Motley Fool Money: "Welcome Back to Correction Territory" – Detailed Summary

Release Date: March 13, 2025
Hosts: Ricky Mulvey and Anthony Chavon
Guest: Nick Scipal

1. Navigating Market Corrections

Ricky Mulvey opens the episode by addressing the current market volatility, setting the stage for a discussion on whether investors should view this period as a potential sell-off or an opportunity.

Nick Scipal provides a reassuring perspective:

"[00:26] Nick Scipal: I think the market kind of came into this year kind of looking for a sell off. So I think as investors just have to be patient, view this as an opportunity."

He emphasizes historical resilience, noting that the market has experienced numerous bear markets since 1928 and has consistently rebounded each time:

"[00:48] Nick Scipal: Market yet, but we've been in 21 since I think 1928. And we've come out of it every single time."

Anthony Chavon adds to the conversation by highlighting the cyclical nature of corrections and the importance of long-term investment strategies:

"[01:00] Anthony Chavon: The last correction we had was July 31 to October 27, 2023. Since 1950, these corrections happen every year. So this is kind of the cost of admission for being a stock investor."

2. Dollar General's Earnings Report: A Mixed Bag

The discussion shifts to Dollar General's recent earnings report. While the company reported a modest increase in same-store sales and a significant rise in cash flows from operations, earnings per share (EPS) fell short of analysts' expectations.

Nick Scipal breaks down the discrepancies:

"[02:18] Nick Scipal: The earnings per share number was well short of expectations, but that was primarily due to charges related to ongoing store closures and an impairment charge relative to its top shelf retail concept."

Despite the lower EPS, positive guidance for same-store sales and 2025 earnings kept investor sentiment buoyant, evidenced by a 5% stock increase:

"[03:03] Nick Scipal: Management's positive outlook for 2025 even though their core consumer remains conscious. I think that's why the market reacted so well to this earnings report."

3. Consumer Financial Strain and Retail Dynamics

Anthony Chavon cites concerns from Dollar General's CEO, Todd Vasso, about the deteriorating financial situation of consumers:

"[03:37] Anthony Chavon: CEO Todd Vasso stated, 'Our customers continue to report that their financial situation has worsened over the last year...'"

Nick Scipal echoes these sentiments, linking them to broader retail trends and citing Simon Property Group as another retailer observing similar consumer struggles:

"[04:26] Nick Scipal: The lower end consumers' purchasing power just continues to be under pressure after years of cumulative inflation."

4. Shifting Consumer Behavior: From Convenience Stores to Health-Conscious Choices

The conversation delves into why decreased spending at convenience stores doesn't necessarily translate to a trade-down to retailers like Dollar General. Nick Scipal attributes this to stiff competition from giants like Amazon and Walmart:

"[04:45] Nick Scipal: Amazon and Walmart have probably had a pretty big impact on the consumer trade down for Dollar General in recent years."

Anthony Chavon observes a broader cultural shift towards healthier eating habits and reduced discretionary spending:

"[07:37] Anthony Chavon: There's a large-scale cultural shift where people are thinking more about what's going into their food."

Nick Scipal concurs, highlighting the influence of health-centric media and lifestyle changes among younger consumers:

"[09:11] Nick Scipal: There's an overwhelming amount of health-centric podcasts and health influencers... a lot of my friends have completely stopped drinking alcohol and are much more focused on eating healthier."

5. Hershey's Strategic Adjustments Amid Market Pressures

Anthony Chavon examines Hershey's efforts to navigate the challenging retail landscape by implementing a "gold standard planogram" aimed at optimizing product placement and boosting sales in convenience stores:

"[10:15] Anthony Chavon: Hershey is trying to boost sales in convenience stores by at least 40% with a gold standard planogram."

Nick Scipal analyzes Hershey's tactical shifts, such as introducing smaller, more affordable product sizes to cater to budget-conscious consumers:

"[11:00] Nick Scipal: Hershey offer things like the big cup where it's a much smaller Reese's cup, but it's at a much more affordable price."

Despite these efforts and external pressures, Scipal remains bullish on Hershey's long-term prospects, citing the company's strong association with social gatherings and holidays:

"[12:30] Nick Scipal: I’m still a bull on Hershey for the long term... a large portion of their sales revolves around things like social gatherings and holidays."

6. TKO Group's Growth and Insider Confidence

The focus shifts to TKO Group, the parent company of UFC and WWE, highlighting significant insider buying as a sign of confidence in the company's future.

Anthony Chavon points out the unusual nature of the insider purchases:

"[20:42] Anthony Chavon: This is different from a lot of companies where there was a while where the CEO Ari Emanuel had set up this automatic stock buying plan."

Nick Scipal explains that the insider buying is largely driven by Endeavor Operating Company's strategic investments:

"[21:00] Nick Scipal: The purchasing was made by Endeavor Operating Company... they've been buying a lot of shares through a 10b5 plan."

He also discusses upcoming catalysts such as the expiration of media rights deals with ESPN:

"[21:30] Nick Scipal: The UFC rights deal with ESPN expires at the end of this year... those are potential catalysts for the stock to move higher."

7. Expansion into Boxing and Strategic Partnerships

TKO Group's latest venture into the boxing realm, in partnership with Saudi Arabia's General Entertainment Authority, is a significant highlight.

Nick Scipal envisions this new boxing league as a potentially transformative force in the sport:

"[15:06] Nick Scipal: This is going to become one of the biggest boxing promotions, if not the biggest boxing promotion in the world."

He anticipates that the collaboration between Dana White and Saudi stakeholders could streamline the fragmented boxing landscape:

"[17:09] Nick Scipal: Combining great talent with significant financial backing is the perfect setup for Dana White to really bring his talents to bear."

Anthony Chavon raises concerns about regulatory challenges, particularly the Ali Act, which could complicate the integration of promotions and title management:

"[17:49] Anthony Chavon: The Ali act seems like it might interfere with how Dana White has traditionally run the UFC."

Scipal acknowledges these challenges but remains optimistic about operational flexibility and potential legal adjustments:

"[18:16] Nick Scipal: They have the opportunity to hold these events outside the US as well. So I don't think it will be an impediment to the growth of the sport."

8. Impact of ESPN's Canceled Deals on TKO Group

The cancellation of ESPN's deal with Major League Baseball (MLB) prompts speculation about future media partnerships for TKO Group.

Nick Scipal suggests that the end of ESPN’s relationship with other boxing promotions clears the path for TKO's new league:

"[24:19] Nick Scipal: ESPN canceled its deal with Top Rank... when the first TKO boxing event is set to take place in September, maybe that's clearing the deck for a potential rights deal."

He remains confident in the ongoing partnership between UFC and ESPN, viewing it as a stable foundation for future growth:

"[22:55] Nick Scipal: The UFC ESPN partnership has been a great one... it just more naturally fits in with what ESPN is trying to do in streaming."

9. Conclusion: High Conviction in TKO Group

As the episode wraps up, Nick Scipal shares his personal investment strategy and confidence in TKO Group.

He underscores the synergy between TKO's content and modern streaming consumption habits:

"[26:25] Nick Scipal: This is a company that the content that WWE is in and by extension UFC and others really fits extremely well with streaming."

Highlighting the leadership and strategic vision of executives like Nick Khan and Ari Emanuel, Scipal reiterates his bullish stance on TKO Group's long-term potential:

"[26:25] Nick Scipal: I've got more assets under the umbrella and even more talented folks running that playbook. And I'm excited to see where negotiations end up finishing out for the rights fees this year."

Key Takeaways

• Market Corrections are seen as opportunities for long-term investors, with historical resilience suggesting recovery is likely.

• Dollar General faces short-term earnings challenges but maintains positive guidance, reflecting underlying consumer opportunities.

• Consumer Behavior is shifting towards healthier and more price-conscious choices, impacting convenience stores and retailers differently.

• Hershey's strategic adjustments in product offerings demonstrate adaptability, though cultural pressures remain a concern.

• TKO Group's significant insider buying and expansion into boxing signal strong confidence in its growth trajectory, despite potential regulatory hurdles.

• Media Partnerships, especially following ESPN's canceled deals with other sports, could play a pivotal role in TKO Group's future success.

This episode of Motley Fool Money provides investors with deep insights into current market corrections, retail sector challenges, evolving consumer behaviors, and strategic movements within major companies like Dollar General, Hershey's, and especially TKO Group. With expert analysis and forward-looking perspectives, listeners are equipped to navigate the complexities of today's investment landscape.