What Couche-Tard and Lightspeed Are Telling Us About Consumers

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger. Welcome back to The Canadian Investor Podcast. I'm here with Dan Kent. We are back for Thursday news and earnings. Some news, some earnings, a little bit of everything here. We have some Canadian content, some US as well.

[00:00:27] Not as many Canadian companies reporting, but Lightspeed helping us out for some news content for the podcast. I know you love Lightspeed and how management has been doing. So you want to take that away and the fact that they announced that they would be downgrading their guidance. Yeah, Lightspeed, like over the last while, is definitely, they've been hitting the PR a lot recently. This one, you know- He's got a lot of bad. He's good at PR. He's good at talking.

[00:00:57] Yeah, it's- I mean, this one, it's- This is puzzling to me, but I mean, this is like overall just a relatively frustrating stock for me. It's a stock I've kind of owned in and out of since the IPO rebalanced here and there quite a few times.

[00:01:11] But this recent drawdown is looking pretty bad. And it's a stock that I've been, had been looking to move on from since their February quarterly report. But the difficulty is, is I've had my money kind of tied up in moving to Questrade, which is still going on. So I haven't actually been able to sell it. But- To clarify, it's not the issue on the Questrade side, it's the other broker that is creating-

[00:01:37] Yeah, it's the other broker that is creating a bit of a nightmare. But I mean, I do plan to just finally move on from this one once that money hits the account. But again, they came out with a bit of a weird press release yesterday that they downgraded their revenue guidance by 2%. And I say weird because the company just reported earnings, well, early February. So what, six, seven weeks ago.

[00:02:01] And this seems like a relatively small downgrade to come out with and issue a totally separate PR release. And I mean, in addition to this, they have their capital markets day tomorrow. So I mean, typically this is- Yeah, so they do their capital markets day, which is typically where they provide like, you know, how they're going to grow, things like that.

[00:02:24] Like, I don't really think they dive too deep into this. But I mean, like, why release this now? It doesn't really make sense to me. I mean, I'll get to a few reasons as to why I think they're doing this. But he went on BNN, Dax, to talk about it too. So I watched that this morning. Oh, did he? I didn't read it. Yeah, I mean, it just kind of goes over most of the stuff you mentioned and what you'll be talking. But yeah, basically, just the consumer softening in general is the general theme I got.

[00:02:54] Yeah, I mean, I kind of find it difficult to believe you wouldn't have known this back in February. But I mean, they now plan to grow 18% top line growth compared to 20% previously. And yeah, they had mentioned that, you know, the macro environment has deteriorated since February 6th earning reports. And again, I'm not really sure what type of data they would have got from that point that kind of changed their minds. I mean, tariff impacts were relatively well known.

[00:03:23] I mean, Trump was starting to flip flop. He had already started to flip flop on tariffs back then. The tariffs didn't the real threat didn't come into effect until early March. But even then, there was a lot of uncertainty. And like we've talked before, you and I and Brayden too.

[00:03:40] It's not just the fact that tariffs may or may not go on. It's just the uncertainty it creates. So the fact that they wouldn't have figured out that consumers may be tightening up the purse a little bit, especially since the Canadian economy is not like it was doing all that great. For example, I know they have business outside of Canada, but I think Canada is still a pretty good chunk of their revenues and the global economy too.

[00:04:08] Like there was already signs of things slowing. I mean, you can look aside from the Fed. I mean, all the central banks are cutting. Usually central banks don't start cutting when things are going fantastic.

[00:04:19] Fantastic. Yeah, exactly. So I mean, it just I don't know. It's it's weird to me. And I mean, this is speculation by me, but I think it is is definitely warranted to agree. But I to a degree, but I just kind of feel the company is doing this in advance to possibly cushion people a bit from possibly a week capital market day tomorrow or possibly a poor earnings report next quarter.

[00:04:42] Because I mean, obviously, if you release these in two separate PRs, it might not hit as much. I mean, you reduce guidance now and then post a poor quarter a couple months from now. It might have a little bit less of an impact. I find sometimes like it's almost like children, this company, like some of the stuff they do, like the whole thing, like, oh, we really would like to sell the business. And then that was their big thing.

[00:05:05] But again, they then they came out that wasn't really working out. And then I know you'll you're going to mention that once they said, well, we didn't really get we had interest. But read between the lines, the either they didn't get really any offers or the offers were really not great. So it's pretty much one or the other. Then they decided that we will authorize a stock buyback program, even though we're losing money.

[00:05:30] Yeah. Yeah. It's just like I I normally would never question anything like this. But I mean, like Lightspeed has been just nonstop trying to pretty much control its stock price through press releases like the public public sale. The stock spiked on that. And then we have like Dax left the company and then he was replaced.

[00:05:55] And then he came back really quickly after a pretty short stint away, which kind of helped the stock price a bit. And then again, you have the public sale and then you have that awkward share buyback, you know, when the company isn't even profitable, except for on an adjusted EBITDA basis, which I mean, is effectively it's adjusted. You can kind of turn that into whatever you want to to highlight profitability.

[00:06:17] But I just think like I just think they're like continually putting out these PR reports and just news like this to kind of control the stock price instead of, you know, just operationally. Yeah. If I adjust the lighting perfectly for my camera, it may look like I have more hair than I do. But the reality is I don't. So that's that's how I adjusted metrics.

[00:06:41] Yeah, I mean, I think like I really like Lightspeed, but I mean, I think it's just a company that's been pretty much decimated by just terrible decisions by management, including if you go back to the COVID-19 pandemic. I mean, at the time, I didn't view them as overly expensive, but it was pretty clear they blew a lot of money on some acquisitions at some very expensive multiples that are kind of hurting them now, too.

[00:07:07] But I mean, pretty sad state for this company who was pretty promising post IPO. Yeah, I've I've railed a lot on Dax for over the years. So obviously take what I'm going to say with a grain of salt. But I get the feeling that Dax is is good at having a vision, but I feel like he needs to have someone there that is more of someone that has a track record of running a business.

[00:07:36] I feel like that's the part that they're really missing. And even someone who has experience in PR, for example, and say, OK, Dax, it's probably not a good idea for you to come out right now, too. You're getting companies left, right and center revising their guidance. FedEx, which I'll talk about a bit later today. I mean, they've revised their guidance literally three quarters in a row down. Yeah.

[00:08:01] So it's not like it's a obviously the market doesn't love seeing guidance being revised down, but you're seeing it in a lot of different companies. So, yes, your stock will probably take a hit, but I'm not sure like like you, it's just a bit of a head scratcher. Hopefully there is a valid reason behind it. But if not, why not wait until your earnings release when at least you also have a clearer picture?

[00:08:28] You're you're getting an extra what six weeks worth of data is probably when they'll be reporting from now. So why not wait an extra six week? Give yourself a bit more leeway because what if something changes and it's even worse than that reduction that they just announced? Or maybe something changes to the positive and in the end, well, you know what actually looks better than we thought six weeks ago? Yeah, and I think that that is why my speculation here is that it is.

[00:08:57] And again, this is speculation, but I mean, it's better to maybe report a reduction in guidance now and a soft quarter in a couple of months rather than both of them at once. Maybe that's the mentality here, but I mean, it's just kind of a weird PR here released in, you know, just a random time when there's again tomorrow they're having an entire event. So, yeah, it's strange. Yeah, I'm of the mind that I like when companies just do it all at once.

[00:09:25] Yeah, it's just the way because I mean, we saw TFI. We talked about it, TFI International. They basically just ripped off the bandaid all at once. The stock took a hit, but granted, the stock was at a much higher level in terms of pricing and, you know, it had not had any significant drawdowns. I think it was slightly going down. So you have to take that in mind, too. But I think that's the approach I prefer. It'll be interesting.

[00:09:52] I'm sure at this point we'll get some more news on it in the next few weeks. And if not, we'll see when they release their earnings. I'm sure we won't miss it. But yeah, I mean, that's like you said with TFI, like that's the approach that like 95% of companies take. This is definitely like some of them will come out and issue, you know, reductions or increases in guidance like, you know, outside of regular events, but not very many. Mm-hmm.

[00:10:19] Now, we'll switch gears to a company that is unanimously loved by everyone, Tesla. And obviously, I'm being a little bit sarcastic here. And so I know you have an interesting segment on Tesla getting hammered in Europe. Yeah. So this was something we didn't originally have, but they came up with an article this morning that I kind of thought would be interesting to talk about. But it came out and pretty much said that Tesla's sales have fallen 42% year over year in Europe.

[00:10:49] So the company had sold 27,000 vehicles down from 46,000 last year. So these numbers, I believe, are January and February. So just the first two months, I believe that decline would also be January and February compared to last year. So first couple months of the year compared to last year. So this actually comes despite EV sales in Europe rising by 28.4% over that time period. So EVs now account for 15% of the total EU market.

[00:11:19] And Tesla, I mean, by the looks of it, certainly isn't participating here. I mean, many EU car companies like Volkswagen is one I can think of reported actually an increase in EV sales over the same time period. And I mean, right now, the situation with Tesla is pretty crazy. I mean, I believe Musk's involvement in Doge is certainly, you know, is sparking a lot of protests. People are associating him a lot with Trump.

[00:11:44] Trump is obviously not being very friendly to, you know, some nations. And a lot of people are just kind of opting out for maybe alternative vehicles. And I mean, it's even getting to the point where I personally would be scared owning a Tesla out of fears of it being vandalized. I mean, we saw that dealership in Hamilton. They went and didn't they like they destroyed like 80 vehicles or something on a dealership lot, 80 Teslas. I believe that was last week. Yeah.

[00:12:12] There's been a lot of, you know, a lot of situations of like vandalism of these vehicles and stuff. And they had JP Morgan. That's too bad. Like just. Yeah, I know. I mean, whatever your feelings are about Elon Musk, which he's a very polarizing figure, totally get it. For me, sometimes I just can't stand him. And sometimes I find, you know, he has some good things to say. So I find I try to pick out the good from the bad for Elon Musk. That's the way I approach it.

[00:12:42] But whatever people's or their view, I mean, it's fine to protest. But then when you start like vandalizing, I think that's crossing the line. I think it's just kind of sad to see to what extent it's gone. You know, a lot of people having these Teslas may not even agree, may not like Elon themselves just based on what he's done over the last six months to a year. So you have to keep that in mind. It's just it's too bad kind of where it's gone at this point. That's just my personal view on it.

[00:13:11] Yeah, it's kind of a sad situation, especially from like personal a personal standpoint. I mean, obviously, the vandalism of anything is not really all that good. But you can understand, I guess, the dealership perspective of it. But I've seen some situations where like people who own these things are they're getting, you know, vandalized in parking lots or something. Yeah, like it's it is pretty sad.

[00:13:35] Analysts look like I was reading some JP Morgan analysts say that this is the quickest brand follow they've ever witnessed in the automobile industry. Like they can't guarantee that it's a full out brand follow. But they said, you know, if this continues, it'll pretty much be the quickest they've ever witnessed. And I mean, stock price, it's getting obviously you have a chart here of the stock price. It's just getting hammered. I mean, at one point, Tesla was down over 50 percent on the year. So it's rebounded a bit here. You can see it's now down 42 percent.

[00:14:04] So a bit of a rebound, especially I believe, you know, a lot of this was on the commentary on tariffs and stuff, how it's relatively just, you know, up in the air as to what he's going to do. He says he's going to provide some relief to a lot of countries. And it's also like pretty up in the air and like how long term, I guess you're going to see that the brand been damaged because of, you know, must involvement here, because I do believe that that's why a lot of this is happening. I believe that's why the sales are falling. I wouldn't doubt you see them fall in Canada as well.

[00:14:32] And I mean, if you look at Tesla's share price over the last three, four years, it's effectively been dead money. I mean, I believe it's up like 10 percent or something over the last three, four years. But I mean, could I have a look here? It definitely it has not been flat price action. I mean, it's oh, it's actually a roller coaster ride. Last three years, it's down 17 percent.

[00:14:56] But it was, you know, you could have depending when you would have bought, you could have easily doubled your money. Yeah. Yeah. Like if you go from January, January to May 2021, it lost 37 percent from November 2021 to January. 2023, it lost 72 percent from July 2023 to August 2024. It lost 50 percent, nearly 50 percent.

[00:15:23] And now, again, it's trading down, you know, 42 percent from December all time highs. So we're sitting at mid-March and it's down that much since December all time highs. So what crazy price action on this thing over the last, you know, three to five years. I what a roller coaster ride owning this thing. Yeah. I mean, I think you're right in terms or that JP Morgan analyst that you said.

[00:15:47] And I think it's right because it used to be early, maybe like 2019, 2020, 2021. It used to be that owning a Tesla was almost like a status symbol, right? Like a lot of people, it was, wow, you have a Tesla and so on. And now it's almost like fully reversed that. A lot of people are putting their Teslas up for sale. I've seen stickers of people saying they bought it before Elon went crazy.

[00:16:16] Like I've seen all these different kind of things that happen. And clearly, I think what happens for good or bad, people associate Tesla with Elon. That's just when you're that out there as the CEO of the company, you're that outspoken. He was polarizing to begin with, even before he joined the Trump administration with the Doge Department of Government Efficiency.

[00:16:43] And I think that just supercharged a polarization behind Tesla and Elon Musk. I think, yeah, that's probably the way I would see it. At the end of the day, I've said it time and time again, I probably would not bet against Elon Musk, but it's definitely a tougher time for the company. That's for sure. Yeah, that's pretty much why I've never owned it is primarily because of him. I'm out. I wouldn't, I wouldn't necessarily bet against him, I guess, but he's just a bit too, uh,

[00:17:13] I don't even know the right word for it. But I mean, you can see obviously in the stock price over the last while and especially now, like that's one of the main reasons. Well, obviously there's some economic difficulties. Like people aren't buying as much Teslas as they are during, you know, the, the stimulus COVID situation. I mean, it's obviously much harder financially, but I think there's a, uh, a CEO impact here as well, which I mean, who knows how long that's going to take to recover from if it ever does. Hmm. Yeah. I don't know.

[00:17:42] It'll be interesting to see. Okay. Now we'll actually go on to some earnings and we'll start off with some Canadian earnings here with Alimentation Cousteau. So there was some good and bad here. Not the best result in my opinion, but it's still beat estimates. And at the end of the day, it's all about expectations. Revenues were up 6.5% to 21 billion. Europe was the most impressive segment, but it's a bit misleading because, uh, that big

[00:18:11] jump in Europe was in part attributed last to the purchase early last year of Total Energy's retail asset or some of the retail asset during the quarter. And they only benefited partially from those additional stores last year while they had the full impact this quarter. So obviously it definitely helped the results there. However, same store sales in Europe were actually still a little up. So they were up 0.1%.

[00:18:38] Probably not that great when you factor in inflation though, when you think about it, right? Europe is, um, I haven't checked inflation recently, but I think it's still probably in line with what we're experiencing probably a bit higher. And in the U S it was not great. It's probably their worst segment, especially given that it's their largest segment in terms of geography and same store merchandise sales were down 0.1%.

[00:19:04] And there was also a decrease of 3% in fuel volume. And they attributed the impact by unusual winter conditions and customer remaining prudent with their spending. While Canada did pretty well, they saw same store sales increase 2.8%. And fuel volume increased 3.6%. So if you were to ask me, like, would you have guessed that Canada would be doing much better in terms of the retail stores compared to the U S I would have said, no, I would have

[00:19:33] thought the U S would have been doing better, but I guess, uh, I don't know. Maybe the Americans are tightening the belt a bit more than Canadians are right now. Yeah. I think that might be the case because I'm pretty sure the Canadian business was struggling more than the U S previously. And I think like, like Couch Tard is, it's definitely interesting because you need for the most part, they need people to be filling up on fuel to go in and purchase, you know, merchant like hot dogs, chips, things like that.

[00:20:02] I mean, generally people don't like, I can't remember the last time I went to a convenience store to pick up some sort of food item or something like that. Like typically I just hop in there after I fill up with gas. So obviously if you have less people traveling, uh, merchandise is probably going to be hit a bit. And it's also like, you know, merchandise is the, you know, they make more money off, you know, it's a higher margin than the fuel, like the, the junk food, the, all that type of stuff.

[00:20:30] So it's kind of a double whammy there. And I would imagine like I was maybe the policy rates are making a difference. I mean, again, Canada's, you know, maybe loosening up a bit because we're what we're like a percent and a half below now, or are we at 1.75? We're at 2.75. Yeah. So we're 1.75, I think below. So, I mean, there's quite a different element there. I don't know if this is, that's why, but I was pretty surprised to see the Canadian end growing as well.

[00:20:57] I believe, uh, for those who don't know, I mean, Couch Tard is, I believe half like over 8,000 of their, you know, 16,000 stores are in the U S. So it's, it's very much huge influence the U S economy has on this company. Yeah. It's not the segment you want to see struggling for that company. Obviously you'd want all segments to be performing very well, but the reality is the U S is by far their largest segment. Yeah. So that is the, that's the reality here.

[00:21:26] Now, overall, I would say decent, but not a great quarter for a Couch Tard on the call. They were asked about tariffs and that is something I'm trying to pay more and more attention to. When I listen to the calls is just what management teams have to say about tariffs and the impact on the business. They said they don't see any major impacts to the business as most of their merchandise sold is sourced from the country where the stores are located.

[00:21:53] So they don't see a major impact and they said any price increase as a result of tariffs would also impact their competitors. So they don't see that big of an impact on that front. However, they did specify that there might be a larger impact if it results in higher inflation and what that means for consumers that are already stretched and struggling with disposable income. So in other words, I think they, what, obviously what they're saying is the impact that it could

[00:22:22] have on the economy and consumers themselves will most likely have an impact on Couch Tard. So I think there's still some, definitely some uncertainty ahead for Couch Tard. It's a really good business. It's well run. I don't think you, people have to fear anything, but I also don't think they're out of the woods in terms of the, of where, where we're at in the economic cycle right now. Yeah. I think like for the run-up that this company had and a lot of people, you know, it became

[00:22:51] a very popular stock. A lot of people owned it because it was doing so well. I think people might've forgot that this is definitely a company that is going to be cyclical. Like you're, you're, you're a gas station. I mean, you're, you definitely, you know, the economy, you know, whether it's booming or whether it's, you know, slowing down is definitely going to impact your results. Cause a lot of people I've asked like, you know, why is this company struggling right now? It's, it's pretty obvious. It's just a slowdown in the economy.

[00:23:17] And, um, I mean, on the inflation front, I, I never really looked into tariffs for Couch Tard just because, you know, it's, I had a feeling that, you know, most of those food products and stuff were sourced, you know, I would say domestically, but on the inflation front, like if it ever geared up again, I think that would hit the company pretty hard because it's already so expensive at quick service, you know, places like that to buy like a bag of Doritos is like nine, $10. Yeah. If it goes up to any more than that, like people just aren't going to buy that stuff.

[00:23:46] No, it's already pretty tough right now, but yeah, it's a, it's a company that's in a bit of a rut right now, but it's, I don't think it's going to last forever. They're going to go to a Loblaws and buy the no name Doritos. That's what they're going to do. Exactly. Start stocking the shells with those. I'm sure I'll get some flag because we had some comments on, uh, we did an episode, Bradem and I about like Canadian stocks that shouldn't have a too big of an impact or not see much of an impact from tariffs.

[00:24:14] And I mentioned Loblaws and some people are very triggered by Loblaws and rightfully so because of their past dealing, the price fixing scandal with the bread and so on, but not realizing that we're looking at it strictly from an investment perspective, right? And clearly understanding that people will invest based on other factors if they don't feel like it's a good company ethically and stuff like that.

[00:24:41] But, um, I just said, I figured I'd say that a little bit of it is a joke here, but to finish on Alimentation Couchard on the 7NI acquisition front, the company that holds 7-11, it looks like the deal is not dead yet. Uh, so, uh, yeah, I know. So we'll still get some content here. Maybe, uh, when Lightspeed gives us some more bad news, we'll have more news on, on this here too. But, uh, the two firms signed a NDA, a non-disclosure agreement regarding potential stores needed

[00:25:09] to be sold in order to meet U.S. antitrust conditions for the deal. Like I mentioned earlier, and we just talked, the U.S. is already their biggest market. So it is realistic to think that the U.S. may push back if there's an acquisition and Couchard becomes too big of a dominant player in this space in the U.S. Um, it really sounds like 7NI is still very reluctant to make this deal.

[00:25:36] And I haven't dug in too much on who could potentially be pushing for the deal within the company. It sounds like shareholder, if I remember correctly, are pushing a bit more for this, this deal where management is a bit more skeptical. But I thought it was dead a few months ago, but it looks like it's not dead in the water. I guess they're still trying to figure out ways that it could potentially work. Couchtal seems to be confident that there would not be any antitrust issues where 7NI is not.

[00:26:07] Yeah. Yeah. Yeah. I mean, it seems like there's more, there's just as much news on this as there is tariffs and the tariffs are changing like every other day. I mean, it's, uh, I mean, let's not, let's not exaggerate over here. Yeah. I made a video on this. Like, I think, uh, I think Donald Trump would be offended by that. Yes, he would be. That, uh, yeah, exactly. Yeah. I made a video on this. Like I, it had to be, it was right when it came out, which was what, probably like four

[00:26:34] months ago now, five, but I'm completely guessing there, but I got a lot of comments on that. I think the first time was August and then they bonafied the offer in October. So like six months ago. And when I put out that video, I got a whole bunch of comments saying like, oh, this is dead. Don't even, what's the point of even making this video? And here we are six months later. Like it's still going on. It's far from dead. Yeah. It's, it's going to be interesting. I mean, that's a lot of stores first, you got to get seven and I to agree to it. And then you got to like, you know, get through regulators.

[00:27:03] I mean, yeah, it's, uh, it sounds like they said, we won't like agree to it until you assure us that it can pass regulatory approval. Yeah. Or we won't even consider it until you assure us type of deal. Yeah. Yeah. I mean, it's, they're huge in the United States. That would give, that would give Couchtard like, I don't know how much of the market it would give them. I know that market is still very, very fragmented, but they would still be huge.

[00:27:30] Well, we'll move on to, uh, another company, a U S listed one, uh, one of your favorite companies, Nike. Do you call it Nike or Nike? Nike. Nike. You call it Nike earnings? Yeah. Yeah. I've, I've kind of, I've been back and forth because maybe it's the French in me, but, uh, yeah, I've said Nike. I've said Nike. Really? Both in, in my lifetime. So I've never heard some comments of people saying one way or another, or maybe I'm just,

[00:28:00] uh, completely offside. But having said that they reported their earnings. Yeah. So it was a pretty inline quarter from an expectation perspective, but its guidance was, uh, pretty ugly. And the stock took a bit of a hit post earnings. I mean, it's pretty beat up right now, so it didn't fall that much, but I still think it fell like eight or 9% after this release. So revenue fell by 7% on a constant currency basis.

[00:28:26] I believe it was 9% overall and earnings are down 32% over the same period. So gross margins dip to 41 and a half percent, which is around 3.3% lower on a year over year basis. And it looks like markdowns were a bit of an issue. Plus, um, pretty much markdowns of their inventories. So this is usually, or sorry, some pretty much write-offs of their inventories. I said markdowns, but pretty much write-offs.

[00:28:55] Uh, this is ultimately not a good sign because in a nutshell, it pretty much means some inventory they currently have, they expect to sell for less than they paid for it. So they had some issues with that. Uh, and again, they had markdowns, which pretty much means the company is having to aggressively price products in order to sell them and clear out inventory. I mean, a lot of people listening to this probably own Aritzia. Aritzia went through that same ordeal when their inventory, uh, kind of skyrocketed during COVID.

[00:29:25] They had to mark down a ton of items and they took a lot of margin pressure over the course of like probably 18 months, a year to 18 months, uh, declining sales and declining margins definitely have a double whammy as well. And are kind of what are amplifying the drawdown. So not only do you have declining sales, but you're profiting much less from the items you do sell, sell expenses fell by 8%, which is pretty much pretty good sign. I mean, they've been putting in some cost control measures over the last while. They're certainly helping.

[00:29:53] When we look to just segments, they declined by 4% in the USA, 10% in EMEA, which would be a Europe, middle East. And what is it? Asia probably. I believe. And then 17% in China, China is its smallest market, but it's also one of its faster growing markets, which is, is definitely a concern. Uh, that's a big dip in sales in China. And one of the main highlights of the quarter and is what has hit the stock price, particularly

[00:30:20] a hard post earnings, because again, they did kind of come in relatively in line, even above expectations was they expect sales to be down in the mid teens percent range next quarter. So I believe previously they had mentioned double digit declines in earnings, uh, but mid teens is definitely trending towards the lower end of their guidance. And where it gets even worse is the company expects a four to 5% dip in gross margins the next quarter.

[00:30:47] So this combined with slowing sales, I mean, it's not easy on earnings at all. Uh, the main driver of the dip in gross margins they had mentioned is the new tariffs on Mexico and China. So I guess there's a degree in difficulty in predicting how bad this will be because nobody really knows how long or even to what extent the tariffs will last. But I mean, if they're, if they're kept in place, like even now, I believe Trump said he was, there's possibility for relief on April 2nd.

[00:31:16] So, I mean, if there is relief, do the margins come in better than expected? It's, it's pretty hard to tell. I mean, I kind of feel bad for him. This stuff would be very, very hard to predict right now because they do source a lot of, they're heavily exposed to tariffs. And when we look at their segmented results, the only thing that isn't really taking a complete nose dive is, is it's apparel and it's still falling by quite a bit. But if you look at its converse segment, that's like, that's just outright ugly.

[00:31:43] I mean, revenue has fallen from peaks of around six, four, 640 million in August of 2022 to just 405 this quarter. It's other footwear. Like it kind of segments out converts because I believe that was a company had bought like 20 years or so. I believe it's regular footwear is it posted revenue of 8.1 billion in Q3 of last year. It's now 7.2 billion. And I mean, as I mentioned, this isn't a company with flat or even, you know, slightly growing

[00:32:12] revenue facing margin pressures because of tariffs. It's a company that's, you know, sales are falling and margins are getting hit. So, uh, you know, I mean, this is the main difficulty with retailers. And again, I'll speak on Aritzia, you know, a lot of investors kind of pointed to Aritzia and they're like, Oh, look, they had the same issues in 2022, but they rebounded. The issue, like the issues are not the same between these two companies are very different.

[00:32:38] Aritzia was still, you know, growing revenue despite all of its inventory issues. And it ended up looking, you know, kind of like, well, it didn't even end up. It was looking like at the time and it did end up being just kind of a short term mistiming of inventory purchases with Nike. This is kind of looking like, you know, some large scale pressure on consumers who just don't really feel the brand is worth, uh, you know, the money anymore, I guess. And, uh, again, it's impossible to predict, but, you know, once these retailers fall out

[00:33:07] of favor, it's, it's pretty hard for them to recover. Yeah. And I think there's also increased competition from other brands. Like I, I know there's the kids, uh, well, no, but there's, um, some new brands that are pretty popular with a younger generation that are probably eating into those revenues as well. And at the end of the day, it's, yeah, it's not going to be easy to navigate those tariffs or a company like Nike. That's just, that's just a reality. Yeah.

[00:33:36] I mean, I, I've owned one piece of Nike clothing my entire life and my Kirkland hoodie that I bought for 30 bucks is in better shape after four years or so, rather than like, you know, this a hundred dollar plus Nike hoodie. I've never really, I don't know. I'm not really big into apparel whatsoever. Again, I wear Kirkland hoodies, but, um, I've never really understood the appeal. They're crazy. Some of their shoes are like $350, $400. Yeah.

[00:34:06] It's, uh, I mean, the reason I like Lululemon is I find the quality is really nice. You pay a bit more, but it does last a long time and it's really comfortable. I've never been big into Nike either. So, but they have a pretty good brand. I mean, for fashion brands, I thought they kind of stood out for the test of time, but I guess, um, what we're seeing over the last five years, you're looking at, uh, draw down of about 63% over the last five years from the peaks.

[00:34:36] So it's not, it's not looking good. And it's still, it looks like there is more room to go down to at this point. Yeah. I mean, it's like, like I said, it's a difficulty with realtors, retailers. Sorry. You just never really know. I mean, interest rates could come down. Sales could rebound. People could, you know, open up their wallets, but I just don't really think too many people are excited to go out and spend 300 plus Canadian dollars on a pair of shoes or a hundred dollars on a t-shirt, but that, that could change. You never really know.

[00:35:05] No, no, that's, um, that's true. Now the next one here, we'll finish up with FedEx earnings. Q3 fiscal year 2025, a bit of a funky financial year, just to keep in mind, because it won't make sense why I'm putting extra emphasis on that towards the end of this segment here. Revenues were up 2% to 22.2 billion net income increased 3% to 900 million.

[00:35:30] So you can probably guess that they have improved efficiency here and they continue to make progress on efficiency and cost cutting through their drive initiative. That's what they call it. Both gross margins and operating margins were up about 40 basis point quarter over while year over year in terms of guidance. This is where it gets really bad. I think for FedEx at the end of Q4 2024.

[00:35:55] So typically companies will issue guidance for the upcoming year when they release Q4, they said revenues for fiscal year 2025 would be in the low to mid single digits. So they would increase by that amount. When they released their Q1 earnings, they revised that down to low single digits increase. Then in Q2, they revised that down again to revenues being flat for the year.

[00:36:22] And then in this quarter, the most recent one, they revised that again to slightly flat or slightly down for the year. So it's getting worse and worse as we're getting closer to the end of their fiscal year. And it's a bit what I have referenced when we were talking about Lightspeed is that, look, FedEx seems to have no problem revising guidance down. I mean, they've done it literally like every single quarter. They had a chance to do it.

[00:36:49] They've done it since issuing the initial guidance last year. And at this point, I mean, they're not going to revise it down anymore because they're going to release Q4 the next time around. So they're going to have their full year results. So not great though for FedEx, the fact that they've revised guidance down at every opportunity they had basically. Yeah. It's the exact same situation as like BRP.

[00:37:14] I don't know if you remember that, but BRP was, I think they were four straight quarters of guidance reductions until they finally came up with a quarter where they didn't downgrade it. But I mean, this just shows you the difficulty. Like even these companies have no idea what is going to happen. I mean, you're talking like if you look at mid single digit and then, you know, a couple quarters later, they're, you know, going slightly down. Like that's quite a big difference.

[00:37:42] And I mean, it's a big difference for a company as big as FedEx and FedEx. They still had do a lot of their business in the US, but they have a big international presence. So it is, I think it's a good bellwether stock to see how the economy is going. And if there's any indication is clearly there is some pullback when it comes to that. And I'll be doing a segment with Brayden next Monday on the freight recession.

[00:38:10] And I would, I would almost, they're not quite, I mean, they're logistic freight, whatever you want to lump them in. But yeah, obviously FedEx would kind of fall into that larger basket of moving goods. So let's just putting that way of moving goods. And most of these companies have had a pretty rough time over the last year or two. And I think it's fair to say that you're starting to see whether it's railways, whether it's

[00:38:36] air, well, airfare or sorry, air freight, or even trucking. It seems to be a constant that it is slowing down for a lot of these businesses. Well, and it's slowing down relatively fast as well. Yeah. Because with TFI, like they didn't really warn of anything until they did. Right. And then it was, that's why the stock took such a hit, but it didn't really look all that bad up until the last quarter.

[00:39:03] And now you're seeing like, at what point does FedEx stop revising downwards? I mean, there's definitely, there's definitely, uh, I mean the TFI, TFI management said it on the conference call. Like there's definitely a freight recession going on right now. You can see it in pretty much every single trucking and logistics company. I mean, we seen it in TFI, uh, old dominion, I think was, was pretty bad. FedEx is bad. Yeah. Yeah. It's, it's not good. Yeah. And even if you're, uh, looking at sea shipments, those companies are struggling as well.

[00:39:33] They're not, they're more international companies. I don't think there's really any big ones listed in the U S I think they're more European or Chinese, but even those have been struggling a bit too. Uh, not to the same extent, but it's just interesting to keep an eye on may create some opportunities here. These are definitely the kind of companies that you want to start looking at when things are not looking good because sentiment starts being really bad. And I would assume that at some point it will be overdone and then that will create some

[00:40:02] really good opportunities, but you have to be prepared to look pretty stupid for a period of time because you're literally buying when it's likely going to be dipping and probably going to be dipping some more before it starts turning around. It's very hard to pinpoint the bottom, but it's definitely better to buy these companies when there's a lot of uncertainty and things are slowing down versus when things are firing

[00:40:28] on all cylinders and earnings may look good or the P might look cheap, but in the end, you're still paying a pretty good penny because you're not factoring for the fact that when a downturn does come that earnings. So the P the E of the earnings will be going down significantly. Yeah. And it's pretty much impossible for companies like this to ever avoid anything like that. It's kind of a similar situation to Cushtard. There are a lot, these companies are obviously a lot more cyclical than a, than a Cushtard would

[00:40:57] be, but I mean, people kind of got caught up in, in TFIs run up for many years too. And then all of a sudden something like this hits probably the first big slowdown we've witnessed. And, uh, it's probably going to be, you know, a rough probably year or two for them. And, you know, it's, it's pretty tough to try to catch the bottom on these companies when the economy is so poor, like they go low and, and, you know, they often go lower than you could even imagine.

[00:41:24] And, uh, holding these companies, I mean, it requires first off a very good understanding of the business because then you kind of, you know, you don't freak out when the stock price drops that much, but it also, I mean, you got to hold them through some pretty harsh environments, which it, it looks like we're in at this point in time. Yeah. And you have to be prepared to like, look stupid for, for lack of a better word for a period of time. And you can just look at Warren Buffett, right?

[00:41:50] As good of an investor he is, a lot of these moves in hindsight end up looking awesome. But when he does them in the moment or in the following year or two, sometimes a lot of people are like, what the hell is Berkshire doing? Like people are questioning his move and you don't know until four or five, six years down the line that, wow, he actually knows what he's doing. Surprise. He's known what he's doing for what? 60 plus years at this point.

[00:42:19] But it is, I know it's hard, but it's that contrarian thing. I'm not saying these are necessarily worthwhile buying right now, but, um, where I think we're entering an environment where these companies are, it's counterintuitive, but they're starting to look more and more attractive. And to get back at FedEx, um, is the good news here is they are trying to reduce costs and they are on track to achieve their permanent cost reduction through that drive program of

[00:42:47] 2.2 billion weakness in the industrial economy continues to pressure their business to business segment. Overall macroeconomic uncertainty is also making the environment challenging for a lot of its business customers. And there was an interesting portion on the call where management said that they did not see any pull forward demand in the quarter because of tariff fears. And people may be wondering like, why would there be pull forward demand?

[00:43:14] So this would simply be some of their large customers buying in advance, trying to avoid tariffs, knowing that tariffs will, well, anticipating that tariffs will come. So they're trying to just pull forward their purchases to avoid that higher cost. They said that they have some customers that did that, but ended up regretting it because they ended up paying more in storage fees. Because when you pull that forward and you're not selling whatever you're selling right away,

[00:43:44] you have to store it somewhere. So it's funny that they, or I found it interesting that they mentioned that and their business customers appear to take a, are appearing to take a wait and see approach to see where things are going on the tariff front. FedEx has a massive network going to 220 countries, which allowed them to shift if their customers are making different business decision, like sourcing in a different country or manufacturing in a different country.

[00:44:12] And they also said that on the call, what they've heard from customers is, look, these things take time. So it will likely be quarters or years before their customers start tweaking their business operations as a result of tariffs or different trade agreements between countries, for example. Yeah, there was, uh, this was actually just on the news a few days ago, but there was a brewery in Calgary here that like they have those tall boy cans that they get from the United

[00:44:42] States. So they had to order like, this is like definitely 100% a prime example of, you know, pulling things forward. Like they ordered a ton of them in anticipation of the tariffs. Retaliatory tariffs. Yeah. Yeah. So like you're, you're sitting there and you wouldn't even think of like the tiny, you know, just tiny costs like that, that can have such a big impact. Like the can, you know what I mean? Like getting hit with a, you know, 25 or 50% tariff and how businesses have to adapt to that.

[00:45:12] Like who knows what's going to happen. And they have like pallets and pallets and pallets of these things that they maybe wouldn't have needed to order. It's too difficult to tell right now, but it's hard to say with ever changing, right? What you just Trump and is tweeting and truding or whatever. It's almost like a fish out of water. That's like flip-flopping all the time. Like that's, that's pretty much how it feels like where it just, honestly, it's almost every

[00:45:39] day one day it's got, Oh, there might be some tariffs, some carve outs. And then the next day it's like, Oh no, it's the liberation tariff liberation day or whatever he calls it now on April 2nd is his next big thing. If you're a business that needs to purchase like goods. Yeah. As part of your business model that comes from the U S or if you're a U S business that has to purchase stuff coming outside from the U S I mean, it is very difficult to plan. So it'll be interesting.

[00:46:09] I mean, it'll be interesting what happens in the next few months, especially obviously in Canada, we have the election coming up. It is very possible. I know I've been reading some rumblings that Trump may be just waiting to see what happens with the election and then to start negotiating with Canada. We'll have to see, but, um, it'll be really interesting. What happens once the election is done, whoever is elected prime minister, and then what will

[00:46:39] happen with their U S because at the end of the day, no matter how much we want to diversify away from the U S it will still be our biggest trading partner. So it's, you know, it would take us a very, very long time to ever achieve that. So, I mean, we're stuck where we are right now for the next while, even if we started to try right now, maybe we can build a bridge to Europe or something or, or Asia. Oh no, I'm just kidding here.

[00:47:09] Um, so I think that's it for today was a fun one. I had a few technical difficulties here, but, uh, I don't think you'll hear it when you listen to the podcasts are, um, great audio editor. Maya will take care of that, but we appreciate for everyone listening. Really appreciate the support, uh, send us your feedback, whether it's good, bad, ugly, or constructive. Always appreciate that. Give us a review on the platform. You're listening.

[00:47:37] Five star review definitely helps people find us, discover us, uh, talk to some friends and family worth them out. Definitely helps. So we'll be back next week for another news and earnings episode. And I will be back, uh, on Monday with the regular Brayden and I episode with, uh, for lack of better words. Thanks for listening. The Canadian investor podcast should not be construed as investment or financial advice.

[00:48:02] The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.