Motley Fool Money - Mall Retailers are Alive and Well

Episode Date: May 31, 2024

Abercrombie and Fitch and Dick’s Sporting Goods show the familiar names near the food court are doing just fine, and we share one stock that wins regardless of where you stop in to shop. (00:21) Jason Moser and Matt Argersinger discuss: - Cava’s valuation at fresh all-time highs post-earnings, why Salesforce might be a buy on the dip, and Chewy’s strength as a focused company on full display. - Banner quarters from Dick’s Sporting Goods and Abercrombie and Fitch proving the mall isn’t dead any time soon. (19:11) To help us wade through the great tightening in commercial real estate, why many sellers aren’t quite ready to deal, and what the rate picture looks like, last week Motley Fool contributor Matt Frankel talked with Willy Walker, CEO of Walker and Dunlop. (35:20) Jason and Matt break down two stocks on their radar: PayPal and Simon Property Group. Stocks discussed: PYPL, SPG. Host: Dylan Lewis Guests: Jason Moser, Matt Argersinger, Matt Frankel, WIlly Walker Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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all-time highs. Should investors be buying? This week's Motley Full Money radio show starts now. That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money Radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool senior analyst Matt Argersinger and Jason Moser. Fools, great to have you both here. Hey, hey. Helen. We've got the skinny on real estate from a fool favorite CEO, the surprising strength in mall retail names. And of course, stocks are on our radar. It may be a little bit late in the earnings season, but we got plenty of big moves

this week. We're going to be running through them, kicking off the rundown of earnings movers and shakers. Kaiva. Jason, an extra scoop of brazed lamb and results from Kaiva this week. The Mediterranean fast casual concept beat on expectations, bringing the company to new all-time highs. Yeah, just wait aly introduce the steak to the menu. They seem to be very excited about that new option for customers here coming up. So that should be soon. This is a nice start. to life as a publicly trading company for Kaaba, right? It's a story that definitely rhymes with Chipotle, but it remains to be seen whether it can actually bring that same type of scale and growth. And you remember, they believe that in Kaaba's case, they believe there's the potential to have more than

1,000 Kava restaurants in the U.S. by 2032. So that's still significantly smaller than Chipotle, but hey, you got to start somewhere, right? And when you look at the results, I mean, I mean, they tell a good story. Revenue growth of 30.3%. Same restaurant sales growth of 2.3%. And ultimately, net income of $14 million. That was up from a net loss of $2.1 million just a year ago. So they're making a lot of progress there.

Digital revenue mix, right? That's something we talk about a lot with Chipotle. And Kava definitely taking advantage of that space, digital revenue mix was 37%. That was up slightly from 36% when they reported their first quarterly results from the second quarter of last year, right? That was their first quarter as a publicly traded company. They saw a three and a half percent increase in ticket from some modest price increases, and that was partially offset by a 1.2 percent decrease in traffic. But restaurant

level profit margins performing very well, considering the pricing environment, 25.2 percent, just down modestly from the first quarter of fiscal 2023. But they opened 14, you. net new restaurants and ended the quarter with 323. In looking at that 1,000 store goal, clearly a lot of runway to go there. But I think all things consider, the company's doing very well, especially when you consider the environment today, right? I mean, we've seen fast food restaurants all around starting to really feel the pressure of a lot of those price increases.

And when you talk about that fast casual space, Kava's been able to maintain pricing pretty nicely. I like the Chipotle comparisons. I mean, there's so much about this story, as Jason mentioned, that rhymes with Chipotle. One area that is a little different, though, for me, Jamo mentioned the end of the quarter with 323 stores. I'm doing the math right now. After the big move this week after earnings, it's now a $10 billion market cap company. If I'm doing my math right, that means each Kava store is worth more than $30 million.

Now, wow. If you go back in time to when Chipotle came public in January 2006, it had right around 500 stores. It was a little bigger of a concept at that point in 2006. But it came public at a market cap of roughly $2 billion at that time. That means each store for Chipotle was worth about $4 million. So, and companies that come public tend to be pretty expensive. And a lot of people talked about Chipotle being expensive at that point in its evolution. At $4 million a store, here we are with Kava at $30 million.

store, I would just say there is a ton of excitement built into this stock. And I am a shareholder. I love the concept. I love the restaurant itself. And I love the Chipotle comparisons. I would just say, be prepared for a story that's not always going to be up and to the right for this business. Some big expectations for sure, Matt. For the time being at all-time highs, a different kind of milestone being hit over at Salesforce this week. Shares down over 15% immediately following earnings. A historic report, Matt, because in a few, few bad ways. It's historic, I should say. First time the company is guided for single-digit revenue growth, and the market reaction led to one of the worst single days for the stock in a

decade. Why was the market so down on these results? Right. A $20 billion, or it's actually closer to $50 billion hit to market cap for this company, which is huge. It's interesting. If you take the earnings at face value, it was a pretty strong report. A revenue was up 11%. The remaining performance obligations, RPO, which are essentially services. that have been booked but not delivered upon, that was up 15%. So that kind of bodes well for future revenue growth. And operating cash flow, even if you add back stock-based compensation, which I think all investors should do, operating cash flow was still up 22% year or year. And hey, they just initiated a dividend recently. So what gives here? But again,

as we've seen, it really came down to the guidance. And so management did slightly reduce its full year estimate for subscription support revenue. That's the core business, earnings, RPO growth, CFO, Amy Weaver, did point to things like deal compression, which I think is a fancy way of saying customers are just buying less right now. She also mentioned that customers are either delaying or slowing down projects using Salesforce's cloud-based infrastructure. So, it just points to me that, you know, I think the market is extra sensitive right now about big tech companies, especially companies in the cloud AI space, because they've been such huge beneficiaries of this growth wave that we've seen with AI, etc. Any slight reduction, especially

if we're talking about single-digit revenue growth, as you pointed out, Dylan, is a reason to sell the stock. I think that's what happened. I don't know. I mean, we're now talking a stock after the fall that's trading for on 22 times earnings, only a slight premium to the overall market. Doesn't seem very expensive right now for me to sell for Salesforce. Jason, we are looking at an earnings slate that still has a few as a service type company is reporting later. Later, this earning season. Matt mentioned the deal compression, quite a euphemism there, for the selling environment being a little tough and people just not being as eager to increase their spend on some enterprise as a service offerings. Do you expect that we'll see that pop up when in Crowdstrike,

docusign, Adobe, Braves, some of these other companies report later in the season? I think it's absolutely something to look out for. I mean, we may not see that from every business, but we've been seeing that from a lot of these businesses over the last several quarters. And it's always amazing to me. When you look at Salesforce, when you listen to their earnings call, Mark Benioff, he could take a glass-half-empty situation and make it sound so glass-half-full. That's one of the things I love about him is to see.

He's just a tremendous optimist. And back to that point about elongated deal cycles, deal compression, high levels of budget scrutiny. Those are quotes from the call, right? And with shares, these shares have just consistently valued at a premium multiple. And so when the forecast changes, the market changes with it. And consequently, we see shares doing what they're doing today. But I think when you look at it from the longer-term perspective, you know,

Salesforce has done a very good job of assembling a tremendous portfolio of tech tools for their customers to use to develop those customer relationships, right? I mean, that's what they do, right? CRM, customer relationship management. So this does strike me as potentially an opportunity for investors who are interested in the company because, yeah, I mean, the guidance was a little bit light. Yeah, the near-term future may look a little bit blurry, but the Salesforce is going to be around for a long time to come. All right, rounding us out here for this segment, a nice 25% pop post-earnings for Chewy this

week, giving the pet supply company its best single-day move in its history on the market. And Jason, looking at the results, it seemed like the first. financial results were okay, but that the excitement here was a little bit less about the reported quarter and a little bit more about some of the company moves and tailwinds for the business. Yeah, and it's coming off of a very tough stretch, too, right? I mean, shares are down over the last year, about 30%. That's after the pop that we saw on Wednesday. But, you know, this has always struck me as an interesting opportunity, one, because I'm a customer, and darn it, they're just really good at what they do. But, I mean, that singular focus on pets is just, I think that's

a big deal. And we're seeing signs in the business that there's still some bark in this dog or meow in this cat. If you prefer, the numbers, not lighting the world on fire. Hang on wait until my dog start barking. Numbers are okay, right? Sales up 3% adjusted earnings, up 55% far more encouraging. They're doing more with less. One of the big stories with Chewy, every quarter, it's the auto ship. The auto ship customers, those sales achieve record levels, $2.2 billion. That represents almost 78% of net sales now. And net sales per active customer reached $562. That was up 9.6%. We're seeing strong performance on the margin side, gross margin of 29.7%. That was up from 28.4% a year ago. And now they're bringing new facets

into the business, this Chewy Plus paid membership program, which will give you free shipping and other rewards. So think of it kind of like a chewy prime sort of deal. Opening vet care clinics where I think there's something to keep an eye on there. I mean, we've seen. I mean, the private vet care clinics, that's a very difficult business to run. And corporate medicine is a way to really spread those costs around and provide more services to more folks. They initiated their first ever share repurchase program up up to $500 million. That'll likely just offset dilution. But again, guidance going forward looks encouraging. And again, I go back to just this company's singular focus. They want to do one thing and do it really well. And I think they're on the right path.

All right. Coming up after the break, everything old is cool again. Abercrombie and other mall names looking pretty good after earnings. Stay right here. This is Motleyful money. These days, I'm all about quality over quantity, especially in my closet. If it's not well made and versatile, it's just not worth it. That's honestly what I love quince. The fabrics feel elevated, the cuts are thoughtful, and the pricing actually makes sense. Quince makes high-quality wardrobe staples using premium fabrics like 100% European linen, silk and organic cotton poplin. They work directly with safe ethical factories and cut off the middlemen so you aren't paying for brand markups or fancy stores, just quality clothing. Everything they make is built to hold up season after season

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slash Motley. Welcome back to Motley Full Money. I'm Dylan Lewis, joined on air by Jason Moser and Matt Argersinger. A slate of names in retail reporting this week. We're digging in to see what's going on at the mall and in consumers' closets. First up, Dick's sporting goods. Matt, an absolutely stellar week for the company. Stock up over 20% following earnings, bringing the company to fresh all-time highs. What's behind the excitement? This one was fascinating to me, if you look at results from other, quote, big box stores, and many we've talked about on the show, and what management in places like the Home Depot or Target have kind of harped on, it's this idea that they are seeing a spending slowdown, especially when it comes to kind of discretionary items or big ticket items, I guess that just doesn't apply to sporting goods.

Because if you look at Dix, I mean, comp growth up 5.3%. That's on top of growth of 3.6% last year. So Dix's growth is actually, accelerating this year, and both transactions and average ticket size were higher in the quarter. How many retailers have been able to pull that off this year? Double-digit growth in operating profits, and they hit the trifecta of raising guidance. So comms are now expected to grow between 2 and 3%. That's up from a range of 1 to 2%. And EPS is now expected in the range of $13.35, so $13.75. They raise the bottom end of that by 50 cents for the year. What does Ron Gross usually say on this show, firing on all cylinders? There you go. I mean, Dix is firing at all cylinders.

And I, it's, it's more evidence of this peculiar state of the consumer, more reluctant to spend on things like furniture and, and kind of appliances and home goods. But sports, entertainment, travel experiences, still spending very strongly. I think Dix is benefiting from that. Yeah, I think it is interesting. I mean, I look at a company like Dix and I say, you know, there are maybe some seasonal elements that we're seeing some spending that people are willing to put out there because it's getting warm, there's an interest in golf. Jason, what do you think of that? Well, I mean, no question. There's a seasonal aspect to it. And I think another thing that separates Dick Sporting Goods from some of your other just sort of standard retailers, we often talk about

disruption and how is this company Amazon proof. And I think we're seeing as time goes on. There's a handful of companies out there that really are sort of Amazon proof. And some that come to mind, I think of companies like the Home Depot. I think of companies like Etsy. And I think in regards to Dick sporting goods, that rings true as well, because oftentimes, you know, there's sort of people, you know, customers want to go in there. They need to see the equipment. They need to hold the golf club or swing the baseball bat or try to get different shoes to see which ones are going to work best. And so it's just a little bit more difficult for them to be Amazon. And that clearly is making a big difference. I'm just really kind of astounded looking at the five-year chart here. Dick Sporting

Goods is up 564% over the last five years. That tells us a lot right there, and it sounds like things are just getting better. Let's stick with some of the retail winners. Abercrombie and Fitch's streak continues. Shares up 20% immediately following earnings this week. Results had revenue and earnings ahead of expectations, and they raised their full-year outlook to double-digit growth. Jason, this has been one of those companies that has just crushed it over the last five years. 960% increase over the last five years, 480% over the past year. It's kind of hard to believe, given some of the depths that this business has fallen to in recent years. Kind of amazing. And I tell you, I've been here at the full for a little bit over 14 years. I think for most of those 14 years,

we've probably given Abercrombie a pretty good hard time there, right? I mean, we've taken more of a glass to have an empty view on the company, but this is really one that's taking a turn for the better. I mean, you noted the performance. I think you have to tip the cap to CEO, Fran Horowitz. She's been with the company as the CEO since 2017, and I think she's really helped stabilize this business, and she's helped it return to growth.

And no, that growth might not be software-type growth or anything, But at the same time, she's also really helped right-size the business, manage the cost structure, and we're seeing that play out ultimately on the bottom line. The first quarter sales up 22 percent, broad-based growth across all regions. I mean, this is a company that benefits a lot from that back-to-school conversation. So I think we're going to hear a lot more about that in the coming months. But you look at net income per diluted share, those $2.14. That's versus 39 cents just a year ago.

And to top it all off, guidance is encouraging. They're looking for operating margin to be in the range of 13 to 14 percent. That's versus 9.6 percent just a year ago. And I think that when you think about Abercrombie, it's also Hollister, right? The Hollister brands, which is focused more on that teen segment. That part of the business has returned to growth as well. So I think there's a lot of really good things going on in this company right now. And again, I think you have to tip a cap to CEO Fran Horowitz because clearly she's doing a good job.

All right, we've got another big mall brand up this week. Shares a footlocker spike 25% following the company's first quarter release. An incredibly positive reaction, Matt, on what I have to be honest, seems like pretty uninspiring results. Is the story here that expectations were just so low that anything remotely positive was going to show up in a big reaction? I think that's exactly it, Dylan. I mean, unlike Dix or Apochromby where I think the positivity is just being compounded, I think this is relief that news just wasn't worse than it's been. Because if you go back to February when the company reported its Q4 results and first gave guidance, Foot Locker lost around 30% over the course of a few days.

Well, they gave the same exact guidance this past week with their first quarter results. I don't know what the market got excited about, except I will point to the fact that going into this quarter, if you look at the shares that were short, it was about 11.5% according to S&P Global Cap IQ. So I got a feeling the fact that, you know, comps were okay. They didn't reduce guidance again. Inventories have come down, which has been a focus of management. So those are a few positive things. And so a lot of investors who might have been short the stock said, you know what, it didn't get, it wasn't as bad as I thought it was going to be. It's not really that great of a short anymore. I'm going to cover my position. And that's probably a big reason why the stock is up. But this is a turnaround business. I don't think any investors should look at this and say, okay, this is the beginning of good times for Footlocker.

they're guiding for flat sales. Comps are only supposed to be up between 1 and 3%. They don't know what to do with the champs sports brand, which has really been struggling. And they still've got inventory issues, even though they've come down. So I think this is very much a turnaround story. Wouldn't get excited about this move. I think this is more short relief covering than anything else. Matt, putting the results from these three names together. We have two, I think, very strong companies, Napakrombie and Dix. Stability when it comes to Foot Locker. We'll call it that. But it's interesting to see all this given the death of malls. the post-COVID foot traffic concerns. Are you surprised with any of this? I'm not surprised. And I think my radar stock will tell the story as to why I'm not surprised, because yes, believe it or not, the mall is not dead. People still like to go out there and shop. And I think for a lot of the reasons, J-Mo has pointed out, it's just there's reasons to go into these stores. And that's what we're seeing with the consumer. Oh, I love that. You're going to have to stay tuned for the radar segment to get Matt's full take on that one. Great radio instincts. Matt, Jason. We'll see you guys a little little. later in the show. We've got more real estate convos coming up soon. Stay right here. You're listening

to Motley Full Money. Back to Motley Full Money. I'm Dylan Lewis. It might not have felt like it for would-be homebu buyers over the past few years, but the nature of real estate is cyclical. Over on the commercial side, some of those cyclical effects are being observed already. To help us wade through the great tightening in commercial real estate, why many sellers aren't quite ready to deal, and what the rate picture looks like for the rest of the year. Last week, Montly-Fourer contributor Matt Frankel talked with Willie Walker, CEO of Walker and Dunlop. I feel like the real estate market is moving so fast that we need to talk pretty often these days, just to keep up with everything. Last time I talked to you, I believe it was the period

when everybody assumed there would be like six Fed rate cuts this year. You know, interest rates were just going to plunge. Real estate was going to go through the roof this year. Like the activity was going to increase. Clearly that hasn't happened. So what does this higher for longer interest rate environment mean for the real estate market in general and for Walker and Dunlop? So it's interesting that you say that we have to talk on a more consistent basis, given everything that's going on in the commercial real estate industry, only in that this is a very slow moving industry in the sense that people make investments not for clearly not like in the F. Goody markets where someone might make an investment for a couple

minutes. This is a multi-year investment time horizon that most investors in commercial real estate have. As a result of that, while clearly over the great tightening, which started what just about two years ago, Matt, it's been an iceberg or a slow-moving story. And at the same time, we get these sort of flashpoints where you'll get a bank that blows up and everyone says, oh, gosh, that's due to exposure to commercial real estate. We'll get occupancy numbers on offices going up precipitously, and people say, uh-oh, office is under a lot of pressure. But even with all of that, it's still very slow moving. There's things that don't happen overnight. And so, like, for instance, I don't know whether you saw yesterday, Matt, but there was a kind of scathing article on Starwood's

Esri in the Wall Street Journal. It came out yesterday afternoon, written by a guy named Peter Grant, very, very good writer at the Wall Street Journal. You know, it talked about the fact that the S-Reed hasn't been selling assets, has a redemption queue that's very high, and were it not for their gates or the walls that they could put up on redemptions, that they'd run out of money. And it's true. It's not a new story. It's the same thing that the B-Reed at Blackstone has been dealing with for the last two years. I noticed I haven't looked at Starwood during the day-to-day, but it opened flat.

It was up slightly over the day. So here's this big kind of front-page article in the Wall Street Journal talking about the S-Reed potentially running out of money. And equity investors said, they're going like, kind of what's new to that story in the sense that unless you start selling assets to raise capital, unless your redemption queue falls off, or you stop repaying on redemptions, you know, something's going to happen with Starwood, but nothing's going to happen today. And oh, by the way, right after that article comes out yesterday, there's an article that says that Starwood is selling a big portfolio to Brookfield and that Brookfield's going to step in. One of the big issues that we have right now,

is that it is not a matter of buyers. It is a matter of sellers being willing to sell at these price points. So that is very different from the great financial crisis in past commercial real estate cycles. In the past, people want to sell, but there's no buyer. This time, there are lots of buyers and nobody wants to sell. Why? Because they think rates are going to go down and they think they're selling it too big a discount today to where the value of the property should be. But that doesn't mean that if Starwood needed to go sell to raise capital that they couldn't sell, they just turned around and did it to deal with Brookfield today.

So people are trying to read the tea leaves on the market, and it's very difficult because, A, it's a slow moving story. There are data points that tell you that there's some distress in the market. But there's also a huge amount of equity capital. waiting on the sidelines to jump in and get any kind of discount, particularly, particularly in the housing markets, as far as multifamily, in the industrial markets slash data center markets, where those two markets continue to be very, very healthy to a little bit lesser degree in retail and hospitality, but those markets still have quite an active, both bid ask on the sales

side and plenty of capital coming to it from a financing side. And then the final one is office. And office is the one that a lot of people are scratching their head about kind of what's the solve for B and C class office. It's a good question. But as anyone who's watching this rather than just listening to it can see, I'm sitting in a brand new office in Cherry Creek, Colorado. We moved into these offices three weeks ago. It's as beautiful in offices you'll find anywhere.

And the reason we do that is because we're a professional services firm and I want people in the office. So I've got to go invest in office space to bring people together. Office isn't dead. office isn't going away. It's just what do you do with B and C class office? Like I'm looking out my window right now at a building that was probably built maybe in the 1970s. And as soon as Baird vacates that office building, I cringe to think of what the owner of that office building is going to have to do with it. They're going to knock it down or do something, but that will not be leased to somebody

after Baird moves out of it. So that's the real problem. And then the question is, is that have contagion on the rest of the market? market. And right now, not at all. I mean, J.P. Morgan came out yesterday on their investor day, as you may have seen, Matt, and they sat there and said, they're going to earn an extra billion dollars of net interest income this year because the Fed has held interest rates up where it is. A billion dollars. Well, look at their exposure to commercial real estate. They've already provisioned and written off a ton of their exposure on commercial real estate. And they're going to make a billion dollars of additional name, which is some eye-popping number.

It's like, I mean, it's hundreds of billions of dollars in NIM, and they're adding another billion dollars to it. Jimmy Diamond isn't sitting around talking to his real estate group saying, you know, we can't afford to take any more chargeoffs or writeoffs on our commercial real estate portfolio. While there are pockets of distress, it's not anything close to a distressed market. And there's capital out there. And at the end of the day, it's equity capital that's going to come in to rescue properties that have problems with their debt capital structure. Does that make sense?

Yeah, and you brought up a good point there, the amount of cash on the sideline. And that's kind of the other side to this higher for longer thing is a lot of investors are willing to just keep their money in treasuries at 5% more so than they used to be. So there is a lot of capital sitting on the sidelines. And I kind of think of the market as almost a loaded spring at this point. I was looking at your earnings presentation before this call, and so I was just kind of a dip. I was shocked to see the first quarter was the slowest for multifamily sales since the second quarter of 2020, which if you don't remember, that was when you couldn't literally leave your house to go buy a property. So I kind of think of it as a loaded spring in a way.

Is that fair to say? It's very fair to say. I think the issue with it is, I'll give you one. I walked into my office today to meet with a client. This is a very active buyer of multifamily, and this is the head of acquisitions for that buyer. He's a very, very close friend to mine. And back when in the aggregation days of 2021 and 2022, they were literally buying an asset a week. Okay? And right now, two years ago, this gentleman and his team basically said, you know, kind of we're going on vacation. We got nothing to buy. We're in a tightening cycle.

Can't make the numbers work. We're going on vacation. And I thought that would last for a couple months. And then a year later, he said, you back at it. It's like, nope, still skiing. I'm like, man, that's tough. That's been a year since you told me that. And then come December of this past year, I said, you back at it?

He's like, nope, planning more ski vacations. So I'm in February. Are you still skiing? Still skiing? He walked in my office today. I said, you back in the market? He said, we are back in the market. Said to me, we've got six assets under contract, and we've got a seventh which

Walker Dullin is supposed to be awarding us today. So that says to me that transaction volumes are going to start to come back. But you can't, when you say loaded spring, Matt, what I want to be really careful not to do is you can't compare this to, for instance, you used a good example of Q2, 2022 pandemic. Nobody can go outside to buy an asset. So invest in sales, all through the floor. But remember, the moment that people could actually get outside and start to do either desktop underwriting or go actually see an asset, because rates were at zero, they started buying.

It was like, bang, go. And it was game on. And for the rest of 2020 and into 2021 and into 2022, it was just game on. I don't think that's going to happen this time. I think it's going to come back and it's going to continue to have a really nice build, but it's not going to be, unless Jerome Powell surprises us and says I'm cutting rates. But I don't, I expect I was asked yesterday on a webcast, where do I think the Fed Fund's rate is at the end of the year? I said, 475.

They said, where do I think the 10 year will be at the end of the year? I said 410. And the reasoning behind that is that, A, even if Jerome Powell understood how bad their data is as it relates to inflationary pressures coming from housing. And you and I can dive into that rabbit hole if you want to, Matt, but I'm not sure whether you want to. But there's literally no inflationary pressures in the system today other than shelter. And if you look at our rents across Walker Nelov's portfolio, which is very, very extensive, there's no rent growth. The last CPI print had 5.7% rent growth. They were looking

back to July of 2003 on a one-year look back between July 2022 to July of 2023. There's no inflationary pressure on rents in the system today, period. And that's about 10% of the CPI shelter print. The other 25% of the CPI shelter print is on owner-equivalent rent. And that's the way that the Bureau of Labor Statistics calculates that is just foolish. But I don't want to get into that. but the way being is there's no really no inflationary pressure in the system. So Jerome Powell should cut rates right now. I don't think he's going to because as he looks at the rest of the economy,

he says, things are pretty good. We got full employment. We got good GDP growth. I got profits coming out of corporate America that have great growth to them. So he says, why would I take my foot off the pedal? So I think he thinks that he probably needs to cut twice just to kind of bring it down off of historically high Fed funds rate at $525. But I don't think he thinks that says that he needs to get it down to four in 2024 to do something to accelerate the economy, accelerate employment. So with all that said, unless the Fed does something, I don't think you get this massive, just like, bang, it all comes back.

And at the same time, you are going to see consistently increased deal flow, deal volume, which will drive our overall revenue growth, earnings growth, even DA growth, as we recover, if you will, from the Great tightening, which has been basically a two-year tightening cycle. You touched on something earlier I wanted to circle back to. When you were talking about inflation, I don't want to go down the whole inflation data rabbit hole that you were talking about necessarily. You mentioned that there's very little rent growth, if any at all, in multifamily real estate. There's very little rent inflation. We're starting to notice some oversupply concerns in some of the companies we follow, some of the multifamily REITs that we follow.

do you see that as kind of a headwind? Are you concerned about that? Is that why we're not seeing rent inflation? What's going on there? There's clearly oversupply in some markets, which has made it so that rents are flat to slightly negative. People need to keep in mind that the rent growth that we were seeing out of the pandemic, 21, 22, was a supply and demand imbalance that you'll you're unlikely to see again. Okay. So, I mean, one of the things I find so interesting about the inflation conversation, Matt, is that people are like, we should have no inflation. We should always have inflation. The Fed's own target is 2%. Like, if eggs don't grow in cost by 2% a year, the egg manufacturers, the, you know, the manufacturers are the chickens, the egg, the egg,

the egg sellers, they need inflationary pressure. They want their prices to go up. So we need inflation. So, like, this concept that, like, we should have negative numbers doesn't make any sense, right? We want inflation. We want prices to go up in a healthy economy. But negative 1%, negative 2% in the multifamily spaces in no way it's atypical, but it's not like, oh, wow, this is, you know, they're losing money on these properties. To the contrary, we've got investor after investor after investor who owns great multifamily properties that are cash flowing amazingly right now at negative 1. negative 2% rent reduction, not rent growth. And so they're servicing their debt. They can still

invest in cap X. They can still do all sorts of great things. And they know that at some point, that asset is going to turn, the market's going to turn, the oversupply is going to be absorbed, and they're going to start to be able to push rents. The other piece to it is that because we've had oversupply, because we've been in a tightening cycle, the amount of construction that's going on in the United States has dropped dramatically over the last 12 to 24 months. So what you've had is for the last 12 to 24 months, you've had deliveries or a pipeline of somewhere around 500 to 650,000 units of multifamily on an annual basis. And that's what's created some of this oversupply in places like Nashville and Charlotte and Austin. But now that number is fallen from 650 down to 250,

250,000 units right now under construction to be delivered in 2025 and 2006. If you only have 250,000 units delivered in 2025 into 2006, you now have a constraint on supply. You now have the ability for those people who were at negative 1 and negative 2% rent growth, rent to be able to push rents 3, 4, 5, 6%. So we're going to boomerang from one end of the spectrum to the other end of the spectrum pretty quickly here. And oh, by the way, that is going to present real inflationary data into the economy in a year or two.

But it will also be a lagging indicator like it is today. And so right now what we're waiting for is the flat to negative rent growth to play through the CPI numbers. Similarly, when people start pushing rents again at four or five percent in 2000, 25 and 26, it's going to be a lag effect for that to come into the inflation print. So you're not going to see that in the CPI at the end of 25 and beginning of 26. Listeners, you can catch Willie Walker's latest thoughts and outside opinions from guests on the Walker webcast on YouTube and wherever you listen to your podcasts. Coming up next, Matt Argersinger and Jason Moza return with a couple

stocks on their radar. Stay right here. You're listening to Motley Full Money. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argusinger and Jason Moser. We're going to jump right into radar stocks this week. As usual, our man behind the glass, Dan Boyd, is going to hit you with a question. Matt, you're up first.

What are you looking at this week? All right, well, I kind of hinted at this one. Simon Property Group, ticker SPG, I feel like, like we need to create a B-quality movie and call it Revenge of the Mall. And it needs to star Emily Flippin because she told me once, and maybe it was live on this show, I can't remember, but she told me once, like she goes to the mall on an almost weekly basis. Wow. And I think she's still under 30 years old. So point being, people still love to go to the mall, even young people. And they especially like to go to high-quality malls. And Simon Property Group, which

owns the highest end, best-located malls. That's why they continue to put up solid results. If you look at the first quarter, occupancy was up 110 basis points a year every year, base minimum rent from tenants, up 3%. They raised their guidance again, raised their dividend for the ninth time in just the past three years. And yet the stock is still trading at a very reasonable valuation, 5.4% dividend yield. If you want to bet on the resurgence of companies like Abercrombie and Fitch, even Footlocker, to a certain extent. I would say you can do it a lot more safely with a REIT like Simon Property Group. Great valuation, benefit from all those tenants doing well.

And you can be very diversified within that. So that is, I think, a great bet right now. Dan, would you watch an 80s homage, Revenge of the Mall B movie, and any questions about Simon Property Group? I would not watch that movie. And I have a question for Matt. Are you out of your mind? A mall? You expect me to get in my car and spend some of my limited time on this earth

fighting traffic to go stand in a big building and look at crap? No way, dude. Wow, all right. I have no argument to that. Hot take from Dan there. Jason, what's on your radar this week? Yeah, Dan seemed on the fence there. I guess we'll have to revisit PayPal, right-tickr p-y-p-l. It's obviously been a bit of a tough stretch for them as they try to right-size the business and continue growing new leadership. But an interesting headline out this week, Mark Gretner has joined PayPal to help build out the company's advertising platform. He comes from Uber, where he helped grow Uber's advertising platform to a $1 billion business with more than 500,000 advertisers globally. So I know on the service, this may seem a little out of left field, but I think it

makes a lot of sense, it will help a company leverage its massive network of users and exposure to e-commerce. And in the context of a $30 billion revenue business, yet this is going to be incremental for some time to come, but it has the potential to grow. Think about what Amazon has done what their ad is over the last several years now, better than $40 billion in annual revenue. I'm encouraged by this. Dan, a question or perhaps a comment on PayPal. Can PayPal provide the experience that a mall can provide where I can walk into a store and get disdainfully glared at by some bored teens who happen to be working there? No. Interesting. Dan, what's going on in your watch list this week? Do you have to ask?

I have to ask. I think it's going to be PayPal. Maybe they'll roll that feature out for you. That's going to do it for this week's Motleyful Money Radio Show. We're out of time. We'll see you next time.