Loading summary
Transcript33 lines
- [00:00]
Mark Riepe
This episode is brought to you by Charles Schwab Timing the Market, Fighting inflation, Managing risk Financial decisions can be tricky. Investing isn't just math, it's psychology. Your neurons are playing favorites and the market doesn't care. Financial Decoder, an original podcast from Charles Schwab, can help join host Mark Riepe as he breaks down practical strategies to help overcome the mental traps that may affect your investing decisions. Listen@schwab.com FinancialDecoder
- [00:31]
Anne Barry
TJ Maxx and Marshalls the off price retailers are still attracting treasure hunters. We have their latest earnings Carver as the Mediterranean fast casual chain cooks up a comeback, we look at what's on the turnaround menu and I'm just back from a jam packed couple of days in Mexico City, including sitting down with Authentic Brands Group's Jamie Salter for one of his final interviews as CEO. I bring you the highlights from the World Department Store Summit for Wednesday, May 20th. It's Brew Markets daily and I'm Anberry. More market details to come. But first, Mexico City, a vibrant destination for art, for food and soon for FIFA World cup soccer matches. But this week it's where over 300 of the CEOs and top executives of the globe's biggest department store chains gathered to swap notes on the state of retail. That's for the World Department Store Summit with the representatives representing more than $43 billion of annual revenue and where I spent the whole of yesterday MCing and interviewing some of the big name guests, including founder of Authentic Brands Group Jamie Salter, in what turns out to have been one of his last interviews, CEO because today he announced that he's becoming Executive chair. More of that in just a moment. But what Salter has built since founding authentic brands in 2010 is really quite something. The company buys global brands often when there is an operating issue to resolve while the brand itself remains intact and then monetizes their intellectual property in an almost ruthlessly commercial fashion. Whether it's taking the Elvis Presley IP and getting the movie epic made, turning David Beckham's IP into a Netflix documentary series, or launching experiences like Shaq o' Neill's Shaq's Fun House or Sports Illustrated branded residences in markets where college sports dominate, or even like last month, launching the Eddie Bauer Adventure Club, a 39 suite lodge in Moab, Utah, created in partnership with Travel and Leisure, the 4 billion dollar market cap hospitality business. All of this and more in the name of pushing brand awareness and therefore product sales for these brands. Not to mention nearly a billion social media followers across The Authentic Brands portfolio reflecting a relentless focus on digital content and return on investment. Well over 50 brand acquisitions and $38 billion and more in annual revenue later at healthy and I mean very healthy margins. Authentic Brands has proven to be a winner in a largely tumultuous retail environment. An important supplier to the department store sector. It's proven that retail has to be a flywheel of sports, media, lifestyle and above all entertainment, whether online or in real life experiences in order to thrive. So when Jamie Salter speaks, the retail industry listens. And he had plenty to say on how the industry needs to up its game with creator led live shopping, something that China has really pioneered and how retail media can work. But scale is the name of the game and his view that top notch experiences inside retail destinations, whether that's malls or department stores need to be incredibly successful standalone like the best restaurant you could imagine. Not just loss makers that drive consumer traffic in the hope that those customers customers then go from that experience to buying product. Well, that conversation alone made my trip to Mexico City worthwhile. But there was even more. I took a fresh look at Gap, now pushing into beauty to get consumers repeat purchases right out the department store playbook. Hiring top design talent like Zac Posen for Gap and doubling down on licensing, entertainment and collaborations. So for example, the likes of Disney with Old Navy to drive its ongoing turnaround. Well, stock in the $8 billion apparel OG was actually up over 6% today. And that was partly on news that it has a new CEO for its brand Banana Republic arriving from overseeing the Calvin Klein and Tommy Hilfiger brands. Earnings for Gap are hotly anticipated for next week. And finally, of course another big topic of conversation completely top of mind for these retail CEOs. AI. Everyone had lots to say about it, but there was one quotation from one particular CEO that stuck with me. Most quote, we will compete for agents the way we compete for customers. That of course looking ahead to the time and we in fact may use agents to do purchases on our behalf. And these retailers will need to figure out how to make sure those AI agents go find them in order to recommend their product to us shoppers. One trend we're absolutely going to keep watching and we're eyes open to for a speculated ipo. Because I'm going back no to the fact that Jamie Salter has still step down from CEO to become executive chair, putting in place a CEO who may actually be perfect for what could be the next chapter of the business. Because Authentic Brands has been setting expectations that it may go public sometime in the next 12 months, putting in place a CEO with public company experience. Coming up in a moment, a spin through the headlines that are moving the markets today, including earnings out of Hasbro, Carver and lows. But first, this episode is brought to you by Charles Schwab. Timing the market, Fighting inflation, Balancing risk no one says financial decisions are easy. In fact, they can be tricky and often the forest in your head can lead you sideways. Financial decoder and original podcast from Charles Schwab can help.
- [06:09]
Mark Riepe
Join host Mark Re, head of the Schwab center for Financial Research, as he offers modern strategies to help combat the wait. What in your head like overconfidence, loss aversion and recency bias that may cloud your investing decisions? Listen@schwab.com financial decoder or wherever you get your podcasts.
- [06:27]
Anne Barry
While stocks have been broadly moving higher today as treasury yields and oil futures declined slightly, let's take a spin through some of the headlines that are moving the markets today. In addition to those macro factors like basically an outlook that includes thinking that there will be peace in the Middle east coming, leading to those commodity price changes and those treasury yields coming down.
- [06:47]
Mark Riepe
Well, let's start with an update from last year's slop bowl sell off that saw stock declines in many corporate lunch spots, including Cava ticker Cava. Well, shares in that Mediterranean fast casual chain jumped nearly 7% today after beating Wall street estimates. Revenue for the last quarter rose 32% year over year, driven in large part by the opening of 92 new restaurant locations.
- [07:10]
Anne Barry
The chain also saw a big increase in foot traffic with that magic metric. Same store sales up nearly 10% for the quarter. Well, analysts credited the lift to the launch of a new salmon menu in April and continued benefits from the tiered loyalty program that the company launched in October. This is a pretty dramatic turnaround, at least for the short term. Shares in Carver are up over 85% since that loyalty program was launched. The company also raised its full year guidance and plans to open up to 77 new restaurants over the course of this year. Well, sticking with earnings over now to home improvement. Looking at shares and Lowe's ticket low trading around a percent higher today after the retailer posted quarterly results that topped expectations, including a 10% jump in revenue year over year. Lowe's also saw a 15% growth in its online sales.
- [07:59]
Mark Riepe
Now much of that growth was in the company's pro division. And so for a glimpse into the state of the homeowner DIYer, I found the comments from Lowe's CEO to be very interesting. He said today that this is the most difficult housing market since the financial crisis that he has faced in this business, and he believes interest rates need to come down in order for consumers to have more flexibility with their home improvement projects. And notably, these comments come just days before Kevin Wash is to be sworn in at the Federal Reserve Chair. That's this Friday.
- [08:26]
Anne Barry
Keep on watching that on. Certainly all eyes on the Fed as we see what Walsh's opening moves are going to be. But over now to Hasbro, Shares of the toymaker ticker has fell over 7% after the company reported earnings and maintain conservative full year outlook. That's despite a jump in the first quarter profit and revenue driven by its digital and gaming segment where revenue rose 26%. While digital and gaming, which houses Magic the Gathering as well as Dungeons and Dragons, affectionately known here as dnd, continues to be the growth engine for Hasbro, the company reported that consumers, especially those from higher income households, haven't slowed down their purchases of the likes of trading cards and collectibles.
- [09:07]
Mark Riepe
And that's a story we've talked about. The Kidult environment that conservative outlook that seemed to spook investors is due in part to a cybersecurity attack on Hasbro earlier this year that the company is still dealing with. It's expected to cost $20 million in legal bills and remediation expenses, and that doesn't include another $60 million in delayed income from a temporary operational shutdown caused by that breach. Those costs haven't yet hit the books, but did delay the timing of its first quarter earnings results by about a month. Nonetheless, shares in hasbro are up 30%
- [09:38]
Anne Barry
year over year cause those digital assets having juicy margins. Part of the reason we've seen those shares up it was that mix shift and mix contribution shifting slightly. Well, let's take a quick break and when we come back we'll survey earnings from a fan favorite that's discount retailer TJ Maxx as well as its peer Marshalls. We'll take a look at why its stock is rallying this episode is brought to you by Charles Schwab Timing the market, hedging against inflation, Balancing Risk investing is about more than math. It takes both side of your brain and those confusing mental traps can sometimes lead you astray. Financial decoder and original podcast from Charles Schwab can help join host Mark Reape, head of the Schwab center for Financial Research, as he breaks down practical strategies to help outsmart the mental traps like overconfidence, loss aversion and recency bias that often Cloud your investing decisions. Listen@schwab.com financialdecoda or wherever you get your podcasts.
- [10:32]
Canva Advertiser
When you finally find your thing, you want the whole world to know about that thing. So you use a thing called Canva to make it an even bigger and better thing. Whether you want to create flyers for that thing, make presentations for that thing, or design merch for that thing, you can do anything so people can see your thing, feel your thing, love your thing. The next thing you know, it's a thing. Canva, the thing that makes anything a thing.
- [11:02]
Anne Barry
Well, there's a flurry of earnings results rolling in this week from one sector in particular, and that's retail. Home Depot, Lowe's and Target have already reported earnings results from Walmart, Williams, Sonoma and BJ's are coming later this week. Well, investors are looking hard, and I mean really hard at these results to try to get insight into the state of the US Consumer so specifically how they're reacting to inflation and to higher fuel prices. Well, this morning we got results from one specific sector of the retail market, and that's the off price segment or discounters. Tjx, the parent company of TJ Maxx, Marshalls and Home Goods, is the biggest player in the off price or discount space and reported particularly strong earnings, beating expectations and sending its stock price up 6%. So let's take a look at what's working at the retailer and what its CEO has said about TJX's customers. John, give us the numbers. Drum roll, please.
- [11:56]
Mark Riepe
It up the TJX companies ticker TJX on the New York Stock Exchange. The company has a market cap of $175 billion.
- [12:05]
Anne Barry
It's huge. Huge.
- [12:07]
Mark Riepe
The company has over 5,000 retail locations across 10 countries, but principally half of those, about 2,500 stores are in that TJ Maxx, Marshalls and Home Goods brand here in the U.S. that's the company's biggest segment for the quarter. Revenue of $14.3 billion was reported and that's up 9% year over year. Earnings per share of 1 DOL beat estimates by $0.17. And that magic metric, same store sales were up 6% and up across all divisions. All those brands saw increases and the company raised its full year. Guidance.
- [12:40]
Anne Barry
Well, let's just sort of frame what the category is. So you've got off price, which basically means you're getting brand name merchandise. So these are associated with being high quality, with being fashionable, but they're presented in these formats at great values and typically at a discount of somewhere between 20 and 60% versus full year equivalents at other kinds of retailers at regular prices. So what is sort of the value proposition here is this idea that you're getting value for money as the customer. But there's also a discovery element to this rapidly changing assortments. And what TJ Maxx sort of learned from the fast fashion OGs likes of H and M and Zara was if you can educate the customer to expect that the assortment in stores is going to change relatively frequently, they will keep coming back because they want discovery and they want the sense of adventure that comes from walking through those doors.
- [13:29]
Mark Riepe
Yes, treasure hunters, that's the thing. And I associate that with Costco. That's another part. I remember years ago, my dad saying if you see something at Costco, you like buy it because it won't be there the next time you go. And so it creates that bit of urgency that if you see something you're not going to hem and haw. You're like, I want those shoes, I'm going to get them. And I think that is working well. It's obviously different than Target for example, which has everyday essentials, discretionary goods. You're going to go there for the gallon of milk you know, is there or the scrunchie that you know you need. TJ Maxx and Marshalls, you never know.
- [14:01]
Anne Barry
That's right. Target, the sort of steady eddy, completely reliable TJ Maxx is kind of FOMO shopping is what I tend to call it. Well, the inventory strategy as a result, you know, reflects the very different approach to the customer value proposition that you see at these off price or discounted retailers. So the buyers, the merchandising teams at, at the TJ Maxx is the world can be opportunistic. Right. They're not held to the same forecasting standard that comes from trying to figure out at a Target or a Walmart what is it that custom want at a pretty predictable, on a pretty predictable timeline and a very regular cadence. So the buyers at the likes of TJ Maxx can buy a discount from manufacturers and brands they're driving to get margins down. They need to get those discounts to get deeper and deeper. But it does mean it's a little bit harder for them to do it in a programmatic fashion.
- [14:48]
Mark Riepe
Right. They're not having to do it programmatically.
- [14:51]
Anne Barry
Yeah.
- [14:52]
Mark Riepe
On the earnings call today, the CEO of TJX said that as the company expands globally, another advantage it has is, is with those sellers and that some brands are excited to get into the TJX world because as TJX is in 10 countries now, that brand is saying oh this is our opportunity to get into Mexico, for example, if we're not in Mexico yet or Spain, which is where TJX opened its newest locations. Now of course you don't always want to do that treasure hunt. You know, if I'm going to a wedding and I want a dress shirt, I'm going to go to a department store where I know I can get it reliably.
- [15:25]
Anne Barry
You need certainty. Exactly. Well, because of this dynamic inventory and as a result some of the uncertainty certainty to your point John, that comes with it, TJ Maxx does have less focus on E commerce. It just become a little bit too difficult for them to track and digitize and ship ever changing inventory. Something I suspect will change over time as AI gets more involved in demand planning and in supply chain management. But at least for the moment, for TJ Maxx and for Marshalls and the likes, E commerce hasn't been as core to their strategic growth as it has been for some other kinds of Steady Eddie retailers.
- [15:55]
Mark Riepe
And looking at their press release today, they don't even break out E Commerce as part of the revenue. And some expectations or estimates are that it's single digits of the revenue overall. I never even thought to go to marshalls/marshalls.com before today and I went on the website, it's pretty interesting. You know, I saw some of the inventory there that reflects what I see in the stores. But you go there, you I found a pair of shoes that I liked, added it to my my bag and the standard shipping takes about five to 10 days.
- [16:24]
Anne Barry
Right. So the value proposition very, very though clearly defined, that's that that was the main thing. And the reason I think why it's winning. Well if we take a look at what was said about the consumer, TJX's quarter ended so it did include two full months of higher fuel prices. And the punchline from the TJX CEO is that the company has quote seen no change in consumer behavior and quote, the second quarter is off to a good start. So lots of different consumer dynamics at play here. First of all, we know that shoppers love a good deal in almost any environment. Second of all, the rise in traffic at these discount retailers is consistent with what we'd heard from the likes of the Walmart team which is in the K shaped economy you're seeing consumers who've got more income still trade down or look for better deals. So the growth at TJX would sort of be consistent with that. So it's kind of an interesting moment in time for TJX sort of benefiting from lots of different sectors and lots of different demographics coming to them.
- [17:22]
Mark Riepe
For discovery it's benefiting. But also on the earnings call, the analysts that I listened to asked over and over again what are you seeing from the consumer. And the CEO said that the consumer has stayed the same that over looking at all the SKUs and brands that generally it's been the same. Specifically someone asked about that trading down and he said that he didn't see it in the most recent quarter. All right, so there's a twofold impact of gas prices. Of course we have the consumer that's paying more at the pump and might have less discretionary spending. But then of course there's an impact of diesel and shipping and getting these out. So the store is having their margins cut into by higher gas prices. And and part of the concern today was that TJX raised its sales and profitability guidance for the full year but not as much as it saw in the first quarter. The CEO saying that they priced in this higher fuel for the rest of the year. So saying that margins might be a little bit thinner throughout the year but if oil prices drop, if they have that stability in the Middle east and oil prices go down, like many people are forecasting, profits at TJX will increase on the back half of the year.
- [18:26]
Anne Barry
Well, just to round out here, Ernie Herman again CEO said quote sales pre tax, profit margin and earnings per share are all well above our plan. So it's a pretty strong way to kick off the year. We'll see what happens as the year continues to progress. Take a look at what's happening at competition. Shares up across the board today for that off price or discounted retail sector. Ross stores market cap $70 billion. Earnings are out this evening. Shares up 3% today. Shares up 22% year to date. And then Burlington stores market cap 20 billion. Shares up over 7% today. Roughly the same year to date. So shows that most of the year to date gain has been literally in the course of the last 24 hours. Shares in TJX up 6% today, up 4% year to date, up 18 year over year. And look, if there's just one thing that I bring home from all of this, we covered a lot but it's the sheer size of these businesses. So just again, TJX market cap $175 billion rostools 70 billion. You know we talk about the decline of retail, but you look at the scale of these businesses and you just have talk about it. Huge. Well, it's 4pm on the east Coast. There it is, the closing bell. The market's wrapping up for the day and we don't have a ticker tape. So instead we'll throw it over to our human ticker. As always, our producer John, and as
- [19:38]
Mark Riepe
you would say, and it's green across the screen.
- [19:41]
Anne Barry
All of the borrow that. I can't claim, I can't get credit for originating that. It's. It's out there.
- [19:46]
Mark Riepe
I'll reborrow it and point out The S&P 500 finished the day up 1%. The Dow finished up one and a quarter of a percent, and the Nasdaq finished the day up up one and a half percent.
- [19:58]
Anne Barry
So just a final thought, Nvidia earnings coming out literally right this second. We're going to hop off from recording now and go and get eyes on it. The most valuable company in the world, of course, and viewed as the bellwether for the AI complex. While investors will be watching to see if hyperscalers are still spending aggressively on AI infrastructure, we've seen those CapEx numbers come out from the buyers of Nvidia's chips. We'll see how much actually landed in this quarter and what that backlog looks like. We'll see if Nvidia thinks it can continue to meet the demand it has been enjoying. That's it for today's Brew Markets Daily.
- [20:29]
Mark Riepe
Brew Markets Daily is hosted by Anne Barry and produced by John Curto, Tarkab Delatif, Aveni Laroya and Emily Millarn. Our technical director is Eugena Waugh. Brittany Dotako is our audio engineer. And the president of Morning Brew Inc. Is Devin Emery. If you enjoyed today's show, please share it with a friend. If you didn't enjoy today's show, please tell all of your enemies and wake
- [20:47]
Anne Barry
up tomorrow with the Morning Brew newsletter. And tune in to Neil and Toby on Morning Brew Daily. See you back here tomorrow. Same time, same place, days.
- [21:00]
Katherine Ann Edwards
If you can't afford child care or can't afford to take a sick day, that's not just your bad luck, it's actually bad for our economy. I'm Katherine Ann Edwards, an economist, and I'm editor Robin Rousey. On our podcast Optimist Economy, I break down how our lives intersect with the economy, whether it's wages, Social Security, the national debt. And I ask the questions that you're actually thinking, thinking like, is AI going to take my job? Americans deserve a better economy than the one we have. So let's talk about how to get there. Every Tuesday on Optimist Economy. Wherever you listen to podcasts,