The Canadian Investor - Two Canadian Stocks With More Questions Than Answers

Episode Date: May 29, 2025

In this episode, we break down the latest earnings from several well-known companies across different sectors. We kick things off with Canada Goose, which posted strong margin expansion but continues to face sluggish full-year growth and ongoing wholesale weakness. We then turn to Lightspeed Commerce, where slowing growth and massive goodwill write-downs reveal deeper concerns about past acquisitions and management credibility. Next, we take a look at Home Depot, which continues to navigate a challenging macro environment with stable results, while also highlighting an intriguing long-term thesis on deferred home improvement demand. Lastly, we cover Affirm Holdings, which posted impressive revenue growth and customer retention, but faces rising delinquencies and uncertainty around its Walmart relationship. Tickers of stocks discussed: AFRM, HD, LSPD.TO, GOOS.TO  Get your TSX Meetup tickets here! Get your Calgary Meetup Tickets here! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian investor podcast made possible by our friends and show sponsor EQ Bank, which helps Canadians make bank with some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April or February. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside

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Investing is simple, but don't confuse that with thinking it's easy. A stock is not just a ticker. At the end of the day, you have to remember that it's a business. Just my reminder to people who own safety goals, don't be surprised when there's a cycle. If there's uncertainty in the markets,

there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome back to the Canadian Investor Podcast. I'm back with Dan Kent and we have a special guest. You may know him a little bit. If you've been listening to podcasts for a while, the one and only Braden Dennis.

Welcome back to the podcast, Braden. Nice to have you. A long time listener calling in. No, I'm just I'm just hopping in for a hot minute because I am super pumped to unveil that we have an official date for our Toronto meetup this summer. So mark your calendars if you can come. If you're traveling from far or you're local, I think you're gonna wanna be there because on Thursday, July 24th, listeners, exclusive for the listeners of the podcast,

we are closing the Toronto Stock Exchange. You will get to be there for the hoopla, the big TV event, you'll be on the screen. Press that big button, the confetti falls down at the Toronto Stock Exchange on July 24th. Now, I'm going to verbally say the link, but it's a bit of a mouthful. So, Siman will also put the... Yeah.

Use the show notes. Yeah. Yeah. So, the link to sign up, it's a Luma event, will be also in the show notes. I'll say it verbally at the end here, but here are the details. It starts at 3 p.m., please be there before 3.30. Given it is a market close event,

we do need to be fairly timely. So if you can show up at 3 p.m. It is an afternoon on a Thursday, again, July 24th. It's kind of a one-time bucket list event to open or close the stock market, so I strongly think you should come. Tickets are limited to the first 100 people just due to capacity at the market close,

and we are charging $40 Canadian. Now, the reason we are charging four tickets is we are still going to lose a boatload of money on this because we're catering the event with food and drink. So all you can drink, all you can eat, they come around with good, it's actually really good food. The sliders are unbelievable. Anyways, so we are charging tickets, try to make some of our money back. We're still going to lose money. Come support the show. Come support the pod Thursday, July 24th. The link is Lu dot ma forward slash V

W D six four seven nine L Now that is the link you can go into the show notes as well and get the link. Tickets are reserved for the first 100 people, so it's first come first serve. I'm not going to announce this anywhere else other than here on the podcast, because we want just the people who are listeners of the show.

Maybe we'll do another reminder if there's still some tickets in a week or two, but you're not gonna hear about this anywhere else. So that's it, That's the update fellas. Yeah, so go right to our show notes. The link will be there. And for our Western listeners, just a reminder like we announced,

we do have the Calgary event happening on July 8th. There's also a link in the show notes. It's going to be $30 for Early Bird, which is ending in a few days, and then $40 afterwards. So there's going to be some food as well offered over there. So it'll be nice to see the listener. We're all gonna be there for both events.

So excited to see who's gonna be able to make it with us. Yeah, I'm pumped. I haven't been to the Stampede in years and years. I feel like they're probably gonna have record numbers for a Canadian event this year. Support Canadian. Yeah, I think so. Yeah, it could be.

Right? Because have you guys seen the numbers with air travel across the border? Yeah. I mean, even we're looking for booking an Airbnb cottage and slim pickings for August already. Wow. Yeah. So I think Braden will have to book our stuff

pretty soon for Calgary. Yeah, makes sense. Well, that's it fellas. Everything is show going on. The boys are buzzing. Everything's good. Yeah, yeah, we're ready to go. Got some news and earnings to do.

So it'll be a fun one. Some fun companies to talk about. Awesome, thank you. I hope to see all of you guys who are able to come to the meetup. Come one, come all. I think last time we had a Toronto meetup, we had like close to 160, 770 people

and that wasn't even a bucket list item event. So I suspect it goes very quick. When you hear this, you're gonna wanna go get tickets. Again, just 40 bucks comes with all you can drink, champagne at the close party, and then food afterwards. So we'll have this space until around seven o'clock after. And then after that, who knows what happens. Exactly. That's it. Thanks for coming on, Braden. Excited for the event. Yeah. See you later. Well, it was fun having Braden stopping by. I announced the Toronto event like we just talked about here.

I think it'll be amazing, obviously, that Calgary not to rehash all of that. Now we'll get back to the regular show. So we have some, mostly some earnings. There is a little bit of news on the US front, but I think we'll focus a bit on earnings right now. I think the big news there was, I saw this morning before we started recording. Did I see that correctly? Like Salesforce made a big purchase? I'm not sure. I haven't really had time to look this morning. I was finishing off the

notes. Okay. Well, and maybe we, yeah, so Salesforce will acquire a data management company Informatica for $8 billion. Oh. $8 billion. So this is just me reading the headlines right now. So I know it's more surface level, but that's a pretty big deal.

I haven't seen too much of these deals happening. So I'll be interested in digging it a little more, but that happened just this morning before we started recording. So forgive us for just more of the surface level, but it'll be interesting to see because that's not nothing. Eight billion, even though we're throwing billions here and there, it feels like nowadays, but it's not nothing, right? Yeah. Premium of 30%. So yeah, it's a pretty big acquisition. I'm sure we could find time

to talk about it maybe next week. Yeah, exactly. We'll be doing mostly Canadian bank earnings. So for the dividend investors that love their Canadian banks, you should tune in next week for sure. We'll be going over that. We might have time to talk about TD this week. If we don't, we'll keep it for next week. So let's get started. The first one here on the slate, it's been a little bit since we've talked about it. I think we may have skipped like one earnings from them So Canada goose they have this weird reporting schedule. So it's actually the end of their fiscal year 2025

They reported Q4. I'll mostly talk about Q4 numbers just because it just I think makes a bit more sense here looking at them But it was I would say a decent quarter for them not great, but it's starting I would say, a decent quarter for them. Not great, but it's starting to show maybe a slightly turnaround in terms of things. So revenues were up 7% to 384 million. Direct-to-consumer revenue was up 16% and on a comparable store sales for direct-to-consumer,

it was up 7%. Wholesale revenue was down 20%, so they're definitely focusing more on direct-to-consumer it was up 7%. Wholesale revenue was down 20%. So they're definitely focusing more on direct-to-consumer which makes sense it is higher your margin for them. On the revenue side it's definitely a trend in the right direction but it's still not great if you zoom out and you look at the full year. Revenues only increased 1.1% for the full year and if you're looking at it on a constant currency basis, it was down 1.1%. So still some struggles here. Not surprising because they are more expensive items. On the margin side, it actually looked pretty good for this

quarter. So on the year over year basis, gross margins were up 600 basis point to 71% and operating margins were up a bit more than 300 basis point to 14%. So just to show here are what it looks like for our joint TCI listeners or the margins. So I guess I'm having some technical issues, so I won't be able to show it. But the margins overall, I would say for them, it has kind of been up and down a little bit for the margins, but it is nice to see a bit of an uptick year over year, something to keep an eye on because clearly being a bit more of a luxury brand,

you want those margins to be pretty healthy because they won't do it on volume. I guess they have pretty decent volume, but it's not, you know, the way they make money is higher margins and lower volume, right? Yeah, this was a company that I actually used to own quite a while ago. Like I bought it back when it when it first IPO'd and I seem to remember them having much much higher operating margins in this. I think they were like north of 25%.

So I mean, this is still quite a bit of a hit compared to what they were doing before. Canada Goose has really struggled. I think COVID did a pretty big number on them. I think mostly because they had a lot of, I mean, like China was their main area for growth. And then I think they got into a bit of trouble in regards to like just using real fur, things like that. I mean, that's not really a good look overall these days. So I think they cut all that out. And yeah, this like I remember this used to be like one of Canada's best brands really

just shows you that the dangers of retail fallout. Yeah, yeah, exactly. I mean, at the end of the day, especially when you get into luxury, sometimes they can feel a bit more resilient, but it's not bulletproof, right? It is, especially if it's aspirational luxury. Yeah, it is something that's pretty easy for people to just cut in terms of their budget and not a necessity. So it's always something to keep in mind when you're thinking about these luxury brands. I didn't look at Louis Vuitton recently, but they've also had some issues I know in the past couple maybe in the last six months They they haven't been doing all that well, so it is definitely something to keep in mind as those luxury brands Yes, they can do well, but when people are looking for things to cut

that's that's usually going to be the first thing to go, especially if it's more people buying this because it's aspirational luxury, they wanna look like influencers on social media, for example, when they're not actually rich, then they don't have much margin for error. Yeah, it's pretty easy to cut out what $1,500 jackets I think they get a lot of I think they had a lot of issues with counterfeits as well in in China

I mean, you know if you're just doing it for the look you probably easily just buy a ripoff for Probably a quarter of the price. Yeah or buy it on there. I think they're lightly used side. We say yeah Yeah, the resell side. So there are some slightly better deal. Personally, I'll go with something that may not have the brand name, but similar in quality and pay half the price. I'd rather do that. But that's me. And you probably would do the same with your Kirkland hoodies.

Oh yeah, you would never see me buying one of these. Yeah, exactly. Now, for the full year, they generated still a decent amount of free cash, $135 million. That was 60% less than last year though. So something clearly the business is struggling a little bit. What was really interesting for them is they said on the call that about 75% of their products are made in Canada. And they're actually not impacted by the new US tariffs since they are US MCA compliant. So they're compliant with the free trade agreement between US, Canada, and Mexico.

And the rest of their products are mainly from Europe, but they don't anticipate any major financial impact on the business related to tariffs. They had an interesting perspective on it. They said, look, we have a global business and as a global business, tariffs is something that we've always had to deal with. Maybe not on the US specifically, but countries around the world have tariffs against one another, right? Like it's not anything new. And I thought that was very interesting and almost refreshing a little bit from the global business saying, look, this is something we're used to dealing with. Obviously it's probably a bit more significant

than what we've seen over the last several decades, but I thought that was an interesting perspective. But, and the other thing I really liked about their call is that they decided not to provide any guidance because of the economic uncertainty, which is you I've been saying it for a long time Like why our companies that could be severely impacted by tariffs provided guidance right now

Like there's no upside in doing it and I think you know what? It was pretty refreshing that call like clearly the business is still struggling. Don't get me wrong But it was refreshing to hear a management team say, yes, there is uncertainty. We won't provide any guidance, but you know what? We've been dealing with tariffs for a long, long time and we'll figure a way forward with these tariffs that the US is imposing to. Yeah, and they are a global company.

I think the, I don't know if it's the majority, but it's pretty close. So yeah, 171 million out of 384 million in terms of revenue is the Asia Pacific area and then yeah, you're looking at more than half of their revenue being located outside of North America. So obviously there's a bit of added risk there. And they pulled the guidance last quarter, I think, or maybe a couple quarters ago, but I mean, they probably have no idea what's going to happen. Yeah, no. And that's a smart thing to do. Yeah. Yeah. The market might react negatively initially, but I mean, it's better than just winging your guidance and coming in way lower or I mean potentially way higher but I'd say it'd be more on the lower end because they've definitely struggled.

No, no, exactly. So that's it for Canada Goose. As an investor, I'm always looking to reduce my fees, which is why I'm excited that Quest Trade now offers $0 commissions on stocks and ETFs. But Questrade isn't just about commission free trading. You can also get USD accounts, so I avoid forced currency conversion fees when trading US stocks.

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Visit questrade.com to learn more. Between meetings in Toronto and conferences in Vancouver, I'm not home as much as I'd like. So I've been thinking while I'm off enjoying someone else's Airbnb, why have I not put my own place up on Airbnb to earn a little extra income and help me pay for the trip? With Airbnb's local co-host network,

I can find someone to handle everything. Bookings, guest support, even the cleaning. It's a simple way to make extra money while I'm traveling, without the hassle of hosting it all myself. If your place often sits empty while you travel, it might be time to let it work for you. Find a co-host at airbnb.ca forward slash host.

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. We'll move on here to light speed. And again, having some technical issues for the screen sharing. So we'll, for those on joint TCIs, you'll just have to me do with our beautiful faces and not any graphs for this episode, but I'm sure it'll be fixed for our next recording

that'll be live on Monday. So, Lightspeed Commerce, a company that I've been pretty critical of, I think you have as well. I think you recently sold your shares, if I remember correctly. I did sell it, yeah. I planned to sell it at the start of the year, and then I remember correctly. I did sell it, yeah. Yeah, okay. Okay. I planned to sell it at the start of the year and then I moved all my money to Questrade and I had to hold on to it and it proceeded to fall like 40% over that time period.

So that one hurt a little bit. They're like, let's see if you like pain. Yeah. Yeah. Let's just see if you like the pain of not being able to do anything. Just watching the company make stupid announcements and basically just shoot itself in the foot, it feels like. They ended up eating up a decent chunk of my deposit bonus, but what can you do? They continue to slow down over the last while here, but this isn't really all that surprising.

This is a company that has a ton of exposure to small and medium sized businesses. And I mean, the macro environment certainly isn't bullish for, for many of them. Revenue grew by 10% year over year and adjusted EBITDA came in at 12.9 million. That is triple like 300% higher than it reported last year. But you're talking about a company with, I believe they surpassed a billion dollars and trailing 12 month revenue. So that's really not all that well, all that solid. I mean, profitability has has been a pretty big issue for this company over the last while. And in addition to that, profitability has been a big issue

because they dumped a ton of money into acquisitions over the course of the pandemic. They bought quite a few payment processing companies, things like that. They ended up having to book a large loss on the quarter, primarily due to some goodwill impairments. It's an intangible asset on the balance sheet. And what will happen is any amount over and above the fair value of an acquisition will be placed there. So hypothetically, if you have a company that has 200 million in assets and 100 million in liabilities, they have a fair value of around 100 million. I mean, this is a lot more complex than that.

Assets can be overstated, understated, things like that. But just as a simple example, $100 million. So if you were to have paid 200 million to acquire this company, $100 million would go to Goodwill. They made, they paid a very big price for many of them. They added a ton of Goodwill to the balance sheet. I'm actually trying to look it up here, but yeah, let's see. So Goodwill made up over 53% of the company's total assets. So it's taken a beating in terms of share price over the last while to the point where its market cap fell below the reported book value of those assets. So this often triggers a reevaluation of those assets. I believe it like companies frequently do this every single year and kind of reevaluate those, but that got triggered. And as a result, they had to mark down a ton of that goodwill. And as a result, we have a large loss.

I think they had to mark this down by like 500 million US dollars or something like that. And yeah, if we look to the goodwill on the balance sheet, it sucks. We don't have a chart for this because it'd be pretty good, but they had around 30 million in goodwill on the balance sheet in 2019. And that jumped up to two point seven billion dollars in in 2022. So that just shows you how much they paid for these assets. And, you know, if we fast forward to right now, they're at around $1.14 billion. So they've had to mark these down by $1.5 billion over the last few years. So effectively what that says is they overpaid a lot for a lot of these acquisitions. And it's just kind of reducing the value of the overall company's assets.

This doesn't actually cost the company any money. It's a non-cash cost, but it's definitely not optimal. You know, the company, you know, they're writing off like effectively, they kind of burn this money effectively is how you can say it. I mean, the value of the assets are not worth even remotely close to what they paid. It's almost admitting that you've overpaid for the company. Like, yeah, well, it's not.

Well, the thing is, is, I mean, I don't know if they would have, you know, if it wasn't required, would they have, you know, wrote the value of these down? So I don't think they're admitting it. I think they're being kind of forced to here. But yeah, they had to book that large loss on a results basis. I mean, it is an admission by itself, doing it, whether you're forced to or not. Yeah. Well, and especially because you spent all that money and now you're sitting here,

you know, growing at a 10% pace and, you know, on a billion in revenue, you're reporting adjusted EBITDA of 12.9 mil. And I don't even know, like, I don't even know what the adjustments are. I like, you know, the actual EBITDA could be, you know, a lot different. Profitability has been a huge issue, no doubt. The company's ARPU came in at $489, which is a double-digit increase on a year-over-year basis, but it's actually a pretty steep decline on a quarter-over-quarter basis. So Lightspeed typically reports a decline in ARPU at this point of the year.

So it's not actually the decline that's surprising, but the amount of decline. So ARPU fell by 8.5% quarter-over-quarter, just to give you some context over the last two years. Which is the average revenue per user. Average revenue per user. Yeah. So it's clients, like how much they're paying. I'm not exactly sure if that's on a monthly subscription basis or not. They might report it on a monthly basis, but over the last two years, so we're looking at 2023 and 2022, their ARPU only fell by around 3, 3.5% over the last two years. So you're

seeing double the decline, gross payment volume and gross transaction volumes also saw elevated rates of decline compared to the previous years. Their January to March quarter is typically a slower one. But the point here is the declines are steeper than they have been in previous years, which kind of tells me the company's starting to see some impacts from the macro environment, especially on the smaller side of businesses. And I mean, this definitely reflected in the company's guidance. So it expects revenue growth of 10% to 12% and profit growth of around 13%. And I mean, again, reflected in the company's guidance. So it expects revenue growth of 10 to 12% and profit profit growth of around 13%. And I mean, again, for the company that made, you know, the acquisitions

it did during the pandemic and traded at the valuation of once did, I mean, this type of growth really isn't good enough. There's definitely no doubt the environment is hurting them right now. But again, as mentioned, I did end up, you know, selling, I kind of completely lost faith in this company's management. I mean, they they seem to be more concerned with trying to move the stock price on on headline news rather than actual operating results. I mean, a prime example of this is they continue to report losses, yet they're

they're buying back a ton of shares right now. There's still buying back shares. I remember when we roasted them for. Yeah, they spent I believe it was two hundred million dollars this quarter buying back shares. I remember when we roasted them for that. Yeah, they spent, I believe it was $200 million this quarter buying back shares. And I mean, they're debt free and have a ton of cash. But they're losing money. They're still like your operations are burning money. Why would you?

Well, and you'd think you overpay for all these acquisitions in 2021 and 2022. Now that the tech environment has, especially with these payment processors, things like that, it's been reevaluated. They're trading multiples or a fraction of what they were in 2021-2022. You have like 900 million dollars in cash. Why aren't you trying to find some deals now, now that the environment's better? But I mean, obviously they're betting on themselves. They've had that cash balance for quite a. But I mean, obviously they're betting on themselves. They've had that cash balance for quite a while.

I mean, it wasn't really, they've issued a ton of shares over the years, diluted quite a bit. So I'm in that cash position, but I just, it's kind of like a buy high, sell low type mentality. I mean, if you're finding deals then, why can't you find deals now with the huge cash hoard you have? But obviously, I mean, they're, you're finding deals, then why can't you find deals now with the huge cash hoard you have? But obviously, I mean, they're, again, they're they're betting

on themselves or buying a ton of shares, but especially if the environment is slowing, like I'm just looking here at their cash and cash equivalent, which has slowly been dwindling, but then even faster, because obviously, they've been buying back shares. So they're looking at about558 million in cash and cash equivalents and they've lost around $11 million in free cash flow so they burn about $11 million in cash the latest quarter. It's probably gonna get a bit worse for the following quarters because I think they're it tends to be a bit worse for those quarters too. So I mean if you want to say okay they're burning probably anywhere

between like 30, 40 million and 80 million per year, do you want to be buying back shares? Probably not. I don't know. To me I'd want to give myself a bit more of a cushion and like you said maybe it gives you the flexibility to pounce on a smaller acquisition at depressed prices versus buying back your shares? I don't know. It just does not make a whole lot of sense. I think it's just a short-sighted move to try and please shareholders. And I think it's just doing a disservice to shareholders to be honest. I think so. Yeah. I mean, unless they truly do believe that they're cheaper than a lot of the companies they can look to acquire. I, with the way the pandemic went, I probably wouldn't have a lot of faith in

management being able to execute acquisitions. So maybe the buybacks will be well received. But I mean, I think management botched this company pretty badly. They had the CEO, the whole CEO situation where Dax left and then he came back shortly after. And then what did he say? He said something about how they were going to be a mega cap or something. Oh yeah. I remember that.

Yeah. Oh yeah. Yeah. Yeah. And that, yeah, yeah. During the top of the pandemic hype and free money, they, he was like, Oh, well, our eyes, like we think we, we could be like a mega cap by the end of the day. But I think when it comes down to it's just a tough business,

there's a lot of competition. And I just, anyways, I don't think a lot of the decisions are doing is just makes a whole lot of sense. I mean, the buying back shares, surely you can find better ways to spend your money, but I guess not. Anything else to add before we move on to the next one here? Nope, that's it. As an investor, I'm always looking to reduce my fees,

which is why I'm excited that Questrade now offers zero dollar commissions on stocks and ETFs. But Questrade isn't just about commission free trading. You can also get USD accounts, so I avoid forced currency conversion fees when trading US stocks. Plus, get access to their advanced edge trading platform available on desktop, web, and mobile.

I've been using Questrade for many years, and so has Simon. And their platform makes trading seamless, whether you're managing a long-term portfolio or making active trades. Don't miss out, start trading commission free stocks and ETFs today. Visit questrade.com to learn more. Between meetings in Toronto and conferences in Vancouver, I'm not home as much as I'd

like. So I've been thinking while I'm off enjoying someone else's Airbnb, why have I not put my own place up on Airbnb to earn a little extra income and help me pay for the trip? With Airbnb's local co-host network, I can find someone to handle everything. Bookings, guest support, even the cleaning. It's a simple way to make extra money while I'm traveling without the hassle of hosting it all myself. If your place often sits empty while you travel,

it might be time to let it work for you. Find a co-host at airbnb.ca forward slash host. 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, Bl social in the app store

and I'll see you there. Okay, so I'll go with the firm holdings and then I think you'll do Home Depot after that. So a firm holding, it's a buy now, pay later company for those not familiar with them. Buy now, pay later, which tends to be a bit opaque when it comes to credit issuance. There are some issues there.

A lot of people think that it could get worse over time as there's not just a lot of data, how much debt there is racked up and potential for defaults for those who are using the services. But nonetheless, on a guest top line basis, it looked good, revenues were up 36%. And it's more of a, I see them a little bit

in the lens of a subprime lender, to be honest. I know they're not exactly that. I know they can get some higher quality customers. That's fine, but I view them a bit in that lens. Do you view them a bit in the kind of same lens there? Yeah, I mean, I think they get probably people that are, I mean, it's interest free, isn't it, for a certain amount of time,

and then if you don't make the payments. So I mean, there's gonna be a lot of financially responsible people who use this and just make the payments on time. Yeah, so there's different types of loans. So you have interest bearing loans. So those are just regular interest bearing loans. So you have interest bearing loans. So those are just regular interest bearing loans. They'll have different structures. Then there's the zero percent interest free loans

that I think the way they work for the most part is like oh it's zero percent interest for example for like for a year and then you have to pay it at all. If not, then interest starts stacking on. And then there's the pay in X, which is a 0% loan, which is also part of their business. So believe it or not, the majority, like three quarters is actually the interest bearing a loan. So that's 72% of their business around. Like the rest is divided almost evenly between the 0% APR. So those monthly 0% payment and then the pay in X. So pay in four months or four payments,

whatever it is 0% as well. But there are some fees associated with those. And of course, if you don't fulfill your obligation, then there are some additional costs related to that. Yeah, it probably jumps up to a 30% APR, I'm imagining, or pretty close to that. Probably something like that, yeah, exactly. And they'll always, yeah, they'll always tuck in those fees. Like there's always, there's no free lunch there.

I mean, when I went like just to buy a couch I did a while ago, yeah, you could get 0% APR for a year, but you had to pay like $140 like service fee to get it going. But yeah, this is, I would say subprime. I would actually say it probably performed better than a subprime in an environment like this where a lot of people are struggling to get by. So I mean, something like this is definitely a bandaid type fix.

Yeah. And when you have 0% loans or some loans that are 0%, keep in mind, and that is something they were saying in the New York Fed report that I went over maybe a year, year and a half ago, is that you'll have more well-off consumers that will use the services because they're like, you know what, you're not charging me any interest. I'd rather keep that money in a savings account, whatever, yielding 4 or 5%. And then I'll make that extra money and then I'll still pay off the loan

and then some. So, you probably have a small composition of really good credit. But again, I think overall, you're probably right. Gross margin size volume was up 36% as well to 8.6 billion. Going back to a year ago, GMV is up 87%. Sorry, I think I messed my numbers up. So I think it is 36%. I messed my numbers up a little bit here. Their direct-to-consumer GMV was up 115% to over 2 billion. So the direct-to-consumer is basically when the consumer goes directly to them So they have a marketplace But they also have their firm card that people can use to make purchases Versus going to a merchant that will then be offering the services. So that's their direct-to-consumer

their product composition is very like it's like I said Mostly the interest bearing about three quarters and then split between the 0% option. Active consumers have been on a steady growth trajectory for a few years now and have reached a shy of 22 million. The service is proving really sticky with 94% of transaction during the quarter being from repeat customer. And that's something that that New York Fed study I had mentioned a lot is the biggest barrier to entry for these services is having used it once before. So once you've used this once,

that's when people will be repeat user. On the merchant side, which is definitely important for these types of companies. So active merchants grew 23% to 358,000. On the delinquency side, it doesn't look too bad but things are definitely trending up. They're at the highest rate of delinquency over the last seven years although it's not

like a massive increase. For example, we're looking about 2.4% for 30 day delinquencies right now and their range over the last seven years if you exclude 2020 because then it was super low because all of the government stimulus that came into effect, while during that seven year period, it went from 1.9% to 2.4.

So it did definitely increase, but it's still from a relatively low base. So I would be reluctant to draw any conclusions just yet, but if you see a year from now that taking up to like let's say above 3%, then I think you're probably going to start seeing some problems happening. Their allowance for losses is now up to 5.7% of their total loans. That's a 100% basis point increase in the last two years. They mentioned their shareholder letter that they have modeled various macroeconomic scenarios and that they are well prepared to handle

a variety of them including a possible recession. On the net income side, they generated a small profit of 2.8 million. It's still a big improvement versus the loss that they have of $45 million last year. But whenever you have companies like that, you always have to be careful, right? Like a net income or profit, it always has, and we've talked about it would go easy. You always have to take into account that, yes, you want that net income to grow, but you also want to make sure that the risk is managed. Because if you grow it at all costs, then at some point you're just going to start piling up the losses because of bad loans.

So it's always trying to find that equilibrium between both of them. That's essentially what the businesses are, is trying to maximize the profits without putting yourself into too much trouble if things start going south. Yeah, and I think Klarna, isn't that another one? I think they're like, yeah, and I think they're getting up there in terms of losses like reporting. I actually haven't looked into it, but I remember reading this like earlier last week probably, and they're reporting like pretty steep losses due to, due to, you know, miss payments, things like that. Okay. Yeah.

I mean, it seems like a crazy amount of, it's not really surprising they're growing this fast. Like I said, considering the difficulties people are going through, I wonder like, I don't even know if there's any like regulations at this point in time for these types of businesses as to what can actually be fine. Well, yeah. So I don't think there was that much regulation at this point in time for these types of businesses as to what can actually be financed? Well, yeah, so I don't think there is that much regulation at this point. And that's why it's such a bit of an unknown and a risk that a lot of people are mentioning in terms of potential risk in the markets, because you'll have data that looks at credit card debt. But the problem is, a lot of it is not reported to credit bureaus when it comes to that and that is one thing that a

firm did mention on the call is that they essentially are reporting their data to credit card bureaus now and they said it's an outlier for buy now pay later they said most of their consumers do want their service to report that because it helps them build their credit but but some actually don't want it, but they decided that it was the right thing to do and that's something they did. Whether it's all from the goodness of their heart or not, we'll have to see down the line, but that is something they do and it was interesting to say that it is an outlier in doing that. And speaking of Klarna, so they said that

they still have a good relationship with Walmart and a partnership, even though news came out about a month and a half, two months ago, that Klarna would be starting, well Walmart would start using Klarna as a buy now, pay later service. So we'll have to see, they were kind of vague on the call, but one of the things that they did mention

is that they have a new partnership with Costco for online purchases which will offer Affirmed services, so they're very happy to to be part of that. So we'll have to see I mean it is a company I'll keep just keeping an eye on those buy now pay later as I think they're really They're really interesting and especially if you start seeing delinquencies rising pretty quickly, I think it could be a warning sign for the rest of the economy, especially in the US where I haven't dug into that all that much, but I think there's a lot of student loan payments that are pretty much restarting now

after years of essentially being able to pause their payments. And I think in some cases, if not all, they were not paying any interest on those payments and that's restarting and could potentially put a lot of stress on a lot of US consumers. So that kind of stress could ripple into other credit offerings, like if these people have by now pay later debt for example then it could have a ripple effect on that so it'll be interesting to see if there's any kind of widespread issue especially in the US but I'll definitely be keeping an eye on that and compare that to other subprime lenders like a

go easy which is a different type of business a little bit or business model but still kind of interesting to see what all these type of business a little bit or business model, but still kind of interesting to see what all these type of companies are saying. Yeah, I would view like this type of model a bit more. I don't know. I don't want to say like predatory, but it's got to be pretty close. I mean, they'll I mean, a lot of people who are generally don't think people. Yeah, you don't think people should be buying their Uber each with buy now pay later. Is that what you're saying?

Yeah, exactly. Like it shouldn't like I don't want to go as far to say it shouldn't be allowed. But I mean, you shouldn't really be financing a pizza. But I mean, a lot of people, like I read, I was just reading on Klarna, like a lot of people are using this stuff for groceries and stuff like that. Oh yeah. Yeah. Which is, yeah, just kind of a, you know, reality check of the current situation for

a lot of people. But I mean, I would imagine a lot of people, if you think about defaults and stuff too, like if the situation gets sour, like do people really care about these loans? Probably not. Yeah, that's the thing probably not like it's yeah If it goes sour like these companies I would imagine would be one of the first things that people say I don't really care about yeah If you're gonna use by now pay later to buy a pizza from like a delivery service

You probably be should be walking to the grocery store and just buying a frozen pizza Like yeah, they're both not going to be very healthy. So it's not like you're missing out on any nutrition. And at that point, I mean, at least a frozen pizza, you can probably get it for less than 10 bucks. Whereas ordering pizza now, it's going to be like easily $30. No, minimum. More for one pizza.

So I think that's just my two cents. I think I know it takes a bit more time. You can stay in the comfort of your own home, but if you're at that point, you probably should not be doing that. Yeah. But I mean, they're growing. See how, see if it continues. Yeah. Let's talk now about larger items that you can probably buy on buy now pay later with Home Depot. Yeah. Oh, you like that transition? I thought yeah, that was very good. Yeah. So I Home Depot, I mean, it wasn't a blowout quarter by any stretch, but they seem to be treading water pretty well. Considering, I mean, if you can imagine the environment right now, I can't imagine anybody's running out to do any sort of home renovation.

Isn't that like an oxymoron threading water pretty well? Like if you're threading water, you're typically not doing pretty well. Well, I mean, you're not sinking. No, no, that's fair. That's fair. I'm just messing with you. This is coming from a guy who can't swim very well. No, okay.

If they can continue to post like these types of results in this environment, I mean, you can make the bold case that they should be able to thrive, you know, in a lower rate environment when consumers, you know, tend to open their wallets back up. Home Depot is one that I've owned for quite a while pretty much based on this. Sales increased by 2% but same store sales declined by 0.3%. The company added 13 new stores. Overall earnings declined by 5%, primarily driven by margin compression, not overall lower volumes. Transactions were up 2.1% and average ticket price is flat. This isn't really anything new for the company over the last year or so.

Consumers are putting off larger renovations and are instead probably focusing on smaller purchases, light maintenance, things like that. It looks like the one interesting theory thing here is they said they have no intentions to raise prices amidst the tariffs. They said it will instead work with some vendors to kind of work through the current pricing situation, which I would imagine would continue to have some impact on margins. But over the long run, run will probably be a little bit more beneficial.

I mean, in terms of... Well, it's going to impact someone's margins. Yeah. It may not be them but it's going to impact the vendor at some point or someone along the chain, right? And I mean, if Home Depot is a huge client to those vendors, I mean, maybe they're willing to eat a little bit of that rather than, that rather than just kind of lose the sales outright. I think this looks good. Maybe they wanted to avoid what Trump was saying about Walmart when they said they're

going to have to pass on some of the tariffs increase. Maybe they're just like, you know what, we probably will pass it on. We just don't want to say. Yeah, we just don't want to say. Yeah. I mean, that's definitely a possibility. They confirmed it's reaffirmed its 2025 guidance. So they expect a 1% decline in comparable sales, flat margins, and a 2% decline in overall earnings. To me, this is some sort of sign that the company believes we're at some sort of cyclical bottom here. The fact that they expect things to stay relatively flat this year. And they made some interesting commentary on US homes. So they stated over 55% of US homes are now over 40 years old. They also mentioned that there could be upwards of $50 billion in deferred demand and home improvement right now

because of the rate environment. I believe Home Depot owns around 25% of the50 billion in deferred demand and home improvement right now because of the rate environment. I believe Home Depot owns around 25% of the market share in the home improvement industry. So I mean, that could work out to be a pretty large tailwind moving forward. And they did have an analyst come on the call and ask them, you know, so that means you expect, you know, 25% of that to be, that to be in Home Depot's direction. And they obviously can't confirm that this will actually happen. But they did say they do consider that spending to likely occur over the next few years if they lower rates.

And overall, there's not really much else a company can do in an environment like this. They need consumers to open their wallets back up. And we probably need lower interest rates to do that. A lot of people will finance major renovations. I mean, very few people lay out cash. They'll either go through loans to the bank or even a home equity line of credit. And the lower the rates are, the lower the interest costs are, and ultimately the more people should spend. But we can see that in the average ticket price. It's been flat to declining for a few years now, whereas we seen during COVID, it just skyrocketed obviously because there's more discretionary spending. That's just kind of the situation they're in right now. And it's going to be

interesting over the next few years, because I would imagine we start to see some rate declines in the US over the next year or so here, but I would have said that last year and it never happens. Yeah, exactly. Yeah. Yeah. My treasury bills were supposed to yield less than 4% for the last two years. Yeah. And they're still sitting there, but yeah, we'll see.

I don't know. I don't know what to think about interest rates anymore. I think there's just so many competing forces that the central banks are taking care of, are keeping an eye on, yeah. Yeah, I mean, it's a cyclical company, obviously. It needs a better spending environment to grow. And obviously, again, COVID was a situation that we're never getting that low.

Well, I don't wanna say never, but hopefully we never get to that situation again. But yeah, I still hold it. I'm pretty bullish on the future. Yeah. No, I mean, I think it's not going to be a crazy compounder, but I think it should do pretty well. I think it definitely is in that category of blue chip stocks. And right now it's going to be a cyclical business though. It's still, it's always going to be that, right? It's going to go with housing housing and obviously the higher the rates the more reluctant

people might be to do some large home improvements so it'll be interesting how they do going forward aside from that I think in terms of this episode I think we'll call it an episode since we had Braden Eden a big chunk of the episode I'm just kidding yeah it was just there a few minutes, but I think it was a good overview. Next week, like we mentioned a bit earlier, we'll be talking about mostly Canadian banks, maybe another name or two, just depending what comes out. Haven't looked at all the earnings coming up, but I know TD reported, what was it, a day or two ago or last week?

They reported late last week. Scotiabank reported today this morning Yeah, they're all finished up by Thursday. I think Yeah, exactly. So we'll definitely like we do. I usually will pick a few out of those big banks. I know Scotiabank, the headlines I didn't have the time to check because it was just before we started recording But I think they had higher loan loss provisions. Same with TD. Same with TD. So that's something I think we'll have to keep an eye on because they had, a lot of the banks had seen those provisions increase. And if I remember correctly, they

were kind of leveling off the last quarter, but now it seems like they may be picking back up. So it'll be interesting because they might be talking on those calls about what they're seeing with the consumer too. Well, yeah, and the script is kind of flipped and we'll talk about it next week, but typically for the last while it's been impaired provisions for a lot of these banks and TD reported a huge chunk of performing provisions. Oh, yeah. Yeah.

Okay. Yeah. It's going to be a good episode. It always is. Yeah. Yeah. So if you like Canadian banks, don't miss next Thursday's episode and we're going to be back on Monday with a bit more like concepts.

It's going to be a fun one that we'll be talking about on Monday, just kind of some, I think, investment sayings or quotes. Quotes, yeah. Yeah, investment quotes that are often used. And I think in a lot of cases, we have like about eight or nine that we'll go over and give our thoughts on. I think in a lot of cases, I mean, there is some truth to them, but I think a lot of people,

not a lot of people, but some investors tend to take them just at face value where there tends to be a bit more nuance. So make sure you don't miss that on Monday. As a reminder, like I said, we have the in the show notes, you'll see the links for the Toronto event, the Calgary event. If you want to follow us on Twitter, our Twitter slash X handles are on there as well. And if you haven't done so already, we really appreciate when you give us a five-star review, whichever platform you use. It helps people find us and helps us grow the podcast.

On that note, thank you everyone for listening. We'll be back with you on Monday. The Canadian Investor podcast should not be construed as investment or financial advice. with you on Monday.