, whatever it is, you know, that's a wild card.

[00:35:13] [SPEAKER_02]: You just don't know what kind of tariffs could be imposed, if they will be imposed.

[00:35:18] [SPEAKER_02]: So yeah, it's just, uh, 2025 is going to be very interesting and just keep that in mind.

[00:35:24] [SPEAKER_02]: I think it's really important for people to just keep that in mind because as good as a company may look, you know, the reality is 25, 2025.

[00:35:33] [SPEAKER_02]: And the next four years, we'll probably have a lot of uncertainty and it's going to be more difficult to try and project out in the future.

[00:35:40] [SPEAKER_01]: Yep. Yeah. I mean, especially, you know, politically, uh, this is a bit, you know, off topic from retailers, but we've seen Trump, you know,

[00:35:48] [SPEAKER_01]: I believe it was yesterday mentioned something about like cutting out the middleman in terms of drug prices and it just tanked the, the pharma companies.

[00:35:56] [SPEAKER_01]: The pharma stock.

[00:35:57] [SPEAKER_01]: Yeah.

[00:35:57] [SPEAKER_01]: Yeah. I mean, it's like, you just never know, right?

[00:35:59] [SPEAKER_01]: This is kind of, you know, risk that you can't exactly diversify away from.

[00:36:05] [SPEAKER_01]: I mean, especially with a guy like Trump who tends to shoot first aim later.

[00:36:10] [SPEAKER_01]: So yeah.

[00:36:11] [SPEAKER_02]: Now we'll, uh, we'll move on here.

[00:36:13] [SPEAKER_02]: So, uh, Costco reporting its earnings.

[00:36:16] [SPEAKER_02]: So you want to go over that for us?

[00:36:18] [SPEAKER_01]: Yeah. So Costco, I mean, it kind of gives you, you know, we look at BRP and see the weakness of the Canadian consumer and then, you know, North American consumer.

[00:36:26] [SPEAKER_01]: And then you look at Costco and see the weakness of the North American consumer, but in like the opposite direction.

[00:36:32] [SPEAKER_02]: Yeah. They benefit from it.

[00:36:34] [SPEAKER_01]: Oh yeah. They're it's crazy.

[00:36:36] [SPEAKER_01]: So earnings per share, they came in at $4.04.

[00:36:39] [SPEAKER_01]: So that those top expectations for $3.78 revenue, 62.15 billion.

[00:36:45] [SPEAKER_01]: They came in ahead of forecast as well.

[00:36:47] [SPEAKER_01]: So same store sales growth, it was 7.2% in the U S 6.7% Canada and 7.1% internationally.

[00:36:54] [SPEAKER_01]: And I mean, these are exceptional.

[00:36:57] [SPEAKER_01]: I would say exceptional same store sales growth rates from a defensive retailer.

[00:37:02] [SPEAKER_01]: Like when we look to a company like Dollarama, they, they've pulled in what I would call years of growth forward.

[00:37:07] [SPEAKER_01]: Like they pulled in a ton of revenue that they would have expected to earn over the longterm just because of, you know, the shift in the Canadian consumer.

[00:37:15] [SPEAKER_01]: And now they're kind of seeing, you know, last year Dollarama was high same store sales growth, but now they're finding it difficult to keep up with that.

[00:37:24] [SPEAKER_01]: And they're reporting, you know, three to 4% range Costco.

[00:37:26] [SPEAKER_01]: I mean, despite the crazy results over the last while, they're still able to put up high single digit same store sales growth.

[00:37:34] [SPEAKER_01]: And I mean, they're doing this on, you know, the back of new membership fees and, you know, new members overall.

[00:37:41] [SPEAKER_01]: And just, you know, we see membership fees grow by 7.7% year over year.

[00:37:45] [SPEAKER_01]: So they did raise the membership.

[00:37:47] [SPEAKER_01]: So this would not only be new member additions, but this would also be a new membership fees.

[00:37:52] [SPEAKER_01]: Household card members.

[00:37:54] [SPEAKER_01]: They came for, they came in at 61.4 million.

[00:37:58] [SPEAKER_01]: So that's a 30% increase.

[00:38:00] [SPEAKER_01]: Since I actually forgot to write this down.

[00:38:03] [SPEAKER_01]: I believe that's over 2020.

[00:38:04] [SPEAKER_01]: It's you'll probably be able to find it here as I continue talking, but the total household card members,

[00:38:09] [SPEAKER_01]: I believe they've won from 47.4 million to 61.4 million.

[00:38:13] [SPEAKER_01]: So a 6.3 compound annual growth rate.

[00:38:15] [SPEAKER_01]: And I believe that is since 2020, which is, you know, pretty solid growth.

[00:38:21] [SPEAKER_02]: Yeah.

[00:38:21] [SPEAKER_02]: 61.4.

[00:38:23] [SPEAKER_02]: Yeah.

[00:38:23] [SPEAKER_02]: Yeah.

[00:38:23] [SPEAKER_02]: I mean, so yeah, since 2012, so I'm just kind of going on a year basis.

[00:38:29] [SPEAKER_02]: So they're growing that member base by 6% annually, which is, is pretty amazing.

[00:38:35] [SPEAKER_02]: I mean, in the last, what, like slightly more than 10 years since 2012, they've doubled that number.

[00:38:42] [SPEAKER_01]: Yep.

[00:38:43] [SPEAKER_01]: And I mean, especially when you think of the fact that the, the membership fees, at least

[00:38:46] [SPEAKER_01]: the fees themselves are just pretty much pure profit for the company.

[00:38:50] [SPEAKER_01]: I mean, the more people they can get in, the more people they can sign up for memberships,

[00:38:54] [SPEAKER_01]: especially at their renewal rate, like the renewal rate comes in, you know, it typically

[00:38:57] [SPEAKER_01]: comes in anywhere from 92 to 93%.

[00:39:00] [SPEAKER_01]: And this is even with newer store openings, dragging results down.

[00:39:03] [SPEAKER_01]: So typically when they open a new store, they get a bunch of people coming in.

[00:39:08] [SPEAKER_01]: Renewal rates generally start, you know, lower and then they trickle upwards and they usually

[00:39:13] [SPEAKER_01]: settle into a situation where, you know, almost 19 out of 20 people are renewing their membership

[00:39:20] [SPEAKER_01]: every single year, which is, it's crazy.

[00:39:23] [SPEAKER_02]: Yeah.

[00:39:24] [SPEAKER_02]: It's always above like, I think it's always in the like low nineties, right?

[00:39:28] [SPEAKER_02]: Overall, like nine, around 90 to 92, which is fantastic.

[00:39:32] [SPEAKER_01]: I mean the difficulty now, so the company grew earnings there.

[00:39:37] [SPEAKER_01]: They've effectively grown earnings by double digits, revenue by double digits, e-commerce

[00:39:41] [SPEAKER_01]: sales continue to grow.

[00:39:42] [SPEAKER_01]: But I mean, the difficulty with me, and I'm not really somebody that fusses too much about

[00:39:48] [SPEAKER_01]: valuation, you know, overall, but in 2023, Costco was trading at 34X earnings.

[00:39:54] [SPEAKER_01]: It's now ballooned to 60X earnings.

[00:39:57] [SPEAKER_01]: So this is despite revenue and earnings only growing about 10% a year.

[00:40:02] [SPEAKER_02]: So I didn't realize it was that crazy.

[00:40:05] [SPEAKER_02]: I mean, I'm not surprised the stock has had quite the run.

[00:40:09] [SPEAKER_01]: So yeah, I just, wow.

[00:40:11] [SPEAKER_01]: 60X earnings.

[00:40:12] [SPEAKER_01]: Cause we, we cover this company over at StockTrades quite a bit.

[00:40:16] [SPEAKER_01]: And I mean, I remember even when we first started covering it at 35X, I was like, yeah, it's

[00:40:22] [SPEAKER_01]: a little bit pricey here.

[00:40:23] [SPEAKER_01]: And now it's 60X.

[00:40:25] [SPEAKER_01]: I just.

[00:40:26] [SPEAKER_01]: And even Ford PE is still very high.

[00:40:28] [SPEAKER_01]: So, yeah.

[00:40:29] [SPEAKER_01]: So, I mean, yeah, I don't know.

[00:40:32] [SPEAKER_01]: I don't know what's going to happen.

[00:40:34] [SPEAKER_01]: I, obviously it's, it's pretty hard to tell, but I can't see it maintaining a 68, 60X trailing

[00:40:40] [SPEAKER_01]: price to earnings ratio.

[00:40:41] [SPEAKER_01]: So, I mean, there might be either a bit of a correction or maybe, I mean, it could definitely,

[00:40:46] [SPEAKER_01]: you know, kind of grow into a lower valuation as well with a bit of a flat, flat stock price

[00:40:51] [SPEAKER_01]: over the last while.

[00:40:52] [SPEAKER_01]: But yeah.

[00:40:53] [SPEAKER_02]: At the end of the day, when you buy a company that's expensive, no matter, like it's a fantastic

[00:40:58] [SPEAKER_02]: business, don't get me wrong.

[00:40:59] [SPEAKER_02]: And I, if Costco was cheaper, I would buy it.

[00:41:02] [SPEAKER_02]: And I kick myself sometimes for not buying it, you know, in five series, five, six years

[00:41:07] [SPEAKER_02]: ago.

[00:41:07] [SPEAKER_02]: But when you're paying so much for earnings or free cashflow, you're essentially, you

[00:41:14] [SPEAKER_02]: know, mortgaging a lot of the future growth in terms of your returns to today.

[00:41:20] [SPEAKER_02]: Right.

[00:41:21] [SPEAKER_02]: So you're pricing that a lot in and you're just kind of limiting, you know, regardless

[00:41:27] [SPEAKER_02]: of what the growth is, you're limiting the growth outcomes for your, your returns essentially.

[00:41:33] [SPEAKER_01]: Yeah.

[00:41:33] [SPEAKER_01]: Effectively.

[00:41:34] [SPEAKER_01]: I mean, the higher price you pay today, the lower your future returns, your expected future

[00:41:39] [SPEAKER_01]: returns would be.

[00:41:40] [SPEAKER_01]: Yeah.

[00:41:41] [SPEAKER_01]: This is why, you know, when you buy at market peaks, your forward returns are going to be

[00:41:45] [SPEAKER_01]: less than if you bought during, you know, the bottom of a bear market, obviously.

[00:41:48] [SPEAKER_01]: But, but that's when the FOMO is the strongest.

[00:41:51] [SPEAKER_01]: Yeah.

[00:41:52] [SPEAKER_01]: Yeah.

[00:41:52] [SPEAKER_01]: That's the thing.

[00:41:53] [SPEAKER_01]: Careful.

[00:41:53] [SPEAKER_01]: Yeah.

[00:41:54] [SPEAKER_01]: You see a lot of people buying at market.

[00:41:56] [SPEAKER_01]: You see very, you know, it's pretty bare sentiment at the bottoms, but people love buying the

[00:42:00] [SPEAKER_01]: tops.

[00:42:01] [SPEAKER_02]: Yeah, no, exactly.

[00:42:03] [SPEAKER_02]: I mean, I don't have much to add on Costco.

[00:42:06] [SPEAKER_02]: Was there anything else for you or?

[00:42:07] [SPEAKER_01]: No.

[00:42:08] [SPEAKER_01]: I mean, that's, it's a pretty easy company to go over as well.

[00:42:12] [SPEAKER_01]: I mean, it's just benefiting massively from, you know, a poor consumer rising grocery prices

[00:42:17] [SPEAKER_01]: in particular.

[00:42:18] [SPEAKER_02]: Yeah.

[00:42:18] [SPEAKER_02]: And we'll switch to, I guess, the last company here.

[00:42:22] [SPEAKER_02]: And one that I've been saying for a while that we would talk about.

[00:42:26] [SPEAKER_02]: And, you know, we're doing it in 2024.

[00:42:28] [SPEAKER_02]: So that's good.

[00:42:29] [SPEAKER_02]: So Canadian Tire, their latest earnings.

[00:42:32] [SPEAKER_02]: So I'll start off with what the CEO, Greg Hicks, had to say.

[00:42:35] [SPEAKER_02]: He had some interesting remarks on the call.

[00:42:38] [SPEAKER_02]: I do encourage people to listen to it if they're interested.

[00:42:40] [SPEAKER_02]: But here's a summary of what I thought was really interesting.

[00:42:43] [SPEAKER_02]: So the Canadian consumer is grappling with constrained spending power due to economic pressures like the cost of living, unemployment, alongside with historically low consumer sentiment.

[00:42:55] [SPEAKER_02]: This sentiment decline spans all income segments with noticeable shift towards value and discount purchasing over the past five quarter, which kind of ties into Costco, right?

[00:43:06] [SPEAKER_02]: And Dollarama, like you were saying.

[00:43:08] [SPEAKER_02]: While these challenges are expected to persist in the near term, particularly with mortgage renewals on the horizon.

[00:43:14] [SPEAKER_02]: However, recent interest rate cuts and the narrowing gap between essential and discretionary spending is in thing at a potentially slow recovery.

[00:43:24] [SPEAKER_02]: But again, they're very it was very vague in that they're saying that they're kind of hopeful.

[00:43:30] [SPEAKER_02]: And these were comments that were before the latest cut from the Bank of Canada.

[00:43:34] [SPEAKER_02]: So be interested to see.

[00:43:36] [SPEAKER_02]: And I know they've been saying specifically that on they see this shift, especially in Ontario, where a lot of consumers are indebted.

[00:43:45] [SPEAKER_02]: Of course, a lot of them is mortgage debt because the home price is really ran up in Ontario.

[00:43:50] [SPEAKER_02]: So I will be interested in what happens.

[00:43:52] [SPEAKER_02]: But Canadian tire is always a good parameter for the Canadian economy because it is available across Canada.

[00:43:58] [SPEAKER_02]: They do have a financial arm as well that I'll discuss in terms of these credit cards that they issue.

[00:44:03] [SPEAKER_02]: I think they're branded MasterCard, but I'm not quite sure.

[00:44:08] [SPEAKER_02]: Do you know?

[00:44:08] [SPEAKER_01]: No, I have no idea if they're Visa or MasterCard.

[00:44:11] [SPEAKER_01]: I've never had the need to sign up for one.

[00:44:15] [SPEAKER_02]: I mean, neither have I.

[00:44:17] [SPEAKER_02]: But it's always like, I mean, I feel like I'm being stalked when I go in Canadian tire sometimes with like, you know, the guy, the girl trying to like get you to sign up for a credit card.

[00:44:28] [SPEAKER_02]: So, which is probably a good indicator of the delinquency rate that they're seeing because you're probably not making the most thorough or let's just say it's not the consumers that are the that have the highest credit score.

[00:44:45] [SPEAKER_02]: And, you know, the best, the stable income that a lot of the banks do.

[00:44:48] [SPEAKER_02]: Anyways, so comparable sales were down 1.5% year over year.

[00:44:53] [SPEAKER_02]: Like they said, again, they said that consumer spending was still constrained.

[00:44:57] [SPEAKER_02]: Overall revenues were down 3%.

[00:44:59] [SPEAKER_02]: Every single business line had revenues down.

[00:45:03] [SPEAKER_02]: So Canadian tire was down 4%.

[00:45:05] [SPEAKER_02]: Sport check down 3.5%.

[00:45:07] [SPEAKER_02]: Marks down 2.3%.

[00:45:09] [SPEAKER_02]: Helions and down 5%.

[00:45:11] [SPEAKER_02]: Gas was down 3.4%.

[00:45:14] [SPEAKER_02]: Adjusted EPS was up to $2.96.

[00:45:18] [SPEAKER_02]: And a big reason for that was the cost cutting efforts that they've done over the past year.

[00:45:24] [SPEAKER_02]: They announced that they would be increasing their dividend by 1.4%, which marks the 15th year in a row of such increase.

[00:45:31] [SPEAKER_02]: Gross average accounts receivable, GAR, G-A-A-R, which is the amount that is owed on credit cards, was up 3% year over year and 3.6% year to date.

[00:45:44] [SPEAKER_02]: Net credit card write-off was up 100 basis point to 6.9% year over year and up 20 basis point quarter to quarter.

[00:45:53] [SPEAKER_02]: I can see that you want to add something there.

[00:45:55] [SPEAKER_01]: Well, I just like when we went over the banks last, would it be last week?

[00:46:00] [SPEAKER_01]: What were they like?

[00:46:01] [SPEAKER_01]: 3%?

[00:46:01] [SPEAKER_01]: Yeah.

[00:46:02] [SPEAKER_02]: Yeah, I think.

[00:46:03] [SPEAKER_02]: Yeah.

[00:46:03] [SPEAKER_02]: So, you see the difference.

[00:46:04] [SPEAKER_02]: Yeah.

[00:46:05] [SPEAKER_02]: Yeah, for sure.

[00:46:06] [SPEAKER_02]: I mean, to be fair, I think the one that comes to mind was CIBC, right?

[00:46:10] [SPEAKER_02]: So, CIBC had like a, I think a pretty sharp increase.

[00:46:14] [SPEAKER_02]: I'm just going on memory here, like maybe 90 basis points.

[00:46:17] [SPEAKER_02]: But again, it was either like high threes or low fours, including the increase.

[00:46:21] [SPEAKER_02]: So, you kind of see the difference in consumer base and probably credit worthiness of the different consumers that they have for their credit card versus some of the big banks.

[00:46:32] [SPEAKER_02]: And I think that's always important to remember because you can see a big difference in terms of these write-offs when you start looking at different financial institutions.

[00:46:42] [SPEAKER_01]: Yep, for sure.

[00:46:43] [SPEAKER_01]: And I mean, when you think about it, as you mentioned, you know, you kind of get badgered to sign up for these cards when you go into the store.

[00:46:50] [SPEAKER_01]: Whereas, you know, people generally getting them from the banks are, I mean, I get probably 10 credit card pieces of mail a month.

[00:46:59] [SPEAKER_01]: New cards, like they're huge.

[00:47:01] [SPEAKER_01]: Really?

[00:47:01] [SPEAKER_01]: Oh, yeah.

[00:47:02] [SPEAKER_01]: New cards, sign up for this, upgrade this, like free fees for a year on this particular card.

[00:47:08] [SPEAKER_01]: I mean, it's crazy the aggressive marketing they do for these credit cards.

[00:47:13] [SPEAKER_01]: But I mean, obviously, you know, a near 7% write-off, that's a pretty high charge-off rate.

[00:47:19] [SPEAKER_01]: I remember when we first started talking about this and kind of mentioning, you know, like you should keep an eye on this.

[00:47:25] [SPEAKER_01]: I believe it was like 3%.

[00:47:27] [SPEAKER_01]: That was probably like a year or so ago?

[00:47:29] [SPEAKER_02]: No, I think it was like 5% maybe.

[00:47:32] [SPEAKER_02]: Yeah, it's definitely gone up.

[00:47:34] [SPEAKER_02]: I think it could have been the delinquency rate of like 30, 60, 90 days.

[00:47:40] [SPEAKER_02]: I don't think it was that high, but it was definitely much lower.

[00:47:43] [SPEAKER_02]: We'd have to look back.

[00:47:44] [SPEAKER_02]: Yeah.

[00:47:45] [SPEAKER_02]: But, of course, the trend here is that it's going up.

[00:47:48] [SPEAKER_02]: It kind of aligns with some of, you know, the like go-easies.

[00:47:52] [SPEAKER_02]: So, the subprime lenders, obviously, I think they're faring better than that.

[00:47:57] [SPEAKER_02]: Earnings for the financial arm was actually, they were down 12% year over a year, despite revenues being up 1.5%.

[00:48:03] [SPEAKER_02]: So, this is why for financial institution, you know, revenues and earnings often don't go hand in hand, right?

[00:48:12] [SPEAKER_02]: So, I think that's just something I wanted to highlight is, yes, revenues are up.

[00:48:17] [SPEAKER_02]: But, again, they're having more and more costs related to provision for credit losses and write-offs, of course.

[00:48:24] [SPEAKER_02]: So, that's – it was just kind of interesting.

[00:48:27] [SPEAKER_02]: I think, obviously, they're still struggling.

[00:48:28] [SPEAKER_02]: I can't remember how many quarters in a row, but I think it's been like close to a year and a half now that they've seen declining sales.

[00:48:34] [SPEAKER_02]: And, I think from – based on what they said, I think it's unlikely to stop at least in the next couple quarters.

[00:48:42] [SPEAKER_02]: It may kind of flatten out.

[00:48:44] [SPEAKER_02]: But, the recovery, even if you just take the CO by his word is, you know, even if there is a recovery, it'll be a slow recovery.

[00:48:52] [SPEAKER_02]: So, it may take some time.

[00:48:54] [SPEAKER_02]: But, I guess if you own that name, you're probably in large part in it for the dividends.

[00:48:59] [SPEAKER_02]: So, at least that seems to be pretty sustainable.

[00:49:03] [SPEAKER_02]: And, you know, they've made some cuts.

[00:49:05] [SPEAKER_02]: Of course, they laid off some people.

[00:49:07] [SPEAKER_02]: But, they also sold a property too recently that they weren't using for $258 million in Brampton.

[00:49:13] [SPEAKER_02]: So, they're doing kind of the right things in terms of getting the business more efficient.

[00:49:18] [SPEAKER_02]: But, again, it's not going to be a great compounder, in my opinion, at least for the foreseeable future.

[00:49:25] [SPEAKER_01]: Yeah.

[00:49:25] [SPEAKER_01]: I mean, usually these companies will kind of, you know, anticipate how it's going to be moving forward.

[00:49:31] [SPEAKER_01]: And, I mean, with that really small dividend raise, I mean, I think that kind of signals it's probably not going to improve, you know, in the short term.

[00:49:39] [SPEAKER_01]: But, medium to long term, it might be improving.

[00:49:42] [SPEAKER_01]: I mean, it's been a pretty rough.

[00:49:45] [SPEAKER_01]: It's kind of the same situation for something like BRP.

[00:49:48] [SPEAKER_01]: Like, I don't necessarily think it's anything that Canadian Tire is doing.

[00:49:50] [SPEAKER_01]: It's just, it's unavoidable.

[00:49:52] [SPEAKER_01]: You know, the Canadian consumer just isn't really spending all that much money.

[00:49:56] [SPEAKER_01]: And, obviously, these cyclical stocks are, they're going to be cyclical.

[00:50:00] [SPEAKER_02]: Yeah.

[00:50:01] [SPEAKER_02]: And, look, I'm just showing here before we wrap this up is their dividend versus the free cash flow.

[00:50:08] [SPEAKER_02]: So, clearly, you know, the dividend is fine.

[00:50:10] [SPEAKER_02]: I don't think they have any issues there.

[00:50:12] [SPEAKER_02]: They'll be okay to pay the dividend.

[00:50:15] [SPEAKER_02]: I mean, just roughly.

[00:50:16] [SPEAKER_02]: And, obviously, their free cash flow does fluctuate.

[00:50:19] [SPEAKER_02]: I obviously had a big, big peak in 2021 where I'm sure a lot of people were buying outdoor stuff.

[00:50:25] [SPEAKER_02]: But, if you're looking even like the most recent years, at worst, they're paying 50% of their free cash flow.

[00:50:32] [SPEAKER_02]: At best, they're probably paying about 20% depending on the year.

[00:50:35] [SPEAKER_02]: They had one rough year in 2022 where negative free cash flow.

[00:50:39] [SPEAKER_02]: But, overall, I think it's safe to assume even if you take the average that, you know, the dividend is safe for the foreseeable future here.

[00:50:46] [SPEAKER_01]: Yeah.

[00:50:46] [SPEAKER_01]: I mean, they're, I think they're pretty aggressive at buying back shares as well.

[00:50:51] [SPEAKER_01]: So, I would imagine they're going to dedicate, you know, some free cash flow towards that.

[00:50:56] [SPEAKER_01]: I'm seeing three years they bought back around 8% of the shares outstanding.

[00:50:59] [SPEAKER_01]: They haven't made many buybacks over the last while, which is kind of surprising.

[00:51:04] [SPEAKER_01]: You would think they'd take advantage of this, especially because, like you said, they still do generate quite a bit of free cash flow.

[00:51:09] [SPEAKER_01]: But, I would imagine they'll scoop up shares as well, especially with that tiny of a dividend raise.

[00:51:15] [SPEAKER_01]: Yeah.

[00:51:15] [SPEAKER_02]: Although, their stock looking at it has been like, it's not been that low compared to.

[00:51:21] [SPEAKER_02]: Yeah.

[00:51:21] [SPEAKER_02]: I know.

[00:51:22] [SPEAKER_02]: I mean, it's a bit down, but I guess I won't be as harsh as BRP for the share buybacks here.

[00:51:28] [SPEAKER_02]: But, yeah, they definitely have, you know, purchased a lot of shares.

[00:51:32] [SPEAKER_02]: I mean, I was sharing it with our joint TCI viewers here.

[00:51:36] [SPEAKER_02]: So, if you go back to 2015, they had 77 million outstanding shares, roughly, 77.4 million.

[00:51:45] [SPEAKER_02]: And now that 55.6.

[00:51:49] [SPEAKER_02]: So, that's a diet like they've been buying back shares as a compound annual grade of 3.34%, I guess would be the way to say it.

[00:51:58] [SPEAKER_01]: Yeah.

[00:51:58] [SPEAKER_01]: And, I mean, I guess the one thing you'll see, which you'd probably like, is from, you know, during the COVID years, they didn't buy back as many shares as they typically would.

[00:52:07] [SPEAKER_01]: So, when valuations were high, they did kind of slow down, which is kind of what you want to see.

[00:52:12] [SPEAKER_02]: Yeah.

[00:52:12] [SPEAKER_02]: Yeah, exactly.

[00:52:13] [SPEAKER_02]: I mean, at the end of the day, like, I think we were conditioned, or I think a lot of companies just kind of were conditioned to buy back stocks just because, you know, there were no consequences and they were just buying back stocks.

[00:52:27] [SPEAKER_02]: And it seems like a lot of them still haven't learned a lesson because a lot of the bailouts you saw during the COVID pandemic were because these stupid, stupid companies, and I'm sorry, that's what they are.

[00:52:39] [SPEAKER_02]: Like, I'm thinking airlines here.

[00:52:40] [SPEAKER_02]: Instead of putting money aside for a rainy day, especially when you have a very cyclical business, they decided it was a great idea to keep buying back shares.

[00:52:50] [SPEAKER_02]: And then when, you know, a Black Swan event happens, which, by the way, yes, you know, who would have seen the pandemic happen?

[00:52:58] [SPEAKER_02]: That's fair.

[00:52:59] [SPEAKER_02]: But if you look in the grand scheme of things, bad things or Black Swan events end up happening more often than people think.

[00:53:06] [SPEAKER_02]: Like, a single specific Black Swan event may happen every 100 years or so, but you may get, you know, some unexpected event happening way more frequently than people expect.

[00:53:17] [SPEAKER_02]: So, I do, you know, I do have a lot of respect for companies that are more conservative, do keep a bit more cash on the balance sheet to be able to weather that.

[00:53:27] [SPEAKER_02]: But again, what we've seen with governments, whether it's Canada or the U.S. or worldwide, is why would companies actually be more conservative when they know if they're really big that the government will step in and bail them out, right?

[00:53:41] [SPEAKER_02]: It's true.

[00:53:42] [SPEAKER_02]: Why would you be prudent when you know the government is going to come and bail you out?

[00:53:48] [SPEAKER_02]: And at the end of the day, I think it's a pretty big moral hazard that unfortunately has been created.

[00:53:54] [SPEAKER_02]: Whereas, you know, free markets is free markets.

[00:53:57] [SPEAKER_02]: It's if you take too much risk and then, you know, you end up going under because you took too much risk.

[00:54:03] [SPEAKER_02]: And it is what it is.

[00:54:05] [SPEAKER_02]: You know, your competitors will take some market share.

[00:54:07] [SPEAKER_02]: Your business will probably survive.

[00:54:10] [SPEAKER_02]: You'll go through bankruptcy.

[00:54:11] [SPEAKER_02]: It'll come back leaner.

[00:54:12] [SPEAKER_02]: So, there's always this perception that if someone, a company goes bankrupt, that all the jobs are lost.

[00:54:18] [SPEAKER_02]: In reality, that would not be the case.

[00:54:20] [SPEAKER_02]: Sure, there would be some job losses.

[00:54:22] [SPEAKER_02]: But the reality is the assets would be bought by someone that would likely still run the company.

[00:54:29] [SPEAKER_02]: Yes, there might be some job losses.

[00:54:31] [SPEAKER_02]: But at least there wouldn't be this moral hazard that'd be created.

[00:54:34] [SPEAKER_02]: And I think a lot of companies are just now, you know, banking on that.

[00:54:40] [SPEAKER_01]: Yeah.

[00:54:40] [SPEAKER_01]: I mean, another prime example.

[00:54:42] [SPEAKER_01]: This wasn't like necessarily to the point where Suncor was going to go bankrupt.

[00:54:48] [SPEAKER_01]: But, I mean, in 2019 and the start of 2020, they were buying back a ton of shares.

[00:54:53] [SPEAKER_01]: And then, obviously, COVID hit.

[00:54:56] [SPEAKER_01]: And they didn't really have all that much money.

[00:54:58] [SPEAKER_01]: And they had to cut the dividend.

[00:54:59] [SPEAKER_01]: So, it cost them the dividend because, you know, they were buying back a ton of shares.

[00:55:04] [SPEAKER_01]: So, I mean, it can be said, you know, keeping some cash around for an event like that, even though, you know, like you said, how unpredictable it is, is not necessarily a bad thing.

[00:55:14] [SPEAKER_01]: Because it took Suncor a long time for investors to, you know, regain trust in that.

[00:55:21] [SPEAKER_01]: It traded at big discounts to its peers for quite a few years after that.

[00:55:26] [SPEAKER_02]: Yeah.

[00:55:26] [SPEAKER_02]: Well put.

[00:55:27] [SPEAKER_02]: So, I think we'll leave it at that.

[00:55:29] [SPEAKER_02]: It was a great episode.

[00:55:31] [SPEAKER_02]: I hope everyone enjoyed it.

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[00:55:52] [SPEAKER_02]: Word them out.

[00:55:53] [SPEAKER_02]: Works quite well as well.

[00:55:54] [SPEAKER_02]: So, we'll probably say it a few times.

[00:55:57] [SPEAKER_02]: Happy holidays to everyone.

[00:55:58] [SPEAKER_02]: Whatever holiday you celebrate.

[00:56:01] [SPEAKER_02]: Merry Christmas.

[00:56:01] [SPEAKER_02]: Happy New Year.

[00:56:02] [SPEAKER_02]: And we'll see you guys next week.

[00:56:06] [SPEAKER_02]: The Canadian Investor Podcast should not be construed as investment or financial advice.

[00:56:11] [SPEAKER_02]: The hosts and guests featured may own securities or assets discussed on this podcast.

[00:56:17] [SPEAKER_02]: Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.