In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest headlines from Wall Street, including Joe Biden's pick for Treasury Secretary, earnings reports from a couple of discount retailers, details on a hot acquisition, and much more.
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This video was recorded on November 24, 2020.
Chris Hill: It's Tuesday, November 24th. Welcome to MarketFoolery. I'm Chris Hill, with me today, the one and only, Bill Barker. Good to see you.
Bill Barker: Good to be here. How's it going?
Hill: It's going well. We've got some retail earnings to talk about, we have a spicy deal to talk about, but we're going to start with the return of the Fed Chief.
Janet Yellen is Joe Biden's pick for Secretary of the U.S. Treasury. So, just like she was the first woman to head the Federal Reserve, Janet Yellen is going to be the [laughs] first woman to be Treasury Secretary. And the reaction that we're seeing from the business community and on Wall Street is a positive one, and I'm assuming that's in part because she's a familiar presence. And let's face it, when she was running the Federal Reserve, she did so with a steady hand.
Barker: Certainly, it's always hard to ascribe the market reaction to one factor or another. If you want to put a few chips on some post-election smoothness or smoothening of the process, you can do that, if you want, you can put them all on Yellen, if you want. It would make some sense to do so, because she is a both familiar presence and not a scary one to the business community, and somebody with, additionally, a track record of pursuing, implementing low interest rates. And if you're going to ask for one thing on behalf of stockholders it would be a continued low interest rate environment forever, if possible; they can have that, I think. [laughs] No taxes, low interest rates, how about that, you know?
Hill: Right. Yeah, that certainly is, if it's not No. 1 on the wish list, it's pretty high up there.
Barker: It's way up there; it's on the wish list every Christmas. So, Yellen provides some of that history of low interest rate support and competence. And I think that it's not a surprise that the market is happy, given that some of the other names, I don't think Elizabeth Warren was ever really that likely, but to the degree that that had a non-zero chance, then now it has a zero chance.
Hill: It's rare that we talk about any Treasury Secretary on the show, so I'm just going to take an extra 60 to 90 seconds here, as you and I were chatting a bit this morning, just to reflect [laughs] on the resume of Janet Yellen, which is among the more impressive resumes around. Again, first woman to be the Head of the Federal Reserve. You know, and gender aside, just the Head of the Federal Reserve is [laughs] now going to be the Treasury Secretary of the United States. But it's a pretty impressive family when you consider the fact that her husband holds a Nobel Prize.
Barker: Yeah. I don't know which of those two is more impressive, I'm so far from being able to comprehend the accomplishments involved to be selected to either of those that I can't really make a choice, but I think it's a fair fight and one that I'd like to hear them go at each other about who's [laughs] got the bigger, more impressive resume.
Hill: I feel like that would be more entertaining... look, I'm not trying to start a fight here, but I feel like that would be more entertaining, if they were each on their second glass of wine, just like in a good-natured way.
Barker: Yeah. It could be a Saturday Night Live skit. I certainly think that between the two of them, it's a good opening bid for most accomplished couples. And there's some others sprinkled throughout the history, and recent history, that could compete, but boy! That's... if you don't ever improve on the Yellens, then that's the testament to them.
Hill: Absolutely. All right, let's move on to some retail earnings. We've got Dollar Tree (NASDAQ:DLTR), Best Buy (NYSE:BBY), and Burlington Stores (NYSE:BURL), all out with third quarter reports. Let's take them one at a time. We have to spend a lot of time on these, but Dollar Tree, I feel like we've seen this story for a while now, because Dollar Tree is the parent company of both the namesake Dollar Tree stores and also the Family Dollar chain of stores. And for a couple of quarters now we've seen this play out, where essentially Dollar Tree is doing better than Family Dollar.
Barker: Yeah, I mean, it's got a better model at the moment, although Family Dollar did a little catching up, same-store sales were 6.4% for the quarter at Family Dollar, and 4% for Dollar Tree. So, a few more people are going in the doors than the previous quarter at Family Dollar; actually, that's year-over-year, so. But Dollar Tree has been the lion's share of the profits for this company. And you know, margins continue to improve across the board. It's not a spectacular improvement year-over-year. I think total consolidated net sales were up 7.5% year-over-year; that is good. Obviously, in 2020 to have sales up in any retail environment over last year through the first portion of this year is pretty good. But you know, as a store that was pretty much always open, because it supplies things that were necessary even during lockdowns, groceries and necessary household items, it didn't ever have the enormous punishment that happened to some other retailers. And it's, compared to some things, it had a smoother year than others.
Hill: And a good day. I mean, we've seen bricks-and-mortar retailers having a good 2020, I wouldn't put Dollar Tree in that category, but the stock is up 10% right now.
Barker: Well, they haven't been in the position of really being able to harvest any investments on their online operations to the degree that some other stores, one of which we'll mention in a moment have. You know, it's not the kind of thing that you would necessarily order as much online as the materials you would need on a day-to-day basis. And given shipping costs and all that, they're just not going to ship $1, $2, $5 items profitably.
So, there are other companies that have made the investments; Dollar Tree does have an online operation, but it's not a huge part of the business compared to the in-store portion.
Hill: Speaking of online sales, Best Buy's [laughs] online sales in the third quarter rose 174%. Shares of Best Buy are down about 6% today, we'll get to the guidance part in a second, but just in terms of the third quarter, this was really, really strong.
Barker: Yes. Yes. When you think about both being in your house, and what you need and want to be able to do, boy! There's been a lot more TV watching, and there's been a lot of connectivity that you've needed. So, upgrades of both laptops, and modems, and routers, and just printers, all that, plus the TVs that are being sold, and audio upgrades, people are spending, obviously, far more time in their homes, in a lot of cases, than ever before, and are making technology investments. And Best Buy, you know, because of the adjustments that it made to its business model several years ago, they're in position to reap the rewards of that and are doing so again today. The stock isn't moving up, but it's got a strong year, so ticking down a little bit today, but just off of all-time highs, really.
Hill: That's what I'm assuming is what's going on with the stock. I mean, even with the drop today, over the past 12 months it's up more than 50%. I get that they didn't provide any guidance for the holidays, or certainly not the guidance that Wall Street analysts were hoping to see, but you know, in their defense, I don't [laughs] -- you know, Walmart and Target weren't really stepping up with specific holiday guidance either, so it seems a little unfair to take Best Buy to task for that.
Barker: No, I'll take their non-GAAP diluted earnings per share increase of 82% year-over-year as a proof enough of a great year. And you know, in the multiverse that exists, there's a version where Best Buy went the same route as Circuit City and others that got squashed. But I mean, in Circuit City's case, largely by Best Buy, but also the fears that Best Buy was going to be Amazoned out of existence didn't come to pass. As I say, there are other versions of reality where that happened and we're not able to, you know, look in on today's action and be awed at the job that they are doing and have been doing for about the past nine years.
Hill: Third quarter profits and revenue for Burlington Stores came in higher than expected, the stock down a little bit, they had a loss in terms of same-store sales but it wasn't as bad as people thought it was going to be.
Barker: No, this quarter started out pretty badly. August was really poor numbers, and then the September-October were only down 4%. But back-to-school sales basically evaporated, and that was part of the problem for the August sales. You know, it's lost a lot of sales, somewhere around 30% year-over-year, of course a lot of stores were closed for a while there in the Spring. But the strength of the stock is testament, I think, to the long-term performance of this company and an expectation that as reality returns to some post-COVID version of normal, Burlington is about the same company that it was before this, it hasn't taken a big hit in terms of -- you know, it doesn't have debt that is a worry. And they'll be able to emerge from this stronger, because the competition has gotten weaker.
Hill: You look at a five-year chart of Burlington Stores; I don't know if anyone listening has ever been to a Burlington Stores, I've been in to a Burlington Stores ...
Barker: Has anyone listening ever been to a Burlington's? I'll take the over on that. [laughs]
Hill: Sorry. Let me reset the time ...
Barker: How many? You really do have dozens of listeners, don't you? Maybe not even that. A random selection of a dozen listeners will provide somebody who's been to a Burling Store.
Hill: In the past year, in the past 12 months, I'm assuming not a lot of people have been into a Burlington Store in the last -- I could be wrong about this, I'm wrong about plenty of things. [laughs] But the fact of the matter is that this is a better retail performer in terms of the stock over the last five years than Amazon, Costco, Walmart, and Target. I'm not saying it's a better business, I'm not saying it's like, buy this as opposed to the other, I'm just saying, over the past five years, [laughs] as well as those four retail giants have done, and they've done really well, you're doing even better as an investor, over the past five years, if you own shares of Burlington Stores, which I do not. [laughs]
Barker: Yeah, it is one of the quieter butt kickers out there. And it did take a big hit as a stock, as many things did, February to March was basically cut-in-half, that ended up being for, you know, Burlington as well as many other things, a great buying opportunity for those that got in there at the bottom. And it's really, as I say, a testament to the trust that the market has in the management here and the business model, the off-price model that Burlington uses, because it has not been a profitable year for the company and they are not yet able to point to really improving trends. Of course, for something that was previously known for coats, there aren't a lot of people that are necessarily going to have to buy as many coats this Winter if they're going to be stuck inside all the time. So, they have a better-looking future than a present, and their past is the reason that the future looks bright at all, I think.
Hill: Three years ago, McCormick paid $4.2 billion to Reckitt Benckiser's Food division to buy French's Mustard and Frank's RedHot sauce. Today McCormick announced it is buying another hot sauce brand, Cholula, for $800 million. And shares of McCormick, you know, you go back three years to when they made that deal, I get that it was a larger amount of money that they were shelling out to buy French's and Frank's, but the stock was down that day, today shares up a little bit, 1%, 2%, and this seems like a good acquisition.
Barker: Yeah, as they go into the flavors and fragrances part of the aisle and continue to expand away from the spices, where they've already not quite cornered the market, although they have 20% of the global spice market, larger percentage of that in North America. And they have both the branded spices and they do a lot of the private label spices as well. So, they've got a very profitable business, but it's not as if people are going to buy spices at greater and greater amounts that you could compound a business at 10% if you stay in the spice world.
This year is good, because everybody is at home, but they are taking those profits and continuing to buy sauces. And you know, you've got some strong opinions about these sauces, I know that.
Hill: Well, yeah, I tweeted out this morning that this -- you know, Bloomberg had a story that I retweeted and I wrote, this is a smart acquisition that doubles as an admission, McCormick no longer believes Frank's RedHot can be the top global brand in the hot sauce category. And that was a statement from McCormick three years ago when they made this, when they made that deal, when they said this is our goal, which is a worthy goal. Unlike most things I tweet, there have been a lot of responses [laughs] to this one, and people saying, well, actually, this is a separate category, like, Frank's RedHot, that's just for buffalo wings. And it's like, OK, well then, you know...
Look, McCormick is a great performer with a really good track record of the way they've grown their business and made acquisitions. It makes me question a little bit more the $4.2 billion [laughs] they shelled out then for Frank's, if it's like, yeah, it's really just a sauce for this one thing, whereas Cholula, there are a lot of different things you can do with it.
And by the way, to the people who are tweeting pictures of the hot sauces in their refrigerators. Yeah, take them out of your refrigerator, you don't need to refrigerate hot sauce. If you've got Cholula or Frank's in your fridge, what you're doing is you're dulling the taste of them by chilling them, so that's just a little tip from me to you, take the hot sauce out of your fridge, put it back in the cabinet where it belongs.
Barker: For somebody from Maine, you fancy yourself a little bit of an expert on hot sauces, don't you?
Hill: I wouldn't say I'm an expert, but I have more affinity and greater experience with hot sauces than I do with, say, lobster, that's why I had to leave Maine; the tourism board found out, and they're like, you got to go, kid.
Barker: You got to go. All those spices that you've been eating instead of lobster, we can't have you.
Hill: Yeah, you got to go.
Barker: Yeah. But I mean, just personally, you seem to have something against Frank's.
Hill: It's the consistency of it. It makes sense to me that people were saying, no, you just use it for buffalo wings. I'm like, OK, that makes sense to me, because anytime I've tried to use Frank's on anything else, the consistency is too watery, whereas Cholula has a little bit of heft to it, which is one of the reasons I like it.
Barker: You got it in the cupboard right now?
Hill: I do. Not in the fridge; got it in the cupboard.
Barker: [laughs] Which brings it up to -- and we may now have gone into the tangent portion, have we finished with the business news?
Hill: Yeah, for anyone looking for more investing news, you can drop off now.
Barker: Right. Because you're just going to get angry listening to where we go from here. But the whole spice thing, we were today, you're a big fan of throwing away spices as quickly as possible, correct?
Hill: [laughs] That is an overstatement.
Barker: When they get within a few months of the expiration date, you're jettisoning them.
Hill: No, you made the comment to me that there's someone in your home to whom you're related by marriage, who looks at the expiration date on spices and when they're past the expiration date, throws them away and buys new spices. And I said, I support that decision, because the reason you have any spice is so that it can provide flavor. And over time, they're going to lose flavor.
Barker: Yeah, big spices bought you off I see. [laughs] But there is that --
Hill: I don't think the people at McCormick are necessarily thrilled with the comments I've made [laughs] about their company.
Barker: Well, it's my position. You know, you can use those spices for a number of things other than just throwing them away, as I learned today when I -- you could make handmade soaps with them apparently, according to some websites that seem to be full of good ideas on what you could do with spices if they've expired.
Hill: Sure, yeah, I applaud the ingenuity of anyone who says, well, we're not going to use this for food or cooking anymore, but we can use it for soaps, for candles, for dies, for whatever else. And who knows, maybe that's like a secondary market for McCormick. For all we know, [laughs] they've got that business going on right now.
Barker: Everybody go and throw away some spices, here's what you can do with them rather than creating trash, you can make potpourri with them, right?
Hill: Strike a deal with L Brands, get some of those McCormick spice branded candles or soaps.
Barker: Now you're talking.
Hill: Before we wrap up, I do need to remind folks, we are off for the rest of the week here at MarketFoolery, but if you're not already listening to David Gardner's Rule Breaker Investing podcast, check it out when that episode hits the podcast feeds on Wednesday. Hope everybody has a safe, happy, and delicious Thanksgiving Day. And of course, on Friday, the Thanksgiving Special episode of Motley Fool Money will hit podcast feeds. And I say "special" because it's the one episode of the year where we have a sound effect.
Barker: I mean, does that drop, like, right at midnight or something, for those that are just waiting for it, can you do that?
Hill: For those who are sick of their family, to the extent that they gather with family, and they're like, I need to go for a walk and listen to my show, it's not going to hit at midnight, it is going to hit earlier in the day, though. Normally it hits feeds around five- or six o'clock Eastern Time, and I think it's going to go out at noon on Friday.
Barker: So, something for people to do on Friday.
Hill: There you go. Bill Barker, Happy Thanksgiving!
Barker: Thank you; you too.
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 next Monday.