Motley Fool Money - Motley Fool Money: 11.21.2014

Episode Date: November 21, 2014

China cuts interest rates.   Best Buy surprises investors.  Keurig Green Mountain tumbles.  And Jack in the Box heats up.   Our analysts discuss those stories.  Plus, Motley Fool CEO Tom Gardner talks with Whole Foods co-CEOs John Mackey and Walter Robb. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good to see you, Jens. Hey, how you doing, Chris? We've got the latest earnings from retail, housing, health care, and more. We will talk with the leaders of Whole Foods Market. always will give you an inside look at the stocks on our radar. But we begin this week with the big macro on Friday. Both the Dow and S&P 500 hit new all-time highs after China's central bank cut interest rates for the first time in two years. Ron, Europe's central bank also expanded their own QE program. A little free money forever program that we've been doing,

they're catching on. I've got a lot of commodity stocks and industrial stocks that are very happy right now. Yeah, it's interesting to see. We definitely were seeing some concern and some weakness, especially coming, you know, as you said, out of China and Europe, and to see that they can actually take these moves to stimulate the economy, which we have been doing for so long and recently pulled back from, except, of course, we have low interest rates still. It's interesting to see, and I think what we're seeing is as long as inflation can remain tame wherever you go, then stimulus can be put forward. forth. Hey, let's pop up asset prices.

Everyone. I'm not going to channel my inner Paul Krugman, but I'm kind of like, what took so long? I mean, I think this is more a result of, you know, if you look what's happening in the U.S., we've been doing essentially easy monetary policy and massive stimulus for almost six years now. And it's just where we are today is we have GDP that's growing at a better than 3% on an annualized basis. We've had, I don't know how many months of better than 200,000 new jobs. And so, you know, it's not better for, for everyone, but it's certainly you can say overall the US economy is doing pretty well, and it's probably a result of a lot of the big actions the Fed took over the last six years.

Yeah, so both Europe and China were worried about inflation, rearing its ugly head. And since it hasn't, that's given them the room to pile on more stimulus. This is the first time China's raised rates in about two and a half years, and simultaneously they increase prison terms for political dissenters. So it's a good one-two combo. Somebody did some research before the show. I just made that off, actually. But it's good all around.

And I think we're seeing good numbers continue here as well. We just this week got some solid existing home sale numbers, which we've been waiting for. Some good Philadelphia index numbers came out to show some strength in the economy. Buzzing along? We'll get to housing in a little bit, but let's start with retail earnings. And, Matt, my favorite headline for this company was, Best Buy surprises almost everyone with Great Quarter. I know. I was surprised that third quarter profits came in higher than expected. And even their

same store sales, much higher than expected. No, include me. I mean, I was one of the group of many investors who probably a year ago left this company for dead. I mean, we know that they've faced the threats from companies like Amazon. They've been called the showroom for a lot of online commerce. But, yeah, there's been a revival here. The earnings per share were as a beat, revenue is a beat. The company's done a lot on its price matching strategy so that if you're in the store and you find another item online that's cheaper, Best Buy will match that price. That's worked.

And their online revenue, their online business, which we haven't really talked about, was up about 21% in the quarter. So great news for Best Buy. I still think the ultimate problem with companies like Best Buy is that they've got a massive store footprint. Even if they're matching prices to online competitors, they have such higher cost. inventory management that they have to worry about with a lot of companies like Amazon don't. So ultimately, I still think Best Buy loses the war, even though they've won some battles this

year. Part of this quarter was attributed to the iPhone 6. That certainly helped. But to your point, with the holiday quarter, it does increase the expectations just a little bit, a little bit more pressure. They kind of need to have this type of quarter a couple more times. I agree. I agree.

Shares of target up 5% this week after third quarter profit. came in higher than expected. Ron, what stood out to you in Target's quarter? I think the new CEO, Brian Cornell, seems to be doing a nice job. Obviously, the company was struggling for quite some time with the data breach problem and that lowered store traffic. What's interesting is we're continuing to see lower store traffic, but the rate of diminishing growth is getting lower. So things seem to be firming up, and the profits are there. Same store sales, a little bit anemic, but positive at 1.2%. Online sales grew at 30%. So they made some positive comments about the holiday

season. I think they're focusing on apparel. They're focusing on the way the stores are presented. That's a lot of what the new CEO has brought on. And so I think things are looking better, certainly, than they were. Does this give you optimism as we head into the holiday season? Because certainly a year ago, it seemed like in the retail industry, things were a lot more pessimistic. And now we're on the heels of, as we talked about recently, Walmart and now Best Buy and Target three really big retailers, all delivering pretty good quarters. You know, it seems like we're set up for a good holiday season, which probably means we won't get it. But we have the stock market at all-time highs. We have job growth. Things are

going pretty well. GDP growth, as Maddie said. Gas prices are low. Exactly. It seems like we we have a perfect storm for some people to go and buy some good stuff for the holidays. We'll have to wait and say. Any listeners we have in Buffalo, New York, do not appreciate your perfect storm. Oh, let's move on to housing-related stocks. Lowe's third quarter profits up 17%. They also raised guidance, Jeff, and stock up around 8% for the week. Yeah, Lowe's had a good run the last couple of years at least, and they are seeing positive trends in, of course, consumer confidence, but also homeowners' views around home values, which are continuing to go up. And they're We've seen confidence now in local markets, home markets, and price appreciation there.

You know, a lot of appreciation has come from urban, dense areas, and now it's spreading out to smaller areas, and that's a good sign. So overall, like you guys just mentioned, they're seeing higher personal income, more use of revolving credit, which you use on your house if you're going to do improvements, and lower interest rates, lower fuel prices, all helping the retailer spend more. The low stock looks, it looks all right. It's up 200 percent the last five years. It looks a little above its average valuation the past several years, but it's still reasonably priced. That's kind of what I'm seeing with the market overall. All these big companies, they generally

look about 10 percent above their long-term average price, but still reasonable. I was going to say, low is hitting an all-time high this week, but pretty amazing that it's still not insanely overvalued. And I'll throw in there, Chris, when you say that a lot of investors that we meet, when When they hear all-time high, they think, well, it's too late, I've missed it, and they don't realize the company has grown to all-time highs. Earnings are at all-time highs. So, relatively speaking, the stock is just steady state.

Home Depot's third quarter results look pretty similar to lows, Ron, and yet shares down slightly for the week. Is that a matter of the valuation of Home Depot stock, or is a little bit of this people waiting for the other shoe to drop on the data breach that happened earlier this year? I think probably data breach. From evaluation perspective, I think Home Depot is actually trading at multiples that are a little bit less than Lowe's. So I think it's that, first of all, it appears that Lowe's is catching up to Home Depot, which has been trying to do forever. And in terms of same-store sales,

comparable store sales, you're seeing them come pretty darn close. Home Depot at 5.2, lows at 5.1 this last quarter. And so people got a little bit excited about the underdog. And I think sent the stock higher. But then, as you said, although Home Depot had nice results with the 14% profit increase, we have the overhang of the data breach problem, which is probably going to cost $34 million plus. They really can't tell for sure. And that just kind of puts a pall over the stock for a bit. You know, it's interesting. Lowe said in this call, about 90% of their stores are very close to their main competition, Home Depot. So they're all, they're clustered together. So it is kind of a

head-to-head competition. Although, I think a lot of investors look at any particular industry and think, well, there can only be one winner. And you look at the performance of these two stocks, particularly over the last five years. It certainly blows away. Both have really won. And we don't need to overcomplicate investing. When housing was down in the dumps in 2009, where could it go except up eventually? So buying either of these two companies was a good move back then? By the way, Ron, we were talking earlier about Brian Cornell, the new CEO.

at Target. I would say he had a pretty easy act to follow because Greg Steinhoffel, his predecessor, not a great job. Always nice to come in with low expectations. On the flip side, Greg Meneer has been CEO of Home Depot for just a few weeks. He's got kind of a tough act to follow because Frank Blake really turned that company around. Did a great job. And then, of course, you come in and then you have the data breach problem and things get a little dicey and Loz is catching up. But having said that, I, as As Jeff said, both of these companies are doing quite well. Home Depot is still up 19% year-to-date, not as good as low as 27%, but still solid.

Coming up, we'll give an inside look at the stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you're here. Welcome back to Motley Full Money, Chris Hill, here in studio with Jeff Fisher, Matt Argusinger, and Ron Gross. Guys, the latest quarterly report for Kirk Green Mountain looked pretty good on the surface. Fourth quarter profits and revenue came in higher than expected. They wrapped up a pretty good fiscal year, but Maddie, the guidance sort of did them in.

Guidance was disappointing. They also announced that their CFO was stepping down, which that's the one person from the C-suite. When they step down, you kind of get a little concerned. But overall, revenue was up 14%. Their sales of single-cup coffee pods of 22 percent. percent, even though the sales of brewers was down, but that's where they make substantial amount of their profits from on the pods. I'll just say this about Currigan Mountain as it continues to hit new all-time highs, even though it's down a little bit after its guidance. I just feel like, Kerrig, I mean, we were so worried about Curd for a lot of reasons.

Inventory issues, some accounting problems, the idea that their patents are rolling off in 2012, and so all these competitors are going to come in and build new single-served machines, but I just feel like the Kerr, for whatever reason, it's the brand, it's the platform now, that customers prefer. And the Kyrg 2.0 is going to be a big holiday seller this year, no doubt about it. And you have companies like Starbucks, Kraft, and recently Coca-Cola that continue to like the platform and invest in Kurek Green Mountain. So it remains a very positive story. Yeah, I agree. I just bought the 2.0, and I think part of the strength we're sitting in pod sales is because they're very smart. You can't use the old pods in the new 2.0. So you've

got to go out and replace your whole coffee stash. Or you can go on YouTube and figure out how to kind of like, you know, Jerry ring the whole thing. I would never do that, of course. Well done. Well done. I should point out, even with the drop in the stock this week, this is still the number one performing stock in the S&P 500 year to date. I would be remiss if I did not bring up activist investor David Einhorn, who a few years ago came out with a 110-page PowerPoint presentation, shorting Currieg Green Mountain. Very quietly this week, David Einhorn closed his short position.

Yeah, this is, you know, I mean, he was also the same guy who shorted Chipotle a few years ago or maybe a year or two ago because of Taco Bell's impending competition. He's had a bit of a bad run, I would say, David Einhorn. Yeah. Shares of Medtronic, big player in the medical device industry hitting a new all-time high this week after second quarter results came out. Jeff, kind of the opposite of Currieg Green Mountain, in the case of Medtronic, good results, but even stronger guidance. That's right, Chris. And this is after several quarters, really years of slow performance. And now, for Medtronic anyway, a good performance was 7% gain in sales, 7% gain in earnings, a billion dollars in free cash flow this quarter, and expectations for stronger sales

down the road, especially in the emerging markets where they're growing 12, 14% year over year, and they hope to get that even higher. So Medtronic now is they're the fourth largest medical device maker in the world. I always do. I always thought they were number two or three, but there's J&J, Siemens, GE, and then Medtronic. They have a lot of room to grow with a $60 billion market value in a healthcare industry that's in the trillions. I think they're set up to continue growing quite well as they acquire COVIDian, which is in process, and they work through synergies there.

They're going to save a lot of money as they combine those two companies. Shares look reasonably priced. I'm not taking anything away from GE or Johnson & Johnson, but those are huge companies with a lot of other irons in the fire. Medtronic, I don't want to say they're a pure play, but this is their main business. They are the purest play. Yes, I agree with that. And they're doing it quite well. They have a lot of innovation, a lot of patents coming through, and they have a lot to look forward to going forward. Let's talk burgers, shares of Jack in the Box up this week. Fourth quarter profits were lower than

expected, Maddie, but they had some good same-store sales numbers at Jack in the Box, and Kudoba, the Mexican restaurant chain that Jack in the Box is the parent company of. Right. Just looking at Jack in the Box stores, comps there were up 3% which, you know, for a restaurant like that, I mean, and we know they've refreshed the menu, they've refreshed a lot of their stores. So maybe it's not too surprising, but I thought that was a pretty strong number. Let's be clear. McDonald's would kill to have some of the tech box. But Kodoba is really, as you said, it's really the story. I mean, comps there were up 7.7%. And I was looking at the guidance.

Now, Kodoba is around 32% of the company's revenue now, but it's certainly their growth engine. I mean, they're guiding between 6 to 8% comps for Kodoba in the coming year, and they're going to be opening between 40 and 70 new restaurants. And on top of that, 30 to 40 new franchises of Kodoba, that's over potentially 100 new units that they're going to be opening in Kandoba next year. So, clearly, we know the burgers are working, and that certainly shows up a jack-in-the-boxes numbers, but even better. I mean, burritos are certainly working. And Kodoba is one of the best Chipoli knockoffs out there. And so probably not a surprise. Let's get to the stocks that are on our radar this week and bringing our man, Steve Brodo from the other side of the glass.

Ron Gross, what are you looking at? I'm going to stick with the existing home sale and home improvement theme from earlier in the show and go with Tiles shop. TTS, a retailer of specialty tile, had a really tough year. The stock has been cut in half this year. They have a new CEO that's just come on board. and they're kind of trying to correct some of the missteps they had. But there really should be plenty of growth going forward. There's only about 100 stores now. I think they should be able to get to 400 over time. But they're slowing their growth, which I think is

important. So they correct some of the problems they have. But at $9 a share, I think this is severely undervalued stock. And insiders have been buying a lot of shares. I actually made note of that and forgot to say it. Oh, thank you, Maddie. I appreciate that. Insiders have been buying like crazy. Maddie with the assist. Steve Brodo, question about tile shop holdings? You bet. My question is, will they expand to selling all types of flooring?

That's an interesting question. Lumber liquidators, on the other hand, has just announced that they're going to get into the tile business. But tile shop has not vice versa. We don't know yet. That could be a logical expansion potential later on. But let's see them focus for now, I hope, on tiles. Matt Argersinger, what are you looking at? Sure. A little bit of a momentum play here. I'm going with Polaris Industries, tickers PII. Stocks has been a monster. hitting all-time highs. But as I was watching the news this week and I saw the massive snow drifts that are hitting upstate New York, particularly the Buffalo area, and I see the only guys on the road are the guys with snowmobiles. Maybe think of Polaris, which is one of the biggest makers of snowmobiles and off-road vehicles. It just seems like they're going to have a pretty good season. Steve, question about Polaris? Will, you know, four-wheeling and snow

machines, all that stuff, is there really a chance this thing's going to grow in a massive way? It seems like it's always been this tertiary market. Just doesn't seem like that big of a deal. I don't know. I disagree. I think they are becoming more popular. I mean, one person in my family just had a trip where it was almost completely off-roading, and they loved it. So I feel like it's bigger than just a fad. Jeff Fisher, what's on your radar? Skyworks Solutions, Steve. I've celebrated the stock before on the show, and it's doing well. They make analog semiconductors that go into smartphones, but they're also moving into Internet of Things in a big way. Anything that needs to be connected, Skyworks can provide a high-end solution. for it. The ticker is SWKS. They're in every iPhone, every Samsung phone, etc. Steve? Does being in every iPhone, you've heard that a lot with InvenSense and, you know, products like that, is that really that big of a deal? It all depends on your margins.

Skyworks has really strong financials for any company, let alone a chipmaker. They attribute that to providing a specialized solution for each customer. Steve, Skyworks, Polaris, Tile Shop Holdings. You got one in your particular curious about? I might have to go with Skyworks on this one. All right. You're not going to hop on a snow machine and do a little off-roading? Go to a tile shop now. I don't think so. Not this week. All right, Ron Gross, Matt Argusinger, Jeff Fisher, guys. Thanks for being here. Thank you.

Tell me up next, Motley Fool CEO, Tom Gardner, sits down with the leaders of Whole Foods Market. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Two weeks ago, we talked. Two weeks ago, we taped the show in Austin, Texas, and at that same event, Motley Fool CEO Tom Gardner, had the chance to talk with John Mackey and Walter Rob, the co-CEOs of Whole Foods Market. John Mackey's also a member of our board of directors. The conversation covered a range of topics with John Mackey starting by talking about conscious capitalism. I actually wrote a book on conscious capitalism called Conscious Capitalism, and we outlined four principles in that book.

The first one is every business has the potential for higher purpose that, in fact, includes, but it's not limited to just making money. Secondly, that the business should be managed on behalf of all of the major stakeholders, not just the investors. So customers, employees, suppliers, communities in the larger environment. Third, we need a different kind of leadership, more of a servant leadership that is serving the higher purpose in the stakeholders. And fourth, you have to manage your culture in such a way that allows the people that participating

in the business to flourish and reach their high potential. highest potential. It is true in investing as it is in business that many of the best decisions we make actually harm us could be perceived to be negative in the short term, but cause us to be great in the long term. What is an example where conscious capitalism may almost appear to set Whole Foods back relative to other companies over a six-month period or a one-year period, but because of the way you're making decisions, you believe it's setting yourself up for the best result for all stakeholders over a longer period of time. Well, one example

might be, you know, we don't we say this publicly and we don't operate the business for the, the shareholder isn't necessarily the first stakeholder. You realize that we're in a room of shareholders here? I'm realizing that. I realize. Are you telling me to stop? No. I thought you wanted controversy.

No, but the happy ending is that the way that we go about it by putting the customers first and the team members first is we get to the shareholders, we get them in a very good result, but a more complete result. And so I think sometimes when we say that, people take it as you did, perhaps, that we're not thinking about the shareholder return. But that's not, we're just thinking about it differently.

We're just taking a different road to say if we look after our customers, if we look after our team members, then the results will come from that. That's what John meant by the sort of system approach to business. Well, of course, if you bought our stock and our IPO back in 1992, it's up 40x. since then. So we've been, hopefully it's been great for the shareholders, and we've been great for all of our stakeholders. So what Walter means is that we see the stakeholders as integrated. We manage the business so that all the stakeholders can be flourishing and winning. That includes the investors, but we're not putting the investors' well-being ahead of our customer's well-being

or ahead of our team members' well-being. So that is the distinction. There's a line that's assigned to the Grateful Dead. I don't think, I don't know if it was said about the Grateful Dead, I think, but maybe by one of the Grateful Dead band members, that we're not trying to be the best of what we're doing. We're trying to be the only ones doing what we're doing. So tell me if this is a fair assessment of Whole Foods that for most of the, maybe up until the last, say, 10 years, it could be said of Whole Foods. There's really no one that's doing what Whole Foods is doing. You could still say that. Okay, that's my question.

Are you still the only ones doing what you're doing with the sprouts in the Trader Joe's and the larger markets and Walmart getting its organic department? What is it that you're the only ones doing and how do you think about that going forward? Well, I mean, it's the nature of capitalism that when you create something that's creating value for people and it's it's growing, expanding, it's popular, you're going to get imitators. You're going to get people that are copying you. And that's how progress happens in our society. Competition forces you to innovate. It forces you to get better. It forces you to improve.

And Whole Foods has had this major impact. And we have now lots of people studying us and copying us. And that forces us to improve. That forces us to lower our prices. It forces us to create value in different directions. It forces us to differentiate. So yes, we have more people copying what we're doing, but we're not standing still.

We're continuing to up our game. And that's why I think no one's quite doing what Whole Foods is doing, because we continue to introduce new programs that are not yet been studied and copied. What are some of those programs? What are some of the unique innovations happening right now? And maybe also, what do you see happening

over the next five years? Well, of course, we think about innovation from a cultural standpoint that when you set up an organization that you want to distribute the decision making, to the intelligence. And so literally, for example, our regional presence have $200 million of capital to invest on their own authority against the EVA accountability.

But so you start out by organizing yourself where folks can move faster and make decisions, right? So the evolution is happening. It's almost like part of the air, right? So our kind of formula is empowerment. There's a John and I's job, the E-Team's job, is to kind of hold the first. frame for the company to it, but distribute that intelligence and that ability to move.

So empowerment plus collaboration equals innovation. So we would argue that innovation isn't delegated to an innovation officer. Innovation is injected in a culture. It's part of how the company rolls. And then from those things, constant innovation is coming all the time. But collectively, if I give you one example is the one that's on the table right now. We've taken a look over the last five years, John mentioned that conventional produce. There's organic produce and there's conventional produce.

What does conventional produce mean? It doesn't mean anything. So what you find and you get in there, it's a real genie box in there. And so what we've done is construct a set of transparent standards into what's happening there. We've taken out some of the neonicitides and some of the organic phosphates that are truly harmful. And we give the customer this standard's good, better, best rating that gives you a visibility into a broader stewardship index of how the produce has been raised. There's one example. I can give you several more.

We like this question. So he's right. Responsibly Grown is the new program we've introduced. We worked on it for a number of years. What's the program I missed? It probably about it. Responsibly grown. We are rating all of our produce, or we're 60% now, 100% eventually, in terms of its

sustainability, in terms of its, what kind of water usage, the soil, the way the labor is treated. We're going to create more transparency in this whole process. And if it doesn't measure up, we won't put it in our stores at all. So it's, it's, but then also our animal welfare rating program we introduced a few years ago where we're rating our different species in terms of how these animals were raised. And the better, the higher the rating, the more, the more humanely those animals are treated in their processes. We were just in Houston yesterday.

We just opened a new store in Houston, post oak, our biggest store in Houston. The very first store we've ever done, and probably the, I think, the first one in the United States, we put our own brew pub in there. We actually had this bar that we are making 20 different kinds of beer. And I was told, it takes us about two weeks to brew a new batch of beer. I was told yesterday we were run out of beer in the first four days. Because the demand, I had no idea that Houstonians had such a problem with alcohol. We might actually add it to that.

The store opened at 8 o'clock, and the bar was filled up. We thought it would be something people might. get a drink after work. But we opened up our first tap room just five years ago in Cottingtown. And again, I don't think supermarkets tend to do that, and now we've got over 100 around the United States. Prepared foods. We don't talk about it this much, but Whole Foods is operating the highest volume restaurants

in the United States. If you were to add up, like our store down there at 6th and Lamar, if you were to add up all the prepared foods of it. And I was to tell you the sales numbers, I'm not going to, but it would blow you away. It's amazing how much we're doing in prepared foods. We're operating the highest-o-eim restaurants in the United States. So these are things people are not yet trying to copy whole foods on, but undoubtedly they will, and we'll continue to innovate. We're not going to sit still.

We're going to continue to up our game. Awesome. What do you think about the introduction of new concepts and new stores, and how do you think about renovating and think about renovating existing locations. So one of the questions from one of our analysts is in some of the DC locations they hear brew pub is coming, when's it going to come to an existing location, and how do you make the decision between introducing it to a new store or an existing store? Well, we give you the beer so you don't notice it until we refresh it, right?

Well, we're on a tear with that right now. We're going to do 40 refresh stores in this first Q1, and then we're going to do 200 by the end of the year. So out of a total of around 400? We just crossed 400. Yeah, we just crossed 400. We did three this week, so it's been a good week for Whole Foods this week. I don't know if you're checking your monitors there, but we're very pleased for the last couple of days.

Hope you are too. But you're asking, I mean, what happens is we now have an expectation with our regional presence. We expect every new store to have an innovation, to have to have something they can bring to the table. And it spreads very quickly. And then typically they backfill into the existing stores. That's typically how it's happening. Would you agree with that? Yeah, I mean, Whole Foods is very innovative.

Not only, I just mentioned that tap room we opened up in that store, but there were additional innovations and little things that we noticed, like they integrated their self-service bakery that integrated muffins, croissants, cookies, it's all together. I hadn't seen that before, and I thought it was a really good idea. I took pictures, and sets of those pictures were already full. flying around Whole Foods Market. The sales in our little

brew pub were three times greater at that store yesterday than any other bar tap room that we have in the Southwest. So it's like three times greater than any one other store in the Southwest is doing. And it's like, I'm talking to the regional president and he's now trying to figure out how to cram in new brew pubs in the stores that he hasn't developed.

Because the margins will be pretty remarkable on those too. Yeah. Yeah. With health is beer. But we've done it, and we're doing an experiment in Austin that is being extremely well received since people live in Austin. We've got tired of getting kicked around in the whole paycheck stuff. And we've radically lowered our produce prices here to where we think we're the least expensive produce. Or we match H.E.B. Sprout to anybody else in produce, Trader Joe's.

And it's been tremendously received. We've had huge lift in sales. The experiment is so radically successful that we're already trying to figure out how to increase that experiment in other stores. Walter and I were just talking about it. We need to spread this experiment into other cities. I'm not going to tell you which ones, but we're going to. And then probably by the end, by the time we get into next fiscal year, 2016, it'll probably be across the company. So we innovate, we experiment, the successful experiments get replicated.

the failed ones get tossed out. And it makes Whole Foods difficult to compete with, because we're so decentralized and regionalized that we allow all these experiments to occur. We're able to innovate faster than most of our competitors, which tend to be more top-down. A couple, two very good questions for me before we go to the Q&A.

Just one of them, how's Apple Pay going? Apple Pay is, I mean, we were the only grocer in the initial set, and we were the first grocer to launch it. We just crossed 150,000 transactions with Apple Pay. I don't know. How many of you guys are using Apple Pay? Okay.

Well, it's phenomenal. It's as simple as putting your thumb over the thing, and the way it goes. It's more secure. It's more convenient. And our customers are just, they're using it. That's all I can say, very quickly. Coming up, more with John Mackey and Walter Rob. Stay right here.

This is Motley Full Money. I'm going to keep well, my vegetables card off. Welcome back to Motley Full Money. I'm Chris Hill. Let's get back to Tom Gardner's conversation with John Mackey and Walter Rob, the co-CEOes of Whole Foods Market. Last question for me. How do you decide whether to open a new store or buyback stock? I have definitely heard some people out in the world say, I would like to see Whole Foods open stores more rapidly than they are. God, we're opening stores so rapidly right now. Walter is here. We open three this week. We have 114 stores in development. We just opened and we opened required 38 stores in our fiscal year 2014. We'll do 41, 43 this year. So we have enough free cash flow now to open stores as quick as we can,

increase our dividend, and do major stock buybacks. We bought back $336 million worth of stock in the last 12 months. Below $40 a share, right? Somewhere like $39. Most of it was below $40 a share. 37 bucks, I think, average $37. And they increased our dividend as well, too, yeah. So as an investor, when I look at companies,

I particularly love to find Whole Foods early in the process. when I can look at the executives and say, they're going to be there the next 15, 20 years. I look at Mark Zuckerberg at Facebook, and I know that 20 years from now he'll be Jeff Bezos' age. So you guys are now, you can give your ages. You're incredibly healthy for any age. I thought that was a compliment.

I'm trying to think about how that could have been an insult. I hope it's also an insult just for the fun of it, but it wasn't intended that way, because John and Walter are 60, early 60s, 61. 61, right? Ballpark age, right? Sorry to do that to you. You said I, you could, I, you could, twist a little bit there, buddy, twist. But the reason that I say that is, will you be leading Whole Foods for the next 10 years? It's obvious to me that it's your passion because you're following up each other's answers and you have a lot of things to share with us. But is that, should that be a concern? How should we think about succession at Whole Foods? So we were out at John's Ranch about two months ago and we pulled up, we did leave a little early to go out and have a talk and we, and we, we did leave a little early to go out and have a talk. And we, we, we, we, we did leave a little early to go out and have a talk. And we, and we, I pulled up the chairs by the water, and John looks at me, he says, you know, he says, I'm good for another 10 years.

So, you know, that's a pretty long time, right? That's a great time period. Hey, I'm good for longer than that, but... Yeah, I meant good to do this for 10 years. Yeah. I left the sex out. I'm sorry. Hey, Tom, I just... I just had my telomeres measured, and I was in the 98 percentile.

My telomeres were longer than the average 10-year-old. That's what I meant by Healthy for Any Age. But the succession question is an important one. I think it's an important question that you should always be asking as investors because what usually happens when a founder-led company, the founder eventually gets old or dies and they move on. And I think the companies come to a crossroads at that point. Now, a really good culture at the board is smart.

puts in a strong operator into that position. And so it's an operations bias toward someone that's been part of the culture. And so that culture sustains itself. Sometimes they put a financial type in, and it begins to now move away from its higher purpose that the entrepreneur might have had if he hasn't, he or she hasn't institutionalized it. And then sometimes they feel like they need to bring an outsider in who's not in the culture at all. So I think it's the most important job that a board of directors does is they is succession in dealing with crisis but also with succession. I know Walter and I, every time we meet with the board once a year, we go over who we think will be the successors to ourselves, who the board should be paying most attention to, and who should be in the discussion.

And they are all or mostly internal candidates that you're discussing when you talk about that? Yes. I mean, it'll be up to the board to decide whether to look outside, but assuming the company's healthy and continuing to flourish, it would be stupid to look outside, frankly. We have great management that's coming up, that's young and vigorous. Are you saying we're not young and vigorous? No, but I'm saying we're not young.

I mean, you know, I can do the math. And you want cultural continuity until the business is broken. Then you have to bring in outside. I mean, everybody ultimately comes from the outside. So you bring in outsiders, they shake things up. But they need to be inculturated or you'll potentially have a discontinuous break. I think it's, I mean, they're great examples of great companies that brought in outsiders and almost wrecked their culture.

Hewlett Packard's a great example. Carly Fiona came in and upset the Applecart. That's an HP way, went down the toilet. Another one, Home Depot. They bring in Bob Nardelli from General Electric. He starts trying to put GE stuff in there. Almost wrecks Home Depot. And there are other many examples of companies like that.

So, hey, Steve Jobs has passed on, but Tim Cook, a longtime Apple guy, and he's now beginning to show his own leadership style, and it looks to me like Apple has good continuity, even if they don't have a genius-like jobs at the helm any longer. One of the great things about investing and starting a company and working here for 21 years is the opportunity to meet people like you here in the room and spend an experience like this.

Another great joy for us has been the opportunity to meet people that we admire and learn from in business, and that has been true of John and Walter since we met them all the way through, and that doesn't mean we won't, with super objectivity, analyze their business and figure out whether it's the right investment to make at right points in time. But for us, as we said earlier today, it starts with culture, starts with the leadership and the values of that organization. And so it's been a great pleasure to spend more time with you guys here today and to have the friendship that we have with you over the years. So full on and thank you. That's very much.

Hey, this holiday season, why not give a gift that will help your friends and family invest better? Motley Fool Stock Advisor is our flagship service. It's a great way to get started at investing, so think about that for 2015. You can learn more just by going to mfmoney.fool.com. That's mfmoney.fool.com. That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Rick Engdahl. Our engineer is Steve Brodo.

Our producer is Mack Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.