Yet Another Value Podcast - Stanford Wyatt on Nordstrom (JWN) and Tile Shop (TTSH)

Episode Date: October 19, 2020

Stanford Wyatt from August Partners and Rational Research  discusses his background in investing and his investment thesis on Nordstrom and The Tile Shop.Rational Reserach: https://rationalresearch.substack.com/

Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Stanford Wyatt from August partners and Rational Research. Stanford. How's it going? Good, Andrew. Thanks for having me on. I appreciate it. It's great to have you on. Let me start the way I do every podcast. And that's by pitching you. And I'm just going to continue what I was telling you before we start recording. You know, rational research is what I mainly know you from. And I know you run August partners, which is a small partner. partnership on the side, and we can certainly talk about that. But rational research, I've just really been enjoying it. You've been doing it for several months now. And the way I kind of describe it is once a week you put out what I call a micro macro piece where it's looking at something macro economics from how one or two kind of micro firms are talking about it. So the example I was trying to think of was this week's was use sports betting data trends from New Jersey and New York City to get some insight into how sports betting is training overall. And I

I think you also had some consumer luxury good stuff from Tiffany, Louis Vuitton, and even an RV piece on Lazy Day's results. So I've just really been enjoying it. And you get those micro macro pieces plus I think you've done about three deep die fundamental pieces so far, which we'll talk about one or two of those today. I read every issue and it's priced at free, which is just the perfect price for me. So look, that pitch out the way, Stanford, maybe you could go a little bit into your background on how August partners and rational research came around. Yeah, well, I appreciate it. Thanks. Thanks for the kind words. And I'm a big fan of your work as well and listening to the podcast. And so I appreciate the invite. And yeah, as you mentioned, I, you know, my day job is managing a partnership in an investment firm called August Partners Investment Management.

And then, yeah, I started, you know, rational research a few months back, as you mentioned. And, you know, I guess through the framework of just kind of helping my investment process, for my for my partnership and so um as you mentioned the weekly piece a lot of it's just looking for for facts and kind of what you know do they roll up to any bigger bigger themes bigger investment themes that might kind of influence my um you know my investment decision making um and then also just you know kind of getting getting more involved in the in the fin twit community and um you know seeing if there's anybody else out there that might kind of care about those specific companies or themes and and do they have any feedback and then um yeah occasionally you know

the the individual um stock thesis piece i mean writing's always been a big part of my investment process and um is helpful and clarifying my thinking and um so that's you know that's that's that's part of it and then the other part is is the same idea of just trying to get more feedback getting in touch with other people that might um might have some insight on those particular companies and so I'm hoping I can do more more write-ups on individual companies in the you know in the coming months and it's been fun and and then yeah so in my background so I started the partnership and the partnership in the investment firm about two years ago prior to that I worked for a long short fund here in Seattle for over 10 years doing

fundamental research and um and you know building my my network and my um investment uh framework so um that's a little bit of of my background cool and then august partner so that's the your as i call it your day job most of your time's focused there how uh like kind of how focused do you got do you run it pretty focused um you know it's the the number of names um you know varies but, you know, we'll say, you know, 10 to 15 long positions and I can to do short. So those will be smaller positions and maybe higher number of individual positions there. But yeah, pretty concentrated fund and do a lot of, you know, deep fundamental analysis, just looking for opportunities that are mispriced, you know, in the public market.

So, you know, and there's a lot of reasons that companies can be misprice, whether it's just liquidity or short-term concerns or, you know, financials that don't really tell the whole story, that sort of thing. So, you know, my process is just is focused around looking for high-quality businesses that may be mispriced for a particular reason. And then I also care a lot about the people involved. I mean, the insiders, you know, what's their behavior? I think the behavioral aspect can be pretty predictive of what might happen in the future and is not necessarily always, you know, always always priced in. It's not the easiest thing for the sell side to write about. And so I care a lot about, you know, who the people are that are involved and kind of what

their behaviors are. And then just looking for, you know, risk-reward setups that are favorable. Yeah, no, look, I think management is one of the things that's been ingrained to me the hardest over time. Like, there's only so many times you can invest in something that's trading at 20 cents on the dollar only to watch management take 90 cents of that dollars and put it into their pockets or just light it all on fire until you realize like, oh my gosh, like, you know, not everyone has to be Jeff Bezos or something. But if you're investing with the absolute worst, like you'll get lucky every now and then and, you know, they'll decide to sell,

they'll decide to sell and that 20 cents becomes the dollar. But most of the time, they're going to find a way to make that dollar shrink into five cents or 10 cents. And you're actually not going to profit. Let me ask you, rational research. Obviously, it's an outgrowth of all the work you do at August partners. You know, the two write-ups that come to mind and the two that I think we're going to talk about on the fundamental side were the piece on North Shore, which I think will be our focus today, and maybe a little bit of the piece on tile shop. And both of those are kind of, you know, old line retailers. We can call them at a high little view. So you run concentrated 10 to 15 position. How much of it is like in more older world order type value names and how much

of it is going to shift into more like, you know, what's probably more popular today, the growthy tech stock names, or is it just a blend? How do you look at that? Yeah, you know, it's a blend and I'm open-minded. I mean, you know, I guess all things consider, I don't really, you know, look at kind of growth versus value or that sort of thing. I mean, I think it's all kind of, you know, ingrain or, you know, intertwined. I mean, I'm happier to pay higher multiple for, for higher growth type companies. You know, again, it's kind of what can I find that's really mispriced? And I guess a lot of that really high growth kind of SaaS stuff that, you know, that has great management, great, you know, visionary founder type, type leaders. But a lot of that stuff seems

to be pretty, you know, fairly valued if I, even if I extrapolate kind of growth, go trends continue for for quite a while. And so, you know, so, you know, like I said, I'm open-minded and then just looking for Ms. Priceings. I guess that's kind of led me to a couple of these, as you said, you know, older, old school retailers that, that I've written about. And, you know, I've followed both those companies for quite a long time as well. But I guess one of the, one of the frameworks I've been thinking about recently is just kind of these epicenter type companies that were just right in the crosshairs of COVID, brick and mortar retail. And, you know, one of the things I was thinking about is, you know, second quarter, you know, first, end of first quarter, second quarter,

kind of that's, you know, if you survive that, you've probably got an enduring business on your hands, right? And I look at, you know, Nordstrom, who was closed for half the days in the second quarter and actually generated positive free cash flow, which is pretty amazing. I mean, again, speaks to just kind of the nimbleness of the management taking action and obviously got high insider ownership there and a family that's owned a business for 100 plus years. you know, they're incentivized to obviously do what's best to survive. I mean, they don't want to take existential risk when they have, you know, six or seven hundred million dollars or more, you know, hopefully more if the stock goes up, but have equity value on the line there. And so I guess that's kind of, you know, I guess to summarize how I came to those kind of two companies is just looking through that framework of companies that have been able to adapt and will endure. And then when they come out on the backside of this, I mean, there's a lot less competition. They've probably learned a lot how to improve their

digital business and that sort of thing. And I don't want to go into Nordstrom's too much yet because I want to talk a little bit more about rational research, but let me dive into one of the points you made there. So you said, you know, management's really incentivized to come through this. They own a lot of the stock. It's Nordstrom's family. I think was it John Nordstrom, the founder, who founded in like 19, 1900, 1901? You know, they've been around for over 100 years.

The family owns a third of the shares. They're very incentivized. And normally that's a great thing. But I also do worry, you know, I think of like a newspaper family in the early 2000s where they owned a lot of the newspaper shows. And they said, you know what? The newspaper industry looks bleak right now. But we've been delivering print to your doors for over 100 years. And our family's done that. And we're going to double down. We're going to go buy all these newspapers at valuations. Or, you know, a current example would be something like Dillard's, right? Dillards, which is another old blind department store. I think they don't I don't even, they barely had an online sales components then until COVID started. And, you know, Maybe you looked at that pre-COVID and said, oh, a lot of online shopping is at a loss. They don't really have competitive advantages. But, you know, I look at them and I say, oh, maybe this is a family that's too wed to this is the way our family is always on it.

For Dillards, I think all of the family members are like 80 years old and on the board. But, you know, do you worry about that with Nordstroms or just in general? Like the family control, yes, they're economically aligned, but maybe they don't move as fast that they should because they just have an older way view of the world. Yeah, I think so. I mean, you know, that's definitely a concern. And I think, you know, they've invested. a lot in their in their digital business over the years. And I guess, you know, I think they're

smart. I mean, you know, their headquarters in Seattle, you know, a couple blocks from Amazon, right? And I know I'm sure they lose a ton of people to Amazon constantly. And so they're not, I don't think they have their head in their stands to realize kind of what's, what's going on there and, and, you know, the future of e-commerce and brick and mortar retailing and all that. I guess, you know, a bigger concern for me is just that, you know, they have invested in, in e-commerce. and I think trying to bring their business into the future a little bit. And it just hasn't, you know, they haven't grown as fast as, you know, even if you look at last year and it kind of normalized year,

I think their digital business grew 7%, right? And if you just use, you know, Amazon's North American business as a proxy grew 21% last year, right? So, I mean, it's just they're kind of lagging. And then, you know, even now in the RISA quarters, you see a lot of these kind of, you know, legacy brick and mortar retailers that have an online component that's grown, you know, 100% or more. And, you know, Norseum didn't come close to matching that. And probably a lot of that's apparel is not, you know, not the best segment to be.

Probably would be one of the last to recover out of this thing. But I guess that to me is the bigger concern. It's just that they might be a share loser for whatever reason as opposed to. I don't think that they're kind of delusional with what's going on in the world. with e-commerce and the shift to digital. I mean, you know, if you look at last year was, you know, digital was a third of their revenue and in the second quarter was 60% of revenue. So, I mean, they're there.

I mean, they have a good, you know, good offering, but, you know, I just don't know if they're, are they losing share? I guess that's my biggest concern when I think about this as an investment. No, I agree. Like, look, I think a lot of their buy online pick up and store stuff, even before the crisis, I think was better than, 99% of their competitors or something, you know, I think they were doing stuff. But you do worry like, and again, I want to ask one more thing on rational research and

then we'll do it in the richards, but like they invested what, like $500 million into a New York city flagship store. And they started that investment in like 2016 and it just finished. Unfortunately, it opens like literally the day before the crisis or something. Yeah, but yeah, 500 million dollars into a physical retail store while like Lord and Taylor's going bankrupt around the corner from there. And you wonder, there. I get what they were saying with it, but were they a little too wedded to the vision of the Nordstroms in the center of Seattle versus what the future was when you invest that much money. I mean, $500 million is a lot of money to invest into a store. Yeah.

No, I agree with you. And I think that, you know, by the time that all got wrapped up, maybe that was something they wished they hadn't to have started. You know, maybe the world was looking different in 2014 or 15 or whenever they kind of started that project, right? and you have, you know, you have Macy's Herald Square and you have, you know, Bloomingdale's and Saks Fifth Avenue, all these stores that have a big kind of Manhattan presence. And, you know, they've talked about New York being such a big market for them. And they get an e-commerce uplift from having, you know, as you had noted, e-commerce uplift from having that physical presence in New York City.

But, yeah, you know, it's hard to say if that's a five-year lead time project, maybe by the time they got down to the end, it, you know, is something they otherwise wouldn't have done. Um, but you know, I mean, they have a hundred, you know, they close 16 stores in this last quarter. They have a hundred kind of class A mall locations with their, with their full line stores. I mean, I guess I just don't, it's not overstored, right? In the, in the context of, you know, thousands of retail locations, right? I mean, they have pretty good location with their, with their full line stores, um, pretty good locations that we'll see. I mean, if, if, you know, they are exposed to the mall. Um, But I just don't think that they're in a terrible, terrible spot with their real estate. But yeah, I mean, to your point, you know, management, maybe that wasn't the best decision. We'll see how it all plays out. And maybe they do lose some competitors there in Manhattan that might help market share over time. But we'll see.

Cool. No, I agree with you there. And we'll come back to Nordstrom's in one second. I just want to ask you one last thing on rational research. One of the things I like about it, as I said, was you do these weekly, I call them the macro-micro looks, right? Where you use what one or two companies are saying to look at something micro. And, you know, I think in like, if you were doing this in 2019, I don't think I would

have learned as much from it, right? But I think one of the interesting things in the 2020 COVID environment, I mean, it's like nothing anyone has ever seen before. I don't think many of us imagined what it would be like. Is there anything in particular that these kind of, micro macro dives have taught you or anything that was kind of unexpected when you've done them? No, you know, again, you know, it's kind of part of my investment process just to look at really, you know, what are the facts? I think, you know, Wall Street gets so hung up on, you know, beat by a penny, missed by a penny or, you know, forgetting about the fundamentals and panic over, you know, case counts or whatever it might be, right?

So I think just doing this weekly and kind of, you know, if I'm invested in Nordstrom as an example, you know, what are the other Brick and more retailers actually saying, right? I mean, what are the comps? What are the trends that they're talking about? And so it's helpful just to keep, you know, for me, just to keep revisiting the actual facts and trends that companies are talking about. So just doing this, you know, again, it helps me to stay focused on the facts. And then maybe if you, you know, if you get enough of these. tidbits, you can kind of roll them up to an overall theme in an industry or sector that's happening. But yeah, I guess, you know, to your point, this year has been pretty wild in terms of just the share shifts and everything else that have gone on. So I think constantly kind of looking at these reports is pretty eye-opening. And I think a lot of times it goes, you know, a little bit overlooked by maybe general population.

So it can lead to some interesting opportunities. Yep. Perfect. Okay. Well, that out the way, let's dive a little bit further into Nordstrom. You know, I'm sure most people know Nordstrom. They think of it and they think of the department store. If I told anyone, or if you told anyone, hey, I'm looking to invest into Nordstrom's. The first thing I think they would say is, physical retail is dead. And they probably would have said this in 2019. And then especially in 2020, they would have said, hey, you know, everything's going online. Amazon's going to eat everything. So I guess when you're looking to buy Nordstroms, what's the first thing that gives you comfort that, you know, physical retail is not dead?

You know, I guess there's quite a few. I mean, again, you can look at results appears. You can look at, you know, results here. I mean, there's, you know, the category leaders coming out of this are seeing sales increase. Um, both. both, you know, at brick and mortar stores and online, and then, you know, combination of two can be, can be pretty powerful. So I think that's, you know, that's a piece of it. I think you can look at any of the e-commerce players, you know, Amazon obviously buying whole foods and opening up their go stores and everything else.

Give some, you know, some credence to having a physical presence and the value of that. and you know there's there's a lot of other examples if you think about you know Warwick Parker and Bonobos and Blue Nile and a lot of the kind of legacy online players that started opening stores because it's cheaper cost to advertising right when the Google clicks for diamond ring you know skyrocketed in value get more impressions you know having a spot in the mall for a lower cost and you do you know paying Google um So, you know, I think, yeah, I mean, a combination of things, but I think people always want the experience. I think there's certain categories that, you know, maybe lend themselves better to shopping in person, as opposed to buying commodity books or, you know, computers online.

Maybe it makes more sense. But, yeah, I mean, I'm not arguing that the U.S., you know, is probably overstored, over-retailed. I think that, you know, that's probably true. and I think a lot of, you know, a lot of the weaker hands may have been washed out here in the last six months or so. But, but, yeah, I think, you know, I think it makes, it makes sense from an operational perspective. And I think consumers are always going to want the experience of shopping in person to some extent. So I think what you just made was the famous clicks to bricks argument, right? Where, you know, I think even Nordshams has said it.

Like, if we open a physical store somewhere, online sales go up 20% because you get the, You know, you get the advertising of people driving by the storefront. It becomes easier for people to do returns and exchanges. It just boosts the brand. So that's the clicks of brics already, man. So let's say I concede that, which I think most people have conceded. You know, there's Warby Parker rolled out stores, Winobos rolled out stores. Like there's a reason all these digital only places rolled out stores.

Untuck is another one I think of. So I'm going to concede that point. But I think the counter to that would be, okay, but Nordstrom's is a department store, right? They are not a online brand. They're not whole foods where people are going once a week to get food. They are an apartment store. And if I look at department stores, Sears, J.C. Penny, Lord and Taylor, Neiman Marcus, like, bankrupt, bankrupt, bankrupt, and that's just to start. Macy's even before the pandemic, I think they were going to close something like 15% of their stores or something, 125 stores.

You know, everyone was trying to close down department stores. So why is Neiman market, or sorry, why is Nordstrom's different? Why are they a winner here? you know i guess i kind of would frame that just in the in the context of downside protection right i mean you look at this company's endured for 120 120 years as you said um the the family owns 30 of it um you know they're not taking existential risk with the balance sheet they've got a lot of the debt is is pretty far termed out um they have been investing in you know improving their technology in the future and then like i said earlier i think you know a hundred stores in in the class a

mall locations is probably one of the you know better positioned um department stores and you know if if the class a malls continue to do okay i think that's a decent position to be in um and and then you know 250 rack locations again not a not a huge number in the big context of you know tj max has whatever, 3,000 stores in the U.S. So not, you know, not a huge physical footprint. And then, you know, again, the company has endured. And so, you know, some of the other companies you mentioned that have filed bankruptcy recently, maybe didn't have the same kind of alignment or, you know, history there. So, you know, I think that's part of it. And I think just, again, I mean, the price begs the question. Right. I mean, it's not, it's not like this thing

is priced to, you know, be the next, you know, Lulu Lemon or anything, right? I mean, it's, it's almost priced like people don't think it's going to survive. So I guess all those things kind of roll up to maybe answer your question, maybe not. Yeah, no, look, I think one of the things I like about it and not to, like, interpret your words for you, but Norseum, all of their full price stores, department stores almost exclusively are class A malls catering to kind of a higher end person. And they do a lot more of the in-person stuff. You know, one thing they always hit on, which I think people dismiss, but their alteration

business is huge. And people come in, you know, just get alterations. And they've got the personal shopper for a lot of it who's really giving you kind of a personal touch to that thing. And when I think about something like, you know, Sears is probably the most famous department store bankruptcy. And a lot of that was driven by Eddie Lampert. I think he saw the future really clearly.

and he executed really poorly if you go look back into things. But Sears was also a ton of plasmals, right? Like they were so poorly positioned for the future. And if you think, you know, ignoring at some point, hopefully COVID goes away and kind of you can resume in person experience and stuff. But if you think that's the future, I do think there's something about Nordrim specifically, specifically that position of them well. And then just playing off that point, you know, if I said on the back of COVID a year from now, 18 months from now, things. start normalizing. Do you think there's a chance that Nordstrom's is like kind of reporting super normal profits for a while because the competitive landscape is just so wiped out,

you know, people who would normally go to the mall and shop at J.C. Penny on one end and Nordstrom on the other, the J.C. Penny's gone. So they just go and they spend 50% extra at Nordstrom. Does that make sense? Yeah. No, it does make sense. I think, you know, that's definitely one of the upsides of this investment thesis. And I was going to mention, too, I mean, Northstrom does have 13 million, you know, loyalty members, too, which is the point about why would they be one to survive. I mean, that's not a not a huge number, but when you think, you know, when you sign up for a private label credit card with Nordstrom, right, they've got a lot of data. And as a customer, you're kind of making a commitment that you want to be a loyal customer. So I think they do have kind of that built-in customer base, too, which is helpful just in, you know, in weathering this time and, you know, looking a year or two out.

But, yeah, to your point, you know, when you look at Lord and Taylor and Barney's and Neiman Marcus and, you know, Sacks and J.C. Penny's closing stores and Macy's closing stores. And, you know, Northstrom has closed 16 full-line stores in the last couple months out of, you know, now down to 100. You know, it should be a lot less competitive. And then they've cut a lot of costs, right? I mean, they've, I think they come into the airplane and cut 200 to 250 million of costs and then cut an extra $250 million,

so you're up to $500 million of kind of cash cost cuts this year. When you consider that the EBITDA estimate for next year is a billion, right? I mean, they basically cut half their way to the EBITDA estimate for next year. And so I think, yeah, to your point, I mean, if sales are anywhere near kind of normal, which they could be helped by a lot of these competitive closures, And you pair that with a pretty significant cost cuts and then lapping all the capbacks that they've been spending on New York City store and everything else. There could be super normal profits for a period. So, you know, who knows exactly what that looks like?

But I think there's definitely some upside there. Let's talk valuation for a second. And it's one of the things I don't like to do the most on the podcast because, you know, when I say, oh, this trades for, I think you could earn $5 per share next year and it trades for $100. So it's at 20 times. Like, that doesn't really flow well when people are listening. Like, this is mainly audio, even if you're YouTube, you can see our face, but it's not like their numbers flashing up. Right, right. I think it's important.

Like, how Nordstrom's has been shut out? Like, how cheap is Nordstroms if we're looking at this on a normalized basis? Yeah. I mean, there's a lot of ways you can look at it. And I think, you know, again, I think you can kind of throw a 2020 out as just a kind of a crazy year. But, you know, if you consider they did, you know, a billion and a half. of EBITDA last year and, and if you look at the operating cash flow, you know, they've done over a billion of operating cash flow, I think for 11 years in a row.

They did a billion two last year. So, you know, and then I think CAPX now, if you look at kind of what they're talking about CAPX, they'd cut 30% of CAPX this year, but you're probably at, you know, 450 million of CAPX on, you know, on a go-forward basis. I mean, if you ask yourself, can they get back to, you know, a billion of operating cash flow and you know or more um and capex of 450 million maybe now interest expense is is kind of 150 million but that's you know that's kind of baseline and then um uh you know what could what could kind of the upside be of sales materialize in some way but um yeah i mean i'm

You know, if I look at, so EBITDA in 2019 was, was 1.4 billion, and now people are kind of expecting 20, 21 is just over a billion. So, you know, you kind of, you're down pretty significantly versus a normalized 2019. And then, you know, again, with the cost cuts in there of, you know, 500 million, can they do a billion of a billion of EBITDA? at some point in the future, I mean, it's not going to be this year. Maybe it's next year. Maybe it's a year beyond that, but that definitely seems reasonable. And then, you know, kind of the low, I guess the low multiple that this company's historically traded has been like four and a half, five times EBITDA.

So right there, you're kind of at a high teens, you know, high teen stock price. If you get just a kind of low, historically low valuation on pretty depressed. estimates, right? And so I guess, again, the question comes back, do, do they survive? I think with a billion dollars of cash on the balance sheet and the debt that's pretty far, you know, turned out in the future, I think they do, you know, I think they'll survive. And then you just look at kind of what are these kind of very base case or pessimistic case scenarios. And even those lead to pretty decent upside from where the stock is now. And then, you know, yeah, if you just think back, they can get back to a 2019 type of EBITDA at some point and put a five or six times

EBITDA multiple on it, you know, then you get to pretty, pretty substantial upside. And you do the same thing with, you know, operating cash flow minus CAPX. You know, you can get to pretty high cash flow yield. So yeah. So I'm just going to summarize. So I think the simplest, one of the simpler ways is I look at this and say at today's price of call it $13 per share. The enterprise values approaching five billion dollars. In 2019, they did about 1.4 billion of EBITDA. So you're paying like three and a half times EBDA if you ever think they can get to 2019 levels. You know, you can slice it up a bunch of different ways. Earnings per share was about $3.20 in 2019. So you're paying, you know, four times earnings, four times EPS if they ever due to 2019 level.

So what we're basically saying is, hey, like if you ever think they can get close to where they were last year, which I hope we've started to build the case and we can build it further that they will. This is a four times earning stock. And, you know, four times earning stocks, radio stations are four times earning stocks, you know, like something with a hundred years of durable brand and what we think is a lot of physical touch points. And yes, not everything going their favor, but a lot of the stuff in the world set changing actually is kind of plays into how they've traditionally been valued. I think that's kind of how you look at this thing. Is that right? Yeah, definitely. And I was going to, I mean, one other interesting point is, you know, management gave guys.

items for 2020 on March 3rd, which was basically, you know, right before the world fell apart, but which kind of gives you- They were liars within four days. Yeah, exactly. But it gives you an interesting insight into kind of what they thought was possible for 2020, I guess, had 2020. It turned out to be more normalized. You know, they were talking about 325 to 350 in earnings. And then, you know, I think, yeah, they guided to free cash flow like 750 million, you know, after CAP-X and now, keep in mind, their CAP-X has been cut 30%. So, you know, if they, again, if those are kind of reasonable ideas of what a normalized year could look like, then, yeah, the stock is really cheap.

And, you know, again, management's incentive comp, I think was, at least for last year, in the most recent proxy, was based on even higher numbers than that. I think it was $1.5 billion EBITDA or something similar to that. So anyway, yeah, I think there's a lot of different ways you can kind of look at it. And if they get anywhere close to kind of this guidance or the historical numbers, then the stock is really cheap. Yeah. And the other last thing I'll add here is, you know, we talked earlier about these generational investments they made.

You know, they sunk over $500 million, they said, into opening a New York City store that opened October 2019, right? So we've been seeing 2019 earnings levels where. If we had been talking in December, we would have said 2019 earnings is a trial level because we put these massive generational investments. And it wasn't just NYC, NYC was the headliners, but there were other things. We put these massive generational investments that opening a new store takes about two years to really start to pay off and to build up the foot traffic.

You would have been looking to 2022 as kind of, hey, this is the year our New York City investments and all these other things say. So we're saying they get back to 2019. and I think that could in some ways says they're getting back to a much lower level just because that New York City store is starting to pay off. Does that make sense? Or do you disagree with any of that? Yeah, no, that makes sense. And I think I know you'd written about it a little bit, but yeah, they were expecting some uplift in sales in New York area from opening the store and then obviously just the reduced capex after getting that done. So yeah, I mean, to your point, kind of definitely

peak capex last year, right? So you're coming down. big time off of that and then hopefully a uplift sales in a in a normalized environment. And then another piece, just moving into a little bit more in depth than Nordstrom, you know, when I say Nordstrom, I think most people think Nordstrom, the full price department store. But another piece that I'm really interested in is Nordstrom rack, they're off price business. You know, I think when you mentioned T.J. Max earlier, T.J. Mats is in several thousand stores. Northstrom rack is not even in 300 stores yet, but, you know, I think that is a growing piece of the business that's really attractive, really interesting. Could you talk a little bit more

about the Nordstrom rack off price business and how you look at that? Yeah. You know, it's a third of their sales overall and they don't break out the margin profile of rack versus full line. But, you know, that segment overall, it seems, you know, you can just look at the success that T.J. Max and Ross had in the U.S., and it seems like that's kind of the big, or one of the big, you know, retail, tailwinds or sectors that's done really well. And I think brick and mortar stores, people appreciate that treasure hunt experience and the value that comes with it. And so, you know, I think that there's a lot of opportunity there.

I mean, again, I guess, as I was saying earlier, my bigger concern is that even on 250 stores compared to Tj.J. Max with 3,000 or Ross with 1600 or whatever. I mean, they just haven't. Nordstrom rack hasn't grown as fast as kind of the really kind of well-operated off-price retailers. I mean, you put Burlington in that category as well. But, you know, I think, yeah, there's definitely opportunity. There's some synergy there with clearing out merchandise from the full-line stores. And then there's a press release Nordstrom had out last week, but they've been working at fulfilling online orders from rack.com from the rack stores and then, you know, if you order something from Nordstrom.com, you can pick it up at the rack. And so I think they're

just getting better at kind of using that retail footprint to, um, to fulfill orders, to use that inventory more effectively and then to offer the customer more convenience. Um, so I think that's all positive. And, you know, Rack and, or sorry, T.J. Max and Ross really have never, um, you know, they don't have a big online business, right? So that might be an opportunity, I think, for the rack to kind of, you know, exploit their strengths and be kind of the leader in off price online. They have that outlook, which is kind of a flash sale website, which also you can, you know, return to the rack, which is convenient.

And so I think there's some opportunities there. Hopefully they can capitalize on and kind of take a lead in that off price online business. Yeah, and you mentioned the synergies between the rat can take excess inventory from full price Nordstrom and kind of help liquidate that, right? So that put you in a better inventory, better positions managing all that and stuff. And I think one of the things that attracted meets Nordstroms is this some of the parts are you in, right? Like full price gets a different multiple than an off price and there's some real estate in there and then they own some other stuff. But when you do the whole sum of the parts, I think it comes out, it's a company trading

that four times even on, right? Like it's not hard. get some of the parts higher than this. But one of the things I think the company would argue, and you started to dive into it, is there's synergy between having these soupies together. When somebody shops at racks and joins the Nordstrom's club, they are more likely to go by at full price Nordstrom. Or, you know, you can buy online, pick up in store, all that type of stuff. How much do you think, like, the sum of the parks understates the opportunity because of those synergies there, whether it's on the cost side or the customer side or just any piece of that? yeah um you know that's a good question i think you know the summer parts is always tough because

i don't think they'd be able to split the two up necessarily you know i don't think they could monetize rack and get some fair value because i i just don't think you know the nordstrom name you know being being separated uh would work i doubt you know the family would would go uh go for that But, you know, I think, you know, again, you hit it in your write-up. I mean, you know, one-time's revenue on a pretty kind of normalized level for the Rack is worth more than the company as a whole right now. And, you know, T.J. Max and Ross trade well above one-time's revenue. So I think that's, you know, that's an argument that makes sense. And just, again, for looking at the downstack protection.

Um, yeah. And then, you know, there's some real estate value, you know, as, as Nordstromones, um, I think 30, 33 of their full line. Yeah. Yeah. locations or owns a land under the building. And, you know, again, hard to know how much equity value might be in that real estate and if they could ever monetize it. But, you know, again, just in terms of downside protection, hopefully that provides a little bit more. And so, you know, some of the parts, I guess I don't, I don't really, that's not how I would, you know, I kind of value the company as a whole and the earnings and cash flow potential, you know, as a whole business. But I do think it's an interesting exercise, especially when you think about just the downside

protections of if things really went haywire, would they just try and, you know, sell some real estate, sell, you know, sell the rack if they're open to it, maybe. But yeah, it's a good exercise. No, I don't disagree. What about do you think, I believe what they say is somebody who shops at rack ends up spending four times the amount of money or like is four times as more likely to shop at Northstrom full price. Do you, some of that is because you shop at Rack and you can get enrolled in the Nortstrom's club and all that sort of stuff. Do you think that Rack actually benefits the full price division as much as they talk about?

You know, that's a tough one. I mean, I guess all you can do is take them at face value because you never really know and is somebody that starts shopping at the rack really move up to start shopping at the full line store. I mean, maybe that's possible. once you're just ingrained in the loyalty program. And if you sign up for the credit card, you're just more incentivized to shop across all their brands.

And that's positive. And, you know, I think they did that in Investor Day a couple years back and they have a couple slides in their slide deck that's on that point, just to how much more valuable that customer is that shops across multiple channels. But, you know, I think hopefully they can, you know, if they make the whole ecosystem more convenient, right with this buy online pickup and store and fulfilling you know using inventory across the channels to fulfill online orders and you know you can return at any location you can pick up at any location i mean maybe for that customer that's kind of agnostic to um full price versus online you just make make their life a lot easier a lot more convenient and hopefully there is more synergy and more synergies coming as they as they get better at kind of fulfilling from all these different channels and um

you know and then doing the pickup in store and all that so um yeah i think that's you know it's a it's an opportunity hopefully it's one that they they can see more benefit from here in the next um three six 12 months as they as they improve their systems yeah the reason i just wonder about that synergy is like you know a i do think the future is like weirder bundles like amazon who would have ever thought combining amazon which is like a retail business with Amazon video, which is a Netflix competitor, like, you wouldn't really think of those two as natural compliments to a bundle, but it does make sense when you're bringing down the cost of kind of prime membership to get people in that prime thing where they're going to spend

four times more. And when I look at Nordstrom with Nordstrom rat, like if there is actually that synergy, and you, I think you mentioned earlier, like, you know, Amazon bought Whole Foods. Maybe somebody ends up an online player buys Nordstrom. If you are seeing signs of a Northstrom that customer results in synergies for Nordstrom, you could apply that to buy Northstrom, and there might be synergy to a whole host of weird online things, you know, like just one random one I haven't thought about, but Northstrom and Spotify, buys Nordstrom, and then they have like, they can ship out merch and use in person, and it reduces the bundle of it's, but I don't know, but you could see some type of weird synergy like that if that makes sense. Yeah, you know,

anything's possible in this day and age, and I agree with you. I think, um, you know, know, there could be some companies you never would have considered as potential acquires for Nordstrom. And I think, you know, again, I think the real estate is, is interesting if somebody wanted, you know, some Class A, some good Class A locations. And I think the vendor relationships are something else that may be kind of undervalued by Wall Street when you, you know, Last year, Nike pulled off of Amazon, you know, one P and, you know, you can read the Birkenstock. That Burkestock CEO went nuts on Amazon a couple years ago because there was too many fakes being put up, you know, on Amazon. Amazon didn't do anything about it.

So I think, you know, again, Norsom with a hundred year history of treating their customers well, treating their vendors well, and, you know, treating the product well as far as how it's presented. you know, they have good relationships with Nike and Birkenstock and a lot of these key vendor partners that, again, if somebody were to acquire the company, there's probably a lot of these intangibles that come along with it that maybe you wouldn't have access to some of these high quality brands right off the bat, if that's, you know, if that's something that you wanted. Yeah. Or as you said, like those relationships in the retail space, like we did a podcast on Shopify a couple weeks back. And you could say like, hey, if shopping, I bought them is that the most natural fit, maybe not, but I could start talking you into,

hey, their synergies in Shopify can use all the, can use all their storefronts for pickup and returns across the entire business, right? So that gets them some really interesting warehouse space that they might not have had before. And it gets them the relationships with brands where they can go to all of their people and say, hey, we've got this relationship with Nike. Maybe we're a preferred brand. We can offer you discounted things on Nike goods to build through your storefront or something. I don't know, but I could see how like something.

with this good of brand name, this good of storefronts, how there are stranger synergies with different acquires than we would ever thought. Maybe that sounds crazy, but as you said, Whole Foods and Amazon seemed crazy until Amazon went and bought Whole Foods. Yeah, no, it's true. And I think, you know, again, with 150 square foot full line stores, I mean, could you do some interesting, you know, kind of pop up shops and have, you know, have the Shopify partners kind of set up for three months in there and, and, you know, seasonally rotate in and out. I mean, there could be could be a lot of interesting stuff to do like that. So I'm with him. Exactly. Exactly. What about, you know, we mentioned there's two online, two online components to Northstrom.

Is it haughty look or hot look? How do you spell? Outlook. Yeah, hot look. And Nordstrom brought Trump Club. These are both acquisitions. At the time, Norisham did acquisitions. These were much hotter. These were very hot spaces. And I think through maybe a little, definitely a little bit of mismanagement and a little bit of these spaces. were extremely competitive. They have not worked out, but there is value there, and I do think there is a future there. Can you talk about, like, kind of the smaller online pieces in North terms, how you look at that and how you see those going forward? Yeah, you know, again, they don't give a lot of detail in terms of what the revenue are.

I can't remember. I think they've hit $350 million for Trunk Club, you know, a number of years ago and how it look when the flash sale space was really hot. And, you know, again, I don't think any value in the stock price is described. to either of those two brands, but I think it's, you know, it still is, you know, the press lease I mentioned last week where they're talking about, you know, you can order on how it look and return it to, uh, to a rack location or a full line location, um, stuff like that where they're still, you know, ingraining, um, into just the convenience factor of, uh,

what the customer can do because I, you know, most flash sale sites that are still around, probably don't have that, that convenience element to them or just the, uh, the backing of Norton knowing you're getting kind of high quality merchandise. So I think that's all positive. And then, you know, at this point, maybe they can just figure out how to continue to leverage it within their overall ecosystem because, you know, I think they're still a demand for it.

And it's probably a better, you know, again, if they can leverage their platform just to make those two brands stronger than competitors. I think that's a win, but I'm definitely not not factoring that kind of upside into my my overall thesis. The one that really interests me is Trump Club, and I'll let you dive into it a little bit, but the reason I'm so interested is I look at Stitch Picks, which I believe when Trump Club, when they bought out Trunk Club, it was like Trump Club and Stitch Fix were kind of number one and two at the time, or maybe Stitch Fix was kind of just in the turn. But, you know, I think when you, when I do Google searches, I still get a lot of hits on like

Trump Club versus Stitch Fix, which is the better one and all this type of stuff. And I think Stitch Fix is a better business stronger, bigger than Trump Club at this point. But you know, Stitch Fix, I'm just looking at my screen is valued at $3.5 billion. And all of Nordstrom's is valued at like $5 billion. And, you know, Trump Club has some value. And I do think there are synergies between Trump Club and Nordstrom's and there's optionality there. So like how do you, Trump Club, could you talk to me about Nordstrom's owned it for over five years now? I think they've reimagined a few times and they've started. ingratiating their stores. How do you look at that ingratiation? What are they trying to do there? Yeah, you know, that's a good question. I probably don't have as much insight there as maybe you do. But, you know, again, yeah, I mean, you can look at Stitch Fix and their growth. I mean, it's hard to know kind of what the value is for Nordstrom since they don't really, you know, break out trunk club secondly and to kind of be able to value it on par with what Stitch Fix is doing. But, you know, again, I mean, Stich Fix tells you there is, there is appetite for for that kind of offering and um you know again with northstrom having you know customer relationships and and a convenience factor with the storefronts you think there should

be some advantage there for northstrom relative to uh to stitch fix but again the question is kind of how do you how do you realize the value out of that you know how to get wall street to to appreciate kind of an asset that may have may have some value and and maybe at some point they do um you know break it out or give more call around kind of the revenue or earnings potential just to maybe get people to value it, assuming there is some momentum there. Yeah, I just think it like, you know, they've got 13 million Nordstrom's Club members. You get a lot of data with that membership and you've got the Trump Club. And it seems like that is the basis for a really powerful, like, potential offering where,

you know, Stitch Fix's whole thing is you select you like blue shirts by this brand. They can use that to trigger like, here's all of other things we're going to start sending you subscription product. It seems like trunk club's got a lot of that data already there, but through Trump Club and their members and through, hey, Stanford shops and buys this shirt, here's 10 other guys who shop and buy this shirt. Here's 10 other things that those people buy. It seems they've got the basis of a really powerful recommendation engine behind that. Obviously, that's not a subscription business, which is what trunk club and stitch fix, but you could see the parallels on how maybe trunk club could even have advantages over Stitch Fix.

though I suppose that also comes down to a little bit of an execution and everything. Yeah. Anything else on Norshroom that you're really excited about that you think we should be talking about here? You know, I think we hit on a lot of it. I guess, you know, the digital piece of the business, I guess that's a big, you know, big opportunity going forward. We'll see, you know, 60% of their sales were digital last quarter. I'd love to see them kind of execute and hopefully get up to kind of more industry type growth rates there. I think they've definitely invested in it.

And, you know, again, the buy-on-line pickup and store has done well. You know, as I'd mentioned, it's interesting. You know, the Bed Bath & Beyond CEO worked at Nordstrom until 2009 and, you know, took over Bed Bath and Beyond a couple years ago. and they just reported their first positive same-store sales in four or five years. The buy-on-line pickup and store is doing really well. And so hopefully there's, you know, there's some learnings there that, you know, he joined the Bedbath and Beyond CEO joined the Nordstrom board in April. So hopefully, you know, again, with, you know, the digital and the buy-on-line pick-up in store doing well,

hopefully the execution there gets better. The other point I would make is just on kind of the setup here of moving, you know, they move the anniversary sale from the second quarter into the third quarter, which is a pretty big event every year. So I think naturally depressed the sales in the second quarter and pushed them into the third quarter. So you should be set up for, you know, a better third quarter than second quarter. And bearing in mind, they still generated, you know, positive free cash flow in the second quarter despite that. So August, you know, the anniversary sale went into August.

They were at a conference, you know, mid-September saying it was the best sell-through they've ever had. So that's positive. I think, you know, you definitely, margins should be good. Inventory level should be clean. I don't know how much inventory they had going into that anniversary sale. But to say it's the best sell through ever, you know, again, in 100 years or I don't know how long they've been doing the sale. But that's a good, I think that's a good sign. And then, you know, again, looking at just.

some of the competitors, some of the data points that people have been talking about. I think, you know, September and, you know, so far in October have been pretty positive for most other retailers. I would say one, you know, there's one data point that stood out to me, which was, you know, the buckle. I don't think anybody follows that company anymore, but they have 460 stores and they report their sales monthly. And they, their same store sales were up 23% in September, and that's, you know, mainly physical locations, 460 stores, mainly in the mall, I think 40% private label, 60% branded stuff. So that's, I mean, that's a huge month. And I don't think anybody's really, really talking about it.

And even, I think August was up, you know, 2% or something similar. And so, but, you know, you talk like, you know, Capri and some of these vendors, Crocs and some other vendors at Northern Nordstrom have had, you have talked about improving sales. and, you know, Tiffany last week had good, good commentary despite tourism being tough. And so, you know, I think there's a lot of reasons to think the third quarter could be okay. And then, you know, fourth quarter will see and maybe get more in a normalized environment next year when, if there is a vaccine. But, yeah, it seems like, you know, maybe the top line is okay. And it's definitely not priced like things are okay. I mean, it's price like things are terrible, but a decent top line.

paired with some cost cuts on the bottom line. And I think the setup's interesting. And then the other thing we didn't talk about is just the change in management compensation, right? I mean, management kind of had an incentive to kind of kitchen sink the last quarter because they traded the restricted stock for options that priced two days after last earnings call. So they had an incentive to, you know, maybe not say as much positive on the last quarterly earnings call. but, you know, take away there as a whole management team based now. And I think their exercise price is close to $15.

So that's even above, you know, where the stock is now. And, um, hey, Stanford, I think you're cutting in and out here a little bit. See, yeah, we kind of lost volume. Oh, okay. There we go. Okay. Can you hear me? Yep, I can hear you.

Okay. Okay. Yeah. So, yeah, I was just saying that, you know, that's an interesting tell for management to change their compensation that way to get a little bit more, more equity upside. Yeah, I think my main man, Mike from Nongap, and he was our third or fourth podcast. Everyone can list that. I think he was the first one who identified that. I believe it's called bullet dodging, where our stocks at 20, we think earnings are going to be awful. we set our options to price after we report the awful earnings so that we get a really low stock price and the stock shoots up. No, I agree. You know, I, A, I want to go back to what you said about the buckle. You know, obviously that's end of one, but I haven't heard anyone mention that, which is, you know, I think that's all physical retail is, is where their sales are from.

I don't believe that. Yeah, it's definitely most of it. I'm not sure if they have a much of online presence, but yeah, it's mainly physical. But I'm with, you know, Tiffany's, I followed that one pretty closely. And I mean, their earnings, like New York City is basically shut down. New York City is a pretty good piece of their earnings. And their same store sales were like way up year over year, not month over month, like year over year.

That's a pretty good sign. And obviously all of these are a little bit different than Nordstrom's. But I do, you know, tell me if I'm wrong, war on this. When I look at Nordstrom's, what I see is something that's very cheap. And I think the moment you start getting like the COVID clear signs, I think that's, maybe it's next month, maybe it's a year from now. But I think that's when the stock really responds. And I see a great management.

team that's uh you know the capital allocation i think will really benefit the stock we haven't even talked about that but i think that really benefit the stock when trends kind of get clear that's how i look at it do you do you think that's a decent way to put it no i'm with you i think um you know it's definitely i you know good management that's that's aligned with you know with the minority shareholders and and high insider ownership and a great brand that's treated their customers right for a hundred years and has endured that and has great, you know, brand relationships. And, you know, I think that's all positive. And then, yeah, you come out of this with a lot less competition as a lot of their, you know, competitors have closed stores and not only department stores, but specialty

retailers and everything else. And so, you know, I think Nordstrom survives. They have a loyal customer base and, you know, a cost base that's that's much lower than it was last year. And potential for for big you know earnings upside just one thing on the good management and then we'll go to toss shop you know one thing i i have been thinking about is management tried to take this company i'll say private twice right uh two or three years ago they tried to buy out the whole company for fifty dollars per share uh about a year ago they tried to not buy it out but increase their ownership stake from about a third of shares the 50 percent of shares they tried to get the board's approval they were going to do that in the low to mid 30s i think uh yeah they eventually dropped that

And then just last month or two months ago, they saw that their Q2 earnings were probably going to be poor and they restructured their restricted stock to, as we talked about, to bullet dodge and get this, and get stock options price at a low price. So the last thing I want to ask you about is this management team, and I agree, I think they've been pretty good stewards, they've been interested in increasing value. But when I look at those three things, it actually speaks more to a management team in a family that's interested in kind of creating value for themselves, maybe the minority shareholders. How do you think about that or do you think I'm just kind of like overreeding into kind of idiosyncratic things? Yeah, you know, that could be right. I guess hard to say, but if you look at their compensation, right, I mean, they kind of have an RIC hurdle that they have to meet and then it's basically all based off of EBIT. So, you know, management is, I think, most incentivized on, on EBIT, which, you know, if they have, if they, if they grow their EBIT, that's going to benefit all. shareholders, right? And I, um, so that's, you know, that's one thing. Um, and then, yeah,

taking a, taking a private, I don't know. I mean, that's, yeah, maybe they, I don't know. That's hard to say. I think most shareholders would have been happy if they would have taken a private at 50 bucks looking back and, um, you know, again in the 30s. Um, but, uh, you know, I don't know. They've, they've always paid a dividend. they bought the share back, you know, bought shares back pretty, pretty consistently. And so maybe they're more looking out for themselves, but it does seem like they, they do kind of concern themselves with minority shareholders as well. So we'll see. But, you know, I think, yeah, and just to kind of piggyback on what you're saying earlier, I mean, there's a bunch of stuff.

I mean, I'd love to see an insider buy stock, you know, a board member or insider actually just at these prices, you know, step up and buy some stock. I think that would be a big tell and nice catalyst. And, you know, maybe there's something going on behind the scenes. They can't do it. But they also mentioned they're doing an analyst day on the last call. I don't know when that is. I don't think it's on the schedule. But if they're, you know, going to host an investor day in the next couple months, I think that's an opportunity there to maybe give more transparency around some of the things you were talking about earlier. And that's usually a sign they have at least something positive to talk about if they're going to do an investor day. And then,

And, yeah, I mean, you have, you know, if you get a vaccine, people feel more comfortable going out to shop and then they have more reasons to buy apparel and buy some of these categories at Nortch themselves, right? I mean, if you're going out to dinner more and going back to work a little bit more than maybe do need some new clothes and sort of some pent-up demand there. So we'll see. I think there's a lot of stuff that could happen that would be positive. And, you know, they could even just reinstate the dividend or, you know, buy shares back or. or, you know, pay down some debt, whatever. Yeah. No, that's one of the things I like.

I think they've been pretty clear capital allocation on pause, but when things return, they're going to go back to their old capital allocation, which I think it's like a third of the cash flow is dividended out, and then most of the rest is returned through share repurchase. And if you think they're getting back to a billion dollars in EBDA, and they're going to, you know, dividend out a third of the earnings after the capax and interest and all that and buy back two thirds,

at these levels like, oh, my God, I'm getting all my money back in several years. So, yeah, that's interesting. Let's move on to tile shop, you know, spend five minutes there. I call this Finchwitt's favorite microkept retailer. You know, I think I put on Twitter, we were going to talk about Nordstrom's a $5 billion retailer and tile shop a, you know, $100 million retailer and all the questions were on tile shop. So I'm somewhat familiar of it, but maybe just, you know, two seconds.

What is tile shop? Why is Finchwit so bullish on the tile shop? Yeah, it's a good question. I, you know, I didn't realize it was Finnowitz's favorite company, but that's interesting. Interesting. But yeah, history is, you know, it's been around since 1985, started by Bob Rucker, who was the founder. And it went public in 2012. And it was kind of a Wall Street, you know, darling when it went public and, you know, kind of unique retail format. And they, you know, they sell hard flooring. And that was in. And then there was, you know, there was a big short report.

And I, you know, I'd cover this company pretty closely back then. But there was a short report about some insider relationships, the CEO's brother-in-law was getting kickbacks from a tile vendor and just a bunch of crazy stuff. And then the execution was poor and stock just got crushed and was kind of left for dead. Some management turnover and not great execution. And like I said, I had followed it and I just kind of, I wasn't, I wasn't that close to it. And then I saw, you know, last month, B. Riley, which is a company I follow closely. Yeah, same here. Same here. But, you know, they filed a 13D and I think initially bought, you know, over 5%.

And then they filed a couple 13, you know, D amendments since then are up to 8% ownership. And so that piqued my interest just because I, you know, wonder what they were seeing. And then obviously just from following all the kind of home-related, you know, Home Depot and Lowe's and home improvement companies and home retailers, furnishings, all those companies are doing really well. I mean, it seems like housing's got the obvious tailwinds of people wanting more space and, you know, get out of the cities where you're taking public transportation and elevators and all of stuff.

So anyway, I knew housing was good. So, you know, I looked into it. And this is another one where same kind of scenario as Nordstrom where second quarter, probably the worst possible quarter, sales are down 25%. But they still generated $8 million of EBITDA and like $17 million of free cash flow. Um, so I, you know, I like that if it, if you go through that stress test and you prove that, you know, you acted, they acted, the management team was able to act nimbly and, um, and still generate cash in, in the worst possible quarter. And then looking forward as you look at kind of existing home sales and everything else, they're key metrics. And then what these other retailers are saying, you think that third quarter should be substantially better, um, than the second quarter. Um, and then, you know, even annulizing and depressed, you know, ebit, you know, level from second quarter, the stocks really cheap, especially compared to floor and decor, lumber liquidators or some of the other publicly traded comps.

And then, you know, there was a crazy event last year. I don't know if you don't want to go into it, but they, you know, they proactively delisted at the end of, I think it was October 2019. The, you know, the board of management decided delist, stop the share buyback, stopped the dividend, stock got crushed, who was down, you know, in the ones. And then the two big holders who were on the board, you know, they bought, you know, as aggressively as they could from like the day after that until maybe it was four or five weeks. They were buying aggressively both increased their ownership quite a bit. And then a shareholder lawsuit was filed, which

prevented them from continuing to buy. But, I mean, just an interesting dynamic that they obviously saw the value there and wanted to own a lot more, which, you know, as I look back on that, that's a pretty good sign. And then, you know, fast forward, that shareholder lawsuit was just settled actually a couple days ago. But that's positive. That's out of the way. You know, the insider, those insiders are prevented from buying stock in the open market, I think, for three years. So they don't have the same incentive to try and, you know, crush the stock again. So they could could add to their holdings. And then some of the court documents show that they,

you know, they were just trying to fix the business up so they could, could sell it. And, you know, again, it's a, it's a, it's a good business with,

you know, 140 stores that have a unique concept and in the right place, the right tailwinds. You got a lot of insider ownership that, you know, two board members own 30% between the two of them. And then that founder who's no longer on the board, but he owns 10%. B. Riley now owns 8%.

I mean, B.I. is, I think, a pretty strategic investor. So you've got a lot of insider ownership and, you know, a cheap stock with good tailwinds. And correct. So I know the chairman, Peter Keman, who's got a long, long history with microcut value investors. Yeah. The court, as you said, said, hey, look, he took this private with the goal. And he admitted this in court, right? Like, with the goal of, we're going to spruce this up and sell it a year or two, three down the line or something. When I say, hey, we're going to spruce this up and sell it a year, two, three, three down the line. Today, the share price is $3.40 per share. What does this look like in a sale? You know, that's a good question. I think, you know, it depends.

You know, floor and decor trades at 25 times EBITDA, right? So, I mean, if you bought, if you bought this company for 10 times EBITDA, 12 times EBITDA, there's quite a lot of synergies there. And you take out, you know, public company costs on a small company and some other synergies. I mean, Tile Shop put in a ERP system at the beginning of 2019, which kind of led to some hiccups, I think, with the retail experience. So maybe there's some synergies there with a bigger company that could just improve the systems. But, yeah, I don't, I mean, who knows what this might be worth to some. I mean, you could buy some Imitah on the chief. You could buy a decent brand.

and some retail know-how, some vendor relationships, or, you know, just private equity doesn't make sense just to buy some cash flow. Hard to say. There's probably a lot of potential outcome there. You mentioned B. Riley, who I follow quite closely as well. You mentioned them coming in here and you called them a strategic investor. So, you know, I do think they have the potential to be a strategic investor, but B. Riley, you know, it's FBR Riley. They are an investment bank, trading shop, research firm, all that type of stuff. In what ways do you think they could be a strategic investor? Yeah, got it. Sorry, and that's what I forgot to mention on your list of potential acquires there. I mean, B. Riley's worked with the FRG franchise group who's, you know,

acquired Vitamin Shop and Sears Outlet and some other kind of retailers that, you know, may look to to franchise those locations. And so I guess that could be another potential acquire that would make sense. And B. Riley's worked closely with those guys. So it's interesting to see, you know, B. Riley take that stake. But yeah, you know, I mean, Brian Riley, who's the CEO of B. Riley, is on the board of another company that does, you know, works mainly with homebuilders doing, you know, flooring in cabinets and then also does a lot of countertops for remodel

and that sort of thing. So I think he's got pretty good insights into, you know, into what's going on with home improvement. So that's interesting. And then, you know, B. Riley, you know, as a bank and on the sell side covers, you know, housing and a lot of the, you know, a lot of the vendors. And so they could pick up coverage at Tile Shop or, again, could have some insights there, which are interesting. So, you know, there's that aspect. And then there's also just the downside protection that comes with now B. Riley. you know, I think the tile shop balance sheets in pretty good shape, but should they need to raise capital or do anything else, hopefully B. Riley would be a good partner to help on that front, just again, a little bit more downside protection if they need to raise capital. So I think those are, you know, those are some ways that'd be really strategic.

Perfect. Well, hey, Stanford, I want to be cognizant of your time. You're the first person we've got to cover two ideas on one podcast. Yeah, so I think it might have been a little bit more to the talk title shop. But look, this has been a ton of fun. I'm going to be sure, you know, I said at the beginning, I've really enjoyed rational research. I hope everybody signs up and gives it a chance. It's been a really value-ad subscription for me. The price is free, so it's tough not to be value-ad on that. But this has been great.

And, you know, I hope a year from now, we have you on, and we're talking about Nordstrom's returning to 2019 earnings level, tile, and we'll just have a new idea to talk about. I appreciate it. Thanks, Andrew. I appreciate you having me on. it was fun. Have a good one, man. You too. Thank you.