The Canadian Investor - Nvidia is Unstoppable and Trouble at Lululemon

Episode Date: May 30, 2024

In this episode of The Canadian Investor Podcast, we cover a range of earnings reports and investing news. We start by discussing Nvidia's phenomenal earnings, driven by surging AI and data center demand, and its surprising dividend increase.   We then shift to the world of crypto with the approval of the Ethereum Spot ETF and its potential impact on the crypto market. Additionally, we delve into the recent controversy at Gildan Activewear, the restructuring at Lululemon, and the US Department of Justice's antitrust lawsuit against Live Nation.  Finally, we review Target's latest earnings, highlighting consumer spending trends and the retailer's response to a challenging economic environment. Join us for an insightful discussion on these key market movers and industry shifts.   Ticker of stocks/ETF discussed: LYV, LULU, NVDA, TGT, GIL.TO 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 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 Sign up for Finchat.io 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.

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. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We're doing our news and earnings episode. Pretty excited for this one, Dan, because the most, I would say the most important company in the world just reported, and we'll be talking about it and obviously for those who are not sure it's nvidia they reported last week and uh bucked the trend basically for the market because a lot of

companies were down yet nvidia pop what was like eight nine ten percent on the day and even the following day was up yeah and i think like originally after they reported the markets were up were pretty green in the morning but then i think they kind of sold off throughout the day but nvidia kept it like i mean yeah i think they closed maybe in the double digits if not 10 like they were in the eight nine percent range pretty good quarter i mean you can't even you can't even say it was like not expected because they they crushed it yet again it's like they just continue to crush it yeah exactly i mean it just i mean i i thought it was expensive a year ago and clearly there was a lot of runway i mean you'll go over these results but what i find is there's just a lot of growth priced in on the first hand for nvidia and granted it could go on for a little while. So that's definitely something that could happen.

But the other thing we were talking about before we started recording is I find it amazing that there seems to be very little risk assigned to Nvidia right now. And I was just talking about the geopolitical risks since most of their chips are produced by Taiwan semiconductors which is predominantly has facilities in Taiwan and we're seeing now tensions kind of rise a little

more between Taiwan and China because of the new president that was elected and I just find it funny that not funny but I find it odd that the market is not assigning at least some risk there. Maybe they are. Maybe it would be even higher. But my perception is that there is not much risk assigned to that yet. They are very dependent on that country. Let's just say they're very dependent on that one company in Taiwan at TSMC. So that's what I find very odd is that the, I don't see many people talking about those risks when it comes to NVIDIA.

Yeah. They talk about it when it comes to Taiwan semiconductors. Yeah. I think like to the extent, like with how good NVIDIA has performed, I mean, I guess the performance is just kind of overshadowing the risks. I mean,

like I think right now it's trading at about 30x expected earnings, which I mean is like when you consider how fast they're growing, seems like reasonably cheap. I think like even some big tech companies like Apple, Google, Microsoft are trading at those valuations. I mean, those are all obviously dependent on analyst estimates looking forward, which are far from guaranteed to happen because they're pretty bullish right now as well. But I mean, they're just killing it. And I think to that extent, people are just kind of either completely ignoring or just maybe they believe that there's more upside in terms of future growth than there is in potential geographical risks and political risks. But yeah, they've crazy, crazy story. So yeah, get us started. So tell us what was so good about those earnings?

Yeah. So I personally believe that Nvidia to a certain extent, they have kind of the fate of the market in their hands. I mean, we saw this with a lot of big tech back in 2022, like when they would report, the market would just either go up or it would crater based on the results of big tech. And I mean, after Nvidia reported, as mentioned, the market went up, but it kind of sold off by the end of the day. but they reported revenue of $26 billion on the quarter, which is up 18% on a quarter over quarter basis and 262% year over year. They had guided to revenues of $24 billion, which means that revenues came in 8% higher than they had guided at the end of the previous quarter. Data centers continue to just absolutely explode. It reported data center revenue of $22.6 billion.

This is up 427% from last year. To give you just an idea of the insane amount of growth, the company had $1.1 billion in data center revenue in April of 2020. And now four years later, you're sitting at $22.6. This is a compound growth rate of 110 with a huge chunk of it coming just over the last like i would say 18 months earnings per share i'm just gonna add here dan so for our joint tci's viewers you'll see the graph so this is on a yearly basis but just the sheer amount of growth for data center it's's, you know, it goes from being like in 20, you know,

pre I would say pre 2021, like not that big of a portion of their business. And then in 2021, it starts picking up, but it doesn't really start picking up until last year where things just go pretty much crazy. So it's, it's really interesting just to see that. Even if you don't understand the full business or how their revenues work and so on, just seeing the sheer growth, just looking at the graph, it's just crazy. Yeah, it's kind of leveled off. And then it just like, what would it be?

July 2023, which was when the big whole AI wave started to come. And it's just like up, like parabolically up. It's crazy. Yeah. And from even from quarter to quarter, which is like not on a year over year basis, really just, you know, on a sequential. So one quarter to the next to growth, it's just, you rarely see that and even less for a company this big. Yeah. And it's just driving a huge chunk of its overall results. I mean, earnings per share came in at $6.12, which is up 460% on a year over year

basis. And they issued, this was one thing that puzzled me a bit. I mean, they issued 150% increase to the dividend. I mean, I believe this pushes the dividend from yielding 0.04 to 0.1 or something like that. So, I mean, it's- Hey, dividend income investors, there you go. You've got a new kid on the block. Yeah. I mean, I would imagine they'd be able to raise the dividend much more than they are, but I mean, why? I just, I don't get it. Like, especially with the rapid expansion of its data centers, like why distribute cash out? You could, I would imagine they'd be able to find some way to spend this better internally

rather than pay it out. But I mean, it's such a minuscule amount. And then the other one, they were, they issued a 10 for one stock split. So I mean, stock splits are interesting to me as well these days, because I mean, prior to fractional trading, it made sense to make your stock price cheaper as whole shares were a tough sell for those who have smaller portfolios. I mean, right off the top of my head, I can think of something like Constellation Software. It's $3,500 a share. And if you have a $10,000 portfolio, it's pretty tough to just allocate 35% of your portfolio to a single holding. But these

days, I mean, most all US brokerages are offering fractional trading. And in Canada, I know for sure you can do it through WellSimpleTrade. I pretty much do it every single week now. Yeah. So it depends. So there's a bit more nuance. I was listening to another podcast. I can't remember who it was saying that, but he had a good point. So he's an investment advisor. And depending who they're working with, chances are that they're not necessarily allowing the purchase of fractional shares. So for them, for clients that would have still meaningful amounts of money, but they want to make, for example, Nvidia trading a thousand dollar a share. If you have someone that has, you know, half a million dollars, then you and you don't want to make that allocation too big. You can only buy a few shares and then you end up having to decide, do I trim and remove a big chunk of my holdings?

And then you get more flexibility with the trimming if there is a stock split. So that's kind of the counter argument. And obviously I think for individual investors, retail investors like we are, and I'm sure most of our listeners, most of them will have access to fractional shares, but it's not all the brokers. I know in Canada, I think Wealthsimple, I think they're the only one. There might be some others, but I'm not aware of them. Interactive Brokers does it as well. Interactive Brokers? I don't know if they allow it on everything.

I know they allow it on Canadian and US stocks, how broad that is for the Canadian market, I'm not sure. But I don't think any of the big six brokerages offer it at this point. I maybe figured like National Bank, but they still don't do it. I mean, the one thing that's important about stock splits, and there's been a lot of commentary on like, the splits have no impact to the value of the company.

And I think we actually ran a bunch of kind of back-tested data that kind of suggests, a lot of people have the misconception that after a stock splits it generally performs better but i can't remember the exact numbers but we did some digging into this and it's relatively just it's a non-factor uh over the long term for a stock to split it just i mean it's worth the same value market capitalization wise pre pre-split post-split so but there's a surprisingly amount,

a large amount of people who believe they do better after splits. I think that was a big thing for, what was it, Tesla during the pandemic. But I mean, that was primarily due to just Tesla running up an absurd amount. I don't really think it was based on the stock split. But they issued guidance for next quarter. They expect revenue to be $28 billion and gross margins to be anywhere from pretty much 74.5% to 75.5%. The revenue guidance would represent a more than 100% increase. And I mean, there's no question that the demand for AI is just surging and is probably continuing to surge. And as I had mentioned at the start of it, they're trading at 30x expected earnings. I mean, this seems relatively cheap on the surface, especially considering the company's growth. But again, it's important to understand that these are

analyst estimates. That's how forward PE is calculated. They'll take the, like, let's say the next 12 months expected earnings, which are speculative. I mean, it's just what analysts are predicting for the company. They, you know, they could come true. They could not come true. They could do better, less, but 30 X on a forward basis. And I mean, it'll be interesting to see how it goes. I'll be the first to admit. I thought the company was overvalued at $500 and it's doubled since then. So they just continue to put up massive numbers over and above what what anybody has expected yeah i mean i'm in the same boat as you so don't feel too bad about that one i thought it was a bit crazy and just the assumption that people are extrapolating in

the future where it will just keep going essentially forever i feel like that's the sense i get from a lot of people that are on the Nvidia bandwagon, which, you know, it's fine. It's their prerogative. But my view is that the potential downside over the next five years is greater than the potential upside. So that's the way I view it. Whether there's more upside, a lot more to come, it's very possible. Maybe the stock triples from here, quadruples, whatever it is. But my view is that there's just so much growth baked in. And like we were talking earlier, is that there's just seemed to be very little priced

in in terms of risk. So people are really just disregarding it. And they're just going all in on the AI story, the data center build up. And, you know, the next big thing. That's my view on it. I could completely be wrong, but that's how I view this. Yeah, I agree. It's just, I don't know, it just seems like,

like I mentioned Tesla in the pandemic, it kind of seems like the same thing. It just ripped and ripped and ripped until it didn't, and then it really struggled. I mean, they're in a bit more cyclical industry i don't think that's going to happen to nvidia but um it's not something that i would buy at this price but i i definitely kudos to the people who've bought this thing and held it for this long you've made a ton of money yeah and on the bull case, I think they were mentioning that government, so sovereign entities could potentially be building up as well their AI infrastructure, which could be a good

tell-win for them. Yeah. Yeah, definitely. 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. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world,

while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information.

Now we'll continue something a bit different here, although, yeah, a bit different. The Ethereum spot ETF that was approved by the SEC. And so the SEC approved the 19B-4 order that was submitted by ETF's provider to change the rules to allow the spot Ethereum ETF to be approved. There were eight providers in total that submitted the 19b-4 to be approved by the SEC. Now to be clear and I've listened to some people that are very well in the know because this is a bit beyond my expertise in terms of what goes into getting an ETF approved. Well what this means it doesn't mean it's set to start trading this week, next week, or even a couple weeks from now. It could take weeks or months for the ETF to start trading because they all have to submit what is called an S-1, similar to when a stock goes public. It's also called a perspective, which will need to then also be approved by the SEC. However, from what I've been reading and

listening to is the big step was indeed the 19B-4 approval because that's a rule change that has been approved. So essentially, the ETF provider had to submit this to request a rule change for the SEC to agree to it so that the Ethereum spot ETFs will be approved. And it sounds like there's about probably a 95 plus percent chance that the S1 will be approved, if not 99 percent chance. But again, it's not officially approved until each provider has submitted this prospectus. And one of the things that is not included is staking with these ETFs. Staking is a way to earn yield with Ethereum in exchange for securing the network. And the most fascinating thing about exchange for securing the network. And the most fascinating thing about this is honestly the politics.

So I know we try not to talk too much about the politics, but the more I read about this, it was a constant. Literally, there was a big political flip in the US and Washington. So literally less than two weeks ago, there was virtually no chance of the ETFs being approved or very little chance. There are various issuers that said it was basically radio silence from the SEC. That's why they were not preparing for this to be approved. And then all of a sudden, within a few days of these approvals, they did a 180 and started engaging with the various ETF providers. A lot of people think that the Democrats are now realizing that their anti-crypto stance could cause them votes in November for the not just the presidency election, but also Congress.

And it also comes after Trump has been embracing crypto more and more over the last few months. On May 21st, he even said that he would be accepting crypto donations for his campaign. And of course like I said we try to stay out of politics as much as possible. But every single thing I've read with people in the know seems to be the exact same thing. There was literally a 180 degree shift by the Democrats. I mean I listened and read some of the work by people at Bloomberg that specialize in ETFs. I don't have the names on top of my head, but they're very well regarded regarding this. And they said the same thing. Even Biden was

threatening to veto a bill that was in Congress if it passed. That was essentially a crypto bill and is no longer threatening to do so after a lot of representatives from the Democrats side ended up voting for the bill and siding with the Republicans. So there was clearly a big change that's been happening over the last like two weeks, maybe even a bit more than that over the past month or so in kind of the back end, the back rooms. month or so in kind of the back end, the back rooms. It's just I just find it fascinating, regardless, you know, of who you'd prefer to be elected in the US or president. To me, that doesn't matter. It's not the point here. It just kind of goes to show that for certain types of investment, crypto is definitely one of them. Politics can play a big role because they're the ones that set the regulations in place. And this is not just specific to crypto. There are other industries, right, where some were more used to it. But take railways, for example. There is very intense regulation surrounding railways that make it very difficult. These were set, you know, decades and decades ago.

But nonetheless, politicians will set these and can have a big impact on certain investments that's just the reality of it yeah the one thing i'm like is there that big of a demand among like the u.s population of crypto to like influence an election i didn't think it was like that big i mean i don't follow crypto much at all. I own Bitcoin just because, I mean, I guess my thesis was a fear of not owning Bitcoin. So that's why I own it. I will admit, I don't know much about it, but I mean, the one thing is in regards to these ETFs, I mean, it ultimately just opens it up so that retail can gain access to it rather than buying it, having to go through an exchange, which is, I mean, for some people is kind of a deal breaker.

It's just too confusing, complex. And scary. Yeah. And yeah, definitely. Well, to go to your question. So the data I've seen is around 20% of Americans own crypto. So there is definitely. Yeah, that's not a small percentage of the population.

And you have to, you know, say that most of these would be voting age because clearly, you know, I'm not sure if that many like 12 year olds actually own crypto. I'm sure there's some. Yeah, but having said that, apparently they are quite vocal and there is a big portion of that 20 percent that crypto is a big issue for them so it actually would be single issue voters for example that will vote for the candidate that is the most supportive for the industry they and that's what i've been reading is they don't really care for about the rest and when you have single issue voters, if you are against their issue, well, there's a good chance that they're going to go for the other candidate if the other candidate is more favorable. So apparently that's what's been happening is people were quite vocal

to not necessarily I think most people want regulation, but they want regulation that makes sense that also doesn't destroy the industry and forces them to go elsewhere, which created their own set of problems, right? FTX, one of the big issues with FTX is that essentially most of the business was being done overseas or outside the US in the Bahamas. So they were encorted there. So they were evading a lot of the US regulation. So you have to be careful. And I know some people are very against it. Some are pro, but when you try to ban something completely, and there's a lot of demand for it, they find ways around it or they go offshore. So you have to sometimes, you know, do something

that's a bit more in the middle. Yeah. They're going to find ways to operate pretty much. I mean, the one thing about, you said 20%. I mean, these ETFs probably open it up to be much more than 20%. Here in Canada, especially, I mean, if they come out, they already came out with the Bitcoin ETFs, which pretty much, you can buy a US Bitcoin ETF for about one fifth of the fees you'll pay from a Canadian ETF. And I know we have Ethereum ETFs here as well. There's a few, yeah. Oh, yeah, definitely. It's almost a guarantee these are going to be much lower fees as well. So, I mean, it opens up Canadians to get cheaper options. I mean, I know I used to own, I can't remember what it was, BTCC,

and it was like one and a half, was like 1.5%. I think. And now IBIT is, I think they were 0.1. And then once they hit 5 billion in AUM, they went up to 0.25. But it's still like, it's a fraction of the cost. Oh, yeah, exactly. Like, to me, it's a no-brainer. Even when you factor in the currency exchange. Yeah.

I mean, you're looking like exactly 1%, 1% plus in Canada versus like a quarter or fifth of the fees in the U.S. So it doesn't take long, especially if you have a decent amount of money invested to make it a no-brainer to own the U.S. ones. The Ethereum, I think obviously there's going to be a lot less demand. Again, I read a lot on macro. I listen to other podcasts, too, on macro. And I listen to a lot of people and read a lot of people that work with institutions. And there does not seem to be a lot of institutional demand for this, at least so far, at least not compared to Bitcoin. So it'll be interesting to track when they do launch how they fare. But to me, the more the takeaway is just if we're going to see other

kind of political issues kind of come up that impacts investing in certain types of asset or stocks or companies. And I think we will because there I have another segment later on that, again, has a little bit of a political taste with the Department of Justice in the US. So I don't think it's the last that we see in terms of politicians down south trying to, I don't know, is there a better word than buy votes? I don't know, but it'll be interesting just to follow in the months coming up to the election. Oh, yeah. Well, well said. I mean, do you want to go on to the management issues?

Yeah, yeah, exactly. I have been keeping somewhat of an eye on this, but it's accelerated to the point where it's gotten pretty nasty at Gildan Activewear. So, I mean, it's a pretty big company. I didn't realize it was as big as it was, but I think it's got a market cap of nearly $9 billion, but they're pretty much like, I would say they're maybe a bit of a discount clothing line. I mean, they have a wide variety

of brands. The only one I've ever really heard of is American Apparel, but they have things like Anvil, Golden Toad, Secret, but I don't know if you've heard of any of thosearel but they have things like anvil golden toad secret but i don't know if you've heard of any of those other ones i mean american american apparel is very popular but the other one yeah i've heard about that one and you know i'm just showing their website here for people and it keeps asking me to put my email in which i don't want it but yeah i mean i don't think i've really purchased a lot of their clothes, but I know there's a lot of drama that's definitely been going on with them. Yeah. So they had a couple of months ago, the company released a report saying that it got

an offer from a potential purchaser of the company and that it's investment banks. They pretty much went and said, you know, we want to look for other possible suitors as well. And they did end up in a situation where there, there were multiple non-binding offers made. banks. They pretty much went and said, you know, we want to look for other possible suitors as well. And they did end up in a situation where there were multiple non-binding offers made. Last year, the company got rid of its CEO, Glenn Shemandy, I guess you would say it, and replaced him with Vince Tyra. I think Vince Tyra was big with like Fruit of the Loom. This caused a bit of outrage among the current major shareholders of the company and they've been in a pretty large dispute ever since so at the time whenever i think about fruit of the looms it's like tidy whiteys yeah pretty much yeah that's the only thing like

what else do they do maybe socks yeah it's i mean they said so at the time, the Gildan executives, like the board members, the executives said that Shimandi had lost his vision for the company. He had no long-term plan. They said he was looking to make risky acquisitions that would ultimately put shareholders at risk. And then many shareholders, they stepped up. They didn't buy it. They said they didn't like the move at all. And the pushback from major shareholders was so large that the executives had to issue a special shareholder meeting that was supposed to occur on May 28th, which would be today. But just from the fallout here, I imagine it either occurred before this or just the board just gave up. A few days ago, the entire board just pretty much up and quit.

So this includes the CEO, Vince Tyra. So they just all left. Browning West, which owns 5% of Gildan shares, they were pretty much the activist investor that was like, no, this isn't how we want this to go. The boards kind of lost their vision, firing him and things like that. They took control of the board. They added United Rentals chairman, Michael Nealand, as the chair of the board and actually reinstated Shemandi as the CEO. So he was out last year.

They replaced him. Then the board all quit. CEO Vince Tyra quit. They re-replaced him with the guy they fired six months ago. And I mean, a lot of times these spats lead to very volatile stock price and even large drawdowns due to many shareholders just not wanting to own stocks that have this type of drama. But Gildan is nearly back to its all-time highs in regards to price. And clearly a lot of people view the reinstatement and the exit of the current board as a good thing.

It's pretty interesting when activist investors get involved. I mean, we've witnessed it. I believe CN Rail had one probably like a year ago. Parkland Fuels had one a year ago. And they still have ongoing board issues. I actually ended up selling my position because of just the drama with Parkland Fuels. They're an activist investor, and they have a huge, huge shareholder in Simpson Oil that they're kind of messing around with. Suncor Energy had a similar situation like this.

I know there was a huge feud. This was more so internally, but with Rogers. These situations are pretty interesting but i mean they just oh yeah the family feud yeah roger yeah that's a little bit different but it's just crazy the entire board they just gave up i think maybe they knew they weren't gonna you know when they had that shareholder meeting and they would have been vetoed anyway so they all just quit and they uh i think they're going to be replacing the board gradually here. And it's not necessarily a company I would own, but it's one that I didn't realize was

as big as they are and has the reach that they do. But it's a pretty interesting situation. Yeah, I'm just looking at the numbers here. And sales have definitely not been all that great. It's kind of stagnating a little bit and if you're looking i haven't looked at net income here but net income it's okay it's not great i'm not quite sure like it's kind of looks like it's peaked a bit couple years ago and now it seems to be going down a little bit so who, maybe there are some efficiencies they can find,

but not a company I had on my radar, but just like you, definitely a larger company than I thought. Yeah, that's what's kind of interesting to me is like this shamanity is in place. And I don't know the company that well, because I just haven't followed them all that much. But I mean, they've had declining revenue and earnings for three plus years now and they replace them and people are upset. So like, I don't know, it seems to me like it's not like the company was performing well and they turfed them and then everybody was mad. They haven't been doing all that well. And I mean, I imagine, you know, the multiple offers that they got a few months ago, maybe they just took them into consideration and then, and then kind of thought,

you know, maybe, maybe it'd be better to not take these and instead just try and overhaul the board and get things back on track, but we'll see what comes of it over the next few months here. No, definitely. Now we'll stay in the fashion space and look at Lululemon because there was some big news last week.

News came out that Sancho, the chief product officer for Lululemon, had resigned and will leave the company by the end of the month. So by the time you listen to this, he'll probably have left the company. The stock was down 8% on the news. At the same time, Lululemon announced it was implementing an updated and more integrated organizational structure to support the company's near-end long-term growth plans and accelerate product innovation. I think the market is looking at this and thinking they're announcing this because growth is slowing more than they had expected. It's going to be really fascinating what they say on the call on June 5th because that's when they'll be releasing their earnings to me I own the shares so I actually bought some more shares about a month ago clearly in hindsight I should have waited a little more but there already had been a pretty good drop in the share price evaluation was starting to become quite attractive

in my opinion it's clearly better now because it's dropped probably another 10% and 15% since I bought it, which is fine. I mean, it's still early on, but and it's quite a small position for me. It's about 1.5%. Having said that, I think slowing demand could be a real possibility, even with them expanding in newer markets like China, where they don't have a big presence just yet. It is getting bigger, but compared to their present in Canada and the US, which is by far their most important markets, they're still growing in China. And what this makes me think is we're probably going to see a slowdown in the Canada and U.S. market because that's the majority of their market. And we're seeing more and more whether and we'll be talking a bit later about target earnings.

But we saw it with Nike not too long ago, Canada Goose, Canadian Tire, Home Depot. The consumer is starting to struggle, not just in Canada, but in the US as well. And we're talking about, you know, things that are discretionary that people can cut out. And Lululemon is definitely one of those things. So I think it could be them getting ahead of that, getting the move done, and then people kind of expecting the quarter to not be that great or the forward guidance. Maybe it was kind of the idea to do that all at the same time when the chief product officer

said he was resigning. And who knows, right? Maybe it's like, you know, he was shown the door but decided to resign, came to some kind of an agreement. No one really knows. But there's definitely looks like there's smoke happening there. I don't know what your thoughts are on that, but that's what I'm sensing. Again, I'm not panicking.

I own the shares, but I'll be definitely looking at those earnings pretty closely and listening to the whole call to see what they say. It does seem like kind of a lead into a relatively soft quarter, like maybe kind of cushioning it doing something like this i mean aritzia is another company which would probably be well i mean i wouldn't say they'd be closest to well i guess it would be probably closest to lululemon outside of like canada goose and things like that but um they're another thing another company that's realizing just slower growth i mean especially for people who just don't have the money right now to spend on premium brands like i don't know how expensive i've never bought

lululemon before but i know they're they're pretty pricey relative to you know a normal line of clothing and i mean that's just something that people are probably going to pass up now um i mean it's it's going to be interesting thing is like, I've noticed quite a few companies with like Chinese growth, like where they're relying a lot on China to fuel growth moving forward. I mean, we've seen Starbucks is really struggling there. Another like company just right off the top of my head is Jameson Wellness. They're like a vitamin supplement company with, I mean, China is pretty much where all their growth is coming from. And again, they're seeing struggles there as well. So, I mean, there's a little risk there in terms

of just, you know, overseas expansion in a place like China, where, as I've mentioned numerous times here before, too, that the consumer is way stickier in China than they are in the United States. I mean, we're a bit more spend heavy here, but it is going to be interesting. I've been looking at Lululemon for quite a while. I mean, they're like nearly 50% off their highs, which were not too long ago. Like you're talking December 2023, late December 2023, and they're down 44.5% since then. Retailers can take an absolute nosedive on any fears of just slowing overall. Yeah, yeah, exactly. And I mean, and just to give you an idea how big Canada and the US are in terms of revenue. So you have the US is about 2.1 billion, the latest quarter in terms of revenue. Canada is 428 million.

And you have China, that's $340 million. So Canada, as small as we are, are still getting more revenue for Lululemon than China. So there's definitely some growth potential there. But like you said, I think the Chinese consumer, they're seeing a lot of their value in real estate being hit over there. So I think it's very easy to make the argument that they're probably a bit more reluctant to make more expensive purchases.

And Lululemon is definitely on the more expensive side. I mean, I don't think it's outrageous. And the reason I buy Lululemon is because their clothes actually last for a long time and they're good quality. But if you're struggling financially, I mean, that's not your priority. If you need new clothes, you're gonna go for the cheapest option because whether the clothes last for a year or two

or five years it doesn't matter you don't have the money to buy the five-year option right now i got uh a couple of kirkland signature shirts last week for 10 bucks each oh definitely cheaper than lululemon i can i can tell you that and then yeah it's crazy i mean i like i shop a lot at costco for clothes i mean everybody probably sees me on the the tci with the kirkland signature hoodies they're good hoodies and they're cheap yeah you're a walking costco billboard yeah but yeah i mean it's not surprising to see a lot of these like more like mid-level fashion line companies struggling aritzia lululemon canada goose i would say is like an upper tier and they're struggling like mightily but yet they're going to be cyclical i mean when the economy improves the one thing is a lot of people when retailers do this they fear

that like the brand is losing its strength and like, there's a lot of like fears on that. But I mean, it's just like, I highly doubt Lululemon is going anywhere. It's just going to take a healthier consumer. I would, I would guess to kind of kick things back in line.

Yeah. Sales could slow a bit. And, um, I think margins may end up taking a hit, right? If people are not spending as much, they may end up having to discount a bit more.

So that's the other risk there. But I think we'll move on to the next one here because we alluded to this at the start. And feel free to chime in here. So the U.S. is suing Live Nation. And for those who are not familiar with Live Nation, they own the Ticketmaster amongst other things. So they are quite a large company. And the U.S. Department of Justice announced that it was suing them along with 30 states for antitrust practices. You can say antitrust. It's like anti-competitive practices for those who are not familiar with that. And they own Ticketmaster, but it's also one of

the largest promoters of live events in the world. They also get revenues from sponsorship and advertising, artist management, venue operation and merchandising. So you can see with just the things that they're offering and their business lines that there could be a lot of, you know, that there could be a lot of, you know, intertwining and pressuring for using their own venues and things like that. And in the release, I went on and looked at the release. They said, and I quote, as a result of its conduct, music fans in the U.S. are deprived of ticketing innovation and forced to use outdated technology while paying more for tickets than fans in other countries. At the same time Live Nation Ticketmaster exercises power over performers,

venues and independent promoters in ways that arm competition. Live Nation Ticketmaster also imposes barriers to competition that limit the entry and expansion of its rivals. And the main point that the DOJ is alleging here is that they are colluding with Oak View Group, which is a competitor to avoid bidding wars on artists. They are threatening potential entrants in the space. They are threatening and retaliating against venues that work with rivals over Ticketmaster or other promoters. They're locking out competition.

They're restricting artists' access to venues unless they agree to certain conditions favorable to Live Nation. And they're acquiring competitors that pose competitive threats to them. So this one will be interesting, how the courts rule in this case, because I can think of a few large companies that may be in the big tech space that could also end up being in the Department of Justice crosshair. And that's been one of the big things. Again, it's hard to not get into politics here, but that's been a big

push for the Biden White House and the Democrats to clamp on those anti-competitive, anti-trust companies that take advantage of their monopoly or oligopoly situation. I don't think this will be the last one that we see. We'll probably see some more actions like this leading up to the election because that way the Democrats will be able to say like, look, war. We know, for example, in this case, ticket prices are expensive. We know you want to go see Taylor Swift and we're trying to make sure that these prices come down and here's what we're doing about it. Whether, you know, it's the right move to do from a political perspective, I don't know, but I'm just saying that I think the election coming up, we'll probably see some more actions like this.

Yeah, I mean, it's hard to like not just absolutely hate Ticketmaster, to be honest. It's like they just, it's like we have tickets sell them, like, so I had mentioned like, say a $300 ticket, they'll jack that up to $370, $380 for somebody to buy, which is a simple one click transaction, like in their pocketing $80. But what a lot of people don't know is from a seller's perspective, they also on a $300 ticket, they're going to take 40, 40 bucks from the seller. So they're on a $300 sale. They're like banking over $110. And like, there's really, I mean, outside of it, I guess you could go to other places like StubHub or like there's a bunch of other ones, but I mean, the fees are just as crazy high. So, I mean, a lot of people go to like groups on facebook or something like that and then you open yourself up to like huge scams just getting scammed on tickets like that and it's put people in a really tough position to because to be paying that markup on something

like this is just absurd i mean when you buy when you buy the tickets like fresh off the market, it's like an $8 fee. But somehow, like if you want to resell them, it's $110 worth of fees. Like they're just taking advantage of them. Yeah, they want to make sure they get their cut, I guess. It's as simple as that. And I mean, it's hard to think just as without knowing, right, what happens, you know, with these companies. But it's hard not thinking that there's some kind of collusion here. Like, how would, how are these margins sustainable? Like, wouldn't new entrants try to come in and grab some of that market share?

Yeah, something is definitely, something doesn't make sense. Because when there's profit margins that are that high and you make that much money, some of that market share yeah something is definitely something doesn't make sense because when there's profit margins that are that high and you make that much money usually you have entrepreneurs that kind of see this and they're like you know what we can get a share of that if we lower the prices offer better product and so on yeah like if you have if you were even to come start a new company and say you say i'm not going not going to take $110 on a $300 ticket. I'm going to take 50. You would get every ticket sale imaginable.

But for some reason, like StubHub is just as bad. I don't know about any of the other ones, but there's got to be something going on because I mean, like I said, StubHub, like you said, StubHub could easily just lower their fees and grab a huge chunk of the market, but they just won't. It's kind of like the big telecoms here in Canada. I mean, they're all just organizing prices between the three of them. It's a bad situation. Yeah, and we're Canadian, so we know oligopolies quite well, right?

They run most of the country, yeah. Oh, no, but it'll be interesting to see what happens and obviously the kind of precedent it sets for other kind of companies in the US that could be in different space. So that's something we can touch on when there's actually development happening there. The next one on the slate here is Target. And it was another rough quarter for Target with revenues down 3.1% to $24 billion. Revenues have declined in three of the last four quarters for Target. On a year over year basis, comparable store sales were down 3.7% and have now declined four quarters in a row. Numbers of total transactions were down 1.9%. Average transaction amount was also down 1.9%.

Earnings were down 0.8% to $942 million. And EPS was down 1% to $2.03 per share. On the bright side, gross profit margins were up 60 basis point, and operating margins were unchanged. They generated $427 million in free cash flow for the quarter, which was a nice surprise compared to negative free cash flow last year. And on the call, they mentioned that there is consumer softness due to a preference to spend on experiences and services, as well as budget being tighter due to higher prices. This has led customers to pull back on discretionary spend. And they said on the call that one in three Americans has maxed out the limit of their credit card or maxed out the limit of at least

one credit card or is nearing the limit. So that is pretty, pretty scary. I mean, I saw those numbers before, so they're not the first one that actually come out with those. But I think it was interesting that they mentioned that on the call because you have one in three Americans that are nearing the limit or at the limit of their credit card. I mean, this is pretty dangerous because you're looking over there. They're looking at interest rates, I think, average of 26%, 27% on the credit cards.

I mean, is this a target card? Do they have a financing or is this just in general? In general. Oh, okay. I thought you maybe meant like a specific target credit card, like Canadian Tiger. Oh, no, it's the worst case. It's the worst of the two. It's just overall.

I mean, I laugh, but it's too bad because it is, I think, painting a bit of a picture. And I've been looking at that kind of data, and it's true. Americans are more and more in debt, especially credit cards. The credit card balances are increasing. More and more in debt, especially credit cards. The credit card balances are increasing. So despite mainstream media kind of feeding us the information that the American consumer is being resilient, I think now we're starting to see the crack is maybe some of them are resilient.

But to me, when you're maxing out your credit card, you're not resilient. You're just pushing the inevitable. You're extending and pretending. Kicking the can down the road. Exactly. And things will get much worse because then you'll just be servicing the debt at 25, 26, 27% interest. Now, because of the uncertainty regarding the consumer,

they are putting increased focus on operational excellence. That just means they want their business to be more efficient, better service, all these different things. They also announced 1,500 price cuts to commonly purchased items and will be doing price cuts to another thousand items. The cuts are focused on food and essential categories. They also redesigned their customer rewards program to make it easier for consumers to use and understand. And the last thing here, they think that revenues

will start increasing in the second quarter. They are very cautious, however, and they are guiding for comparable sales to be slightly up in the quarter or flat. So between 0% and 2%, depending how it goes. So I think we're starting to see a bit more of a clear picture here with retailers, right? There's just few and far between that are doing well. I think Costco is still doing well. You have a Walmart that did pretty well. But we're starting to see that these are the retailers that have more essentials versus those that have more consumer discretionary. Yeah, and you're even seeing Walmart when they went on the conference call.

error yeah and you're even seeing uh walmart when they went on the conference call they're saying like they've had to roll back more items to get people in the stores which are hitting margins like walmart i think was able to offset a lot of it due to like its membership and its advertising all that type of stuff that's kind of boosting it but they pretty much said like they they've had to put huge sales on stuff to get people, because it's so competitive now. People are willing to go to different stores to get deals now, whereas during the pandemic or even before that, maybe that drive is a little inconvenient. You don't take it. You pay more somewhere else. But now it's just like they're having to do these type of price cuts, which ultimately eats in the margins.

But I didn't even know Target sold food, to be honest. I just remember there. Do you have them? No. No, we don't. They were in Canada years ago. Disaster. And then they left.

But because I have family in Syracuse, it's three hour, three hour and a half drive from Ottawa. I have family in Syracuse. It's three, three hour, three hour and a half drive from Ottawa. We go there probably once, sometimes twice a year, and we'll go from time to time to Target. And they do have a decent food section, but it's not anywhere near close to Walmart. So that's what's, I think, been a big differentiator for Walmart. Yeah. And I mean, this is pretty much, I don't know if there's been a single retailer outside of like a costco that's kind of bucked this trend like we're seeing it with home depot with walmart to a certain extent and uh i mean it's just softer consumer overall that's gonna hurt yeah it'll be

interesting like do you know when dollarama is reporting i'll be interested in seeing yeah they're the ones i wanna yeah i definitely want to have a look at i don't know when they report they have a mix of discretionary and kind of essential or non-discretionary items but it's such a low price point yeah they've been doing very well even as they increase those price points they've been killing it yeah june 12th it says but that's just a general search a lot of them a lot of them are wrong like the quick searches for earnings it'll be somewhere around there though yeah i was gonna say that we have time for your last segment but i think it'll be

a bit too long for this episode so are you okay if we keep it well no the week after because next week will be banks oh yeah banks yeah gonna be all about banks so for those wondering why we didn't talk about banks i know td reported last week scotia bank today i today yeah and there's going to be a few more reporting for the rest of the week so we just decided you know what we'll just do them all at once um i'm not sure if we'll do all the big banks but we'll at least do uh four or five and kind, I think it'll be interesting because we'll be able to get some takeaways from all of the big banks reporting. So we'll be doing that next week. So make sure you don't miss the show.

Aside from that, anything else you want to add? Or you're just going to go, you know, in a corner and cry that the Oilers, you know, dropped the ball last night. Well, no, I got to actually go pack because we're going to the game tomorrow. I hope. It's tough cost, tough price for tickets right now. I really hope I don't go there and they pull that off again. That'll hurt.

Yeah, especially with, you know, all those fees from Ticketmaster. Yeah. At least if you get a win, right? It makes you forget about them. Exactly. Oh, man. Well, I think we'll wrap it up here. So everyone, thank you for listening.

We really appreciate the support. As always, you can find me on X. I'm pretty active, although it kind of comes and goes. Sometimes I'll be a few days without posting. I'll post like 15 times in a day. You can find me at Fiat underscore Iceberg and Dan at StockTrades underscore CA. So thank you for listening and we'll be back next week for another episode. The Canadian Investor Podcast should not be construed as investment or financial advice.

The hosts and guests featured may own securities or assets discussed on this podcast. that's discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.