Dylan Lewis (3:41)

Are you proposing a field trip? It, it almost sounded like you were saying we should get on a plane together and do a little boots on the ground.

Bill Barker (3:47)

I'd be happy to do that. I've gone on less relevant business trips in my life, not for this company but elsewhere. So I think that it would not.

Dylan Lewis (3:58)

Set a. I would love a recurring segment less relevant business trips with Bill Barker. I think that would be a fun time to explore your past lives working, looking at the business. While the location counts are impressive and seemingly dwarf what we see with McDonald's and Starbucks because of the value orientation and because of the markets they operate in, they are a fraction of the size of Starbucks or McDonald's when it comes to sales and when it comes to income. For as splashy a story as this is, this is still in the grand scheme of the businesses out there, not the biggest business even in China, not the biggest debut even I think on the Hong Kong Stock Exchange over the last couple of years, there is a lot to have to still go right for this business to reach the size of those more internationally known competitors. I imagine that there are probably some people that are listening to us talk about this Bill, and saying, I've heard you talk about companies with a similar story in China before and Luckin Coffee comes to mind where incredible growth story. A lot of investor excitement, but a lot of investors also got that burnt coffee taste in their mouth in 2020 when the accounting scandals came out. How do you think about an opportunity like this and a company like this hitting the markets right now?

Bill Barker (5:14)

I think of it as One that is best left in the too hard pile. That is, you know, the. Give it a few years of audited financials that you see and then some quarterly and semiannual reports. It's up 43% today on the IPO in Hong Kong, which is a sign of speculation perhaps. But I think that you're right to point out that China is not known for only providing honest businesses. So I think that, you know, the assumption is this, this one is. It's huge. It would be very difficult to get to something approaching this size without being legitimate in, in all manner. But hey, give it a couple of years, you know, to keep an eye on it. We can't, we can't tell you that just because it's got what is 45,000 stores, that, that, like everything about it is a good investment idea. I mean, it's, it's grown, it's still growing. That's part, but not everything in what you want in an investment.

Dylan Lewis (6:22)

And I guess in some level of fairness to Luckin and the business outlook in China, there was a very rough period for that business. 90% fall in the March of 2020 due to accounting issues that they were systematically overstaying the revenue and doing a lot of things behind the scenes to inflate their numbers. They have since gotten themselves right, and I think the stock is well above where they debuted. I think it's still off highs, but the opportunity is there to meet the Chinese consumer with a lot of these businesses. Just a matter of whether all the other things are right for some of these companies as well.

Bill Barker (6:52)

Yeah, well, and China's been a good place to be starting investments this year, more based on, you know, AI news that's coming out of China and then what that's done for the biggest names in the tech space in China, more so than, than this right now. I mean, China's economy is. It's got issues, but so do all the economy. So I think that it's good that it is expanding outside of China. That's going to be some diversification that you would want, I think, to see in this investment.

Dylan Lewis (7:26)

All right, bringing us back over stateside. Kroger CEO Rodney McMullen is stepping down from his leadership role at America's largest supermarket chain. The company's board investigated issues around personal conduct, and that led to his departure. So this is an interesting one, Bill. It doesn't seem to have anything to do with what the company is reporting, how it's operating, but personal conduct specifically. McMullen held the role of CEO for over a decade at this company. He has been at the company since the late 1970s. The conduct stuff aside for the business, this. This feels like a pretty big set of shoes for someone to step in and fill.

Bill Barker (8:02)

Yeah, he's been there for a long time. Of course, they. They were, I don't know, lucky. We'll see what happens with the outcome of the lawsuits regarding the attempt to acquire Albertsons, which was, according to Albertsons, not attempted hard enough. And therefore Kroger gets to be sued by Albertsons for the failure to get that deal closed. I mean, it was not approved by the government as antitrust issues. So I think that it was a successful reign up until whatever he did, because we're not getting any details that I've seen yet. Personal conduct is what is quoted in the headlines and in fact, in quotes in the headlines. I mean, why can't you just say he's out for personal conduct rather than he's out for, quote, personal conduct, unquote? I mean, it just sounds that much more salacious. But we really don't know what the conduct was. It was personal. We get that.

Dylan Lewis (9:05)

That's all we know.

Bill Barker (9:05)

That's what we know. That's maybe that's all we're entitled to know. Maybe it's not our business. What the personal conduct was because it didn't relate to Kroger. It doesn't appear to have been an inappropriate relationship with another Kroger employee or executive. But it was also treated rather quickly. I mean, this came up, I think, to the attention of Kroger's board. I don't know, a week and a half ago. Week ago.

Dylan Lewis (9:29)

It's possible that we may get some more commentary. We're certainly going to get some more questions about this because Kroger is set to report earnings later this week. And so company management is going to be in front of analysts presenting the business. I have to imagine that this is going to be one of the topics that pops up in the interim. Ronald Sargent, one of the company's directors, is going to be stepping in as the CEO. Kroger is in such an interesting place as a business because you mentioned the failed. They didn't try hard enough. Albertsons acquisition.

Bill Barker (10:03)

I'm not saying they didn't try hard enough.

Dylan Lewis (10:05)

I'm sorry, I'm quoting. I'm quoting Albertsons here. Yes, let me. Let me be very specific in my.

Bill Barker (10:09)

Quotation idea how hard they tried.

Dylan Lewis (10:12)

So, okay, they are staring at a failed acquisition. They are also now looking at losing their longtime CEO. You would think Concerns abound for a business like this and yet the stock is just off of all time highs. There seems to be plenty of support and excitement for the business despite the fact that things have not gone particularly well in the last year or so.

Bill Barker (10:35)

I think not acquiring Albertsons really was things going well. They made an offer when stocks when prices were high and it didn't get approved. Let's imagine that one of the reasons that it didn't get approved was that they saw that they had offered too much money for Albertsons and put in a 50% effort on trying to get it approved. I'm not saying that's the case. That's what Albertsons is saying. But certainly that deal collapsing did not hurt the stock, as you point out. And I think that's because the price being offered was the wrong price.

Dylan Lewis (11:15)

I guess my question there then is the major priorities and direction for this business have kind of been sideswiped over the last year or so. They had, they had plans to become a much larger chain, a combined chain. We're not doing that anymore. We had a leadership vision that was set out by an executive who is on his way out. Where do you feel like this business really needs to be focusing and maybe where this new incoming CEO, whenever they choose one needs to be focused.

Bill Barker (11:42)

The things I think continuing what they have been doing most as, as we say this is at an all time high, more or less within, you know, a couple dollars and it's down today on this news. So I think to just be a steady hand, you know, calming influence. Everything's going great at the actual Kroger and the other brands that Kroger operates. Rather than trying to reimagine any part of the business. You got to keep refreshing outlets. You've got to find the right locations. It's blocking and tackling stuff. I think largely when you're talking about something which is this thin a margin operation, if you're blocking and tackling better than the next guy, you're going to sell more groceries and that is going to be how, how you achieve the the best return to shareholders.

Dylan Lewis (12:31)

All right, our dessert for this food news breakdown. After decades of resisting Domino's has finally caved to the stuff crust pizza fans. The chain will be looking to win back some business currently going to Pizza Hut and Papa John's for those who really enjoy that cheesy stuffed crust pizza. And I don't know about you, but I quote from management and it took me a little bit by surprise. Nearly 13 million Domino's customers each Year are buying stuffed crust pizza from competitors. These are customers who leave our brand. Bill, I don't have a child in my life. I'm not a parent. I haven't had a stuffed crust pizza in a very long time. Have you?

Bill Barker (13:10)

No, never.

Dylan Lewis (13:12)

Have you've never had one?

Bill Barker (13:13)

No.

Dylan Lewis (13:15)

Is that something?

Bill Barker (13:16)

Okay.

Dylan Lewis (13:18)

Is that a hill you will die on or are you willing to try one?

Bill Barker (13:21)

I actually don't. Within the context of pizza, this won't make too much sense. But I'm not that into cheese. So I mean, I don't. And I think crust is awfully good without cheese in it. How would from my perspective it be improved? By suffocating it with cheese.

Dylan Lewis (13:39)

I guess people that really love cheese would disagree with you.

Bill Barker (13:42)

Yes, yes. But we're talking about me and whether I've eaten it. I'm not blaming anybody else for enjoying cheese.

Dylan Lewis (13:52)

So you are not one of the 13 million who have been buying from elsewhere. It sounds like you maybe weren't even buying from Domino's to begin with if you're not a fan of cheese.

Bill Barker (14:00)

I don't check the credit cards as closely as I should about what the kids put on them sometimes. So I wouldn't doubt that I've paid for a stuffed Kraft Pizza somewhere along the way.

Dylan Lewis (14:09)

We're having some fun with this one. But I think one of the things that was kind of interesting to me looking at this was the development process for this was three years long. And we look at like so much of the menu innovation we've seen some chains do such a great job of this Taco Bell in particular really comes to mind. It's a great reminder of how something seemingly so simple, you can go get a stuffed crust pizza in the frozen section of your grocery store. But for a chain to roll out something like this in a large scaled way takes a ton of R and D time behind the scenes. And actually one of the big concerns that Domino's had for a long time in bringing this out there was the effect it would have on throughput. And it seems to me like they've basically said we gotta meet the customer here, even if it means we're not quite going to be at the speed we normally would be with our pizzas.

Bill Barker (14:57)

Yeah, this is not an example of sort of Silicon Valley esque, run fast and break things approach to how to get something out on the market. Just get it out there. You know, it's a 1.0, it'll be good by the, you know, six months from now, but just get it out there. So that is not as viable a thing to do with, as you state their operation, 7,000 units, I think for, for dominoes and to roll it all out to make it available sort of everywhere. You're going to start advertising campaigns around this so people are going to be ordering it and online you've got to be able to order pretty much, I guess from all, all the units. So yeah, a lot of meticulous planning going into this. Three years worth does strike. I think you definitely strikes me as a lot of time to do this, especially because this is an innovation. And imagine me saying that word with air quotes around it. That has a 30 year history. Right. Isn't that when Pizza Hut first.

Dylan Lewis (16:00)

They've been doing this for a while.

Bill Barker (16:02)

Yeah. No, everybody does it, right? Everybody does it. Papa John's and Little Caesars and everybody but Domino's. Domino's has done very, very, very well as a stock for the last 20 years. So this is not exactly kneecap them, but this is an incremental growth opportunity if as you point out, it is done in a way that does not negatively affect throughput.

Dylan Lewis (16:29)

I love that this has been someone's job for three years is to be focused on stuffed crust pizza. If they needed a taste tester, would, would you be capable of taste testing pizza for three years with your not so fondness for cheese?

Bill Barker (16:43)

I mean I could eat a lot of pizza. It's just, it's just like when you, when you add more pizza, more cheese than the amount that I particularly want on it, then I'm going to eat less. No, that sounds like a decent job. I've had worse jobs than that. Keep coming back to my career. I've had worse jobs than pizza tasting.

Dylan Lewis (17:04)

Worse jobs and less relevant business trips.

Bill Barker (17:08)

Haven't we all had a worse job than pizza tasting at some point?

Dylan Lewis (17:12)

No, that's, that's as good as it gets. And Bill, you're as good as gets. Thanks for joining me today.

Bill Barker (17:16)

Thanks for having me.

Mary Long (17:23)

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Dylan Lewis (18:30)

Coming up, have you seen a med spa in your neighborhood? Mary Long caught up with TMF Senior analyst Nick Seiple to find out why the industry is booming and one company that's selling a few products that can help you look a little younger.

Nick Seiple (18:45)

Businessweek reporter Amanda Mulligan had a fascinating story out the other week about America's med spa boom. Nick this is something that I've been kind of following and interested in for a while, but Amanda highlighted the business perspective of this so for anyone unfamiliar, Med spa is short for medical spa. It's basically a hybrid between a doctor's office and a salon. It's a place where you can go to get Botox to get lip filler. You can get something called coolsculpting, which is a non surgical procedure that freezes and destroys fat. You can get hair removal, IV drips if you had a little bit too much to drink the night before. In some places you can get hormone therapy and increasingly you can get access to compounded GLP1 drugs. Nick, I wanted to talk to you about this because you and I have had some conversations recently about investing in highly regulated industries such as nicotine. The hair salon piece of this is innocuous enough, but it's the medical part of that med spa equation that is interesting to me. What does regulation look like in this hybrid salon slash doctor's office med spa space?

Amanda Mulligan (19:49)

So if you look at med spa, it's really been a booming industry, you'll get some numbers we'll talk about later. But really regulation kind of falls between a traditional doctor's office and one of these kind of a traditional spa. Generally, the med spa will need to have either be owned by a medical doctor or another medical professional, or you can have a medical professional act as a medical director of the facility. The injectors, the folks actually injecting things like Botox and filler products, tends to need medical licensing to perform procedures. However, the general training required is pretty low and that that kind of barrier to entry to enter the the med spa business, plus just the incredible demand we've seen for all those underlying products you listed out is part of why we're seeing such massive growth in the business.

Nick Seiple (20:31)

You talk about Incredible demand. And I'll put some numbers behind that. Between 2010 and 2023, the Med Spa industry grew sixfold. There are now more than 10,000 Med Spa locations across the United States. Average annual revenue per spa is just shy of one and a half million dollars. That's more than doubled in that same 2010 to 2023 period. In 2023, med spas as a whole were a $15 billion business. And analyses show that the industry will expand by 15% per year moving forward. Most of these med spas are privately owned, though there is kind of an increasing interest among private equity types in investing in and rolling up these businesses. Kind of like we've seen happen with vets and dentists, et cetera. What might a public markets investor do with all this information about the seemingly booming med spa industry?

Amanda Mulligan (21:20)

Limited opportunities to invest directly in the med spa business as you laid out many of these privately held, however, lots of opportunities to invest in the products that these injectors are selling. A little over 2/3 of that $15 billion market you mentioned is driven by dermal fillers like Juvederm and Restylane and also neurotoxins like Botox, which we'll talk about later. Those are continuing to grow kind of high single digits, low double digit rates and should grow for years to come. They're really the staple products of these businesses. To the extent you've got the sales force growing rapidly year over year, should help pull through product sales for those underly products.

Nick Seiple (21:53)

So Botox is probably the name that is most familiar to listeners. Abbvie is the pharmaceutical company that owns Botox. But Abbvie's got a lot of other products in its portfolio. So perhaps a more direct way to play into this trend of injections and neurotoxins and fillers would be to look at Evolis, which is a quote performance beauty company and it's got a specialization in medical aesthetic products. Its flagship product is a competitor to Botox. It's called Jeuveau. From a consumer standpoint, what is the difference between Jeuveau and Botox for the.

Amanda Mulligan (22:26)

Person receiving the injection? Not really significant difference at all. In terms of efficacy, there's no statistically significant difference between Jeuveau and Botox. That's been proved in head to head trials for the injector though who you could argue is the customer here, Jeuveau is significantly more profitable. We talk about Evolis has a cash pay focused model, allows them a little bit more flexibility in pricing relative to other folks on the Market allows Evolis to participate in co branded marketing with those injectors. All that translates to a product neurotoxic and product Jeuveau that gives the end user very similar results as you get from Botox, but for the, for the injector is significantly more profitable.

Nick Seiple (23:02)

You mentioned Evolus cash pay business model and this is something that the company calls out, calls it unique. Why exactly does that matter to folks who might be interested in investing in this business?

Amanda Mulligan (23:13)

Well, it gives Evolis a lot more flexibility than its competitors because it isn't subject to the same type of red tape and regulation that other folks have to deal with as folks who sell a product that is both used for aesthetic and for medical purposes. So Botox for example, is also used for medical procedures like migraine treatments. Because they take insurance dollars. You're not allowed to charge cash payers a lower price than what you charge the insurance payer. So folks who might be using this for medical purpose because Jeuveau does not receive reimbursement from insurers, Evolis can be a lot more flexible than its competitors in marketing and pricing, which makes Jeuveau more attractive and profitable for cosmetic injectors. Also allows them to be more aggressive in how they kind of market to the injectors co branded market, those sorts of things. And so for the customer, for the med spa can be significantly more profitable. Most of these med spas worth mentioning are cash pay businesses.

Nick Seiple (24:04)

Evolis calls itself a performance beauty company. What I do not know exactly what that means. What is performance beauty, Nick?

Amanda Mulligan (24:11)

Well, we're really talking about neurotoxins and fillers. So today Evolus is a single product company, Joovo again an analog to Botox and Dysport, the other kind of large neurotoxin businesses. However, in the second quarter going to enter the filler market with their, with their brand esteem, they're really talking about injectable beauty products that are used exclusively for aesthetic purposes to make you prettier.

Nick Seiple (24:37)

So just to be clear, I'll take a moment to kind of zoom out and distinguish what a filler is versus a neurotoxin. So Jeuveau and Botox are neurotoxins and they work to stop movement and basically prevent wrinkles. Dermal fillers work a bit differently. The neurotoxins, they're used to restore facial volume, so to plump lips, to plump cheeks, that kind of thing. So let's talk for a moment about. Okay, we've, we've mentioned that Evolis has this botox competitor Jouvo. They're also working on rolling out another product, Evolisse, to distinguish between the name Evolis. What exactly is the growth potential there with Evolisse in the Dermal filler market?

Amanda Mulligan (25:14)

So if you look at Evolis, they think that the addition of the filler will expand their addressable market by 78% to $6 billion. If you look at the company's long term guidance, by 2028 planning to reach $700 million in net revenue and non GAAP operating margin of at least 20%, that'd be about a 28% compound annual growth rate over that time period. Interesting. Worth noting. Jeuveau can match the performance of Botox out there in the market. And because of Evolis differentiated go to market strategy, it's really been able to capture share very quickly with this Evolice filler product. On top of that business model differentiation that Evolis brings here in the filler product Evelice, it has shown statistical superiority to Galderma's Restylane product, another one of the leading fillers out there on the market. So now you've got a product with a differentiated go to market strategy. You've already scaled up your sales force to support Jeuveau. You're layering in a filler product that is already going to expand your addressable market significantly and it's statistically superior to the other products out there on the market. So lots of synergies for the existing business and I think it's really going to drive significant growth moving forward for Evolis.

Nick Seiple (26:22)

You talk about different go to market strategies and how these, how these products go out to the injectors themselves and are marketed to those injectors. Botox cosmetic sales grew only by low single digits throughout 2024. Meanwhile, you've got Jeuveau sales growing 30% year over year in the most recent quarter. Is this a story about Joovo gaining popularity and gaining market share or Botox losing it? Because a lot of this feels like a marketing story to me. How can investors today gauge the future success of AbbVie or Evolis or some other competitor based on that company's current marketing efforts?

Amanda Mulligan (27:00)

Sure. I mean, so if you look at Botox, they did have a few points of market share erosion during 2024. However, still the market leading product about mid-60s when it comes to market share. They did AbbVie reduce their long term guidance for Botox from low double digits down to high single dig. And I think there's a few things going on there. First, obviously competitive intensity increasing with Evolis other folks going into the market, you have other neurotoxins that have also entered the market over the past couple of years. So that is maybe crimped the potential growth for Botox though it remains the market leader. Also you have to think about the customer, right? People don't have an infinite beauty budget and I'm sure you're familiar with the GLP1 trend that we've seen progressing over the past year. Plus those drugs are quite expensive. So to the extent that you see folks having a limited budget and subbing in GLP1s into their beauty or their overall regimen, little bit less cash available for spending on Botox or some of these other neurotoxins. So I think the slowdown in sales that you're seeing from Botox is largely increased competitive intensity and also customers are spending on other products out there in the market. Long term though, still expect to see the market grow high single digits, low double digits. And what you really want to pay attention to, to see how the individual competitors are trending over time is again those market share numbers. I was really excited to see Evolis post launch get up to that double digit market share and if they can continue to take share over time, I think that would be a good, good story for the business. But even, even if share remains stable, the underlying industry should, should grow for many years to come.

Dylan Lewis (28:44)

As always, people in the program may have interest in the stock they talk about and the Motley Pool may have formal recommendations for or against. Don't probably sell anything based on what you hear. All personal finance content follows monthly editorial standards and is not approved by advertisers. Motley fool only fix products it'd personally recommend to friends like you. For the team, I'm Dylan Lewis signing off. We'll be back tomorrow.