In this episode of Market Foolery, Chris Hill and Motley Fool analyst Bill Barker go through some business headlines. On the entertainment front, a streaming service provider hits a new milestone. There are updates from the beverage sector. A retail giant's sales were up, but the markets were not impressed. And they chat about how companies are protecting dividends, misconceptions about share buybacks, and much more.
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Editor's note: Chris Hill misspoke about NordicTrack in this podcast. ICON Health & Fitness owns NordicTrack. Nautilus brands include Bowflex, Nautilus, Schwinn, Universal, and Octane Fitness.
This video was recorded on April 9, 2020.
Chris Hill: It's Thursday, April 9th. Welcome to MarketFoolery. I'm Chris Hill, joining me today, the one and only, Bill Barker. Thanks for being here.
Bill Barker: Thanks for having me.
Hill: We got a bunch of news. We've got some beverage news; we've got some retail news. We're going to start in the world of entertainment. Walt Disney (NYSE:DIS) came out and said that the number of people subscribing to the Disney+ streaming service has passed the 50 million mark, that is, global. And we've been talking for a while now about who benefits from everyone having to stay indoors; and video streaming is obviously a beneficiary.
The fact that they are able to roll this out into, for example, a place like India, where 8 million people have signed up, obviously, helps. But this is absolutely helping the business, because the cruise line, the parks are closed for the obvious reasons.
Barker: Yes. Disney, it's a broadly diversified company, maybe feeling at the moment, not quite broadly enough, because it's suffering more from this than a lot. It does have a number of things that you can stay home and watch, though. And thank goodness, they got Disney+ out there, because not only is it the parks, but really, for a long time, of course, the story of Disney was an ESPN story. And ESPN's numbers are predictably way down. And Disney+ is doing some lifting to even things out but it's a lot of different networks in the Disney property list that are off.
Hill: They're off, although, you had sent me the, I think, it was the Deutsche Bank, had put together a chart of sort of, directionally, where are the numbers going for the television networks. And as you said ESPN, ESPN2, both down big. You know, but things like, the A&E Network are up pretty substantially, National Geographic, Lifetime, you know. Again, it's great from a revenue standpoint that the Disney+ service is on the rise, but it probably helps them at least a little bit to see that some of their television networks are helping to offset the predictable drop in ESPN viewing.
Barker: Yeah, it's really, A&E and why -- I looked at that, I didn't research what is out on A&E right now that is causing this spike, because I think that's up 30% year-over-year. And I have not tuned into A&E in quite a while, I suppose, so I'm not sure what's driving that. I do understand, you know, ESPN off 50% and that to me seems pretty, pretty good, I guess I always thought ESPN's viewership would be off even more than that, but they are putting a lot of old games out there. And, you know, if you didn't catch them on ESPN Classic over the last 20 years then you can catch them on ESPN or ESPN2, I guess.
Hill: Let's move on to Starbucks (NASDAQ:SBUX). Starbucks updated their guidance for the second quarter, said their profits are going to be down 47% compared to a year ago. They withdrew guidance for the full fiscal year, which I think is something we're going to see over-and-over-and-over again, as companies either update guidance or provide their latest earnings report this month and into May, they stop their share buyback program, they are protecting that dividend, though.
Barker: Yeah, they were out on a little bit of a limb with the share buyback, I think, having reiterated that they were buying back shares over the last couple of weeks at some point. And everybody else has sort of hidden from that, I think, that that's creating headlines that are not wanted at the moment. So, yeah, they're going to cut back on probably their growth in stores, you know, from what their initial projections would have been, delay some of that, that'll save some cash. And not buy back shares right now, but I would expect them to, as they say, they're suspending the program, they're not getting rid of it, there'll be buybacks in the future by Starbucks.
But, you know, it's pretty flat today. I don't think 47% off is any huge surprise, it's putting a number on what intuitively one would have guessed would be a rather severe shock to the business.
Hill: Yeah, it's like you were saying about ESPN's drop in viewership, you know, I think we're now in this environment where numbers are going to be presented to us as investors, and it's entirely possible that our reaction is just going to be to shrug our shoulders and say, "Oh, I actually thought that would be worse." It's like, you know, ESPN viewership is down 50%, like, "Really? It's not that 80% or 90%, OK, 50% doesn't sound that bad." As a Starbucks shareholder, that was my reaction when I saw this number. It's like, "Really? Profits are only going to be down 47%, I really would have thought it would have been worse than that."
Barker: I guess it depends on where you are geographically in terms of whether the Starbucks that you know have any drive-thru because that's still there, and you've got people, obviously, addicted to caffeine and coffee and many are addicted, even more specifically, to the drinks they get at Starbucks. So, where they can get them, they've got the time to go out and find them. It's just, if they don't have the drive-thru; and there aren't many around here that I know of, drive-thrus for Starbucks.
Hill: Certainly, not where I live. But let me go back to the dividend for a second, because it is interesting to me to watch how companies are essentially deciding which levers to pull. And so, what Starbucks is doing with suspending the buyback program, so they can protect the dividend, Diageo came out and did the same thing. Earlier this week ExxonMobil came out and said that they are cutting their CapEx spending by 30% and it's because they want to protect the dividend.
Barker: Yeah, cutting the dividend is; it's just considered a last resort. And I guess it's just the nature of expectations. And it's interesting the degree to which buybacks have gotten these bad headlines, because when you buy back shares you are using cash and literally giving it back to shareholders by buying their shares, leaving the remaining shareholders with a slightly greater percentage of the company. If you buy back 2% of your shares, that's giving everybody 2% more of the company. If you give them a 2% dividend, that also is giving continuing shareholders money, but dividends are thought of as these good positive things that companies do, and share buybacks are considered a greedy thing by, I think, short-sighted headline seekers trying to create a narrative that isn't 100% accurate.
But be that as it may, protecting a dividend is something that a company likes to point to. You know, you'll find companies that can point to 50, 80 years of dividends without interruption, and that's a point of pride. Companies do not point out share buybacks as a point of pride.
Hill: Let's move to retail. Costco (NASDAQ:COST) came out with their same-store sales numbers for March. They're up nearly 10%. So, shout-out to the hoarders for really driving the same-store sales at Costco. I didn't look at it as closely as I'm assuming you did. My assumption is that this is all front-loaded to the first-half of the month, that what we saw in the first two weeks at Costco is really driving this number.
Barker: Yes, so the same-store sales were up, the core sales were up 12.3%, and I think that precisely that was following up on very good numbers from the end of February as people began to stock up/hoard. And so, this was a surprisingly light number against expectations. Apparently, the Wall Street expectations were above 20% for same-store sales for March. So, coming in at 12.3% the headline of 9.6%, this was considered disappointing. But, again, it's really just a number that is telling you part of the story of what is happening now, just as Disney's and Starbucks' are, and you say, well, I don't know how I'm supposed to guess what the number for this was going to be. And this is one where Wall Street got aggressive, "Oh, maybe everybody is going to Costco." No.
You know, Tractor Supply had very similar numbers up 10% in March. Again, this is sort of the same mix of the consumables driving a lot of that, and the rest of the sales are down.
Hill: Are you, as someone who does this for a living, are you looking forward to earnings season more than usual or are you dreading it more than usual? Because it seems to me that with more and more companies coming out and withdrawing their guidance, they're basically removing a data point. They're saying, "Look, we're not going to tell you what to expect." And look, some companies are really good at that, some companies are more helpful than others when it comes to that. And now, it's essentially just going to be here are the numbers, do whatever you want with them, you know, everybody is going to be Berkshire Hathaway now, where they're just like, no, we're just giving you the report, we're not telling you anything, we're not doing a conference call. Is that freeing for you or is that like, "Uh, God! this is going to be more work than usual?"
Barker: Well, yeah, if you're trying to invest on quarterly numbers and companies beating quarterly numbers or missing quarterly numbers, then this is going to be a nightmare for you, since that's really not how we in asset management operate, we're long-term buy-and-hold, really looking at the quality of the business.
Definitely, I'm looking forward to it, because this is an opportunity to see management deal with the nonroutine and you're going to learn more about management or at least something new about management that you didn't necessarily get to see all the time. Because when something is nonroutine outside of this period of time, it's usually a bad thing, so it's interesting to see management respond to mistakes and take the blame when they should. This is not really a situation where management is generally going to be shouldering the blame for bad numbers, but it will be interesting to see the different ways in which companies react to this. So, I think I'm looking forward to it in that it's out of the routine and I think there's a lot to be learned from that.
Hill: Before we wrap up, can we briefly talk about the stock of the day which I didn't even realize was a public company. You pointed out the latest news from Nautilus (NYSE:NLS). I think Nautilus is a company that does NordicTrack, I know they do home workout equipment. I think they're the parent company of NordicTrack. That stock is up 45% today.
Now, this is a very small company. I think the market cap is still below $200 million, but were you also surprised to see that Nautilus is a public company? [laughs]
Barker: Yeah, a little bit. I'm not surprised that they're doing well, of course. They sell a number of Bowflex and Schwinn biking and they're selling weights. This is one of the things that there was a report out, I think you've seen it, from Stackline on March sales, e-commerce sales, and what's up and what's down. And weight training is up 300% March, this is 2020 over 2019.
Hill: Right, this is by category, this is not by retailer, this is by "Hey, just in terms of the categories of things that people can buy online, what's higher in March of this year as opposed to March of 2019?"
Barker: Yeah. And No. 1, disposable gloves, sure, up 670%. No. 2, bread machines. So, if there's any company out there that just makes bread machines. Bread machines online are up 652% according to this report. And, boy! the companies that just make luggage that was off 77%, that was the hardest hit: luggage, suitcases and briefcases. But, yeah, Nautilus is in the right place for the month of March. And it's a tiny company and enjoying a very good day for the stock today. So, they're doing all right.
Hill: Yeah, weight training up more than 300% year-over-year. That's pretty incredible.
Barker: Yeah, my son wanted some weights, we've got some, he wanted some heavier ones to act bigger and tougher than what we had on hand, so I ordered some and waited a couple weeks and that was canceled because, I guess, they were out, so. I didn't order from Nautilus, but I'm not surprised, having gone through the experience myself of seeing I was unable to get my hands on some weights right now.
How about you, what are you doing, what are you working out with right now?
Hill: I'm just occasionally going for a run. Like that's it.
Barker: Exactly. Are you on target for your, you know, Fall marathon training? It's a little early for that, I guess.
Hill: Yeah, the races I've signed up for have all been, you know, either pushed back to later in the year or pushed back to 2021. So, races are basically like the movie calendar now. It's like, "No, no, no," "Oh, you thought this was happening in the Spring. No, no, no, we're going to do this in the Fall or we're just going to push it off to next year."
Can I just highlight one, surprising to me anyway, category in this Stackline report? Wine racks down 40%. I don't know. I just think of alcohol as one of those categories that is probably going to do pretty well. But maybe it's doing so well that, like, "No, I don't need to put this in a rack, I'm going to go through this case of wine quickly."
Barker: Yeah, this thing is never even going to hit the rack. [laughs] What were we thinking leaving wine on racks for all that time? I got a better way to use the wine.
Hill: Alright. Thanks for being here; I appreciate it.
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 MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you next week.