A pair of retailers well known for their focus on low prices delivered their fourth-quarter reports Thursday, and while neither came away with a higher share price, the underlying stories around them were in fairly sharp contrast. Dollar General's (DG 0.87%) results included plenty for investors to smile about, including comps that were up by 4%. But for Tailored Brands (TLRD), which runs the Jos. A. Bank and Men's Wearhouse chains, the narrative is that regardless of its steep discounting, its sales keep sinking.

In this Market Foolery podcast, host Chris Hill and MFAM Funds' Bill Barker discuss the very different reasons both stocks ended the day lower, the companies' outlooks and strategies, and more. They also weigh in on reverse stock splits, talk a bit about the Motley Fool 100 Index, and offer their thoughts on pie. 

A full transcript follows the video.

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This video was recorded on March 14, 2019.

Chris Hill: It's Thursday, March 14. Happy Pi Day! Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, from MFAM Funds, portfolio manager Bill Barker. Happy Pi Day!

Bill Barker: Thank you!

Hill: We'll talk about pie at some point, I'm sure.

Barker: Your family specializes in pies.

Hill: Oh, come Thanksgiving Day, there's a lot of pies.

Barker: The world-famous Hill Family pies. Award-winning, I believe.

Hill: Award-winning. We're not going to get to that just yet, though. We're also not going to get to MongoDB, which is having a monster day. That company appears to be a monster. Tune in to Motley Fool Money this weekend; we'll probably be hitting that. We're going to dip into the Fool mailbag. 

We're going to start with some retail earnings.

Barker: Are you going to do any Alex Karras references on Mongo?

Hill: Maybe. 

Barker: Now that I've given it to you.

Hill: Look --

Barker: You can get a clip from Blazing Saddles that you can run. You can't run all the clips from Blazing Saddles.

Hill: No. There are a lot of clips you can't run.

Barker: A lot of clips you can't run. But, Mongo.

Hill: Mongo, sure. Candygram for Mongo.

Barker: [laughs] It was kind of a candygram for MongoDB, wasn't it?

Hill: It was. For younger people who have no idea what we're talking about --

Barker: And have already maybe tuned out.

Hill: Yeah. Blazing Saddles, one of the all-time greats.

Barker: You could run that clip at the end of today's episode if you want to stick around.

Hill: I don't know -- producer Dan Boyd is having a bit of a day and I don't want to add more work to his load. Let's start with Dollar General. Fourth quarter, this looked good to me. They're raising their quarterly dividend, same-store sales up 4%. That was higher than expected. Stock down about 10%. Is this just because of valuation? This thing has had a pretty good 12 months. 

Barker: Yeah. It's a split between the valuation, which is not insane, but it had gone up some 30% over the last year, I believe. Most of that was an improvement in the multiple that people were paying. But it's been growing pretty nicely. 

The other thing is that the guidance was a little bit softer than what was expected. You've got decreased guidance and... not a lofty valuation in absolute terms, but a lofty valuation for where Dollar General historically trades, 17 times earnings is kind of the upper end of a normal range for it. 

I agree, it was pretty a pretty good report, actually. For a stock that's up as much as it's been in the last year, 10% sounds big today, but if you go back in time and buy this thing a year ago, you'd still do good.

Hill: There are definitely some discount retailers who are doing well. The one question I have, and I don't know if you can answer this, one of the things that Dollar General announced was, they're allocating $1 billion toward stock buybacks. The combination of what the stock has done over the past year -- maybe they're good at this. I don't know, I haven't looked into their buyback history enough to know if they're smart when it comes to timing the buybacks. But I do know that they've spent money remodeling their stores, doing things to improve throughput, shortening up the lines at payment counters, that sort of thing. It seems to me, all things being equal, wouldn't they be better off spending, maybe not $1 billion, but at least a couple of hundred million dollars toward that endeavor? 

Barker: What you can do with your extra cash when you've got it is, in terms of a retailer, you can build more stores. You can improve the stores that you've got. Or, you can acquire a competitor or a complementary business. Or you can return cash to shareholders through dividends or share repurchases. They're doing a little bit of all that. I think the authorization to buy back up to another billion gets a little bit of a headline. They've been buying back shares. This is really just feeding that machine of doing a little bit of everything. They increased their dividend. As you noted, they have some initiatives at the store level. They've projected that sales are going to increase about 7%, comp sales for the year up about 2.5%, this is 2019. The implication there is, they're going to have about a 3% to 4.5% higher store count. They're doing a little bit of everything, and I think that's worked out well for shareholders. 

Hill: Let's move on to a retailer that is not doing well for shareholders, and that's Tailored Brands. This is the parent company of Men's Wearhouse and Jos. A. Bank. At one point this morning, the stock was down 26%. Fourth quarter revenue came in lower than expected. Same-store sales dropped in the fourth quarter. Where are the synergies? [laughs] When this deal went through, the merging of these two entities whose sole purpose in life is to sell men's suits, or at least to sell them one suit and give away another two or three on top of that, I think we were all promised synergies. Where are the synergies?!

Barker: I would have no idea where the synergies are for this. It's a couple of different brands that are at the top, Men's Wearhouse and Jos. A. Bank. Then, they've got a couple of other smaller brands, K&G and Moore's. All of them are shedding sales. At the management level, it's not just simply at the brand level, the whole operation is in a bit of trouble. You can go back to the Saturday Night Live ad mocking Jos. A. Bank three or four years ago. The stock's lost about 80% from that point in time. 

Hill: Do you think the writing staff at Saturday Night Live is responsible for this stock dropping 80%? 

Barker: I think they shone a rather brutal light on the business model. [laughs] What's going on here? Buy one suit, get three free? And to just endlessly, at the time, have ads for that. You just take a step back and say, how is that going to work? Who wants four suits all at the same time, just to start with? Why would they go there? 

You're looking at comp sales down at all the stores, total sales down 10% year over year. That's the total company decline for sales. 

Hill: I look at situations like this, and one of the questions that goes through my mind is, what, if anything, turns this around? It's hard for me to imagine things are dramatically better for this business a year from now unless they take some pretty significant steps on the cost side of things. Unless they decide "OK, we're going to start closing a lot of locations. We're going to be a smaller company, but we're going to be a better-performing company as a result of that." There's probably a little bit of brand equity there. Jos. A. Bank makes decent clothes. They just, for whatever reason, choose to give away a lot of them if you buy any of them. 

And it certainly doesn't help matters -- and this is not a direct competitor yet, but I've started seeing TV ads pop up for Amazon Wardrobe. Anytime Amazon decides to spend money on TV ads for a part of their business, that gets my attention. I suppose first and foremost, the Stitch Fixes of the world are in Amazon Wardrobe's sights. But at some point, it makes life even more challenging for Tailored Brands. 

Barker: What percent of the shows that you do a year do you think feature at some point a drive-by of, "And now Amazon's getting into this business. Is that going to destroy it?"

Hill: Well, to take your question at face value... let me give two answers. One is, fewer than there used to be. I would lump Apple in that category, and Facebook. By that, I mean, there was a stretch of time in the first few years we were doing Market Foolery where there would be reports or rumors of, "Hey, they may get into this business." And we would see stocks in a certain category drop as a result of that. So, it's one thing to be like, "We're dipping our toe in the water." At one point, Facebook had the movie The Dark Knight, you could watch The Dark Knight on Facebook. The conversation then flipped to, "Wait a minute, is Facebook going to start streaming movies? Are they going to take on Netflix and anyone else in this category?" That turned out to be a one-time test that Facebook did.

In the case of Amazon Wardrobe, this is not a test. [laughs] This is real. This is live. They're spending money to take market share from these companies.

Barker: I mean, it's just an honest question, how many. Because I know it happens a lot when I'm here, that Amazon comes up. "Is Amazon doing damage to blank?" Especially when you're talking about anything that's in the retail space, clothing now being perhaps yet another item where Amazon can do harm to people that have had a business for a long time, particularly mall-based stores. 

But the key to how they get out of it, I think, is included in the report in a quote from the CEO. I'll just skip to the part that I think is relevant. The way out is in part to "create inspiring and seamless experiences in and across every channel and build brands that stand for something more than just price." I think that is an identification of the issue. When you think of, certainly, Jos. A. Bank, you just think, they're competing on price. That's the only area they're competing on. Men's Wearhouse is perhaps a little different, but still. That's an area where they can get out of the hole they've dug for themselves, perhaps. 

Hill: In that quote you just read is a phrase that I think applies, for a bunch of our listeners, to episodes when it's just you and me in the room. You said --

Barker: "Seamless experience"?

Hill: No. It's actually not in the quote, it's what you said when you said, "I'm going to skip ahead to the relevant parts."

Barker: [laughs] "Create inspiring and seamless experiences"?

Hill: No.

Barker: I think that's subconsciously what you were locked on from that quote about --

Hill: No.

Barker: -- our time together in the studio. 

Hill: It's people grasping for their phone saying, "Where's the fast-forward button?"

You can follow us on Twitter, @MarketFoolery. A couple of questions came up recently. One, not a question, but something that I think is worth commenting on from Ari Ash here in D.C., who writes, "Roadrunner is doing a 1 for 25 reverse stock split. I have never seen such a large reverse split." 

That was my reaction when I saw it. I've seen reverse stock splits in my time, I don't ever remember seeing a 1 for 25. And for those unfamiliar with the phrase, it's pretty self-evident "a stock split." Most commonly, a company says, "We're going to split our stock two for one." So, for every share you own, you'll have two shares. And, obviously, the price gets split in half. A reverse stock split, generally not a great indicator of the health of any business. If it's not the last resort for businesses, it's certainly close to the last resort as they're trying to hang on for dear life. It's, "Do you have 25 shares? Great, you're now going to have one share."

Barker: Yeah, it's a very short list of companies that have a larger split than 1 for 25. I did a little quick Google search and I found a 1 for 50 for a company you would never have heard of because it's probably gone by now. Which is often what follows the reverse split. Your stock has gone down to, let us just call penny stock level. You can use "penny stock" to talk about stocks below $5. Sometimes they're literally at the penny level. You're not going to necessarily see a reverse split for a $4 stock. That's the thing that makes a penny stock look like it's still a viable company at some level. It's just different to see a $25 stock than a $1 stock, and you make some assumptions about what's going on in the business. 

A lot of the time, the reverse stock split is a predecessor to total irrelevancy, either through bankruptcy or any number of other ways, having a market cap that goes below $100 million or something. But, not always. Tandem Diabetes had a reverse split when the stock got to a dangerous enough level, and it's made a dramatic comeback. Roadrunner is in a decent enough business.

Hill: Transportation.

Barker: Transportation, doing some, I think the announcements called asset-right and asset-light. I guess that's an asset-heavy and an asset-light part of the business. It's pretty good times for road transportation. They have no one but themselves to blame, I would say. There's more competition, but it's still a fragmented market.

Hill: I just checked the market cap of Roadrunner Transportation. It's a little bit lower, but it's pretty close to the market cap for Tailored Brands. [laughs] So, would it surprise you if, not only three years from now, Roadrunner Transportation is no longer a stand-alone business, but Tailored Brands wasn't either?

Barker: I would generally take anything that has had a reverse split, that group of things, more than 50% of them will be gone within five years. Without having done the research, I think I would take that bet right now. It might be in that group. I'd have to look at Road Runner specifically. I'm not going to kick at them, they may have a better story going on there than one fears is the case.

Hill: No name here, just a Twitter account, @SolelyWhatIHear in San Francisco, writing, "I'd love to know Bill Barker's thoughts on TMFC." TMFC the ticker symbol for the ETF which mirrors or is tied to The Motley Fool's 100 Index. 

Barker: My thoughts are, it mirrors the index. 

Hill: [laughs] For regulatory reasons, there's only so much you can say.

Barker: For regulatory reasons, I'm not going to go out and say anything positive or negative about any of our products. Solely because of regulatory reasons. I can talk at great length about the index itself, which is the product of a lot of Motley Fool newsletter and analysts' work and insight. It's a market-cap-weighted index of the hundred largest market cap companies that are recommended in one form or another in the Fool IQ product, which is accessible to Motley Fool One subscribers.

The index's performance is public on the front of the website fool.com. You can look at it. And you can look at the holdings of the index, and therefore of the ETF because they're published every day. Within the index, they change quarterly.

Hill: Again, the ticker is TMFC. Really quick, because it's Pi Day, and later this afternoon, we have an all-company meeting, our colleague Alison Southwick posted on Slack that there is actually going to be pie at the meeting.

Barker: Are any of these made by you or the Hill family?

Hill: No, they're not. 

Barker: Well, I'm not going, then. I had been led to believe that the Hill Family pies would be featured today.

Hill: No. Sorry about that! But, what are you hoping for, in terms of pie? My family's not supplying them, but do you have a go-to?

Barker: I'm not a big pie guy.

Hill: Really? 

Barker: Yeah.

Hill: Are you anti-fruit for some reason?

Barker: Yes.

Hill: Oh, OK! Personally, I'm open to a number of things. Key lime, I like a good key lime. If there's a good apple --

Barker: We mentioned award-winning pies, and we were not making stuff up, for once.

Hill: No. 

Barker: What pies have won awards in your family experience? Was this the Oscars of pies? What was the award?

Hill: [laughs] This was a local fall festival in Alexandria. There's a pie-baking contest.

Barker: So, it's local, but Alexandria is like 8 million people. It's a huge --

Hill: [laughs] Exactly. So, there's a pie-baking contest, and there's one for adults, and then they have a kid's category. And one of my daughters has won twice for recipes that she made up herself, which is one of those things -- I don't know if you've had these moments as a parent -- your kid comes to you and says, "I'm going to do X." In this case, it was her saying, "I want to enter this pie contest." And I'm like, "Oh, that's great! I'm happy to help however I can. What recipe are you going to use?" And she said, "I'm just going to make one up." And I resisted the urge to say, "Well, that's a really bad idea because baking is kind of a precise -- 

Barker: [laughs] Well done!

Hill: [laughs] Exactly! Cooking, you can experiment! "Oh, I'll try this spice." Baking is more science than art, I think. So, I was like, "Uh, are you sure you don't want to use a recipe?" Like, I pushed back a little. She was like, "No." I was like, "All right!" And she went off and won, so, it shows what I know. And then, a couple of years later, same thing. 

The most recent time, it was an open-faced apple pie.

Barker: Are you publishing the recipe anywhere?

Hill: No. 

Barker: Family secret?

Hill: Look, somewhere in a vault, I believe in North Carolina, is the secret formula to Coke. And somewhere in my house is the recipe jotted down. We should get out of here because --

Barker: [laughs] Because we long ago finished.

Hill: Yeah, long ago finished. But, again, again if we leave you with nothing else, it's this, people -- watch Blazing Saddles. It really is a great film, even though it could never be made today.

Barker: Yeah. And then watch the Saturday Night Live Jos. A. Bank commercial.

Hill: We'll put that on the Twitter feed. We'll absolutely put that one up.

Barker: How about the Jerry Seinfeld bit on Jos. A. Bank?

Hill: I thought the commercial was better.

Barker: The commercial's more highly produced. It's just interesting that the absurdity of Jos. A. Bank and Men's Wearhouse made its way into Jerry Seinfeld's. Not his act, but a little bit. 

Hill: A bit he did. Bill Barker from MFAM Funds, you can read more from him and his colleagues, go to mfamfunds.com. Thanks for being here!

Barker: Thank you!

Hill: As always, people on the program may have interest 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 MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!

Check out the latest earnings call transcripts for Dollar General and Tailored Brands.