The Canadian Investor - Canadian Retailer Keeps Crushing & 76% returns?

Episode Date: December 15, 2022

GameStop was the meme stock of the year in 2021, but how is its business doing currently? Canadian retailer Dollarama keeps posting impressive results while other retailers are struggling. We also go over the earnings of Lululemon and Costco and discuss the recent news on inflation and the arrest of Sam Bankman-Fried. Tickers of stocks discussed: DOL.TO, LULU, COST, GME Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital 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  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. How are we doing? Today is December 13th, 2022. Welcome to the show. My name is Brayden Dennis. As always, joined by the very thoughtful Mr. Simon Belanger. We are talking news and rounding up a couple important earnings

calls for everyone on the show today. Coming into the end of the year, we have lots of fun episodes, interesting topics that we've never done before, things we're experimenting with. So I think that you're going to really like them. But let's get right into it. Simone, CPI came out this morning for the US, and it's a news topic that we typically do not miss. And here is no exception. Yeah, so US CPI print for November came in at 7.1%, which was lower than expected. The consensus seemed to be around, I would say, 7.3% from what I saw. So if you had like a betting line, it was over

under 7.3%. So it definitely came. So we hammered the under at 7.1%. We definitely hammered it pretty well. The core CPI, which is the metric that the Fed, just like the Bank of Canada uses, they put more emphasis on that because it strips out, you know, higher volatility costs like gas for example that came in at six percent which was also lower than expected most predictors or market pundits were predicting 6.1 percent markets were way up on the news with the nasdaq being up close to four percent in pre-market and it opened quite high as well. But things have definitely calmed down a bit now during the day. It's up around 1% and the S&P 500 is up a bit more than, sorry, is up a bit less

than the NASDAQ. Yeah. Well, I mean, it's so funny, right? Because it comes in lower than expected. And anytime you get a number come in, whether it's earnings or some macro number, better than expected, and you have a positive reaction. Probably fair to say an overreaction. And then you and I were just talking before we started recording. It's like finishing up at around 1% on the day. And of course, this is irrelevant for long-term investors like us. But what we're thinking here is people are realizing, oh, wait, that's still not good. That's not an inflation number that should be really exciting from the perspective of anyone. That being said, when you're used to such high numbers on the CPI, and we're talking about inflation here to try to remove the jargon, the consumer price index.

When expectations are one thing and the results come on the downside or upside of that, you're going to see some strong reactions. So, I mean, nothing really for me to add here. One reminder is if you have some scammer DMing you on Twitter to join their trading schemes, it is obviously not us. I mean, I don't think I'd have to, should have to say that, but it is obviously not us, not you, not I, not Nick, not Dan will ever do that. I know they have lots of imposters on Instagram because they're big on Instagram. These are the guys that run the real estate show. If we're not familiar with what we're talking about. And I mean, we shouldn't have to say this, but obviously, you and I are not going to be messaging you with any of that junk.

Oh, no, exactly. And I mean, look, we're both really busy. So, you know, even if we take out the, you know, the scam aspect of it, then non ethical and so on, it's not like we would even have the time to do that. One, to message you and two, to be running day trading schemes. Exactly. We have neither of those opportunities. Yeah. And we're both going to try to get that blue check mark. So, hopefully, when people get scammers trying to impersonate us, they'll know it's not us. It looks so real real like they copy my

exact oh yeah everything yeah everything and like the eye just turns to an l and you'll have no idea like unless you look at the follower count and it's all out of whack but you and didn't you and i have a scammer that was like like 30 000 fault had like 10 times more followers than our real account. So it looked super... This was in the summer. Remember? They're impersonating the podcast. Oh.

And on Instagram, we have a fake one as well. Anyways, speaking of scammers, Mr. Scam Bank Run Fraud was arrested this morning in the Bahamas. The new FTX CEO said the place is an absolute mess to no one's surprise. Yeah. And he was set to testify before a Congress committee tomorrow, which is Wednesday. So I guess a day before everyone will be listening to this. I'm going to assume that's no longer happening. And the current CEO who's looking over the bankruptcy testified over today so there's a lot of stuff happening but he got amongst other things got charged by I believe

wire fraud he also got charged for money laundering and if I remember correctly it's the southern district of New York which tends to have they don't mess around. So there's different prosecutors in the US, and the Southern District of New York is typically not one to mess around. And they usually have pretty ironclad cases when they do put those charges out. And one thing that's interesting, and I read not too long ago, is that the quickness of this all happening since the bankruptcy has basically been a month, which is probably means that some insiders have been cooperating with prosecutors. Because usually these kind of things will take much more time unless, you know, there's some deal with insiders, for example, Caroline, the Alameda CEO.

I know that I saw some things that she was spotted in New York, I think a week or two ago. So it's very possible that she was meeting with prosecutors to try and maybe cut a deal in exchange for information on Sam on SBF. So it'll be interesting how it plays out. But this is going to be this is going to be a case for the ages. I mean, whether it's crypto or not, I think this will be very good. And I hope they do throw the book at him if he's found guilty. Because regardless of what industry you're in, you should do prison time if you willingly commit fraud. You should do prison time if you willingly commit fraud. Totally, especially at this scale. I mean, it should be at any scale, but this scale is outrageous. Here's a transcript from today's, when he was testifying, not Sam Bankman Freed, but John Ray III, the new FTX CEO. virtual control of the accounts via the silos and could move money or assets as they desired

undetected by customers to the extent there were rules and there were very few, obviously, and they were made to be broken. Jesus. Every day, it seems like it's just worse than you could ever imagine. All right, let's move on to the Brookfield Asset Management spinoff occurred Friday at the close. Yesterday, people were very confused at the trading activity. And it is a bit confusing for sure if you do the math on the sum of parts. But don't worry, it's still too early to say. And when this comes out, it'll now be Thursday. So all retail accounts, you'll have that T plus two actual settlement happening. And so there's going to be a'll now be Thursday. So all retail accounts, you'll have that T plus two, like actual settlement happening. And so there's going to be a little bit more transparency.

So when you're hearing this, maybe things will have kind of resolved itself on the valuation because it looks like a little confusing right now until everything settles. Let's just say if you do some math on some of parts, but we'll leave it at that. Simone, you have a news item here yeah so the ftc so the federal trade commission in the u.s is suing microsoft to blog the activision blizzard acquisition so they filed an antitrust suit against microsoft claiming that it would violate u.s law and seek to blog the acquisition. Some of Microsoft gaming competitors like Sony were voicing their concerns over the deal. It seems like one of the area of contention is that they

fear Microsoft would make games that are available currently across all platforms. The name Call of Duty or Franchise keeps coming up here, exclusive torosoft platforms if they go ahead with the acquisition microsoft did say that it proposed some concessions to the ftc to address these competitive concerns seems like didn't satisfy the ftc so they pointed out the ftc pointed out to the zenimax acquisition that microsoft bought a few years ago for $7.5 billion. Apparently, Microsoft had promised European regulators that it would not make the games exclusive to the Microsoft platforms. However, after the European Commission gave it the green light and the deal went through, Microsoft did in fact made some of the title exclusive to its platforms. I haven't read any opinions on this,

but here's my take. I think at this point, I think the deal will be unlikely to go through because of some of the reason I illustrated, but also because there seems to be more and more scrutiny on big tech monopolies. The one that really has been making the headlines recently is Apple and its 30% cut on iPhone apps. So any kind of app that you get in the App Store and Elon Musk has been voicing his concern, that's why he's actually charging less if you subscribe to the Twitter blue on the web app, for example, versus directly on your iPhone. So you'll actually get it cheaper and i can see the ftc pointing to that and say that microsoft could easily abuse its position with certain games just like apple is abusing its position with the app store i know they're different things but i think there's more and more scrutiny on these borderline monopolistic behavior by tech companies that I think it's, I would say,

I think there's probably less than a 40% chance it goes through at this point, in my opinion. That's what your updated number is? Yeah. I think I was about 60% that it would go through when we talked about it last year, right? I was much higher, but I'm somewhere in between your numbers and where i started now one thing that i wanted to point out was oh exactly one week ago because of course microsoft knows that they're under scrutiny for this and they entered a 10-year commitment to bring call of duty to nintendo i don't know if you just mentioned that in your thing because i was trying to pull it up. Did you mention that?

No, I did not mention that, no. Okay, I'm just pulling it up here. Microsoft has entered a 10-year commitment to bring Call of Duty to Nintendo following the merger happening. So they're basically, they're trying to bring things to the table, right? Of like, let us do this.

But it's funny, right? Because of course, these kinds of things are going to help sway regulator persuasively. Maybe, I guess I'm not in that role. But even the fact that they're just like, yeah, we'll be less like anti-competitive if you let it happen. But if you don't, we're anti-competitive, right? You know what I mean? If you just think about that wording for a second, it seems completely ridiculous. Yeah. And if you think about it from a regular perspective, if Activision Blizzard stays as is, it's a platform agnostic, right? So, they make their games. They really try to sell as many games

as they can and as long as the platform has a good pool of players, they'll make their game for that platform because they want to get those sales. I got to look more into this because it seems like if you look at the arbitrage, I can't make sense of it anymore. Yeah, me neither. In terms of, it's really hard to make sense. And I feel like I had a pretty clear picture before, but now we're just kind of in like la-la land where everyone kind of forgot almost. It's been so long and yeah, we're just in this kind of weird place. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends,

and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know,

I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. All right, let's move on to Dollarama. And I'm doing this absolutely live because I don't know if you saw in the document. Yeah, it was empty. I put a spot to talk about Dollarama and didn't have any links, didn't have anything at all. So, I'm doing this live here on the show. So, they reported their third quarter, which is the 19th time in 2022 that they've reported it. And if you listen to the podcast, if you know, you know.

All right. They had almost 11. And again, I'm going straight off of live reaction here. 11% increase in comps seems for sales growth. That seems quite exceptional. Let me look on Strato. Is that like normal? That seems pretty high, no?

Yeah. It's normal? Comparable. Oh, it is. No, it is very high. Yeah. Well, it's been... Okay. So, I have here, I just pulled up the last several quarters. So, you had 10.8 and then you had... No. Oh, yeah. Okay. So, if you look at the last three quarters, it's pretty in line. So, they had 10.8 and then they had 13.2 in their fiscal 2022. But historically, the answer is yes. This is a true acceleration on same store sales growth.

So this goes back to our thesis of they have a lot of pricing power, like a lot of pricing power. So overall, top line sales increased 14.9%, so call it 15% year over year to 1.28 billion. I just touched on same store sales. EBITDA was up 11.3, so very similar on that same thing. They opened up 18 net new stores and 16 net new stores at the same period last year. They bought back quite a lot of stocks. They spent 76 million on that. So reasonable. They are planning in fiscal 23 to open 60 to 70 net new stores. And I want to go to the most important thing of this story, which I want them to touch on. What they continue to touch on is the price increases. So they say here, the guidance and ranges are based on the assumptions, including the following.

The continued introduction of price points up to $5 the remainder of fiscal 23. This is, I think, an important thing to keep tracking. You and I continue to keep tracking their ability to flex pricing power on nominal dollar values that are very high when you consider a dollar store, especially built against the comps in the US. If you look at the comps against the US, they've been really constrained to low price points. And Dollarama has just broken free, like ripped off the shackles and charging five, four bucks and will continue to do more over time for the items. Yeah. And I think was it Dollar Tree we talked about a few weeks ago? I think it was. And Dollar

Tree, I think they kind of cornered themselves a little bit into that price point right where they have a couple different brands but i think their flagship brands they really want to stay at a dollar whereas dollarama it's been happening for years right you see things that you know one two three four dollars i think even i remember seeing a lot of two and three because I used to live downtown and there was one walking distance. So I would often go there to buy some poop bags for the dog, for example. But yeah, that's something I think they probably did well to do that. And, you know, I still think it's interesting that their sales increased close to 15%. EBITDA actually increased 11%. So, you're seeing those costs are increasing as well. But the fact that the sales are increasing by that much is very impressive.

So, even if their costs are increasing a little faster than sales, I think the sales make up for that and then some. Yeah. It's honestly quite an impressive story. And I'm just messing around here on the new Stratosphere platform for their key performing indicators and just kind of seeing them visually. And number of stores has grown very steadily. Year over year, we've gone from 874 stores in 2014 to 1.4 million. Sorry, that would be in thousand, right? No. Sorry, 874 stores to 1,462 stores,

right? Holy smokes. Yeah, they have 1.8 trillion stores. No. So, you can see the context of almost doubled over that time, but sustaining mid-digit steam store sales growth and now like double-digit steam store sales growth and now like double digit steam store sales growth it's quite the story here yeah no it's impressive the last thing i'll say though for before people get too excited is you are paying a premium comparing to us names we talked about that but you should yeah you should but i'm just wanted to know, highlight that because if the growth does slow down, you're paying for premiums. So, you'll probably see a compression on that as well in the valuation. Dang, this has been such a good stock.

I just kind of zoomed out on the chart. It's like, so now we also, I'm really pumping stratosphere here, but I'm using it live. And if you go max on the price chart, we now have a thing where it shows in brackets the CAGR of how the share price has performed. And Dollarama has compounded at 27.87% since its IPO. When did it IPO? In 2009. Okay. Oh, nice. Yeah. So, I guess we'll go on because the show's going to be about Dollarama. The next name.

Like it usually is. Yeah. So next name here, Lululemon. Q3 earnings. Their revenue increased 28% to $1.9 billion. 26% for North America, 41% internationally. Comparable sales increased 22%. Comparable store sales increased 14%. Whereas direct-to-consumer revenue increased 31%. Now, gross margins decreased 130 basis points, but operating margins

increased 120 basis points to 19%. Earning per share was $2 compared to $1.44 a year ago. They opened 23 new stores during the quarter and now have 623 stores. And they also repurchased 17 million worth of shares at an average cost of $311. Now, the full year guidance was slightly increased by management compared to what they had in shoot in Q2. So a lot of people may wonder why the stock was down sharply when they released earning was down, I think as much as 12%. There's a couple of reason in my opinion here, and I do own the stock, it's not a big position for me. First, gross margins are down. This is not great. I mean, they're still quite high for Lululemon. But that would be the first thing. The other thing is inventory levels are extremely high. This was done on purpose by management but I did mention the last time we

talked about them that this could become an issue. They've almost doubled from the same period last year and it could backfire if sales don't pick up as they anticipate during the next few quarters. If they don't, then that means they will need to discount items. And as a side note for that, I have been browsing on their men's site and I've seen a bit more discount than normal. I actually saw a few more discounts before they came out with the quarter. So I don't know if it's kind of anecdotal here, but something to keep an eye on. Their cash and cash equivalents are down 64% compared to last year. Again, mainly due because they're stocking up on inventory.

They lost a bit more than $500 million in free cash flow this quarter compared to free cash flow positive of $400 million last year. Again, the culprit is inventory here. And it seems like the results came in below analyst estimates. So I think it's a combination of all these things. As a shareholder, I mean, I'm not too worried long term, I still think they have a powerful brand. But again, I think they have to really be careful on discounting too much because that's why their brand is so powerful is that there's a bit of an exclusivity kind of tied to Lululemon, a cachet to it if you'd like. And if you start discounting too much, that could have some medium to longer term effects. This is a true earnings roundup for the podcast, which is Dollarama and Lulu back to back.

Yeah. You know, they're always reporting right in the sweet spot of there's nothing else to talk about. I mean, I just kind of agree with everything that was said there, especially around discounting. I mean, that's a slippery slope really for any type of premium product, but they know that. You don't have to take it. I don't need to be a business consultant to tell them that. No, exactly. I totally agree there. So, moving on to the next point that you have on here, my favorite fund manager. have on here, my favorite fund manager. I was really hesitant to put this in the show today for a variety of reasons, because I really don't like being negative, especially on the podcast.

That's not the vibe of the show. It's supposed to build people up, make people excited about managing their own money, make them excited about the markets when everyone's telling them they shouldn't be. But it's a reminder and just a little segment to look out for incentives in the world of stocks and financial media. And think about incentive structures that you'll see out there. And the reason that I'm bringing it up here is because it came to my attention yesterday on the internets. I stumbled across this on the internets yesterday and goes a little something like this. So ARK Invest, which many people know, ARK, the ETF, ARKK, and they have a bunch of other ones. They got a lot of hype and they've been very good at marketing. And to their credit, they built essentially vehicles to buy an index of largely unprofitable growth stocks. And they performed extremely well during an era of money printing and folks using

the stock market like a casino. And you'll know every time I talk about ARK, Cathie Wood, or their ETFs, I always try to give them what credit to do because the things that they've done smart in terms of attracting fund flows, growing their business, marketing, branding strategy, it was all really well executed. It was. And you'll also know every time I talked about them, it is now time for me to roast them. I stumbled upon their open sourced research. I'm saying that in like tongue in cheek and in quotations here because it's quite silly and lazy. Zoom video is the blog post that I came across that they open sourced their research.

Zoom stock. It's the business we all know. It became a verb during the pandemic. Zoom hangout, Zoom for work, Zoom dates, Zoom cooking classes, the whole thing, right? Very now well-known brand. So on June 8th, they posted this, Simo. According to ARK's open source research and model, Zoom's share price could approach $1,500, compounding at a 76% annual growth rate by 2026. Tuned to the 75th and 25th percentile Monte Carlo outcomes, again, trying to sound really smart for something that's really not that cool. Our bull and bear cases are $2,700 per share, respectively, as shown below. And then below is a bunch of nice looking charts and graphs and a bunch of stuff that's supposed to look really smart. What is your reaction when you see someone projecting a three-year return that at the time is a 76%

compound annual growth rate? Is that like their base case? Their bear case is a 10X. Their optimistic case is an outrageous number. And today, the share price is down 36% from when it's posted. Like, what is your reaction when you see those kinds of numbers just generally? Yeah, I mean, it's pretty ambitious. I think she's kind of projecting what she had predicted for Tesla, which worked out for her, right? A lot of people made fun of her. You know, I just don't see Zoom being able to grow that quickly because there's a lot of good other options out there. And I think we've talked about that before. If anything, I think, you know, what's more likely than her bear or bull case here is that Zoom gets purchased by someone and integrated into another platform.

I think that's more likely because they have about a, what, 20 billion valuation market cap right now. So, I think that's probably more likely as you have a bigger tech company that has other offerings and they integrate it. I could even see, you know, maybe they'll get reviewed, but, you know, Microsoft wanting better video tools or something like that or Salesforce or whatever it is. Yeah. And I guess where I'm going with this is that it's actually not about Zoom at all, my segment here. It's about following incentive structures on why people will have spicy takes like this. And like I just mentioned, Zoom shares are $74 a day. It's down 36% from when it's posted,

which I'm not going to dunk on them for that. Everything techs down that amount or more, especially high growth. But here's where I get a little concerned, is that they are looked at from retail investors as being professionals, being very right on their huge Tesla call, potentially a way for them to make a lot of money by investing in their funds. Potentially, you know, if you're a retail investor and you want to make a quick buck and you're in a tough spot financially, this could be looked at as like, you know, get rich quick, because we're talking about their bear case being a 10X from here. That is irresponsible, to say the least. So if you look at Zoom today on my website, for instance, you see that the enterprise customer segment is growing less

than 20% year over year. And these people have a knack for fleecing retail. And it's the reason I bring this up because I don't want to see the beautiful listeners of our show get fleeced and to follow incentive structures, not only in investing, but in life really on investing in incentive structures. They only have incentive to be reckless and extremely far out on the risk spectrum and be bold in their claims. You get better fund flows. You get more press coverage, especially if they're right, like the one they got famous for with Tesla. So this segment actually has nothing to do with Zoom. The business could do very well from here. I don't really have any specifically hot takes on

it. I doubt it's going to do any of the numbers they're talking about because I believe that it's largely commoditized and has little switching costs. But replace the segment with any stock, Acme Corp. Wild outlandish claims about stock picks and price targets, you have to ask yourself, what is the incentive? And the same goes with our bold predictions. For instance, Simone, our segment that we have every year that we're going to be doing in the next couple of weeks, we don't have the same incentives to get more fun flows. We don't make more money from it or anything like that. And so, it's important to recognize what our incentives are. But our incentives are entertaining content. It's better for us to have spicy takes than sleepy, boring ones.

But that's not malicious or potentially money-making like more fun flows. So, anytime you see hot takes, spicy takes, you watch people on YouTube, you watch podcasts like this, try to understand incentive structures and then make your decision from there. That's a good point. I mean, yeah, Kathy. I mean, I take Kathy with a grain of salt. Personally, I think, you know, there's stuff where I always get kind of intrigued when they come with their, you know, their big ideas publication, just because I think you can kind of personally, I like to pick what I think is, you know, interesting. And there's a lot of fluff that I kind of just disregard. But I know how to do that, right? You just have to remember that,

you know, when you read something, just remember, like you said, the incentive structure, but also be able to, you know, be critical on it, right? So there might be some really interesting ideas. And there's might be others that you're like, you know what? She's out to lunch. So, that's kind of how I see Cathie Woods. But yeah, this one… Cathie Woods, there it is again. Yeah, it is.

Yeah. I had to put it in. But yeah, I think she's a bit… Tiger Woods. Yeah, it's a bit of a reckless prediction to be honest, this one. Yeah. one yeah yeah and like you know you put out crap like this in the world and potentially fleece people on promises of 10xs and make it sound very convincing you know as your bear case 10x the bear case it sounds like it just doesn't sit right with me at all yeah i call it out every time

it sounds to me like she's trying to almost justify you you know, the bets, some of the larger bets they've made with that ARK ETF because they haven't, you know, they did quite well for some time during the pandemic. And, you know, I own Teladoc. I know that's one of the larger holdings there, too. But Teladoc for me is just a small portion. And I have a stable of much more, you know, stable companies. So it's way different. But again, I think she's just – it feels like she's trying to justify owning those names. And a lot of junk because the fund is now – the ARK Innovation ETF

now has a flat performance from November of 2017. Yeah. Oh, yeah. It's an interesting graph. It's, I don't know, it looks like a… Oh, my God. Yeah. It's like a mountain. Yeah. It looks like it's Manitoba, Saskatchewan, and then you hit Alberta.

And then it goes… That's the topography of this graph. And then it goes back down. and then you go into the ocean of British Columbia. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award

winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. That is questtrade.com. I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons

that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store and I're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Simon, we got next tier Costco on the dock.

Oh no, we don't. Do you want to keep the one that you just added for our next recording or how do you want to do it? Let me move around some stuff here. Yeah, go for it. Keep going, keep going. I am performing some wizardry on the document right now. So let's do Costco right now.

So Costco had their earnings. Net sales increased 8.1% to $53.4 billion. U.S. was up 9.3%. Canada up 2.4%. Other international was down 3.1%. E-commerce was also down 3.7 membership fee income was 5.7 which was 5.7 higher than last year and it is now reach 1 billion and it could have been 32 million higher if they didn't have a lot of currency headwinds and that was one of the

themes i did listen to the first like 10-15 minutes of the call just to get a sense what they were saying. And the numbers I mentioned, especially for Canada and the other international, would be better if it wasn't for the strength of the U.S. dollar. Earnings per share was up 3.1% to $3.07. Gross margins was down 45 basis point to 12.25%. And operating margins dropped 14 basis point to 3.22%. Now, management mentioned that sales outside the US represent about 25 to 30%. And like I mentioned,

the strong US dollar had a negative impact. It impacted their EPS negatively by about 12 cents per share. So not small. And U.S. and Canada renewal rates were essentially flat, just small increase to 92.5%. It's a metric you definitely want to keep an eye on if you're interested in Costco or you own it. That's one of the most important metrics here. And worldwide, it was flat at 90.4%. With Costco, I pulled this interesting graphic. Can you see this here? This is on page 20 of their 10K. And I think this is pretty much everything you have to know about

the business. And I, for some reason, didn't know they had this on their 10K until today. the business. And I, for some reason, didn't know they had this on their 10K until today. Maybe I haven't dove into their 10K enough. But you're seeing on the left axis on the Y axis, you have the year it's opened and the number of warehouses that they opened that year. So, it's the number of warehouses opened by year. It's a weird graph. The way it's... That is... The way I just said it, I'm like, I just confused myself. But on the Y-axis, you have this number of warehouses, okay? And they're picking it by cohorts.

So, it's a cohort analysis. So, it's basically saying in 2014, they opened 30. And so then if you look across on the 30 warehouses, you have the average sales that those warehouses did by year on the x-axis. And so you get a really interesting cohort analysis by the two levers that they pull, or I guess three levers that they pull, which is number of warehouses because they keep every year around 20, they open sometimes a little more. And the average sales per warehouse and membership fees just continues to tick up as you go further down the right side on the fiscal year.

So little tricky graph maybe to comprehend on the pod here, but this speaks to everything I think you kind of even just need to know about Costco is more warehouses and better optimization of sales inside of them and continued pricing power on the membership increases. It's beautiful. As you just look across the right, it tells you the whole story. I think in one graph, it takes a little bit to comprehend it though. Yeah. I'll simplify it for everyone.

The longer the warehouse has been open. Please translate whatever is happening. So basically, the longer the warehouse has been open, the higher the sales for that warehouse will be. That's essentially what the graph is in a nutshell. Yes. But that's only one element of, because that's one of the dimensions of this graph. It's almost three-dimensional because yes, you're seeing the maturity that as it's been

open longer, you're going to get it more optimized. But you're also seeing that they start at a higher sales per warehouse as they like each year, like as it opens. So it starts at a higher point as well. Because if you look in the middle of the graph, they're opening at a much higher efficiency. Yeah, I would say I would debate that mostly because of the inflation effects. I think what I mentioned, yeah, is it's more pronounced. I'll just say that. That's probably yeah but no i mean

it's still regardless once you make sense of the graph like once you do some mental gymnastics well it's just because there's like an extra column right and exactly usually graphs you know the way you're used to seeing them is you have kind of the smallest number going to the top and they kind of reverse that. So that's why it threw me for a loop. And then the, which the X and Y axis, I keep forgetting. They're both date. Yeah, exactly.

So they're both dates. One of them is actually going the way that you would expect it. The other one's kind of the opposite way. So that's why I think it messes up with when you see that graph. It's a cohort analysis, but there's a third dimension that you're hinting at, but it's the three dimensions that make the story so interesting. As ridiculous as it all sounds, it does tell the story quite well. And anyways, I just wanted to pull that up. What do you think of the quarter overall? No, I think it was good. I mean,

there's a little bit of compression here, even as good a business as Costco is, you know, you're seeing their margins effect and clearly, you know, they're not immune to the strong U.S. dollars like most businesses are. I think, yeah, I think it's pretty good. It's better than other retailers. But I think we're I think we're starting to see a little trend when it comes to retail because even the top retailers now we're starting to see some kind of small sign nothing dramatic like Lululemon I think I would put almost in the same category right it's a fashion retailer

but still you know to me it's always been you know one of the top names. And even then, you're seeing some, you know, some little kind of warning signs. And I think it's the same thing for Costco here. So, I think, you know, if the trend continues, I think it could be a bit of a down year for retail in 2023. I'm not saying negative sales or anything, but maybe just a bit slower growth as a whole. Very good. I mean, if you look at this business, it's just excellence all around. I mean, for the most part, you're hinting at, I think, what's important that a lot of retailers are seeing. But at the same time, this is not a

business that is going to be affected like some mid-market or luxury fashion brand, right? like some mid-market or luxury fashion brand, right? Like we're talking about staples at a very good price. That's how their network effect flywheel works, is to get lower and lower costs for their members. So, we'll see. Renewal rates, 92.5. Is that high than normal? No, that's around their norm.

It's usually around that 91, 92%. And it's always a bit closer to 90 when it comes to international. So, yeah, no, it's right in line. I'm just saying there's definitely – we're starting just to see slightly a slowdown, I would say, in retail. I don't think it's a stretch to say that at this point. Costco has always traded at a premium. So if it's a name you like, I would not be surprised if next year or the next 12 months, there could be some interesting buying opportunities, because I feel like the market kind of thought Costco would be completely immune. And we see that they have some immunity, but they also are feeling some of

the forces that the whole industry is. It is amazing, the case study to see the store openings, or I should say warehouse openings to use the correct terminology, in China. It's mind-blowing. They've already well, well, far and away hit beyond full maturity of a warehouse in the US and Canada in the first six months of opening them. And so, if you can extrapolate on all the warehouses they're going to open there, it isn't a growthy name if you want to think about it like that so i think that's that's why it's got such a ridiculous multiple and i would i would venture to say it's a bit ridiculous yeah yeah but less ridiculous as of late yeah i'm just kind of

looking at their historical p ratio i know it's not a perfect metric but you know to me a costco would be a pretty attractive name if it could kind of pull back and be in the kind of high 20s in terms of p ratio i think historically if you you can get your hands on costco around that valuation it tends to to do pretty well so you have to just be careful right now it's trading close to 40 times earnings right so it's not you know you're getting growth but i said 40 times earnings growth right? So, it's not, you know, you're getting growth, but is it 40 times earnings growth? I don't know, right? That's kind of the... Yeah. Yeah. It has historically like in 14, 15, 16, 17, it traded anywhere from 26 times earnings

to 28 times earnings and really was pretty hovering around there. And yeah, it trades at 37 times on trailing 12 months today. So, that's not just like a little bit, like that's a huge increase on the multiple. All right, let's move on. You have one more name here, GameStonk. Let's do it. Yeah, looking at the actual resorts, let's forget about the meme stock for a second. But look at the business. GME sales fell 8.5% to $1.18 billion. They lost $0.31 per share compared to $0.35 per share last year. So slightly better there. Gross margins stayed at 24.6%.

Same as last year. Again, kind of the positive. But for the first nine months of the year they have lost 274 million free cash flow compared to a loss of 364 million for the same period last year so yes it's better but they're still burning a whole lot of cash their cash and cash equivalents continue to go down even if we include marketable securities their cash is down to slightly more than a billion dollar which is 26 percent lower than last year the good news is they only have 39 million worth of debt at low interest rate from the french government i think it's a loan

they got during the covid 19 pandemic but the balance sheet does have a bit of liabilities mostly there are rent liabilities and accounts payable, but it's not like they don't have liabilities. I wanted to make that clear. There's not much good here, in my opinion. Keep in mind that GME capitalized on its meme stock status in 2021, and they issued 34 million new shares for proceeds of $1.68 billion. So without that, who knows where they would be at this point you know they may not be bankrupt but they may have diluted shares a whole lot more taken on debt GameStop has two overarching goals currently attaining profitability in the near

future and generating sustainable growth over the long term and I quote that directly from their 10q and I also read part of it which basically they say they want to make sure their cost structure is viable by focusing on higher margin collectibles they also want to grow prudently by growing their product offerings in collectibles VR virtual augmented reality, and PC gaming, and offering a better consumer experience, all that while controlling costs. So I think they're trying to do almost like the Fed, right? So they're trying to do two things at one, bring down inflation, but not impact employment too much. It sounds like they're trying to do two competing things here where they're trying to be profitable, but not spend too much i think

it's going to be really hard to turn around the whole meme stock and you know the cat guy i can't remember his name but yeah i'm not a cat or whatever deep effing value that's it that guy i mean i don't see it personally and i think the proof is in the results. I mean, they're going to need a dramatic kind of reversal here in the next year or two before they have to either tap equity markets or the debt market or look at other options. You know, what's funny is like that guy you're talking about, when he was talking about this story, like split adjusted, he was buying shares at like less than a dollar and today that's 21 oh yeah so like he was right like what else can you extract out of here like it's not like it's not like a ridiculously cheap stock

anymore compared to the business and the structural decline they're in like that deep effing value was two years ago but was he right or was it because it went viral? I think that's the real question, right? Is he right if it doesn't go viral like it did? I think I could argue maybe not. Well, before it went viral, he had like doubled his position in terms of returns because it was the most unloved stock on the market at the time. I mean, we bashed it in there early. It must have been.

Yeah. It was so cheap. It was ridiculously cheap if you looked at what they were actually, like what the business was generating in cashflow. It was unbelievable. So I think that that, I would say the answer to your question is, yes, he would have gotten it right, but would it have gone to, you know, that ridiculous, yeah, that ridiculous like 40X in one trading afternoon? No, of course not. Yeah, he probably could have, you know, doubled or tripled his money, but not necessarily, you know, what happened. Yeah. Yeah. Yeah, exactly.

Well, that does it for this episode today. Yeah. I just brought that segment that was randomly in the notes to another chat. Thanks so much for listening. Just looking ahead here, we have tons of amazing content that we have planned for you for the rest of December and through the holidays. I know people are, you know, not typically as listening to pods as much during the holidays. Like if we just look at our numbers, but I guarantee there is some of our best content that does come out at this time. So go ahead and check it out. It's every Monday and Thursday, this pod show goes on no matter what show goes on. So check it out Monday and Thursday.

If you have not done two of the following things, I highly encourage you to do so. Number one is rate the show on your podcast player. If you're on Apple podcasts, you can write a little review. If you're on another podcasts, you can write a little review. If you're on another podcast player, you can hammer the five stars. And if you're on Spotify, you can hammer the five stars. We have an unbelievable amount of five-star ratings on Spotify, and we appreciate that. And I think we can get to 2,000 five-star reviews on the show there. So if you're on Spotify, appreciate that. And lastly, if you have not gone on stratosphere.io, the new platform is so sexy and you will like it. Stratosphere.io can be the best free research terminal

you have ever laid your eyes on. And if you do want to join a premium plan, a premium plan, you can use code TCI, which will give you 15% off that for a year. Thank you so much for listening. We'll see you in a few days. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.