The Canadian Investor - Can This Iconic Canadian Brand Really Go Premium?

Episode Date: June 19, 2025

In this episode, we dig into a mix of Canadian and U.S. company earnings across several sectors. We kick things off with WSP Global, which posted solid results driven by strong demand in infrastructure and power. We then look at JM Smucker, which dropped 16% after earnings, driven by weak guidance and struggles with its recent Hostess acquisition. Next, we check in on Roots, which is trying to reinvent itself as a premium Canadian brand. Finally, we finish the episode by looking at recent earnings of Andrew Peller and Aurora Cannabis. Tickers of stocks discussed: WSP.TO, SJM, ROOT.TO, ADW.A.TO, ACB.TO  Get your TSX Meetup tickets here! Get your Calgary Meetup Tickets here! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Are you buying Canadian? Well, why not invest Canadian? At BMO ETFs, we're committed to helping you build a brighter financial future, because it's our future too. This is our home, and as Canadians ourselves, we know what you need to grow wealth right here in Canada. Visit BMOETFs.com for more. Canada. Visit BMOET be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome back to the Canadian Investor Podcast. I'm Simon Berange and I'm back with Dan Kent for our news and earnings episode. Before we get started though

Just a couple of housekeeping items. So just a reminder for the two events that we have coming up The first one will be Calgary on July 8th Use code TCI for a 20% discount. That's for the podcast listener. So just make sure you use code TCI There are still some tickets left. It'll be a really fun event. Brayden is going to be there. I'm going to be there. You're going to be there of course located in Calgary and Dan and Nick from the Real Estate podcast will be there as well. You excited for that one? You don't have to travel too much? Oh yeah, it'll be fun. 45 minute drive. Toronto will be a little longer of a trek but I'll be at that one too. That should be pretty cool

Yeah, yeah But yeah the Toronto event before I forget is July 24 that one there's just a few tickets left So for those interested, hopefully there's still some by the time you hear this and then that's kind of that's it for the housekeeping items in terms of the content for today so there wasn't that much obviously those who are following earnings will probably know that it's a bit in between the earnings season right now so there's not that many companies reporting so we had to dig a little bit some companies that will be familiar that reported a few weeks ago and some companies that you may never have heard of.

We tried to focus a bit more on Canadian companies or there might be companies you know but haven't looked at in a very long time. I think it's going to be a mix of those. There definitely is a mix. I mean, for I did some digging and kind of seen like the biggest movers in terms of price wise on earnings over the last few weeks and you know a couple of these companies were moving you know anywhere from 17 to 20 percent after they reported so I thought it'd be good to to dig into a few of them and see

why. Yeah exactly so let's get started here so the first one we'll go over is WSP Global. They reported their earnings a few weeks ago and it's been a while since we've talked about this one on the podcast because it was one of Brayden's favorite. I think he still owns it if I remember correctly. I'm just trying to think about his portfolio. I own this one too. You own this one? Yeah. Yeah. But I do believe Brayden still owns it. It's been a pretty good one to own. Yeah, it's a very good company. Expensive, but you know, good companies often trade at

high prices. But yeah, they've done quite well considering, you know, just kind of the overall state of the economy. Yeah, exactly. So if you're looking at total returns, and I will give a brief overview of the company for those who are not familiar with it. So for our joint TCI subscribers that also have the full videos here, you'll see that the total returns over the last five years is 238%. Very mad, like that's amazing. I mean, obviously it's completely crushed the S&P 500 that would have returned about 107%

during that timeframe. So really impressive a company that I wish I was own, I wish I was owning but, and probably should have listened to Braden, but it is definitely on my radar as I was doing the earnings I dug into it a little more and very interesting. So WSP Global is a Canadian engineering and consulting firm. They have operations in Canada and several countries around the world. They have four main lines of businesses. So the first one is transport and infrastructure and that provides services to transportation system and infrastructure projects like roads, bridges, and rail system. There's also property and buildings which focuses on the design and management of large construction project. Power and energy

which provides services related to power generation, transmission, and distribution. And earth and environment which focuses on environmental impact, sustainability, and remediation services. Did I miss any lines of business that kind of covers it? Nope, that's pretty much it. Yeah, and WSP grows through a combination of organic growth and acquisition. The revenue is split between the public and private sector. I mean it's almost like a 50-50 when I was looking at it.

Pretty close, yeah. Yeah, it's very close. Just looking at the breakdown, it's very very close between the two and I'm just gonna bring this up here. So you have, I'm just gonna share my screen, bear with me. So you have here like you'll see it's almost identical. If you're looking at the last 12 months, public sector was looking at 8.6 billion in terms of revenue and the private sector was looking at 8.3 billion. Public sector tends to be slightly higher than private so that seems to be pretty consistent for them. But it's impressive that it split almost 50-50. Yeah it's a pretty nice mix which kind of you know removes a lot of the the ebbs and flows of it overall I mean 50-50 is definitely an optimal situation for for

you know an engineering firm and they they also have a lot of exposure globally like Canada Canada I think is still one of their main drivers I mean it's definitely growing faster than the other segments. And they also have Canada is their highest margin business as well, but they do have pretty much international exposure. No, exactly. And just to continue here on WSP. So their revenue for the quarter grew 22%.

Organic growth was 5 percent. So you can guess like I mentioned there is quite a bit of growth through acquisition but they've done a really good job from what I can see for those acquisitions. Backlogs which is a key a KPI key performance indicator here for the business have been looking quite good. So the backlog is basically the lack of better words, the amount of commitment in terms of projects that they have for their services. Was that a good way to explain that? Yeah, so that one has been just growing very consistently.

If you're looking at quarter, it's basically it went back in 2019 at having about 8 billion in backlog and now it's about $16.6 billion. It's actually a big improvement already over just the previous quarter, not even year over year, which they were looking at $15.6 billion. Now they're at $16.6 billion. So you can tell that there is definitely a lot of demand for their services, of course, through acquisitions

and organic growth like we just mentioned. Yeah, I believe right now they're sitting on pretty much a year, like the company generates around 16, 17 billion dollars in revenue. So they're effectively at a year's worth of revenue in the backlog and it's continuing to grow, which is ultimately a good sign of forward demand. Yeah, yeah, exactly. And on the call, they said that there are several areas of demand, including improving aging infrastructure and demand related to Dennis centers being built out and all the infrastructure around it. Net income for the quarter was up 14% to 144 million. And there seems to be also

a lot of demand related to electrical grid build out and improvement, which are benefiting from as a result of their acquisition of power engineers last year seems to be like a pretty good acquisition at first glance because they kept repeating that multiple times on the call. Yeah, I think the, well, in terms of like the, the build outs, I think the data centers and you know, the overall AI build out as well is having a positive impact. I know the one segment that's, that's struggling quite a bit is the, like their Asia Pacific segment. And I think that's primarily because of the the the slower build out there. Whereas you know Canada and the United States, Europe, things like that have done quite

well. But it's a relatively smaller portion of the business as well. Overall, I mean they're benefiting massively from all of that build out, especially here in North America. Yeah, exactly. And I think in terms of prospects, it's really interesting because especially if you start thinking on a macro basis, and clearly there are some risks. We have like the trade wars happening, tariffs going on with the US, whether they reach trade deals with other countries, we'll have to see. But so far, I think the UK is the only one that's been concretely agreed to. And there's been some issues negotiating with other countries if we take what the the White House is saying although you know let's take that with a grain of

salt but regardless if this causes a global recession or even in a slowdown in the economy globally typically what governments will do is they'll try to stimulate the economy. And when they try to stimulate the economy, oftentimes they try to invest in infrastructure projects. And a company like WSP Global, to me, would be very well positioned to benefit from that, not only in North America, but on the global stage. So I think they should do well, honestly, regardless of the environment, benefit from that on not only in North America but on the global stage.

I think they should do well, honestly, regardless of the environment just because of the propensity of governments to actually pour a whole lot of money into the infrastructure when the economy is not doing well. And even when it's doing well, I feel if just like we were talking with the build out of AI and not only AI but just all the infrastructure supporting it around that it should benefit them. But like I said and you mentioned I think the biggest issue here is a valuation issue where the company is not trading very cheaply. It's trading at a Ford P of 28 and a Ford price

to free cash flow of 35. So not cheap at all. I know I'm always reluctant to use projections but if there's anything that seems to be kind of clear with this business is that yes, the projection should be relatively accurate. Maybe not super accurate but decently accurate and even if there's a downturn I think you should see earnings and free cash will grow for them in at least a foreseeable future. Well yeah that's kind of the good the thing that's good about the the public and private mix is you know if you get if you get a slowdown there might not be you know a lot of of private spending and then you know the government will ultimately ramp up infrastructure spend, which should

ultimately benefit a company like WSP. And the fact that they have global exposure, it exposes them to a multitude of economies overall, which shelters that to a certain degree. As I had mentioned, Canada, that's still one of the main aspects of the business and often the higher margin one too, but this company has always kind of been this expensive. I mean, on a price to free cashflow basis, it's actually trading at a discount to historically to what it typically is traded at over the last five to seven years. So it's just kind of a company that it's kind of a company that is just, it always has a high multiple and you know, investors,

you know, if the market is willing to give this company a multiple over, you know, a 10 year long period, it's probably just what they're going to pay for this company, you know, in most situations. But yeah, on a trailing basis, it is trading around like the low, mid to low 20s price of free cash flows. So it is you're right It is on the cheaper side over the last 10 years Although there was a period where it was trading around like the low teens So that was yeah, that was probably the time to buy it, but I don't have a time machine

So I guess there's nothing like the present I guess in some cases. That's it for WSP Global here, let's move on. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait.

You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQBank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBank's Notas Savings Accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more

and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Questrade's new fractional shares you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for US fractional shares and ETFs. It's simple,

powerful, and finally available in Canada. Head to questrade.com to open and fund an account. Use code TCI and you get $50 to get you started. Summer always gets extra busy. Weekends at the lake, trips out to Canada's East coast, vacations with the family, chasing a bit of sunshine somewhere new. Every time I'm away, and probably you as well, your place just sits at home empty. And since I'm already staying at a great Airbnb, why not have my own place generating a little income on the side while I'm gone?

I've always thought it's a great idea, but it made me nervous to think about the work required. It's easier now with Airbnb's co-host network. I can find a local trusted co-host to handle all of it. Guest check-ins, support, even cleaning, no stress, no extra work. If your place is often empty in the summer, maybe it's time to let it make some income for you. Find a co-host at airbnb.ca forward slash host. So you have some earnings for JM Smuckers. What's the ticker again for that one? Oh, what was it again? Oh, SGM. Yeah, and it's US listed. Yeah. Yeah, US listed. So I looked, as I had mentioned at the start of the podcast,

I was looking for companies that kind of moved a lot around earnings and they did take a pretty big hit. It was around 16, 17 percent and it was largely related to guidance So smuckers is I mean, I've really only I didn't know they owned a lot of this stuff I only just remember the jam smuckers jam. That's kind of what I thought they did what they they actually have a ton of different products so Jif peanut butter they make Folgers coffee they make a dog food cat food treats things like that okay yeah no I was just now it's concluded yeah didn't they law laws just say they were removing Folgers coffee or something like

that oh it's possible I don't know I mean I I don't look the Folgers yeah yeah there you go just a couple weeks ago so Loblaws announced that it was pulling Folgers coffee off of the shelves because of cost increases that's interesting I'm not sure if it was related to that but I'm assuming that's one of their big big suppliers like Loblaws I know it's an American company, but when you're looking at the biggest, probably the biggest grocery retailer in Canada, they're not going to have your coffee anymore. That could be, I'm sure that was part of it. Yeah.

Yeah. And I actually go over the coffee here. So yeah, that's interesting because I talk about the price increases. So the US coffee sales increased by 11 percent, but profits were pretty much flat just due to overall higher coffee costs. And the company plans so they had they had made previous price increases and they plan to increase costs in August in this year again. And it says it does have some pricing power on the Folgers brand. I mean, clearly... Clearly, Loblaws doesn't agree because, yeah,

the headlines and obviously is saying, unjustified cost increases prompt Loblaws to pull Folgers coffee from shelves, and that was just not even two weeks ago, yeah. Well, I mean, it's crazy to me because Folgers is very cheap. It's like the cheapest coffee you can buy. It's terrible. It's...

Oh, I know. It's terrible. It's some of the worst coffee I've ever drank, but it's also... I apologize for those who like it. I cannot stand it myself. Like I will not have coffee over having Folgers. That's how much I do not like it either. And I love coffee and I would not drink it.

But the thing is, is it's very cheap. So I kind of wonder why Loblaws is doing that. Like when I go to buy a tub of coffee, I mean, it's usually the two cheapest ones there, like Maxwell and Folgers. Yeah, maybe it's just cause they're like, you know what, like our customers will just not pay for that much for this tiny kind of coffee. I mean, maybe it's that's it. I don't know what the increase was. I don't know if they specified it. Maybe I'll try to check that out while you

continue the earnings here, but it's really interesting because I'm sure they weren't happy with it because clearly it's going to put at least a small dent in those coffee sales. Let's not- Oh yeah, for sure. I mean, and they did guide to relatively weak sales in that department, but I'll get to that in a bit. The thing for me from a pricing power perspective is I kind of thought

so maybe the coffee is so cheap that they can still boost prices and make it somewhat affordable. I mean, it looks, if you're trying to cut back, I mean, you can probably buy a cheaper level of coffee and it's already cheap enough. I figured they might've had some pricing power from that perspective but if they're getting yanked from from Loblaws it's clearly not as strong as they think. They had mentioned that the bulk of its goods are sourced from the United States however it is exposed to about 500 million pounds of coffee source from Brazil and Vietnam. So they

say they're going to make some modifications in terms of where they source their coffee, but I would imagine that's pretty difficult. And they also mentioned they're going to try to mitigate some impacts through, they called it responsible pricing. I mean, to me, this is just a fancy way of saying prices are going up, which is... Yeah. I mean, it's not really all that surprising. I mean, we were talking about this before we were recording, like coffee is going up. Like coffee is not cheap. No, exactly. The cost has just gone up a crazy amount

over the last while. I mean, it's obviously still cheaper to make it at home rather than go out and spend like two or three bucks at Starbucks or Tim Hortons or something, but coffee is going up. And it's mostly from a, it's not like these companies are making any more money. It's just a price is going up.

So it becomes difficult from that perspective, but they speak on their uncrustables quite a bit, which is like, that was a big thing. Uncrustable. Okay. I've never ate them before. So what's an uncrustable like peanut butter? Like what is like? It's like a bread thing that doesn't have crust and it's like filled with- Oh I thought it was all

products that were not bread. Yeah, no it's like it's like a little round pastry thing that doesn't and they just exploded over the last two or three years and it's like it's a huge they mention it over 25 times on the conference call. It's a huge hit with toddlers who are very picky with crust eating. Yeah, exactly. If you, or you know, if you still like to cut your crust off of your, of your bread or whatever, I mean, these are for you, but yeah, they, they, they, it's a big driver of the business right now. The company has around 8.5 billion in revenue and those uncrustables account for around

920 million of that and they expect it to grow at a double digit pace. I think they said next year they expect it to hit over a billion dollars in revenue. And on the other side of things, they offer pet food and snacks, which is definitely seeing some headwinds. So sales are down 13%, profits down 7% and they state it's largely due to a retail inventory issue just due to a reduction in discretionary spending.

I mean, this makes sense. I can imagine dog treat. I mean, obviously dog food and cat food are probably something that people need to buy regardless, but they might even be scaling down to cheaper brands, but on the, on the treat side of things, I think the retailers are kind of seeing a buildup in inventory. So they're not really ordering all that much. So they kind of got to cycle through that before activity probably picks up again.

Their baked goods saw sales dip by 14% on a comparable sales basis. Profit fell 72% primarily because of a large write down and some goodwill. And this was due to their hostess acquisition. I'll get to a bit more of that later. But the company mentions there on this side of things like the baked goods, there's also some inventory issues. Retailers are looking to de-stock. They're not ordering as much.

And again, I mean, I would imagine this is just due to the environment. We've seen some weakness in stocks like Pepsi who've had their snack segments take a hit. You know, some cutouts from consumer budgets is they aren't necessarily must-have items. And in terms of the write down, so back in 2023, Smucker bought Hostess for 5.6 billion. So this is where the Goodwill impairment came from.

So likely a bit of bad timing here as it directly falls, you know, the struggles of a company like Pepsi, as I said, like the snack area is not doing very well in that segment. But to write down that big of a chunk, I think it was like a, I don't know if you have it up here. Do you have the write off up here? Yeah. It was like $900 million or something. Yeah. So the last two quarter respectively, they've had pretty pretty big losses but they're very much following the write-downs so they had a

write-down an impairment of goodwill of close to 800 million the previous quarter in the latest quarter it was 867 million write-down yeah. Yeah so I mean they that looks to be I mean they overpaid. That's pretty clear. Don't say. Yeah. Yeah, that's usually an admission right there, yeah. Yeah.

And I mean, guidance doesn't look overly good either. So low single digit sales growth. They expect a 50 basis point impact overall margins due to the coffee tariffs. And they expect earnings to be hit around 15% next year due to the tariffs and the overall hostess situation. So I would imagine the large chunks of write downs are over, especially if they only expect their earnings to be hit by 15% because you definitely don't want to be booking 800 plus million every quarter in goodwill charges. So not a company I routinely follow, but again, we're pretty slow on the earnings frontier. So I figured, you know, one that dipped 17% after reporting would definitely be one

that's good to talk about. It wasn't a very good quarter, hard to see a turnaround over the short term here, especially, you know, there's a lot of headwinds with companies like this, like that make, you know, discretionary goods, make, you know, discretionary goods like, you know, frozen cakes and pastries and things like that. Pretty easy to cut those out.

Hey, plus there was some Canadian content with the fact that Loblaws put the coffee off of its shelves. So, no, it's just interesting because sometimes we'll think about a US business dealing with a Canadian one and thinking, you know, it's just interesting because sometimes we'll think about a US business dealing with a Canadian one and thinking, you know, it's always the Canadian one that has to, that is the smaller company that doesn't have as much power. But in this case, I would argue that Loblaws is by far the more powerful company between the two. If you look just at the size of the company, they are like Loblaws about three, four times

larger in terms of market cap. Obviously just quick math adjusting for currency changes here, but again, Loblaws, I mean, they have the distribution, like they can really hurt smuckers by taking those kinds of decisions. Clearly it's not as big of a market in Canada than the US, but when you have the largest grocer in the country, and I think Loblaws is right, the larger largest one. Yeah. When you have the largest grocer in a country that tells you that's probably a pretty important market for them that like, well, sorry, but we don't agree with your PICE increases.

So we're just going to put alternative products and no thank you. That's not great. Yeah. And I mean, it's obviously not a huge seller either if Loblaw's willing to just get them off the shelves. Well it's probably, they probably come to the conclusion that if people are buying Folgers coffee they're looking for value. So I'm assuming, I didn't read why and they'll probably mention in their latest earnings when they report Loblaw's why they took that decision. I'm sure they'll get a

question from an analyst. And I would assume that when you're buying Folgers Coffee, you're looking for probably the best value. And Loblaws has said time and time and again now since tariffs have been going on that they're going to be looking at alternatives to try and keep costs down as much as they can for the consumer, but also looking at in-house alternatives. So I'd be very surprised if they don't have a no-name alternative to Folgers. Yeah.

Yeah, I mean they- So I'd be very surprised. So they'll probably be promoting that, yeah. Yeah, they'll just replace it with, you know, they probably, if they cut that out of the store, I mean they'll probably, what is it, President's Choice? I mean that- Yeah, President's Choice, but also like the no-name brand. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale.

But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQBank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ Bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQ Bank's Notas Savings Accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash.

Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Questrade's new fractional shares you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem.

Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for US fractional shares and ETFs. It's simple, powerful, and finally available in Canada. Head to questrade.com to open and fund an account. Use code TCI and you get $50 to get you started. Summer always gets extra busy. Weekends at the lake, trips out to Canada's East Coast, vacations with the family, chasing a bit of sunshine somewhere new. Every

time I'm away, and probably you as well, your place just sits at home empty. And since I'm already staying at a great Airbnb, why not have my own place generating a little income on the side while I'm gone? I've always thought it's a great idea, but it made me nervous to think about the work required. It's easier now with Airbnb's co-host network. I can find a local trusted co-host to handle all of it. Guest check-ins, support, even cleaning, no stress, no extra work. If your place is often empty in the summer, maybe it's time to let it make some income for you. Find a co-host at airbnb.ca forward slash host.

So I'll go on to another name here, a Canadian one. Company that people will have heard of, maybe not the youngest people, I don't know. I just don't know where it stands anymore. So Roots Earnings, so Roots is a company that I don't know, I feel like it's pretty iconic Canadian brand. Yeah. I mean, I kind of forgot they existed, but. Yeah, me too sometimes, but it's a small company. We talked about them maybe once or twice years ago, Brayden and I, so we haven't talked about them that much. I think typically when earnings season is a bit down is when we'll look at Roots. But just kind of quick overview here, Roots has a market cap of 128 million. So very small company. I mean,

this is a small slash almost micro cap at that point, depending how you want to define those. It's trading at a 12 Ford P, so very cheaply, the trailing 12 months is negative, but they've obviously did not have any profits during that period. It's harder to take that into account if you're looking at valuation metrics. It's trading very cheaply for a free cash flow metric. So it's 4.5 times free cash flow. So very cheaply from that perspective. In terms of returns, it's actually mixed.

So the company has been up 137% last five years. So actually pretty impressive. Pretty good, yeah. 5.4% over the last three years. And then in the last year, 55% last six months, 62%. So you can probably guess that the stock price has been up and down quite a bit just by these numbers. Mostly down, but I mean, yeah, it had a good run like post-COVID, like 2021, 2022. I mean, it did very

well. I mean, I imagine a lot of retailers did well during that timeframe. But yeah, it seems to be it hasn't really done much over the last, you know, seven, eight years. No, exactly. And when we start looking a bit more at the metrics here, well, first of all, it does not pay a dividend on an annual basis. Revenue actually peaked from 2018 to 2020. Had a big drop in 2021. So they peaked around 330 million for revenue, dropped 27% in 2021 to go around 240. Since then it has bounced back a little bit from a revenue perspective but it's pretty much stagnated so it went up around 273 in 2022 and then has been slowly ticking

down ever since so it's not not like it's great on a revenue perspective I think it's safe to say that sales never really fully recovered from the pandemic I think they had some supply chain issues like most companies back then, but obviously there's, it's hard to say whether the brand doesn't resonate exactly. I wasn't sure. I actually decided to look at when they lost the Olympic sponsorship. Cause if people remember like back in the day,

it actually roots used to be like the official sponsor for clothing. And I thought they lost it to Lululemon in 2021 or 22. But it's actually Hudson Bay Company that lost it to Lululemon and Roots had lost it to HBC before that. So it's interesting. So it wasn't as a result of that. It's probably like I said more result of the pandemic and maybe some change in consumer habits there. On the positive thing for them though they have been free cash flow positive every single year but 2019 over the last 10 years. So it's not really a growing business but at least they are creating some free cash flow and if we look at the most recent quarter so I just wanted to provide some context as to how the

business is doing. Sales were up 6.7% over a year. Direct to consumer sales were up 10%. They had a net loss of 8 million which was slightly less than a year before. Both gross margins and operating margins improved this quarter compared to last year. They repurchased $300,000 worth of stock during the quarter. Yes, $300,000. I know people are used to bigger numbers, but they're not a big company. So actually $300,000 probably even moves the needle a little bit for them. On the call, it was interesting to hear them say

that they're shifting towards being a more premium brand. And I don't know about you, I never associated Roots as being a premium brand and not that I associated with it being like necessarily a value or a cheap brand, but I also didn't associate it as being a premium brand. I kind of saw it kind of that kind of middling brand, I would didn't associate it as being a premium bearer. I kind of saw it kind of that kind of middling brand I would say. Yeah.

Yeah. I mean, I always thought their stuff was pretty expensive but it's also like I said like I don't see it anymore. I don't see any root stuff. I mean, I would imagine they still have a couple outlets in malls and stuff but I've never seen their clothing. Like from a marketing perspective. I mean, they're not really doing too much. I would say because I completely forgot they existed. Yeah. Yeah. I mean, they are doing stuff. So they said they are focusing on marketing.

They are focusing on bringing more awareness, increasing their marketing spend. I think they're using influencers as well to just bring more awareness about the brand. They also said that they are be trying to optimize locations so closing some that are not as profitable and making sure that the ones they do have open are more efficient and more profitable. They said they shouldn't be too affected by tariffs since most of their sell exposure is actually in Canada. It's not in the U S it's quite low in the U S not surprising because clearly roots has always been there. I, at least for me, it's kind of a brand you associate a bit more with Canada. I mean, you go on the website, you know, you can see like there's even a segment

for Canada made in Canada, Canada collection, all this stuff. So yeah, I guess it's, Canada collection, all this stuff. So yeah, I guess it would make sense. I mean, they're really, again, it's not cheap. So I'm just looking at some of this stuff here. So you're looking at hoodies that are, they're nice, but I mean, I would not pay 140 bucks for a hoodie like this, I don't know about you.

So for those listening, it is just like a regular hoodie red with Canada and a beaver selling for $140 or 138, sorry. Yeah. Yeah, I mean, that's what I meant. Like I always remember their stuff being very expensive. Yeah. I wonder if like they've done pretty well like share price wise since March and April.

I imagine, I wonder if that's a whole you know the whole buy Canada thing because I mean in terms of retailers this is probably the most Canada ish retailer around so. Yeah yeah I said like probably them and Canadian Tire obviously the Canadian Tire offers more stuff but yeah no that's a good point and I'm just seeing the prices and I like a lot of Lululemon stuff and I would look you can get the same kind of stuff from Lululemon for the pretty much the same price and I just like the style better and I don't know about the quality because I haven't Bought some rude stuff recently, but I'm not a fan of like having big graphics on my shirts.

I like it low key and Lou Lemon does do that. So they just have a tiny logo. Oftentimes you can't even tell it's there. That is one of the reasons why I like their stuff is just that I don't love having the big beaver Canada. That's just not my style. But no, it's interesting. I mean no it's interesting I mean it's not cheap and it'll be interesting whether they actually be successfully pivoted

to more more premium brand. Well yeah and as you said like they're planning to increase marketing and awareness and I think that's probably a good idea because yeah I just I haven't seen many products from Roots I mean I always knew they were publicly traded but I just I don't see from Roots. I mean, I always knew they were publicly traded, but I just, I don't see their stuff anymore. But I mean, I'm again, most people have seen me on here with a $30 Kirkland hoodie. So it's not exactly going to be my cup of tea to spend 140 bucks on a hoodie. So how much is a Kirkland hoodie nowadays? Like 40, 50 bucks?

Well, when I bought it, it was 30. Okay. But now I don't see them anymore. They don't really, they don't have the hoodies there anymore, but yeah, 30 bucks. Okay. I'm sure you can get a hoodie from Costco for like 40, 50 bucks max, right? That would be comparable to that. So now, but let's move on here to some of the companies that like to provide some, some

vices to the population. So the first one would be Andrew Peller, which is a small cap Canadian wine company. And if we have time, we'll go into the cannabis area with Aurora Cannabis. I'm not sure if we'll have time, but we'll start off with the booze here. Yeah. So yeah, they're primarily a wine company. At one point they were a $900 million company, but due to some lagging results over the last five, seven years, I think it's around 215 million today. This is a company I used to follow pre-pandemic,

but not much recently. I mean, it seems the struggles really haven't stopped for them. It reported revenue declines of four and a half percent and an overall net loss of around $0.02 a share. This is actually a pretty substantial improvement from the $0.17 it lost a year ago. EBITDA improved quite a bit, up 46% year over year, and the company has managed to tackle some debt. So they reduced the debt from $208 million to $182 million over the

last year. However, leverage ratios are still pretty high for the company. They're sitting at 3X, so that, you know, debt to EBITDA. Last year, it was 4X, and the company only generated around 22 million in free cashflow over the last year. So total long-term debt of 182 million isn't exactly optimal. I mean, at one point, the company was paying

over $20 million in interest expenses a year. This is the kind of around, go ahead. Yeah, one thing I'll add when we talk about these debt to EBITDA or debt ratios, typically it's just comparing the debt and how much time it would take for the company to pay off that debt if they allocated all their profits to it. And obviously you can use different kind of profits whether you use EBITDA which is earnings before interest depreciation and amortization. You can use net income. There's different ways to

do it. There's kind of pros and cons of whichever but that's why we use it. It's just a metric to show how quickly they could pay off that debt if they allocate essentially all of their profits to paying off the debt. Yeah. And it's, I mean, you, this is like telecom leverage ratios. They're typically in the high three to four X range and that's like a very capital intensive industry. I mean, those companies typically have leverage ratios that high.

This is pretty high for a company of this size and especially operating in this business. Operating margins, they've really taken a hit over the years. So they typically were around 11 to 12% pre-pandemic, but they've now dipped to 7%. And in 2023, it even got as low as 3%. So we've seen a very quick decline in operating ratios, which is ultimately going to impact profitability. So after a multi-year rise in inventories, they seem to be kind of getting back to normals. However, their inventory turnover is not good.

It's been on a pretty consistent rise for five or six years now. So effectively, this is how quickly a company will turn over their inventory. So from 2018 to now, it's taking the company 35% longer in terms of timeline to actually move product in the inventory than it was back in the in 2018 and inventory had slowly been on a rise as well. I mean, this isn't really a good sign, but it does seem like operationally they're in a bit of recovery mode here and doing

and doing reasonably well. I mean, gross margins are recovering. The decline in earnings and revenue is at least somewhat stabilized. And the company did, as we had mentioned with Roots, the potential there for Roots is the company did attribute a lot of the success and a bit of the recovery due to Canadians trying to buy Canadian sourced wine. However, like this isn't like exclusive to Andrew Peller, but this would just be mostly alcohol based companies in general.

I think there's almost zero question. Alcohol consumption is on the decline. Data kind of shows it's more of an older generation thing, whereas younger generations simply are not really drinking that much anymore. In terms of wine. So this is in the US, so this wouldn't directly, but I couldn't really find any data on Canadian. The US peaked recently at around 982 million liters of wine in 2018.

This has fallen to under 850 million liters in recent times. There was more wine consumption during the pandemic. However, I kind of excluded those years because I don't really think they were sustainable. I mean, the pandemic brought on a lot of alcohol consumption for many, but there's been a pretty consistent decline in wine consumption. And I think this is just, I mean, for a few reasons, I mean, people are starting to realize how bad alcohol is for you period. And I mean, a lot of the younger generation, I know they just don't drink alcohol at all. And I mean, there's like actual data that shows, you know, alcohol is declining in terms of overall usage. I mean, I don't drink nearly as much as I used to. I barely drink anymore. And I think it's like a growing trend that, you know, and they talk about it. They talk about kind of the declining usage overall.

And I just think that's going to be probably a headwind that never goes away for a lot of these companies that primarily sell alcohol. Yeah. Well, maybe some younger people are switching to over to the next company you'll talk about, which is Aurora Cannabis. So maybe they're switching over more to that, Edibles or whatever it is. Well unfortunately, Aurora's recreational cannabis is in the tank too. So I mean, it's not even that type of situation. But yeah, Aurora, I mean, it didn't look like all that

bad from a numbers perspective. I mean, I just had a quick glance at it this morning because they just reported this morning, but I mean, guidance, yeah, it's ugly. Minus 16% today, is that it? Yeah. Wow, okay. I think it was guidance. It's not that bad?

Yeah, it's ugly, ugly. And I think it was guidance because like the operations, it didn't really seem that bad. I mean, revenue increased by 27%. Free cash flow came in positive at two and a half million. Unfortunately on a trailing 12 month basis, the company is still burning through like $30 million, negative 30 million of free cash flow a year. However, it does finally look to be trending upwards.

The company, like if you have, I don't follow over that much, but I know they have made like a massive shift towards medicinal rather than recreational. So it's a higher margin business. So I mean, it looks like they're, you know, starting to become consistently profitable, at least on a free cashflow basis. Medicinal cannabis sales grew 48% year over year. They make up 75% of the company's revenue and 90% of its profits. Consumer cannabis continues to decline.

It fell by just under 20% year over year. Yeah, and as I mentioned, I mean, the medicinal market is a much higher margin business. Recreational cannabis was expected to be this explosive industry. I mean, I imagine you remember back in, what was it, 2017, 2018, these were supposed to be this explosive industry. I mean, I imagine you remember back in, what was it, 2017, 2018, these were supposed to be, you know, the next big things.

I mean, we all know how that ended. Well, back in 2018, people were saying that probably every single Canadian would be buying lots of cannabis within a few years. Like that's how wild the projections were. I'm exaggerating a little bit, but some of the projections were just insane. And I've talked about that with Braden a few times,

is how can you project what a market will be when you're going from a black market to a legal market? You're literally just throwing darts on a board. Like you have no idea, because people were buying weed or cannabis, sorry, either from like unlicensed dispensaries that probably aren't keeping track of all the sales and so on, or they were buying it cash from their,

you know, from their dealer or whatever. And then you go from a legal market. And I think it was the expectation was that there'd be a crazy growth in sale. And even if the projections were relatively accurate is I think it took a lot of time. And you had companies saying that years after that there were still a lot of people buying cannabis

on not the legal market, on the black market. So it took a lot of time and I'm sure it still happens right now where a lot of people still don't buy from the legal market. Well yeah, and when you have a market like that, the black market technically, I mean it's hard to actually turn out profitability because of the massive infrastructure you're building out, the overall cost of this.

I mean, the recreational cannabis market did not turn out to be as good as everyone had projected, especially these companies. Like I remember like back in 2018, I mean, some of these companies were trading for like pretty much effectively the size of the total addressable market, like canopy growth traded at that entire, like it was just, it was nuts. So, and it hasn't really, I mean, if you invested in Aurora at the peak of that cannabis boom back in 2018, you're down 99.6%. So, I mean, it's been a very rough ride for these companies. The shift to medicinal, I mean, again, it's a much higher margin business. It's kind of expanding into places like Australia and Germany, Poland, things like that. I think a lot of international markets, because I do think they have a decent chunk here in

Canada in terms of market share. But in terms of guidance, I think that's kind of what hit the company pretty hard. So they expect cannabis sales to decline overall, EBITDA to decline. And I don't really pay much attention to the cannabis industry overall, but apparently they're having some issues. They're having some issues in Poland with like new rules that are tightening up

how many people can get access to medicinal cannabis. I know like prescriptions have fallen off quite a bit. Yeah, I mean, overall these companies remain a pretty big mess. If they can continue expanding in markets like Australia, Germany, just internationally overall, I could see some potential, but I mean, I wouldn't touch them. Profitability has been a gigantic issue. I mean, we're looking at, compared to 2018 till now, we're looking at what, seven years, and they're just starting to

pull positive free cash flow it's it's been a rough ride for the for the cannabis companies not just Aurora either they've all don't know can they've all got yeah they've all struggle and what I'm showing here is actually the price to sales because they weren't profitable for the longest time and you have and it was the same for Canopy, like in 2018 with all the hype, I mean, it was trading at over at peaks, like around 200 times sales.

Yeah. It's crazy. It was, it just, that just goes to show what Euphoria can actually do. There was just, it wasn't grounded in anything. It was just people, the hype. And I remember I used to work at my old job that I left to focus on the podcast. And always remember it was a year or two in that I was working there. And I remember going on the elevator and someone saying like, Oh, my friend, like

just make a killing by investing in canopy and the price has gone down a bit. Now I think I'm going to be putting some more money. I think that wasn't like 2018. a killing by investing in Canopy and the price has gone down a bit now. I think I'm going to be putting some more money. I think that was in 2018. And if you would have done that, I mean, hopefully they did and they sold quickly and make a quick buck. But I'm going to say a lot of people just ended up holding on and just looking at massive losses there.

Yep. Yeah. I imagine like I can't remember when I bought Canopy and managed to get pretty lucky and sold it near the top and then just kind of watched it. That's how you do it. Yeah. But at that point that's speculating, right? Like if yeah, people were just yeah, to be able to make those assumption like I said,

like when you have, you just have to be careful when a company and there's especially a lot of hype around something and you have these companies coming out or these estimates for TAM which is total addressable market, you have to take those with a grain of salt especially if it's coming from the companies themselves because usually they'll be very optimistic about it. Oh yeah. Yeah. Well, you look at a company's pitch deck, like they're trying to get you to invest,

right? So, they're gonna kind of have those lofty expectations. I mean, you kind of have to look at it objectively and I mean, there was too many companies for too little piece of the pie, I guess I would say. And it just, it kind of came crashing down and it's still, it's still crashing down. It's crazy. Yeah, no, exactly. Well, I think that's a good point to wrap things up. A bit of a shorter episode just because of course, it's a bit quieter on the earnings front,

but we had decent amount of feedback. People really liked the CP versus CNRail that we did. So we'll probably try to do a few more, especially as we're starting to plan to do some advanced recording a few weeks in advance because it's the summer, we'll be taking a little bit of time off. So I can't really think of a better kind of episode to do a comparison because it will usually age pretty well because clearly the prospect of a company is unlikely to change quarter to quarter.

So it'll give us a little bit of time. So we'll just have to think about a few companies that we can do same kind of approach. Just look at two companies in the same sector, whether they're two Canadian companies, one Canadian, one American, or one Canadian, one European, whatever it is. But I think we'll be looking to do that a bit more given that it was fun for us, but also a lot of people enjoyed it. Yeah, I mean the feedback helps too because it lets us know what to do and not what not to do. Exactly, that's it. But we appreciate all the support. Thank you for listening.

We will be back next Monday for a regular episode. Thank you for listening. We will be back next Monday for a regular episode.