Chit Chat Stocks - Dutch Bros vs. Starbucks; Red Lobster Bankruptcy; Retail Consumer Recession? (ULTA, LULU + More)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. welcome to chit chat stocks this is our thursday power hour we upload these on sundays on our podcast players but we do these live on thursdays at 9 30 pacific time 12 30 eastern time we do these on youtube so if you want to get some questions in feel free to go onto youtube look up chit chat stocks and you should find our live power hour at 12 30 eastern time on thursdays

Starting point is 00:00:58 With that said, we have got a lot on the agenda today, a lot of earnings, a lot of underperforming earnings, I'd say, maybe underwhelming reports, if you want to call them that. And we got some news as well. Nothing huge, but a lot of kind of minor things going on in the world of finance, the world of business. As always with these shows, we riff on anything financial markets, and no topic is off limits. So we're going through everything today. Brett, how are you this morning?

Starting point is 00:01:30 I think we're in the clear on earnings season. We're out of the woods. I guess we have one company reporting today, but how has the earnings season been for you? Yeah, it's been all right. Last week was busy for me. I guess for ourselves, it's not been that busy. This week, I struggled to come up with a few topics compared to just the endless amount of the topics you can take in the heart of earnings season. But yeah, there's stuff to

Starting point is 00:01:57 talk about now. We've got some retailers kind of coming to the mix here. Some of those offset software stocks, we're getting into the SaaS season, which I guess isn't my favorite because I don't know much about them, but excited to talk about it. I think, let me see what I have here on my notes. Let me confirm here at target earnings. I think that's quite interesting for looking at the global economy or at least the US economy. I have Dutch Bros earnings, but i think it's a good update because we talked about starbucks a little bit the struggles they had and i think comparing them to dutch bro is kind of an upstart in the coffee slash sugary caffeinated drink space could be interesting and then you have some topics around ftx customers

Starting point is 00:02:38 a good ryan air ceo update which is funny uh he's always good i have an ai scam and red lobster went bankrupt yeah and we have a under the radar not one of the big two presidential candidates that is joining the meme stocks which maybe if we run out of time we could talk about that at the end which i thought was a probably the most shocking development on the online investing space this week so ryan i'm going to tweet out the link here and yeah whatever topic you want to hit first, why don't you lead in? Sure. Before we get into things, chit chat listeners, I'm going to let you in on a little secret. You know how much you hate fees on options trading. You know how these fees can be as high as a dollar per contract. Public.com

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Starting point is 00:04:07 for all investors and carry significant risk. Full disclosures are in the podcast description, US members only. I want to talk about Red Lobster. People may be familiar with this brand. I think it's a nationwide chain, so I'm sure a lot of people are familiar with the name Red lobster but i love the endless shrimp when i was a uh when i was a kid great deal fun deal was it always endless shrimp uh they had endless shrimp when i was when i was 10 years old i'm adding my age here 17 years ago so yeah interesting i think they were it was like a one week thing i remember as a kid i was like we got to go to this to my mom you know that's okay so that's interesting because Red Lobster filed for bankruptcy. And typically you look at this

Starting point is 00:05:03 and you say, okay, whatever, underperforming restaurant chain, not too surprising. They filed for bankruptcy, whatever this happens. However, there may have been some corporate malfeasance here involved. So I actually didn't really realize this until I read Matt Levine's blog and money stuff. And I know I always plug that blog and I'll just go ahead and say it is a really great, it's a really great newsletter slash blog. And he does a good job summarizing things in a pretty satirical way. But I'm going to give you this. So you're thinking about Red Lobster, the bankruptcy, most people probably don't know the corporate side of Red Lobster, but he gives this 10 step process that may or may not have happened at Red Lobster.

Starting point is 00:05:50 He says, here's a hypothetical move. One, you are in the business of producing and selling shrimp. Two, you expand vertically by acquiring a chain of seafood restaurants. Three, the restaurants start to struggle and are heavily indebted, and you worry that your equity investment is losing value and possibly worthless. Four, how to cut your losses. Five, well, you have two relationships to the restaurant chain. You own the equity, and you also supply the shrimp.

Starting point is 00:06:18 Six, not much you can do with the equity. There's a lot of debt. The creditors rank ahead of you and they are unlikely to let you take any cash out as a dividend. Seven, but as the equity owner, you also control the board of directors and get to appoint the chief executive officer. Eight, the CEO decides how much shrimp to buy. Nine, what if he decided to buy a lot of shrimp?

Starting point is 00:06:39 Ten, then you'd make money on the shrimp and extract at least some value out of your equity investment. So moral of the story here, it used to be a shrimp producer that took a huge equity stake in these Red Lobster locations. They're the main supplier or they're one of the shrimp suppliers. They started to run this massive promo, which is you pay $20, you get as much shrimp as you want. And it kind of ran them into bankruptcy or it kind of – maybe they're going that way anyways. But this pushed them that way. However, they probably raised some money for their shrimp production business.

Starting point is 00:07:21 So they're being sued for corporate malfeasance. The bondholders, I'm assuming, or what's – I'm not sure who's doing the lawsuit. I'm not sure who's doing it, but yeah. Maybe it's – I would assume it's the debt holders for Red Lobster. Because they are – yeah. So potentially here, the equity holders, the shrimp producer, may have stolen some value out of the business by giving a little bit of self-dealing, self-dealing shrimp deal. Kind of just a funny way to do things.

Starting point is 00:08:03 I'm just picturing what that boardroom looked like when the CEO, who's probably hired by this shrimp production company, was like, you know what? I think we need to give everyone endless shrimp for $20. And then everyone's like, well, sir, I'm not sure that makes any economic sense. No, trust me. We're going to do it. or yeah i mean yeah i don't know who else was on the board but if they're all if they're all part of the shrimp company's ownership maybe they were like so we're gonna do this and then they're kind of like yeah yeah we'll do it and they don't really say it too much

Starting point is 00:08:40 but i think it's interesting because one it's it's a pretty smart move on its face too it's probably unethical a bit but i wonder if it's going to be deemed illegal because like a lot of times this is in the gray area. And maybe if you're a public company, you could see how this is definitely a red flag for a management team if you're going to invest as an outside shareholder. But I wonder whether this is going to be, and I don't know if there's any sort of law or court case on the books that has shown precedence on this in the past that something like this would be illegal, but it'll be interesting to see if that gets deemed like that. And there was also a lot of stuff going viral about how they did a leaseback deal with the i forget the exact details

Starting point is 00:09:24 but essentially they sold the real estate to something a company that they already that they still owned and then leased it back to the restaurant chain so they would pay the rent and then that was another way to extract value i think and people are saying like this evil hedge fund did that which i get they kind of maybe you could say screwed the other people or misled them but that doesn't seem illegal at all it's just i kind of viewed it as okay one group of people outsmarted the other group like are you know it's not like they they secretly did it they made the deal they signed a contract yeah the only part that i would think is maybe like straight up illegal here is if they didn't make it a competitive bid from suppliers for the

Starting point is 00:10:13 shrimp because i know they had multiple shrimp suppliers if the self-dealing yeah if one of the ceos like actually i think we're only gonna go with this supplier and order an absolutely insane amount of shrimp and give it away to everyone for egregiously low price that may have been a bit of stealing from the debt holders in a way yeah all right we got some questions in here let's see uh Tyler says, does the white girl portfolio, I guess I had a tweet about that saying Target, Lululemon, Starbucks, and Ulta are all down. And I was saying the white girl portfolio, well, just maybe the women portfolio in general is not doing that well. He says, does that indicate the first blow in a potential consumer recession? I think if you're looking this earnings season,

Starting point is 00:11:00 am I going to be a recession predictor? No, but you are seeing a lot of these discretionary places with maybe upper scale brands or something that's not a necessary household items. I mean, Ryan, you had a tweet over on the FinChat account saying that, you know, Walmart and Costco have held up. Those are the durable goods a lot of the time. But something like Starbucks, Target, I guess, is a little more discretionary, but has some durable goods as well. Starbucks, Lululemon, that type of stuff have been struggling.

Starting point is 00:11:30 And I think it's quite interesting. What are your thoughts on that? Maybe we can just hop into that topic for the second one here, because we already had notes for it as well yeah so my i would not extrapolate this out and say the consumer is crunched like the consumer broadly is crunched what my kind of takeaway here is first of all it might just be an overreaction i think with ulta specifically where it's not one brand it's just more of a mass retailer i think they're going to be fine in terms in terms of comp sales as we look out over the next decade i imagine comp sales will be probably be positive

Starting point is 00:12:08 70 or maybe seven out of the 10 years assuming the economy doesn't absolutely take a dive so i think they're going to be just fine but when i see lululemon drop 40 i see starbucks kind of a different business here uh dropped by quite a lot quite a lot yeti is down 65 percent It's not really like the white girl portfolio, but – That's the white guy portfolio. Yeah. I guess – yeah. I know.

Starting point is 00:12:38 We're joking. I guess we should just say guy portfolio, the dude portfolio. The – you think about some of these like individual brands, Lululemon, Yeti, Aritzia. I'm trying to think of some of the other ones here. Back in the day, Under Armour. At first, when I heard Buffett say he basically just doesn't touch retail, I thought, okay, yeah, maybe he just doesn't like it. He had a bad experience with it. But consumer habits really do change.

Starting point is 00:13:17 Like Lululemon for the last 10 years has been bulletproof. And now you've got kind of this onslaught of competition from a lot of other athleisure-type providers. You've got even Nike struggling to some degree here as well. habits change and it can look so perfect and you can rationalize a case for why this business is going to be more durable than the other ones but between yeti between lululemon between under armor every brand that's kind of failed over the last 20 years every merchandise type brand it's been lululemon yeti haven't failed but they looked great at their peak they look like, oh, this isn't going to be surpassed. They've got a physical advantage because they've got so many stores. They've got great distribution, but it's ultimately the case

Starting point is 00:14:15 rests on consumer habits and those are susceptible to change. Whereas if you look at a business like a Costco or something like that, the advantage lies in being the low cost provider. I don't think just having a superior brand at the moment is any sort of durable advantage yeah and it's i i think for me it's the weakest one when you talk about those dorsey categories of moats the weakest one for me it's one where if i look at something like a lululemon and now we might be getting to this point today i would like a little bit more of a discount on a current earnings multiple or maybe current you know whatever the forward earnings multiple counting some growth do your own little estimates there i want a bigger discount than i would with something like

Starting point is 00:15:00 a digital platform like airbnb or addy and those just come to mind what i think is interesting is if you had a i know i always use this phrase gun you know if you had a gun to your head i think i would say if you take ulta and lululemon i think they outperform over the next five and ten years but it is correct ryan and i agree with you that it's very hard as an investor sitting here today saying, okay, is it a discretionary slowdown and the Lululemon brand is still strong? For me, it's tough to identify. Now, maybe if you're one of the core customers, maybe you work at a store, you could identify this, but that's just one store and that's not the whole entire economy.

Starting point is 00:15:47 And we have another person saying this here too. I've had some other people, I was trying to get some conversation going on the old X slash Twitter on Ulta because I was really wondering why the stock was down so much. And we have someone commenting here, personal anecdote, but all the women I talked to prefer Sephora to Ulta now. Hearing the Ulta CEO talk about these competitive dynamics didn't seem too bullish. Still, it's at a 15 PE though, and they'll be able to buy back a lot of stock. I think Ulta could be my next stock I look at for researching on the podcast. I think it's quite interesting. We've talked about it on the Power Hours a lot before. But yeah, that's something like look i could i would have no idea if sephora is like starting to eat their lunch and

Starting point is 00:16:28 start competing with them who knows and i'm sure there's room for both of them to to win here and that might be overrated but it's really really hard to tell whether you know aloe and viori i don't even know i don't know how to say it but if those are just flashes in the pan if they're spending unsustainably if those stories are not indicative of the entire market and they're taking a tiny percentage of the market for the leisure space and lululemon still holding up and clearly lululemon's numbers still look solid but i've seen some people talk about how aloe is spending like crazy and if you look at some of the stories out there they're talking about all the they're basically paying all the Instagram, TikTok top people to come show up at their place,

Starting point is 00:17:21 get Aloe clothes, post about it, blah, blah, blah. And that's probably highly unprofitable, but they're private. They might stay private. I think they have a kind of maniacal little crazy founder. They got going there. If I remember correctly, I think that was Aloe that they had a story on him in the Wall Street Journal. They don't have to operate with heavy profits. So if they can keep going like this then lululemon might be in a little bit of trouble if they can get that i don't know that's just my theory there and why people are concerned but like i said if i wanted to plug my nose and buy ulta and lululemon i don't think i don't think that's a crazy bet right now what do you think

Starting point is 00:17:59 i'm pulling up some data on uh pulling up some data on about ulta on finchat right now Here's my concern. For the better part of the last decade, you've had 10% plus unit growth at Ulta. They've just been rapidly growing their store count. They grew it from 2012 to 2020. They grew from 449 stores to 1,254 stores. However, over the last four years, store count growth has basically been between 2% and 3%. So my worry here is that a big chunk of the revenue growth over the last decade has been attributable to just growing their stores. Now, comp sales has been pretty strong, but most of the growth has really been driven by it looks like store count growth. So I just worry that the equation is going to look a little different over the next 10 years. Maybe they're kind of getting closer to saturation than people have thought. And they really – now the competition really, really starts to matter because they're going to have to pull sort of a Home Depot where it's about increasing their sales per square foot as opposed to just expanding that square footage side of things.

Starting point is 00:19:24 So I don't know. I mean the competition is obviously a risk, but I do think Ulta is built to last. I don't think they're going to lose out to online competition. I think fragrances, skincare, that kind of stuff, people tend to like to buy in person. And they are the online competition. From what I've read, and I haven't investigated fully on this company yet, they've done quite well in their e-commerce stuff. Yeah. Yeah, they've become a really good omni-channel type business where they've done – they've got good –

Starting point is 00:19:56 I think they have a deal with DoorDash where DoorDash drivers can pick up orders at Ulta on behalf of customers. Beautiful. Yeah. I mean, outsource the cost to DoorDash. Yeah. Outsource to the customer in the end. It's one of those things too,

Starting point is 00:20:12 where it's not going to be too expensive to the shipping costs either way are not going to be too expensive. So I don't think Ulta is in one of those places where they're going to get dethroned by Amazon because Amazon has this giant logistics advantage. It's one, you know, that it's not going to matter too much. I would say if you look at, so Ulta, I'm guessing given where the stock has been at, traded at a PE of about 25, something like that. Now today they're

Starting point is 00:20:38 at a PE of 15, I think slightly below 15, maybe even closing on 14 right now. And I think that's a huge difference for a low grower. Now if they can grow unit count by maybe 1% to 2% a year, they're experimenting with international, so maybe we toss that to the side for a moment. You're 1% and 2% growth there. And you combine that with comp sales of, let's say, I don't know what inflation is going to be, but let's say 3%. So let's get 5% revenue growth. And then you have margins that stay similar. And then you keep buying back stock.

Starting point is 00:21:10 And they are a heavy repurchaser of stock. They pretty much toss in all their excess cash flow to share repurchases. Share count, I think, is down 25% in the last 10 years. But if it stays at this low valuation, they'll be able to do even more over the next five years. You add in that one divided by 15. What is that, like 6%, 7%? I think it's in between that. You add those two together.

Starting point is 00:21:34 Those are some solid returns there. If you kind of get what I'm saying. You can get 10% plus returns. Here's my concern. A lot of the – it's almost like alcohol, the hard liquor category in a way. where it's never been easier for a celebrity to become a brand. And in cosmetics, this is really common in cosmetics. You think about the Kylie Jenner, her cosmetics company.

Starting point is 00:22:04 People are like the celebrities, they have a lot of the leverage now. Shopify has made this really easy for a lot of people to just set up your shop online and build a brand around it. Really, I think this is more common in the cosmetics than anywhere else. I don't think Ulta has major economies of scale here. It's not like they are commanding the lowest possible rates from suppliers like you get with Home Depot or Costco. I think there is a lot of negotiating leverage that goes to the celebrities of the world that have these brands because now it's important for Ulta to have these brands in their stores, but it's not the end of the world for these celebrities to have their brands in Ulta stores, if that makes sense. Yeah, maybe, maybe. I think they have a decent amount of power. If I read their slideshow, I was doing an article for The Motley Fool. The beauty category in the US is $112 billion, and they're about $11 billion, so let's say 10% of the market. I think that's pretty sizable, but yes, it's not dominance. It's not like Amazon and general e-commerce where you basically have to be on there.

Starting point is 00:23:17 but i would say maybe to counterpoint on that and i would have to look up data because i don't know for sure now elf beauty which is probably the number one upstart in the space done quite well it's not celebrity backed but i think they have some under their portfolio they basically are really tight with ulta and they have to be and i'm sure that they are selling to ulta on on a discount compared to everywhere else and i don't i think with beauty what's the nice thing about these is that you it's it's almost like how would i say it it's it's a small part but a very important sorry small monetarily for people unless they kind of go crazy for it but it's very important to them so i think generally across the board the union economics

Starting point is 00:24:09 in beauty are going to be strong because um how it is because like if you sell something for 12 bucks 13 bucks compared to 10 i don't think anyone's gonna bat an eye because all right i'm using it multiple times it's very important to me i can't really go anywhere else here's my concern right ebita margins have gone nowhere in seven years i worry yeah what's wrong with that well i'm saying if you're if you're a retailer with economies of scale you would be getting some margin expansion as your retail sales per square foot continue to trend up right uh maybe but maybe they're building out e-commerce stuff i'd have to look further but i don't think that's the end of the world i mean what would you say

Starting point is 00:24:57 costco's a bad business because their margin stays low uh well i think it's a little different because they're consistently passing through the cost savings to customers. Let's look at the gross margins because you'll see it in the gross margins. And you know what? I've been to Ulta. They're not a low-cost provider. Yeah, okay. Then I think that's not a –

Starting point is 00:25:21 There's certainly been gross margin improvement. Yeah, I don't know the numbers yet, but I would say that's not – I don't think that's a reason to get out of the stock because the EBITDA margin has been flat. oh you're probably i mean there's there's a lot to like there's a lot to like it's i have some concerns that sephora and other retailers will have success i know sephora specifically has had a lot of success and also know a lot of just kind of just anecdotes but with instagram shops tick tock tick tock shops stuff like that it's so easy to sell direct to

Starting point is 00:26:04 consumer i wonder if that's kind of eating away a little bit at ulta's business yeah i mean it could it could end up in the too hard pile for me for sure and there's a reason like you said buffett stays away from these type of businesses but it is interesting nonetheless if the past is like the present or you know the future is like the past with ulta and yeah they're not going to be able to grow unit count of that aggressively it's going to work but the big question is is it going the too hard path because we can't tell if it's going to work anymore all right i think that's topic number two down ryan do you want to hit dutch pros seems a little weak target is also in there. Do you have anything else, I guess, related to anything else you want to talk about

Starting point is 00:26:53 first? Well, I want to talk about FTX, but let me talk about our friend first, Firm Returns. Firm Returns is a stock research blog that we personally love here. It has global coverage, but it really leans more towards the UK. You've heard us talk about the FirmReturns.com blog on this show before. The UK coverage is excellent and it covers companies anywhere from a $10 million market cap all the way to a $40 billion. And the smaller the company, the more value I tend to think I get out of the research just because he talks to management teams. He digs really deep and there's so much less coverage throughout the investment research universe on small UK companies like the ones that Firm Returns covers. So I really do recommend checking

Starting point is 00:27:40 it out. The paid tier gives you four in-depth research reports on new companies each year, but there's tons of free access to long form articles as well. So just go ahead, check it out firmreturns.com. If you are interested in a paid plan, firmreturns.com slash chitchat will get you 20% off. So go ahead, check it out. Before we hop to anything, let's talk FTX because did you hear what happened here? one second i had to unmute myself um what well lots of things have happened i heard that he got moved to a california prison i heard that i didn't hear about that but what is the specific thing that happened so this maybe is kind of the last well we'll see hopefully this is the last step in

Starting point is 00:28:33 the FTX drama, if we want to call it that. But basically, some of the investments that FTX made, I should say illegal investments, because they did them on behalf of, they did them using customer funds. And frankly, some of these weren't even investments, they were just expenses, like donating to certain politicians and stuff like that. So some of those expenses, they were able to recoup and some of the investments actually worked out so in other words throughout these bankruptcy proceedings ftx has actually been able to get find some spare change laying around if you want to call it that like they were able to recoup a number of their investments and some of them actually did really well part of that is because the crypto uh the world of crypto kind of surged

Starting point is 00:29:22 again so ftx customers will be getting 118 cents on every dollar they had on the ftx platform important caveat here so that is they get every dollar back plus interest however if they were holding crypto so that's for every dollar they have they held on ftx if they were holding crypto they will be getting the price of that crypto back at the time the FTX basically went under. So if you held one Bitcoin on the FTX platform, instead of getting the $70,000 or wherever it trades today, you'll be getting $19,000, which is, I believe, the price of Bitcoin when it was at the bankruptcy time so you're getting the 19 000 plus interest on it so still not bad and who's to really say whether or not these people would have just held the crypto all the way through and had

Starting point is 00:30:22 the success that uh some people had over the last couple of years but if you were an ftx depositor would you be okay with this outcome i mean somewhat yeah i guess you'd be technically maybe not technically if your expectation right when the collapse happened was that you wouldn't get any money back you'd be happy but since it all got stuck in there and then crypto prices mooned again i would have i think if you understood how the bankruptcy thing was working you would have been like okay well these crypto prices went up three times and then i think i can get my cost basis back or whatever it was at the time it shows though what ftx's business model was which was spend money we didn't have hope crypto prices keep going up and then we can pay

Starting point is 00:31:13 people back if they want to deposit out or uh withdraw out their money which is a wild business model and entirely illegal and this is an extremely low bar to get their money back i mean prices went up 3x right like that's easy if you held it and then you're like oh well we held some of this and that went up three times we can pay you all back the the cost basis you had i don't think it's a i don't think it's crazy but it's good for the customers that they got it back i guess it's lucky that crypto prices went up by three times and not down by you know 70 so interesting that it happened if i was a customer i'd probably be happy but if you're someone that was using ftx to kind of buy and hold bitcoin you're probably unhappy yeah i mean this outcome could be very

Starting point is 00:32:04 different if crypto prices didn't uh soar over the last three years it would have been different if you're an ftx customer i think you're probably pretty happy here one if you're holding dollars on the platform you're getting money back but two it's not like you're missing out on Like if you had one Bitcoin, like let's say you bought it at $20,000 back then and it dropped down to $19,000 and then suddenly you couldn't access your cash. You're not sitting there thinking, I lost $70,000. You're sitting there thinking, I lost $20,000 and you're getting that money back plus interest. Maybe you're thinking about this. Go ahead.

Starting point is 00:32:44 Yeah. I mean, maybe you're missing the opportunity, but there were a lot of people that put so much money into this. and all of a sudden they thought they were totally void of any cash that they had. So just for them to be getting back what they had at the time, hopefully it's a lesson learned. Plus, they aren't being completely robbed of their savings. Yeah, well, I think they got lucky. I don't think anyone's going to learn any lessons that deposit money on FTX

Starting point is 00:33:17 if I am taking Davy Day Trader as an example. someone who had money on there i believe remember the wall street that's not illegal that's no one i that's going off my memory this is what tyler says in the comments we stole your money lost half of it but we bet the other half on red on roulette so now some of our money we can give back to you essentially how it happened pretty much now some of it was they like recouped money that they spent with politicians they were able to withdraw the contributions stuff like that The other part is, I think, hopefully, for some people, this scared them straight. It scared them straight in the sense that some of these crypto platforms aren't reliable.

Starting point is 00:34:01 They aren't regulated with the same scrutiny as a broker in the US. So I imagine there will be scars and people will say, maybe I dabbled into something I didn't understand. Now, some people will continue to be the day-to-day traders of the world and gamble, but I hope it's a lesson learned for some people. Yeah, I think maybe on reliability of your brokerage, that's probably important. Having stuff regulated, maybe that's important as well. But I think with the sentiment I'm seeing on some of the Motley Fool articles I'm writing on AI, where stocks are at, where a lot of these AI stocks, especially tech stocks, where crypto prices are at, I wonder if people are learning lessons. Because I think money talks, price action really, really talks, and you can forget a lot of things.

Starting point is 00:34:55 You can forgive a lot of sins if you buy an asset and it goes up 100% in six months. all right do you want to talk let's i want to do a one where we can start using the fin chat uh share screen and do as an embedded ad so why don't we talk target i think it's quite interesting um another one on our kind of consumer consumer excuse me discretionary theme where we're seeing a lot of weakness i guess in some of these places although i would say it's not i don't know it's hard to tell so far so let's go through some of the numbers maybe ryan do you want to pull them up on fin chat uh after sure and we can go through that so they reported yesterday i will say a good thing about the platform is it updated just that morning so the numbers get put in right away

Starting point is 00:35:46 comp sales were negative 3.7 which on its face you're like pretty ugly but this is the fourth quarter of improvement. So they got pretty ugly over the last four quarters prior in 2023. And in maybe if you can pull up that number on the KPI chart, Ryan, in the inflationary and pandemic period, 2021, 2022, comp sales absolutely exploded higher. So I think part of what is happening here is just a normalization from that trend. And if you look at their long-term revenue chart, There is the inflation bump, and now we're kind of coming back a little bit. I think one of the big questions for retailers like Target is, okay, how much are we losing share to a place like Amazon, or how much of this is just the macroeconomic stuff, and

Starting point is 00:36:36 we're still okay? Second one is the operating margin recovered to about 5.9%. This is slightly below their typical levels, but still solid. Dividend yield is now over 3%. pe is down to 16 which i will say with where the stock is at i believe it's down a little bit but i'm not exactly sure uh i don't who who's buying target at like a pe of 25 i want to know that people that thought the comp sales would continue at 10 forever yeah i think that's a lesson comps you know it's not about what happened in the past it is what about what happened in the future

Starting point is 00:37:13 i will say i have a question here does the stock intrigue you at all beloved maybe just do a pitch on where you can find these charts at FinChat for our advertiser here. Go to FinChat.io slash chitchat, which the link is in the show notes. If you can't find it, we will tell you the link, and we can give that to you. You can get 15% off any of their premium, professional, paid plans, get a lot of these good analytic KPIs, all that good stuff. So go check them out, FinChat.io slash chitchat. Okay, Target.

Starting point is 00:37:42 Does this intrigue you at all, Ryan? What do you think? Not particularly. Now, I will say they are more heavily levered to discretionary spending than the Kroger's and the Walmart's of the world. So it's not too surprising, I would think, to see some of the changes or some of the comp sales discrepancies relative to the other major grocers. So Costco, Walmart, Kroger are the big ones. Probably Albertson's in there as well. um i do like target in the long run but i don't think growth is going to be exceptional i think

Starting point is 00:38:23 you're probably going to get like comp sales of three to five percent maybe depending on inflation plus like a little bit of margin expansion over time but i'd be surprised if it were too much yeah i agree nothing really excites me about target at 16 times pe maybe i could get interested at 10 because then you don't have to bet on the the growth but i do worry looking at i think you had a tweet about this earlier walmart comp sales look solid costco comp sales look solid amazon doesn't report comp sales but their north american sales look solid third-party seller services look solid. It seems like their GMB, which is revenue spent on their platform, is growing quickly. Shop files are growing quickly. I wonder how much, you know, if we really were in a consumer

Starting point is 00:39:15 recession, would those places be doing that well? I'm not so sure. The other, so it's important to remember what happened with Target. People got their stimulus checks and in many cases literally bought TVs. They were going and buying electronics and Target's comp sales in the electronics and tech segment were off the charts. So they're lapping a difficult period. I bet the grocery business and some of the more durables, necessities, that kind of stuff is probably growing just fine, but you should expect more variability with Target because it's so many discretionary items yeah i think that's fair um don't know the company that well but i would be slightly nervous just given how the performance of some of these other companies

Starting point is 00:40:07 have been doing for some of these other retailers we do have a note here i want to uh little closing the loop uh as a little inside joke there for some of the people that spend too much time on twitter one more thing on ftx comment here from tyler all those people buying the bankruptcy claims that one penny must have made bank so that's good you were right ryan the sentiment was extremely low back 18 months ago whatever it was i know there's someone that said they on twitter that you know never trust exactly what they're saying but you know obviously i don't have proof but they said that after this they were retiring because i think they probably get a hundred beggar after off of these ftx claims and i guess if you went all in on those good on you

Starting point is 00:40:50 what were these so basically you could buy bankruptcy claims from people i think i'm assuming it's almost like an open market yeah and you could buy them for very very cheap a long time ago because people think of it almost like a bond right so you could just give them like if they had a hundred thousand dollars in their account you could just say like hey i'll take your ftx account for two grand or whatever yeah or ten thousand or something like that i think that's quite interesting yeah it's almost like distressed debt investing i would say yeah but at the end of the day you're still betting that bitcoin goes higher right yeah or i guess it was an easier bet because if bitcoin goes up by 3x okay you're

Starting point is 00:41:33 in 3x but if you buy these bankruptcy claims bitcoin goes up by 3x i earn 100 but i earn 100 times my money there were a lot of um investments that weren't in bitcoin or a lot of expenses that were in bitcoin that they were able to recoup so politician the billion to politicians right the contributions to political action committee is the uh i believe there were some public equity investments as well or maybe a private one that did really well i think anthropic but i don't know how stuck that is yeah so they were probably bailed out by some of those still yeah you were you were certainly betting on a bull market but i think that was a good idea Whoever made those bankruptcy claims, because if you believe that the bankruptcy process in America was going to be able to salvage some value out of it and return it to depositors, if you're buying them on 1% or 2% of the account assets, good on you.

Starting point is 00:42:33 And the – it's an important caveat here. There were, I believe, some debt or some lenders to FTX that were not depositors, which, by the way, depositors shouldn't be lenders to begin with. But those people might not be made whole. So if you were a legitimate lender, you might not be getting what you were hoping for back. I think that's still being worked out. But the depositors, which in this case ended up being lenders without knowing it, this is a pretty good outcome. Yeah, interesting. Okay.

Starting point is 00:43:09 What do you want to talk about now? I see I got some GameStop tweet. That was wild. I got an AI scam. I got your eDreams versus Ryanair thing. What do you want to hit? What do you think is most interesting? I think we got some fun stuff.

Starting point is 00:43:23 i know we're not talking nvidia earnings but every single place on the planet is going to be talking nvidia earnings and frankly we have nothing insightful to say so apologies guys we're going to be talking about uh stuff that we hopefully know a little bit about yeah i will say we've been wrong all the way on nvidia and why stop now let's let's keep being more wrong i think yeah well yeah we've been a little 10 trillion dollar company in the in the making hey we at least we weren't saying accounts receivables going up so it's therefore fraud but i've been a little bit skeptical and i guess they've they keep growing and it's been highly impressive okay well what one you pick ryan of the of the topics here

Starting point is 00:44:08 i want to let's do a dutch bros versus starbucks little company comparison here competitor analysis okay let's see so i think the simple one here is dutch bros same store sales growth last quarter 10 starbucks globally four down four percent u.s down three percent uh dutch bros is opening up 150 new shops in 2024. I just have some numbers on Dutch Bros here, but EBITDA does 28 price to sales of 3.3. They're not that profitable yet because they are still kind of in the early phase of their life cycle. They were actually unprofitable at this time last year and they inflected to positive net income, which is nice. So hopefully they can be cashflow positive,

Starting point is 00:45:00 self-funding, all that good stuff. Do you think, and I know Dutch Bros is still small somewhat. Your share screen there is getting a little wild there, Ryan. I don't know what's going on. Sorry, I was on mirror mode because I was on the Riverside tab. It doesn't matter. I've got it here now. Yeah, usually you've got to click the – I'll show you how to after the recording.

Starting point is 00:45:24 Okay. I know it's a small one, a small company, right? It's way fewer shops than Starbucks, even in the United States. Do you think they're having any impact on Starbucks at the moment? I know there's anecdotes out there when people talk about, oh, I switched from my treat coffee drink from Starbucks to Dutch Bros. And if it is, and Dutch Bros can double, triple, 4X its location count over the next decade, I mean, that could be a significant headwind for Starbucks. Yeah, I think there's a lot of problems at Starbucks. The – I don't think Dutch Bros is making that much headway into Starbucks – call it customers demographic just because it's such a small piece of the pie right now relative to Starbucks.

Starting point is 00:46:23 But yeah, people are probably looking for alternatives. And I know Starbucks has been able to raise prices indefinitely for 20 years. But I worry that $8 coffees aren't sustainable and especially in a world where it's not – like the customer experience at Starbucks used to be you go there, you got like a good kind of positive environment where it's almost like you're staying at the store maybe. Maybe it's drive-thru, but it's kind of a luxurious in a way coffee style experience. But with mobile orders now, it's like you're not that far away from the standard coffee shack, if you know what I mean. Yeah. I mean, I think the thing was, yeah, coffee shack, I guess. But some of those other – they were replicating a lot of those nice local coffee shops where you felt nice walking in. You work there or something. That's your thing.

Starting point is 00:47:29 But if you're just standing in the mobile order line, it's like a bread line, right? Yeah, they wanted to be the third place. They wanted to be the third place between work and home. They wanted to be like a place you could go and work, which maybe that was a little ambitious. I don't know. I kind of think maybe this will be a flash in the pan and we'll look back on this and just think,

Starting point is 00:47:53 oh, comp transactions were down for a little while. Starbucks raised prices for 20 years and they had one period of bad comps and all of a sudden everyone thought the business is in trouble. I think Starbucks will probably be all right. Yeah, I think the company will be all right as a relevant brand, but I'm not so sure the stock will do well. If the pricing power goes away, the unit count is already so high.

Starting point is 00:48:24 China is – that's a different story. I guess we don't have to go through, you know, litigate Starbucks again. but i would just even the u.s pricing power isn't that isn't there anymore i don't know what they're going to do because they're already so large and i don't know how they fix the mobile order problem because more people want it but it's a way worse experience and it's not a differentiated experience versus i don't know mcdonald's honestly but okay so here's my gripe with starbucks they instituted tipping i know we've already been over this i'm not some anti-tipping guy but it does make the experience a little awkward well on a mobile pickup order yeah what are you

Starting point is 00:49:10 tipping for honestly that's yeah same thing with you know i get black coffee the machine does it all it feels a little weird to tip that's besides the point on the mobile app you don't have to tip there's none of there's not that awkward moment where they turn the screen around and ask you for a one dollar tip on a four dollar order they're like it that doesn't happen the it encourages people to put money on the mobile app that's the other thing you have to upload money in increments onto the Starbucks mobile app. So you got to do $15, $20 increments. The amount of customer funds held on the mobile app that they're probably investing in US Treasuries and earning interest income is probably growing. That's great. High margin revenue for them. However, it's kind of

Starting point is 00:50:01 eroding the customer experience. Right. Focus on the customer first. It seems like they may have gotten out of that yeah and i think i would i know it's riskier but i would like dutch bros a little bit better unless the valuation's much much crazier on like i don't know just you know assuming some steady state margins and stuff like that uh all right we got a comment here that said ryan's takes have been a plus these past weeks so ryan there you go you got some fans for your takes there oh hopefully the the uh i don't know usually when we have takes like any hot it takes they always end up wrong or i just forget them so the uh what are you what are you pulling up here i'm trying to look up interest income for starbucks uh-oh but it doesn't seem to

Starting point is 00:50:54 be uh supporting my previous take it's probably netted out with their interest expense so we had to do something you calculate yourself yeah it's a bummer that's right okay we're at the 50 minute mark why don't you talk about ryan why don't you talk about public again and then we can load up some of these fun topics ai scam e dreams video from the ryanair guy who's always hilarious and this game stop post that blew my mind earlier in the show you heard us talk about the investing platform public.com that is where you can trade options with no commissions or per contract fees and you get a rebate of up to 18 cents per contract traded nerd wallet recently gave public five out of five stars for options trading if you want to see why go to

Starting point is 00:51:45 public.com and start getting a rebate of up to 18 cents per contract traded this is paid for by public investing options are not suitable for all investors and carry significant risk full disclosures are in the podcast description us members only all right and talking about high yield savings they got some of the best numbers in the industry go check them out at least check out their website check out all the products they got it's wonderful for investing financial services all that good stuff okay i want to do let's do the e-dreams one i because i don't even know what's going on here so maybe fill me in right yeah i'm not 100 sure how the e-dream subscription works i think basically you become like an e-dreams member and they say

Starting point is 00:52:27 they give you discounted prices on airplane or on uh flights but i don't know economics like obviously they're not giving you such a discount that they're losing money so i'm not 100 there must be some other benefit to the e-dream subscription i'm sure the wholesale or the maybe the airlines are giving them seats at a discount so it's almost a wholesale confirming that you're locking in seats for your flights right but then ryanair which is one of the most popular airlines in europe and they are a no frills provider they are the cheapest flight provider typically wouldn't you say like a combination of southwest and spirit like the southwest size but spirit you know super super super cheap and they dominate they dominate the

Starting point is 00:53:17 market yeah the it's literally no frills if you haven't heard of ryanair just go look them up you're probably gonna see like 10 articles about them like considering removing bathrooms or like making standing seats and stuff like that it's they are trying to be the lowest cost provider at in all cases now they the ceo is this hilarious guy very uh outgoing tells it like it is his His name is – I believe it's Michael O'Leary and he published this video this week to the Ryanair Twitter account and he's in a pirate hat and he basically just goes through the – it literally says eDreams scam behind him. He has this like probably whatever, green screen type of thing and it says eDreams scam and he just goes through every time they say they're discounting a flight price that it's all – So what eDreams will do is it will say like the flight is typically $77. We're giving it to you for $52 and they will like cross out the $77.

Starting point is 00:54:21 And then Michael O'Leary just kind of went through and he's like, if you go to Ryanair, you go directly to Ryanair.com, it's $45. So they were saying it was $77 and they discounted it to $52, but it's already cheaper on Ryanair. So he's basically encouraging everyone to go directly to Ryanair, which if you're an E-Dreams subscriber and you see that, you probably get a little worried and you probably think I am wasting money on this. I don't know. Maybe there's some other benefits to E-Dreams and maybe Michael O'Leary is off base here and they provide value for other airlines, but – I mean flying with other airlines. but i would be worried if i were an e-dream shareholder here yeah it's not the kind of guy you want to pick a fight with yeah that's true and he is okay ryanair always wants to be low cost low cost low cost that's our brand we're the cheapest i think anyone trying to compete with

Starting point is 00:55:20 that is probably going to be struggling in europe so maybe e-dreams needs to pivot for the subscription service and say look we're for the other airlines like british klm leftanza some of those others turkish turkish airways i forget the others um yeah stuff like that like you can get discounts on these quality seats but if you're going to try to compete with ryanair on these super super discounts i don't understand why you would especially because we know it's cheap like who even cares if a flight that i'm assuming is a decent distance is 50 versus 40 bucks right i don't know if that's where e-dreams needs to win but again i will say not uh i agree that you don't want to compete with ryanair they are maniacal and they're not

Starting point is 00:56:06 afraid to go battle in public he's like an irish boxer honestly yeah i mean there was this video where like someone comes up i think it was uh some sort of someone supporting an environmentalist group comes up and like puts a pie in his face during an interview and they like tried to like Detain that person. He's like, no, no, no, it's fine. I love pie. And he's like, just, I don't know, just this character. Go listen. He actually did an interview that's out there somewhere where he answers a whole bunch of questions. And he is a hilarious CEO to listen to. Also, a great example of scale economy shared, the principle from Nick Sleep, where they're passing through the low costs to the customers and it helps them steal market share. They are a perfect example of that. Oh, yeah. And we did a podcast on it, I believe, a year ago.

Starting point is 00:57:02 Super interesting. And honestly, not – you would think Spirit Airlines, terrible business that it is. but in europe given the geographical density works a lot better okay here's what i want to talk about ryan this ai scam then we have time for this one maybe the other topic here so have you heard of that rabbit ai rabbit ai thing oops that was the wrong tweet shoot no i had the wrong link in there i think you probably clicked on that one too yeah yeah whatever rabbit ai i can find it it was uh do you know the guy that does all the exposure exposes all the digital scams to crypto scams called coffee zilla you heard of that person nah he's got a good channel randy i

Starting point is 00:57:46 think you'd like him because you like getting exposing these scams kind of back in the day with the nft scams he goes through all the complications around this stuff and posted a thread i could say you could watch the full youtube video if you want but there's this rabbit ai thing which is supposed to be like a device that sits on i think you carry around with you that's an ai device but let me just go through some of the thread here it says rabbit went viral at the beginning of this year they raised 30 million in venture capital they've sold 20 million in consumer products but did you know ryan and i think you're going to be quite shocked i'm saying this sarcastically most people don't know that the company rabbit used to be called cyber

Starting point is 00:58:27 manufacturing company and raised six million dollars for a nft project and this nft project said they were going to create quote the first ever carbon negative cryptocurrency powered by our sun they were going to use nft sales to build a clean energy grid which nft owners would own and then this energy would mine what they call gamma tokens so this this is just to say that whenever there's a boom and obviously some of this ai who knows what's going to happen with ai stuff clearly a boom right now it's you know this stuff is just wildly popular and so many people are investing from the largest companies to the smaller companies a hundred percent of the time when this happens the scammers come out of the woodwork a hundred percent of the times and

Starting point is 00:59:15 you have to i think just watch out for that i actually love this i love the people that just skate to wherever the money's going with no sense of guilt whatsoever like okay nfts are hot let's do it let's build something outrageous blockchain let's do it ai that's what we are now like we're not a web3 company we're an ai company now if i am a shareholder in a company and they're actually diverting efforts to whatever's hot i'm concerned but as a bystander and just looking at these people that are just completely shameless and going after vc dollars i'm okay with it i think it's hilarious. Yeah. Yeah. I mean, you know, the venture cap, like people say, you know, we can scam the VCs. It's okay. But the VCs do have investors that are a lot of pension funds.

Starting point is 01:00:02 So let's not just scam all that money and then go hang out in the Cayman Islands. But I agree with your point. It is kind of comical and, you know, only $30 million. So it's not an FTX level scam. Last one here, Ryan. And I'm going to say this without saying who even the person was. I'm just going to say that it was a presidential candidate, not one of the big two, as I think people can understand that in the United States. I'm just going to read this tweet that I'm sure you saw. I'm very aware of what the average retail investor has been saying about the need for greater transparency in our markets, stronger regulatory oversight, and tougher penalties for market manipulation and criminal behavior. Ryan, that's wonderful so far, right?

Starting point is 01:00:41 you like that sure sure my administration will support the ape retail rebellion and enact aggressive wall street reforms now that seems okay but the when you say the ape retail rebellion get a little confused to match actions with words i just invested 24 000 in game stop from the fees i earned from suing monsanto for knowingly poisoning our soil and causing cancer i love the idea of making monsanto support gme and the apes we need a free and fair market let's punish predatory short selling to the moon by the way i ride with you and i'm not leaving then there's a meme that says apes together strong it looks like a planet of the apes poster speaking of shameless actions to gain traction the arts to gain donations uh yeah that's not

Starting point is 01:01:33 the direction I thought that tweet was heading when you read me the first couple lines it's a little sad to me to think that if you were starting as an investor today there are so many

Starting point is 01:01:50 bad roads you could head down with people saying stuff like this like if you didn't know anything and you're just getting into this And you see someone who's running for president say something like this. Even as a CEO.

Starting point is 01:02:10 Yeah, it almost gives it credibility and makes you believe like, oh, let me check out what's down this road. And you might be led astray to thinking that it's the great world of manipulation in the stock market when you're just punting and gambling. And it's actually – the stock market today is more transparent than it's ever been in its history. And if you want to look at manipulation, go study the markets in the early 1900s. There were no financial reports. You had no idea what you were buying. People could just give you fake shares. We live in a world today where the individual investor has never had so much access to information freely.

Starting point is 01:02:51 And so secure with insurance, the SIPC insurance, the SEC. I mean people talk about the SEC maybe being asleep at the wheel. Maybe they are. maybe we can have those critiques of what they're if they're doing their job correctly but yeah it's a good thing out there and yeah i totally agree where one it reminds me again of buybacks where someone like a politician will say stuff and people like oh that sounds good the devious buybacks but then if you kind of look under the hood you're like well buybacks are just you know we don't have to explain what buybacks are on this on this on this podcast but they're not devious at all it's

Starting point is 01:03:25 just like a dividend you know what's devious the gamestop ceo issuing share after share and rewarding him stock awards no i don't know he's just trying to get more opportunity for more apes to join ryan now this is another example of and i think when you like i'm not saying we're experts on this topic you know we've only been doing this for a little bit of while but even if you get somewhat of a decent knowledge of an industry a field or whatever you can really understand especially when investing where people expose their opinions all the time if you get some decent knowledge on it you can see that so many people misunderstand almost everything about the topic about the industry about your field and one it's like okay like you shouldn't trust that many

Starting point is 01:04:17 people about this field and two you should be i think it's it can help me to invert and say well maybe i shouldn't have an opinion on something that i actually don't know that much about like i'm not going out to a doctor's office and saying actually i think i'll do this you sure you want to do the surgery this way you know that's uh that's how i feel when these politicians and ceos talk about financial markets well so you can go one of two ways you can see this and you can try to inform everyone and fight the battle fight the good fight of trying to help everyone develop a better understanding of how to analyze securities or you can take the charlie munger approach and say if people weren't so dumb we wouldn't be so rich that's true that's true let's get the only

Starting point is 01:05:02 difference is we're not rich like charlie munger so yeah if people weren't so dumb we wouldn't have anything to talk about on power hours hey yeah that's true that's true but i will say he didn't start investing until quite a bit later right he actually was a late starter after he created his own law firm and had plenty of success there so i think he was still doing all right but yeah he's doing all right well yeah yeah yeah he had yeah he had a long life fascinating life okay i think that's it i will say i just got the updated book on the poor charlie's almanac not bad nice little hardcover there what does the update entail uh just updated stuff about his life and it just has all the speeches and i think i don't know i don't like promoting stripe but

Starting point is 01:05:51 whatever how much was it i don't know it was a gift really uh nice i don't think it was too much though i think they tried to make it affordable and it's i think they're actually they're spreading it out because like that first one, the secondary market got too crazy, I think, is what they're trying to prevent this time. All right. That's going to do it for this episode. Going a little long here. Thank you for everyone that joined the Power Hour. Thank you for all the questions. We do these every Thursday, 9.30 a.m. Pacific time, 12.30 Eastern. You can watch live with us and ask us questions, any topics you want us to hit, investing related, of course. You can do that if you join live on the YouTube channel. You can watch the replays

Starting point is 01:06:30 on the YouTube channel or you can listen to the replays on Spotify, Apple Podcasts, wherever you get your podcasts. Let's hit the disclosure. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan, I, or any guests on this podcast may hold securities discussed on this episode. They've held them in the past and may buy, sell, or hold them in the future. All right. Thank you everyone for tuning in and the kind words. We'll see you next time.

Chit Chat Stocks - Dutch Bros vs. Starbucks; Red Lobster Bankruptcy; Retail Consumer Recession? (ULTA, LULU + More)

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