On today's episode of Market Foolery, Chris Hill talks with Bill Barker from Motley Fool Funds about what sent Rite Aid (NYSE:RAD) and AutoZone (NYSE:AZO) in opposite directions yesterday. Retail is suffering, but it's a good time of the year to be an auto-parts maker. Rite Aid missed the mark again, and analysts are speculating on buyout candidates. L Brands (NYSE:LB) is down a whopping 13% after showing some pretty weak trends in its earnings report. Plus, some corrections and updates from our end-of-the-year episode, the unveiling of our new podcast swag shop, and why New York Times (NYSE:NYT) took an interest in our Fool Funds team this quarter.
A full transcript follows the video.
This video was recorded on Jan. 4, 2018.
Chris Hill: It's Thursday, Jan. 4. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, from Motley Fool Funds, Bill Barker. Thanks for being here!
Bill Barker: Thanks for having me!
Hill: Thanks for braving the inch and a half of snow that's outside that shut down every school in the D.C. area.
Barker: It's crippling.
Hill: It never gets old, particularly for people like you and me, who grew up with actual snow.
Barker: Yeah. Well, I didn't grow up with as much as you did.
Hill: No, but --
Barker: Because you have all the snow.
Hill: Maine doesn't have all the snow, but I'm going to say it's certainly in the top 10. It's in the top quintile in the United States. Considering we're nowhere near earnings-palooza, we have a bunch of things to get to. We're going to dip into the Fool mailbag. I have to do a little cleanup from the last episode of 2017. And we do have a fun announcement coming up. But first, we have to start, we have to start, with Dow 25,000.
[sound clip plays]
That's our man behind the glass, Dan Boyd. We didn't know what he was going to pick for a sound effect. You were the one who said we have to have a sound effect for Dow 25,000. Can we hear it one more time? Is that possible? He'll queue that up. But it never gets old, does it? The celebration around, oh, the Dow hit a big, round number.
Barker: I think we've covered it. I think we've completely surrounded this topic.
Hill: Except for one more time.
[sound clip plays again]
There you go. That's our Dow 25,000 coverage.
Barker: All the more humorous if the market does not finish above 25,000.
Hill: That's true. At this moment, it's still above 25,000. Let's actually go back to the winter weather, because it does seem like it's having a slightly positive effect on one group of stocks this morning, and that's auto parts. If you are AutoZone or Advance Auto Parts, if that's your business, if you're a shareholder of this business, as we've talked about before, you are 100% rooting for winter weather. You want more snow, which means more salt on the roads, which means parts wear out more quickly, which means more business.
Barker: Yeah. You want more ice, more snow. You want more potholes at the end of the season or in the middle of the season. And they don't disguise the fact that they're rooting for winter weather and love it when it shows up.
Barker: Yeah. Most companies make excuses when there's bad weather about how that affects their sales. And AutoZone and O'Reilly and Advance Auto Parts, they all take a victory lap. And the market, in advance of any actual reportable results, is, maybe this is what's fueling them being up 5%-8% so far in the first couple of days of the year. Also, they had a weak year last year, so you've seen sort of a January effect, might be fueling some of that, too. But we'll see. It's still tough times for retail, as we'll go into.
Hill: We will. We joke about the inch and a half of snow that's on the ground here. Meanwhile, north of here, you look at New York, you look at New England, they're going to get hit with legitimate blizzard conditions.
Barker: Yeah. So you'll have cars getting a little bit more banged up as a result of that, and you'll have parts wearing down. The salt is helpful, and the roads. Yeah, it's a real storm, especially in your neck of the woods.
Hill: Yeah. Someone tweeted last night, Maine is canceled on Thursday. Just, everything. School is canceled. All sporting events canceled.
Barker: They're not going old school?
Hill: You know, every once in a while, you get that level of snow.
Barker: Was school ever canceled back in your day?
Hill: In the four years I was in high school, I think there were two days that school was canceled, and one of those days it wasn't because of snow. It was because --
Hill: [laughs] No. Not a moose.
Barker: There was a moose attack in your neighborhood?
Hill: You know what, not in my neighborhood, but if you've ever crossed paths with a moose...
Barker: You're not around, are you?
Hill: You're not around. Talk about Advance Auto Parts. If your car has an encounter with a moose, that doesn't go well for the car.
Barker: In my school when I was growing up, if there was a dog that showed up in the playground or the fields at recess, everybody would gather -- oh my God, there's a dog. Did you do that with moose? Was that a thing?
Hill: No. Because moose didn't show up --
Barker: They were there so often that you just blew them off?
Hill: Yeah, we all knew them by name.
Barker: Most people have a few as pets.
Hill: Yeah, why not? They're adorable. So one time, school was canceled because there was no heat in the school, and that was it. But other than that, there was only one other time it was canceled due to snow.
Let's stick with retail. I guess we'll start with Rite Aid, because they reported third-quarter results, and to put it charitably, they missed. Rite Aid, in early January, there were all of these reports coming out in the financial media of predictions for the year. And when it comes to retail, you don't have to look very far to find somebody who's put together a column of essentially doom and gloom for retail. And it can take the form of, "Here are the retailers that I think are going out of business," and/or, "Here are the retailers I think are going to be acquired." I look at Rite Aid -- I don't know that they're going out of business, but I don't know how much longer Rite Aid is going to be a standalone public company.
Barker: Not much longer, I'm sure, they hope. They've tried to sell themselves a couple of times now, and they have only succeeded up to the point of getting a large number of their stores are now going to go to Walgreens. That's Walgreens Boots Alliance (NASDAQ:WBA). That has been approved, but not in the original form, so they're still going to have operations after that. When the deal failed to go through last year, the stock took a huge hit and it's still down some 70% off of its highs, something like that.
Hill: So who buys them? Is it Walgreens Boots Alliance picking up the rest of the locations? Does CVS go in here? Because CVS really seems to be moving in a completely different direction from retail in general.
Barker: Well, CVS still has a significant retail presence, and they're expanding in terms of their merger acquisition with Aetna, so they are going into a more vertically integrated company. But I think it's a possibility that ultimately, the Rite Aid stores show up at CVS or somewhere else. I think Fred's was going to acquire some of the stores, but it's not now. The way that the revised deal has worked out, I think somewhere around 1,900 stores are going to Walgreens, which is a very significant portion of Rite Aid's business, and I think it takes them out of the Southeast entirely.
Hill: Sticking with retail, L Brands reported their sales for December. L Brands is the parent company for Victoria's Secret, Bath & Body Works. And I don't know what they reported, but I know their stock is down more than 13% this morning, so I'm assuming it was not a merry Christmas for L Brands.
Barker: No. It wasn't a disastrous Christmas. It's just not really taking off. Comparable sales were up 1% for the five weeks, end of Dec. 30. So let's call that flat. It's not even at the level of inflation. They had a rough year on the whole in terms of the top line, because the Victoria's Secret brand got out of apparel and swimwear, which hurt the top line.
Hill: Wait a minute. What do you mean, they got out of apparel? Isn't that what Victoria's Secret sells? Apparel?
Barker: More dresses. They're just lingerie now, whereas they had done, beyond lingerie, swimwear and other clothing. Now they're just doing what they're best known for. So I can understand the focus. It serves them on the top line. Maybe ultimately, it'll turn out to be the right thing to do, not compete in too many spaces. It is tough in retail generally, so maybe being more focused is the right move. But they're down 14%, because comps are basically flat, and that was a disappointment.
Hill: Certainly we did our part to help on the Bath & Body Works side, because it prompted one of our listeners to go out and spend $27 on a Peppered Suede candle. I don't know the extent to which L Brands executives are throwing blame around, but I certainly hope they're not pointing the finger at us.
Barker: No. You say the candles are $27, and that's what they retail for, but I think they have deals all the time where you go in and it's three for one or something like that. So I hope our listener didn't spend all of $27 on it. That would be tragic, when you can get them for much less on occasion. I mean, I've picked up a few because my daughters seem to enjoy these things.
Hill: The big ones? I will say this: Having made plenty of fun about the fact that they're selling candles for $27, it was a big hunking candle.
Barker: And if you're pressed for stocking stuffers, they're great, because that's basically all you can fit into the stocking, is one of those candles. Instead of having to hunt around for dozens of things.
Hill: So, what scents did you buy for your daughters? Did you go Frozen Lake?
Barker: I didn't get Frozen Lake. I think I got the Butterscotch Bourbon. I was compelled to get that. There was some other absurd Black Tie or something like that. I can't remember.
Hill: That's actually the name? Of course that's the name. Why wouldn't they have a candle called Black Tie, which means nothing.
Barker: Yeah, you can come up with virtually any two words that you want. Road Suspect.
Hill: Market Foolery. That's technically one word, but that's fine.
Barker: Dave Town.
Hill: Pie Town. Which might be my favorite city name in America, Pie Town, N.M.
Barker: How about Loch Ness?
Hill: I would love it if Bath & Body Works had a candle named Loch Ness. I'm imagining some sort of, I don't know what it would smell like, but I would probably spend some money on that if they were selling them.
Barker: They had one that we were talking about called But First, Coffee! And you thought, isn't that just coffee? And I don't know. Maybe it's the scent of, before you make coffee.
Hill: Is there a scent before you make coffee?
Barker: I don't know. Is there a scent of a Frozen Lake? Is there a scent for Peppered Suede?
Hill: Damn you, Bath & Body Works. Let me start with this. At the end of December, because I was not here the final week of December, I ended up taping a whole lot of stuff the last three days before the Christmas break. And as our producer behind the glass, Dan Boyd, can attest to, I got a little punchy toward the end. As a result of that, the final episode, the very last thing I taped before Christmas, which was the last episode of Market Foolery in December, me talking, among other things, about my experience at the Marine Corps Marathon, it was maybe an hour or so after the taping of it when I had already left the office when I thought, "Oh man, I forgot a couple of things."
Barker: So, you're going to be monologuing for a little bit here, right?
Hill: Yeah. Drink a little coffee.
Barker: So those that wanted to hear me can just start going on double speed right now. As Chris pointed out.
Hill: [laughs] Are there those? Yeah --
Hill: We know there are. A couple of listeners helpfully pointed out --
Barker: I can go out and get coffee, because I'm about to finish some, and I can come back in time.
Barker: Because you have about five minutes' worth here.
Hill: No, it's less than that.
Barker: I doubt it. I'm timing it.
Hill: [laughs] Go for it. When I was talking about my pulse dropping, I actually meant to say my blood pressure dropping. So that was going on. Secondly, a year ago, end of December 2016, one of the things I talked about the last episode of the year was the fact that Mac Greer, longtime producer of Motley Fool Money, was going to start helping out hosting Market Foolery. And in my brain-dead haze, I forgot to thank Mac for everything he did in 2017 and continues to do in hosting Market Foolery when I'm not here. So thank you to Mac. Last but not least, the kicker, the epilogue to my marathon story, which is about the guy who helped me, the guy in the bright orange shirt. I tracked him down. I did a little sleuthing --
Barker: Would you say that you stalked him?
Hill: No. No, I wouldn't say that.
Barker: I might say that. He might say that. But you're not going to say it.
Hill: I'm not going to say it.
Barker: Stay on the right side of the law, I say.
Hill: Yes. You know why? Because it turns out, this guy is a detective in Montgomery County, so I absolutely want to stay on the right side of the law. No, his name is Chris Wielhouwer, and I got in touch with him, figured out who he was looking at the photos of the marathon, finding his number, all that sort of thing, and met up with him at Chatter when we taped Motley Fool Money at Chatter, about a month ago, and he just could not have been nicer. He happened to have the day off of work, so he came in, I chatted with him for about 10 minutes, and it was just really great to get to meet him and thank him in person for helping me. And I was able to do what I wanted to do, which was look him in the eye and say, "So, why did you help me?" And he just immediately said, "That's what the Marine Corps Marathon is all about. The spirit of the marathon, the enthusiasm of the crowds." And it was just great. So thank you to Chris for helping me out.
All right, that's it for the end-of-the-year clean-up.
Barker: That was tighter than I expected.
Hill: Less than five minutes, because I wanted to get to this. This fun announcement -- at least I think it's fun, and hopefully you will as well. This is something that, from time to time, the dozens have dropped an email to inquire about this one particular thing. And I'm happy to say that we've listened, and we've put together our very own Motley Fool podcast shop for people who are interested in podcast swag. We have T-shirts. We have a brand-new ball cap. We have -- of course, anyone who listens to this podcast, particularly when you're on, knows, of course we have coffee mugs. You can go to shop.fool.com to check out The Motley Fool's brand-new podcast shop. Shop.fool.com. We're working with a company out in San Francisco called Social Imprints. They make really quality stuff at a good price. So that's what we're offering. We hope you'll like it, hope you'll check it out. Because let's face it -- chances are, you may not have gotten everything you wanted for the holidays.
Barker: You've got one.
Hill: I've got the first-off-the-line podcast mug with the names of the different podcasts on it. Money, Foolery, Answers, Focus, and Rule Breaker.
Barker: Does the coffee taste noticeably better in that mug?
Barker: You have to say yes.
Hill: I have to say yes.
Barker: You have to, yeah.
Hill: I mean, absolutely.
Barker: I just have this Starbucks cup, and as you know, there's probably coffee spilled all over me by now.
Hill: Right. So you can remedy that. Go to shop.fool.com.
Barker: Those mugs, you're saying, don't deposit coffee on you while you're drinking from them?
Hill: They operate the way mugs are supposed to operate.
Barker: You might want to talk to Starbucks about this invention of yours.
Hill: I just might.
Barker: The non-leaking cup.
Hill: Do you think they need my help selling coffee over at Starbucks?
Barker: Not selling coffee, but selling cups.
Hill: I was hoping, today, we were going to be able to talk about your interview with The New York Times.
Barker: You were hoping? [laughs]
Hill: I was going to say, I was hoping, I'm sure you and your boss, Denise Coursey, were especially hoping you would be able to. So share the background on this. The New York Times, every quarter or so, I think it's every quarter, features someone in the mutual fund industry, someone in the ETF industry, and for the final quarter of 2017, the fund that you run at Motley Fool Asset Management -- how would I describe this in a way that wouldn't get me in trouble with FINRA? It was highly rated by Morningstar.
Barker: Yeah. The New York Times reputed -- it turns out falsely -- to be failing, by some. But it turns out, it's very healthy. They do a quarterly section on mutual funds and ETFs, and they get their data. The reporter who's responsible for writing this article gets data from Morningstar, what are the best-performing funds in various categories. And our fund, formerly known as Great America, and now Small-Mid-Cap Growth Fund, was the, I think, No. 2 performing fund in its category -- mid-cap growth funds. So that's nice. For the quarter. It's also No. 1 or No. 2 for the last six months. So the author was going to talk to us, and it turned out I would have been the one doing the interview, but his or her editor found something they think is more interesting. So I'm looking forward to seeing that article.
Hill: Do we think the editor found something more interesting? Or do we think the editor may have a bias against either The Motley Fool or you personally?
Barker: I can't understand having a bias against The Motley Fool.
Barker: My reputation might be different. I assume there's a very interesting story that will be coming out in The New York Times about some mutual fund, and maybe someday we'll get another shot at it. I don't know. New York Times, we're happy to talk to them anytime. But unfortunately, we did not this week.
Hill: Hashtag sad.
Barker: On the other hand, I wasn't even really aware that the fund had done that well, because we don't really focus on three-month periods of time. So what I got out of it was that information. So that's nice.
Hill: That is nice. Our email address is MarketFoolery@fool.com. Thanks to Gunnar Peterson in Minnesota, who sent a very nice note. He and his daughter, Maya, listen to Market Foolery. He included a link to an article in the St. Paul Pioneer Press about Maya, who sounds like your typical 15-year-old girl who goes to high school and just happened to write a book about investing. And this podcast got a shout-out in the article, so thank you to Gunnar for passing that along. If anyone is interested, you can check out Maya's book, which is called Early Bird: The Power of Investing Young.
Tertius Rivers in Portland, Ore., sent the following email --
Barker: Before we get to that. Much like you, I feel like I forgot, too, to say something regarding this New York Times stuff. And that is, although I work on the fund, the entire team should be mentioned in terms of taking whatever victory laps there are to take for good performance over short periods of time. Charly Travers, Bryan Hinmon, Nathan Weisshaar, Dave Meier, Tony Arsta all contributed significantly. I was looking through our top nine performers over the quarter, and everybody on the team had contributed at least one of the best-performing ideas. So it's very much a team effort. Just like you wanted to remember Mac for all he does.
I'm done. I don't have anything else. [laughs]
Hill: I had to share this email from Tertius Rivers in Portland, Ore. "I recently spent my honeymoon surfing with my wife in a remote location in southern Panama. It's a significant journey to get there from Oregon, so I found myself one afternoon in a very tired state driving through the bucolic hills of the Azuero Peninsula. I had not slept in about 24 hours after taking a red-eye flight from the states and then renting a Jeep at the airport, only to immediately get completely lost in the labyrinth of Panama City, and finally finding my way due to the magic of Google Maps. As I passed the last major city before my destination, four hours into a six-hour drive, and while my lovely wife slept next to me, I decided to use the apropos-of-nothing episode of Market Foolery to keep me awake." Let me just pause right there. [laughs] That's risky.
Barker: I'm cringing thinking about what happens next.
Hill: Tertius continues. "And you, Bill Barker, and Robert Brokamp did not disappoint. I found myself laughing out loud and thoroughly entertained, as always, when Bill Barker visits the show. The banter about the Rudolph the Red-Nosed Reindeer holiday show was hysterical. I can't wait to watch it and follow your live tweeting next year. And the icing on the cake was the first Christmas song of 2017, which I was sure that Dan Boyd had been waiting all year to play. What an incredible song. Well chosen, Dan! So thank you for helping us to arrive safely at our destination due to yet another high-quality episode. It was the trip of a lifetime, and Market Foolery had a special place in it."
Thank you, Tertius, for that fantastic note. And when I read this for the first time, I thought, "Boy, that's risky," because if you're sleep deprived and you pop in an hour-long episode of this podcast with you, me, and Bro -- I envisioned, obviously, a wonderful outcome. He and his wife arrive at their destination and have a fabulous honeymoon. I think we can all agree that that also could have gone very badly. Like, he nods off, and they drive into a ditch, and then the authorities step in and start to investigate what happened.
Barker: I think you may to start putting in warnings before the apropos of nothing podcast. "Do not operate heavy machinery while listening to this. We cannot promise you'll stay awake."
Dan Boyd: I mean, if you guys were funny or interesting during your apropos-of-no podcast, then yeah, I don't think it would be a problem.
Barker: [laughs] We doing any more of those?
Hill: We might --
Boyd: Not with me. [laughs]
Barker: We wouldn't dream of doing one without Dan.
Boyd: Hey, what was the first song that I picked?
Barker: Dropkick Murphys.
Hill: Dropkick Murphys.
Boyd: Oh, yeah! That's a good one!
Hill: It is a good one. At some point, we'll do another apropos-of-nothing, absolutely. But this has dragged on way too long.
A couple housekeeping notes before we wrap up. This weekend on Motley Fool Money, it's our 2018 preview. No outside guests this week. We've going to have five analysts sharing their preview of 2018. Also, Kristine Harjes, who's one of the hosts of Industry Focus, is going to be in San Francisco next week for the J.P. Morgan Healthcare Conference, so anyone who's going to be in town for that or just happens to be in San Francisco can email firstname.lastname@example.org for a potential meetup, a potential Fool podcast meetup with Kristine Harjes.
And last but not least, check out shop.fool.com. See what you think. If there's something there, great! If not, drop us an email. We're open to suggestions. We're just trying this. We'll see what works and what doesn't. You can read more from Bill Barker and his friends down at Motley Fool Asset Management. Go to foolfunds.com. Thanks for being here!
Barker: Thank you!
Hill: 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. We'll see you on Monday.
[sound clip plays]
Hill: What is that? Is that He-Man?
Boyd: No. It's M. Bison from Street Fighter. There was a short-lived Street Fighter cartoon, and that's from there.
Hill: [laughs] Oh, that's good! That is good!
Bill Barker has no position in any of the companies mentioned. Chris Hill owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends CVS Health and New York Times. The Motley Fool has a disclosure policy.