The Canadian Investor - Spotify CEO Exit, Air Canada Cuts Guidance, and More Tariff Casualties

Episode Date: October 2, 2025

In this episode, we dig into some big moves across markets. Spotify is shaking things up with Daniel Ek stepping down as CEO and a new co-CEO model taking over. Nike finally posts sales growth after a tough stretch, but margins remain under pressure as rivals like On and Hoka keep gaining ground. Algoma Steel gets a $500M government loan as tariffs hammer its U.S. exports, raising questions about its future. We also break down Air Canada’s revised guidance following its labour dispute, and take a look at Costco’s strong results and what its valuation means for investors. Tickers of stocks discussed: SPOT, NKE, ASTL.TO, AC.TO, COST Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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Welcome back to the Canadian investor podcast. I'm Simon Berengen back with Dan Kent. We're back for a news and earnings episode, definitely a decent amount of stuff. I was a little bit concerned that we're still not an earnings season, so we'd have a little bit of lack of content. But thankfully, that's not the case. So how are things on your hand before we get started, Dan? Pretty good. Preparing for the children soon.

That's going to be an interesting time. But, yeah, it's not earning season, but I mean, in this type of market, there's always some sort of news that is definitely worthy of talking about. So it should be a pretty good episode. Yeah, and just so people are aware. So we know that we're aware we're recording this that the Mark Leonard stepped down as CEO of Constellation Software. We will be talking about that in Monday's episode. So Brayden actually came on to discuss what's happening over at Constellation Software. Not only Mark Leonard stepping down, but also the news of the recent AI call.

Unfortunately, we weren't able to address the succession call or the leadership transition call. I think what they said, it's happening, I think, right now or in the next couple hours as we're recording this. So we will be doing an extra segment on that after we listen to that call in the coming week. So just be aware of that. And you'll get our thoughts on what's happening there and whether we thought it was a good buying opportunity or not. And we also talked a little bit about founder-led businesses and some key person roles where it was very appropriate for consolation. So stay tuned. Tune in on Monday for that.

We'll be talking a whole lot about consolation software. So if you were tuning in, hoping we talked about that today, don't worry. We'll be addressing that next Monday. So let's get started. Speaking of CEOs, long time CEOs stepping down, Daniel Eck, the CEO at Spotify, stepped down. That was announced literally as we finished recording yesterday with Braden. And just a little housekeeping note, it is October 4th as recording this. I think it's always important to timestamp because it seems like the information is ever changing and happens pretty rapidly.

So it was announced that Daniel X stepped down as CEO. It will be affected January 1st, 2026. He'll be moving to the executive chairman role. I believe he's already there, if I remember correctly, as an executive chairman. So he'll just kind of stick to that role. Spotify shifts to a co-ceo model. So Gustav Soderstrom will be the head of product intent. and Alex Nordstrom, the head of business.

And as executive chairman, Eck will determine the capital allocation, map the long-term future of Spotify and continue to provide support and guidance to its senior team. So definitely a more strategic role. But in the press release, they were definitely trying to convey that this essentially what has been happening for the last couple of years. And they're just formalizing the whole process. That's why they were trying to convey. I think the market was a bit surprised by. the news. I'll take it at

face value. It sounds like it was something that's been planned for a while. And both Gustav and Alex have been working with the company for the last 15 years. So they're not new. They know how the company works. They've been very involved. And the stock did draw, did react

a little bit on the news. It dropped 5 percent because I guess investors weren't sure about the COCO model. But overall, I mean, for me, I'll kind of take them as their word. It's not a business that I own, but if I was a shareholder, I wouldn't panic too much. I think Daniel Eck is pretty young still, so I think he'll probably be involved from a strategic standpoint for quite some

time. Yeah, and I think we talked about this on the Constellation episode that'll come up is like continuity. When you get kind of a resignation from somebody like this and you have people who've been with the company for many, many years that are kind of stepping up into the rule. And I kind of mention on that episode as well, it's not like a situation like, say, Starbucks where they kind of overhauled the CEO and brought in somebody from the outside to try and turn around the business. I mean, these are people who know the business very well and have been with the business for quite some time. I mean, I've never owned Spotify either, but we were talking about this. I mean, they've done very well. And the subscription,

I was saying, like, I would cancel. This would probably be one of the last subscriptions. I would cancel like I find so much value in it it's relatively cheap you don't you don't have to listen to they have unique ways of I guess not necessarily forcing you to upgrade but making it very annoying I guess annoying yeah like and that's like that's just annoying is the correct word yeah yeah and it's a genius business bottle I mean you got to listen to ads you can't you can only skip a certain amount of songs I think so like especially with the evolution of like how popular podcasts are becoming. I mean,

like a lot of them, I listen to pretty much everyone on Spotify. So yeah, it's a great business model. And obviously, you know, they're bringing in people who've been here for many,

many years. So I don't really see that big of an issue. But I can see why the stock dropped. I mean, again, we have like a founder led business. I think this guy was the co-founder, like 20 years ago,

something like that. So whenever you have somebody like that, step down and there's changes, there's probably going to be a bit of volatility. but I don't really see too many changes in the underlying business moving forward. Yeah, and I think that's my main takeaway, too. And you know what, Spotify has been one of the things I've been very wrong about. I thought the business model wasn't that great.

The unit economics weren't that great, and the royalties they had to pay, and I thought they had limited pricing power, and especially competitions from other platforms, thinking here Apple, Muse, but also Amazon. on. I thought it wasn't necessarily the best business model, but I'm sharing here the free cash flow that they generated, and it's really exploded over the last couple years here. So it was free cash flow positive for quite some time or break-even. Same for profits. I've been up and down, but the

free cash flow has been amazing, and also the free cash flow per share has been quite something as well. And the stock is up 360% since its IPO in 2018. And you compare that to the SNP 500 that's up during that same period of time of around 190%. So happy to say I was wrong on this one. Unfortunately, I didn't hold it, of course, for obvious reason. If I didn't think it was a good business, I wouldn't own it. But for those have been owning it, and I know there's been a lot of ups and downs for Spotify. It's been a pretty, pretty solid investment over that time period. Yeah, it's not exactly the highest margin business, I guess. It's only got operating margins of 11 or 12%, I think, which is kind of, you know, you don't really see this in the tech space. But I guess this would be more along the lines of a communication stock. But yeah, it's done quite well, mostly in recent times. Like, it's kind of started to generate much more cash flow in the last few years than it has previously. But I haven't even really looked into the royalty model side of this business, like what they actually have to pay out or anything. I don't really know much about it. it. I just know it's, I mean, it's a product I use and I cannot foresee any situation where

I'd ever move on from the premium portion of it. So they do a good job. Yeah. And recently, before we move on to the next one, I was going to say recently they added two audiobooks, not all of them, but definitely a nice little perk to have as well. So let's move on here to Nike earnings. This one was really interesting, especially as we did a Lula Lemon not too long ago we saw Lululemon. Take a big hit in part because of tariffs, but also some of the business decision and product assortment that are not resonating well with the U.S. market.

But Nike, it's been a struggle for quite some time for Nike. So revenues were up 1% to $11.7 billion. And that may not sound that all that great, but it was the first time they saw an increase in revenue on a year-over-year basis in the last five quarters. it was the first time they saw an increase in sale of 1% or more in the last 7 quarters. So it just goes to show how much the business was actually struggling. And sales are still down 12% since having peaked at the end of 2023.

So they're definitely not out of the woods, but I guess it's not as bad if I were to say it. I think that's kind of what it was. Like I think they're up four or five percent this morning. And I think they like analysts had kind of pegged revenue. declines of like nearly 10% or something like that. I think. So to post an increase is obviously going to be a big benefit. The one thing I noticed, I don't really know if this is a big mover of the business really all that much, but like how badly Converse is doing. Like I think they reported their lowest sales numbers, like trailing 12 months sales numbers in the last like, I think

it's since like 2015. It's pretty crazy how far that brand has fallen. Again, it's not, I don't think it's a big revenue driver for them, but that was one of the big things I spotted was how badly Converse is doing. I mean, I've never seen somebody with a pair of Converse sales or shoes in quite some time. Yeah, and I actually didn't even think about looking at that one, so I can show the graphic here, and you're absolutely right. It's been not that great for Converse, so for Joint TCI viewers, you can kind of disregard the other two lines there. It's just to show the margins. I'll talk about that in a little bit here. But the big red bars is what you should be looking at.

And it peaked, yeah, around May of 2020 and in 2023. If I'm looking here at the quarters, pulling the data off from fiscal. So actually, yeah, it kind of peaked here in, wow, back in 2022, the Converse sale. So it's been really a brand. And it's kind of the story for Nike here. It's been really struggling when it came to the shoe side of the business. business, that's been the part that's been really struggling. And I think it's because they've been getting, amongst other things, more competition from companies like On and Hokka. I haven't looked at

Adidas, but I think they've done decently well. I think some of their popular shoes are coming back in style. Some of the models that I was wearing 15 years ago that apparently are coming back from Adidas. I think people can probably figure out which one. Now, I think they saw the sales increase. Well, when I was looking at it, sales increased slightly for apparel and equipment. So that's definitely a good news. But footwear, which is by far their largest segment, was still down 2%. So they're still struggling from that standpoint. Sales peak two years ago for footwear in general and have been on decline since. It kind of aligns with Converse here not doing all that well. And as a result, they've redesigned some of their running footwear to better reflect what

consumers want. They said that that has been actually, they've been gaining a good amount of traction. So I think they're going to be going forward trying to replicate that in other parts of the business. But direct-to-consumer sales were down 4%. Old-sale revenues were up 7%. Inventories were down 2.1%. So kind of some good news here, you definitely want to see that. Not piling up, because when it piles up too much, of course companies are forced to take a hit on their margins because they have to start discounting items to get rid of old inventories there. And then more concerning here, gross margins were down 320 basis point to 42.2%. And operating margins were down 750 basis point to 7.9%.

So I think for Joint TCI viewers here, you'll see that the gross margins have definitely been trending down for several years. And that's not going to be any better with the tariffs that are going to have an impact. So in terms of guidance, they said margins will continue to be under pressure for the next quarter as they continue facing tariff headwinds. They even said that on an annualized basis, tariffs are expected to cause them $1.5 billion. So it's going to be a pretty big hit. So it's still a company that is going to be facing a whole lot of headwinds. It'll be interesting how they try to navigate that in terms of maybe redirecting some products to countries that may not have tariffs on where they're being produced. So we've seen Costco,

for example, that we'll be talking about a bit later on where some of the tariff impacted products, they were actually redirecting them to Europe, for example, or Canada, so they would not be impacted by tariffs and trying to reorganize their supply chain accordingly. So it'll be interesting to see if they're able to do that. But I think it's a bit like, lemon where you're facing a double whammy of the products not resonating as much with the consumer base and the tariffs. So not a great spot for Nike, not a company that I would be interested in, even if this, we end up looking back a couple of years down the line three, four, five years and say, you know what, October, September of 2025 was probably close to the bottom here for

Nike is the kind of situation where if I would want to invest, I'd want to see that it's clearly starting to turn around. I think there's, my view is it's better to wait a bit too long than to be too early for these turnaround plays because you still don't really know what trend, what way it's going to go. Yeah, exactly. It could, I mean, we've seen it with Lulu Lemon where they said the products weren't resonating. And I mean, if you thought the bottom was back then. The bottom is just kept coming over the last year as they just continued to not resonate. And I think, I would imagine some of these margins are in relation to a lot of the right down, or sorry, the markdowns as well on a lot of the inventory. So, I mean, obviously,

if you have excess inventory, you have to kind of dial it down, like Mark Price is down and move it, which ultimately hits your margins. But I think if I were to bring up an example, like in terms of sheer size, you have a company like, say, Eritzia, who's only $10 billion, and they've market cap, and they've kind of been able to navigate the environment a little bit better, and they're actually reporting, like, increases in margins because they've been able to kind of move around in terms of product production and kind of mitigate those tariffs. But then when you look at a company like Nike that is worth $110 billion, it's a lot harder for a company like this to shift the landscape.

in terms of manufacturing in regards to tariffs. So this is probably why you're seeing it. You know, if you're wondering why it's not as big of a headwin for a company like Eritzia than Nike, that's probably an element. I mean, I know Nike did have a lot more production on tariff heavy countries more than Eritzia, but that's kind of a bit of the reasoning. You know, one is smaller, I guess a bit more nimble while Nike, they're kind of more deeply ingrained. No, exactly.

So I think one to keep an eye on, I find it. pretty fascinating, especially as we continue in the world of increased tariffs from the Trump administration. So I think it's just really interesting to follow these names here that are clearly quite impacted and see what strategy they're doing. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. offer some of the best interest rate among Canadian banks, so my money's still earning while

I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQ banks notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Questrade's new fractional shares, you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at

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

I encourage you go on there and follow me, search me up, some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Now we'll move on to a Canadian name. We have a few more Canadian names coming as well. So Algoma Steel, let us know what's happening there. Yeah, that's actually a good transition because this is a company that's been, I mean, you could say wrecked by tariffs over the last while.

So I actually thought like I didn't know that Algoma Steel was like a new company and I'd kind of mix them up with Algoma Central. Like, I thought they were traded for quite a while, but this one has actually had like a pretty wild history as a publicly traded company. So back in the 80s, apparently CP Rail was the majority owner of this company and it was publicly traded. And then it was taken private. So I think CP sold their stake. And then they would go into, so Algoma Steel went into bankruptcy protection three times. So they did it in 1991, 2004 and 2015. And it's mostly just been due to crazy volatile results.

So what ended up happening was back in 2021, obviously the markets were absolutely crazy. Then it actually went public via a SPAC. So obviously the SPAC market was huge back then. And, you know, it hasn't really. You can ask Shamat from the Olin podcast. He was the king of the rugpole with SPACs and he's launching a new one. But sorry, I digress here. I know how those work, but I don't know why. I'm drawing a blank here. So you effectively take, like, how do they even, how do they go to market?

So, yeah, so there's special acquisition purpose companies or something like that. So special purpose acquisition company. So I had the terms. And the way they work is they essentially create a business. I think if I remember correctly, it's like each share is worth like $10. And then essentially the goal of the business is to the business is create. with the goal of acquiring another business and then essentially becoming that business. Like that's what it is versus an IPO where you actually IPO the business and you do initial public offering. That one is kind of a little bit like a reverse if you'd like. So they say what kind of business they want to acquire, but you never know what kind of business they'll want to acquire. So it's just it's just a weird format. And then you can have different kind of warrants depending who the sponsor is. It's been a while. since I looked at those, but that's the general structure. I could be a little bit off on the details,

but there couldn't be a lot of hype around it, just in terms of anticipation. And in 2021, there was just a lot of hype around those in general. And I would say a big chunk of them just ended up being disasters for retail investors. Yeah, I think, I mean, one right off the top of my head I can think of, I think is tattooed chef. I think they were a SPAC and they ended up, I think they ended up going bankrupt. But yeah, so they, I guess you could say, became public again in, I believe it was 2021 or 2022. Back then, steel prices were very high.

I mean, everything was high, lumber, steel, all that type of stuff. So they did pretty well for the first few years, but they've really, really struggled moving forward like 2023 and beyond. But the news effectively is tariffs have effectively crippled this company. business. So Algoma produces 2.8 million tons of steel a year and 60% of that is exported to the United States. So the company just straight up mentioned that the current tariffs have effectively closed the doors to the U.S. markets. They fell 30% over the last while here and they're down 70% since Trump got elected. So I mean, the market might have thought this was coming to a certain

degree and so what it ended up happening is the government gave the company access to $500 million in order to support continuing operations and my kind of my issue here is like I don't really think this is going to save the company if the tariffs persist and like the one the one reason the government gave them the and I don't think this is like the government didn't just give them $500 million it's kind of like from what I read it's like a you could think of it like a credit facility like kind of a ability to draw on that 500 million in order to kind of continue operations. And the main goal of Algoma right now is to kind of diversify the business away from the United States. But like it's not really like we're talking about a clothing

product or like some sort of product that's easy to move. I mean, we're talking about 2.8 million tons of steel. So I mean, your only options in my opinion at this point in time are kind of ship the steel to other countries and in that situation you need to first off develop relationships with those countries and distribution routes like it's not easy to ship steel period so i mean if you're talking about shipping it overseas i mean it it seems like it would be a logistical nightmare that's not going to happen immediately and then on the other hand they could kind of ramp up Canadian uh you know keep everything domestic but does Canada really need that much steel I mean are you ever are you going to be able to offset 60

percent of the business. Yeah, I mean, it's an issue right now. I mean, obviously, like, there's a lot of people who work for this company. The government's doing this in a way to kind of, you know, support them, try to get them through this and, you know, save a lot of jobs. But I mean, if the terrorists persist, I don't know how a company like this would, would continue to operate. Like, you, you effectively have 60% of your business just crippled overnight. And I think this is one of the main, you know, this is probably the, the, the. poster child of like the impact of tariffs on especially like export heavy material companies I guess you would say like infrastructure type stuff like steel commodities things like that it's yeah it's not a good situation for them and it's like it's not like the company did anything wrong it's just I it's just kind of the way it's gone with the with the current tariff environment yeah I mean when you're you know your biggest market is down south and they're imposing tariffs, I think it is unfortunately what that's going to happen. And it just seems like the federal government is throwing money here and trying to figure something out, hoping

tariffs will go away. And I don't think hope is a very good strategy. To me, it feels like there should be a bigger strategy behind this, whether it's a strategy to encourage investments through maybe some private public partnership infrastructure, large infrastructure projects. Maybe that's what they have in plan. I'm not quite sure. But I think the biggest thing, and I'll be having a guest on the podcast, we already recorded by I think Richard Diaz from the Looney Hour, who's a great macro analyst. I think the biggest thing Canada needs is just more investment, more private sector investment. And without that, I don't think there's any solution. I mean, this is just what feels like a stopgap and probably money that the federal government will never see

again, unfortunately. Like I don't, yeah, I'm not sure like it's probably good for the people that are there. But at the end of the day, I think we're just delaying something into the future. We're throwing money at a problem that we'll have to pay later with interest. That's the unfortunate reality here. Yeah, because it is a loan. Like they made it quite clear it's a loan. Like Algoma will have to pay this back.

But if the environment doesn't improve. I mean, this company's went, you know, they've entered bankruptcy protection three, three times before. So we've kind of seen it, I think similar situation with like an Air Canada. I think they filed bankruptcy protection a few times. And actually you'll go over Air Canada next. But yeah. Yeah. I mean, it obviously you want to, you want to save the jobs. Like these are, you know, probably middle class like, you know, hard workers. But, you know, if the environment doesn't improve, I just don't see how 500 million dollars right now is going to. help them reroute 60% of their business? No, no, exactly. So we'll have to see, I'm hoping for the best, but again, hope is not a very good strategy. So we'll see the budgets coming up in what about a month now, I think at the beginning of November. So we'll probably have more information on what the federal government is looking to span some of the infrastructure projects that they've announced, tease, I guess maybe some more concrete information. So we'll have to see then.

In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account.

Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQ Bank's notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Questrade's new fractional shares, you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading

at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada, head to quest trade.com to open and fund an account. Use code TCI and you get $50 to get you started. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency

because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning duolingo style education lessons that are completely free. You can search up Blossom Social in the App Store and join the community today. I'm on there. I encourage you go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas, and using the analytics tools. So go ahead, Blossom Social in the App Store, and I'll see you there. Now moving on, like you said, Air Canada. So not earnings release here for Air Canada, they actually

updated their guidance or kind of put back their guidance in because they had withdrawn their guidance back in August following the labor dispute that they were having with their flight intendants. So they had withdrawn. He had pulled their previous guidance. We didn't cover their Q2 earnings that were released at the end of July. So I'll definitely put that into context here. So they provided guidance for operating capacity to decline 2% as a result of the cancellation of more than 3,200 flights. Operating income between 250 and 300 million, that would be a decline of roughly 75% compared to last year, depending where you kind of calculate with the mid range here or bottom or top, but let's just say around 70 to 75% decline. Adjusted EBITA expected to decline

around 35% compared to Q3 of last year. They estimate that the financial impact of the labor disruption to be around 375 million so not an insignificant impact here and for the full year so this is the new guidance that they're providing the available seat miles which is just a measure of capacity for airlines essentially it's that you take the seats that are available for sale because not all the seats on the plane are available for sale for example sometimes that you'll have to employees that are being kind of transported from one place to the other and you multiply that by each seat by the amount of miles travels. So that will increase less than expected.

Typically, you want more capacity for airlines unless you're facing some kind of massive slowdown, then you don't necessarily want that to increase because your pricing power is going to go down. Cost per available seat mile to increase 1.9%. Again, this is just a measure of operating costs. So the fact that it's going up, it costs them more per seat that is available for sales.

So not great here. Freecast flow was revised lower for the full year. And some of these comps here are compared to their previous guidance. I just, I forgot to mention that. That was lifted in August. And adjusted EBITA is expected to be around 12% lower than it. They had previously projected back in Q2. So overall, not great, but I guess it was to be expected.

The other issue with Air Canada is obviously the macroeconomic environment here. So if businesses are struggling a bit more across the country, an easy way to cut on expenses is you cut down on business travel. So that is something to keep in mind also for individuals, for leisure, travel, and so on. If you're tightening up the belt, if you're having more trouble making ends meet, then clearly one of the first thing you'll start cutting off is trips. So it is something to keep in mind before, like, look, it's obviously not investment advice, but before people start looking at the stock price here or some of the metrics and thing that Air Canada is really cheap, keep in mind that they're probably entering a pretty tough macroeconomic environment here. And the one thing that's still playing in their favor is energy costs are still relatively low.

So if that also starts increasing, like there's a lot of variables that could make this a pretty terrible investment in the short to medium term. And it's funny because I went to Montreal and for one of my buddies's 40th birthday a couple weekends ago. And someone like some of them didn't know I was doing the podcast. I had a few of them that were asking me about investment and so on. And one of them was asking specifically about airlines. And I was like, I was like, I don't give investment advice, but I personally. would not invest in airlines and just the reason they're very cyclical they're tied to economy a whole lot and especially there is like quite strong unions for an airline like air canada and that's what he was referring to and not that unions are a bad thing or anything like that it's just you know the the labor costs are also a little bit unpredictable like we saw this year with the flight intendants which renegotiated higher wages i think pay for when they're just being called and don't end up traveling, which these are all good things. Don't get me wrong, but from a business standpoint, it just adds to the cost and reduces the profitability of business. And as a

shareholder or an investor that's wanting to make good returns, these are all things that are likely going to impact the returns going forward. So I don't invest in airlines. I'm going to take it from Warren Buffett and just take his mistakes there and just kind of stay away from airlines. I do still find them fascinating to look at, but it's not an investment that I'm interested on. Even if it happens to double triple from here, good for you if you invested and make double tripled your money is just not an investment that I'm typically interested in. Yeah, they're very hard businesses to invest in. I mean, even Buffett, he bought them during COVID, I think, and then he bailed out of them really quickly because he pretty much said, like, they need a ton of money and he kind of didn't

want to be obviously when Berkshire takes positions like they provide a lot of financing and a lot of you know things to companies and he didn't want to be responsible for financing these companies because he felt you know the landscape had changed probably permanently and I think it has to a certain degree because a lot of these airlines now I haven't really paid attention to this but I know during COVID I mean business travel pretty much collapsed which is like was the biggest moneymaker for a lot of these companies because of, like, video communication. And I would imagine that's stuck around to a certain degree, like companies aren't really flying people all over the place anymore to go to conferences.

They're just loading up Microsoft Teams or Zoom or something like that and doing them on there. And like business travel was one of the juicier parts of the business for these. Because obviously, I mean, businesses, it's typically a credit card. It's typically, you know, drinks, food, maybe seed upgrades, things like that. So that's been a big issue. And yeah, and the macro environment as well. I mean, it's not looking good.

A lot of Canadians, especially when we dig into Costco, because there's a lot of situations on the Canadian side of things for Costco, like people just don't really have the money right now to travel. And again, like when they say the impact of the labor disruption, I would imagine that's just the disruption, not the amount of money they'll be dishing out to extended pay to flight attendance. And I think pilots went on strike not too long ago either, didn't they? I think the pilots, yeah, I don't. I can't remember. I think so, unless it was WestJet, I don't really remember. But yeah, I mean, obviously it's going to have an impact longer term on their margins, unless they can,

you know, offset it by higher prices. But again, higher prices, you still have competitions to deal with, right? You still have WestJet. You still have Porter. I'm traveling to Calgary next week. And I was looking at flight prices, and it's my bad because I didn't realize that I was returning the weekend of Thanksgiving back to Ottawa, so I booked a little two last minute, like two, three weeks in advance. But the prices were kind of crazy with Air Canada and Wedget, and I'm like, oh, have a look at Porter, and what do you know? I save like four or five hundred bucks on total for the return trip. So there is still some competition, so there is some limit to how much it can increase the prices, because at some point people do like me, they'll just.

just start looking at competition, even if you have a lot of points or you tend to travel with one. I mean, the points, you know, it is a factor, but it's not going to be a huge factor if there's such a steep price difference. But anyways, one to keep an eye on. It's a good bell weather stock, I think, for the overall health of the economy. So let's move on here for Costco like you were mentioning. So sounds like it was a pretty good quarter from Costco. So do you want to go over that? Yeah, it was. It's pretty solid. Like, I don't really think, like, operationally, Costco has done anything different. But if you look kind of to a share price chart over the last, I mean, even a year to date or the last year, it's not like it's return.

It's like had negative returns or anything, but it's been effectively flat. And I think it's just kind of a situation where valuations maybe got a bit too high and it's, you know, consolidating a bit. Sales increase by 8% year over year and earnings by 11% and comparable sales when we exclude. gasoline, primarily just because it fluctuates so much, they grew by 6.4%. And what I had mentioned previously is Canada is still driving the bulk of this growth. So they had same store sales of 8.3%. And I think I've mentioned this kind of every time we've covered companies like Costco, blah, blah, dollarama, but isn't really all that surprising. We have a massive cost of living crisis here in Canada. And it's, you know, it's difficult for many to get.

get by. And I don't know if you want to throw on the Canadian, the Canadian and U.S. revenue, but what you'll notice from that chart is the revenues are actually for Canada and the U.S. are actually growing. Like, Canada's lower, but it's probably only, you know, compound growth rate since 2019 is probably only a percentage or two lower. And that's pretty crazy when you consider the fact that the U.S. is what, 10 times the size of Canada and the growth rates in terms of revenue are actually like pretty similar. So Canada is definitely driving a lot of the increase here. And it's been like the frontrunner in terms of same store sales for for quite a while. And I think that is just the overall situation we're in here. But some

interesting data on the membership. So their US Canada renewal rate actually went down. It's nothing overly concerning. I think 40 basis points. Renewal rates are still at 92.3%, which is just crazy. I mean, once they get somebody to sign up for a membership, it's, you know, they see the benefit and they kind of stick around. And the other interesting thing is the total paid members, sorry, increased by 6.3%, but executive members increased by 9.3%. And kind of what this tells me is people are probably making Costco more of their core shopping center, I guess, resulting in kind of higher membership and cash back the cashback benefits being worth it and i don't really think this would be Costco like aggressively marketing this membership either because for the

most part i think even when they were kind of telling us about upgrading like they would kind of you know take you back there and see if you're spending enough to make it worth it and if you weren't they would kind of they wouldn't really push it on you that hard so this kind of means to me that more people are spending more at Costco which is ultimately a good sign obviously the executive membership is, you know, a higher ticket item. Membership fee income grew by 14%, but half of that was driven by their fee increase. Traffic is up 3.7%. Average ticket is up 1.9% and e-commerce sales are growing by 13.5%. And the one of the first things they mentioned is they're seeing larger activity online in the gold, like they're gold and jewelry. I don't

think they separate them, but they're saying that they're seeing an increase. Yeah. Yeah. And don't you, you buy it online, don't you? But it's always like it says it sells out quite quickly. Yeah, I mean, it sells out pretty quickly, especially with the price going up and you can get it at slightly better than spot. You have to be pretty quick. They'll replenish it, but when they replenish it, it'll be at a slightly higher price. But yeah, I buy it online and then when I get it, I bring it to the bank in our save deposit box for safekeeping. But yeah, I mean, it's great. great for cashback. I've been getting a good amount of cash bag the last couple of years. Yeah, and I would imagine you have to buy it online. Like, I don't think they would have it in no. I think, well, I think you can in person because whenever I go, it shows you whether they have it at your local warehouse or not. So I think sometimes I've seen it sold out online, but available in the warehouse. I've never done it in person. It could be not possible. I'm not quite sure, but I don't see why not. I mean, they have other valuable items at Costco, so I

don't see why not. Yeah, I guess so. I mean, it's probably not something you're grabbing off the shelf. It's probably something you'd have to get them to get for you, kind of like the movie tickets and stuff like that. But yeah, they, it was interesting. And then someone breaks your legs and part. Yeah, to get your gold. Yeah.

Yeah, that's why I was kind of thinking maybe it's an online thing only because they did mention that, you know, that area. They combined gold and jewelry, but I, like, I would imagine gold is the main driver there. But they had mentioned their member base is becoming much younger with around half of their new signups being under the age of 40. So they kind of mentioned that this is a shift. And they also mentioned that the shift to their younger audience is probably what is dragging down on renewal rates. They're noticing kind of the younger generation is signing up more so online and churn is a bit higher. But at nearly 93%, I really don't think it's an issue.

And they increase gross margins by 13 basis points year over year. And they attributed most of it to Kirkland's signature popularity. I mean, that's kind of their brand. And they, as you had mentioned previously, I won't go over it again, but tariffs. So, you know, they're kind of sourcing local, sourcing from areas that aren't as exposed to tariffs, which ended up having a positive impact on margins. And again, it was a pretty good quarter. I just think it was a situation where it probably got a bit ahead of itself in terms of valuation.

I mean, back in 2024, I think this company was trading at like 60 or 65x earnings. I mean, it's still trading at 50x. But it's still expensive, but I guess it's not as expensive as it was a year ago. And I mean, I would not, obviously, this is never guaranteed. I'm not going to try to predict Costco's future price, but like I could see this kind of trading in a channel until, you know, earnings kind of catch up. And it gets back to, you know, what it has historically traded at, which is usually around that 35 to 40x range.

But it saw a huge run up in price due to how popular it was the last few years. I mean, I think it went 100% from 2023 to the end of 2024. And it's just kind of traded sideways, not because of the results, but just probably because it got ahead of itself a bit. Well, I mean, yeah, and I guess we can finish on that. Like, it's a good reminder, right? It doesn't mean that a good business will be a good investment. And I think sometimes people kind of like mix up the two.

They'll see a really good business. They'll get excited, rightfully so. But the valuation is so high that they have to literally execute to perfection for multiple years. And sometimes, like, especially what kind of valuation we're seeing in the tech sector right now. I mean, they have to execute to perfection probably for five plus years to get just an average market return compared to what we've seen from the SMP 500 or the last 15, 20 years. I think it's just something that to be a bit careful when you look at, again, Again, I thought Costco was pretty expensive three, four years ago, and I probably should have invested in it because it clearly continued to execute on it and has provided some really good

returns, but I think it is something to keep in mind and something that is a constant struggle for me as an investor, because where do you draw the line, right? It's easy to identify a really good business. It's much harder to try to identify a fair price or reasonable price to pay for it, not necessarily a cheap price, but a reasonable price. And Costco definitely fits that bucket for me where I love the business. I mean, I love shopping there. I know you do as well. I think you probably buy most of their hoodies from that Kirkland's signature. Well, they don't have them anymore. They got rid of them. They got rid of them. Sorry, I forgot about that. But it all, all that to say, like, I'm sure you love the business too. And that's

probably one of the things that you, it's just, the valuation is so, so high. Yeah, so we used to cover it over at stock trades. And it's, I mean, it just got kind of too pricey, I guess. So we pulled it, not that it was a bad company. I just kind of, and I tend to look at more so at historical averages in terms of valuations. Like the market is pretty good at pricing these companies. So I tend to look more on that, you know, that side of things. What is it historically traded at the last five years, 10 years?

And I think Costco was like 35x over the last 10 years. So you look at the company trading at 60, 65x, and you should definitely be asking questions. And like, I don't think Costco is it was in a situation where it was going to fall 30, 40% because it was trading that expensive. I just think it could have, you know, probably consolidated for a bit, you know, earnings grow. And obviously that multiple gets lower as earnings grow. But, yeah, it's, I mean, it's had a rough year and it's still up 4% or something year to date. So it's not like it's been a terrible investment. It just hasn't like I think a lot of people saw this company go up by 100% over the course of two years and kind of expected that trend to continue.

And it's just kind of taken a bit of a step back. And that's with pretty much the exact same quarterly results that's reported for the last two years. Yeah, exactly. So looking here at total returns for Costco. So over the last year, so 365 days, Costco is 4.5% and. the SMP 500 is up 18.6%. So you're definitely underperforming if you bought Costco a year ago. It's still, you know, you're basically doing the same

that if you held the treasure bills. Yeah. That's pretty much what you're doing in the last year. So it just goes to show. I mean, it's not necessarily, it's a great business, but I think it's just another example that the valuations got really stretched for Costco and it's been essentially flat for the last year. for lack of better words so yeah i think it's a good point to to end it there this was a fun episode

definitely different than usual like some earning some news but it was fun fun to do i think we appreciate all the support that we get again for those interest in our portfolio updates that i'll be posting later today so when you hear that tomorrow you'll see our october update you have that at join tcii.com, you also get the ad free feed for our podcast, our full videos that will need a little bit of editing this one because I accidentally paused it or stopped it midway through, but our, yeah, our editor Maya will be able to fix that. I had a little bit of a brain cram. But if you're not subscribing to joint TCI, that's fine. The cost is $15 there, but we appreciate all the support, whether you're just listening to the ad version on your

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