The Canadian Investor - Two Retail Stocks Crushing It and One That’s Falling Behind

Episode Date: December 19, 2024

In this episode, we dive into Canada's latest CPI data, with inflation now sitting below the Bank of Canada’s target, and what it means for policy rates heading into 2025. We analyze the Bank of Canada’s final 2024 announcement, including a 50-basis point rate cut and its implications for the economy, housing, and inflation. We also cover earnings updates from major Canadian and global retailers like Costco, Canadian Tire, and Lululemon, highlighting consumer spending trends, deflation in discretionary goods, and how businesses are adapting to a challenging environment. Plus, we look at BRP’s strategy amidst economic headwinds and why long-term investors might still find value in this cyclical company. Tickers of stock discussed: DOO.TO, LULU, COST, CTC-A.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. We're back for our Thursday news and earnings episode. I think this is our actually second to last one or possibly our last regular one of the year. I haven't fully figured out the calendar, but I think it'll be a mix of macro, some earnings we

missed as well. So it's going to be a little bit of mix of everything. We'll talk about CPI. We'll talk about the Bank of Canada decision, talk a little bit about the Fed, you know, decision coming up tomorrow as well. We're recording on Tuesday, December 17th. And then, yeah, just some earnings that we wish wish we could have done but for whatever reason we weren't able to get in during the earning season so um yeah so that's uh what's on the slate uh dan how are things with you aside from uh you know wearing a hat due to some razor malfunction when you shave your head yeah i guess that's one of the risks of uh being bald i put a hat on today so nobody had to see what i've done to my head my uh yeah i mean

it's there wasn't too many earnings we kind of got saved i guess by cpi and uh the bank of canada making another jumbo rate cut i mean canadian politics and canadian, economic news. I mean, there would be a lot to talk about, but yeah, and we will be talking about the fall economic statement. So what happened yesterday, Brayden and I will be talking about that this upcoming Monday. It's just we had too much that we wouldn't have been able to kind of do a bigger of a deep dive doing that. So we'll do that. Yeah, when I record with Brandon. So I'll let you start, Dan, and talk about CPI. And then I'll talk about the Bank of Canada decision. Yeah, so it was a pretty good CPI print, I would say. It came in at 1.9% below the Bank of Canada's target rate of 2%. So CPI common came in at 2%, CPI median at 2.6%, and CPI trim at 2.7%. So CPI trim would exclude kind of the top and bottom of the range

in terms of impacts to inflation, whereas CPI median came in at, that would kind of be the median average across all numbers. And then I believe we in at you know that would kind of be the median average across all numbers and then i believe we looked up cpi common would kind of be like it takes the most volatile elements from that specific inflation print i believe and then and then trim no that would be cpi trim or trim sorry yeah yeah the common would be like the largest changes in between i couldn't remember that one. Yeah, I'm not quite sure. The common, I always get a bit confused.

I tend to focus a bit more on the median and the CPI trim. I mean, they define the CPI common as a measure of core inflation that tracks common price changes across categories in the CPI basket. So, I'm not quite sure what exactly that means in real life. So we'll just kind of, you know, that's fine. People can look it up. Yeah. I mean, the main numbers we'll talk about now would be gasoline. One thing would be gasoline. So the prices continue to dip down 0.5% on a year over year basis. They were pretty much flat compared to October, but I believe the one thing they were saying is gasoline fell quite a bit in November last year. So the fact that it continues to fall is kind of an added benefit, especially towards inflation. And although

shelter inflation is decelerating, it's definitely still one of the main drivers to the small amounts of inflation we're currently seeing. So it increased 4.6% year over year overall with rent prices driving a large portion of that. So overall rent increased 7.7% year over year. And although mortgage costs are certainly still an impact with the mortgage cost index sitting at 13.2%. And I would imagine, again, this is probably just an index that they utilize to track the increase or decrease in overall mortgage costs. This is the 15th consecutive month of declines for that. So it's still increasing, but it's certainly slowing down quite a bit and i mean this would make this would make

sense uh you know over the last eight or nine months we've got pretty consistent policy rate declines and when we look to the so when we look to the year-over-year changes on a month-to-month basis there was a pretty big slowdown in terms of the overall inflation in pretty much every single area they track so what i mean by this is when we compare November's year over year inflation, so November this year to November last year, and then we look at, you know, back to October. So October 2024 is year over year inflation relative to 2023, October 2023. We are starting, we're seeing either lower inflation numbers across the board or actually larger deflationary numbers. So when we look to discretionary items like recreational items,

household items, clothing, et cetera, we're seeing pretty large deflation at this point in time. I mean, clothing and footwear being arguably the largest with a 3.8% decline on a year-over-year basis. However, they did attribute some of this to Black Friday, but that doesn't really make sense to me because on a year-over-year basis, you'd be including Black Friday last year. Yeah, exactly. So I mean, unless retailers, what they're saying is retailers are having to like discount items even further unless they're talking specifically of the month over month change because then of course black

friday would have had an impact but if you're looking at the year over year i mean last year last i checked there was a black friday on november 22 yeah in november 2023 and i'm pretty sure when i was reading this i might be wrong i'd have 2023. And I'm pretty sure when I was reading this, I might be wrong. I'd have to double check. I'm pretty sure they were talking year over year. But yeah, it's, I mean, we're seeing obviously, you know, we could see all those discretionary items. Obviously, the economy is slowing down. Canadians are saving more than they're spending. You know, this isn't all that surprising. You know, food inflation remains a bit stubborn, but it is certainly manageable. I mean, that came in at 2.8% year over year, it's definitely manageable when you consider like how high it was in 2023. But one of the main issues I do see here is the weakening

Canadian dollar. I mean, a lot of the data I found was old, but I'd imagine still very relevant. We import tons of fruits and vegetables, seafood, processed food from the United States. So, I mean, obviously a weaker Canadian dollar could easily put more pressure on food inflation. Yeah, especially in the winter months. Yeah, yeah, exactly. And I mean, the thing is, is I don't see the Canadian dollar getting any stronger. I mean, I think we actually broke 70 cents this morning. Yeah, it's having a rough day today as we're recording that. Good for our portfolios, at least I know yours and mine

because we have a pretty large chunk of US exposure, whether it's in cash or actual equities or companies. But yeah, if you don't, then you're definitely feeling it. Yeah, like I remember just even, this was like a month ago i went to costco and there was like a tiny little thing of blueberries and they were like 11 i was like what and it's gonna it's just gonna get worse so i mean i don't really know like the overall you know what we import in terms of food from the united states but i mean i would imagine that weaker Canadian dollar, it's going to keep that food inflation up.

I mean, overall, the numbers seem to be telling the same story as they have for the past year. The only real inflation we're seeing here in Canada is probably on the shelter side. And to a minimal extent now, the food side, which unfortunately are the two main elements of human life. I mean, food and shelter. So obviously, you know, you could argue that some inflation areas don't hit people particularly as hard as others. I mean, prime example for me,

I don't really travel that much. Gasoline prices don't impact me that much. You know, some people in terms of you know tobacco alcohol things like that that wouldn't hit them but food and shelter is going to be something that hits everybody so uh i mean i think overall the cpi print pretty much supports more rate cuts in 2025 and i mean i think they they priced in a 55 cut now after this, you know, that there's a 25 basis point cut at the next meeting. Yeah, I haven't looked exactly, you know, at what the odds are on the Canadian side, but that would sound about right. I mean, I think the economy is having such a rough time and we're starting to see it now. And like I'll go over with what the bank of canada actually said in their final rate

announcement yeah it's not looking great in terms of the economy so i can really see them cutting again i wouldn't even rule out a 50 basis points to be honest uh it's probably more likely the 25 but if things start trending worse and i i'm not quite sure do you know when the meeting is in it said january well when i was reading the odds of the the rate cut it said 55 at their next meeting in january yeah so end of january so by then the orange man will be in the office so january 29th is uh what i got from the google machine so it'll be interesting because that's an extra kind of data point to see like what Trump is actually going to do. Because now we have the threats, whether he goes through with them, whether it partially goes through.

You know, maybe it's not 25 percent. Maybe it's like 10, 15. Maybe it's just on some items we don't know. There's a good chance we'll have more clarity. Yeah. Yeah. It's I mean, 50 basis. I've been a 50 basis point guy for quite some time now

50 basis points in january would be crazy that would be well i mean canada is doing well according to the fall economic statement because we are leading the pack in rate cuts yeah i don't think they understand how that works no i mean it's i mean granted and i'm talking with like i said i'll talk next monday but i couldn't help myself look at the end of the day whatever government is you know publishing the budget and the fall economic statement so now it's the liberals but you know if we get a conservative government next i mean at the end of the day it's a political kind of document right so they try to show what they're doing, that show that things are going well and all this stuff. So you kind of expect this kind of thing,

but it's just, you know, when you're in, you know, in the data often and you understand how the economy works, like you don't have to be an economist, but you read this stuff and you're just like, oh my God, it hurts my brain to read. But anyways, that was my little rant here. Tune in next Monday for the rest of my rant. Yeah, that's going to be a good episode. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

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

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

community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started.

But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. So we'll transition here. Like I said, the Bank of Canada final 2024 announcement, which came last week. So first of all, congratulations. If you have a variable rate mortgage, your payments just went down. So congrats. So they were lowered by 50 basis point and it was widely anticipated at that point. Expectations were kind of 50-50, I think until the data came out for GDP. I think until the data came out for GDP, I think that really kind of started hitting it. And I think also the fact that Trump, I think also tweeted or truited or whatever social media uses about the tariffs on Canada and Mexico. I think that probably came in a lot into their decision.

And since June, the policy rate has gone from 500, so 5% to 3.25 percent so 175 basis point that's massive like it's not just in one year basically it's a span of six months yeah that this happened so you know whatever the federal government says the reality is central banks don't do this unless they see a problem brewing and i think that's safe to say that they're seeing something. And even like the language they were using, you can clearly understand that they're concerned about growth. And in the statement that they released, they mentioned that growth is slowing with GDP coming in at 1% growth in Q3. And based on early data that they have, they also expect a weak Q4. They also stated that unemployment rate increased to 6.8%.

And that was a significant increase since it had been around 6.5% since July, kind of hovering around that 6.5% mark. They're less concerned about inflation now. And their base case is that it will be close to target for the next couple of years. now and their base case is that it will be close to target for the next couple of years. One key factor here is keeping the inflation rate low is because of the substantially lower immigration targets that the federal government announced, which will put some downward pressures on inflation. Because of course, especially for certain goods, you get new people in the country, you know, they need to eat, they need to find place to live. So if you don't have, you know, that same influx of new people, it could be place some downward pressure on inflation. So that'll be something interesting to keep an eye

on. They also said that they will provide an update on the GST holiday that came into effect, I guess, last Sunday, as well as the potential stimulus check that could be sent to household. That one is kind of in limbo, that $250. So we'll have to see whether it goes through or not. But they will provide an update on their forecast and how this thing could impact that. And they expect the GST holiday to temporarily put downward pressure on inflation. But after the holiday is done, that would reverse course. So it is temporary. They're still unsure what potential effects tariffs could have.

And it is definitely creating some more uncertainty in their forecast. They removed language of future cuts and said that they will be data dependent on meeting to meeting basis. Again, it's hard not to read between the line, right? to meeting basis. Again, it's hard not to read between the line, right? They think inflation will stay quite low, that the economy is not doing well. So yes, they aren't committing to further rate cuts. But I think it's pretty easy to assume that there will be some because, you know, typically, if inflation is under control, and growth and employment is just not there, growth is slowing and unemployment is rising. Well, you know, I think you can read between the line

that they'll probably decide to continue cutting. He had an interesting question. I don't know if you saw Stephen Poloz, the former BOC, Bank of Canada governor. So he said in recent week that Canada was already in a recession. So a reporter asked him, like, what his thoughts were on the comments from Stephen Poloz. He didn't seem to love the question, but said the economy was growing outbaked slowly. He's not wrong that, you know, we're not in a recession. So this is just me talking like I don't think Tiff is wrong. I don't think he's wrong. We're not in a technical recession. However, if you start looking at various indicator, also GDP per capita, versus kind of the reality that a lot of people are facing.

And I think a lot of people listening to the podcast will agree that, you know, things are not that great overall. You know, people may be doing okay on an individual basis. But, you know, I talk to people. I have lots of friends. I, you know, interact with people that listen to the podcast and stuff. And for the most part, like people are definitely feeling the pinch. Yes, inflation, the rate of inflation may be going down, but it's not stripping away all the inflation we've seen in the last five years. And salaries have just not kept up on average. If you look at over the last five years, salaries have not kept up with inflation. So, yes, the rate may be slowing, which is great for the Bank of Canada. But at the end of the day, it doesn't solve the issue, the unaffordability issue that a lot of us are facing. Yeah, I think that is one of the main things here right now is obviously lower inflation doesn't mean deflation.

Like those prices are here to stay so i mean what happens when you know we get this type of inflation salaries don't move you know rates go high and i mean then they cut rates but i mean are really people even at lower policy rates can they really afford to be spending i mean clearly we've we've dropped rates 175 basis points and it's really hasn't done all that much although there would be like you know it's lagging obviously it's not just going to immediately yeah there's gonna be a lag effect there's gonna be a lag effect but i mean if you get to the point where you know i had mentioned before like this is policymakers pretty much main main lever for economic growth. And, I mean, if it doesn't work, then you're in quite a bit of trouble.

I mean, if they continue to decline rates and Canadians still don't, you know, spend, then it becomes quite difficult. And it's realistically possible because, I mean, it's so expensive to live here now. It's crazy. Yeah, exactly. And, look, I mean, at the end of the day, if he left TIF, if, you know, his last day was today and then you interviewed him and asked him like, you know, the actual, the same questions that were asked, what he thinks about the Canadian

economy, all of that, I think you would probably say something a bit different. You know, you see politicians or people in public service with positions of power that oftentimes once they leave, they tend to have a very different discourse that when they're in power. And most recently, we saw that with Janet Yellen, the US, who now said who's going to be leaving because obviously Trump has been elected as Treasury Secretary. And as she's leaving, she's saying the level of the deficit is concerning and that she was sorry that she couldn't get it into more control over the last five years since she's been in the Biden administration. It's just like, OK, you actually could have done something about it. You didn't. And now you're like, oh, yeah, this is really concerning.

Kind of good luck with the with that for the upcoming administration. But I just said that because, yes, sometimes, you know, his role as a governor is also not to, you know, put people into a panic to show that things are in control. And I have a suspicion that if he was not in that role, if he was retiring or whatever, soon he would have a pretty different discourse. So it'll be interesting what happens. These lower rates. discourse. So it'll be interesting what happens, these lower rates. I mean, at the end of the day, if you have a variable mortgage and you're saving money, I don't know if you're going out and spending that money right away. You may actually be using it to build a buffer so you don't get in a tough situation like that again. So we'll have to see. And then the last thing I'll finish on is,

you know, bond yields have actually been up since the five-year bond yield has actually increased since the announcement. I know I've said this time and time again, but it's a reminder that, you know, variable rates are not, you know, it's not what decides fixed rates that you get on loans, that you get on mortgages, that businesses will get. That's decided by the bond market. And essentially, there's a spread that will be assigned on top of what the government bonds are yielding. On top of that will be whatever the spread is, like 1%, 1.5%. And then you get whatever interest you get on your loan or the business gets on their business loan.

on their business law yeah it's um i mean it's it's difficult to say you know what the outlook for the canadian economy is but i mean when you get people in this type of position like you're saying they're gonna try to i wouldn't necessarily save face but they're going to be generally you know positive outlook overall because i mean obviously if he's very negative here you'd probably have you know Canadians scaling back even more and then in the case of the variable rate like you said I mean people are saving money right now but who knows maybe they were you know in negative amortization for you know two years they're not gonna be like oh my mortgage has gone down 400 bucks a month let's go you know buy a new car or something or maybe they would I don know. Some people are kind of like that, but I think it's, it's going to be a different, it's going to be a different mentality taken by a lot of people.

I think just because, I mean, those levels of inflation we've seen a few years ago, I mean, they were, they were crazy. Like not a lot of people have seen that type of price increases over that time. I mean, when it would be the last time we've seen that it would have been i mean 70s not in our lifetime for sure so i mean that no that hit a lot of people hard i think and uh yeah it's it's going to be interesting the canadian consumers in in pretty rough shape yeah and it will be interesting to what happens with energy because a lot of it uh pushing inflation down again the energy numbers in the CPI, right, they're negative. So, you know, I'm sure central banks are hoping that that stays at the same level, because if, for whatever reason, energy prices as a whole start increasing,

you know, that could put a wrench in, you know, in their plans. But I think we've talked enough about macro. We'll switch over to some earnings here. BRP had its earnings a couple of weeks ago. But I think we've talked enough about macro. We'll switch over to some earnings here. BRP had its earnings a couple of weeks ago. It's actually a stock that I put on my radar for a segment Brayden and I did last week. So, well, I'm interested in seeing what you have to say. I have a general idea of how the quarter went, but I might chime in a little bit.

Yeah, so BRP is a company I own. I've owned it for quite a while. If you want to talk about a penny-pinching consumer, this is pretty much one area you could look to get a very good idea of how things are going. I mean, they had a pretty rough quarter from a growth perspective, but it wasn't nearly as bad as many analysts had expected. You know, the company actually topped earnings expectations by 70%. So they earned $1.16 when only around 68.5 cents was expected. And revenue came in around 5% higher than estimates. Estimates were pretty, pretty bearish for this company, you know, just considering the overall. Prior to this quarter, they had cut guidance for three

straight quarters this this quarter they actually didn't cut guidance so that's uh you know that's a bit of a bright spot um overall revenue declined by 18 year over year earnings fell by nearly 65 and i mean again this company is just getting hammered on a on a tighter consumer they've finally maintained like i mentioned that They've finally maintained, like I mentioned that guidance, they finally maintained they should hit around $7.6 to $7.8 billion in revenue and earnings per share of $4.25 to $4.75 to close out the year. I believe before they started cutting guidance, this is right off the top of my head. I believe their earnings estimates were around nine or it might even been, you know, $10 plus. So as you can see, I mean, we've gone from $10 plus a share down to $4.75 on the upper end of things.

So obviously it's been hit pretty hard. They expect year-round products to fall by 20% to 22% and seasonal products to be down 30% to 32%. Inventories are normalizing a bit, at least over the last while. So over the last year, the company has been dealing with rising dealership inventories, which are ultimately killing new product production and just overall sales. Obviously, when dealers are full, they're not going to order. Overall, through the last three quarters, network dealer inventories have fallen by 10%. So this should start to normalize moving forward. Through the first nine months of the year,

free cash flow has fallen by over 71%. And this is also with the company trimming back capital expenditures. So it's definitely not been pretty. The company made the decision back in October to sell its marine business in order to double down on its power sports segment. So although they expect it to have around a $225 million hit to revenue in this year, they expect it to pretty much see immediate improvements to EBITDA earnings and free cash flow as power sports are generally the higher margin business.

Again, the results really aren't all that surprising. There's really nothing the company can do about the current environment. I wouldn't say it's any knock on BRP. It's just like people just aren't buying wrecked vehicles now, especially like they were during the pandemic. And the company's going to need to rely on policymakers to reduce interest rates and and just try to get north americans spending money again i mean i would expect the company's going to be allocating quite a bit of free cash flow it generates right now to share buybacks i hope so yeah i mean that was my biggest criticism when i put it on my frazzler stock on my radar was that

i you know i i was scratching my head as to why they were buying back so many shares when things were like just, you know, sales were going through the roof, because clearly they should have known this is a cyclical business. It's not going to go on forever. And there's going to be better opportunities to buy back the stock. And that's the one criticism I have against them is you know probably not the best team for buying back uh shares yeah they were buying back i mean the way the way cyclicals work they're kind of like the reverse in terms of a price to earnings situation like typically yeah yeah you know you kind of want to buy cyclicals and obviously this is this is very generic and is

you know yeah it's not you know don't just go buy anything you want just because i'm saying this but generally cyclicals when they look expensive it's often the time to buy them so i mean you might well i'm saying share buybacks and you might look at brp and you're like oh they're trading at nearly 30x earnings why are they buying back shares but But I mean, with cyclical stocks, the theory has always been you buy when P's are high and you sell when P's are low. So a high P in a cyclical stocks typically occurs at the bottom of an economic cycle where a high P typically occurs at the top. So that's why you look at BRP during like 2021 2022 is trading at like you know i believe it was like eight times earnings or something like that so yeah if you look yeah it was if you look

at like you know the covid let's just say the three years after kind of covid starting like in 20 mid 2021 it traded like between like 11 12 and like six price during on the trailing basis so that it compared to 24 that it's trading right now yeah and obviously you know that is when the cycle would have been you know at the top and then as peds rise you know that typically kind of indicates again it's never it's never a guarantee but that does typically you know indicate somewhat of a bottom i mean overall to me it's it's a high quality company that's going through a bit of a tough situation right now with the economy but i'm gonna hold it long term yeah overall i think it's a really good company as long as you know what you're getting into you're getting into a cyclical company it's the kind of company where i am a

more buy and hold typically although i will sell stuff strategically from time to time as people know we've been listening for a while or join tci subscribers and this is one that i would probably like be flexible on the holding period i'll just say that but again i think it can make sense especially if you think the economy is going to pick back up. But in all reality, and I don't know if you agree with me on this and let me know if you don't, but I think it's probably going to be a rough year or two before things start picking back up again. So just, you know, just know that. And again, it's the kind of company that you want to buy when things are not looking great,

because overall, they're in good financial situation, they can weather the storm. And these type of companies, you want to be buying them when they look expensive when the economic cycle is rolling over. But you just want to make sure it's a good company because it has to be able to survive that rough patch, right? And I think that's where a lot of people get in trouble buying like value stocks or things like on the low when it's, you know, on a rough patch, but they don't realize that the company may not get out of that rough patch. Yeah, exactly. Well said. I mean, it's yeah. Well said. Okay. So I guess we'll end it on that for BRP. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online

broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on

there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking,

sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store store and I'll see you there. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of

your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So we'll move on with Lululemon. So it is full disclosure, it is a company I hold. I did recently trim a little bit before the recent earnings and then a little bit after the pop. The stock increased by like 15% on the day of the earnings release. I haven't looked at it right recently. I don't know if it's kind of around that same range because it's been a couple weeks now. It's 390.

Yeah, I think it's pulled back a little bit. So I guess I made a good move. Genius. it's pulled back a little bit so i guess i made a good move genius now yeah the main reason is like i've talked before it's not because i don't like the company and there are some issues that i will highlight here it's just because i am kind of trimming my equity exposure you know like i've been pretty upfront about that i want to build a 15 to 20% kind of cash cushion in my investment in US treasury bills. So Lululemon was one of the companies that I trimmed back. So revenues increased 9% to 2.4 billion. US revenues were actually flat year over year for the second quarter in a row. And I'll touch more on that in a second. Canada revenues was up 9% and revenues outside of North America were up 33%.

Now, the good news is that, well, good and bad news. So the U.S. represents 60% of their sale. They did say on the call that this was their expectation. And it's true, the previous quarter they had mentioned the same thing. And that they are on track to provide new options that they think will resonate with U.S. consumer in Q1 of next year. So they have a plan in place. They realize that their offering was not resonating with consumers, whether it's the actual kind of like, you know, clothing pieces that they had or the colors. I think it was a mix of both. Clearly, the positive here is I guess Canada is doing well, but outside of the US is growing

very quickly. But again, the US, it's, you know, you're banking on them turning things around in the US because you're looking at close to two thirds of their sales. So if they don't, it's going to like, I don't care how fast they're growing outside the US, it's going to be a drag on the business. And the other wild card here for them is potentially U.S. tariffs, as most of their clothes are produced outside the U.S. So who knows? Again, we don't know what will happen with U.S. tariffs, but most of their clothes are produced

outside. So they could be subject to some kind of tariffs, depending on what happens with where they manufacture their clothes, mostly in Asia. Comparable sales were up 4%. On the bright side, both of their gross margin operating margins were very good during the quarter. Gross margins were up 150 basis points and operating margins were up 520 basis points. That one was up to 20.5% and 58.5% for the gross margins. So Lululemon keeps having some of the best margins in the clothing or fashion industry. It's been like that for a while. EPS was up 46% to $2.87. Net income was up 41% to $352 million. What really held the stock was the company increasing its sales guidance a little bit for the year. So they increased the bottom end and the top end of their range. Small increase,

but the fact that they're increasing it so late into the year, I think it's something that investors like. They also announced a $1 billion increase in their stock buyback program. And during the quarter, they bought back $408 million worth of stock. People probably noticed that's because there's a, that's why there's a difference between the earnings per share and also the net income increase, right? So the earnings per share is greater

because there's less shares than there was, you know, at the same day last year. So overall, I think, you know, a good quarter from Lululemon. I think there was maybe some people that were overly pessimistic on the stock. I mean, I still like the company, but again, take that with a grain of salt because first I do own it, but I also trim my exposure a little bit. So I think I'm being a bit cautious because the US, even though they're saying it's going

to pick back up, it is a spot of concern for me yeah i mean for for retailers i find like the pessimism is especially fashion retailers is probably one of the highest i mean when they struggle it's not only they're struggling it's the brand is falling out the i mean nike's going through this right now um aritzia went through it in you know 2022 i mean i do end up comparing lululemon and aritzia together like a lot and it's kind of interesting to see the two different dynamics like lululemon's kind of struggling in the u.s whereas international they're doing fine and then you look at a company like aritzia who's like killing it in the u.s but canada you know they're not really budging all that much and i would imagine that's just due to you know aritzia being an up-and-coming company in the u.s whereas lulu

is uh much more established but i mean like you said they're definitely one of the more profitable you know efficient i guess i would say clothing lines i mean if we look to even something like aritzia's operating margins like lulu lemon i believe almost triples aritzia i think aritzia is like seven percent and nike i mean 11 and a half and you know lulu's what 20 plus so uh you know i think they're gonna you know i think they're gonna be fine it's just i mean it's a pretty tough environment for for all of these companies right now yeah again and then you have the tariff threat right yeah that like who knows what the hell would happen there so it is just it's uncertainty like i i don't know what the answer is there neither does dan neither does

anyone you know trump is notoriously unpredictable so um we'll have to see what happens but it could definitely impact them in some way. And to be honest, any clothing retailer or manufacturer that does a lot of business in the U.S., which is a lot of companies, depending where they're manufacturing their equipment, their clothes, whatever it is, that's a wild card. You just don't know what kind of tariffs could be imposed, if they will be imposed. So yeah, 2025 is going to be very interesting. And just keep that in mind. I think it's really important for people to just keep that in mind, because as good as a company may look, you know, the reality is 2025 and the

next four years will probably have a lot of uncertainty. And it's going to be more difficult to try and project out in the future yep yeah i mean especially you know politically uh this is a bit you know off topic from retailers but we've seen trump you know i believe it was yesterday mentioned something about like cutting out the middleman in terms of drug prices and it just tanked the the pharma companies the pharma stock yeah yeah i mean it's like you just never know right this is kind of you know risk that you can't exactly diversify away from i mean especially with a guy like trump who tends to yeah shoot first aim later so yeah hey no well uh we'll move on here

so uh costco reporting its earnings so you want to go over that for us yeah so costco i mean it kind of gives you you know we look at brp and see the weakness of the canadian consumer and then you know north american consumer and then you look at costco and see the weakness of the north american consumer but in like the opposite direction yeah they benefit from it oh yeah they're it's crazy so earnings per share they came in at four dollars four cents. So those topped expectations for $3.78. Revenue, $62.15 billion. They came in ahead of forecast as well. So same-store sales growth, it was 7.2% in the US, 6.7% in Canada, and 7.1% internationally. These are exceptional, I would say exceptional same-store sales growth rates from a defensive retailer. When we look to a company like Dollarama, they've pulled in what I would call years of growth forward.

They pulled in a ton of revenue that they would have expected to earn over the long term just because of the shift in the Canadian consumer. And now they're kind of seeing, last year year dollarama was high same store sales growth but now they're finding it difficult to keep up with that and they're reporting you know three to four percent range costco i mean despite the crazy results over the last while they're still able to put up high single digit same store sales growth and i mean they're doing this on you know the back of new membership fees and, you know, new members overall.

And just, you know, we see membership fees grow by 7.7% year over year. So they did raise the membership. So this would not only be new member additions, but this would also be a new membership fees. Household card members, they came in at 61.4 million. So that's a 30% increase. Since I actually forgot to write this down, I believe that's over 2020. It's you'll probably be able to find it here as I continue talking. But the total household card members, I believe they've won from 47.4 million to 61.4 million. So a 6.3 compound annual growth rate. And I believe that is since 2020 which is uh you know pretty solid growth yeah 61.4 yeah

yeah i mean so yeah since uh 2012 so i'm just kind of going on a year basis so they're growing that member base by six percent annually which is is pretty amazing i mean in the last what like slightly more than 10 years uh since, they've doubled that number. Yeah. And I mean, especially when you think of the fact that the membership fees, at least the fees themselves, are just pretty much pure profit for the company. I mean, the more people they can get in, the more people they can sign up for memberships, especially at their renewal rate. Like the renewal rate comes in, you know, it typically comes in anywhere from 92 to 93%. And this is even with newer store openings dragging results down.

So typically when they open a new store, they get a bunch of people coming in. Renewal rates generally start, you know, lower and then they trickle upwards and they usually settle into a situation where, you know, almost 19 out of 20 people are renewing their membership every single year which is it's crazy yeah it's always above like i think it's always in the like low 90s right overall like around 90 to 92 which is fantastic yeah i mean the difficulty now so the company grew earnings they've effectively grown earnings by double digits revenue by double digits e-commerce sales continue to grow but i mean the difficulty with me and i'm not really somebody that fusses too much about valuation you know overall but in 2023 costco was trading at 34x earnings it's now ballooned to 60x earnings so this is despite revenue and earnings only growing about 10 a year so i didn't i didn't realize it was that crazy yeah i mean i'm not surprised the stock has had

quite the run so yeah i just wow 60x earnings because we we cover this company over at stock trades quite a bit and i mean i remember even when we first started covering it at 35 X, I was like, yeah, it's a little bit pricey here. And now it's 60 X. I just, and even Ford P is still very high. So, yeah. So I mean, yeah, I don't know. I don't know what's going to happen. I obviously it's, it's pretty hard to tell, but I can't see it maintaining a 60x trailing price to earnings ratio. So, I mean, there might be either a bit of a correction or maybe, I mean, it could definitely, you know, kind of grow into a lower valuation as well with a bit of a flat stock price over the last while. Yeah, at the end of the day, when you buy a company this expensive, no matter, like, it's a fantastic fantastic business don't get me wrong and i if costco was cheaper i would buy it and i kick myself sometimes for not buying it you know in five series five

six years ago but when you're paying so much for earnings or free cash flow you're essentially you know mortgaging a lot of the future growth in terms of your returns to today, right? So you're pricing that a lot in and you're just kind of limiting, you know, regardless of what the growth is, you're limiting the growth outcomes for your returns essentially. Yeah, effectively. I mean, the higher price you pay today, the lower your future returns, your expected future returns would be yeah this is why you know when you buy at market peaks your forward returns are going to be less than if you bought during

you know the bottom of a bear market obviously but but that's when the fomo is the strongest yeah that's the thing careful yeah you see a lot of people buying at market you see very you know it's pretty bearish sentiment at the, but people love buying the tops. Yeah, no, exactly. I mean, I don't have much to add on Costco. Was there anything else for you? No, I mean, it's a pretty easy company to go over as well. I mean, it's just benefiting massively from, you know, a poor consumer, rising grocery prices in particular.

Yeah, and we'll switch to, I guess, the last company here and one that I've been saying for a while that we would talk about and, you know, we're doing it in 2024, so that's good. So Canadian Tire, their latest earnings. So I'll start off with what the CEO, Greg Hicks, had to say. He had some interesting remarks on the call. I do encourage people to listen to it if they're interested, but here's a summary of what I thought was really interesting. So the Canadian consumer is grappling with constrained spending power due to economic pressures like the cost of living, unemployment, alongside with historically low consumer sentiment. This sentiment decline spans all income segments with noticeable shift towards

value and discount purchasing over the past five quarter, which kind of ties into Costco, right? And Dollarama, like you were saying, while these challenges are expected to persist in the near term, particularly with mortgage renewals on the horizon. However, recent interest rate cuts and the narrowing gap between essential and discretionary spending is inting at a potentially slow recovery. But again, it was very vague in that. They're saying that they're kind of hopeful. And these were comments that were before the latest cut from the Bank of Canada. So it'll be interesting to see.

to see and I know they've been saying specifically that on they see this shift especially in Ontario where a lot of consumers are indebted of course a lot of them is mortgage debt because the home price is really ran up in Ontario so it will be interesting what happens but Canadian Tire is always a good parameter for the Canadian economy because it is available across Canada they do have a financial arm as well that I'll discuss in terms of these credit cards that they issue. I think they're branded MasterCard, but I'm not quite sure. Do you know? No, I have no idea if they're Visa or MasterCard.

I've never had the need to sign up for one. I mean, neither have I, but it's always like, I mean, I feel like I'm being stalked when I go and get retired sometimes with like, you know, the guy that have the highest credit score and the best stable income that a lot of the banks do. Anyways, so comparable sales were down 1.5% year over year. Like they said, again, they said that consumer spending was still constrained. Overall revenues were down 3%. Every single business line had revenues down. So Canadian Tire was down 4%.

SportCheck down 3.5%. Marks down 2.3%. Haley Anson down 5%. Gas was down 3.4%. Adjusted EPS was up to $2.96. And a big reason for that was the cost-cutting efforts that they've done over the past year. They announced that they would be increasing their dividend by 1.4%, which marks the 15th year in a row of such increase. Gross Average Accounts Receivable, GAR, which is the amount that is owed on credit cards, was up% year over year and 3.6% year to date.

Net credit card write-offs was up 100 basis point to 6.9% year over year and up 20 basis point quarter to quarter. I can see that you want to add something there. When we went over the banks last week? What were they like 3%? 3%-ish. Yeah. Yeah, I think. Yeah. So you see the difference.

Yeah. Yeah, for sure. I mean, to be fair, I think the one that comes to mind was CIBC, right? So CIBC had like a, I think a pretty sharp increase. I'm just going on memory here, like maybe 90 basis points. But again, it was either like high threes or low fours including the increase so you kind of see the difference in consumer base and probably credit worthiness of the different consumers that they have for their credit card versus some of the big banks and i

think that's always important remember because you can see a big difference in in terms of these write-offs when you start looking at different financial institutions yep for sure and i mean when you when you think about it as you mentioned you know you kind of get badgered to sign up for these cards when you go into the store whereas you know people generally getting them from the banks or i mean i get i get probably 10 credit card pieces of mail a month new cards like they're huge really oh yeah new cards sign up for this upgrade this like wait free fees for a year on this particular card i mean it's crazy the aggressive marketing they do for these credit cards but i mean obviously you know

a near seven percent write-off that's a pretty high charge-off rate i remember when we first started talking about this and kind of mentioning, you know, like you should keep an eye on this. I believe it was like 3%. That was probably like a year or so ago. No, I think it was like 5% maybe. Yeah, it's definitely gone up. I think it could have been the delinquency rate of like 30, 60, 90 days.

I don't think it was that high, but it was definitely much lower. We'd have to look back. Yeah. But of course, the trend here is that it's going up. It kind of aligns with some of the go-easy. So the subprime lenders, obviously, I think they're faring better than that. Earnings for the financial arm was actually, they were down 12% year over year, despite revenues being up 1.5%. So this is why for financial institution,

you know, revenues and earnings often don't go hand in hand, right? So I think that's just something I wanted to highlight is yes, revenues are up, But again, they're having more and more costs related to provision for credit losses, and write offs, of course. So that's, it was just kind of interesting. I think obviously, they're still struggling. I can't remember how many quarters in a row, but I think it's been like close a year and a half now that they've seen declining sales. And I think from based on what they said, I think it's unlikely to stop at least in the next couple quarters. It may kind of flatten out. But the recovery, even if you just take the CO by his word, is, you know, even if there is a recovery, it'll be a slow recovery.

So it may take some time. But I guess if you own that name, you're probably in large part in it for the dividends. So at least that seems to be pretty sustainable. And, you know, they've made some cuts. Of course, they laid off some people, but they also sold a property too recently that they weren't using for $258 million in Brampton. So they're doing kind of the right things in terms of getting the business more efficient. But again, it's not going to be a great compounder, in my opinion, at least for the foreseeable future. Yeah, I mean,

usually these companies will kind of, you know, anticipate how it's going to be moving forward. And I mean, with that really small dividend raise, I mean, I think that kind of signals, it's probably not going to improve, you in the short term but medium to long term it uh it might be improving i mean it's been a pretty rough it's kind of the same situation for something like brp like i don't necessarily think it's anything that canadian terror is doing it's just it's unavoidable you know the canadian consumer just isn't really spending all that much money and obviously these cyclical stocks are, they're going to be cyclical. Yeah.

And look, I'm just showing here before we wrap this up, is their dividend versus the free cashflow. So clearly, you know, the dividend is fine. I don't think they have any issues there. They'll be okay to,

to pay the dividend. I mean, just roughly, and obviously their free cashflow does fluctuate. I obviously like had a big, big peak in 2021 where I'm sure a lot of people were buying outdoor stuff. But if you're looking even like the most recent years at worst, they're paying 50% of their free cash flow. At best, they're probably paying about 20% depending on the year. They had one rough year in 2022 where negative free cash flow, but overall, I think

it's safe to assume even if you take the average that the dividend is safe for the foreseeable future here. Yeah. I think they're pretty aggressive at buying back shares as well. So I would imagine they're going to dedicate some free cash flow towards that. I'm seeing three years they bought back around 8% of the shares outstanding. They haven't made many buybacks over the last while, which is kind of surprising. You would think they'd take advantage of this, especially because like you said, they still do generate quite a bit of free cashflow, but I would imagine they'll scoop up shares as well, especially with that tiny of a dividend raise. Yeah. Although their stock looking at it has been like, it's not been that low compared to.

Yeah, I know. I mean, it's a bit down, but I guess I won't be as harsh as BRP for the share buybacks here. But yeah, they definitely have, you know, purchased a lot of shares. I mean, I was sharing it with our joint TCI viewers here so if you go back to 2015 they had uh 74 77 million outstanding sure shares roughly 77.4 million and now that 55.6 so that's a diet like they've been buying back shares as a compound annual grade of 3.34 percent i guess would be the way to say it yeah yeah and i mean i guess the one thing you'll see which you'd probably like is from, you know, during the COVID years, they didn't buy back as many shares as they typically would. So when valuations were high, they did kind of slow down,

which is kind of what you want to see. Yeah. Yeah, exactly. I mean, at the end of the day, I think we were conditioned or I think a lot of companies just kind of were conditioned to buy back stocks just because, you know, there were no consequences and they were just buying back stocks. And it seems like a lot of them still haven't learned a lesson because a lot of the bailouts you saw during the COVID pandemic were because these stupid, stupid companies. And I'm sorry, that's what they are. Because these stupid, stupid companies, and I'm sorry, that's what they are. Like, I'm thinking airlines here. Instead of putting money aside for a rainy day, especially when you have a very cyclical business, they decided it was a great idea to keep buying back shares.

And then when, you know, a Black Swan event happens, which, by the way, yes, you know, who would have seen the pandemic happen? That's fair. But if you look in the grand scheme of things, bad things or black swan events end up happening more often than people think. Like a single specific black swan event may happen every 100 years or so, but you may get, you know, some unexpected event happening way more frequently than people expect. So I do, you know, I do have a lot of respect for companies that are more conservative, do keep a bit more cash on the balance sheet to be able to weather that. But again, what we've seen with governments, whether it's Canada or the US or worldwide, is why would companies actually be more conservative when they know if they're really big that the government

will step in and bail them out, right? It's true. Why would you be prudent when you know the government is going to come and bail you out? And at the end of the day, I think it's a pretty big moral hazard that unfortunately has been created. Whereas, you know, free markets is free markets. If you take too much risk and then, you know, you end up going under because you took too much risk, then it is what it is. Your competitors will take some market share. Your business will probably survive. You'll go through bankruptcy.

It'll come back leaner. So there's always this perception that if a company goes bankrupt that all the jobs are lost. In reality, that would not be the case. Sure, there would be some job losses, but the reality is the assets would be bought by someone that would likely still run the company. Yes, there might be some job losses, but at least there wouldn't be this moral hazard that would be created. I think a lot of companies are just now banking on that. Yeah, another prime example. I think a lot of companies are just now banking on that. Yeah. I mean, another prime example, this wasn't necessarily to the point where Suncor was going to go bankrupt.

But I mean, in 2019 and the start of 2020, they were buying back a ton of shares. And then obviously COVID hit and they didn't really have all that much money and they had to cut the dividend. So it cost them the dividend because they were buying back a ton of shares. So I mean, it can be said, keeping some cash around for an event like that, even though, like you said, how unpredictable it is, is not necessarily a bad thing because it took Suncor a long time for investors to regain trust in that. It traded at big discounts to its peers for quite a few years after that. Yeah, well put.

So I think we'll leave it at that. It was a great episode. I hope everyone enjoyed it. And we do appreciate all the support we get. If you haven't had a chance, it really helps us if you just take a few minutes and give us a five star review write a review if it's on apple podcast it helps people find it and you know during the holidays if someone asks oh do you know a good investing podcast well send them our way it helps us grow word to mouth works quite well as well so um we'll probably say it a few times happy holidays to everyone whatever Whatever holiday you celebrate,

Merry Christmas, Happy New Year, and we'll see you guys next week. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial

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