B (5:47)

That's right. We're going to start by getting into the zone, the earnings zone. AutoZone ticker AZO on the New York Stock Exchange with a market cap of $58 billion. Yeah, shares were down as much as 8% today with a Barron's headline pointing out that it was today's worst performer on the S&P 500. And to the earnings, the revenue of $4.6 billion was up 8.2% year over year, but fell short of estimates. Earnings of $31.04 a share also missed estimates. And operating profit of $784 million was down year over year.

A (6:22)

So interesting, isn't it, that having revenue up 8% year over year for a lot of companies that actually that would be a real win and you'd be taking a victory lap. And also the, that magic metric in retail that we often talk about is same store sales. That's really for the same four walls that have been open for a while. Truly like, for like growth was pretty good here as well for autozone. Six straight quarter growth in same store sales up five and a half percent across both domestic and international strong sales. You know, you sort of ask yourself, well what's the market's problem?

B (6:53)

Right.

A (6:53)

But it really is the fact that this was the sixth straight earnings miss for autozone. So when I look at that symmetry, it's telling us that they've figured out what to do on the top line, but they're not translating it into gains in profit margin and they are having to invest in growth here. Which means that some of the hit to margin you expect to come back over time, but the market's perhaps not as confident in the ability to regroup, to recoup it. The other thing here, which we've got to talk about, tariffs, this industry really is feeling the tariff impact. Yes.

B (7:23)

And this company and all the others have been saying over the last several months that they have been increasing prices because of tariffs. They've been passing that cost along to the consumer.

A (7:32)

This is one where we took a step back, right, John, and we were looking at this and going this one to me feels like an undercovered story because we think about the number of auto owners in the United States is, is massive. Right. This is a large installed base of cars that is the addressable market for AutoZone and competitors like O'Reilly Automotive and Advanced Auto Parts. Going to come back to those in a moment. But just to give you the sheer sense of the size of this business, AutoZone already has 6,666 stores in the United States. It opened 39 new ones in the US in the last quarter. So it's got a pretty robust pace of opening up new doors. And it's also international. It's got a total international store count of over 7700, which is pretty meaningful. So here we've got a company that doesn't seem to get as much coverage as some of the other big retail players that we talk about.

B (8:25)

That's right. And they're expanding. That's part of the whole plan. Phil Danielle, president and CEO, said we plan to aggressively open stores over the remainder of the fiscal year as we continue to focus on getting market share.

A (8:37)

And I think that really is the key to it just to go back to the top again. We saw shares down as much as 8% today. Yes. Because of that earnings miss. Although you've got to ask, when you miss earnings expectations for six straight quarters, is it the company's outlook that's squirrely or is it just the analyst community not getting their projections quite right? So we can put that on pause for a moment. The key to this is the CEO saying our focus on gaining market share, which does explain some of the performance of some of the big competitors. So O'Reilly Automotive market cap $80 billion, six and a half thousand locations in North America. Advanced Auto Parts, also publicly traded. It's going through a restructuring. It's about two and a half years in now to a turnaround market cap much smaller, $3 billion, but a lot of locations again, 4,300. Both O'Reilly and Advanced Auto Parts saw their shares down today. O'Reilly by 4%, Advanced by 7%. Again, Autozone Zone down by 8%. And yes, it's the tariffs. But again, when you got the big player saying we're going to focus on gaining market share, that's not great news for the industry. That sort of saying there's a fixed amount of pie and we're just going to open more stores to make sure that our share of that piece accretes to us more aggressive.

B (9:54)

And we talked about this and I think it's a lot of car owners want to buy their auto parts in person. That's you know, I looked through the earnings report. There was never a mention of we're going to go direct to consumer or we're opening up our E commerce, something like that. They're just saying more stores, more locations, more areas down the block.

A (10:12)

That DIY element is really important and you do sort of see it. Let's take Home Depot for example. When it comes to deal DIY in your homes, they have a robust E commerce business. They've also got a professional line where they're trying to build out their B2B. But when you talk to executives at Home Depot, they do talk a lot about the experience. Now we've talked a lot on the show about experiences like going to Dick's Sporting Goods and using the batting cages or using the climbing walls. This is a different kind of experience which is really seeking out expertise and really feeling that you've got someone in the form of the store associate human being where you can go to them and say of the abundance of choice with the SKUs available here, which one do I go with? What's your expert opinion? I feel like this, I could go order, you know, screwdrivers and hammers online and I don't, I go to my local Ace Hardware store because I want someone to say no, this is the right, this is the right one for you.

B (10:58)

Sure. Exactly. And I've had that experience going to AutoZone in the past.

A (11:02)

There you go. I mean I can totally see you, by the way, producer John in autozone browsing around chatting up one of the store associates trying to get their take on something. Well, look, AutoZone stock is up 8% year to date. That is despite the down, the downdraft that we saw in the stock price today. Up 205% over the past five years. So again, not been a great 2025 in terms of the actual earnings results, but the stock still holding up pretty well. Let's switch gears, pun intended, and talk about McMansions. Yes, that's what Toll Brothers and McMansions which by the way, when I first moved to America people kept referring to these McMansion things and I had absolutely no idea what they were talking about. But I feel as though you sort of grew up seeing them pop up all over the place.

B (11:44)

Oh absolutely. Grew up Outside of Washington D.C. in Virginia, Fairfax county, which is now where all the data centers are.

A (11:50)

Interesting.

B (11:50)

And at the time there was money coming in, just McMansions popping up like mushrooms overnight.

A (11:56)

That's what happens when you have land, you know, you've got lands and developers. And I just didn't see that growing up at all. I just felt like, you know, London just had this installed base of ancient homes and you just hope the plumbing was working. That's sort of my experience.

B (12:08)

This was kick out the cows and put in a big house ticker to L on the New York Stock Exchange for Toll Brothers market cap of $13 billion and year to date, the shares are up 8%. Over the last five years, shares are up 200%. But today the stock was down 4% before the training started and then inched back up throughout the day, but finished down about 2%.

A (12:31)

Didn't quite decide what it wanted to do, but the company reported something very interesting. I just want to sort of set the stage stage a little bit. There's been a lot of debate around the state of the housing market, right? Is it a buyer's market, is it a seller's market? Is there demand? Despite the fact that interest rates and as a result mortgage interest rates have been so high, despite the fact that consumers have been squeezed, the disposable income and as the savings rate doesn't seem to have picked up, is there nevertheless demand for purchasing a home? Have people saved up their deposits and are they able to do it? And this is what really jumped out at me in this Toll Brothers earnings. They were pretty explicit that the market has been soft. Yes, they explicitly said, and I'm just going to find the quotation here. The Toll Brothers chief financial officer said given soft demand, this is a quotation across many markets. We remain focused on running our business in a disciplined manner. So they want to execute, but they're saying that the external stimulus isn't really there. Now the company reported home sales revenue of 3, $3.4 billion. That's off of 3, 400 units. So pretty simple arithmetic here. On average these new homes are being sold for just under a million dollars each. And I want to talk about that because Toll Brothers does, does position itself as luxury. But it does put into perspective some of these statistics we've been hearing about. The average age of the first time home home buyer is now up at 40 years old. I mean this is a big ticket for, for, for someone for first time home, right?

B (13:58)

Exactly. And so they're saying there is some softness, but they're also pointing out that they think they're in a unique position in the luxury business. Douglas Yearly, the chairman and CEO said on the call today our fourth quarter and full year results demonstrate that our luxury business is differentiated as we serve a more affluent customer. Who is less impacted by the affordability pressures. And so there's that K shaped economy where Toll Brothers CEO is saying, don't worry too much about us. There's a, there's a soft forecast, but we're still selling to high income folks.

A (14:31)

Yeah, some confidence that there's still a base of resilience there. One thing that was also interesting is there was some, some context for the earnings miss which relates to M and A activity or the lack thereof or the lack of closing on it. Back in September, Toll Brothers had announced it was planning to completely exit the multifamily business. So to focus on building single family homes. And as a result, Toll Brothers announced it was selling a chunk of its multifamily portfolio to the real estate company Kennedy Wilson for $347 million, which included apartments and even student housing. That sale actually had to be delayed until next year. So as a result, the cash coming in didn't do so on time. But the idea is the company wants to use the proceeds from these sales to fund again building more single home property. So Dolbro Toll Brothers picking its spot not only in the luxury end of the market, but also making it very clear that they want to be in the single home business.

B (15:23)

So because they were also managing those apartments and those complexes. And so it's just a whole big part of the, of the company that they're getting rid of so they can focus on having money to build these single family.

A (15:34)

Very different skill set to actually being the service provider and one that's fraught with litigation and complexity. So the idea that Toll Brothers wants to stick to its knitting makes a ton of sense. This one isn't necessarily a bellwether for real estate, but it's just point that there are signs of confidence that the market is going to come back to a slightly more robust, higher velocity set of circumstances. Summer data from the national association of Realtors showed that sales of homes priced above a million dollars were up 7% over the previous year compared to a measly under 1% increase across the board. And this reminded me of the conversation I had with the CEO of Caldwell Banker Realty a couple of weeks ago. Caldwell again focused a little bit more on that luxury market. And she had said, no, we're actually seeing a decent amount of activity and we're just getting more optimistic as the, as the horizon expands to include potential rate cuts, including which I'm going to come back to the rate decision we're expecting this week from the Fed. Well, we're going to Keep on watching. This one toll did see say that it sees between 10,300 and 10,700 homes being delivered next year coming in below the average analyst estimate. Again, a little bit of softness but overall they're saying we think it could get better. As as again, this interest rate activity becomes clearer. We're going to take a quick break and when we come back, Pfizer is going international in its quest for a weight loss pill. And now a word from our sponsor, Vanguard Financial Advisors. Listen up. Capturing value and fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard.

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B (17:44)

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A (18:14)

4Pm on the east Coast. There it is, the bell indicating the market's closing. Wrapping up for the day. We don't have a ticker tape, but we'll throw it over to our human ticker, our producer John that's right, The.

B (18:24)

S&P 500 finished down a tenth of a percent, the NASDAQ finished up a tenth of a percent and the Dow was down 410 of a percent on the day.

A (18:32)

So pretty flattish overall in the markets. Of course we are eagerly anticipating what happens with the Fed. A meeting starting tomorrow. Fed rate decision due out on Wednesday. But despite the flattishness today we saw a couple of folks make real moves, starting with CVS jumped 3% today on the back of its analyst investor day, which was filled with pretty good news for shareholders. Revenue guidance for the whole of CVS for the year was boosted by $3 billion to hit at least 4,400 billion in sales for 2025 earnings per share, guided to mid teens annual growth through 2028. I've got to tell you, John, I have up in front of me at the moment, I've got it on my computer. The Investor Day presentation that CVS issued, I got to tell you, it's incredibly, incredibly dense. But there are a couple of interesting nuggets in there. They talked about integrating Oak Street. That was a big acquisition that they'd done. They talked about leaning into Medicare because they just see the outlook, but what a high proportion of Americans ultimately will be dependent upon Medicare. And they talked about faster in their pharmacy services. So this is one very much a play to do with diversification. Lots of different business lines and you can tell it's a really long presentation. I had to really sort of print it out, get a strong cup of coffee and wade my way through it for everybody.

B (19:45)

Did they keep the presentation behind Lucite and you had to ring a bell to be able to read it?

A (19:48)

Yeah, like every other experience we have in cvs. No, this one was easily accessible. It was downloadable. The Lucite things are driving me bananas. It's so painful. They need to do something about that. Yeah.

B (19:59)

All right. And then over to Campbell's, which recently was hit by the release of a recording of a now former IT executive saying that the company makes, quote, highly processed food for poor people. Well, Campbell saw its stock drop today over three and a half percent on the back of weak earnings.

A (20:13)

I dug into this one. I printed out the earnings report and I was just searching for some glimmers of hope. I got to tell you, this one was pretty replete with bad news. Net sales are down 3% overall, if you looked at the different categories they compete in, meals and beverages. Saw weakness across the major brands. Snacks, all those delicious household names. Schneider's of Hanover, Pretzels, Goldfish crackers, all pretty much down, too. And then adjusted ebit, which is a measure of profit, was down a pretty hefty 11%, hitting just over $380 million for the quarter. So it was pretty rough news, except there was one sort of bright spot.

B (20:48)

That's right. The one limited bright spot was growth in Rao's, the pasta sauce brand. Campbell's doubling down there with an agreement to buy 49 La Regina, which actually produces Rao's.

A (20:59)

It's so funny. So John has written out Rao's phonetically and the reason he's done this is when we talked about this brand in the past, I kept calling it Raoz. And Dan Bowser, one of our producer who's a proudly Italian, was like, anne, you gotta stop saying that. It's Rao's. So thank you for the phonetic spelling it out properly for both of us. For both of you. But Campbell's, which already owned the brand, Rao's vertically integrating the supply chain here by buying its 49% stake in its producer. Very interesting move. I thought it is very difficult in food right now. We're seeing a lot of consolidation. We've talked a lot about that on this show. We're seeing consolidating to break up as we see the food companies really trying to split themselves into places where they have either a real superpower, a real competitive edge, or splitting out the lower growth categories and brands from the higher growth categories and brands. So Campbell's is one that hasn't actually made a major move yet. So really watching this one to see if it's forced to do something strategic, including some acquisitions or divestitures. And finally, we're going to touch on Pfizer, which clearly just really, really, really wants oral treatments for obesity. Now, we remember that the pharmaceutical giant market cap, $145 billion, agreed to pony up 10 billion bucks for the nascent obesity treatment biotech company Metcera last month after the most incredible bidding war in against Novo Nordisk. That is how badly they want to go and diversify away from injections to actually having oral treatments.

B (22:29)

Well, today Pfizer said it has struck up to $2.1 billion licensing deal with China's Yao Pharma to develop and commercialize its obesity pill with an upfront payment of $150 million, followed by up to nearly $2 billion in milestone payments, plus tiered royalties on sales if that drug is approved.

A (22:47)

Now, Yao Pharma's drug targets the Same gut hormone GLP1, as Pfizer's arch rival, Novo's blockbuster weight loss injection, Wegovy. But the pill is still in really early stage development. It could literally take years to reach patients, if at all. So Pfizer stock ticked down slightly on the news. Investors really must be wondering at this moment how much more Pfizer is going to spend going after this and when the return is actually going to come. Really interesting space. The GLP one's constantly moving. Well, that's it, folks. We are actually putting on some coffee. There are some more earnings to come. We're getting ready for the next couple of Fed days that's it. Meanwhile, for today, it's Brew Markets Daily.

B (23:23)

Brew Markets Daily is hosted by Anne Barry and produced by Jon Crateau, Tarkip Delatif and Emily Milian. Technical direction by Lonnie Fiskis. Jim Orzo is our audio engineer and the president of Morning Brew, Inc. Is Devin Emery. We'd love to hear from you. If you have any feedback, a company you'd like to hear us cover, send an email or Voice memo to brewmarketshoworning.

A (23:40)

Brew.Com Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.

B (24:00)

And Doug, here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug.

A (24:16)

Uh, Limu is that guy with the binoculars watching us?

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Cut the camera. They see us. Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings Fairy, underwritten by Liberty Mutual Insurance Company and affiliates.

A (24:27)

Excludes Massachusetts.