It's Market Foolery, where host Mac Greer together with Motley Fool contributors Jason Moser and Andy Cross talk about the market's biggest stories and what they mean for investors. DSW Shoes (NYSE:DSW) is up big on a great earnings report, but long-term investors might want to pause before running out to pick up shares. Tiffany (NYSE:TIF), on the other hand, is up slightly on earnings, but the company's long-term picture remains as untarnished as the diamonds it sells. BJ's Wholesale Club (NYSE:BJ) fell after the company's first quarterly report since its IPO. The report wasn't awful, but the company's fundamentals are far from great, and long-term investors probably want to sit on the sidelines for this potential turnaround story. Tune in and find out more.

A full transcript follows the video.

This video was recorded on Aug. 28, 2018.

Mac Greer: It's Tuesday, Aug. 28. Welcome to Market Foolery! I'm Mac Greer, and joining me in studio, we have Motley Fool analysts Andy Cross and Jason Moser. Gentlemen, welcome!

Jason Moser: Hey, now!

Andy Cross: Hi, fellas!

Greer: How are you feeling?

Cross: Good!

Greer: Well, we're going to talk some retail. Some retailers feeling good, some retailers feeling not so good. We're going to talk some DSW Shoes. That's not something you hear me talking about every day. Andy, we've never talked shoes. Is that a fair statement? 

Cross: That's a fair statement, Mac.

Greer: OK. We're also going to talk, some BJ's Wholesale and some Best Buy (NYSE:BBY). But let's begin with Tiffany, the jewelry retailer, flat-out getting it done. Jason, better than expected earnings on some strong same-store sales growth. The stock up slightly. What's the headline here?

Moser: I think the headline is, I helped this cause because my wife's birthday, I got her a Tiffany bracelet. We talked about this last quarter. My purchase was after that recorded quarter. I think this is the quarter where the Moser Effect came into play.

Greer: Nice!

Cross: It was the Cross Effect, too, for my anniversary.

Moser: There you go!

Greer: Is that true? What did you buy Jamie? 

Cross: Just a little pendant.

Greer: When is the last time I bought my wife some jewelry? If you had to guess? I'll give you a hint. We've been married 13 years. 

Cross: 13 years? 

Greer: Yes. And then before that, I think the last time, it was like, I bought a mood ring in the fifth grade.

Moser: I'm sure that mood ring is probably a blazing red right now.

Cross: Do they sell mood rings at Tiffany?

Moser: Don't be scared to ask her what she wants. I will be very clear. The first thing I bought, I used my own judgment and intuition. Then we promptly returned it and got her what she really wanted. [laughs] As long she gets what she wants.

Greer: But you still you still get the credit. OK, so, back to the earnings. If I'm wearing my mood ring, what am I feeling when I look at these earnings?

Moser: This is the climate where Tiffany needs to be making its hay. Consumer confidence is higher than really ever before. It's the highest number recorded since October 2000. They need to be making their hay in these types of economic climates. And they're doing just that. Excluding currency effects, grew the top line 11%. Comps were up 7%. Really, it's the Asia Pacific region that is outperforming all. With that said, all geographic regions are performing very well. They raised earnings guidance, again, just from last quarter. They're going to ramp up some spending on the back half of the year to restructure some stores. They're going to go in there and redesign the New York City flagship store. 

I think what they do very well over long stretches of time, they've demonstrated the ability to protect that brand. They don't resort to fire sales, they don't resort to sales or anything like that. What it does, it creates this aspirational brand that consumers will pay up for. That helps them maintain that margin line, helps them maintain that exclusive brand. We talk a lot about affordable luxury. Tiffany is real luxury. And they've done a good job protecting that.

Cross: That's a great point, Jason. Gross margin was 64% vs. 62.5%. They're making more money in what they're selling. The gross margin dollars numbers were up 15%, and across all the lines. The jewelry collection, the engagement jewelry, and designer jewelry, rose, 18%, 8%, and 5% respectively on those numbers. Really, they're seeing it across the board, all regions. It's also not just tourism, which is a big driver of Tiffany's sales. Also, they talked about how their local consumers are buying more of Tiffany products. 

Greer: OK, so what about the stock?

Moser: You know, this is a tricky stock. It's the type of retail brand that, over long periods of time, has demonstrated some pretty good resilience. But I think it's one you have to be very picky with. You want to buy this stock in times of macroeconomic concerns, when this is a stock that's down with all of the others out there. Again, as I said, they protect that brand very well. Even when economic conditions are tough, they don't resort to pulling levers for those fire sales and generating more traffic. They take the good with the bad and they wait out those periods of tough time. For me personally, I would rather wait for this stock to get hammered on general macro concerns before buying it. Now, with that said, when that does happen -- because it will again -- this is a stock I think worth having at the top of your list if you're looking for some good retail exposure.

Cross: I have to say, it's a three-bagger over 10 years and it beats the market. It's really proven itself to be not just a brand but also a stock that can last through time.

Greer: Guys, let's keep the retail theme going. Let's talk some Best Buy earnings. Shares down around 7% at the time of our taping. Some of the numbers that jumped out -- slowing online sales growth and some concerns over the third quarter profit forecast. Andy, how should I feel about Best Buy?

Cross: I think this is actually a very good story. The stock is up 20% this year. I think there's a lot of good expectations put into Best Buy. They are making a lot of investments into what they're calling their Best Buy 2020 strategy. That's making investments into the stores, the way that people are shopping and the experience. They're spending more and more resources on their experiences. How people are shopping both in their store, but also into things like their in-home advisor business. They're making these investments. That's showing up a little bit on the gross margin side. As they make these investments, Mac, I think sometimes, some analysts and investors maybe think it's going to hurt a little bit of the profitability. But the fact the stock's done so well, I think there was some steam today that was let out of the stock price. That's why it's showing a little bit of a hit today. But really, the investments they're making are long-term investments that I think are actually going to be good for shareholders.

Moser: Yeah, I think today's sell-off notwithstanding, it's important to step back and recognize how wrong, collectively, we all were in the studio just a few years back, in calling an early time of death for Best Buy. It was very challenged at the time. Amazon (NASDAQ:AMZN) was coming on strong. We saw this e-commerce climate taking shape, and Best Buy was slow to react. But new leadership in Hubert Joly, he's done a very good job in taking this company in a bit of a different direction, catering to consumers in that e-commerce environment. And clearly, the business itself is continuing to thrive. 

Greer: You mentioned Amazon just then, Jason. I was one of those skeptics a few years ago with Best Buy. I thought it was essentially on its last leg. The stores, at least in my experience, the in-store experience has gotten a lot nicer --

Moser: It has.

Greer: -- when I've been in there recently. But a few years ago, when we talked Best Buy, we always talked Amazon and that concept of showrooming, where you'd go into Best Buy and then you'd compare prices on your phone on Amazon. Is that still a big issue for Best Buy? Or do you think they found ways around that?

Moser: I think it's something at least worth being concerned about. Now with that said, it's also worth noting that Amazon and Best Buy are partnering up. They've got a new line of TVs they're pushing out with the Alexa operating system.

Cross: That's right, a smart TV that you can buy in both the Amazon Marketplace as well as Best Buy. Getting back to the services side. They are really trying to push their basic focus in areas in selling hardware, tech service, and what they're calling managed service. I mentioned in-home advisors. They have 300 advisors now that will go into your house and help you with your technology set up. They're going to push that to more than 400 by the end of this year. They're also offering what they're calling total tech support, which is a $200 per year annual membership that will help you solve all your tech needs. If your computer gets a virus, or you need to set up around your different systems online, your wifi, whatever it may be, total tech support. 

As they spend more and more on both the hardware and the software and the services side, I think that's really the growth opportunity for Best Buy. We saw the $800 million acquisition of GreatCall, which provides the connected health services and emergency services for elder consumers. They have 900,000 paying subscribers, generating $300 million in annual revenue. Best Buy is really making the investments into these services that are going to compliment the tech offerings and the product offerings they have in the store.

Greer: I noticed that you did not say Amazon. I'm going to take that as a good sign.

Cross: Yeah, I think so.

Greer: Well, guys, let's move on. Keep the retail theme going here. We've got BJ's Wholesale reporting better than expected earnings. Andy, I got all excited reading that report. Then the stock was down a little. BJ's, this is a confusing company, because it was public, then it went private, and now this earnings report is the first report of the new BJ's Wholesale public company. What gives?

Cross: Private equity took it private in 2011. They reconfigured it and spun it back out to the public markets this year. The stock's been up a little bit since it came public. But basically, the story there is, their membership fee was up about 10% and their comp sales x gasoline prices was up about 2%. The guidance is about the same thing. I mean, this is a retail story. There's a membership fee. They really try to compete against the Costcos (NASDAQ:COST) and the Walmarts of the world, mostly on the East Coast. I mean, I wish them luck, but the environment that they operate in now is far different than what they did in 2011.

Greer: It's tough. You know that I love me some Costco. Jason, we were talking before the show, you have been a member of BJ's Wholesale. Tell me about BJ's. 

Moser: Well, yeah, back in mid 2000s, when we were in Newnan, Georgia, there was a BJ's Wholesale there. And we frequented there as we were going overseas, to get diapers and formula in bulk. I mean, it is very much a Costco-like experience. I think that's fine. We've been very, maybe not critical of Costco, but at least we're questioning Costco's ability to grow at this point, given this new e-commerce world and how things are changing. 

Mac, I try to be an optimist. I like looking at things from a glass half full perspective. But with BJ's, I have to be glass half empty. It goes back to the IPO that they just pulled off here. All of the money that was raised from that IPO went to pay down debt. That essentially was debt saddled on that balance sheet from their time with Leonard Green.

Cross: Yeah. They have $1.9 billion of debt and only $30 million of cash.

Greer: Who gets hurt in all of that maneuvering? Is that a victimless crime? Who gets hurt when you have a company like that, that was public, and then goes private, and then goes public again?

Moser: The people who get hurt most are perhaps investors today looking at this story as maybe a second chance, as a great opportunity for BJ's to get out there and capture this market that clearly exists. Really, I mean, you look at the company, when they go public, you like to see them raise that money for growth. In order for BJ's to compete in this space, they're going to need to grow their store base. Their store base is like a third the size of Costco. Well, in order to grow that store base, they're going to need a lot of money to do it. That IPO could have raised them a lot of money in order to do that. But they're not going to get that money, because that money all went to paying down debt. So now, BJ's has to rely on its own success to essentially generate cash, to basically self-fund and grow. If they can't do that, then they're going to have to rely either on taking out more debt or issuing more shares. In either case, shareholders probably get hurt along the way. 

Greer: And what's the reason or rationale for joining a BJ's vs. a Costco? Or, at the end of the day, is their best hope just to be in places where Costco isn't?

Moser: Well, I think generally speaking, it would be trying to be in an area where Costco is not. The problem is, Costco is in a lot of places already. Again, their store base is about three times the size of BJ's. Trying to find those markets where Costco doesn't exist yet, while also proving that to be a lucrative market opportunity, that's a difficult vault to make there. I wish them luck. I don't know that I would want to be owning this stock at any point in time. 

Greer: You know the other problem? Costco is awesome!

Moser: Well, I don't know that BJ's is known for, what, the $1.50 hot dog.

Greer: No.

Moser: No Jim Sinegal in their history. 

Greer: No. I tried to be middle of the road on this. And I have never gone to BJ's Wholesale.

Cross: You don't even try to be middle of the road. Let's be honest.

Greer: I'm not middle of the road. I just, I don't know, how are you going to get me if I've got the option of going to Costco? There has to be some compelling reason. I'm not going to be a member of both.

Moser: I think you raise a good point there. Costco has a very loyal base already. The people that I know who are members of Costco really like being members of Costco. They're loyal. Just like Amazon Prime members. Amazon's done a very good job of growing a loyal subscriber base over time. Netflix has done the same thing. Costco has done the same thing. It's not say BJ's can't do it. But that hurdle is really high to clear, and they have to do that if they want to maintain any kind of market share in this space. Otherwise... this is already a razor-thin margin game as it is.

Greer: And with Costco, honestly, I get my membership fee back every year in free samples alone. If you said, you could not buy anything at Costco, you cannot buy anything for the coming year, but you get the free samples, I would still be a member. Is that a sickness?

Cross: No, it's not a sickness.

Greer: It's a cry for help.

Cross: It's the Mac Greer that we all know and love. For BJ's, it's really going to come down to, the income has to continue to grow. They're competing in a space that is just so competitive. That's all margin profits for shareholders. If they want to see any of that growth, it's got to come on the membership line.

Moser: And the other thing is, you think about Boxed. boxed.com exists today. It didn't exist back when these guys went private. You've got warehouse-style business that's just online, and you don't even need the membership fee to buy from Boxed. And Boxed actually uses Costco as a supplier, in some cases. There's a good example of synergies, two companies in the same space working together. I feel like BJ's is just left out in the cold.

Greer: Guys, as we wrap up, I'm going to take this vow. I want to take a walk on the wild side in my later years. I will vow, in the next one to two years, to go into a BJ's Wholesale.

Moser: No, you won't.

Greer: Yes, I will! I don't want any footage, no paparazzi, but I'm going to do it. I need to keep an open mind.

Moser: I'm not doubting you're making the vow. I'm doubting that you actually follow through on that.

Greer: You can drive me there.

Cross: We'll hold you accountable for that.

Greer: Let's close it out with another retailer that I know next to nothing about, I'm going to confess here -- DSW. I know that it involves shoes. It's a shoe retailer. The stock is up big today. Andy, when I was doing research here, the first phrase I saw was "blowout earnings." Jason, what do you think of those earnings?

Moser: It's a nice time to be a value-focused retailer. If you focus on shoes in particular, DSW obviously did something right over the quarter. They also raised guidance. I feel like this is that Talladega Nights, you know that Ricky Bobby line? If you're not first, you're last. If you ain't first, you're last. I feel like, if you're not raising guidance, you're lowering guidance. This is the environment for value retailers. Certainly, DSW recognized a strong spring season. They are witnessing strength in back to school. A big focus on kid's shoes with the business. 

But really, what's interesting about this business is, they have a rewards program, a loyalty program. We talked about loyalty with Costco and Amazon. DSW apparently has a pretty loyal base, as well, with 25 million rewards members today. They're responsible for about 90% of overall sales. 

Ultimately, what they've done, they made some acquisitions back in 2014 to build up the Canadian side of the business. They're streamlining that operation, cutting bait on some underperformers, and trying to leverage the supply chain so that their Canadian business and U.S. business are all on the same page. That, I think, is resulting in the market's reaction today because they're able to up earnings guidance a little bit. 

Now, with all of that said, this is just your run of the mill shoe store, at the end of the day. I don't know that I'm getting very excited about it. Full-year guidance right now has the stock pegged at about 20X earnings. To me, again, you might want to consider buying a retailer like this in times of macro-economic concerns. Right now, I think the rising tide is lifting all boats. DSW is no exception there. It does not have a history of really outperforming the market. Great quarter, good news for them, I don't know if that changes my opinion on the stock.

Cross: I mean, the stock is back basically to break even where it was three years ago. That's all really pretty much due to the 30% jump it's seen so far this year. Historically not a great performer. Very competitive marketplace to play into. Obviously, some things are going well. Any time you're upping guidance, investors are going to react positively to that. We're seeing that today. 

Greer: Jason, you said you didn't get very excited about DSW. I'm curious, do you get very excited about shoes in general? Both of you guys, just thinking footwear, how would you evaluate your shoes?

Moser: I basically try to go shopping maybe once or twice a year. I do it all online. For me, Zappos is where it begins and ends.

Greer: But then you have to send them back if they don't fit!

Moser: Well, no, I'm a pretty standard 10. It's pretty easy for me to order shoes.

Greer: Do you have a go-to?

Moser: I like the boots that I have, and then I get some flops for the summer. I've just bought me a new pair of a polo slides.

Greer: Polo slides? That's Ron Gross talk. [laughs] 

Moser: TJ Maxx, right? We're talking about affordable slides there. And then, a pair of tennis shoes to get through the summer, as well. We all three have kids here. Really, by all accounts, we should be DSW customers. Yet, I don't think I've ever set foot in one, and I'm not sure that my wife is ordering anything for our kids from there, either. 

Greer: Andy?

Cross: Yeah, no, not for me. I haven't gotten shoe shopping in, gosh, it's been years now. It's not that I don't have shoes --

Greer: But you wear shoes.

Cross: I do wear shoes. That's because my wife has purchased a couple of pairs of shoes for me when she sees mine full of holes that need to be replaced. But generally, the idea of going into a shoe-specific place to buy some shoes is a nightmare for me. 

Greer: I bought some Crocs, my first pair of Crocs, three years ago. I bought the stock around the same time. The stock has been just a champ. The stock is up like 200%. And I love my Crocs. Now, I've taken it up a notch. I've shared this on the podcast before. I wear my Crocs with socks to the grocery store. 

Cross: God, Mac!

Greer: It's kind of a test of our marriage. I would not blame my wife if she looked at me and said, "You know what? I didn't sign up for this."

Moser: You're taking advantage of those AARP benefits?

Greer: [laughs] I have not joined, but God, I tell you, I get so much literature. 

Moser: The clock is ticking.

Greer: Oh, the clock is ticking. 

Cross: You know, the one I'm really interested in trying out with shoes when I actually do it is with Stitch Fix. I want to see if Stitch Fix can actually get shoes right, because that's tricky. This is the online company that, you enter in a whole bunch of data points, and they send you the membership box of clothes for you. I want to see if they get shoes right. That's, I think, a very tricky thing to get right. 

Greer: Yeah, I don't like the whole mail-order thing. I did just get a great pair of running shoes. I ran once, and I pulled a hamstring, or one of those strings that you have when you're over 50. So now, I just wear them at my desk. They're so incredibly comfortable. What I realized is, I love running shoes because I love the idea that, at any point in the day, I could go running. It's more aspirational.

Cross: Yes, aspirational.

Moser: Well, and with kids, you're going to have to go catch them at some point. 

Greer: That's right. They're the most comfortable sitting-at-my-desk shoes.

Cross: Mac's not catching any kids.

Greer: No, not without pulling something. [laughs] OK, guys, thanks for joining me! As always, people on the show 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 it for this edition of Market Foolery. The show is mixed by Austin Morgan. I'm Mac Greer. Thanks for listening! And we'll see you tomorrow!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Andy Cross has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Mac Greer owns shares of Amazon and Costco Wholesale. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Costco Wholesale and DSW. The Motley Fool has a disclosure policy.