The Best One Yet - Urban Outfitters launches subscription clothing rental. Tesla hits a 3-year low. And JCPenney’s “graceful shrinking”

Episode Date: May 22, 2019

Tesla stock hit a 3-year low this week after one analysts’ aggressive dystopian imagery. Urban Outfitters is trying on its best Rent the Runway impression, whipping out a new clothing rental business to be called Nuuly. And JCPenney’s falls 7% for its uninspiring-ness.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. It's Wednesday. May 22nd. This is the best one yet. It's a straight-up T-B-O-Y, Jack. Markets rose about 200 points. Very nice. We're covering three stories. I have wonderful mix today. The first is Urban Outfitters. It just unveiled its own clothing rental subscription. The name is newly the meaning we have no idea. Second story is Tesla. Shares just hit a three-year low.

A top Tesla analyst, who's usually a big fan of the company, just went pretty dark. is a, like, a scenario where Tesla almost dies. Another dark story, Coles and J.C. Penny, they just announced earnings, and it brought down. It brought down the entire department store industry. You're bringing down everyone. Macy's Northstrom, they were feeling the, like, sympathy pains on this. You want to pick me up? Please. Justin Bieber. Topless, wiping right and left on his, you know, armpits all day. He just unveiled support for a natural deodoring company called Schmitz. Did you know most deodorants have aluminum in them? I thought it was like titanium. It was some kind of a metal. I didn't know. I just knew it was invading my body.

I tried out all natural deodorant. It was really expensive. And I realized I didn't smell like my old spice self that I've smelled like since I was 18. This is the best part, though, about Justin Bieber's new all natural deodorant. Well, he posted it on Instagram shirtless. The best part is him saying it's all about being present. Being present. I'm just going to let that one lie while Jack poisons his body slowly with titanium infused deodorant.

Now, before we get into those three great stories, listen. You tuned in the snacks daily. We spoke to the lawyers and we got to get something. legal out the way. The snacks about the hair ain't food. It's air candy. They don't reflect the views of the Robin Hood family. It's all informational just so.

We're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you. Robohood Financial, LLC, member FINRA slash SIPC. For our first story, Tesla stock just dropped for its fifth straight day. If you love Tesla, you might want to skip this door. It is a bad situation. The news

was really bad. The first headlines said code red for Tesla. The other headlines were like dark clouds over Tesla. It was really dramatic. I don't even feel comfortable reading one of these. I sound like I'm being dramatic right now. Some of these were just mean. Like Elon Musk, I'm sitting back listening to some Jason Moraz and just going to try to relax after all this. Somebody get Elon Musk, one of those support puppies. He needs it right now. We all need that right now. So the news bakes down to one Morgan Stanley equity analyst. Right. And these analysts come out and they basically say, you know what, I'm going to issue a price target.

And that's what he or she thinks the price of the stock will be in 12 months. And they give three price targets. The first is the bullish case. Right. So that's like the best case where it's going to be. Everyone's happy. They're high-fiving. The second is the expected case.

I like your normal things continuing on. You know, same shirt. And the third is the bearish case. This is like when things get ugly. But this is why things got really ugly. The bearish case was really, really ugly. It was actually depressing. Adam Jonas, the equity analyst, he said that if things go wrong for Tesla, if things don't go well,

the price per share will hit $10. Now, Tesla is trading now in like around $200. So to fall that far, they would have to drop 95%. And he had a few reasons behind all this. Last quarter's sales were less than expected, and the company has been losing cash. But then he said, you know what, over the next 12 months, there are like three specific things that could happen that would make things really bad. So we're going to illustrate to you that kind of doomsday worst case scenario.

Snuggle up with something really comfy right now. This is a dystopian movie that's about to go down. Okay, so the first kind of scary situation for Tesla. What if demand falls? Now, he said the market right now for electric cars, it could just be saturated. Maybe everybody who wanted to buy a Tesla already has. They wanted to show off. They're already showing up.

Tesla's famous for like their long waiting list to get a Tesla, but there isn't one right now. Okay, so the second kind of doomsdayish scenario he's outlined here is. is what if China blacklists Tesla? Now, China is by far the biggest electric car country in the world. And we are in the middle of a trade war. Tesla plans to start exporting to China and even build a factory there, but that could all be put on ice. All that happens is a couple regulations, a couple phone calls, and maybe Teslas don't end up China bound. Now, if there's less demand and China doesn't happen, then Tesla could run out of money.

Is this the third scenario? Yeah, the cash runs out. Just no more cash. It just raised $2.7 billion of fresh cash. by issuing new stocks and new bonds. But it's using up cash every day. And the next time, investors could decide not to invest. Elon's got quite the LinkedIn.

He could ping a few people and probably raise some money. But the reality is, could it be even close to enough you'd need to run a car company? If he runs out of cash, there just might not be investors there. So, Jack, what's the takeaway for our buddies over at Tesla? Tesla has huge upside, but even huger downs. Now, let's talk about the other price targets that this particular anise tossed in there. The bullish case. He said that Tesla could be worth $391. Right. So this is the best case scenario he's describing is the stock going up significantly.

So it could be $10 if things go badly or $391 if things go well. It's a tale of extremes. You've got bankruptcy on one end, changing the world and the future of history on the other. That is being a Tesla shareholder. Get ready for drama. Full disclosure, this is Jack and I own stock in Tesla. For our second story, Urban Outfitters is launching a clothing rental business. The name, newly. We think that's the pronunciation. To use N-U-U-L-Y.

It's basically rent-the-runway. They're adding vowels while other companies are dropping their vowels. Throne another you make it a hat trick. Now, this is basically rent the runway, but for clothes that aren't going to bring attention to you. So for $88 a month, you get a box of six items that you get to keep for the month and then return. So if you're urban outfiters, your stock is down 19% this year, your sales have slowed to tad, and then you look over at the rental industry, you're like, hmm, rental clothing is having a moment. It's really looking show. The rental clothing industry is growing 20% per year because

millennials, they want to own fewer clothes, they want to stop throwing them to the landfill. They just want to share clothes. It's more sustainable. So Neely comes around and says, you know what, we've got a Rent the runway differentiator. We're not fancy. We're just going to tell it like it is. Rent the runway has ball gowns, dresses, and really expensive, fancy things. Newly, you roll out of bed, you slip into this thing, and boom, you're on your way. So to be clear, you get a box of six items that you picked out on urban outfitters.com and you get to wear them. And at the end of the month, you can either send them back in a reusable bag and then they will dry clean them and get them ready for another person. Or you can decide, you know what? I love

that sweater. I'm going to keep it. I'm going to buy it. And if your urban outfiters, keep in mind, you already own anthropology and free people brand. So you get to load up that box with urban outfitters, free people, anthropology. Also, Reebok, Levi, Levi. eyes and other brands Urban Outfitter has in the store. And then get this. This is the wild part Jack and I thought was crazy. Two words for you. Flea markets. They got people getting stuff from flea markets that then they're

sticking in bags and renting out to you. So this is like, you know, filled with a bunch of themes right now. You got sustainable like clothing. Sharing economy. You got ownership light, you know, in case you're moving to different cities these days. Once you're done wearing these clothes and you send them back, they clean them, they dry clean them and they get them ready for another person.

Now, Urban Outfitters is staring at a mirror right now. That's called an anthropology mirror and they're facing an existential question. Will this cannibalize my own sales? Or will this lead to new sales? So the competition is rent the runway. They have like $80 per month. You get four items, very similar to this.

But they don't need to worry about selling clothes. They just rent. That's their only business. 100% of their focus. That's all it is. But the team at Urban Outfitters is thinking you buy something because you know it, but you rent something because you want to try it. And if you try something, you may end up buying something.

They hope that Urban Outfitters customers just want to try, and then maybe they want to buy, and it'll just be one big happy family. Now, the whole person running this thing is the son of the founder of Urban Outfitters, and he is under the impression that this whole program is going to drive like 50,000 subscribers by the end of this year. And $50 million in revenue. So, Jack, what's the takeaway for our buddies renting themselves out over at Urban Outfair? Will low-end clothing rental work as a business? Rent the runway's value proposition is simple. wear this gown because you couldn't afford it. The clothing at Rent the Runway is aspiration.

Boom, I may knock out in this halter top, and there's no way I'd fit into something by Dior otherwise. Newly, on the other hand, you could totally afford this stuff. It's like a $20 rolling stones t-shirt. And if you, like, do the math on this, you're basically paying $15 a month for that very simple rolling stones t-shirt. $15 per month per item. So after like three months, you could have owned it for $45.

So we don't know if this will drive business or not. For our third and final story, J.C. Penny and Coles just looked kind of awful. Really awful yesterday, but J.C. Penny's looked even worse. It had to happen. You don't want to compare them, but you kind of had to compare it. I don't like this shodden situation with J.C. Penny. Can we talk about the opening line to the earnings report? Yeah. Maybe one of the more uninspiring things I've heard in my life. Inventory reduced 16%.

Wow. Knock. I mean, sit down. That thing, what are you going to do with that? What management is saying there is that huge stack of stuff that people don't want, like the St. John's Bay and the Arizona jeans? stacked up on shelves on shelves. That stack is a little smaller this quarter. That was their brag line. Now, sales at stores open at least a year fell 5.5% last year. And the loss doubled.

But one of our favorite lines from the earnings port. Management is focused on shrinkage. Shrinkage is a retail jargon. Not a George Costanza thing. It means shoplifting. That's what it means. J.C. Pennies is focused on reducing shoplifting. That's how bad the situation is kind of J.C. Pennies.

because I spent a lot of time as a kid playing hide and go see you get at pennies. Jack's named after the J and J.C. Penny over here. Fun fact, he didn't even know that. Now, can we do a little compare-contrast situation over with Coles? Let's do it. They have about the same number of stores. J.C. Penny has like 860. Coles has a little over $1,000.

Give or take one or two. Now, there's one big difference between the two. The valuation. It's a huge difference. Oh, my God. So Coles' market capitalization, which is the value of all of its shares, is $9 billion. $JC. Penny's a mere $300 million. That's like 3% the value of Coles.

Now there's one other kind of key distinction we should mention. Yeah, J.C. Penny, the location of J.C. Penny's store. Location, location, location, location. J.C. Penny's, like, rose to prominence in the American suburbs by putting all of its stores in shopping malls. Meanwhile, Coles was like a little more strip mall focus. We're talking on the side of the road. Strip malls on, like, Shelburne Road in Burlington, Vermont. Off the, like, highway. commercial strips are still doing okay, but malls are dying, so J.C. Pennings is suffering.

And basically, if you're Coles and, like, things are going south, you can rent out some of your space, sub-lease it to, like, Planet Fitness to come in. Yeah. Coals is making innovative moves. They're sub-leaseing to Planet Fitness, sub-leasing to grocery stores. Meanwhile, J.C. Penny's just trying to stop shoplifting if it's like, whatever. Seriously. So, Jack, what's the takeaway for our buddies at both J.C. Penny and Coles? I'm going to stick to J.C. Penny. It doesn't have a growth plan. It just has a shrink. We are so serious about this. You got to check out the slides in this deck that J.C. Penny just unveiled. Here are the top priorities of management.

This is what it's focusing on. And again, prepare to be uninspired. First is reducing inventory. I don't even, I mean, what are you going to do with that? Second is removing non-selling items from the website. Third is reducing shrink, aka shoplifting. Again, it's like they're bragging about this. Now, they only have one that's slightly growthy, maybe, which is to revamp and rethink the merchandise in the store.

Some guy, like some intern is on that right now who's like, pretty excited about life. And the management, like recent management changes, say it all. They've just brought in executives from Macy's, Target, and Walmart. Sounds like bringing in a lot of people who are from similar places. Yeah, they do not have like a turnaround strategy. Their goal right now is to shrink gracefully. Jack, can you whip up the takeaways over? Out of nowhere. What are even doing over there? Just whip up the takeaways. I'm doing it. Out of nowhere, analysts are getting all up and negative on Tesla, and the worst case scenario would be bad. This is like glass three quarters empty over there.

Urban Outfitters is hoping you'd rather rent clothes than buy. Jack's been eyeballing this Van Halen T with three holes in the upper left pocket corner. Let's make that rented half. Third and final story, J.C. Penny. Love it from my childhood, but it doesn't have a growth plan. It has a shrink plan. Shoplifting and getting smaller. You don't want those to be your priorities.

Okay. Snack fact of the day. This one is pretty funky that we do. An American just won the paper airplane throwing championship. Of course, we all know this year's championship. Championships were held in Austria. Yeah, and the record, the Guinness Book of World Records' longest paper airplane throw. By the way, are we talking regulation 8.5 by 11?

No, we're actually talking A4, which is like the European equivalent. I wish, I mean, these are the details. The record throw is 226 feet. That's like 62 yards. This is incredible. Which is a little longer than I can throw a football. You got to really focus when you're doing this. Now, a couple other big stories we're covering in our newsletter, Robin Hood Snacks.

General Motors just shut down. Maven, its car sharing program, and eight of its 17 North American cities. And then Spotify made some big podcast moves now letting you roll up some episodes into their own playlist. Snackers, thank you for snacking with us today. Love having you guys on the pod

with us. We'll be back with you tomorrow. Can't wait. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets Inc. or any of its subsidiaries or affiliates. The podcast

is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.