The Canadian Investor - Reddit’s Post IPO Surge and Headwinds for Fashion Stocks

Episode Date: March 28, 2024

In this episode, Dan and Simon dissect the US Federal Reserve's recent decision to keep rates unchanged. They then delve into Alimentation Couche-Tard's earnings and explain why the stock sold off after the earnings release. Dan and Simon then discuss the recent Reddit IPO and why investors should do their homework before deciding to invest in the latest social media IPO.  They also touch on Lightspeed's potential shift to private ownership, Canada Goose's layoffs aimed at operational efficiency, and discuss the recent earnings of fashion giants, Nike and Lulelmon. 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  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.

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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 today with Dan Kent. We're doing our Thursday earnings and news episodes. Dan, before we get started, did you see what happened with the bridge in Baltimore in the US earlier today? So we're recording on tuesday on march 26th here yeah that that was

pretty crazy from what i had heard like they managed to maybe stop a little bit of the traffic because they knew the tanker it looked like the tanker like ran out of power or something yeah you can see like the power go on and off a few times but that was just i remember waking up at like six in the morning today and turning on the news and this bridge is like toppling over like i i'd never seen something like that before yeah i mean i think i think it's good i mean i don't know all the details but obviously just looking at the images it's crazy and i do hope that you know definitely our thoughts with the people that were impacted by this hopefully everyone's okay i don't know if there were any casualties or how many there will be uh it's hard to think there won't

be any just by the footage but that would make sense that they're i think the latest they were looking for like about seven or eight people so they had recovered a couple yeah yeah so that would make sense because uh i mean if it was just regular traffic flow it would have been probably hundreds of people at the very yeah i guess that's glass half half full view of it like if it had been at like 2 p.m or something or 4 p.m during the day oh yeah it would have been terrible now just saying if anyone i'm sure everyone will probably have seen the footage but uh just have a look at the footage like this camera that just i guess traffic cam or some kind of like far away camera and it's just the bridge literally like crumbles in itself like it's pretty uh it's pretty astonishing just watching it yeah it's a crazy

situation i don't know how like busy that bridge is in terms of economic movement, the impact it's going to have on that. I don't know. Yeah, I don't know either. I'm not familiar enough with Baltimore, I'll be honest. So I know the Orioles played there and the Ravens, I think. Those are the two things I know about Baltimore. But I guess we'll get to what we have on the slate today. A lot of stuff, hopefully, we'll get to what we have on the slate today. A lot of stuff, hopefully, we'll get to everything.

So first things first, we'll start with the big macro that happened last week. Won't go into too much detail, but clearly the Fed raid decision, whether people like it or not in Canada, I mean, it has a big impact on Canada. The Bank of Canada is definitely very dependent on what the Fed does because they definitely have to act similarly to the Fed. If not, there can be some consequences for the Canadian economy. So as expected, the Fed kept the Fed's fund rate unchanged at a bracket from 5.25% to 5.5%. They mentioned some, you know, it was the usual discourse from jerome powell i found pretty much what we would have expected at least in my opinion so they said the economy is stronger

than expected but higher rates are starting to bring inflation down and maximum employment at a better balance you'll see whenever you listen to the Fed, these press conference or the Bank of Canada, you'll see that they come out with these terms that are very hard to quantify. I don't know if you noticed that, but they will throw these terms that are very hard to quantify and time and time again. So it's always interesting. And then the market obviously tries to interpret that one way or another and read between the lines. Now, on the employment front, the pressure seems to be easing with wage growth slowing and job vacancies trending down, although labor demand still exceeds the supply of workers. So definitely still some pressures there. They believe that their policy rate is likely at its peak for this tightening cycle again it's all likely and things can change right so whatever jerome powell is saying and that was my main takeaway is that they're not really sure what to do although the market seems to be baking in three rate cuts in part because of what's called the dot plot. So these are Fed officials that essentially kind of project where they think the Fed's fund rate will be later this year and in 2025. And for

the most part, the medium was essentially three rate cuts by the end of this year. But again, that doesn't mean that it will happen. I think my interpretation of this is that they are saying this and they are almost wanting to get the market excited by rate cuts so the market keeps doing well. And hopefully, even if they don't do the rate cuts, the market won't be too much impacted because I've been reading a lot of different interpretation on it. And my takeaway for the most part is pretty simple. They're, again, still data dependent. They're not quite sure just yet. They're prepared to cut if they need to, but they seem to be prepared to hold the rates higher for longer if they need to as well. People tend to want to hear what they want to hear. And obviously,

equity markets, Bitcoin as well, they just kind of ripped after the press conference was open. And clearly, markets were very kind of happy and bullish for the fact that rate cuts are potentially coming. So that's my main takeaway of it. I don't know if you had similar takeaways. I would imagine like by the three rate cuts, would imagine they mean like 25 so 75 basis points they would be talking like a 25 basis point cut each time so that would put you at like four and a half percent i mean i see it seems like the market doesn't react like as violently as it used to i don't know if you remember like 2022 2023 as soon as they had these meetings you'd see like the markets move two percent in like 20 minutes but it's not all

that surprising that they're keeping it the same it seems like the u.s economy is doing pretty good considering where rates are which kind of like probably is an indicator that i don't think we're going anywhere near like, like where, where it's going to settle out. Like, I think a lot of people here are at least hoping that they're going to go down quite a bit, but I mean, if you look at how strong the U S economy is right now at 5.25%, like, do you ever see them going like sub 3% again? I don't know. It's difficult to predict, but yeah, it's very difficult to predict. I think the new normal will probably be somewhere in between 3% and 4%. That's my expectation. But when will that happen?

I have no idea. So your guess is as good as mine. Again, I mean, it's just so hard to know where the Fed is going. Obviously, they're still concerned with inflation because the print came in hotter than expected. Last CPI print and a few other different metrics that they look in terms of inflation gauge in the US. So I guess we'll have to see. But again, if they don't start with these cuts by, I would say the June or at the very least the July meeting, they'll be hard pressed to start cutting after that

if they haven't started just yet, because then you get very close to the US election and create the perception that you are cutting rates to favor one candidate over another. Whether that's right or not, it's still the perception. And you can just imagine the discourse in the US if that happens. Yep, for sure. Now, we'll move on to some earnings and there's a bit of everything this week. So we have some earnings from Alimentation Couchetard coming up. So do you want to go over what it looked like for them? And if I recall, their stock took a big hit, like 10%. Yes. I was waiting for you to say the name because i usually usually butcher it

you see most people just say cooch tard that's the most common the most common thing yeah it's okay brayden butcher but like he butchers it pretty badly as well so you're not alone but yeah they had uh first week quarter in quite a while you'd have to go back to the second quarter of 2023 to find when they missed estimates on both top and bottom lines. So when we look to Q3 earnings compared to last, they declined 12.2% and revenue is down 2.2%. So they reported same store sales decreases across the board. So 1.2% in Canada, 1.5 in the USA and 0.3% in Europe and fuel volumes dipped in both the USA and Europe as well by 0.8% and 1.9%. They increased in Canada by just half a percent. So merchandise margins increased. However, one of the main reasons the company performed so, I guess I wouldn't say poorly, but not as good as it typically does, is fuel margins. So fuel

margins missed the mark by quite a bit, particularly in the United States. So they figured fuel margins would actually increase by 3.5%. They ended up declining by 7.8. And just to give you an idea of how important fuel margins in the US are. So out of the 51.6 billion in revenue, it's generated through the first three quarters of the year, just under half of that is from US fuel sales. So Canada only makes up 8.9% of total revenue, their fuel sales. So this company is highly dependent on the US when it comes to overall fuel sales. So when margins miss, it's definitely going to take a hit. Yeah. I mean, who isn't dependent on the US one way or the other? Yeah, pretty much. I mean, you got to think Canada's what, 10% of the population. So it

makes sense that they're so heavily dependent on the US. But it seems to me like maybe we're seeing a bit of consumer slowdown here in overall spending. Custard saw some pretty crazy growth coming out of the pandemic in terms of fuel revenues. This kind of made sense because when you looked at year over year comparables, it would have been like 2021, 2022 when we were in full out lockdowns. I do have a question for you do you think this is maybe due because a lot of their their margins and their profits come i'm sure from merchandise that they sell into those convenience store right so as are we seeing

the opposite effect of you know loblaws a metro and dollar store, you know, offering kind of value alternatives to consumer where here it's the opposite, where they're saying, OK, well, sure, I could get this bag of chip and pay for the small bag for like three dollars or whatever it is. Or, you know, I can wait, go to the dollar store, one of the discount brands and get a big bag for the same price. Maybe customers are a bit more value conscious now and they're seeing that convenience store are notoriously overpriced, right? Oh yeah. There's a reason why they're called convenience stores. They're solely for convenience. So they make a lot of money off those types of products. And the one compounding thing

is when fuel sales slow, I don't think anybody's going out of their way to go to a convenience store to buy a bag of chips like really the only way you're going there is if you're filling up i mean maybe you'd pass by and you know grab something to eat if you don't need fuel but for the most part you're gonna rely you know on those people that are filling up on gas and then unless you're you know you're uh you you went out to a bar and it's 2 a.m it's the only place open yeah exactly really you really need to eat then you're in desperate times uh so through the first nine months of the year the company has spent 1.1 billion on share buybacks so i kind of wonder now with the stock trading at at the points, it is if CouchTard

will allocate more capital towards the reduction of debt. So it does have quite a bit of debt. Just in terms of its 10-year average multiple, in terms of price to earnings, a price to free cashflow, it is trading at a premium. So whether or not it scales that back, I'm unsure. I mean, that's still quite a bit of, I think it generates around three and a half billion in terms of free cashflow. So 1.1 billion just spent on buybacks is quite a bit. The company closed on the acquisition of Total Energy. So it costs the company 3.4 billion euros and adds just over 2,175 sites. So just under 1,200 of them are in Germany, 560 in Belgium, 380 in the Netherlands and 44 in Luxembourg. So the company expects synergies, which in the M&A world, like mergers

and acquisitions, that's pretty much the benefits of combining the two companies. So this would be the result of CouchTard buying them, implementing cost-saving strategies as well as company strategies to improve margins. And just overall, it wasn't the best quarter for the company, but it's really not that surprising. During recession, fuel demand does typically fall. So it's a bit of a domino effect as well, as mentioned, because they have to go into the stores to buy the food, the merchandise. So yeah, not the best quarter. No no i think that's a good breakdown uh now i mean i'm sure people will try to edit it out a little bit but dan has been coughing quite a bit so that's okay happens to the best of us so i'll let you uh go grab your lung that

just expanded away for a couple weeks weeks now. It's terrible. Yeah. So that's okay. 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. is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests.

It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. That is Airbnb.ca forward slash host. So I'll give you a little break and we'll talk about the Reddit IPO here. So I'm sure most people saw it. Reddit IPO last week, the IPO price was $34 a share, which was actually at the high end of what they were debating. I think the range was like $28 to $35 in that ballpark. And that valued the company at right around $6 billion. The price popped on the

launch. And now it's safe to say that it's, I don't know, upwards price discovery. So when I did these notes, I had to actually amend my notes because the price has gone up a lot since yesterday. The last I checked about half an hour ago was trading at $68 a share. And to give people some context here, the price to sales based on that share price would be 13 times sell, which is very expensive for a company like Reddit. And I'll explain why. That's because last year they generated $804 million in revenue. That was 20% increase over the previous year. The vast majority of their

revenue is generated through third-party advertising on their platform. They had a net loss of $159 million in 2022 and $91 million last year. They were also free cash flow negative last year to the tune of $85 million and $100 million the year before. So clearly they are not profitable. Whatever metric you really want to use, they are not profitable. Their average daily active user has been also quite flat between $55 million and $58 million between the start of 2021 and the end of 2022. However, in Q4 of last year, they did reach $73 million, which is a 27% increase. The average revenue per user is where things get a bit more concerning for Reddit. It's been going up overall, but there's been some weaker comps as well. So for example, the Q4 2023 ARPU, so that's the average revenue per user, was $3.42, which was down 2% year over year.

However, it was up for all of the other quarters last year on a year over year basis, with Q2 showing the strongest growth at 15.2%. Again, you're seeing a big divergence between, you know, similar to other social media platforms between the USA ARPU and the rest of the world. In Q4, for the US, it was four times higher than the rest of the world. The US came in at $5.51 while the rest of the world came in at $1.34. So that's why in total for the latest quarter, it was $3.42. Now, in terms of whether it's a good investment or not, obviously, we always say that this is not financial advice. We're not providing any kind of financial advice. So make sure you do your own due diligence. But I have here like for the join TCI listeners, they can see how it looks in terms of ARPU for

the world, as well for the US and then for the rest of the world, how it's breaking down. I personally don't invest in IPOs and Reddit is definitely not any different. Do you invest in IPOs, Dan, or do you give it like a certain amount of time? Usually for me, I'll try to give it at least a couple quarters. Yeah. But sometimes my sweet spot is like at least a year,

I would say. I mean, the one thing with these IPOs, I think a lot of new investors might believe is that they could have got it at 34 bucks a share. But really, because you'll see on the first day that there's a huge spike in price, but retail investors actually can't get that issuing price. So it'll kind of look like you could have got in early and made a ton of money, when in reality, it's just mostly institutional investors that can get that pricing.

So I think that's what draws a lot of people in but i i think the last ipo i would have bought would have been telus international and i think even then i waited like almost a full year before we ended up before i ended up buying it it still hasn't worked out all that well like 10 times sales is is a crazy like it seems, this feels like 2021. 13, 13. Yeah. This would be value territory for them, 10 times. And like, I don't know, like I find Reddit horrible.

I don't know. I don't really visit it all that much, but I find it like really confusing to navigate and just. Yeah, I use it from time to time. I would say I find for me and some people may have different opinions on it but I find for me it's I find it good for things that you want an answer that is kind of niche so something that you won't easily find the answer online sometimes there's going to be someone who has that same question and then you'll get some different perspective. But one of the issue is the quality of the content is debatable, I would say.

Obviously, there can be upvotes for what people think is the best answer. But I think that's, you know, that's the extent of it. And I see like you, very high multiple actually starts like the market right now. And just this IPO is starting to remind me of 2021. Yeah. How things were getting, you know, quite expensive. People didn't really seem to care about profitability or whether the business was sustainable long term. This is primarily an ad business, which is a very competitive market. Some I've seen people say there's potential for them to sell their data so that it can be used to train an AI

model. I mean, sure, I guess they could do that. But again, that would probably be a more of a one time thing with the aggregate of the data, and then probably bring in some revenue going forward for the new data that they have available. But I don't know how valuable that is because of what I just said. How do you assert the quality of the data if you're trying to train an AI model? I mean, there's just a lot of crap on Reddit and how will they be able to kind of- Sift it.

Yeah, exactly. So sift through all of that. I just don't know. And the other risk that I think is not being considered is a content moderator. So these are, this is done purely on a volunteer basis. And they're the ones that essentially within these forums will ensure that things run smoothly. And these moderators at some point, if Reddit starts earning a profit, I don't know about you, but if I'm a moderator, I see Reddit like making a lot

of money. Why am I not getting some money? Exactly. I want a piece of it. And I think that's also a big risk. So I personally would not touch this with a 10 foot pole. I think it's just they're being opportunistic of the IPO. I think it's probably a good move on their part to get, you know, as high as possible of a price for the IPO. But again, I think it's probably just a move to get the insiders to cash out. I think that's my sense of it. I mean, maybe this dog keeps going up and we see, you know, kind of the meme craze from 2021 again, but not something that I want to be part of. I'm more than happy looking on the sidelines. I don't think its users would kind of appreciate, you know, a public company that has to now prioritize like revenue generation at all costs. I think a lot of people went to Reddit because, you know, it was kind of different than a lot of the other mainstream websites, which are littered with ads and all that type of stuff, which is now. I mean, as a publicly traded company, you're going to be in the spotlight.

You're going to have to find ways to generate more revenue, which is probably going to lead to a decline in user experience, which is probably not good for a lot of the current Reddit users. But yeah, I wouldn't touch this either. No, no, exactly. Do you want to take a little coughing break or you're good to talk about what's happening with Lightspeed? No, I'm good. And this one's shorter too, so it shouldn't be that bad. Okay, good.

So if you listened last week, we had a chat about how Ryan Reynolds' company, Nuve, well, he's a major backer of the company, was potentially being taken private by a venture capital firm. So Dax De Silva, who is the CEO of Lightspeed Commerce, did an interview yesterday that said, although the stock market is a good place for Lightspeed, he also wonders if going private would be a better option. So obviously if the CEO is saying this publicly, it's been talked about internally long before he would go public. At least I think personally, I don't think he's going out on a whim and going public about this.

But when Nuve announced that a venture firm had significant interest in taking the company private, shares launched by over 35%. So after De Silva's comments, Lightspeed went up around 6%. The main difference here is there was official interest from Nuve from a third party, whereas Lightspeed, it's just kind of the CEO talking out loud. So obviously, this isn't really a statement for people to gamble on Lightspeed going private and benefiting from a rise in share price, but I can't imagine the premium wouldn't be pretty big from where the company is right now.

So it's trading at only 1.5x enterprise value to sales. So when you look to a company like Nuve they're trading at 4.5 x so three times the valuation and when you look to something like shopify they're trading at 14 x so nearly 10 times the valuation i'm not saying like lightspeed deserves to trade at you know a similar valuation to shopify but i i don't think shopify is probably worth 10x the company so but I don't think Shopify is probably worth 10x the company. So it'll be interesting to see. I think this is kind of just him talking out loud.

Like I don't think there's anything official or even anything close to official. Maybe he did it to kind of spring the share price a bit, go public with that because he saw Nuve go up 35%. I don't know. They have a billion dollars in cash on hand, zero debt, and they've kind of been working their way towards profitability over the last while. If you paid attention to Lightspeed over the last few years, and I'm sure a lot of the audience has, it was one of the

wildest stocks on the TSX. The shares effectively doubled in a four-month period, and then it was a target of a major short report which pretty much spruce right yeah spruce point i think yeah so they said it was burning a ton of cash and it was fabricating customer locations paying way too much for acquisitions so it's now 90 off those highs so it'll be interesting to see what happens there is i think there's a lot more pressure placed on these growth companies you know when they go public they're in the spotlight the you know i don't know it's i would imagine you're gonna see lightspeed trade heavily over the last while depending on the premium of what nuve gets or news that comes out in that regard uh just because he said this even though there's really no confirmation at all that

they're even kind of digging into it at all. But I just think him coming public is, it's pretty interesting. Yeah. And do you know why JP Chauvet stepped down a few months ago or a month and a half ago? Yeah. He pretty much kind of said that, you know, like the market right now is all about profitability, really. Like they don't, like they hate cash burn right now. And he kind of made a few comments about how you know they're they were looking for acquisitions and they're still looking for growth and i think the stock after he said it it fell like 18 percent and then he pretty much stepped down and and da silva came back like i think it's like lightspeed was burning cash and issuing a ton of shares in the pandemic.

That's funny because I thought he came in to do the opposite, to kind of right-size it because DAX was too focused on growth. And I remember watching an interview, and I was pretty critical. That must have been like two and a half, three years ago where he was doing, I think it was on BNN or, you know, I can't remember exact spot, but could have been on CNBC where they were looking to become a mega cap, like which I found that hilarious at the time. So it was just I just find it funny because I thought JP Chauvet was there to kind of bring more fiscal disciplines.

So I don't know. Yeah, I'll be interested in just keeping an eye on it it's definitely like i've said before i think just the payment space it's starting to become more and more of a commodity i think you have like the two behemoths with mastercard and visa that have those obviously network effects it's accepted everywhere and then you have every other payment company that to me a lot of the time time there can definitely be like competition that puts prices or pressures prices down to make it a much difficult, much more difficult business to be profitable. Yeah. And the difficulty with Lightspeed as well is how much it relies on small to medium businesses, which are like not doing very well right now yeah they're they're pretty big and uh bike so i i'm into mountain biking right so they

every like it almost seems like everywhere every bike shop i go to has like a light speed terminal point of sale and for those not aware there's been a lot of pain in the bike industry in the last year or so. So high inventory levels because they overordered, overproduced during the pandemic because the demand was just off the charts. And now people are not spending, not buying new bikes anymore. And I just saw an article a couple of weeks ago that Trek Bikes which is a large pretty large bike producer for both mountain bike road bikes electric bikes they're looking to downsize pretty heavily and you're starting to see that in bike worlds i'm sure that will have an impact on them because it is a decent part of their customer base but uh i just thought that was interesting yeah if you look

to like the small like bike shops those niche shops, you look to restaurants, they even do tea times. They have a lot of golf tea times. And golf has slowed down quite a bit. It absolutely exploded during the pandemic because it was pretty much one of the only sports you could play while everything was locked down. one of the only sports you could play while everything was locked down but uh they have a lot of exposure to smaller businesses which are more prone to churning like they can't afford to pay for the point of sale system so they'll cancel whereas larger businesses you know they still need

it so yeah no that's fair it's uh well i was trying to find the quote from the old CEO, but he said something that really turned the market off because it was in relation to still having the cash to make acquisitions and all that type of stuff. And it just didn't go over well. And then he stepped down shortly after. Oh, that's all right. I think he summed it up pretty well. 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm

away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Airbnb.ca forward slash host. So we'll go on to some not so great news that came out today.

So again, we'll record this on March 26 on Tuesday. That's usually when we record the episode for the Thursday release. So this came out just a couple hours ago. So Canada Goose is laying off 17% of its corporate roles. They mentioned in the press release that the cuts were to reduce costs, simplify the organization, accelerate decision making and increase efficiencies. I think it's probably mostly reducing costs. And the reason why I'm saying that is because they essentially have seen their profitability after peaking during the pandemic. It's been going down pretty substantially over the last little while. So for the Joint TCI listeners

here, I have a graphic that looks back at the last three years. So you have the 2021 fiscal year where they had $262 million in free cash flow went down by, I would say, close to half from $261 to $117 in 2022, then $71 million in 2023. And the last 12 months, it's at $20 million. So clearly, they're struggling on the profitability basis. Same kind of thing when you're looking at net income. So it's not just on a free cash flow basis. And to put this in perspective, so as of April 2nd, 2023, they had 4,760 employees with 915 of those being at their corporate head office. And because these are corporate layoffs, I think it's safe to assume that it's probably the 17% is from that 915 figure. So assuming that's the case, that would

be roughly 155 employees. And again, it's not surprising just given the current environment. I know they've been struggling with growth. China, I think you'd mentioned before we started recording, has really affected their growth plan with the lockdowns over there and also the economy not performing as well and they've also seen like this year and into 2024 sales that were not up to their expectation in part because of the weather but also the macro economic environment yeah i think they've had this is a company that's had like a lot of headwinds. There's one that I used to follow quite a bit because I did own it.

I sold it, I can't remember when I sold it. I bought it in and out like quite a bit after its IPO and then kind of moved on. But in 2022, that was when China, like Canada Goose was one of the most popular growing brands in China. But in 2022, China pretty much went into full lockdown and it affected their sales a ton. And I think that's why you see cash flow like dive.

And then coming out of it, like I know Chinese consumers tend to be one of the stingiest when it comes to spending. I can't remember the total numbers, but they don't like to spend money. They're actually like one of the economies that heavily favor saving money. So when the economy isn't as good there, they're not going to spend as much. And Canada Goose is far from cheap. They're a very expensive clothing product that uh you definitely need some disposable income to buy so yeah they're they're struggling and i don't know i don't know how they turn it around yeah and i mean the lockdowns in china started pretty much what in january of 2020

all the way to the end of 2022 i think there were different levels but i think it was pretty much the strictest place in the world. And then obviously, like you said, I think the wealth effect probably has a big impact in China as well. Because, you know, a lot of people here will have their wealth in real estate, but in China, it's even more so. Where people here may also have stocks and different kind of assets that contribute to their wealth. And in China, for most people, buying real estate, buying a condo is really where you store your wealth. And there's been some pretty big price declines, obviously, even some developers. So Country Garden, Evergrande, and I think there are more over there that are struggling. So that's putting pressure on home prices or condo prices

over there and most likely affecting the willingness of chinese citizen to spend on high price items like uh you know canada goose coats which apparently they have some that go over two thousand dollars now oh yeah i remember like the cheapest one i think was eight or nine hundred bucks and that was when i was looking uh a few years ago but yeah i looked up the data so in china consumption accounts for 53 percent of gdp compared to 72 percent for the rest of the world okay so they tend to save more yeah yeah overspending uh yeah it's kind of hard sometimes though with china to just how yeah the data is. So that's always the issue.

But I'll give you a little break here. Let you rest your throat a little bit before we do your last segment. So I'll go and continue in the fashion world here with Lululemon Q4 earnings. Now, obviously, I own Lululemon. And this is just so people know, this is the quarter that ended on January 28. So it does include the holiday quarter, obviously the holiday time. So revenues increased 16% to $3.2 billion for the quarter. It increased by 9% for North America and 54% for international.

Men's sales increased 15%, while women's increased 13%. And comparable sales increased 12%. That's 7% for North America and 43% for international. And comparable sales were up 56% for China. So they are doing quite well in China, although their present is still quite small over there compared to other companies like China, although they're present, is still quite small over there compared to other companies like one that you'll be talking after. And they opened 13 new stores in China and seven net new stores in North America. And the net new store just means, you know, it factors in stores that they would have closed as well. So it's just the amount of net stores that they open. Gross profits margin were 350 basis points higher than Q4 last

year. So those of you who are not familiar with that, that's like 3.5% if you add it like in terms of an addition. So that's 3.5%, one basis point being 0.01%. Operating margins were 170 basis points higher than last year net income was up more than 450 to 670 million and free cash flow was up more than 400 to 1.6 billion for the full year so definitely i would say i mean i own a lululemon i think it was a good quarter what really impacted the stock because the stock was down like I think 15% or somewhere like that when the earnings came out. It really comes down to the guidance. So for Q1, revenues are expected to grow 9% to 10%. For the full year, they expect revenues to grow between 10% and 11%. On the call, however, they said that there's been a shift in the U.S. consumer and the start of the year has been much slower than expected.

And I think this is the main reason the stock was down, because clearly the U.S. is still their most important market. You can include Canada here, I mean, if you want, because they do break down North America. But I think it's safe to say that the Canadian consumer probably started slowing down before the American consumer. Yeah, exactly. And the U.S. being slower than expected is not good because it does represent two-thirds of their revenues. And they plan to open five to ten new stores in the U.S. in 2024 and optimize another 15 to 20 stores. They're looking to open about 30 stores outside of North America in 2024. Now, they've launched their new men's shoe line as well in early February,

so this could help growth going forward. This is after the launch of their women's shoes, which has been, I think, was launched either last year or the year before. I can't remember, but it's been out for a little bit. So I think it's all about guidance here, but it's not a company I'm looking to sell. I do love Lululemon. I love their clothes. I'm wearing a hoodie right now and a few other items of my clothing that I have on right now, including my pants and another item. I'll let the listeners guess which one it is. But I think it was, yeah, it's more of a guidance thing, clearly. I think we're starting to see a lot of retailers just saying that there are some headwinds that they're seeing. So it could be, it's interesting because

I find Lululemon and Nike to be kind of a, almost in a category of their own because to me nike even for longer but lululemon has really shown that it kind of stood the test of time where the brand were in fashion it's not easy to have a company that will do well over decades i mean you can have companies that will do well over you know five six years or a couple of years. But I mean, there's a graveyard of fashion companies out there that were, you know, the, you know, the most in demand item or most in demand clothing that are now essentially bankrupt. So I think still, I think in a class of itself along with Nike, but it will probably be a rocky uh little while for lululemon i'm assuming it's similar for nike yeah the well the lululemon earnings are actually quite a bit better than than nike's but

in regards to you like saying the brand's fizzling out it's it's pretty impressive like nike and lululemon considering how expensive they are like i would i would personally never buy anything lululemon or nike but as you can see i'm also wearing i'm yeah a kirkland signature i've never spent any sort of money on clothing but i mean it's they have i mean the way i see it yeah and the way i see it at least for lululemon i've been really i don't buy that much Nike stuff Lululemon for me it's more I mean it's not like luxury but it's not cheap it's kind of like you know it's kind of in between yeah middle of the line but what I find is they the items last for a really long time so that's what I've noticed is I would buy cheaper brands before but I have to buy it as like twice

as often and didn't feel as comfortable so that's my reasoning around it but I'd have to buy it as like twice as often and didn't feel as comfortable. So that's my reasoning around it. But I agree with you. It's not cheap. And if you're, you know, if you're trying to save money, at least in the short to medium term, you know, not buying Lululemon or Nike is probably a decent idea if you want to reduce your costs.

Yeah. When you say that, I just remember cause I used to shop at American Eagle a lot and that was something where you put, you put that through the washer two or three times and it's pretty, your $18 t-shirt is pretty much toast. Yeah. I mean, speaking of it, I'll just say another one. I think one I used to like, like more than a decade ago, I think it's, I'm pretty sure they're going bankrupt. It's Express. I don't know if you heard of those.

I've never heard of them. Anyways, they had some kind of work attire, but kind of more younger. That was more when I was in my early 20s. A lot of vibrant colors that I used to wear as well. But they're going just that's an example where it used to be really popular like over 10 years ago and now um i went on their website everything is like 60 off so i think they may be restructuring or something like that yeah keeping keeping relevant in in fashion is so hard this is just off the top of my head but i seem to remember

this was a while ago but they did they did like kind of a study where they took two of the identical t-shirts and they put a nike logo on one and no logo on the other and i think they could sell the nike t-shirt for like three or four x the price like that's just that's just how valuable the brand is it's the exact same piece of clothing but they can just sell it for so much more but yeah i guess i'll get into the nike earnings yeah go for it it was it was a pretty average quarter for nike so they topped street expectations but uh revenue was flat year over year and earnings declined 2.5 percent the company has essentially flatlined since late 2022 so the i believe this is revenue has only increased about 2.5 percent since november 2022 and earnings have dipped around six percent over that same time period and i didn't really notice this i didn't know this but

the converse brand is really struggling with Nike. So it reported sales down 19%. So Converse revenues peaked in August of 2022. They had sales of $643 million. This quarter's sales of $495 million or 23.5% off those peaks. And they kind of keep going down. The company is either seeing flat growth or small declines across pretty much every one of its business segments outside of its equipment segment, which I would imagine would just be sports equipment for like a different variety

of sports that continues to grow at a double digit pace. The only issue is it only makes up around 3.9% of revenue. So initially the stock spiked on the earnings beat. However, much like Lululemon, it was kind of the guidance issued in the conference call that tanked the stock. So they said that fourth quarter revenue will be soft and that full year revenues for this year will only work out to be about up 1%. And they said it doesn't get much better for fiscal 2025. They stated that revenue will decline at a low single digit pace through the first six months of the year. I have a feeling that Nike is one of those companies that's probably heading into their fiscal 2025 right now. They're one of those ones that report a

year ahead because I believe the guidance is for the first six months of this year, I believe. I think so, though. I might not be correct on that, but I'm pretty sure they might be moving into fiscal 2025 pretty soon. On a positive note, they've been aggressively implementing cost-saving strategies. They seem to be working gross margins expanded by 150 basis points to sit at 44.8, and the company expects even further margin expansion. Some of it will be due to cost-saving initiatives, but they also expect a reasonable margin expansion from the fact that one-time restructuring costs kind of impacted it. I'm not a huge follower

of Nike, but when I quickly glance at KPIs, it seems like it relied quite a bit on China, much like Canada Goose, to fuel growth. So from May 2017 to May 2021, revenue from China effectively doubled, while North American revenue only went up by about 12%. Now, however, the company seems to be kind of losing ground in China. So trailing 12 month sales are actually down by 10% off peaks. So I'm kind of wondering if again, you know, as we had talked about, if this is kind of, you know, the Chinese consumers typically being a little less spend happy, more savings directed, the economy is not doing too well. So they're kind of spending less.

And overall, I just think it kind of shows a pretty large shift in the consumer when it comes to major trendy brands. People just, you know, they either don't have the money for it anymore or they're not willing to spend that extra money. Yeah, I mean, I think that's very possible. And I know, wasn't Yao Ming for a while kind of their biggest spokesperson? I think so, yeah. The basketball player? Yeah, for China. And I think LeBron James is pretty popular there.

But I'm trying to think if there's also some good kind of ambassadors for the Nike brand that would resonate with Chinese people. I'm not sure that there is. Maybe there's one that doesn't come to mind. But here I have for our joint TCI listeners. So you have the operating margin. So we can see they really picked up the operating margin in 2021. But it's been a steady decline since. And it's actually now gone back lower than it was pre-pandemic. So that is kind of showing that there's definitely some operating pressures for Nike. And I was also showing as well for, you can see Converse revenue that has been kind of steadily declining as well after peaking during the pandemic. It's kind of weird to me how Converse spiked so much during COVID. Like what even happened there? I don't know.

I mean, people, I guess when you can't really do any kind of experience, right? There was so many lockdowns. I guess people were just buying goods and yeah, goods basically. So just whatever they could get their hands on. That's my best guess. But no, it'll be interesting how it goes forward definitely definitely a company that uh i think it'll be here in 10-15 years from now but i think just like lululemon i think they're gonna be some definitely gonna be some headwinds in the next

year or two and to answer what you were or to clarify what you were saying uh they just reported q3 2024 so they have this weird uh reporting schedule yeah yeah i find that's like kind of the case with a lot of companies that focus on retail as well i think aritzia might be the same thing like they're kind of i know brp like bombardier is the same thing they're kind of like a fiscal year ahead so sometimes if you're just looking at the numbers, it could seem really confusing. You'll have them report first quarter 2025 in like the middle of 2024.

But yeah, so they expect the first six months of fiscal 2025 to be relatively weak. Okay, well, we'll have to keep an eye on it. Anything else you wanted to chat about or you just want to go get some cough syrup? Yeah, exactly. I'm going to go downstairs and get some Buckley's. Yeah, perfect. Well, I think it was still a really great episode. I mean, we covered a lot of ground today, lots of, you know, some macro, some news, some earnings. And I thought, you know, earnings were slowing down, but we had plenty of content to talk about today. So for everyone listening, we really appreciate that. If you haven't done

so already, again, we do appreciate it helps us helps people find us if you can give us a five review on Spotify, on Apple podcasts as well. Write us a nice review. We do appreciate it. We try. We always try to read as many as we can. And aside from that, you can find me at Fiat underscore Iceberg on Twitter slash X. And you can find Dan at StockTrades underscore CA on Twitter. That's it. Yep. Yep. Or StockTrades.ca if you want to go visit his site. Yep.

Thanks for listening, everybody. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.