The Compound and Friends - Target smokes its quarterly earnings, now what? (with Josh and Jeff Macke

Starting point is 00:00:00 All right. So I'm on with Jeff Mackey. Jeff, I happen to have noticed that one of your favorite stocks, Target, had incredible earnings report this morning and had a lot of good things to say. So I wanted to get you on the horn and just have you kind of give us your take. And then we'll talk about some of the other retail reports. But first of all, I assume you're happy. I'm delighted, actually. And Target is less one of my favorite stocks than sort of one of my favorite ideas. It's not working that well as a stock. The chart looks like a freaking train wreck and no one wants to give it a multiple. It's still at 12 times earnings, but they're capturing share and they're making money at the same time, which is really unusual in discount retail. And, you know, eventually that's got to pay off and so so so same store

Starting point is 00:00:46 sales up 4.8 percent and then e-commerce up 40 plus that's that's like that's pretty badass they're coming off 28 it's a real business they're going to grow e-commerce by more than a billion last time we talked we spoke about target just being an idea, the easiest place to shop and omni-channel kind of being your app, the corner store, wherever you want to buy stuff, that's where they're going to sell it. And that's coming together for them. And you listen to the call. I mean, I think the Target guys can't believe their good fortune. They're just like, you know, customers love ordering stuff online and then picking it up in the stores, which sounds like something consultants to Target would put in a PowerPoint deck just to kiss their ass. But it's actually happening.

Starting point is 00:01:29 That's actually how people prefer to shop. And if Target can get them in the store, they're able to make more money than other chains. So can they keep numbers like that up? In other words, how much of that 4.8% same store sale is because the economy is great and the consumer is doing well versus like Target-specific improvements? You got to give most of it to Target. I know I'm a hometown guy. I actually do own other stocks. But we heard from Kohl's, their numbers sucked. Nordstrom Traffic was a train wreck. Not even Walmart really did that well,

Starting point is 00:02:06 but Walmart was in the camp with Target and Home Depot, where the better players with the more cohesive business ideas are just taking share. I don't know how you quantify it, but Target doesn't normally get 4.3% traffic growth, which is the growth that they saw just in people actually walking through their stores. That's not an organic thing. That's faster than GDP retail sales. There are no numbers that compare to that and target 60 years old or 57 as of last week. So, you know, I mean, something's happening there that has to be targeted. Okay. So, so, so I, I go on target.com, I order $70 worth of stuff, and then I go to the store to pick it up. And while I'm there, I buy five other things that I forgot to buy, or I buy groceries while I'm picking up my merchandise. Is that what's going on?

Starting point is 00:02:58 That's the basic idea. And I think what's happening, people order the stuff that's bulky. Everyone says, oh, I like to pick my own groceries. That's because they think of groceries as produce as opposed to like, you know, a carton of toilet paper and some paper towels and some cleaning supplies and all that other stuff. No one has an emotional relationship to picking out a box of Cheerios. So if you can order that in advance and have someone from Target stuff that in your trunk,

Starting point is 00:03:23 that's fantastic. It folds into your life. You're not really changing your habits. It's just a really fast trip to Target. Now, the customers who actually park and go in the store are spending much, much more than any other customers. And that's a dream for Target, because if you get them in the store, you know, that's a super loyal customer who shops at Target, both online and in person, and you're just taking a bigger portion of their wallet. All right. So what's going on with Kohl's and Nordstrom? Is it because they're a department store not selling general goods like Walmart and Target? Is it category, or do they just not have their shit together? It's private label. The difference

Starting point is 00:04:02 between Kohl's, so Kohl's is trying to drive traffic through taking Amazon's returns. Now, Amazon's returns is a crappy business. So if someone shows up at your store carrying something that they want to send back, so already they're a pain in the ass as a customer. And they're not likely to come in this store and buy. Already it's a nightmare. There's a reason that you don't put little post offices in the front of every discount store. And it's because that's not a great commercial transaction. So why are they doing it? They think they're going to get a new customer base that's an Amazon shopper to check out Kohl's? They think that they're going to get someone, you know, once they see our Kohl's, they'll never go back to Amazon. And, you know, again, in their heart,

Starting point is 00:04:43 Amazon is just replacing the post office with colds being marginally better as a shopping experience of the post office is not really cole's goal in life i don't think they're gonna find a huge payoff from that wait that's that's a great that's a great slogan we are slightly better than the post office yeah yeah we'll talk to you you know not right away we still might be getting coffee like they do at the post office yeah yeah we'll talk to you you know not right away we still might be getting coffee like they do at the post office but eventually we'll talk and then so they're handing these people 20 off at the store you know it's again just mentally it's a huge shift as opposed to i'm already buying things here and picking up other goods what about nordstrom

Starting point is 00:05:22 nordstrom they're playing for the long haul. This is not an official suggestion. Well, first of all, they tried to sell, they tried to find a private equity buyer. The family wanted too much money. Is that what happened? The bankers, the rate that I heard was 13, 14%. You're talking about companies with like 8% net margins. So that's pretty steep for money. And then Blake Nordstrom died he was he was genuine legit patriarch of the family who died unexpectedly that's a huge setback for for nordstrom for any company and so they had kind of a soft quarter i thought they owned it and i'm still short mazes i sometimes i'm long nordstrom i'm not right now eventually they get interesting

Starting point is 00:06:03 they're capturing share and they'll continue to take share for Macy's because what we're really seeing this quarter, if you want a theme and we're kind of early in the season to see a theme, but it's the haves and the have nots and everything, you know, the tariff pressures that you have, if we go into recession, all those marginal pressures you can put on a retailer, they surface the winners faster than you otherwise would normally see just through the process of attrition. That's the trade here. It's not a super great trade trade because as long as there's tariffs, your upside is going to be snuffed. But assuming the trade war doesn't last forever, you're building value underneath and the companies

Starting point is 00:06:39 that are actually reinvesting, it's going to pay off in the long term. Okay. So Walmart seems to be one of the haves. We talked about this a little bit last time. What did you make of this quarter? Wait, did they report yet? They reported and they beat. They beat by 11 some cents. Because if it bleeds, it leads. No one really talked about that.

Starting point is 00:07:00 But between Walmart and Target, they have roughly a billion square feet of stores and distribution centers which is is eight you know probably seven or eight times what amazon has anyway so they're they're basically there's a walmart target kind of within 10 minutes of wherever someone's listening to this there's's a really good chance anyway, about a 90% chance. That's a supply chain that Amazon just can't replace by stuffing that inventory into FedEx or those little vans or some other type of concept. 400 Whole Foods stores that are located in the glitziest suburbs. They don't have the infrastructure.

Starting point is 00:07:40 It's simply a matter of satisfying the demand, and Amazon doesn't have the chops to compete in physical retail yet. Is that what's behind the Kohl's thing? It's like, all right, we found this group. They're willing to do what we want them to do. We don't need to own it. Yeah. I think Kohl's and Amazon are both trying to do it on the cheap. And Amazon should be smarter than that. They should realize that as far as customers are concerned, you've just turned Kohl's into sort of a little Amazon distribution center. Customers, that was Target's problem for years was that the app sucked and the stores were great. But customers don't distinguish between the two.

Starting point is 00:08:19 I mean, 7-Eleven has Amazon lockers in their convenience stores. They gave them space for that. 7-Eleven has Amazon lockers in their convenience stores. They gave them space for that. Right. Just getting someone to swing by and get the hell out of there as fast as possible is not a good business model. You actually have to have something you can sell them once you get them in the door. All right, dude.

Starting point is 00:08:36 Hey, I'm going to let you go. I appreciate your time. I'll talk to you later, Jeff. Absolutely. Happy Target Day, people.

The Compound and Friends - Target smokes its quarterly earnings, now what? (with Josh and Jeff Macke

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