Stock of the Summer and Unsung CEOs

Summary

Motley Fool Money: Stock of the Summer and Unsung CEOs – May 23, 2025

Hosts: Dylan Lewis, Ricky Mulvey, and Mary Long

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1. AI Hardware Development: OpenAI's Strategic Move

Timestamp: [01:21]

The episode kicks off with an unexpected development in the AI landscape: OpenAI's acquisition of IO, a device startup led by renowned Apple designer Jony Ive, in a $6 billion deal. Host Dylan Lewis highlights the significance of this move, noting, “We have been thinking about AI generally in a software sense. Interesting to see a hardware development here” (01:21).

Jason Moser provides insight into the potential implications for Apple, stating, “This is absolutely something that has the potential to be a threat to Apple given its apparent lack of progress in the AI space to date” (02:00). However, he cautions against overestimating the immediate impact, emphasizing the challenges in altering consumer behavior and developing compelling new devices.

Bill Mann adds a nuanced perspective, suggesting that the team may consist of “Apple dissidents” rather than just Apple talent. He reflects on Jony Ive's skepticism about the iPhone’s impact, saying, “He does not think of it as being something that is an unalloyed good” (02:55). Mann is intrigued by the possibility of creating AI technology that is “somehow less intrusive,” aligning with Ive's previous reservations.

Dylan draws parallels to historical acquisitions, likening it to Facebook’s purchase of Instagram, which later became a billion-dollar success. He underscores the need for patience, noting, “there’s nothing that they’re really showing out here that says this is what we are doing and this is the plan” (03:33). Bill Mann concurs, praising Ive's track record and expressing optimism about the potential for groundbreaking consumer products.

2. Leadership Transition at Mercado Libre

Timestamp: [05:41]

The conversation transitions to Mercado Libre, a leading e-commerce and fintech giant in South America. Founder and CEO Mark Scalperin announces his departure, prompting reflections on his legacy. Dylan Lewis shares a listener’s appreciation for Scalperin’s heartfelt letter to employees, describing it as “the essence of how a transition should be conducted” (06:13).

Bill Mann emphasizes Scalperin’s significant achievements, highlighting his 9,000% share increase since the company went public. He remarks, “I would put him on the Mount Rushmore of executives and CEOs and founders over the last… 20 years” (08:23). Mann admires Scalperin’s vision in transforming Mercado Libre from the “eBay of Latin America” to the “Amazon of Latin America.”

Jason Moser adds that the timing of Scalperin’s departure is strategic, given the improving Argentine economy and Mercado Libre’s strong market position. He notes, “the Argentine economy has gone from being a basket case to being somewhat successful” (07:49).

Dylan highlights the extensive growth under Scalperin’s leadership, including the expansion of Mercado Libre’s fintech arm. He underscores Scalperin’s understated yet impactful presence in the business world, stating, “He may be one of the most visionary leaders that does not get enough press” (08:40).

3. Retail Sector Analysis: Target, Home Depot, and Lowe's

Timestamp: [11:45]

The discussion shifts to the retail sector, focusing on Target’s ongoing struggles. Dylan expresses skepticism about Target’s turnaround, to which Bill Mann responds, “Target has completely lost its way. And as we've seen in retail, if you are a retailer who has a little bit of fire in your brand, you're doing fine. But the ones that have lost their way like Target, they are getting beaten up and badly” (12:38).

Jason Moser acknowledges the challenges but highlights some positive aspects, such as Target’s growth in digital sales driven by initiatives like same-day delivery and drive-up services. He points out, “Digital sales stood out. That was driven by a 36% increase in same day delivery through the target circle 360” (12:54). However, he remains cautious, noting the impact of tariffs and supply chain diversification.

The conversation then delves into Home Depot and Lowe's performance in the home improvement market. Jason Moser praises Home Depot for maintaining stable earnings and increasing big-ticket purchases by 31%, stating, “More than 55% of houses in the US here are 40 years old or older. That just begets lots of renovations and repairs” (13:50). Bill Mann contrasts Home Depot’s steady approach with Lowe’s aggressive share repurchases, noting, “Lowe's share count is down like 26% over the same time period” (18:11), which he believes has contributed to Lowe’s outperformance.

Dylan Lewis humorously acknowledges his own weekend plans related to home improvement, reinforcing the relevance of the topic. He concludes the segment by highlighting the complementary strategies of Home Depot and Lowe's, describing them as a “duopoly” that effectively prevents other competitors from gaining ground (16:53).

4. Interview with Trex CEO Brian Fairbanks

Timestamp: [21:24]

A key highlight of the episode is an in-depth interview with Brian Fairbanks, CEO of Trex, a leading brand in composite decking. Trex specializes in recycled composite products that serve as sustainable alternatives to traditional wood decks.

Brian Fairbanks explains the uniqueness of Trex’s offerings, “Composite decking, it's a mixture of wood and recycled plastic. We extrude that into material that can be installed with hidden fasteners or directly with a visible fastener on the deck” (22:12). He elaborates on the company’s diversified product range, catering to various customer needs and price points.

When discussing competition, Fairbanks acknowledges wood as the primary rival but underscores Trex’s strategic shift towards more affordable, wood-like composite products to capture a larger market share. “Since we've launched our enhanced product line, composites were probably about 18% of the market. Now it's 25, 26% of the market” (23:35).

On handling tariffs, Fairbanks notes that while Trex is primarily North American-produced, indirect costs from imported components like railing and safety equipment are manageable. He states, “We have not passed along any of that pricing as of yet and I've told our customers that we're going to take a little bit more conservative approach on this than many of our competitors are” (29:54).

Addressing potential economic downturns, Fairbanks remains optimistic, highlighting Trex’s resilience and the pent-up demand for home renovations. “If we didn’t have that out there, I’d be a little bit probably less sure about it. But because of that extensive pent-up demand and that we will see existing home sales begin to expand over the next couple of years” (33:26).

5. Stocks on the Radar: PDD Group and Warby Parker

Timestamp: [37:51]

As the episode progresses towards its conclusion, the hosts delve into their “Stocks on the Radar” segment.

Bill Mann introduces PDD Group (Pinduoduo), a major Chinese e-commerce platform. He anticipates the company’s upcoming report on how tariffs and changes in dropshipping regulations have impacted their business, expressing cautious optimism: “I suspect they're going to have a report that is better than we anticipate” (37:51). Dan Boyd humorously critiques Pinduoduo’s consumer-facing brand, particularly the Temu platform, describing it as “a steaming pile of crap” (38:30).

Jason Moser shifts focus to Warby Parker (WRBY), expressing personal interest as a user of eyeglasses. He discusses the company's new venture into smart glasses in partnership with Google, positioning it alongside similar efforts by Meta and Ray-Ban. Moser points out, “The new specs will be built on top of Android. XR will include Google Gemini that users can speak with to actually use the devices” (39:07). Despite technological advancements, he notes the competitive and uncertain market landscape for smart eyewear.

Dan Boyd shares a personal anecdote about his interactions with Warby Parker’s customer service, highlighting a perceived inconvenience: “They have something on file. If I tell them I want the glasses, why can't they just give me the glasses?” (40:04). This humorous exchange underscores the challenges Warby Parker faces in balancing user experience with necessary optometric protocols.

Bill Mann playfully labels Dan’s critique as “anti-medicine” (40:41), while Dylan Lewis remarks on the extra friction in the purchasing process. The segment wraps up with Dan Boyd’s light-hearted favoritism towards Pinduoduo despite his criticisms, keeping the discussion engaging and relatable for listeners.

6. Host’s Farewell and Final Remarks

Timestamp: [36:23]

In a heartfelt moment, host Dylan Lewis announces his departure from the Motley Fool Money show after nearly 11 years. He reflects on his journey, expressing gratitude towards his colleagues and the opportunity to engage with listeners: “It's been an honor and a joy to sit here working with our in-house analysts” (36:23).

Bill Mann and Jason Moser offer warm farewells, praising Dylan’s contributions and wishing him well in his future endeavors. Mann remarks, “It's been a privilege to work with you,” while Moser adds, “I've really enjoyed working with you. Going to miss you” (37:19).

Dylan assures listeners that the show will continue seamlessly, introducing new segments and maintaining the high standard set over the past decade. He encourages Motley Fool Premium members to access extended content and invites new listeners to join the community.

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Conclusion

This episode of Motley Fool Money offers a comprehensive dive into significant business developments, from groundbreaking AI hardware ventures to strategic leadership transitions in major e-commerce firms. The in-depth analysis of Home Depot and Lowe's performance provides valuable insights into the retail sector, while the exclusive interview with Trex's CEO sheds light on sustainable home improvement solutions. The "Stocks on the Radar" segment engages listeners with thoughtful commentary on emerging and established companies. Finally, Dylan Lewis’s heartfelt farewell marks the end of an era, promising continued excellence for the show under new leadership.

For those keen on understanding the nuances of today's stock market and corporate strategies, this episode delivers rich, actionable insights supported by expert analysis and firsthand accounts.

Transcript

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[Dylan Lewis]

It's officially summer. This week's Motley Fool Money radio show starts now.

[Jason Moser]

Everybody needs money.

[Bill Mann]

That's why they call it money.

[Dylan Lewis]

The best things in life are free but you can give them to the birds and bees. I need my From Fool Global Headquarters.

[Bill Mann]

This is Motley Fool Money.

[Dylan Lewis]

It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me in the studio, Motley fool senior analyst Jason Moser and chief investment strategist over at Motley Fool Asset Management, Bill Mann. Fools. Wonderful to have you both here.

[Guest]

Hey, hey, hey Dylan.

[Dylan Lewis]

This week we've got a mini dive on the quintessential summer stock with its CEO, a look at the home improvement market and of course Bill, Jason, you guys have brought stocks on your radar this week. We are going to kick things off though with an unexpected hardware Update in the AI landscape. OpenAI will be buying IO, a device startup led by famed Apple designer Jony I've. Jason I've and CEO Sam Altman have apparently been in talks for a while that's led to this $6 billion deal. We've been thinking about AI generally in a software sense. Interesting to see a hardware development here.

[Jason Moser]

It is and I think you had to expect at some point or another for this to happen. I think that while you look at OpenAI today and that's obviously not in our realm of publicly traded that we typically cover here at the Fool. I think it's interesting to think about this deal from the perspective of Apple and actually what it means for Apple. If you look at the lineup of talent that is going to be over at OpenAI working on these devices and this sort of strategy going forward, there are a lot of Apple veterans beyond just Jony. I've from that perspective two things here can be true. I think this is absolutely something that has the potential to be a threat to Apple given its apparent lack of progress in the AI space to date. But we also shouldn't get ahead of ourselves here because this all sounds good on paper with the amount of former Apple talent, but building compelling devices that ultimately do Something different than what we're used to doing today. And then actually changing consumer behavior is really hard. And most importantly, it takes a really long time.

[Bill Mann]

It almost sounds. Instead of calling them Apple talent, you might describe them as Apple dissidents. The way that. Well, the way that Jony I've is talking about the iPhone, which he was very instrumental in developing, is almost like he's talking about Frankenstein. He does not think of it as being something that is an unalloyed good for the amount of intrusion that has into our lives. Which makes it interesting to me that they're coming up with another form of technology. I think that the real, the thing I wonder about most is how they are going to make an AI piece of technology that is somehow less intrusive, which sounds like what he wants to do.

[Dylan Lewis]

Some in the financial media are likening this to Meta. Then Facebook buying Instagram for a billion dollars back when it was a 13 person company. Because at the end of the day we're going to have to be a little patient with this I O development. I think this is basically pre product. There's nothing that they're really showing out here that says this is what we are doing and this is the plan. But I think if you were to hand pick the person, Bill, who would be developing the next great consumer product, you could pick a lot worse than Jony. I've. He's probably the first person you'd want to be doing this.

[Bill Mann]

Yeah. And again, going back to what his misgivings were about his first time around, you know, that he's bringing a sensibility that brought one of the most beautiful devices that we can imagine, one of the most evocative devices that we can imagine that has really changed so much of how we even interact with each other. But at the same time, he's not 100% happy about it. So I'm not. You know, it's going to be fascinating to see how he changes his philosophy about this device.

[Jason Moser]

I think you made a good point there, Dylan. Just in regard to this is essentially pre product. We ultimately have no clue what they're thinking about. It sounds like maybe they're still in that development stage of trying to come up with exactly what they want to introduce to the market. I'll refer to a few of the things that Sam Altman said here. He's talking about developing a product. He says that has never happened before in consumer hardware. I don't know what that means, but there you go. Furthermore, when we think about the smartphone today and how it impacts virtually every minute of our lives. We do so much more on our smartphones today than we ever have before. I think it's also important to note they don't actually view what they're doing as something that's necessarily going to displace or disrupt the smartphone necessarily. They used a good example there. I thought in the same way that the smartphone didn't make the laptop go away, they don't think that the first product that they make is going to be something that ultimately makes the smartphone go away. But it will introduce perhaps a different way of doing things, utilizing this AI technology that's obviously grown by leaps and bounds here in the past year from.

[Dylan Lewis]

One visionary to another. Mercado Libre dropped earnings earlier this month. They weren't quite done with updates. The E commerce and fintech giant in South America announced that founder and CEO Mark Scalperin will be stepping down from his leadership role. Gents, I'm going to dip straight into the mailbag here. Irina, a listener from the Czech Republic, which is pretty darn cool, wrote us a note immediately after the news came out. The founder and current CEO has written a letter to employees and it's very touching. For me, it sounds like the essence of how a transition should be conducted. I would love to hear the Fool's two cents. All right, Bill, what do you think?

[Bill Mann]

You left something out when you described Marcos Galperin, which is billionaire. He's a young man. He's not retiring. He's just looking to move on and do other things. He has succeeded in any way you would hope to succeed. And it suggests to me that he believes in his Ben, because he is very tightly tied to his financial success, is still tied very tightly to Mercado Libre. So yeah, he's doing it at the right time. It will be interesting to see. We've seen this happen so many times when Howard Schultz left Starbucks at what you would think was the top and it turned out to be at the top. So it's up to his bench. But it is interesting to see that he has enough trust in them that he's moving on.

[Dylan Lewis]

Ariel Sharfstein, the president of Commerce, will be stepping into the role. Jason, I have to be honest, it seems like about as good an executive position as you could line up. This is a company with a vibrant E commerce platform, a bustling fintech platform, a lot of things going in the right direction. Clear roadmap here.

[Jason Moser]

That ball is rolling. Don't screw it up. It's not to say I say that somewhat tongue in cheek, but shoot you look at Disney, for example, when Iger handed the reins over to Chapek, really that ball was rolling. Things were in pretty good shape. Maybe there were some decisions made pre Chapek, but Chapek got in there and did some things differently and it didn't really work out. It is a great position for Charstein, but again, it is still a job that's going to require the ultimate execution.

[Bill Mann]

There is something else that's really great that's going on for them which is that the Argentine economy has gone from being a basket case to being somewhat successful. He is handing over the reins at a time in which one of their biggest markets has real momentum for them.

[Jason Moser]

Absolutely.

[Dylan Lewis]

Mercado Libre, not necessarily a household name for a lot of folks who follow the US market. A lot of fools know it because it's something that pops up quite a bit in our premium services. But zooming in on Galperin's tenure, he launched the company, was co founder, took that company public. Shares up roughly 9,000% in the time that MercadoLibre has been a publicly traded business.

[Bill Mann]

Pretty good.

[Dylan Lewis]

He built an e commerce company that does tens of billions of dollars in gross merchandise volume. A fintech arm that was originally intended to facilitate the e commerce business now does hundreds of billions in total payment volumes. And Bill, he may be one of the most visionary leaders that does not get enough press.

[Bill Mann]

Yeah, I would say that he's very high on that list. When Mercado Libre launched, it was meant to be and was described as the ebay of Latin America. And now it's so far beyond that it became the Amazon of Latin America, which is not an easy place to build a business like this. They have some real monopoly characteristics at Mercado Libre. Now Galperin is not someone we talk about at all. But I would put him on the Mount Rushmore of executives and CEOs and founders over the last call it 20 years.

[Dylan Lewis]

Nobody ever gets the flowers while they can still smell them. Bill, I'm glad you're bringing them. Jason, any CEOs you think deserve a little bit more love than they're getting?

[Jason Moser]

Yeah, one a bit off the radar. Speaking of emerging market E commerce billionaires, I've spoken with our colleague Emily Flippen about recently called Coupang, which is basically the Amazon or Mercado Libre of South Korea. The founder of Sook Bum Kim still owns nearly a 9% stake in the company worth north of $4 billion. Controls close to 75% of total voting power there. According to the latest proxy that was just filed in April. A very interesting company. The question for me is just in regard to its market opportunity, given that it holds about 90% market share in its home country of South Korea, how far it can expand outside of those geographies. They tried Japan, pulled back. They're looking at Taiwan. We'll see how that all shakes. But clearly a business that has done a lot right. That's very much in thanks to their founder.

[Dylan Lewis]

CEO Bill, you are the king of obscure stocks. I have to give you the final word here. What do you got?

[Bill Mann]

It's a little $132 billion company called Danaher. Danaher has something called the Danaher business system. It was really developed by their longtime CEO Steven Rales. They have returned superior returns on capital to the market over the last 40 years. Incredible track record that he and they have. He's not someone who's spoken about a lot, but when you think of Danaher, when you do, Steven Rails should come to mind.

[Dylan Lewis]

Basically a bonus radar stock segment. This show. Absolutely love it. Don't worry. We still have our traditional one coming up later. We've got a lot more coming up later. In fact, the dollars and data on home improvement and a lot more. Stay right here. It'll think about it for money.

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[Dylan Lewis]

Welcome back to Motley Fool Money. I'm Dylan Lewis here in studio with Bill Mann and Jason Moser. We're digging into retail. Target out with fresh numbers and Home Depot and Lowe's showing the state of home improvement. Bill, we have long been waiting for the Target turnaround. We will continue to wait for the Target turnaround.

[Bill Mann]

I think one of the most amazing statistics from Target actually comes from Walmart, which is this. 75% of Walmart's market share gains came from households that make more than $100,000. Walmart is taking over Target's core market. Target has completely lost its way. And as we've seen in retail, if you are a retailer who has a little bit of fire in your brand, you're doing fine. But the ones that have lost their way like Target, they are getting beaten up and badly.

[Dylan Lewis]

So people have been wondering for a long time Jason Co. Like Target, surely at some point strong brand people still like to go there for some things. There has to be some point where they get things right. Is there something that would get you interested in this stock?

[Jason Moser]

That's a tricky one. I will say if you want to look at least some positives from the quarter. Digital sales stood out. That was driven by a 36% increase in same day delivery through the target circle 360 as well as continued growth in drive up which now accounts for close to half of total digital sales. It seems like they're making progress on the digital front. Then everything is going back to tariffs and how exposed these retailers are. It does sound like at least they are diversifying that supply chain. You go back to 2017, they had about 60% exposure to China. Today that's about 30% and they feel that it will be under 25% by the end of next year. They're making progress there as well.

[Dylan Lewis]

We've got a long weekend here. Busy one for the weekend warriors, at least for me. I've got some projects lined up, probably some folks making some trips to Home Depot and Lowe's. You know what? We got to look at what's going on with those businesses this week. We're going to start out with Home Depot. Jaymo, how are Dewars getting things done right now?

[Jason Moser]

Dewars are getting things done at least in this climate. It's not great but it's not so bad for these home improvement companies. We saw earnings per share 3% to for the quarter that was down just modestly from the year ago. Comp average ticket was essentially flat. Transactions only decreased about 0.5% which I thought was pretty encouraging. The thing that stood out to me, big ticket purchases. Those $1,000 or more that was actually up 310 of a percentage point from a year ago. I thought that was encouraging. Furthermore, the fact that they maintained guidance for the full year was a positive. I love that they refer to this in the it paints a long term picture here as to why you want to own these companies today. More than 55% of houses in the US here are 40 years old or older. That just begets lots of renovations and repairs and demand that's going to be coming down the pipeline for these home improvement companies in the coming years.

[Bill Mann]

Warren Buffet describes retailers as businesses that have to be smart every day. I think one of the things Jason rolled right past this and said 0.3% growth in in thousand dollars plus tickets. That is a reversal for two years of declines. Some of that has to do with things being pulled forward because of COVID When we were sitting in our houses during the pandemic staring at things that needed to be done, those things that needed to be done got done. But what's really interesting about Home Depot and Lowe's is that they are competing with each other and really nobody else at this point. Even for those types of projects.

[Dylan Lewis]

The run for both businesses has been tough. You mentioned that there was a lot of growth pulled forward. Also the higher rate environment eating into some home improvement projects that people might be financing. One bright spot I did notice looking at Home Depot's results, the SRS distribution segment. Jason, this is a business that they bought focused on roofing, landscaping, pooling. It seems like it was responsible for the majority of the growth that they were pointing out year over year.

[Jason Moser]

It was, you can be forgiven if you look at the difference between the top line growth there of somewhere in the neighborhood of 9% or something, comps being so ultimately low. They really are benefiting from that acquisition. They'll anniversary it here in June very shortly. But there's no question that was a very big acquisition. I think it was the biggest acquisition in the company's history. If I'm not mistaken. They're biting off a lot there, but it seems like they're integrating it nicely and it will absolutely expand that network. They'll get better at distribution. I suspect Home Depot will continue to maintain its position in the market, perhaps.

[Dylan Lewis]

Borrowing a little bit from the Home Depot playbook. Lowe's announced in April that they're acquiring Artisan Design Group. This is a business focused on design services, looking at flooring, cabinets, countertops, little bit of a smaller deal, $1 billion deal. Aside from that similarity, Bill, any things that stick out to you as you stack these results together.

[Bill Mann]

They'Re two halves of the same whole. I described them earlier as a duopoly and I think that that's the case. They are both very smart retailers if you. They tend to speak of each other in a very complementary fashion. That is, I think that they both recognize that the game for both of them is to make sure that they don't get disintermediated by somebody else rather than each other. That's why you see these bolt on acquisitions for both of these businesses. Trying to make sure that they remain as relevant as possible within this segment.

[Jason Moser]

I think there's a word for that, isn't it? What is it? Frenemies.

[Dylan Lewis]

That'S what the kids are calling all to say. Bill, when the macro picture improves, you expect both these businesses to thrive.

[Bill Mann]

I do. I thought it was really interesting in the Home Depot call where they said basically that they're going to generally maintain prices. I think that has a little bit to do with the conflagration that happened this week when Walmart openly talked about pricing and the tariffs. I think that they're being very, very careful about how they talk about this and they're only going to go to of tariffs in a very small incremental way.

[Jason Moser]

I think also it's interesting to look at these two companies together. Home Depot is significantly larger in market cap store footprint and whatnot. You look over the last five years, Lowe's has been the outperformer. You stretched that out over 10 years. Home Depot is the outperformer there. It was something that struck me when Marvin Ellison took over the CEO role at Lowe's. One of the main priorities was taking that cash cow business and starting to return some value to shareholders. I think that's been a big part of Lowe's outperformance over these last several years. If you just look at it from share repurchases alone over the last five years, Home Depot share repurchases brought that share count down about 8%. That's great. As a shareholder, I'm feeling pretty good about that. Lowe's, that share count is down like 26% over the same time period. That whittles down that overall pie of shares outstanding, making each share a little bit more valuable. And clearly I think that's had a big, big role in that outperformance.

[Bill Mann]

Given Lowe's undervaluation as compared to Home Depot, I would describe that as being a better capital allocation than Home Depot's.

[Jason Moser]

Although both are good, fully agree. Lowe's is also a dividend aristocrat, so they still prioritize that dividend.

[Dylan Lewis]

Million dollar question for me. I have a trip planned to Home Depot tomorrow to pick up a lawnmower and shed. Are you guys making a trip this weekend?

[Jason Moser]

I don't think I'm going to need to make a trip. I've already got the lawnmower and I'm certain I'm going to have to mow the grass by Sunday.

[Bill Mann]

I recently installed floating numbers on my house and I'm so proud of myself for having done it right that I think I'm going to sit this weekend now.

[Dylan Lewis]

Take the w. Alright, Bill Mann, Jason Moser, fellas, we will see you guys a little bit later in the show. Up next, we hear from the CEO of a company you see on shelves at Home Depot and Lowe's, Brian Fairbanks and his company Trex. Stay right here. Those things about full money.

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[Guest]

Foreign.

[Dylan Lewis]

Welcome back to Motley Fool Money. I'm Dylan Lewis. It's Memorial Day weekend and if you're like me, you've probably got a few home projects lined up, maybe some plans to be hanging outside and putting food on the grill. With summer officially kicking off, we thought it was a good time to catch up with Trek CEO Brian Fairbanks. His company is the brand name in decking. If you've got one, you already know know their recycled composite products are coming for the standard wood deck. Motley fool analysts Andy Cross and San Mi Deo caught up with Fairbanks about the war on wood decks, how the company is handling tariffs and why he expects business to boom as the macro picture clears up.

[Andy Cross]

Trex really invented Brian the composite decking category decades ago. And so just lay out what is composite decking and what does Trex do special? What are what makes Trex's products special?

[Guest]

So composite decking, it's a mixture of wood and recycled plastic. We extrude that into material that can be installed with hidden fasteners or directly with a visible fastener on the deck. We have products that range anywhere from $2 a linear foot to over $10 a linear foot depending upon the aesthetics of the product, the design capabilities of it and what that specific customer needs is going to be. In addition to the decking products, we also have a large selection of railing. Again, many different price ranges. Anywhere from more entry level where products of our enhance T rail product, which is designed to replace a vinyl PVC type product, all the way up to our most premium cable rail type systems for high end installations. Trex has been doing this for over 35 years now. We stick to our knitting, we know what we're doing in the outdoor living area and we're proud of the products that we've put into the market over the years and see a great growth Runway ahead of us.

[Andy Cross]

And Brian, is it fair to say that wood is really a primary competitor of you, like you are trying to redefine and have for so many years what it means to have a decking out the back of my house, for example?

[Guest]

Yeah, absolutely. If we look back to the 2016 timeframe, we've really been focused on just the premium part of the marketplace. Most of the prices were going to be three, four times the price of wood. We recognized at that point for long term growth opportunities we needed to really hit where the market was and that was wood. We started talking about designing a product specifically to go after that market right around 2017 timeframe. And in 2019 we launched our enhanced product line. That product was picked up by both Lowe's and Home Depot. They carry that on their shelves. They do still to this day carry that on the shelves. But we also sell it through our Pro Channel partners as well. So it's widely available across the country. You'll be looking at over 6,000 locations where our product can be serviced. And one of the most important parts of our strategy, we want to be available wherever that consumer is looking to be buying decks. And of course there's a lot of wood decks that are still sold out there. Approximately 74 to 75% by volume is a wood deck today. So a significant opportunity for us to go after. Since we've launched our enhanced product line, composites were probably about 18% of the market market in that time frame. Now it's 25, 26% of the market. So it has delivered on the strategy but significant upside ahead of us still.

[Andy Cross]

Brian, let's talk a little bit. You mentioned the Home Depot and Lowe's. I want to just clarify some of the distribution directions and areas where Trex plays. So let's just say I'm going to remodel my deck and a lot of your business is tied to remodel, let's say I'll remodel my deck. Explain to us where Trex fits in when it comes to distributors, when it comes to dealers, when it Comes to retailer. How do I get a Trex onto my the back of my house?

[Guest]

That's an important point you made there. We are primarily repair, remodel. 90 to 95% of our business is repair and remodel. There is a reasonable business with those home builders out there. But the home builders do a great job on focusing within the house. How do you get upgrades inside the house? Not as much on the outside side. I do think there's significant opportunity there as it relates to the channel itself. One of the unique value propositions with Trex is that we have the largest footprint of areas where our product can be purchased. And let me go through that in a little bit more detail. First we have, as I mentioned, shelf space with both Home Depot and Lowe's. So every one of their stores, either we have the product on their shelves or they can order any one of our other products through special order. Then we also have the side of the business with a builder's first source, a US LBM, an 84, lumber. Most of those are going to be catering more to the pro business. So we're really trying to make sure that wherever the customer wants to shop for that, whether they're at the kitchen table working with a contractor, they're walking into a builder's first source location or they're walking into a homestead, they are going to see the Trex product there and they're going to learn about that Trex product a little bit further on the value chain. With our home centers, we will ship product direct into their distribution centers and then from their distribution centers into the stores themselves. Let's call it 30 different SKUs that maybe go into a store that are being sold direct from Trex. The remainder go through distributors. And distributors are company like Boise Cascade Specialty Building Products, International Wood Products, companies like that, where their specialty is being that middleman between the manufacturer and the end retailer. So they can special, the home centers can special order through distribution. In the case of the pro channel with the builder's first source, we're selling direct to the, to the distributors and then they're reselling into the pro channel center. So a little bit of a complex channel there, but it works well in getting material out of our factory and close to where the consumer needs it.

[San Mi Deo]

Brian, I mean I'm sure you've been anticipating this question. So tariffs, what do they mean and not mean for Trex's business?

[Guest]

We're fortunate. We are primarily a North America produced company. I should say even more so. In United States, about 5% of our total cost of goods sold are going to be potentially impacted by tariffs. Now that's a little bit larger number than our direct manufacturing. And the reason that I put a little bit more in there, we buy some railing from overseas, so that will be tariffable coming out of some Asian countries. But there's a whole indirect purchasing side of the business. Think about gloves, think about safety glasses. Virtually all of those are manufactured in Asia somewhere. And even though the rates have come down, there still appears to be, there's going to be a tariff on those sort of products out there. Small motors, small sort of maintenance sort of things that we keep on the shelf. Those are things that are extensively produced outside the country. So even when you are primarily a US manufacturer, we are not going to be immune from these tariffs. Tariffs. We'll start to see the impact on the direct purchasing over the next quarter or so. We can easily manage that. The part of it that's the indirect, we can also easily manage it because of the dollar value of it. But I think it's one of the pieces that the media misses a little bit right now of these longer term indirect effects that we're going to see with this tariff. Whether it just stays at 10% or whether it's 25 or 35%, it just really comes down to the magnitude of what it's going to be. But overall I'm very comfortable where we are, our ability to be able to mitigate it. Our supply chain team has already done a great job in identifying where they're coming from, being able to negotiate mitigating strategies with our suppliers and then understanding what piece of that will be flowing through to Trex.

[San Mi Deo]

Do you find that you're able to pass on that pricing, even if it's a minimal amount of to your customers and is there resistance to it?

[Guest]

We have not passed along any of that pricing as of yet and I've told our customers that we're going to take a little bit more conservative approach on this than many of our competitors are. I've felt that with this whole tariff regime coming in place, there was going to be a lot of moving parts on it. And to immediately jump and say you're going to take 10%, 15%, 20%, whatever the number is, the chances of being wrong are pretty high and you might have to go back out, you might have to rescind that pricing again. So what I've communicated to our channel is that we're going to see how this all comes together and understand what the real long term numbers are. Going to be how much can we mitigate through negotiations with the channels that we operate within? How much of it at the end of the day will pass through to our income statement. And then of course we will look at pricing to be able to offset that along the way. But we're taking a little bit of a step back and waiting to see where this all settles out.

[San Mi Deo]

You know, now that we've kind of set the stage and the stage is made of Trek stacking, of course it's time to talk a little bit about the bigger picture. So a lot of talk about a potential recession. You know, on and off talk. We're seeing some slowdown in the housing market. How does your Trex kind of navigate this potential recession scenario or slow in housing slowdown? How has it done in the past with similar slowdowns?

[Guest]

I think we can just look over the past couple of years. Repair and remodel has slowed as well as the new home side of things. It's been stable, but we're still well below where we need to be from a replacement cycle. And then existing home sales continue to lag where they need to be. I was really hoping this year year to see the existing home sales increase considerably. That does tend to be a driver of repair and remodel spend. If we look historically around recessionary time periods, Trex has tended to perform considerably better than rest of repair and remodel. Part of that is because wood decks are always falling apart. It doesn't matter what the economy is going to be. People will need to replace those decks. The other thing is our consumer does tend to be be a little bit better off from a financial perspective. Our average entry level consumer 100, $125,000 family income at that entry level and our more premium products moving up $150,000 family income beyond that. So we operate at a little bit higher level from what many organizations operate in. I think probably the thing that's most exciting for me is that we've been in a cycle now that people have been under investing in their existing homes since the end of 2022. End of 24, we hit the projected low spot, about a dollar per square foot of livable space. On average. That repair remodel rate should be closer to $1.26 per square foot. So you've got 22, 23, 24. All of those years have been underinvested. And Zonda Economics makes the projection that by 2027 timeframe frame will be back to that average again. That's just back to the average. Now you have to catch up for all of that underinvestment that we've had for the prior three years. So that's why I'm pretty excited about the marketplace. There's a lot of other noise out there the consumer has to deal with, but the underlying piece of it that's going to generate the demand that is going to be there. We just have to work our way through this short term here and get the consumer feeling a little bit better about making those investments into their home.

[Andy Cross]

Brian, my follow up and my last question is just one thing that we should as investors continue to watch going forward when it comes to Trex.

[Guest]

Yeah, Trex has been in a trading range now for the better part of a couple years. I think you'll see a lot of repair, remodel, a lot of building product type companies have been in that. Even if we look outside of the Magnificent seven, that's where the largest piece of the growth in the market has come from. From. As we start to see some of these economic metrics come back, we will start to see a broader expansion of valuations in these companies. Our company we're trading at a lower multiple than we have in a considerable period of time. And when we start to see some of the general economic indicators pick back up again and we start to see that higher level of growth we have the profitability and I think the stock will be back off to the races again. So pretty excited about that. I'm more excited because of that pent up demand. If we didn't have that out there I'd be a little bit probably less sure about it. But because of that extensive pent up demand and that we will see existing home sales begin to expand over the next couple of years. Great opportunity at this point, listeners, unlike.

[Dylan Lewis]

Brian Fairbanks, I do not have a Trex deck. So my summer prep involves a bit more work and I've got that to look forward to this weekend. If you're a Motley Fool Premium member, you've got more of that conversation to look forward to to. You can catch Andy and Sanmeat's entire convo with Brian Fairbanks over in our video hub and plenty more conversations on our full 24 member live stream. And if you want to become a Motley fool member, you can join stock [e-mail] signup. Coming up after the break, Jason Moser and Bill Mann join me again to talk about the stocks on their radar this week. Stay right here. You're listening to Motley Fool Money.

[Jason Moser]

Another turning point of fork stuck in the road.

[Dylan Lewis]

Time grabs you by the road. So make the best of this test.

[Jason Moser]

And don't ask why.

[Andy Cross]

It's not a question, but a lesson.

[Dylan Lewis]

As always, people on the program may have interests in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy selling anything based sol language here. All personal finance content follows Motley fool editorial standards. It's not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. If you're listening to the podcast version of this, you can check out our full advertising disclosure in the show Notes. I'm Dylan Lewis and Bill I think you might have a thing or two to say as well.

[Bill Mann]

Dylan I serve as Chief Investment Strategist at Motley Fool Asset Management, llc, an affiliate of the Motley Fool. While affiliated, MFAM is a separate and independent, independently regulated entity. None of the investment decisions made at MFAM involve individuals from the Motley Fool's media or business operations. As you know, Dylan, all of Motley Fool's money management operates independently in this way.

[Dylan Lewis]

I appreciate you clarifying that, Bill we are back. This is Motley Fool Money and before we get over to our Radar stock segment as we usually do, I have a quick programming note. This will be my last show in the host seat for Motley Fool Money. It has been an honor and a joy to sit here working with our in house analysts like Bill and Jason and our engineers Dan and Rick on the show each week. Almost 11 years ago, I came to the fool as a freshly minted college graduate armed with a finance and journalism degree and some vague sense of how that might be useful for myself and for the world. And the fool has been a tremendous place to be turned loose and work on that. I'm grateful to all my colleagues to Tom and David Gardner for letting me be a part of TMS voice out here. I feel very lucky that no matter what's been going on in my life, each week I've had the chance to talk to folks and make sense of what's going on in the market and what's going on in the world. Listeners, I hope you've enjoyed our conversations as much as I've enjoyed having them. While I'm heading out, the show goes on. Motley Fool Money will continue next week and I will be one of the dozens tuning in.

[Bill Mann]

I have two things to say about that. Number one, it's been a privilege to work with you and number two, Jason, you know he said my name first.

[Jason Moser]

I do Well, I mean, age before beauty, right? Dylan, really quickly you said the word. It's been an honor. I've known you ever since you've been here and I've really enjoyed working with you. Going to miss you. But also know you're going to light the world on fire in whatever way you choose.

[Dylan Lewis]

With that bit of sentimentality out of the way, let's get on to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Bill, you're up first. What are you looking at?

[Bill Mann]

This week we're going to talk about Mr. Toad's Wild Ride here and PDD Group, which is ticker PDD Pinduoduo Chinese company that is the parent company of amongst other things. So we are going to hear from them finally how the tariff regime has been impacting them, how the reduction in loopholes regarding dropshipping into the United States has affected them. I would imagine that it is overstated what has happened to this company. I suspect they're going to have a report that is better than we anticipate.

[Dylan Lewis]

Dan, a question or a comment perhaps.

[Dan Boyd]

About Pinduoduo Ticker pd How much of their business is Temu? Because Temu is generously a steaming pile of crap when it comes to what it offers. I'm just curious about that.

[Bill Mann]

It is a fairly large component of their business. It is a larger component of their business outside of the United States versus inside of it, which I think is the more important part. I will leave the editorializing of their business and their products to Mr. Dan Boyd.

[Dylan Lewis]

Jason, I think you might have an easy case to make this week. What is on your radar?

[Jason Moser]

It's a company I have not really followed very closely, but as a wearer of eyeglasses, I think I'm going to start paying a little closer attention. That's Warby Parker. Ticker is WRBY. Dylan. When Google Glass first came out over 10 years ago, it was revolutionary, but it didn't really work out. It didn't live up to the hype and ultimately fizzled out. Technology has made a lot of progress. Now the company is going to give it another shot by partnering up with Warby Parker to rol roll out a new series of smart glasses, very similar to what we're seeing with Meta and its partnership with Ray Ban. The new specs will be built on top of Android. XR will include Google Gemini that users can speak with to actually use the devices. Google has committed just a modest $150 million on their part. A little bit More meaningful for Warby Parker. Of course. That'll get the ball rolling. Those are expected to come out here sometime after 2025.

[Dylan Lewis]

Dan, a question about Warby Parker. Ticker WRBY.

[Dan Boyd]

You know, I had glasses from Warby Parker before and they were pretty good. But then I wanted to get another pair. This is like a year later or something. And they were like, no, you have to go to an optometrist first. And I was like, don't you guys have my terrible eyes on file? Can't you just give me the same glasses as you did last time? And they're like, no, you need to go to a doctor first. And so I've never used them again. I guess that's how it works.

[Jason Moser]

I mean, at some point, doesn't that prescription expire and you have to have something updated?

[Dan Boyd]

They have something on file. If I tell them I want the glasses, why can't they just give me the glasses?

[Jason Moser]

They're looking out for your best interest.

[Bill Mann]

Dan Boyd, Anti medicine.

[Dylan Lewis]

He's not a fan of extra friction in the process. Dan, which one's going on your watch list this week? I don't know which way you're gonna go.

[Dan Boyd]

Hey, they both stink, but we'll go pinduo duo.

[Dylan Lewis]

Dan, appreciate you wanging. Jason, Bill, appreciate you guys being here. Bringing your radar stocks. That's going to do it for this week's Motleyful Money radio show shows, mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next.