In today's episode of MarketFoolery, host Chris Hill and Motley Fool Asset Management's Bill Barker walk through a few of the market's biggest stories, Bill's trip to New Zealand, The Motley Fool's 25-year history, and more.
It's a bad day to own either Bed Bath & Beyond (NASDAQ:BBBY) or Pier 1 Imports (NYSE:PIR), and the odds of that changing anytime soon aren't great. BJ's Wholesale Club popped a whopping 25% from its IPO price, but that doesn't mean individual investors should get too excited. Madison Square Garden (NYSE:MSG) is thinking about spinning off a few of its sport franchises -- a move that could very well achieve the ever-aspirational "unlocking of value." Press play and find out more.
A full transcript follows the video.
This video was recorded on June 28, 2018.
Chris Hill: It's Thursday, June 28th. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, back from the other side of the planet, from Motley Fool Asset Management, it's Bill Barker. Thanks for being here!
Bill Barker: Come on! Motley Fool Asset Management isn't on the other side of the planet!
Hill: Yeah, I guess the way that I set that up ...
Barker: Yeah. We're just a couple of floors below you.
Hill: Right, but you just got back from the other side of the planet.
Hill: Let me just set expectations really low for this episode.
Barker: [laughs] Longtime listeners already had low expectations.
Hill: They already did. But, for any new listeners, Bill just got back from a family trip to Australia and New Zealand, and the sleep deprivation is pretty high, it's running pretty high. You got to sleep at about 04:30 in the morning?
Hill: Fantastic! This is going to be great. We're going to talk about retail --
Barker: My excuses are in for the rest of the show already.
Hill: Exactly. With the bar set sufficiently and appropriately low, let's begin. We have retail. We have a spin-off in the world of sports business. Let's start with the retail.
Bed Bath & Beyond shareholders are having a bad day, and I think the only thing they have going for them is that they are not also shareholders of Pier 1 Imports.
Hill: Hopefully not. Both of those retailers reporting first quarter results. Bed Bath & Beyond's revenue was about what analysts were expecting, but their same-store sales came in low. In terms of same-store sales, here's how bad it was for Pier 1 Imports: analysts were expecting a same-store sale decline of nearly 8%, and it was even worse than that.
Barker: Pier 1 Imports, really, it's been a long and difficult road for the last 20 years. The problems are increasing. The most recent report was one of the worst in a long line of awful reports, showing decreased same-store sales, of course. What do you think of, when you think of Pier 1 Imports?
Hill: Honestly, one of the things I think about is the movie The Blues Brothers. There's the great scene where they're running the car through the mall and making comments on different stores as they're driving through the mall. And one of them is like, "Hey, Pier 1 Imports!"
Barker: And then they and a couple of the cop cars chasing them drive right through Pier 1 Imports and destroy the front. It's a perfect metaphor for this company, and especially what's going on today. I would like to think that somebody out there in the visual media would be having a clip of that. Contact your friends at CNBC, you have a few. They would totally run with this.
Hill: Maybe they have. I'm actually going to ping someone and see about this.
Barker: You should. I want credit, because I'm the one that brought this clip up to you.
Hill: [laughs] I can't arrange for that.
Barker: Well, you could take credit.
Hill: I ... I don't think ...
Barker: Anyway. It's just another chapter in the story of the problems for malls and the problems for retailers that don't have any kind of a moat. I don't really know exactly why somebody walks into Pier 1. I can understand if they like looking for an idea, because there's a bunch of eclectic stuff there. I'm sure many people enjoy shopping there. But, it doesn't have a place that has much of a future.
Hill: In terms of Bed Bath & Beyond, obviously, what it has in common with Pier 1 Imports, they're both broadly in the home decor, home furnishings space. This is an increasingly tough space. I don't know if they did this by design, having their earnings come out the same day as Pier 1 Imports, but they really do look good by comparison.
This is just a small thing -- one of the reasons I like to go through conference call transcripts is to try and pick up the tone. What is management talking about? In the case of Pier 1 Imports, one of the things that came across was denial, [laughs] just in terms of any attempt at an e-commerce strategy, any attempt at trying to sell stuff online.
Here's the thing: it's not that Pier 1 or Bed Bath & Beyond produce bad stuff. I would argue that there's quality stuff being produced by both of these companies. They're just doing a really poor job -- especially in the case of Pier 1 -- of actually getting people to buy it. Pier 1's management can talk all they want -- and presumably, they will continue to talk all they want -- about how, "We're an omnichannel business." That was one of the things that came up in the call. "We're an omnichannel business." And when analysts were asking them, "Could you break out for us the online sales?" "No, we're not going to do that, because all the channels are important." OK. Good luck with that!
Barker: Yeah. Well, if they have any future, then I suppose it would come from having a better online presence. Pier 1, based as it is, largely, in malls -- through which, sometimes felons, sometimes police cars, are driving. This is one of the reasons, I think, that people are not going to malls as much, is the danger of being hit by vehicles.
Hill: You think so?
Barker: Based upon their movie watching.
Hill: We are referencing a movie that's nearly 40 years old, though.
Barker: Yeah. I watched it the other day, on the flight back from New Zealand, which is the only reason that I remembered the Pier 1 segment of that great car chase. Do you know how many cars were destroyed in the making of that film?
Hill: Didn't it set a record?
Barker: It did.
Hill: I'm going to say over 100.
Barker: 103. You are correct, sir. And the record was broken by ... ? Blues Brothers 2000, which destroyed 104. But nobody saw that movie, so how would you know?
Dan Boyd: Is it OK if I cut in for one second, guys?
Barker: [laughs] Wait, we're talking business here.
Boyd: Blues Brothers is my favorite movie of all time.
Hill: Is it really?
Boyd: Yeah. I love that film.
Hill: When you hear of Pier 1 Imports, do you also think of The Blues Brothers, and, I think it's Elwood Blues, with that Chicago twang, "Pier 1 Imports!"
Boyd: It's kind of funny, when I think of Pier 1 Imports, I think of boredom, because my mom used to take me and my brother there when she wanted to go shopping, when we were kids. If you're a kid, it's the most boring place on Earth. Ever since I was, like, nine years old, I don't think I've set foot in a Pier 1 Imports. Certainly not as an adult, willingly.
Barker: "I don't need a candelabra, Mom!" [laughs] "These tchotchkes are not going in my room!"
Hill: Whatever else we talk about for the rest of this episode -- for anyone who's still listening -- let's be clear, the pull quote for this episode is, "When I think of Pier 1 Imports, I think of boredom."
By the way -- this is making some headlines, broadly, in the retail space -- BJ's Wholesale had its IPO today. This is a company that was public, was taken private, presumably got spun back out into the public markets so that the private equity folks could make a little bit of money off that.
Other than those people getting their money, because the stock is up about 25% off of its IPO price, is there any reason investors should be looking at BJ's Wholesale as a company, in what is increasingly a tough retail environment?
Barker: Alright, I'll try to come up with a bull case. It's in the wholesale club space, and it's more of a second-line player in that, certainly, to Costco (NASDAQ:COST) and Sam's Club. It at least is a space that has some health to it, unlike your pure mall-based retailers -- which, really as a group, look sort of disastrous, even excluding the car incidents. That is what I would come up with.
You may have, if you're an institutional investor, a mandate to follow benchmarks in terms of your ownership of retail. You may find that owning BJ's Wholesale Club is a better option than some of the mall-based companies that you already own. If there are a lot of sellers today of Pier One and also Bed Bath & Beyond, that money, at the margins, may have mandates to stay in retail, BJ's is a more viable option at the moment. Seemingly. I haven't looked at the numbers since it's IPO-ed.
It was taken out, a lot of debt put on it, cleaned up. Private equity probably shut down some things. It's spruced up, but it has a lot of debt now. So, what's the equity worth? It's probably an interesting risk equation because of the debt and the way things could go. But, I would rather be there than in Pier 1 or Bed Bath & Beyond. That's the story of why it's up today. It looks better by comparison to what it is most closely compared to, other than Costco. It's not going to look good compared to Costco, because Costco is still a world-class player.
Hill: Let's move on to the world of sports business. Madison Square Garden, not just a famous sports arena in New York City, also a public company. Shares of Madison Square Garden are up 10% today on the news that the business is considering spinning off -- Madison Square Garden owns not just the arena, it owns the New York Knicks and the New York Rangers, and it is looking at spinning off those two teams.
Right now, I think the market cap of Madison Square Garden is around $7 billion. As a point of comparison, when the Los Angeles Clippers were recently purchased -- two or three years ago, I guess it was -- by Steve Ballmer, he paid $2 billion for the Los Angeles Clippers. I have to believe that the New York Knicks, despite how badly that team has played over the last -- well, almost forever -- 20 years or so, that alone has got to be worth $2 billion, don't you think?
Barker: I was reading the Forbes article today on this. Forbes makes an attempt at valuing -- most of this information is private, but they have their methodologies, and they list all the franchises and all the sports and their estimates of the valuations. They have the Knicks at $3.6 billion. That's actually the sixth most valuable sports franchise in the world, according to Forbes, and the most valuable in the NBA, which may come as a surprise. Of course, the Knicks do have a good history, if you just forget about the last 30 years. It's not a bad history.
Hill: [laughs] That's absolutely true. Just imagine what the team would be worth if they had a winning record, or an owner who was not a terrible owner.
Barker: Well, they may have lots of owners in the near future. The Rangers are also the most valuable, at least in the estimation of Forbes, NHL franchise, at $1.5 billion. So, you have about $5 billion of sports franchise valuations in this company. I think the company has another $1 billion in cash. So, splitting it apart may actually achieve the proverbial unlocking of value.
Hill: If the New York Yankees went public, would you want to be an owner of them? I'm assuming you'd want to be an owner just because you're a fan of the Yankees, and it's like, "Yeah, I'll buy a couple of shares just because that's a fun thing to do." But, would you want to own shares of the New York Yankees as an investor? Would you buy it thinking, "This is going to be a market-beating investment over time?"
I can absolutely see people -- the first person who came to mind, by the way, was Kristine Harjes, one of the hosts of our Industry Focus podcast. She's a huge New York Rangers fan. I can absolutely see people like Kristine, who are fans of one or both of these teams, saying, "Yeah, I'll buy a couple of shares." What I'm not sure is, would anyone buy shares of these two teams with an eye toward it being a market-beating investment?
Barker: Well, certainly, owning sports franchises has generally been a good investment over the last couple of decades. The valuations have gone up dramatically. That's largely a reflection of the pricing power that they have, and the ability to provide the kind of TV entertainment that people actually watch live, which is a less and less available resource for the networks that are based around any kind of provision where you're not cutting your cord. They're a major player in cable TV. That's where a lot of the value comes from. I would love to have been a partial owner of the Yankees for the last 20, 25 years, just on an economic basis.
Now, going forward, the problem with being an owner is that the franchisers are not always run to maximize profit. Whether this one will be or not, I can't really say. But, the valuations have improved dramatically during the ownership by the Dolans.
Hill: I know you're anxious to leave this studio and probably go take a nap, because you're terribly sleep-deprived from your trip to Australia and New Zealand. But, how was your trip? I know this was not a working trip, this was a family vacation, but I'm curious if there were any business observations you made during your time off.
Barker: No. [laughs] One thing that I'll mention is, and it's a nice metaphor, I didn't go to Australia.
Hill: You didn't?!
Hill: I thought you did!
Hill: It was just New Zealand?
Barker: Just New Zealand.
Hill: Oh, OK.
Barker: But, people think, "Oh, New Zealand, that's that thing that's a couple of miles off the coast of Australia." It's a four-hour flight from Australia. There's a rivalry there, because New Zealand, one, likes to champion that it always wins the rugby games against Australia. The All Blacks are their national team, and beloved. They are a smaller item than Australia, so there's that type of rivalry going on.
But also, the confusion, like, "Oh, New Zealand is just part of Australia," an assumption that, if you're going to New Zealand, you would also go to Australia, which is not really the case. If you're in New Zealand, it's kind of like, "Well, I'll swing by Vegas while I'm here on the East Coast."
Hill: [laughs] Right, yeah. I actually have run into that a couple of times in my life, talking with people from outside the United States, and thinking along those lines. Not quite, "Hey, if I'm on the East Coast, I can just swing by Vegas," but it's more along the lines of, the proximity between Washington D.C. and Boston. It's like, "Those are close, aren't they?" Actually, not really. It would involve a flight, or a drive of a good probably eight to 10 hours or so.
Barker: My business observation, I have initiated coverage on New Zealand, with a strong buy.
Hill: Strong buy on New Zealand. Does the tourism board know about this? We'll let them know.
Barker: Maybe they could buy a little time on your show.
Hill: You know what? Right now, they're getting it for free. That's fine. What am I doing if I'm going to New Zealand?
Barker: Well, you have the North Island and you have the South Island. The South Island is mountainous and incredibly beautiful. The whole thing has gotten a lot of business from the Lord of the Rings movies -- which, you refuse to watch both the Lord of the Rings and the Hobbit movies.
Barker: That's been a tremendous boon for New Zealand, in terms of tourism, because they're great ads for how beautiful the country is.
Hill: Isn't there going to be a Netflix series, some sort of Hobbit spin-off, something?
Barker: I don't know. But also, if you want to actually see Hobbits, you have to go to New Zealand. That's the only place that they live, currently. We visited Hobbiton, the set where the Hobbit movies, the Shire parts, were filmed. It looks perfect.
Hill: Did you pick up any sense from locals that you spoke with that they're a little over the whole Hobbit thing?
Hill: No? They're embracing it with both arms?
Barker: Look, I mean, largely I was dealing with people in the tourism industry, because I was a tourist, and I wasn't disguised as anything else. People in the tourism industry are pretty happy. One of the choices on the Air New Zealand flight for your watching, not just the Blues Brothers, but also, all six of the movies are available, I think on every flight, to watch.
Hill: They made that many movies?
Barker: Well, the three Lord of the Rings, and three Hobbit movies, all of which are still in front of you. You get the joy of watching all of them.
Hill: There were three Hobbit movies?
Barker: Yeah, it was a little bit overkill.
Hill: OK. But, you know what? Like you said, any time someone is looking to make a movie, there are numerous costs involved. Location costs are probably high on that list. If you're making a movie about Hobbits, you might as well be in the place where Hobbits actually exist.
Barker: Right, then you don't have to fly them over. They're all right there.
Hill: You're saving money.
Barker: And also, the dragons and stuff.
Hill: So, this weekend on Motley Fool Money, David Gardner is going to be the guest. One of the things we talked about -- I taped this interview the other day -- is the 25th anniversary of The Motley Fool --
Hill: -- which comes this weekend. It was 25 years ago this weekend that David and Tom and their friend Erik Rydholm were putting the finishing touches on the first newsletter, putting it in the mail, and sending it out to folks. That's where all of this began. In celebration of the 25th anniversary of The Motley Fool, I'm happy to announce a 25% sale at our podcast swag shop for the entire month, starting now through the end of July.
Barker: Wow! Wow!
Hill: Yes. Everything. Coffee mugs, ball caps, hoodies, t-shirts, everything is 25% off, from now through the end of July. Shop.fool.com.
Barker: There are those who were saying that the stuff was already so cheap, you couldn't afford not to buy it. Now what?
Hill: I think the word was "inexpensive." This is quality stuff, it's not cheap. It's quality merchandise, inexpensive, now 25% off.
Barker: How many hoodies do you have right now?
Hill: Besides the three that I'm wearing right now? I don't know. Any bit of nostalgia in your bones about the 25th anniversary? At any point, are you thinking back on the early days, or anything like that? Or are you just so sleep-deprived, you're like, "No, I can't muster any nostalgia with my addled state."
Barker: The early days, I'd say, still the best. I was with a former Fool colleague recently -- whose name I could mention, there would be no harm in it, but I'm not going to. He was talking about the '99, 2001, somewhere in there, era. Still said, best job he ever had.
Hill: That's great!
Barker: And he's a big-shot portfolio manager now, so he's making a little bit more money. Probably about 20 times as much money [laughs] as he was making as an internet financial writer back in 2000. Those were great times. What about you?
Hill: I haven't really done the full deep dive nostalgia thing. I have little flashes of it here and there. I mentioned the other day, Alison Southwick is putting together a timeline for people who work here at The Motley Fool. She's been going through old photos and that sort of thing. Seeing people we used to work with who are no longer here, seeing people that we still work with who really haven't aged all that much -- I'm thinking primarily of Jeff Fischer. But, you know, when you have a steady diet of unicorn blood, you're not going to age. That's just science. But, yeah, it's been great to see people and relive the moments, both good and bad.
Barker: What anniversary is this show on, coming up to?
Hill: In terms of years?
Hill: It started in January of 2011, so we're coming up on, what ...
Barker: There's no big, fat, round number, yet.
Hill: Not yet. Actually, there are two big, fat, round numbers coming. One is, at some point this fall, we're going to have our 1,500th episode of Market Foolery. Don't ask me the date, I don't know. I just know it's coming sometime before the end of the year, assuming we're still doing the podcast.
Barker: What prizes do you expect to be giving away with that?
Hill: Probably none.
Barker: MFAM could spot you 15 shirts or something. 15 hats.
Hill: We'll talk about that. I may take you up on it.
Barker: MFAM's always good for small numbers of gifts, that all you have to do is then send them out to people. [laughs]
Hill: [laughs] So, there's that. Then, the other big, fat, round number is, next February is actually the 10-year anniversary for Motley Fool Money. February of 2009 was when we started doing Motley Fool Money. We started doing it as a weekly 12 to 15-minute podcast. We said, "Let's try this for a month and see how this goes." And we're coming up on ten years. There you go.
Barker: The Motley Fool Global Ops fund just had its nine-year anniversary the other day, a couple of weeks ago. We're 12 months away from the big one-oh on that.
Hill: For the 10-year anniversary, I'm assuming the fund will just be giving away money, since it has grown over time. That's what I'm assuming.
Barker: We'll check with the regulators on that. There may be rules that we, unlike you, have to follow. You can admit, you basically can make up your own rules, unlike us in the regulated space. We have to answer to auditors and, you know, the SEC.
Hill: Yeah. Fortunately, the SEC is not wasting one second of their time on podcasts.
Barker: Who is the radio police, or the podcast police?
Hill: I don't know that there actually is podcast police.
Barker: [laughs] Just wait.
Hill: It's not on the public airwaves. Alright, I think we've ...
Barker: Long ago.
Hill: Yeah, we've long passed the point of relevance on this episode. Alright, Bill Barker, Motley Fool Asset Management. You can learn more at foolfunds.com. Thanks for being here!
Barker: Thank you!
Hill: Don't forget to go to shop.fool.com, 25% off from now through the end of July, to celebrate The Motley Fool's 25th anniversary. 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 next week!
[She Caught the Katy -- Taj Mahal]
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 Netflix. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.