In this episode of Industry Focus: Consumer Goods, Motley Fool analysts Asit Sharma and Emily Flippen hold a quick-fire discussion over seven consumer goods companies that have recently reported earnings and discuss how their guidance (or lack thereof) may impact investor expectations in the second half of 2021.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on May 25, 2021.
Emily Flippen: Welcome to Industry Focus. Today is Tuesday, May 25th, and I'm the host of this Consumer Goods episode, Emily Flippen. Today I am joined by Motley Fool senior analyst Asit Sharma, as we take a look at some of the retailers that have benefited the most in 2020 and how they are handling 2021. We're going to be chatting about recent earnings reports for a ton of companies here, mostly in the context of did they provide guidance? If not, what's happening? If so, what should investors be expecting? A little bit of a deviation from our normal deep dives into a single company, but hopefully it will be fun. Asit, thank you so much, as always, for joining.
Asit Sharma: Emily, thanks for having me. I'm so glad you suggested this topic, because man, if you've been following the earnings of retailers, it's hard to get your bearings this quarter, just because of everything that went on in the last year. I'm glad we're taking this pause to try to take stock and figure out what the heck is going on for some really well-known names and a few newer names that we follow.
Flippen: Well, I'm happy you like it. I liked the idea, but as I started to take notes on all the things I wanted to talk about, I realized our outline was turning into just me word-vomiting earnings notes all over the place. [laughs] Hopefully, you can provide some key takeaways for us here in the show that I so eloquently missed in the outline.
Sharma: Emily, I hate to drag out such an inelegant metaphor on your part, [laughs] but I actually got into this too, and I started taking the word vomit of management teams and slapping those into our outline so we could talk about what they were spouting out. As far as regurgitation is concerned, we'll regurgitate a little bit, but we'll throw in some analysis as well.
Flippen: Well, the first one I want to chat about, and the catalyst for why I wanted to do this show was Target's (NYSE:TGT) quarter last week. I'll do a quick plug for one of The Motley Fool's other daily podcasts, which is MarketFoolery. I was on MarketFoolery with host Chris Hill last week, talking about Target's quarter and doing the research, reading the earnings report for Target, my mind was blown. To say it was an outstanding quarter would be really an understatement. The earnings, both revenue and bottom-line, were significantly higher than even the already outsize expectations that I think investors and Wall Street had. Their same-store sales were up 23% in the quarter. That was more than double expectations. But more importantly, that was in comparison to the year-ago quarter, when they experienced an 11% comp increase coming into the pandemic. These are some really interesting numbers from Target. I have to say, as I was researching, I just found myself scratching my head thinking, what's happening? What people are buying at Target that's 23% greater than last year? I'm still not sure I have an answer.
Sharma: I'm not sure I have an answer either, but I've got a couple of guesses. The first has to do with the obvious, that Target had invested in its e-commerce systems leading up to the pandemic. They were able to take advantage of that, so they were coasting a little bit on some of that success. But the second idea is that Target provided this great one-stop shop for so many people at the beginning of the pandemic. When the lockdowns occurred, everyone was forced to stay home. So many people who were working in white collar jobs and some slightly blue collar jobs suddenly had to get home-office furniture. We had to change our apparel and buy sweatpants. We needed electronics to listen to a podcast. There were so many categories. Even the grocery category, which Target has obviously invested in that supply chain as well, that you could just lump those together as a consumer and get a rethink in one order. If you like their website, which is just highly functional, get your order together, just pick it up at curbside when they open their stores, which they were fairly quick to. I think some of us were trained to make that one-stop, where we could grab a lot of different items from across these categories. Here's a little dichotomy I'll use throughout this show. I've been trying to understand this quarter. Is it sticky? Are these earnings and revenue sticky in this company I'm looking at or are they steamy? Are they just a product of stimulus? Are they sticky from COVID or are they stimulus driven? In this case, I think they've got some sticky going on here from those trends. That's part of it.
Flippen: I certainly agree. To further reiterate the stickiness, guidance was implying that this single great quarter wasn't so single after all. We're headed into the first back-to-school season I think we've had in a long time, plus things like Thanksgiving and holidays coming back online. All of that coming back in the second half of the year could help full force Target to stay in such a dominant position. It's so interesting to see how their comps compare and things like same-day services which are up 90%, drive up orders which are up 123%. These were numbers that I didn't expect to stay so strong even headed into 2021, which does give me the thought here that a lot of these users are going to end up being sticky long term Target customers.
Sharma: Could be. I think there's also some market share grabbing going on. Target, let's just take apparel as an example, operates on a very middle of the road type of product line. But it can attract customers who are used to department store shopping and look for discounts at department stores. I remember this experience reading the conference call transcripts of retailers like Macy's or Nordstrom, where management was saying, hey, yeah, our sales are down. But we've invested in e-commerce too. This is actually an opportunity for us to capture more market share later. Kohl's was saying the same thing. If you remember those comments, any of you who are owners in these companies, someone was grabbing that market share in the meantime. I think in some of these cases, it was Target on the apparel side, and I think you can translate the same to electronics, to their grocery division. Some of this may not revert to the mean. They may have won over some customers that were shopping at other places. Again, if it is a little bit of more one-stop-shop sensibility, you're going to be loath to go back to Nordstrom until you need maybe that higher-end piece of clothing. There's some permanence in here. The question is going to be, as we roll through the quarters of this year and keep lapping what happened last year, how much of this will remain sticky? Target just looks so strong. I almost think that many of us are underestimating its future potential, at least for the next year or so.
Flippen: While we didn't get any real guidance from Target, there's still holding back on providing really any numbers in terms of revenue earnings, even just customer expectations. They are holding back on all of that. While we're not getting that explicitly, I can personally tell the difference between a business like Target and one like Dick's. I've been calling out Dick's as an example for probably a year now of a business that I think got a lot of short-term tailwinds without really any long-term customer staying power. I could be wrong. In fact, they report earnings tomorrow on the 26th. So I'd imagine a lot of people who are listening to this are either going, oh man, Emily was so smart or Emily totally missed the point there. But the reason why I call out Dick's is because when you look at how they talked in the most previous quarter, which I believe was back in February, if memory serves, they still had a two-year midpoint. So the range from 2019 sales to 2021 sales representing a low-single-digit growth. That to me says, hey, look, we had a stellar 2020 because everybody was suddenly buying canoes and camping equipment because they couldn't do anything else. But those were one-time purchases and we're not going to get those people to stick over the next year. Maybe we get some people, maybe we build up our brand, maybe we get some loyalty. But I do not think they are going to come out with 23% comps like Target did in the most recent quarter. When I think about the retailers, I can tell the difference between the business models of a Target and what they're doing to retain customers versus something like Dick's, which is in my opinion, still riding a short-term tailwind. A fine business, but not quite at the Target levels.
Sharma: I agree. I think Dick's before the pandemic was in the middle of two transitions. They were transitioning some of their small hunting stores with their desire not to be associated with guns and ammunition. They're transitioning those into other parts of the store, that depending on the location, whatever made sense to management, were just doing away with those shops. That was a square footage type of reallocation program they had going on. Also, they were increasing their non-branded goods. So, starting to compete with the very brands that brought them to the dance. That's always a hard transition, although we know it can produce margin points for a company. So Dick's, if you look at both revenue and earnings on that scale, they were spending their time and investments increasing earnings rather than revenue. I'd be surprised to see a real outsize quarter. I think this is a company that probably reverts a bit to the main and to that competitive space that they were in before and before COVID, they were a story that just surprised investors. Their results were consistently exceeding by 1% or 2% consensus expectation in terms of same-store sales. If you remove that COVID picture, that's back where they were. They're not going to surprise anyone in my best estimation with a huge double-digit gain. Now could there be a small double-digit gain in revenue that maybe is a little past expectation? Sure. But I think Dick's, yeah, you're probably right, Emily. Maybe we can even mention that in a future show just to see where they land since it's the only company we're talking about today that hasn't reported.
Flippen: Definitely. It's a bummer that we're not taping this on Wednesday, so we could add the commentary. But on the bright side, we did have two major home improvement retailers, as always reporting earnings. Both of them have been understandably pretty stellar quarters. I don't think there is any doubt in the mind of investors about the fact that the home improvement category is still going strong into 2021. If, for no other reason, then the price of lumber is up something like 90% over the last year, which has certainly helped these businesses. When you look at Lowe's (NYSE:LOW) and when you look at Home Depot (NYSE:HD), what they said for the quarter, the guidance they provided for the year, what stands out to you?
Sharma: I think that for me, both of these are reminiscent of Target in that they are having outsized comparable sales. So, really great comp sales. The trend is certainly with all three companies, but in each case, I think management is just feeling a little cautious. When fortune is raining down on you it's hard to be precise and you'd almost rather not see where these concurrent trends of stickiness plus just consumer discretionary spend, which is leftover from a stimulus, plus people still wanting to do home improvement. When you take these trends together, it's really hard for the do-it-yourself retailers like Lowe's and Home Depot to give forward estimates, just as it is difficult for Target to really understand and portray to the investing community how much deceleration will occur, what will that year-to-year look like? Because they are still seeing midstream strong numbers.
I think for Home Depot, which is the one that I highlight, Emily -- I had a very similar experience to you because I think I was the very next day following you before on MarketFoolery. I looked at Home Depot numbers and I was just amazed at how strong those numbers were. I think this helps us separate winners and losers and also rents. So far we've got Target as a winner. Home Depot and Lowe's, I think, are also winners. Home Depot stood out to me because their revenue increased 33% to $30 billion. That is a combination of discretionary spending from seamless. So there's the [...] there, plus this home improvement trend that I mentioned as we're staying home. Plus another layer of home improvement, which is this tight housing market. That takes people one step beyond simple home improvement into home renovation, if you understand that it's really difficult to move anywhere because lumber prices are elevating in some areas the price of new homes. Also, demand in certain metro areas is just skyrocketing because we have chronically underbuilt since the Great Recession. If you see those trends, you can see how easy it is for a homeowner to shift from wanting to move into another house, seeing how difficult that is, and then just deciding, well, I'll take out our first mortgage or I'll use some savings and I could renovate my house.
All of these trends, combining for a great quarter for Home Depot, they had $5.8 billion in free cash flow. Their gross profit grew by nearly 33% to $12.7 billion. Why I'm calling out gross profit rather than gross profit margin is because Home Depot's management before the pandemic was investing in their supply chain. They were investing in the customer experience in the store, trying to make that more modern, more device-based, more kiosk-based, all the kinds of things that lent themselves well to a pandemic dropping out of the sky. But their purpose wasn't to be ready for a pandemic. Management's purpose was to scale up gross profit. They know they can't be that much more profitable because they are so big and their business model's so established. But they know if they sell more at the same profit level, that can just create these huge dollars dropping to the top line. By top line, I should say that's below the top line, your gross profit number, the cost of your sales being subtracted from your revenue, $12.7 billion isn't chump change. I think that if you look at management's comments going through, they did take a small victory lap.
They also pointed out this very interesting thing that the sales that they are leveraging on their digital platform, increased 27% versus the first quarter of last year, 55% of online orders were fulfilled through a store. But they're not stopping. I'm seeing a lot of companies simply take a pause. We invested in e-commerce before the pandemic, during the pandemic, and now we are just reaping that. They're onto the next phase, which is a really cool idea called mixed cart selling. What they're doing is they're wrapping their technology so you can order part of what you want at home. You can go into the store and purchase something. Everything is integrated on one ticket and I have experienced this myself. It's pretty cool. It's this seamless, I guess, multi-channel, if you will, between the home and in-store shopping experience. So Home Depot isn't slowing down, that's what really impressed me. Just a brief comment on Lowe's, very similar. They're up to something different which is modernizing their systems. They were the also-ran behind Home Depot until a couple of years ago. They've been putting all of their attention on modernizing their stores, modernizing their supply chain, just trying to catch up with the way Home Depot does its distribution, how it handles its inventory, how it has a great customer experience. Their results were also very impressive. I think between the two of these, I just lean Home Depot if you had to choose between the investments. But Emily, their revenue up 24% year over year to $24 billion in sales and a huge jump in earnings per share, 81% year over year to $3.21 a share.
Flippen: I agree. What's really interesting to note about both of these businesses, Lowe's and Home Depot, is they're both pretty flat on their earnings announcement and we can speculate a bit about why that would be the case. Neither of them gave guidance, which may have scared a few investors. Although, as you mentioned, having chronically underbuilt in terms of homeownership not able to meet the current demand. There are some very real tailwinds that are long-term for the housing industry. That's way more than just, oh, we are in a bubble, everything is going to pop and that's going to hurt home improvement companies like Lowe's and Home Depot. When in reality, their problems were complicated than that and their solution seems to be more homeownership, which inherently benefits Lowe's and Home Depot.
I think you can probably do well if you're an investor owning both of these businesses, I am a shareholder in Home Depot not Lowe's, and that's for a lot of the reasons that you outlined. I think Home Depot has done a better job of getting the pro-business, something Lowe's is playing catch-up in. But there's also a level of operating leverage and scale that I think Home Depot is starting to show that Lowe's is just beginning to tap into now, which could go either way. We mentioned that earnings are up nearly 81% year over year in terms of growth. But when you look at the operating margin, there's around a 3% increase in operating margin year over year. Regardless of how poor the comps were in the prior period in comparison to where they are today, in my opinion, it just seems like Home Depot is still better executing. Of course, I could be wrong. I do think part of the reason these traded sideways was because of the lumber prices, which are really, really hard to back out in a quarter like this one. But regardless, great quarters for both of these businesses.
Sharma: It's funny and I'm also a shareholder in Home Depot but not Lowe's. But you may be right, Lowe's may have some more room to grow. That 3.2% improvement in operating margin, I loved it. That's a great number to track through this year. Let's see how they do in the next quarters against the prior quarters. I think over time, they're going to get more profitable on an operating basis. That's what they've been all about before this pandemic came. But two interesting companies that you can hold onto and forget about them. They'll surprise you with their returns.
Flippen: Now, let's talk clothing retailers a little bit and by that, I do not mean the Macy's, the Nordstroms of the world. I'm talking about expanding our consumer goods perspective here and talking about two businesses that we've done entire shows over in the past. Have you ever listened to those shows? Definitely go back and listen to them. But the first one is ThredUp (NASDAQ:TDUP). I'm curious what your thoughts were on this quarter. One of the big bright points for Target was the 60% increase they saw in apparel sales in comparison to the year-ago period. Again, comes a year-ago, very low as we all put on our sweatpants. But presumably, there has to be some more demand for apparel and wearables coming out of this pandemic, right?
Sharma: I think so, and ThredUp is a company that's poised to benefit from this demand. If you don't know the company, they recently IPO'd this year. They work in the fashion resale or circular fashion economy. You can send your clothes to ThredUp, they will take in those clothes and find a buyer. They have massive distribution centers and they're still building out that distribution footprint. Their revenue increased about 15% year over year to $56 million, which is fairly decent growth for them. Their cadences anywhere from 10%-15% year-over-year growth. Their gross profit margin, up 3% to 71%. Why I like this is because when we talked about this company, after reading through its perspective, Emily, I think just before went public, maybe just after went public, I was really intrigued by the extent to which management is trying to automate its distribution centers as they take in kits that people send in of their clothes. They have projected this long but steady cadence of gross margin improvement. We saw some in this quarter, their net loss this quarter, $16.2 million versus $13.2 million in the year-ago quarter. But of course, they had some expenses from going public. I did like that their active buyers were up 14% year over year and their orders were up 18% year over year.
But what really caught my eye was management's comments on the supply side. That's people who are sending in their kits to ThredUp for resale. Management said basically that they had so much supply during the pandemic, when everyone was home. They had stopped taking in new inventory from customers, and now they've started out this. They call these cleanup kits. If you're cleaning out your closet, you'll send that kit in for processing from ThredUp and they will sort the merchandise, photograph it, store it, and then resell it. As they've been doing this, they are scaling the number of bags they can process. They've hit the go button, they're not on pause anymore, so customers can send in more merchandise. I like it when I see problems with too much supply. When a company doesn't have a problem on the supply side, then it means they've only got half the equation to work on. That's the demand side, which obviously, they're doing a pretty decent job on, if they're growing in the low double digits. Something else that I talked about when we had the podcasts was these automated distribution centers. Just wanted to point out that they are trying to grow their distribution capacity from 5.5 million items to 6.5 million items by the end of 2021. That's a lot of items of clothing.
What you have here is a company that is building out its capacity to take in reused clothing to really hold that in a cost-effective manner and sell it. I think this company, ThredUp, is an interesting play on the circular fashion economy. The industry is growing 25 times faster than the overall retail category. That's why ThredUp just catches my interest, may not be as interesting to some investors as the company we're going to talk about next. Because the next company, I was like, creates a little bit of suspense, has a very interesting social element to it on that platform. But I will say regarding that, that ThredUp is also taking a queue from some of it's fellow e-commerce retailers, Emily. They're starting to engage some celebrities and influencers with campaigns to make people more aware of the benefit of recycling clothing versus going out and buying new clothing. That's something else to keep your eye on thematically, if you are following ThredUp or if you've already bought shares.
Flippen: That second company, it's amazing how parallel their quarters were than ThredUp in comparison to Poshmark (NASDAQ:POSH), the second company we're going to talk about. It's interesting because they do have similar tailwinds in terms of the type of consumer they're after, the demand for apparel, especially digitally ordered apparel, being a key factor and continuing the circular economy for clothing, reselling, all of those same tailwinds, but different business models. ThredUP, actually taking inventory ownership over the items. Whereas Poshmark operates more as a platform to allow people to post their own items and purchase items. Different business models but very similar quarters when you look at their earnings or their revenue I should say. Similar growth rates, 18%-21% next quarter is what they expect. While that is a significant slowdown to what they were experiencing before they IPOed, which I think was something like 40% or 50%. They are constantly talking about, oh, well, you have to compare us on a two-year basis and on a two-year basis, as with all of these businesses, it does look a little bit better. But still, Poshmark and ThredUp, I think to an extent, play off of social elements.
Poshmark has a really social connected aspect to how they go about purchasing, engaging with shoppers as well as individual sellers. Poshmark's management believes as we continue to expand, there's going to be a desire to resume socializing, and that that will combine to have some activity normal miss on the Poshmark platform. I'm not sure how much it's going to be a true tailwind for Poshmark, if I'm honest, but I'm constantly amazed. Since we've done our first deep dive in Poshmark, I've become a somewhat infrequent Poshmark shopper. I have made a few purchases, usually when I'm looking to replace a very specific item that isn't made anymore and I don't know where to find it. Poshmark has always had it in stock. I have followers on Poshmark. [laughs] I think I've purchased like two or three things. I've only ever made a couple of one-off purchases, but I have followers. I know people on Poshmark, there is no way to create a Poshmark profile without it being social. I don't know who these people are, by the way. Don't know what they're doing with their time that they managed to find me on Poshmark. But I do think it's a really interesting business model and that in combination with the ThredUp quarter, does make me excited for what we haven't store in terms of apparel sales in the second half of the year.
Sharma: Me too. I'm a fan of Poshmark, the business. I haven't bought the stock and I'm still watching it. The social element that really intrigues me and I guess, Emily, if you've got a handful of followers, you can no longer claim that you don't have any fashion sense because now, obviously, you must. Maybe they're following you just to watch you blossom into a full-blown fashionista.
Flippen: Maybe I'll buy a pair of pants next, who knows?
Sharma: But Poshmark is interesting in that they have a steady revenue stream that derives from Instagram influencers. They don't have a direct relationship with Instagram, but Instagram influencers are a whole stream of, I want to say, influential, almost affiliate type marketing outlets for this company. They call it out as both a benefit and risks in their SEC materials that when they were going public, this was one of the avenues that they sided as both being an opportunity and a vulnerability. As we see their revenue growth slow down, this has something to do with the fact, I think, that the fashion influencers have been able to really get out and go to events, which is how they make that interest in themselves peak. Not that I spend a lot of time on Instagram, I don't have an Instagram account, but I do watch how people are portraying themselves to understand some companies. Let me talk about one in just a moment here, I think that being confined to the house has actually hurt some of the revenue viability [laughs] of companies like Poshmark, the more concrete example is, of course, Revolve, which you and I have also done a deep dive on, Emily. If anyone is interested in this industry, go back and see that. That was, I think, from late last year, late 2020. But Revolve is an e-commerce retailer which really relies on people getting out to events, it's event-driven. They picture concerts and music festivals that these young influencers go to, and that's where they model their outfits, they're going out, and they model their accessories.
When these types of activities come to a halt, I think it does have a bit of a negative effect on companies that are relying on the social element to promote sales. Having said that, I think your point is very well taken as things open back up, maybe that becomes a renewed tailwind for Poshmark. I have been wrong before on the impact of the social aspect on e-commerce companies, the greatest example is Pinterest. I just didn't get it [laughs] until I saw how people love the platform, they interact on it. Of course, there are other reasons that we don't have to get into on this podcast, on why Pinterest really started to capture investors' imagination and do quite well. Poshmark almost reminds me of Pinterest in the early days, Emily, before it became a really popular stock. I'd like to see what happens over the next three or four quarters. If you're telling us, management, to look at that two-year stock, that two-year stock in just three to four quarters will normalize some. It's either a very rational ask of investors or it may be, in many companies that we're looking at, just a way to say "Wow, our sales are really falling off." Judges [laughs] by something more normal and we're reverting back to that mean. We'll see.
Flippen: Speaking of having potentially really wrong opinions, the last company we're going to talk about today is one that I'm going to have a strong opinion on that is probably really wrong. In fact, I'm going to go as far as to say, I think this company is similar to Dick's. Not a bad business, but also not something that sustains a lot of momentum heading into 2021, and that's the Tattooed Chef (NASDAQ:TTCF). I think I've done an Industry Focus episode. I don't remember if it was of you, Asit or Brian Feroldi, but we've talked about this one a bit in the past. I will defend my argument, but I want to let you make yours first. What did the last quarter look like for the Tattooed Chef?
Sharma: Well, first, for those of you who are watching this on live, if you're listening to the podcasts, you won't be able to see this, but I'm rolling up my sleeves to show my tattoo of the Tattooed Chef, their logo. That's how much I like this company. That of course is a joke. Emily, it's interesting. I think this company has some potential and we recommended it in a service that I work on, although it's not my recommendation. This is a company that specializes in frozen foods, but they are plant-based foods and meat alternatives they use, for example, cauliflower in a lot of their formulations. Very interesting types of presentation of plant-based foods. Growing at a great clip. In this last quarter, revenue is up 59% year-over-year to $53 million. They lost about eight million dollars versus a loss of six million dollars in the prior-year quarter.
Let me talk about a few more of the big picture things going on with the Tattooed Chef and then I'd love to hear your opinion. I would like to say I don't have a chef in this spite because I still haven't really formed the strongest of opinions on it. So I'm very curious to hear your thoughts. What stood out to me in this quarter was the fact that their own brand, the brand that is the Tattooed Chef, is really expanding quite quickly. If you look at that first revenue, first quarter revenue, increases. Branded sales, so these are product sales that have that Tattooed Chef marker on them, they increased to 69% of total revenues. They're growing at a faster clip. The actual rate of growth was 105% year-over-year. That's well in excess of that total company revenue growth of 59% that I was talking about. During the quarter, they also announced the acquisition of a manufacturer of Mexican foods called Foods of New Mexico. They are going to expand those product lines, particularly tortilla product lines and this does two things for them. It helps them get into the $18 billion Mexican food market, and it also helps them be a first mover in something that's almost non-existent in Mexican foods, that there are not a lot of plant-based foods right now on the shelf when you look across the spectrum of Mexican prepared foods.
These two things are pretty interesting. The company, which is going to land with revenues between $200 million and $300 million this year, expects that revenues from this acquisition alone in a few years will equal about $200 million. I think the big story here is just the brand growth of the Tattooed Chef and also this investment in expanding beyond frozen foods into a brand new market. If you like, the Tattooed Chef and its potential, these are probably the places to focus going forward, but it does have some risks too in that the alternative meat category is one that has a lot of competition. So many of the big food producers, big Ag, if you will, that have a presence in the frozen section of the grocery store are right now developing tons and tons of SKUs to offer consumers, so it is a hard space to compete in. I've said this before about Beyond Meat, which I like but still haven't purchased. It's not just the Impossible Foods is Beyond Meat's competition. It's Impossible Foods plus big Ag. Everyone wants in on this and long-term, you have to be really strong from a brand perspective to last. That may be a vulnerability here. Although the Tattooed Chef has a pretty strong and growing brand recognition so far. Emily, what's your big picture thought on this company?
Flippen: Well, I think the difference for me between the Tattooed Chef and Beyond Meat or Impossible Foods is that I can understand who the target demographic is for somebody who is walking into a grocery store, going into the meat aisle and still picking out meat alternative products to cook at home. There are a lot of people who did exactly that during the pandemic. Now, there are a lot of people who also went to the frozen food section of their grocery store and instead of picking out stuff that they were going to cook themselves, they picked out ready made meals, which is exactly where Tattooed Chef comes into play. I think this is where I find myself scratching my head because I don't understand the type of person who is a very health conscious person who wants to make the choices not only for their body but also for the world. So they are reducing their meat consumption, but they're also not going out to eat.
They are choosing to shop at the grocery store and instead of cooking these healthy things themselves, these meat alternative products themselves, they're going and picking up a microwavable meal or put it in your convection oven whatever it is, they're picking up the Tattooed Chef and eating that and feeling some brand loyalty to that. I don't understand. There are people who as proven in this most recent quarter who clearly do that. I do not think it's going to have as much brand staying power as something like Impossible Foods or Beyond Meat and so for that reason, I'm not super excited about the prospects of Tattooed Chef. I actually think it's probably one of the companies that's going to have a harder time retaining customers as people go back to working or going back to eating in restaurants, whatever it may be. I'm just not sure about this frozen meal company and I apologize to call it that so casually, but that's really what it is in my head, I just don't understand how this is a publicly traded company. For that reason, I'm not super enthralled just with the idea of the Tattooed Chef, regardless of how great their most recent quarter was.
Sharma: Yeah, I'll agree with you on a global level. Last year, and take this for what it's worth, most of our family converted from being, I think, all round carnivores to being vegetarians. We eat fish too, we're pescatarians actually. Two of our kids, they still eat everything. But we've not really been compelled to seek out a lot of frozen food. We do look for some frozen vegetarian base snacks that someone can pull out when they need to for snack. But we've really been pushed more to just be creative in our cooking and explore new things. You might have your finger on something, Emily, which is, it sounds trivial in one way, but it could really bother the company's ability to grow. The reason I say this is reading through that conference call transcript one thing stuck out at me. I was a little bit surprised that maybe now I understand it a bit better. Management was very excited about this opportunity to sell tortillas because it's not frozen food. This can be our entry into non-frozen foods. But hey, it's not really plant-based either, tortillas are flour-based. No. 2, it's a low margin. That is a low-margin business. So maybe management also sees a little bit of the writing on the wall. That is something that is just a weird detail for management to point out. I do get the whole expansion into the Mexican foods category. I think that's awesome and plant-based alternatives in Mexican food to introduce that concept sounds great as well, but that tortilla bit, maybe they see what you're seeing, Emily.
Flippen: Maybe or, again, maybe I'm completely wrong. Not just with businesses like the Tattooed Chef, but with even Dick's. We'll find out tomorrow how wrong I am. But it is fun to noodle, I guess, on these businesses and think about what the 2020s could look like. We covered lots of different businesses, lots of different industries. I feel bad leaving that on such a negative note. There are genuinely so many great businesses that are executing at levels that we just haven't seen in the retail space in so long. So much innovation happening at the omni-channel level. Target is perhaps the best example of how executing at a high level in this space can be so impressive when you come out with your quarters over quarter-over-quarter of earnings reports. So a happy note maybe to leave this on.
Sharma: Yeah. I think we did enough justice to the happy notes. We can leave on this one. [laughs]
Flippen: Awesome. Well, Asit, as always, thank you so much for joining me.
Sharma: Thank you so much.
Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions, feel free to shoot us an email at firstname.lastname@example.org. As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for his work behind the screen today. For Asit Sharma, I'm Emily Flippen, thanks for listening and Fool on!