This week, Signet Jewelers (NYSE:SIG) reported earnings, and while the report itself wasn't terrible, the stock dropped a whopping 30%. In this episode of MarketFoolery, Chris Hill talks with Bill Barker from Motley Fool Asset Management about why the market is so bearish about Signet's future and whether this might be a buying opportunity for the long term.
Also, the hosts talk about one international healthcare company that's quadrupled in the last few years, the difference between Volvo and AB Volvo, the most overrated and underrated foods and festivities of Thanksgiving, the perks of watching the National Dog Show with your family over the holidays, and more.
A full transcript follows the video.
This video was recorded on Nov. 22, 2017.
Chris Hill: It's Wednesday, November 22nd. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, from Motley Fool Asset Management, Bill Barker. Happy Thanksgiving Eve!
Bill Barker: Almost. It's the eve.
Hill: Yeah. We're going to talk about Thanksgiving, because of course we are. But, before we do that, before we dip into The Fool mailbag, before we talk about your recent trip to Dubai, which you claim had something to do with investing, we're going to talk about Signet Jewelers, because on Tuesday, Signet Jewelers, that stock got punched in mouth. It was down 30%. It was the single worst day in 25 years. How much did they lower their guidance? This is the diamond seller, and their third quarter sales were down a little bit, their same-store sales were down 5%. That's not falling through the floor. They lowered guidance, and I have to imagine they're setting 2018 up to be a terrible year. You don't see your stock drop 30% unless you're really giving yourself a haircut.
Barker: Yeah, it's been an annus horribilis for Signet, to quote an old Queen Elizabeth phrase. Bad year, terrible year. Starting, I think you covered this a lot back when they were having all of their harassment issues.
Hill: With Mark Light, the now-former CEO.
Barker: Yes. Gone, as you point out by calling him now-former. Well done. So, anyway, what this came down to is, they have new management that's come in and decided to change the financing, and not finance the purchases in house but hand that portfolio of loans over to somebody else and have others who are more in the business of financing these purchases do the work, and the transition has gone terribly. That's the issue. They have had a bad quarter, which in large part was helped along by this transition issue. And they've had, what they've got is people coming in looking to buy an engagement ring or jewelry. You said diamonds, they do all sorts of jewelry. They have a number of brands -- Kay, Jared, Zales, Gordon's, a number of these things. People come in, and they don't have the money for the diamond ring they want to buy, and now, because of the difficult transition, you can't get the financing done in the moments that they expect or at all, so they leave. And this is part of what has contributed to the 5% same-store sales decline, and it is importantly not over yet. Although management points to improvements and that they have sorted out a lot of the problems, the transition goes on. Now, we're in the fourth quarter. The third quarter was not a bad time if you were going to concentrate the problems in your business, because there are no big jewelry holidays in there. You don't have Christmas, you don't have Valentine's Day, and you don't have a big wedding calendar like you do in some other parts, although I guess the engagement season goes on anyway. But, now, we're getting in the fourth quarter, and that is, according to some, a big retail quarter.
Hill: [laughs] Yes, this is absolutely a big quarter. So, when you look at this stock, which is over the past year down 40%, they're heading into what should be a great quarter for them. Is this the time to buy this stock, now that they have new management, now that Mark Light -- and by the way, the official statement from the company was that Mark Light retired because of health reasons. Which I guess is one way of putting the fact that he was under a cloud of a massive class action lawsuit dealing with sexual harassment in very systemic ways. But, yeah, sure, we'll call it health reasons. But, again the question stands.
Barker: It's the holiday season. We're being charitable. We'll call it help. We'll say the only problem is he has terrible health. You're doing him a favor.
Hill: Exactly. Happy holidays, Mark!
Barker: Anyway, they're down more than 40%. I guess, going into today, it was already down 40%, and yesterday down another 30%. So, you're looking at a stock that was $150 now going in the $50s. And the issues, let's entertain the possibility that the entirety of the problem here is that this is a transition to financing which has not gone smoothly, and after this fourth quarter that we're now in, they won't have a great Christmas season, but beyond that they'll be fine. OK. Then the stock price might be interesting. On the other side, they're still heavily mall-based. The traffic is leaving the malls. They are a little bit behind but catching up on e-commerce. They bought somebody, R2Net, to help them set up a better e-commerce platform, and they have a number of different brands that they have to do this with. Their internet e-commerce sales were up some 40% for the quarter, but it's a very small part of the total sales. That's the bright spot. The other bright spot might be that, since this was a $150 a share stock that's now some $50, if it actually meets guidance, it's trading at about 9X earnings. There aren't all that many companies that are trading at 9X earnings right now. So, it's definitely a turnaround story. Given new management, given the turnaround they need to finally achieve in this financing transition. But, that's what you're looking at.
Hill: Let's talk about Dubai. You were just there for an investment conference, and it was a quick turnaround. We didn't talk about it the last time you were on the show, but I did want to touch on it, because I'm curious anytime you or anyone goes to an investment conference, what's one or two takeaways that you're able to share.
Barker: The reason for going to this was that the Independence Fund, which is one of the three funds that we have in Motley Fool Funds, about three years ago, Charly Travers, a colleague of mine who's been on the show, and I were there for a conference. And one of the companies that we saw, a company called NMC Health, which owns and operates hospitals, primarily at the time, three years ago, in the Emirates, the United Arab Emirates, of which Dubai is the second largest Emirate. It was a growing story, in part because of an expansion in the mandated health insurance that was being rolled out there, first in the Emirate of Abu Dhabi, and now in the Emirate of Dubai and in the future, quite likely, Sharjah, which is the third largest Emirate there. All of this new mandated health insurance has led to a lot more business for the hospitals, and NMC is in the business of building and operating hospitals. So, as it's turned out, in the three years since we've met the company and got invested in it, the stock has quadrupled, and that created a nice problem for us in that it's the third-largest position in The Motley Fool Independence Fund, which can invest anywhere in the world. And yet, we've got this very large position in a company which has grown to the prominence in the portfolio that it has, and as I said, it's a nice problem to have, but we need to keep tabs on it, which is why I was over there.
Hill: NMC Health, listed on the London Exchange?
Barker: Yes. Despite being a United Arab Emirates company.
Hill: So, you were there for a very short time. You flew out on a Saturday and you were back on Wednesday.
Hill: And yet somehow, it sounds like, based on an email that I got from you, you had a chance to take in a little culture.
Barker: I did not have much time, because the first day and a half of the 48 hours that I was there, I was involved in an investor day for NMC Health, and a conference on other area hospital healthcare companies. But, following that, I got to walk around Dubai a little bit. And knowing, as some listeners do, what we talk about the most and I'm indulging in right now, which is coffee, that's what I did. I spent part of my time going to the Coffee Museum in Dubai. The world-famous Coffee Museum.
Hill: How big is the museum?
Barker: It's a little bit bigger than this studio.
Hill: [laughs] OK.
Barker: I would say, we're in a studio, and it's not a huge studio we're in. It's about three times the size of this studio.
Hill: So, not a particularly big museum. So, maybe the word museum is a misnomer.
Barker: Well, that's what they call it.
Hill: Right, and who am I to accuse them -- of anything, for that matter. But, it sounds like, from a marketing standpoint, "Come visit the Coffee Museum" sounds better than "Come visit the Coffee Room, because it's really just one room."
Barker: No, there were several rooms. Small rooms.
Hill: Tiny rooms, apparently.
Barker: No, you could cut this studio into two to three smaller rooms.
Hill: Did you learn anything?
Barker: I learned that, there were a couple of posters up there, a couple of which featured facts that we go over often, which is the health benefits of coffee, and how many different diseases it completely cures people out of. That's how I choose to remember it.
Hill: OK. It's not, "Hey, this is going to reduce your risk of X." You look at it and go, "That'll cure me."
Barker: That's how I file all coffee-related information in my brain.
Hill: If you just drink enough...
Barker: If you drink enough, apparently it cures everything.
Hill: And, somewhere, someone is testing coffee as fuel for a bus. Is that right?
Barker: Yes. That was not covered at the museum, at least not when I saw it. But, I think, in London, or England somewhere. Yes. Coffee grounds are now being used as some sort of biofuel.
Hill: We're going to need someone in London, one of the dozens, to take a ride on one of these coffee buses and let us know how that goes.
Barker: It'll probably cure you of any illness. Just riding. Just being near that much coffee.
Hill: I'm wondering if the exhaust has an aroma to it, if you happen to be walking by or it drives by, or you're in a convertible driving behind the coffee bus.
Barker: I think we need somebody else to look into that.
Hill: Right, we can't just fly over for that. Our email address is email@example.com. We got a great email from one of our listeners in reference to Monday's episode, where we were talking about Uber buying some cars, 24,000 vehicles from Volvo. I made a reference to Volvo's stock, and got this helpful email from Adam Bankson, whose name I'm almost certainly mispronouncing. Adam, I apologize for that. He's from Göteborg, Sweden. Adam writes, "As I'm sure a lot of Swedish Fools, have already informed you, the publicly traded company Volvo is not the same as Volvo cars." Let me just pause right there. I love the assumption that a lot of listeners in Sweden have already sent me this email. Actually, Adam, you were the first and I appreciate it. Thank you! He goes on to write that, "In 1999, Volvo cars was sold to Ford, and in 2010, Ford sold it to Geely, which is a Chinese company. The publicly traded company AB Volvo is the world's second largest truck manufacturer. Both are doing great, showing record revenues and hiring thousands of engineers in my hometown of Göteberg, which is the hometown of Volvo. There are rumors of Volvo cars returning to the Swedish Stock Exchange, so hopefully we can soon again become shareholders of this innovative and future-looking company. Keep up the great work. I listen to every episode, and I'm looking forward to the upcoming bonus episode." Thank you again, Adam, for listening and for your optimism about the bonus episode, which is coming in the next couple of weeks.
Barker: How did you pronounce the city of the listener?
Hill: It's G-Ö-T-E-B-E-R-G, but there's an umlaut over the o.
Barker: You pronounced it goat-berg.
Barker: I'm looking forward to the correction that you will receive from the many listeners in Sweden.
Hill: I'm so sorry. [laughs] Sweden, I'm so sorry. How is it pronounced?
Barker: Well, I don't know. But I'm pretty sure you got it wrong. [laughs] I'm not sure they have the silent e in many other languages. But, what would be really cool is if I were wrong, as happens. Speaking of getting something wrong, we covered, I claimed that pizza was invented in New Haven during one show.
Hill: We got some angry emails about that.
Barker: Yeah. And to be fair, I think the legend is, it was introduced into America --
Hill: In the port of New Haven? I didn't know about that.
Barker: Yeah. That's how New Haven sells the story of itself, that it was the first place in America to produce pizza.
Hill: And I'm going to stand by what I said during that episode, which is that New Haven is doing a really pathetic job of promoting its alleged role in American Pizza. If New Haven is really all that and a bag of chips when it comes to American pizza, they need to make that the centerpiece of their campaign. You know what Americans love? Among other things, pizza. And if New Haven were really ground zero for American pizza, I think that would boost the tourism to New Haven. Which is to say that tourism would go from zero to something about zero.
Barker: I'm looking at a CBS News article from a couple of years back that points out that New Haven was voted the best pizza in America. So, if you had spent more time reading CBS online reports, you would already be aware of this.
Hill: That voting is suspect.
Barker: Also, more likely true is that the hamburger was invented in New Haven. That's another show.
Hill: That's another show, and that's another batch of angry email that we're going to get.
Barker: That's easier to establish.
Hill: We are going to be doing the bonus episode, and that's coming. I've already started getting emails from listeners regarding holiday music. We have listeners who have just started listening in the last few months. The longtime listeners know that, the last two years on Market Foolery, December is holiday music month. This is where producer Dan Boyd and I took it upon ourselves two years ago to fight back against the mediocrity of holiday music that gets played on commercial radio stations in America. I don't mind them flipping to the all-holiday format, although I think some of them pull the trigger a little bit early. But, to play the same 50 songs ... Dan, am I right? You and I, I think it's fair to say, I want to say it was December 1st or 2nd, because it wasn't the first episode of December in 2015, I think it was after that. And I made a comment, and you immediately and heartily agreed with me that holiday music needs a massive upgrade, and we're going to do our part to help it.
Dan Boyd: I think what happened was, you made a comment and I agreed with you. Then, since I listen to a lot of ska and reggae, I was like, "I know all these great ska songs that I can put in here, because why not, I'm always looking for an opportunity to do that." And then we inadvertently started a thing right after that. A thing that I'm very proud of, by the way. I really enjoy picking the music for that. I love how we get a lot of mails about how people like it, too.
Hill: Yeah. And we're going to be doing it for the third year in a row. It'll kick off with the bonus episode, which will have a holiday theme to it, with Bill Barker and myself and the mystery guest.
Boyd: Though, a lot of times people ask us for lists of the music we use. We don't have one.
Hill: I actually do.
Boyd: Do you really?
Hill: Yeah. So, if you want the list, email firstname.lastname@example.org, we'll get you the list.
Boyd: Well, look at that!
Barker: The other guest coming in for this, he can hold his own on the holiday music topic.
Hill: Oh, and we're going to talk about that, because he's one of the inspirations for all of this, absolutely. As you said, he's an all-star.
Barker: When it comes to holidays, he's beyond an all-star.
Hill: Yeah. First bell of hall of fame.
Hill: You know what? I'm going to say Rushmore. He doesn't listen to this podcast, probably, so he doesn't know --
Barker: He doesn't know the pressure that's being put on him. He knows everything there is to know about holidays. You can challenge him with any piece of trivia at all. He's like a computer.
Hill: Marketfoolery@fool.com, just send us your holiday questions, or suggestions for the bonus episode. Thanksgiving tomorrow. We love Thanksgiving. What's not to love? There's a lot of food, there's football, there's travel often involved, and extended family.
Barker: It's your No. 1 ranked holiday, isn't it?
Hill: It's my single favorite day of the year. It's my single favorite day of any given year, is Thanksgiving. Love it! Absolutely.
Barker: So, was there a question? Was it about my loving Thanksgiving?
Hill: No, it was more of an overrated, underrated. Is there anything that you think is a little overrated about Thanksgiving. It can be food, it can be the day itself, or it can be something that is underrated.
Barker: If it's just food -- have you already given yours?
Barker: This hasn't been a week-long thing with you?
Hill: No, it has not. And by the way, and I was going to say this before, for anyone who has ever listened to this podcast and thought to themselves, "How much editing do they do on that podcast?" This episode should tell you, the answer to that is zero.
Boyd: Slim to none. [laughs]
Hill: Was it you who asked me recently, "In a given month, how many edits total do you think are made on Market Foolery?" And I said somewhere between zero and one in a single month. Thanksgiving food, overrated, underrated?
Barker: As highly rated as it is, I have to believe that stuffing is still underrated.
Hill: I agree! I was absolutely going to say that. And, by the way, if you don't think stuffing is underrated, you're doing stuffing wrong. Or, you haven't had good stuffing in your life.
Barker: Yeah, you're having Stove Top Stuffing or something. Which is fine.
Hill: It's perfectly fine stuffing.
Barker: It's not the stuffing that comes out of the turkey, which is totally underrated.
Hill: Where do you stand on the whole stuffing vs. dressing? There are people who refer to stuffing as dressing. And I think, dressing is what goes on salads.
Barker: These people are crazy. These people need to be confronted and stopped before they get any further.
Hill: Do you think there's a movement? I think they're few and far between.
Barker: You're the one bringing up these people, implying that there are swarms of them.
Boyd: I'd eat a lot more salad if there was a bunch of stuffing on top of it. [laughs]
Hill: Exactly. Also, gravy. Anything overrated?
Barker: Cranberry sauce, completely overrated.
Hill: All cranberry sauce? Or just --
Barker: The cranberry sauce that has been served to me over the years.
Hill: It sounds like, maybe you have the opportunity to do a little cooking on your own, find a recipe that you like and make an upgrade there.
Barker: Possibly. But, having suffered through the cranberry sauce that I have over the years, I don't find a need to. It just doesn't appeal to me at this point. I'm scarred.
Hill: I think you would blow people in your family away if all of the sudden you were like, "Hey, something different this year, I Just whipped up a little cranberry orange relish with a little secret something inside." And first of all, people would be stunned that you contributed absolutely anything in the way of food.
Barker: Oh, yeah. [laughs]
Hill: And two, it would be like, "What upgrade this is! How amazing!"
Barker: "Is he dying? What's going on? What's changed?" And you, overrated?
Hill: I'm trying to think.
Barker: There's nothing overrated in the entirety of Thanksgiving, you're saying, given your love for it?
Hill: I don't think they're overrated, but I love stuffing so much that, for me, mashed potatoes, they're always there, they're always perfectly fine and edible, and I never really partake of them because I could do that plenty of other times.
Barker: Yeah. Stuffing could take over its own holiday. There could be an entire new holiday devoted to it.
Hill: Isn't that what Thanksgiving is?
Barker: No, turkey is still what many people consider the most important part.
Hill: OK, yeah, but it's a little bit of one without the other. If you just show up and -- I don't want to put you on the spot. If I showed up to Thanksgiving dinner and there was turkey and there was no stuffing -- in fact, that happened one year.
Barker: Violence would ensue?
Hill: Not that there was no stuffing, but there was not enough stuffing. So, because we have about, somewhere north of 40 people at our Thanksgiving dinner, and I was one of the last people to go through the line, and saw that we were out of stuffing and ... I didn't yell, but I was like, "Really?"
Barker: Did fisticuffs break out?
Hill: No fisticuffs, but I may have mentioned on more than one occasion after that, "Hey, next year, maybe let's double up on the stuffing."
Barker: Is it like an annual topic that comes up? "Remember that year that there wasn't enough stuffing?" "Oh, no, Uncle Chris is going to go off about that."
Hill: No, it's not like that.
Barker: The bleak winter of aught-three, that kind of thing, when there is not enough stuffing.
Hill: It might have been aught-three, come to think of it. Dan, anything you want to add in terms of overrated/underrated Thanksgiving food?
Boyd: Yeah, I got a couple here. I will underrate the green bean casserole as something that's completely delicious, and a lot of people don't even remember to make.
Hill: Can you sell me green bean casserole? I don't think it's actually ever been a thing in my family. And I hear good things about it. You're maybe the third of fourth person in the office in the past week or so, when I've asked people, "What's the food you're looking forward to?" The first thing they said is, "My family's green bean casserole."
Boyd: I think it's mostly because green beans are, on their own, delicious already. Then, you combine it with a ton of butter and crispy fried onions. You have a winner all the way through.
Hill: Yeah, that sounds good.
Boyd: I want to overrate sweet potatoes, by the way. I don't like them. Don't see why they're there. If I want to dessert, I would eat dessert.
Barker: I'm with you.
Hill: That's true.
Barker: Beyond, food, I'll give you two quick ones. Overrated, Black Friday.
Hill: It really has become part of Thanksgiving, hasn't it?
Barker: Yeah. It's unfortunate.
Hill: I think, with the rise of e-commerce, Black Friday has become diminished. Not that you would know that from advertising, because certainly that continues to be hammered home on television and in flyers and that sort of thing, and email, and all of that. But yeah, it absolutely has become part of Thanksgiving.
Barker: And underrated, I'm going to say the National Dog Show.
Hill: Do they hold that on Thanksgiving Day now?
Barker: They show it. Not the Westminster Dog Show, the National Dog Show, which originates in Philadelphia and is taped and then shown on Thanksgiving.
Hill: This was the one that was subject of that documentary, Best in Show, right?
Barker: It may have been, because, [laughs] John O'Hurley, best known for being Jay Peterman, comes across very consonant with the announcer in Best of Show?
Hill: Is he the announcer for the National Dog Show?
Barker: Yes, he is. You can see him playing that role, that Fred Willard, I guess, portrayed in the documentary Best in Show.
Hill: For anyone who has not seen Best in Show, it is among the best mockumentaries. It's right up there with Spinal Tap, in my book. It's such a wonderfully funny movie, and skewers the Westminster Dog Show in a fabulous way. Do you watch that?
Barker: A little bit. It's a much quicker version of the Westminster Dog Show. I think you get more dog per minute. As much dog per minute as there is in the Westminster Dog Show, each dog is getting more time than some... you get all the dogs in in two hours, the Westminster dog show takes two nights.
Hill: So, they're counterprogramming the football, I'm guessing.
Barker: Yeah. I think it works, because it's a family thing, a family holiday. Dogs are, everybody shows up and roots for the breed of dog that they have, to a large degree. I think it's underrated. What do you have?
Hill: I don't have anything outside of food. [laughs] I really don't.
Barker: Is that the whole agenda at the Hill family Thanksgiving?
Hill: I mean, it's a big part of the agenda.
Barker: Well, it's a big part of the agenda, but you have the football.
Hill: You have the football, but the football seems to have diminished because there's so much more of it now. Aren't there four games on now? Of course, the Detroit Lions are playing, and the Dallas Cowboys are playing because that's a federal law here in the United States of America. But, I think there are four games.
Boyd: I have a question for you guys. Out of the holidays sports match-ups, is football on Thanksgiving better? I guess the other ones would be basketball on Christmas, baseball on 4th of July, and hockey on New Year's Day.
Hill: The hockey on New Year's Day, the outdoor event is pretty spectacular. And I've never been to that, but I just love the idea of that. I know it only happens every other year, because that's what they do with the NHL, they're on that kind of schedule. But for me, probably, it's, having just made the comment about, there might be too much football on Thanksgiving Day, the fact that there are five NBA games on Christmas Day, that works just perfectly for me. That's great. Any downtime on Christmas Day, I can catch some part of a game or two.
Barker: I think everybody is just playing catch up with the NFL on Thanksgiving. Baseball on the 4th of July preceded it, but I don't know. I don't think of baseball on the 4th of July in quite the same way, like, "It's 4th of July, I should be watching baseball." It's a great thing to do with your 4th of July, but I don't feel an obligation as part of my presence in society, like "I have to watch the football games."
Hill: What do you think?
Boyd: As much as I love baseball and I'm soured on football, I think Bill is right here. Being a Nationals fan is great because the Nationals play at 11 o'clock on 4th of July, because of all the parades and everything that goes around in the city. But, I think football is an integral part of the Thanksgiving tapestry that we've woven, if you like that metaphor.
Hill: I do, and I can't think of a better way to end this episode. We're going to wrap up there. Bill Barker from Motley Fool Asset Management, thanks for being here!
Barker: Thanks for having me!
Hill: Happy Thanksgiving, everybody. 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 or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! Have a great Thanksgiving! We'll see you on Monday!
Bill Barker has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.